GUYANA: STRIVING TO REVIVE THE ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00990R000200050001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 27, 2016
• Document Release Date: December 6, 2012
• Sequence Number: 1
• Publication Date: August 31, 1988
• Content Type: MISC

Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
31 August 1988
Guyana: Striving to Revive the Economy
Summary
President Hugh Desmond Hoyte's three-year effort
to revive Guyana's economy and improve ties to the West
is approaching a crucial juncture. A long-sought IMF
agreement--which would provide the basis for clearing
Guyana's massive foreign arrears, restoring
international trade and investment credits, and
enhancing prospects for economic revival--could be in
place as early as October if bridge financing problems
are resolved. In addition, the request Hoyte made last
December to join the US-sponsored CBI program still is
pending. If he fails to win CBI support by yearend,
Hoyte would suffer a political embarrassment, and
Guyana's chances for attracting foreign investment in
areas other than resource exploitation would be set
back.
Although we believe Hoyte is committed to his
economic reforms and westward shift in foreign policy,
some members of Hoyte's own party are opposed to his
strategy. However, Hoyte's intraparty opposition
This typescript was prepared byl South America-
Caribbean Division, Office of African and Latin American
Analysis, with a contribution from Office of
Leadership Analysis. Comments and queries are welcome and may be
directed to the Chief, South America-Caribbean Division, ALA, on
ALA M 88-2003
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
appears unwilling to challenge his leadership until
Guyana's enormous economic problems. overwhelm him or
their own interests are threatened more directly.
Western assistance would have a significant impact
on Guyana's medium-term future. But, even if Hoyte
wins the aid he seeks, his staying power will be tested
by continuing economic hardship and resistance from
some ruling party members. Without renewed
international financial support, however, Hoyte's
ability to carry out further reforms would be eroded
and his control of the government probably would be
challenged.
Burnham's Legacy
Former President Forbes Burnham's socialist rule of over two
decades left Guyana with a corruption-ridden authoritarian
governmenlt, a Communist-leaning foreign policy, and a ravaged
economy. Burnham used his black-constituent People's National
Congress (PNC), the military, the constitution, and the courts to
dominate the East Indian majority and consolidate his personal
power. By the early 1980s, Burnham had begun to increase ties to
Cuba and the Soviet Union in search of aid and international
standing. Guyana's economy, which had been relatively prosperous
and showing good potential in the early 1970s, was devastated by
the end of Burnham's rule.
By 1985, the combination of a deterioration in Guyana's
terms of trade and Burnham's policy of "co-operative socialism"--
featuring wholesale nationalization of industry and commerce;
broad government controls on prices, foreign exchange and trade;
open hostility toward private business; and repressive tax
system--had led to serious economic problems. These included:
A sharp decline in production and exports from the leading
sectors of the economy--bauxite, rice, and sugar;
Accumulation of massive arrears to foreign creditors and
virtual depletion of foreign exchange reserves, making it
almost impossible to attract even short-term trade credits;
2
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
-- Deterioration of labor relations and large-scale emigration
of skilled workers and managers, especially from the
nationalized industries and East Indian population;
-- Rapid growth of an underground economy, black market
smuggling, and barter to avoid government restrictions and
taxes; and
-- A crumbling economic infrastructure.2
Hoyte's Break with Burnham's Economic Policies
Since assuming the presidency upon Burnham's death in August
1985, Hoyte has moved steadily to adopt more market-oriented
policies. Significant price restructuring--including price
decontrol on 50 consumer and producer goods in 1986 and a major
devaluation of the Guyanese dollar in 1987--already has taken
place, according to the US Embassy in Georgetown. Hoyte also has
taken steps to reduce government expenditures--which fell from
over 100 percent of GDP in 1985 and 1986 to 92 percent last year-
-and to cut the massive budget deficit.
