US cable in ’74 saw depleted foreign reserves, looming import restrictions

A January 1974 US diplomatic cable highlighted the dire economic circumstances facing the country and stated that it was soon expected to run out of foreign reserves and that stringent import restrictions were likely.

The January 24, 1974 cable from the US Embassy here to the State Department, which was released on the WikiLeaks website said that growing fears of financial chaos had caused Prime Minister Forbes Burnham to convene several meetings with business and professional groups.

“Undoubtedly Burnham is setting stage for (major) address to nation on new measures to reduce imports and foreign exchange outflow,” the cable stated. The year 1974 saw global economic shocks from the 1973 Arab oil embargo. The price of oil rose exponentially and affected many small economies.

The cable said that even severe curtailing of the imports of so-called non-essentials and foreign travel restrictions were unlikely to “prove sufficient to ward off reserves drawdown to a point where Bank of Guyana will be unable to cash checks externally, nor will Guyanese be able to purchase overseas airline tickets with other than hard currency. Other embarrassing as well as burdensome effects are in store, such as higher prices for essential imports partially brought about by necessarily softer credit terms.”

Restrictions on imports of certain foods and other items were implemented in the 1970s as part of foreign currency controls which included a minuscule sum for persons leaving the country. There were also restrictions on the taking of jewellery out of the country.

The trade picture was also gloomy, the cable said. To the normal domestic demand for imports of $155 million had to be added $28 million for increased fuel costs and a further $5 million in additional wheat costs along with price inflation for other imports of around $6 million. The cable said that even the most optimistic outlook for 1974 exports would still leave a merchandise trade deficit of $21 million.

While import bans on a number of items could bring the deficit down, the cable gave the following prognosis based on prevailing commodity prices.

“More likely outcome, which though also optimistic is not unrealistic, envisions 10 per cent increase in bauxite earnings over 1972 due mainly to stronger markets for calcined bauxite bringing in total of $66 million: and sales of 320,000 LT (Long Tons) sugar with 189,000 LT going to UK at $135/ LT and remaining 131,000 LT to US at $242/LT giving total of $57 million. Both cases assume growth of other exports to total $30 million. This still leaves trade deficit of $33 million even after allowance for reduced imports…Overall assumption is that GOG will be able to finance deficit through capital account inflow,” the cable said.