What's right about the economy? By Prem Misir
Guyana Chronicle
December 4, 2001

MOST parts of the world are experiencing an economic slowdown.

In fact, the recession in the U.S. started not on September 11, but since March of this year. We should note, too, the economic stranglehold that the World Trade Organization has on poor developing countries.

And of course, the senseless post-elections violence that emerges at each election in Guyana, only to subsequently retreat into protracted hibernation. All these factors impacted the Guyana economy as well as other economies of the developing world. This economy does not operate in isolation from the international monetary and economic developments.

A lot has been made of the closure of businesses. But very little attention is given to the number of new businesses operating and the number of existing businesses expanding.

The new businesses and expansions mean that people still perceive the economy to have a favourable business climate. The prophets of doom need to address the mismanagement that occurred in some failed businesses.

The economy has shown some positive signs which generally get lost in the scramble to demonstrate negatives. Some of these are:

* Inflation rate: 14.2% (1991); -0.4% (2001)

* Per Capita income: US$231 (1991); US$833 (1999)

* Minimum Wage/Salary: total increase is 615% from 1992 through 2001; $2,801 (1992) and $20,045 (2001); these figures show high wages/salaries and increase in real wages/salaries.

* 350% increase in tax-free allowance from $48,000 in 1992 to $216,000 in 2000.

* Government spending in public sector employment: from $3.2B in 1992 to $11.8B in 2000.

The PPP/C Government's economic policy directions are incorporated in the National Development Strategy (NDS) and the Poverty Reduction Strategy Paper (PRSP).

The details of its macroeconomic strategies, therefore, are included in these two documents.

The PPP/C Administration believes that the key to enhancing the future development of Guyana must include creating a stable macroeconomic environment. In this regard, it intends to eliminate the fiscal deficit, reduce interest rates, sustain the stability of the Guyana dollar, achieve a sustainable balance of payment status, and sustain high growth rates of output and employment.

In 2000, the Guyana dollar depreciated by only 2%, and the economy experienced more foreign currency transactions than in 1999.

In the first half of 2001, the Guyana dollar depreciated only by 1.1%. The Central Government's total deficit decreased in 2001, largely induced by reduced interest payments and increased capital receipts.

In the first half of 2001, commercial banks showed a high level of investment in loans to the private sector, treasury bills, debentures and shares in companies.

With regard to the interest rate, the 91-day Treasury Bill, the standard for other interest rates, fell by seven basis points to 8.45% at the end of the first half of 2001.

Promoting a stable price and exchange rate to manage excess liquidity is one of the foundations of the Government's monetary policy.

In the first half of 2001, open market operations checked any significant increase in the excess liquidity created by higher domestic savings and some private sector credit expansion.

The real Gross Domestic Product (GDP) increased by 1.3% at the end of 2001, a small percentage, but a positive one, amid the international economic slowdown.

Due to the links with the NDS and the PRSP, the PPP/C Administration is clear on its monetary and fiscal policies. The details can be dragged out of the NDS.

On the monetary side, the PPP/C will reduce the quantity of bond issues, and will enable debt instruments to be issued over a longer period.

In these ways, interest rate can be contained. Its containment will contribute to fiscal deficit reduction, which, in turn, will connect to sustained and enhanced economic growth.

On the fiscal side, the applicability of VAT is being carefully considered; non-standardised import tariff schedule will become less non-uniform for about four categories of goods; the possibility of reducing corporate taxes for both commercial and non-commercial companies may be an attractive option; how tax holidays are to be addressed, the availability of micro-credit facilities, privatisation, and export promotion, are other macroeconomic issues being aggressively pursued.

The tax base will be widened, and the tax system changed to produce a reduction in taxes and providing incentives for the private sector. Chances are that VAT may replace the consumption tax.

A policy of debt reduction will persist.

By the end of 2001, the debt is expected to reach US$800M due to the Enhanced HIPC. Keep in mind that this debt was US$2.1B in 1992.

In this presentation, we have stuck pretty much to the macroeconomic agenda of the PPP/C Administration because without a stable macro economy, there will be no economic programme.

Some economists expect Guyana to have a robust economy with unparalleled growth over the next few years. The impact of globalisation and the recession experienced in some of the G8 countries, on this small economy, looms large.

While some positive economic signs via the opening of new businesses and expansions, are clear for all to see, let's understand the damage inflicted on the economy by the institutionalised post-elections violence.