Hoyte also has pushed to reduce government intervention and
attract foreign investment. The closing or reorganizing of
several unprofitable parastatals improved finances by producing a
surplus in the state-owned enterprises' accounts in 1987,
excluding interest payments, compared to deficits in earlier
years. Hoyte is hoping to boost exports and domestic production
by allowing private rice sales abroad, providing tax incentives
to exporters and developers of agricultural land, and lowering
the maximum income tax rate from.75 to 55 percent. A proposed
new investment policy, which still must be approved by Guyana's
National Assembly, will further define the rights of foreign
investors. Although the draft allows reasonable compensated
nationalization of private property, Hoyte has declared in public
speeches since late 1987 that he will not resort to
nationalization.
Hoyte's efforts to improve business incentives have produced
some economic benefits, but the gains appear small in comparison
to Guyana's economic troubles. Overall, the economy has grown at
an average annual rate of less than 1 percent since 1985.
Inflation dropped in 1986, but a steep devaluation pushed prices
up almost 30 percent in 1987; the rate of unemployment has
persisted at about 30 percent. Hoyte's successes include
boosting registered gold production to a 30-year high of 666.2
kilograms in 1987 by increasing prices paid to gold miners and
taxing income from mining at preferential rates. He also`has
2. For a summar of key economic indicators from 1975 to
1988, see Appendix B.
3
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
restored the government-owned sugar and bauxite industries to
profitability and increased total exports by more than 10 percent
in 1987. Nonetheless, imports remain depressed by the shortage
of foreign exchange, and arrears to foreign creditors now total
about $1.2 billion.
Hoyte's efforts to promote foreign business opportunities
in Guyana recently have paid off by attracting investment in
the nascent petroleum industry and in gold mining. Georgetown
has publicized its new openness by sending delegations abroad-
-including several led by Hoyte--and has invited private
industry and governmental groups to visit Guyana. The US
Embassy reports that three separate oil exploration deals have
been closed since 1986, two in recent months. Canadian,
Australian, and US mining companies also have reached
agreements to explore and develop gold mining sites.
Little Progress on Political Reform
Hoyte's emphasis on economic reform and the political
necessity of maintaining PNC dominance have precluded any real
political reform. Hoyte has retained many Burnham-era
measures to keep the ruling PNC firmly in control and himself
as its leader. Guyanese politics continue to be characterized
by a PNC monopoly on power, corrupt practices, and protection
of black interests.
The expectation of significant economic and political
changes, nevertheless, has strained relations between Hoyte
and some top leaders within his party, although no formal
break has occurred. In particular, Hoyte's decision to
appoint and attract a number of East Indians to ministerial
and other government positions has riled PNC members--even
though few competent PNC blacks are available. Prime Minister
Hamilton Green--the only clear rival to Hoyte--has not mounted
a serious challenge to Hoyte'-s economic policies, describing
them as only cosmetic The
ambitious Green apparently is reluctant to move against Hoyte
while a chance remains for foreign financial help. However,
Green may hope to rally PNC support for Hoyte's electoral or
forcible ouster in the event sizable external funding remains
elusive.
The civil rights situation in Guyana generally improved
in 1987, but progress reflects Hoyte's political style rather
than effective legal protection. Although Hoyte's rule can be
characterized as more benevolent than Burnham's, Guyana still
4
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
resorts to repressive measures to some extent; the US Embassy
says police brutality still is common. Guyana's weak
opposition parties have formed a coalition to press for fair
elections--the next general election is due by December 1990--
demanding that ballots be counted at the polling places and
that the elections commissioner not be a presidential
appointee. The group so far, however, has made no headway,
The government recently won a
constitutional ruling designating only one union as the agent
between public sector employees and the government, thereby
undercutting the bargaining power of Guyanese workers
Foreign Relations Tilt Westward
Hoyte's switch from Burnham's-socialist platform to an
economy oriented toward Western capitalism also has altered
Georgetown's international diplomatic stance. Hoyte is
refocusing his foreign policy with all countries, except Cuba,
on the potential for favorable terms of trade
Key Next Steps--An IMF Agreement and CBI Designation
We believe Hoyte's long-term commitment to further economic
liberalization and a westward drift in Guyana's foreign policy
will depend on whether the trend reaps rewards. He desperately
needs Western financial support to improve external finances and,
accelerate economic recovery. Hoyte's efforts in this direction
are at a critical juncture, with decisions on an IMF agreement
that includes broad debt relief and US CBI designation likely by
yearend.
