Guyana devalues $
Greenidge Presents A Ten-To-One Is Murder Budget
FINANCE Minister Mr. Carl Greenidge labelled his 1987 $3.4b Budget as a “down to earth approach” and a “bold and purposeful prescription for economic adjustment” but the linchpin, ten-to-one devaluation of the Guyana dollar against the US dollar he announced, drew the public tag of ‘Ten to One is Murder.’
The sweeping devaluation of the Guyana dollar, which analysts said is the highest in the history of the Caribbean, was the most dramatic aspect of Greenidge’s presentation and it immediately sent up the cost of airline tickets. The move would also impact adversely on the prices of imported commodities including food items and on the general cost of living. Business and trade union sources said the devaluation would skyrocket the cost of building materials, almost all of which are imported.
The full extent of the devaluation ‘blues’ was still to be determined as ‘Stabroek News’ went to press this week, but property values are also certain to rise. As the public tried to assess the impact of the measure, Sparrow’s old calypso ‘Ten to One is Murder’ found immediate revived popularity in the streets of Georgetown and elsewhere.
PRICES
Government’s rationale for the devaluation was to cut imports, boost exports and try to balance its public sector accounts. The hiking of the exchange rate from $4.40 to $10 for one US dollar, Greenidge said, should “act as a disincentive to import... in so far as imported commodities are substitutable for domestic products.” He did not expect the devaluation to adversely affect prices of many imported commodities which he said were already being sold at “inflated prices” but acknowledged “some prices” would be affected.
He disclosed that Government had promised the Trades Union Congress (TUC) it would review the 1987 wages package because of the impact of the measure on some prices and said discussions on this would “begin as soon as possible.”
TUC Treasurer Mr. N.K. Gopaul, also General Secretary of the National Association of Agricultural, Commercial and Industrial Employees (NAACIE) declared shortly after the budget presentation, that his union would demand “immediate renegotiation of wages and insist the TUC call for indexation of wages to the cost of living” in view of the surprise devaluation.
Labour sources said Gopaul’s position is likely to be followed by other trade unions and the TUC could find , itself divided again as factions take different sides. Leader of the People’s Progressive Party (PPP) and Honorary President of the Guyana Agricultural and General Workers’ Union (GAWU) Dr. Cheddi Jagan declared: “If the TUC has any self-respect, it should come out on the streets now and oppose the budget.”
Mr. Greenidge however contended that the impact of the devaluation will “be considerably alleviated by the very generous package of tax measures” he outlined in his budget speech. He said “arrangements... to cushion” likely price increases were made and these included electricity tariffs, cooking fuel and transport costs.
He did not outline any moves to contain electricity tariffs but said the Consumption Tax on cooking gas and kerosene would be removed. It was not made clear if the prices of cooking gas and kerosene would be lowered.
BUS FARES
The cost of wheat flour would not be “unduly affected,” he added and while he announced that the Consumption Tax on fuel used by the State-owned Guyana Transport Services Limited (GTSL) would be remitted to the corporation, did not state if bus fares would go up or down.
A further sop Government offered to “cushion” the effects of the devaluation was a supplementary daily feeding programme of milk and biscuits to over 26000 nursery school children, under a United Nations programme. A pilot programme has also been established in some regions to provide nutritious meals for some primary school students.
Caught in the immediate grips of the devaluation also were some companies with funds in the Bank of Guyana-controlled External Payments Deposits Scheme (EPDS). These companies had deposited amounts with the bank to eventually clear debts to overseas suppliers when the bank’s foreign exchange holdings allowed this. The devaluation meant the local funds for old debts have increased by more than 100 per cent and Greenidge said the bank ‘‘will cushion the exchange losses of certain categories of companies.”
He did not elaborate except to announce the bank would use a mechanism to provide inputs to selected exporters “making constructive efforts to address the problem by way of expanding export earnings.”
DISINCENTIVE
Greenidge also claimed the devaluation was “necessitated by the loss of our competitive edge or advantage in the Caribbean and international markets.” Government, he said, had been faced with calls for special exchange rates for exporters and disclosed the State had been operating “a regime which has progressively provided a disincentive to official exporters.”
Government’s review of the factors determined that the new rates would enable “reasonably efficient producers to export their commodities at competitive prices under which they would be assured of normal profits,” Greenidge said.
The devaluation was also part of the State’s move to restrict the thriving blackmarket in foreign currencies and imports. It is to be matched by the opening, within another week, of a “free foreign exchange ‘window’ at the commercial banks.” The ‘window’ would allow individuals and companies who do not now get foreign exchange from the Bank of Guyana, to buy or sell foreign exchange at “competitive rates,” Greenidge said. Specifics of the operation are to be issued by the Bank of Guyana and it was not immediately known what are the “competitive rates” the Minister referred to.
CURRENCY
Exporters, he said, will be allowed to sell their currency at the ‘window’ if their export production inputs were bought from the ‘window.’ Buying from the ‘window’ would be governed by “high priority purposes” including imported inputs and spares for manufacturing or agriculture other than sugar; for mining other than bauxite and for some timber operations.
Individuals could also buy currency to provide funds for maintenance of students, business travel, payment of reinsurance premiums, freight, and airline tickets.
Government hopes the measures would pull current blackmarket transactions in foreign currencies into the official fold.