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Structural adjustment and agriculture in Guyana:
From crisis to recovery

II. Economic Recovery Programme, 1988, and recovery

With increasing severity of the crisis, in 1988 the Government had to adopt an Economic Recovery Programme (ERP) in collaboration with the IMF, the World Bank, the Inter-American Development Bank (IDB), the Caribbean Development Bank, and a support group of bilateral donors. By its collaboration, the support group enabled Guyana to pay off its arrears to the international financial institutions in 1990, thus paving the way not only for further financial assistance, but also for debt rescheduling that would be so crucial to relaxing the import constraint.

The ERP was a standard IMF reform package which became embodied into a series of agreements with the Fund and other donors (what follows is drawn mainly from the IMF, 1996), and was notable only because of the intrusiveness of the conditionality demanded of the Government. On the exchange side, the programme required a gradual shift from a dual rate (first adopted in 1987), through a cambio/official market system in 1990, to a fully integrated unified market system in 1991. On the international trade side, import licensing requirements were relaxed considerably in 1988, and in 1991 the Common External Tariff (CET) of the Caribbean Common Market (CCM) was adopted. Domestically, price controls were removed between 1988 and 1991, the civil service was cut back drastically (by almost one-third between 1987 and 1990) and the tax system was completely overhauled to make both consumption and income taxes, including corporate taxes and licences and fees, more income elastic and more efficient. Interest rates were raised sharply, the bank rate from 14 per cent to 35 per cent in 1989, the liquid assets of the banking system were gradually sterilized, a monetary policy unit was set up in the Bank of Guyana and a market-based monetary policy was introduced.

The ERP contained provision for privatizing many public corporations and the sugar industry was brought under the management of Booker Tate of London. A public sector investment programme was introduced to rehabilitate the economy, to encourage private investment and diversify the economy. Finally, provision was made for ameliorating the worst effects of the adjustment programme through the establishment of the Social Impact Amelioration Programme (SIMAP).

The reform programme was continued beyond 1991 in the form of conditionality under an IMF Enhanced Structural Adjustment Facility covering 1991 to 1993. In October 1992, however, the PNC government was defeated and a new government was formed by the PPP which chose to continue the ERP and the IMF programme. Since that time, the Government has signed three ESAF agreements covering the periods 1992-94, 1994-97 and 1997-99. The emphasis in these programmes continues to be on privatization, renewing infrastructure, reducing the government deficit, improving public sector performance, and strengthening market mechanisms and incentives for private business.

From crisis to recovery, 1988-97

The reform programme was slow to take effect and, combined with bad weather, rising world prices for oil, growing industrial unrest and power shortages, recovery did not commence till after 1990 (table 4). Per capita income fell by 8 per cent between 1988 and 1990 and inflation reached almost 64 per cent. Sharp falls were experienced in recorded output of all major agricultural and non-agricultural products -- sugar cane (23 per cent), rice paddy (28 per cent), bauxite (13 per cent) and manufacturing (20 per cent) -- while the construction and service sectors stagnated. Since investment, much of it funded by foreign loans, almost doubled in real terms from its 1988 record low level, consumption dropped by over 16 per cent.

Table 4. Economic recovery: Output and trade, 1988-97, selected years

		1988	1990	1992	1997
Real GDP (1976 = 100)		77	71	81	114
Real GDP per capita (1976 = 100)		75	70	78	108
Sectoral growth of GDP (1976 = 100) Agriculture Mining and quarrying Manufacturing Construction Services		91 43 59 69 80	70 38 47 69 80	106 40 63 72 81	153 75 81 126 104
Exports (US$m)		215	204	363	593
Imports (US$m) Capital goods Intermediate Consumption		216 43 149 22	311 140 130 37	443 180 156 85	628 181 270 177
Real imports (1990 = 100)		103	100	137	173
Terms of trade (1990 = 100)		109	100	90	80
Exchange rate (G$ to US$)		10.0	39.5	125	143.7
Parallel rate		35.8	85.2
Real effective ER (1990 = 100)		176	100	94	115
Sources: IMF: International Financial Statistics, Public Sector Investment Program, 1991; IMF, 1996, 1997b; Bank of Guyana, 1997a and 1997b.

On the external side, imports rose by 16 per cent as exports fell, the balance being made up by a sharp increase in foreign borrowing and debt rescheduling. External debt rose from US$1.8 billion to US$2 billion -- or from 6.8 to 7.6 times the value of annual exports and from 4 to 5 times the annual GDP. Actual debt servicing rose from 8.6 per cent of exports to 22 per cent and would have been much higher had it not been for debt rescheduling which totalled almost US$700 million in 1989-90 (IMF, 1992, p. 23). In many ways, therefore, 1990 represented the nadir of Guyana's economic crisis in spite of the Government's reform efforts.