The first step in reaching agreement with the IMF--
negotiating a policy framework--has been completed. It involves
a tough three-year program of reforms designed to spur export-
oriented economic growth, reduce government interference in the
economy, and shrink the public sector's budget deficit. The
program includes:
-- Exchange rate unification through a major devaluation, to be
followed by a flexible exchange rate policy designed' to
maintain export competitiveness;
5
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Liberalization of exchange and trade systems, and an
improved incentive structure for production of key exports;
Price increases for various public sector products and
liberalization of other price controls;
Restructuring the public sector and reducing its size to
achieve a reduction of the budget deficit from 40 percent of
GDP in 1988 to 20 percent in 1991; and
-- Monetary policies consistent with other policy goals and
interest rates in excess of the rate of inflation.
Implementation of these policies is slated to proceed quickly.
Exchange rate unification, for example, would occur at the start
of the program with a likely devaluation of the official exchange
rate by 50 to 70 percent.
The paper also presents a plan for filling a $1.7-billion
external payments financing gap for the October 1988 to September
1991 period. The bulk of financial support would be required in
the first year in the form of a $1.1-billion rescheduling of
arrears and maturing credits, as well as an infusion of $300
million in new foreign aid and credits.
The largest, and perhaps insurmountable, hurdle facing
implementation of the program is the requirement to clear $165
million in arrears to the IMF, World Bank, Caribbean
Development Bank, and OPEC. IMF policy prohibits it from
entering a program with a country not current in its
obligations to the Fund. At the Paris Club, Canadian
representives recently noted that these arrears are so large,
compared to prospective assistance, that repayment of bridge
financing--normally a short-term loan repaid with IMF
disbursements--would be impossible. The United States and the
United Kingdom thus far have been noncommittal in their
willingness to find a solution to the arrears problem.
Officials from the IMF, World Bank, and Guyana currently are
traveling to Western donor countries to seek aid commitments
for the program and will conclude their tour in Washington on
8 September.
Obtaining CBI designation, while not critical to
consolidating economic reform, is symbolically important to
Hoyte because it would indicate that his efforts have been
recognized by Washington and could encourage further foreign
investment. Hoyte made his pitch for CBI designation la ?t
December at the annual Caribbean/Central American Action
Conference in Miami. Guyana already is a member of CARIBCAN,
the Canadian version of CBI, and is a beneficiary of the Lome
Convention.
6
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Outlook
Regardless of whether Hoyte succeeds or fails in securing
increased Western assistance, his leadership is likely to be
tested by entrenched intraparty rivalries and lingering
economic discontent. To the extent that substantial Western
support materializes, the chances are enhanced that Hoyte's
economic reforms and westward shift in foreign policy will
stick and help lift Guyana from its economic morass. Without
such help, Hoyte's ability to press forward with his agenda
and retain power are doubtful.
If Hoyte Obtains New Western Funding
We believe Hoyte, at least initially, could weather any
disgruntlement within the PNC or any domestic unrest stemming
from IMF-mandated economic austerity measures and reforms.
Hoyte's public statements indicate that he is
committed to working wi he IMF. The extent and speed of
improvements in the economy, which partly'wi}l depend on the
size of foreign aid commitments, will influence the ruling
party's and public's patience with the accompanying hardships.
At first, the agreement probably will boost inflation,
constrain wages, and cut employment in the public sector.
While the unions or opposition parties could respond with
violence, the military probably would be able to control any
civil unrest, at least over the short term. The US Embassy
says many Guyanese apparently agree--albeit reluctantly--on
the need for an IMF accord. However,,if Hoyte's austerity
measures called for substantial personnel cuts in the Guyanese
military or police, those affected might protest violently.
Even with an IMF agreement and substantial Western aid,
Guyana's economy is in such shambles that it will take many
years of economic upturn before the country can regain the
level of prosperity of the mid-1970s. Guyana's intractable
problems still will certainly persist at the end of the three-
year horizon contained in the medium-term framework paper;
debt relief will be necessary, and the public sector budget
deficit will be massive by any yardstick. In addition,
considerable investment in the nation's infrastructure and a
reversal of the mass exodus of talented Guyanese is necessary
to revitalize the economy.
