Guyana-Absorbing the Parallel Market

The second major objective of the ERP was to absorb the parallel market into the legal economy. The parallel market was seen as denying tax revenues to the government, adding to inflationary pressures through uncontrolled currency trading, and generally encouraging illegal activity in Guyana. By liberalizing foreign exchange and other regulations, the government began to make inroads into the illegal economy. The 1989 Foreign Currency Act allowed licensed dealers to exchange Guyanese dollars for foreign currency at market-determined rates. By 1990, more than twenty licensed exchange houses operated in Georgetown, taking the place of some illegal currency traders.

A related policy focused on the exchange rates. The government began devaluing the Guyanese dollar so that the official exchange rate would eventually match the market rate. This devaluation process was an essential feature of the recovery program. It not only targeted the parallel economy but also improved the country's export competitiveness. But the devaluations were painful for consumers. In April 1989, the government changed the official exchange rate per United States dollar from G$10 to G$33, instantly tripling the domestic currency price of most imports. The unofficial exchange rate at that time was reportedly G$60 per United States dollar, so the Guyanese dollar was still overvalued at the official rate. As of mid-1990, the disparity between the two rates persisted: the official rate was G$45 but the unofficial rate (at the now legal exchange houses) was G$80 per United States dollar. An important milestone was reached in early 1991 when Guyana adopted a floating exchange, removing the distinction between the official and the market exchange rates. The Guyanese dollar stabilized at US$1=G$125 in June 1991.

Data as of January 1992