Macro recovery, 1990-97

From that time on, however, the reforms took root and the economy began to improve substantially. By 1992, when the PNC Government fell, real GDP per capita was 11 per cent higher than in 1990 and higher than it had been since the early 1980s. Under the PPP Government, recovery has continued unabated, and by 1997, real GDP per capita stood at more than 50 per cent higher than its 1990 level, and 40 per cent higher than it was in 1985. All sectors except government services have recorded strong growth since 1990; output in agriculture and mining doubled, manufacturing rose by 70 per cent, construction by over 80 per cent and private services by almost one-half. While some of this growth represents a shift of activities from the unofficial to the official market, it far exceeds any estimates of the size of the unofficial market at the beginning of the decade (reported by Thomas, 1993 (p. 144), to be 19 per cent of the official economy).

Exports have risen by 190 per cent over this period to record levels, in spite of a 20 per cent decline in the terms of trade. Imports have doubled in dollar terms and increased by over 70 per cent in volume terms (see table 4). The bulk of the increase has been in consumer goods and intermediate goods imports, by G$140 million in both cases, representing increases of 378 per cent and 108 per cent respectively, though capital goods increased by 29 per cent too, reflecting an all-round relaxation of import strangulation which had characterized the crisis years.

The balance-of-payments deficit fell from US$158 million in 1992 to US$97 million in 1997, or from 43.2 per cent of GDP to 12.2 per cent (table 5). At the same time, external public debt outstanding fell from US$2 billion in 1990 to US$1.46 billion in 1997 or from five times GDP to 1.85 times. The main reason for this was the write-off in May 1996 of 67 per cent of bilateral debt under the Naples terms (mainly owed to Trinidad and Tobago) and the cancellation of most debt outstanding to the United States Government, made possible both by Guyana's adherence to the reform programme as well as by its commitment to service external debt that has seen payments of US$650 million since 1990. Annual debt servicing stood at an estimated US$137 million in 1997, equivalent to 18 per cent of exports. In spite of the 1996 debt write-off and the consequent improvement in the debt-to-GDP and debt servicing-to-exports ratios, the fiscal burden of debt remains high. The net present value (NPV) of debt-to-government revenue stood at 469 per cent in 1997 and debt servicing still absorbed about one-third of total government revenue and was expected to do so until at least 2003. While this annual fiscal burden relative to revenue is a big improvement over the 1992 level of 43 per cent, even the IMF considers it excessive and unsustainable. For that reason, Guyana is in the process of negotiating a Heavily Indebted Poor Country (HIPC) Initiative which will reduce the NPV of debt to 280 per cent and the annual servicing to fiscal revenue ratio to around 25 per cent (IMF, 1997b, p. 21).

Table 5. Economic recovery: Finance, debt and inflation, 1988-97, selected years

		1988	1990	1992	1997
Balance of payments (US$m) Current account deficit Public capital (net) Rescheduling/restructuring Debt forgiveness Balance of payments support Other Change in arrears Change in reserves		-100 -101 73 22 4 102	-163 104 419 160 129 -366 -283	-158 -17 51 104 22 100 -102 -37	-97 13 61 135 50 80 -210 -32
Current account as % GDP		22	41	43	12
External debt (US$m) As % GDP As % exports (G$)		1 778 399 675	2 010 507 761	1 997 546 516	1 463 185 247
Debt service % exports Scheduled Actual		87 9	110 22	33 22	17 18
Fiscal situation Current deficit % GDP Overall deficit % GDP Current revenue % GDP Current spending % GDP Capital spending % GDP		29.9 51.3 40.9 70.8 23	26 34.5 30.5 56.5 13.9	+3.4a 10.5 37.8 34.4 13.8	+7.2a 8.3 33.2 26.2 15.5
Government bank borrowing % GDP		30.5	1.1	-3.2	-7.1
Rate of growth of money (M2)		36.6	52.6	62.3	6.2
Rate of inflation (CPI)		39.8	63.6	28.2	5.5
a Signifies a surplus. Sources: IMF: International Financial Statistics, Public Sector Investment Program, 1991; IMF, 1996, 1997b; Bank of Guyana, 1997a and 1997b.

The fiscal situation of the Government improved markedly after 1990. In that year, revenues were 30.5 per cent of GDP while current expenditure reached 56.5 per cent, leaving a deficit of 34.5 per cent of GDP once capital spending was taken into account. By 1997, current expenditure had fallen to 26 per cent. With capital expenditure at 16 per cent of GDP, the overall deficit had fallen to just 8 per cent. Since 1993 there has been a surplus on the current account of the central Government, reaching 7 per cent of GDP in 1997.

