Guyana’s debt crisis: A view of the ‘worst of times‘

Guyana and the wider world

In this and the next couple of columns to follow, I shall broadly address Guyana’s public debt situation since the eruption of the Third World Debt Crisis (TWDC) in 1982, the year in which Guyana also announced its first default on its public debt obligations. For reasons that I shall make clear later, my treatment of this subject will be considered over two separate time periods, namely, up to 2005, and from 2006 to the present.

Although the record shows that Guyana first defaulted on its debt obligations in 1982, its public debt problems originated as far back as the mid-1970s. The eventual default in 1982 was mainly because the country’s external debt obligations had become effectively unmanageable. Those external debt obligations were both multilateral and bilateral. Its domestic debt problems however were not nearly as severe.

20130127cliveIn the years between 1980 and 2005 Guyana’s public debt-to-GDP ratio rose from well above 200 per cent in 1980 to a peak of over 600 per cent in the early 1990s. Thereafter it fell back to about 200 per cent by 2005. Indeed, in 1982 when Guyana first defaulted, its public debt-to-GDP ratio stood at 330 per cent.

The overwhelming bulk of these wild swings in the debt burden ratio, evident in this description, were attributed to changes in the external debt, and Guyana’s successes or otherwise in securing external debt relief.

As a matter of fact during the long period (1980-2005) Guyana did receive substantial external support directed at reducing both its public debt overhang and returning the country to macroeconomic sustainability.

This support was mainly organized through Paris Club, non-Paris Club commercial creditors, International Financial Institutions (IFIs), HIPC I & II programmes, as well as the Multilateral Debt Relief Initiative (MDRI). During this period there were six public debt treatments for Guyana under the Paris Club framework.

And, pointedly, at the time of the very first Paris Club settlement in 1989, Guyana’s public debt-to-GDP ratio was in excess of 500 per cent! The MDRI programme kicked-in in 2005.

Paris Club treatment

At this point readers should note that the Paris Club framework for public debt relief had started as far back as 1956. Over the years this has been undertaken by an informal group of official creditors who coordinated sustainable solutions for governmental debt problems. The focus of the group has always been on stabilizing a country’s macroeconomic and financial situation through a mixture of debt rescheduling, debt relief by postponement, and consensual reductions of due debt service for defined periods, or as of set dates.

As an example of results achieved, net resource transfers to Guyana under these programmes for the period 2002-2008 averaged about 16 per cent of its GDP. The table below provides a record of the public debt treatments (and their current status) which Guyana has received under the Paris Club framework as at the end of 2012.

Guyana: Debt Treatments in the Paris Club Framework

    Date of Debt Treatments                                  Type of Treatment          Status  

May 24, 1989                                                                  Classic                                        Active

September 12, 1990                                                     Toronto                                     Active

May 6, 1993                                                                         London                                      Fully repaid

May 23, 1996                                                                      Naples                                        Fully repaid

June 25, 1999                                                                     Lyon                                           Fully repaid

January 14, 2004                                                            HIPC Initiative                       Fully repaid

Source: IMF (2012)

The main driving force behind Guyana’s active pursuit of debt relief was the dramatic deterioration of its macroeconomic fundamentals. At the time inflation rates, interest rates, exchange rate depreciation had all reached extraordinarily high levels. Fiscal deficits (which served to fuel increases in public debt) had also reached unprecedented levels. Real sector activity, particularly GDP growth, exports, and the performance of the main producing sectors had effectively collapsed.

Policy shift

At that time also, these events had forced the then PNC government to dramatically turn away from its “state-led development model of Cooperative Socialism.” Indeed in retrospect, it can be said that international support for Guyana’s debt relief was only forthcoming if there was a rapid reversal of the governmental boast that “it owned and /or controlled 80 per cent of national output.” Under the urgings of the IFIs, an Economic Recovery Programme was formulated and introduced in the late 1980s.

As a precursor to these events Canada had led a group of donors (with the cooperation of the Bank for International Settlements) to erase Guyana’s external arrears. Subsequently, the IMF, World Bank, and the Caribbean Development Bank (CDB), facilitated a rescheduling of Guyana’s public debt, prior to its approaching the Paris Club settlement mechanisms indicated above.

I have pointed out before in previous columns that the structural adjustment of that time, as it was termed, sought to bring Guyana rapidly back to public debt sustainability. This was, in my opinion, one of the most (if not the most) brutally harsh and repressive economic and social regimen ever placed on the population of any country, not engaged in ongoing war or severe civil conflict accompanied by considerable violence.

Next week I shall resume by indicating my opinion of the main lesson to be learnt from this painful interlude in Guyana’s history. After that I shall consider, in light of this lesson, the public debt situation in Guyana since 2006.

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