iRN1111 j7 jj 1A llii 'P',,, R4, 0 14 1511'r, 1, 1,11" jl; '41 Al ;,q jf T IT ON, '10 R ii, 14, If (i T, 19, jiq P i zj 'll; Al! 71 ar I .. ... 'j's,i J "U" M 'I'Jil N  IM 7: T IY1 Jl q, A WORLD BANK COUNTRY ST UDY Guyana Private Sector Development The World Bank Washington, D.C. Copyright 0 1993 The Intemational Bank for Reconstruction and Development/Tni WORLD BANK 1818 H Street, N.W. Washingon, D.C 20433, USA. All rights reserved Manufactured in the United States of America First printing October 1993 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this series with the least possible delay for the use of govenmments and the academic, business and financial, and development communities. 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ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data Guyana : private sector development p. an. - (A World Bank country study) ISBN 0-8213-2646-5 1. Privatization-Guyana. 2. Regulation-Guyana. 3. Finance- Guyana. L International Bank for Reconstruction and Development II. Series. HD4115.3.G89 1993 338.9881-dc2O 93-36879 CIF iii. CURRENCY EQUIVALENTS Currency Unit - Guyana Dollar G$1.0 . US$.008 US$l.0 G$126 (as ofAugust 12,1993) FISCAL YEAR July I - June30 ACRONYMS AND ABBREVIATIONS CAD Civil Aviation Department CARICOM Caribbean Community CD Certificate of Deposit CET Common External Tariff COFA Cooperative Financial Institutions Agency EC European Community ERP Economic Recovery Program FIC Fiscal Incentives committec GAIBANK Guyana Cooperative Agricultural and Industrial Development Bank GBTI Guyana Bank of Trade and Industry GCIS Guyana Cooperative Insumnce Servce GCMFB Guyana Cooperative Mortgagc Financc Bank GDP Gross Domestic Product GFC Guyana Forestry Commission GGMC Guyana Geology and Mines Commission GMC Guyana Marketing Corporation GNCB Guyana National Cooperative Bank GNCB Trust GNCB Trust Corporation GNEC Guyana National Engineering Corporation GREB Guyana Rice Export Board GUYMIDA Guyana ManuFacturing and Industrial Development Agency GUYSUCO Guyana Sugar Corporation IPED Institute for Private Enterprise Development NIS National Insurance Servicc NBIC National Bank of Industry and Commerce PCS Public Corporacions Secretariat PSR Public Sector Review UNDP United Nations Developmcnt Program USAID United States Agency for International Development iv PREFACE The purpose of this report is t recommnd mesures to improve th effcienc of the Ganesre economy byficsing on privte secor development, particukrly though increasig private secor ownership and strengthening the lga and regaoryframsw*r fdng hse prise sector. The rport sol k red in conjuncion with the Word Bank Publc Setor Review (Rport No. *1753-GU', which amines the re of h publc or andsugsts uhr the Government should fos its limited resources to car forrward the necasey rfirm process initiad under its Economic Recove7y Program. apr I i a brifinduction. C& re II reewI the obst ced by the Prwate Sector an recommend improvement sn the businesr environment. Capter III documents the eperience wish privatiton under the previows administraion and sets out an agren for the GovernmentC obecive to increae the rok of the Private Senor ix the economy through a tra t proram ofprivxtxtion Chpter IValyes sprvion and rguation ofthefnancid setor ad discuss the sequence and timing of a program so incruase competiion and reduce the rol of the State in the alcation of credit Chapter Vdiscuses the constrasnts andprovides recommendaonsfir improvements in the icntv regime in the trade system the mining secor, and agriculture, forestry, and tourim. Annexes provide a marix summaizig thepoliy rerommecnons in ech major ecr as wellar supporting statistia dua This report is based on the work of a Bank mission to Guyana in November, 1992. Mission participants were 'Wiliam Shaw (mission leader), Mark Dorfman (financial secror), Fred Barnard (mining), Hemant Shah (privatization and fiscal incentives), Arnold McIneyre (Caribbean Development Bank - trade policy), Luis Guasch (monetary