(Transcript)

The world financial crisis is of grave concern to my country, as indeed it is to all the developing countries of this hemisphere and wider afield.

Since early last year when we began to see convulsions in the financial markets in the South-east Asia, we became very much worried that the ripple effects would be felt on our shores. Not too long after the vibrations began to be felt. Let me explain how.

For a few years now, Guyana has found a good market for its timber products in south-east Asia, in countries like South Korea and Malaysia. At the same time, investors from that region have been involved in productive enterprises in Guyana. With the contraction of the markets last year, importers from that region cut back drastically on their imports of timber products, while the investors were unable to plough additional resources into Guyanese enterprises. The upshot of all this was that foreign exchange earnings were heavily reduced while local timber industries were forced to reduce production and to lay off workers. This added to the social pressures on the society. (In terms of our export earnings, there was a decline of nearly 7 percent in 1998 compared to 1997).

In addition, Guyana was experiencing the effects of a severe dry weather brought on by the El Nino phenomenon. This affected agricultural production on which a great proportion of the people depend for their livelihood. Due to the long drought in 1998, sugar production fell some 8 percent below the 1997 level, rice fell by about 1 percent. As stated before, there was a cut-back in timber production. Bauxite production dropped by 12 percent over the 1997 level. The economy eventually recorded an estimated 1.5 percent negative growth. For the previous 6 years it was recording over 6 percent positive growth.

Added to the forgoing problems, Guyana, like so many other producers of primary products, has found that world market prices for some of its main export commodities have been slumping due to lower demand. This has been the case particularly with rice and bauxite.

While all of this has been happening, political disturbances brought about by opposition civil disobedience in the first half of 1998, have seriously hampered investor confidence. These happened after the main opposition party refused to accept the results of the December 1997 elections which have been declared free and fair by international observer groups. One major Canadian firm which was on the verge of signing a privatization deal to take over the power company pulled out at the last minute because of the unrest. It felt that its investment would not be safe.

The decline in production during 1998 was in the midst of a global recession as the Asian crisis began to be felt in other parts of the world. Thus in 1998 commodity prices declined by almost 30 percent, the lowest level in almost three decades, as estimated by the commodity pricing index of the Economist. Currently, the price of plywood, one of our exports, is almost 60 percent below its peak level one year ago.

Despite the crisis, most macro-economic indicators remained very strong in 1998. The level of inflation remained quite stable at about 5 percent.

Just before last Christmas, with financial convulsions occurring in neighboring Brazil, the outflow of foreign currency from that country no doubt influenced a run on our own currency. The declining quantity of foreign exchange garnered by our exports and the increased demand on it placed excessive pressure on the exchange rate of the Guyana dollar which had been relatively stable for a number of years before then. Capital flights, also encouraged by an upsurge in crime, certainly assisted to compound the foreign exchange problem.

Now that I have summarized our economic problems, let me give some views on what is generally referred to as the global financial crisis.

We notice how quickly the international financial agencies, and the economically powerful countries jump in to bail out some of the major players when they are affected. Indonesia, South Korea and Brazil, to give examples, have experienced massive injection of aid to prop up their economies, no doubt because they are good markets and suppliers for the world capitalist system. But we note that the smaller economies like those in this hemisphere have not been treated with such fraternal concern. Vice-President Al Gore of the United States at the recent World Economic Forum drew this to the attention of the world and urged assistance for the smaller and weaker economies.

The argument has been forwarded that the countries more seriously affected should be given attention first. It is like repairing embankments on a large river which is threatening to break them away. The argument put forward is that if these embankments are not repaired the river will overflow and swamp over the entire countryside, and even break down the small embankments on smaller rivers. Using this hydraulics analogy, it is worth considering protecting the smaller embankments since the overflowing of smaller embankments can bring about flooding on the larger river on a very heavy scale.

But what bothers a number of countries which fall under the category of smaller economies is that when they attempt to institute measures to protect their economies from crumbling, they are pressured by MFIs who tell them what they intend to do is not in conformity with the capitalist free market system. We are told what is good for us even though we generally know that what we are told will not solve our problems. Sometimes we get the impression that economic plasters are put in place to heal the sores on the world capitalist system rather than those which undermine the health of the poor countries.

What can be done to bring about a turn around in the economies of small economies in the light of the current economic pressures?

To halt the outflow of capital, some economists say that interest rates must be increased to encourage more savings locally. Currently, those who have been removing their money from the Caribbean region have been using it to purchase real estate in the United States where the mortgage rates are low. But the opposing view has been that increasing the interest rate will slow down the current expansion of the housing sector in the case of Guyana and can impede development of the social infrastructure and the standard of living of our people. I guess we will continue to debate this issue.

In the case of Guyana, the economy remains highly vulnerable to recessionary forces. Despite that the international financial and donor institutions see the country as having the strongest possibility of coming out of the present crisis triumphantly.

While there has been an outcry for foreign investment to sustain the level of growth, it must be made clear that not all investments will be beneficial to Guyana. Investment in large scale mining and forestry produces more primary commodities whose prices and demand are uncertain. Guyana will have to make greater efforts to attract more value added investment. All our commodity exports — sugar, rice, lumber, rum, gold and bauxite — have scope for more value added investments. Clearly, the long-term benefits for such exports, developed out of secondary production, will result in greater earnings for the economy and greater employment opportunities for the people.

In Guyana, we are expecting to see a turn around in the economy this year. However, this can only be sustained with political stability, an advancement in the privatization process, improved security policy implementation and and the advancement of the public sector reform program. We remain optimistic.

(Also making remarks were the Ambassadors of Brazil, Argentina, Jamaica, Israel, Ghana, Hungary, Burkina Faso, Namibia, the US Ambassador to APEC, and the Economic Attache of the Embassy of Japan).