Over the longer term, we believe the PNC, perhaps with
military backing, could bring about Hoyte's electoral or.-
forcible ouster if Guyana's opening to the West and reforms
failed to produce tangible gains or threatened significantly
major PNC interests. For example, if Hoyte substantially cuts
7
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T00990R000200050001-4
the bureaucracy or sharply increases his reliance on business-
oriented East Indians in the government, he would likely
overstep the bounds of tolerance in the black-dominated PNC.
The continuation of Guyana's efforts to improve
diplomatic ties with the West also will depend on Guyanese
perceptions of the economic benefits received from dealing
with the IMF and Western investors. Obtaining CBI designation
would undoubtedly provide positive reinforcement. If Hoyte
manages to attract significant foreign investment, similar to
the recent agreements for gold and oil exploration, he most
likely would stand fast on relations with the West. If,
however, economic adjustments ultimately fail to improve the
standard of living and discontent within the PNC leads.to
Hoyte's downfall, Guyana probably would revert to a more left-
leaning foreign policy stance.
If Hoyte Fails to Obtain Western Funding
Over the short term, we believe failure to secure new
Western funds would further weaken Hoyte's control over the
government and party apparatus, possibly causing him to backslide
on at least some economic reforms. Hoyte most likely would not
completely abandon economic liberalization, but he might attempt
to stir up nationalistic support by blaming the United States for
Guyana's failure to acquire increased funding. At least
initially, he probably would be able to ward off any challenges
to his leadership, as his opponents probably would wait for
definitive signs of economic and social upheaval before moving
against him.
Over the long term, prolonged economic stagnation and the
implicit failure of Hoyte's opening to the West increase the
probability that the President--or his successor--would become
more anti-West and possibly more authoritarian. With diminishing
prospects for Hoyte's economic and diplomatic initiatives, his
PNC opponents--possibly under Green's direction--might finally
seek Hoyte's removal. Signs of a turn away from the West
probably would lure Cuba, the Soviet Union, and North Korea to
seek renewed influence in Georgetown. Although we believe
Guyana's economy could continue making slight progress without
IMF support, it would be difficult, if not impossible, for
Georgetown to achieve the normalization of foreign finances
needed to attract foreign investment, reorganize the public
sector, and incorporate the underground economy. With little
hope for any economic improvement, many discontented Guyaiese
8,
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T00990R000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Appendix B
GUYANA: Economic Indicators 1975-1988
REAL GDP
1076 tea0
taoo 7 ----
1400
1200
1000
900
eoo
400
200 -
..............
................~
FISCAL INDICATORS
00 Potoont of GDP
100 :................
a0
1976
1966 teas 1967
LI Revenues
minion Us S
600 T`------
7
4001........_ .................. ..............
Projections for 1988
EXPORTS
Expenditures Balance
FOREIGN RESERVES
minion us
100 ?v----
......................................
......................................