Between 1989 and 1993, two loss-making public enterprises were closed down, 13 corporations were sold and one declared bankrupt (IMF, 1996, p. 14). Since the PPP assumed office, it has divested, in whole or in part, the shares of some 15 public enterprises and leased out the assets of another (ibid. and IMF, 1997a, pp. 5-6). While public enterprises ran an overall deficit equal to 10.5 per cent of GDP in 1990, this had been converted into an overall surplus equal to 3.9 per cent of GDP by 1997.

The improved fiscal and public sector balances have led to reduced public sector borrowing from the banking system enabling growth of broad money supply to be reduced from a peak of 73 per cent per annum in 1991 to around 6 per cent in 1997. Together with the strong growth in output and the stabilization of the nominal exchange rate since 1994, these factors help explain the drop in the inflation rate from over 100 per cent in 1991 to around 5.5 per cent in 1997.

Between 1990 and 1996 public sector employment fell by almost one-third, from 65,167 to 42,122 (see table 15 later). Central government employment fell from almost 19,280 to under 12,400, while the rest of the public sector reduced employment from about 45,887 to 29,729, some of which reflects divestitures. From the meagre data on wages it appears that the government minimum wage, for those fortunate enough to keep their jobs, rose perceptibly between 1992 and 1997, but even then, real daily wage in 1997 remained below its 1980 level (see table 16 later).

At the macro level, therefore, the reform programme in Guyana has been highly successful in restoring growth and internal and external balances after many years of acute crisis. Output growth has been restored to quite high levels, inflation has been drastically reduced and the external and fiscal imbalances have been corrected. What has all this meant for the agricultural sector, in terms of output, incomes and employment, and can the stabilization successes be expected to lead to long-term, sustainable, structural transformation of that sector of the economy?

Agricultural recovery

The agriculture sector has spearheaded the recovery of the Guyana economy, more than doubling between 1990 and 1997, compared to an overall growth of 60 per cent. The share of agriculture in GDP rose, therefore, from 24 per cent to 29 per cent. Processing of sugar and rice contributed to 57 per cent of the growth in manufacturing GDP over the period, and of the US$390 million increase in exports since 1990, 45 per cent or US$174 million was accounted for by sugar (US$61 million), rice (US$71 million) and timber (US$42 million). The bulk of the rest, or US$127 million, came from gold (table 6).

Beset by serious problems of management, foreign exchange shortages, lack of investment capital and severe labour strife, sugar output plummeted in the early years of reform, reaching 132,000 tons in 1990. With the appointment of Booker Tate as managing agents in that year, the continued strengthening of export-friendly policies and the election of a government more politically in tune with the sugar workers, the industry has since experienced a dramatic turnaround. Between 1990 and 1997, sugar output doubled to 276,000 tons, so that exports rose from US$75 million to US$133 million in spite of a 16 per cent fall in world sugar prices. The sucrose content of cane increased by 50 per cent, unit costs of production fell, from US$568 in 1990 to US$426 in 1995, and yields reached levels comparable to those elsewhere in the Caribbean. As shown in table 6 unit production costs have been well below unit export values since the early 1990s, so that GUYSUCO is once more making profits, in 1995 (the latest year available) 2 per cent of GDP (IMF, 1996, p. 34).

Table 6. Recovery in agriculture, 1988-97, selected years

		1988	1990	1992	1997
Sectoral growth of GDP (1976 = 100) Agriculture Sugar cane Rice paddy Fishing Forestry Other crops Livestock Manufacturing Sugar Rice		91 63 90 150 58 135 52 57 260	76 49 65 125 50 141 35 43 200	106 92 116 134 62 140 29 80 353	153 103 234 179 186 184 59 90 694
Exports (US$m) Sugar Rice Timber Shrimp Above as % of exports Bauxite Gold		215 75 15 3 4 45 82 18	204 75 14 3 5 48 80 13	363 135 35 4 13 52 97 25	593 133 85 45 20 48 89 140
Sugar industry Acres cultivated ('000 ha) Sugar production ('000 LT) Yield per acre Unit value exports (US$) Unit production costs (US$) Days lost due to strikes, etc. ('000)		106 170 1.60 511 231	96 130 1.35 636 593 229	102 243 2.38 576 395 198	114 276 2.43 518 425 n.a.
Rice industry Acres harvested ('000 ha) Rice production ('000 LT) Yield per acre Unit value exports (US$) Real G$ value of unit exports, 1976 prices Real price to grower (1985 = 100)		183 133 0.73 249 330 93	127 93 0.73 255 331 128	191 171 0.90 304 523 182	353 341 0.97 296 377 157	a
a 1996. Sources: IMF: International Financial Statistics, Public Sector Investment Program, 1991; IMF, 1996; Bank of Guyana, 1997a and 1997b; World Bank, 1992; FAO: Statistical data base, 1998.

