Private sector says economy in downslide- calls for swift government action
by Gitanjali Singh
Guyana's economy is facing a recession or at least a sharp decline in its growth rate and decisive action is required from the government to halt the slide and restore investor confidence, says the umbrella private sector body. The Private Sector Commission (PSC) is blaming the slump in the economy on the effects of the El Nino weather phenomenon, a "drop-off" in investment and consumer spending as a result of the disturbances following the December 15 elections, reduced earnings and falling export prices. "The prospects for the economy in the short term are not good. Inflation and unemployment are likely to rise and real incomes are likely to fall further," the PSC said in its first quarter review of the economy. The umbrella body sees economic growth being zero or even negative for the first six months of this year, down from the 4.6% predicted by the Inter-American Development Bank (IDB). This review was expected to have been the subject of discussion when the PSC met President Janet Jagan and Finance Minister, Bharrat Jagdeo, last Monday. Jagdeo told this newspaper after that meeting that he had briefed the PSC on the economy and that the meeting went very well. He is scheduled to present the national budget on Monday. "It is important that the government takes firm and swift action to restore investor confidence and to ameliorate the recessionary pressures with appropriate macro-economic policy instruments," the PSC review said. The body said it had noticed little interest from foreign investors for this year, while the local private sector was taking a more cautious stance on the future. The report - seen by Stabroek News - said additional investment incentives were needed to counter the current "perceived disincentives" to investment. These, it said, should be focused at the local private sector and not simply at foreign investors. It suggested that a fiscal incentive regime be considered such as the Trinidad model. It also wants the government to clarify its policy on foreign exchange, noting that the US dollar was now being sold at $152.5 up from $143. It sees this decline in the value of the Guyana dollar continuing. "If a devaluation is necessary to solve the current situation then it should be quick and controlled," the report said. The PSC said the Bank of Guyana had healthy foreign exchange reserves but its intervention in the currency market needed to be clarified. It said the current strategy by the bank neither created exchange stability nor guaranteed sufficient supply of foreign exchange to satisfy market demand. It said that if the Guyana dollar continued its downward trend, inflation will rise and exceed the IDB projection of five per cent this year. And any move to increase taxes will add to inflationary pressures. The prospects for employment this year, the PSC said, remain weak, Examining the agriculture sector, the PSC said that the liquidity crisis continued to affect the rice industry and it had serious negative implications for the national economy including falling consumer spending. The banking sector, it said, has also been affected as many millers and farmers have defaulted on their loans, which will trigger greater loss provisions by the banks in keeping with the Financial Institutions Act. "Some millers have not been repatriating all the foreign exchange resulting in increased pressure on the cambio market," said the PSC. It also pointed to the effects of El Nino on the rice sector with an anticipated 50% reduction in paddy production for the first crop. This, the PSC said, will result in higher prices for rice on the local market. The body said the current drought conditions have not had a significant impact on the sugar industry, but have impacted on non-traditional exports. The forestry sector, it noted, has been hit by a slump in production. Barama Company Ltd, for the first two and a half months of this year, produced 22,251 cubic metres of plywood as against 45,934 for the same period last year. The forestry sector's output for the first quarter of 1997 was 115,253 cubic metres as against 39,323 cubic metres for this year's first quarter. Forestry exports are also falling because of cheaper species being supplied by Asian countries on the US and UK markets. The PSC said the manufacturing sector was the hardest hit, especially companies depending on the local market. Companies, it said, have to restructure to survive as demand for local products have fallen. "This situation has resulted in some manufacturers experiencing severe difficulties meeting payroll commitments, daily operating expenses and servicing loan repayments," the PSC said. It argued that the shortage of foreign currency was hampering the negotiating position of companies which had to import raw materials for value added purposes. The tourism industry, which the PSC dubbed a significant contributor to foreign exchange earnings, is on a rapid decline, the review asserted. Occupancy levels were more than 50% down from 1997 levels, according to one top hotelier. Shipping has also seen a 25% decline in business (containerised cargo) and commerce has seen a 30-40% decline. 
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