Guyana-Normalizing International Financial Relations

Even more pressing than the public sector deficit was Guyana's balance of payments shortfall. The extent of the problem was indicated by the overall balance of payments, which was a record of the flow of goods, services, and capital between Guyana and the rest of the world. The deficit in the current account had increased during the early 1980s, reaching almost 50 percent of GDP in 1986. In effect, this meant that Guyana was receiving more goods and services from the rest of the world than it was providing and was having to pay for the difference. The government paid part of this deficit by using reserves such as stocks of gold. But part of the deficit went unpaid when reserves became depleted. This unpaid portion was critical. Referred to as "external payment arrears," it marked Guyana as a bad credit risk, threatening to completely undermine Guyana's ability to obtain even short-term trade credits from abroad. Accumulated external payment arrears had expanded to almost three times Guyana's official GDP by 1988.

The Hoyte government attempted to decrease the balance of payments deficit by increasing exports and limiting imports; Guyana's trade was close to balanced in 1988, but a sizable trade deficit again appeared in 1990. Low productivity meant that exports did not expand significantly, and the government lacked the resources needed to eliminate the external payments arrears. Therefore, an agreement with the country's foreign creditors was crucial.

The IMF and the World Bank (see Glossary) played a vital role in devising Guyana's economic reform program. The two institutions also helped ensure that the government implemented the planned reforms.

The IMF had curtailed all further lending to Guyana beginning in 1983, because payments on previous loans were overdue. In 1988 the IMF worked with government representatives to draft a reform plan, with the understanding that economic reform within Guyana would lead to renewed international financial support for the country. IMF support was important not only for the resources the institution could provide but also because many other lenders, such as commercial banks and foreign governments, waited for IMF approval before making loans.

In 1989, after Guyana's government had shown a commitment to restructuring the economy, the IMF and the World Bank helped eliminate the external payments arrears. A so-called Donor Support Group led by Canada and the Bank for International Settlements paid US$180 million to enable Guyana to repay arrears. The IMF, the World Bank, and the Caribbean Development Bank then refinanced this amount, essentially replacing Guyana's overdue payments with a new long-term loan. The elimination of the longstanding external payments arrears cleared the way for Guyana to borrow abroad if necessary and allowed it to reschedule other external debts on more favorable terms (see Foreign Debt , this ch.).

Data as of January 1992