The management agreement with GUYSUCO gave the industry access to skills, which, in the main, had been lost after nationalization, and to finance, from IDB and elsewhere, for infrastructure, field and factory rehabilitation. The sugar levy was restructured and reduced from the equivalent of 42 per cent of sugar export earnings in 1990 to 16 per cent in 1995 (calculated from the IMF, September 1996, p. 35). The Government improved the availability of foreign exchange, initially by reducing the surrender rate of export earnings and eventually by abolishing it altogether, allowing 100 per cent retention. This allowed the industry to purchase the necessary capital and operating inputs. A 285 per cent increase in nominal wages in 1990-92 raised real wages by as much as 50 per cent. Between 1992 and 1997, GUYSUCO's daily minimum wage rose by about 39 per cent in real terms (source: GUYSUCO and authors' calculations). These very steady increases in real wages were instrumental in attracting experienced workers back to the industry, and, together with the 1992 change of government, in reducing days lost to strikes from 250,000 in 1990 to only one-tenth as much in 1995 (the latest figures available: IMF, 1996, p. 35).

The reform programme has, therefore, been instrumental in helping revive the sugar industry. Strenuous efforts by the IMF and the World Bank to privatize GUYSUCO have, however, been rebuffed by the PPP and there appears to be little support in the country for such a move. In this respect, if in no other, the Government of Guyana has put its own stamp on the reform programme.

After a sharp setback in 1990, the recovery of the rice sector has been even more spectacular than that of sugar. Output in 1997 was 3.6 times that of 1990, and, at 341,000 tons, was almost 60 per cent higher than the highest level recorded before the reform programme (in 1977). Output increased every year from 1990 to 1997 as did export volumes and values. Exports rose sevenfold in both volume and value terms between 1989 and 1997, from 40,575 tons to 285,050 tons and from US$12 million to US$85 million (table 6). The share of rice in merchandise exports rose from 6.9 per cent to 14.3 per cent.

The increase in rice output from 1990 was due partly to a near tripling of the acreage harvested over that period (from 127,000 to 353,000) and partly to a 30 per cent increase in yield per acre (from 0.73 tons to 0.97) (table 6). Factors explaining this were similar to those at play in the recovery of the sugar crop. Improved financial incentives to growers certainly played an important role as real paddy prices increased by 64 per cent between 1990 and 1994 (Gafar, 1998, p. 168, and table 6 for other years). Real prices seem to have dropped somewhat since 1994, but still remain well above their 1990 level. The role of the State in this sector has also been significantly reduced, with the removal of price controls, the abolition of the state export monopoly, and the privatization of all but one rice mill. The divestment of the GRMMA's milling facilities reduced the degree of state control of milling capacity from over 50 per cent in 1990 to under 15 per cent by 1992 and in the process increased the access to skilled management and capital. Since 1990 commercial bank credit to the paddy rice sector has increased almost elevenfold in real terms and from 32 per cent of rice paddy's contribution to nominal GDP to 46 per cent. Credit to rice milling increased over threefold in real terms over the same period (calculated by the authors from the Government of Guyana, 1991, Annex IV, p. 131, and Bank of Guyana 1997b, Statistical annex, tables 2-XIII and 10-I).

The rice sector also benefited from increased importation of capital equipment and operating inputs and from capital expenditure on improving drainage and irrigation, though precise details are not available. It is known, however, that the number of trucks imported increased from 688 in the period 1985-90 to 3,550 in 1991-96, while tractor imports increased from 1,020 to 3,718 (Bank of Guyana, 1997b, table 11-III) and it is presumed that the rice sector benefited from this.

The output of other agricultural products has, in the main, increased dramatically since 1990, the largest increases being for corn (160 per cent), pineapples (118 per cent), ground provisions (50 per cent), pulses (525 per cent), eggs (471 per cent from 1991), poultry (600 per cent from 1991), tomatoes (133 per cent) and coconuts (188 per cent), most of which figure prominently in local diets. Other agricultural products, such as shrimp (up 313 per cent) and timber (up 287 per cent) are geared heavily towards the export market. The reform programme has, therefore, seen impressive results in the agriculture sector over a relatively short period of time.

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