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
Total Bauxite Sugar fJ Rice
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
SUBJECT: Guyana: Striving to Revive the Economy
Distribution:
Original - Mr. Robert S.Pastorino, Special Assistant to the President
and Senior Director for Latin American Affairs,
NSC, Room 391, OEOB
1 - The Honorable Donald P. Gregg, Assistant to the Vice
President for National Security Affairs, Room 298, OEOB
1 - Mr. Stephen I. Danzansky, Special Assistant to the
President for International Economic Affairs,
NSC, Room 365, OEOB
1 - Mr. Peter Brintnall, Latin American Affairs,
NSC, Room 392, OEOB
1 - The Honorable Michael H. Armacost, Under Secretary of State
for Political Affairs, Room 7240, State
1 - The Honorable Elliott Abrams, Assistant Secretary of State
for Inter-American Affairs, Room 6263, State
1 - The Honorable Richard H. Melton, Deputy Assistant Secretary
for the Caribbean, Room 6263, State
1 - Mr. David Zweifel, Director, Office of Caribbean Affairs
(ARA/CAR), Room 3248, State
1 - Mr. Luigi Einaudi, Director, Office of Policy Planning and
Coordination, Room 6913A, State
1 - Mr. David Smith, Chief, Middle-America-Caribbean Division,
Office of Analysis for Inter-American Republics,
Intelligence and Research, Room 7637, State
1 - The Honorable Morton I. Abramowitz, Assistant Secretary,
Intelligence and Research Bureau, Room 6531, State
1 - Mr. William Milam, Deputy Assistant Secretary,
International Finance and Development (EB/IFD), Room
4828, State
1 - Mr. Arnold Isaacs, Director, Office of Analysis for Inter-
American Republics/INR, Room 7358, State
1 - Mr. Richard H. Solomon, Director, Policy Planning Staff,
Room 7311, State
1 - Mr. Peter Whitney, Director, Office of Economic Policy
(ARA/ECP), Room 3234, State
1 - Ms. Melinda Kimble, Acting Director, Office of Monetary
Affairs, International Finance and Development
(EB/IFD/OMA), Room 4830, State
1 - Ms. Ann Hughes, Deputy Assistant Secretary for Western
Hemisphere, Room 3826, Commerce
1 - Col. James Coniglio, DIO/DIA, Room 2A520, Pentagon
_]:
1 - [:: DIA/DE3, DIAL, Bolling Air Force Base
1 - SINIO, NSA, Room 3A146, Fort Meade, MD
1 - Mr. Randall M. Fort, Special Assistant to the Secretary,
National Security, Room 4324, Treasury
1 - The Honorable David Mulford, Assistant Secretary of
Treasury for International Affairs, Room 2049,
Treasury
17 Mr. James Fall, Director, Developing Nations Finance, Room
2049, Treasury
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
1 - Mr. James Ammerman, Director, Inernational Banking, Room
2049, Treasury
1 - Mr. Charles Siegman, Senior Associate Director, Federal
Reserve Board, Room B1228
1 - Mr. Jon Rosenbaum, Assistant US Trade Representative for
Latin America, Room 307, Office of the US Trade
Representative
1 - Ms. Melissa Coyle, Director, Caribbean Basin and
North/South Affairs, Room 307, Office of the US Trade
Representative
1 - Ms. Marylin Zak, Caribbean Affairs Office, Agency for
International Development, Room 3242 NS
SSCI Room 7B02, HQ
HPSCI Room 7B02, HQ
D/DCI/DDCI Executive Staff
DD I
O/DDI,
NIO/Economics
NIO/LA - 7E62
NIO/Warning - 7E47
C/PES/DI - 7F24
NIC/AG - 7E47
D/CPAS - 7F13
PDB Staff - 7F30
C/PES - 2G25
,CPAS/ILS/DI -
SCIO/CPAS/DI - 7F27
CPAS/IMC/CB - 7G07
CPAS/ISS/DI - 7G50
CPAS/CDP/CC/DI - GH25
C/AL/LDA/DI - 1H39
C/PPD/LDA/DI - 5G03
D/OGI - 3G00
C/OGI/ECD/IF - 3G46
C/OGI/FSIC/PI/DI - 2G09
C/OGI/GID/TW/DI - 2G00
C/EURA/WE/UK/DI - 6G28
C/LA/DO - 3C2016
C/LA/DO 3C3203
C/LA - 3D54
D/ALA - 3F45
DD/ALA -,3F45
ALA/PS (1 clean copy and 1 sourced copy) - 4F21
ALA Research Director - 3F44
C/ALA/MCD - 4F29
C/ALA/SCD/DI - 3F23
DC/ALA/SCD/DI - 3F23
C/ALA/SCD/E - 3F23
C/ALA/SCD/N - 3F24
C/ALA/SCD/W - 3F23
C/ALA/SCD/CAR - 4F21
ALA/SCD Files
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4
1 - ALA/SCD/CAR Files
DDI/ALA/SCD/CAR
September 1988)
Declassified in Part - Sanitized Copy Approved for Release 2012/12/06: CIA-RDP04T0099OR000200050001-4