policy), and Azita Amjadi (trade simulations). Sanjivi Rajasingham was responsible for producing this report. Adrienne Taptich provided statistical analysis. Adeline Franqois provided invaluabIl assistance in its preparation. v GUYANA: PRIVATE SECrOR DEVELOPMENT Table of Contents PagNo. EXECUTIVE SUMMARY vii I. INTRODUCTION I 11. IMPROVING THE PRIVATE SECTOR BUSINESS ENVIRONMENT 2 III. INCREASING THE ROLE OF THE PRIVATE SECTOR 6 A Experience with Privatizatiorn ...............................,,,,......,,,.,,.,,,,.,,.,.,.;6 B. The Future Program ................................................................................................,..,.,........,, C ReommmendaionsL.....................................................................................................,,,,,,,,,,,,12 IV. THE FINANCIAL SECrOR 13 A. Monetary Management,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ..........13 B. Analysis of the Financial System.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ............,,,.... ,,,,,,,,,, 17 C. Analysis of Principal Financial Institutions.........,.....,..............,,,,,22 D. Rccommendations....,,.,.,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,.,,,29 V REGUIATORY STRUCTURE IN MAJOR COMMERCIAL SECTORS 31 A. The Trade Regime ........ 31 A.I Barriers to Trade .....................................,,,,,,,,,.. 31 A.2 Public Sector Institutions .............................. ,. ,. ... 33 A.3 Recommendations Trade Regime .........................................3..,,,.........,, 34 B. The Mining Sectot,,,,,,,,,,,,,,,,,.,,,,,,,,,,,,,,,,,.,,.,,,,,,,,,,,......,.,,.,,,,..,....,..34 B.1 Sectoral Description ........................, , , ,,,,. ... 34 B.2 Infrastructure and Services..... . . . .. . .. 37 B.3 Leal and Regulatory Framework .3. ) B.4 Recommendations Muiingm......,,,,,,,,,,,,,,,,,,.................................................... 42 C. Agriculture, Forestry and Tourism ...................................,.,,,,,,.,,.. 43 C-1 Secrorl Perbrmance ...................... ........... 43 C2 Regulatory Framework .43 C.3 Recommendations: Agriculture, Forestry and Tourim..................................................... 46 .: vi ANNEXES ANNEX I: Privatization Annex 1.1 Recommendations for the Privxtization Program Anne 1.2 Public Corporations Divested 1989-92 Annax 13 Salient Financial Statistics of Public Corporations Remaining be Privatized ANNEX II: Financial Sector Anex 2.1 Recommended Action Program for Financial Sector Reform Annex 2.7 GNCB Restructuring Program Measures to Date Annex 23 Matrix of Recommended Provisions in a Rcvilsed Financial Insttutions Act Annex 2.4 Technical Assistance Program for the Bank of Guyana Banking Supervision Depanent Table 2.1 Accounts of the Banking System Table 2.2 Monetay Survey Table 2.3 Interest Rats and Spreads Table 2.4 Structure of the Financial System Table 2.5 New Building Society Financial Statements Table 2.6 Financial Statements Summary-GNCB Table 2.7 Financial Statements Summary-GNCB Trust Table 2.8 Financial Statements Summary-GAIBANK Table 2.9 Financial Statements Summary-GCMFB Table 2.10 Financial Statements Summary-GCIS Table 2.11 Financial Statements Summaqr-NIS ANNEX III: Trade Annex 3.1 Recommended Progrm for Improving the Trade Regime Table 3.1 CARICOM Existing and Newly-Approved CET Rates Table 3.2 Explanation of CET Suspended Rates ANNEX IV: Mining Annex 4.1 Recommended Program for Strengthening the Mining Sector Table 4.1 Principal Non-Bauxite Mineral Properties ANNEX V: Agricultre Forestry and Tourism Annex 5.1 Recommendations to Improve Regulatory Framework Goveming Agricukuxr Forestry and Tourism MAP.: IBRD 24652 vil EXECUTIVE SUMMARY 1. It is crucial for tde Government to continue to and restoring growth, and in introducing market- encourage private sector development. Enhancing the oriented reforms through the elimination of enabling environment for the private sector and thereby distortions. The new Government, while consolidating increasing private sector participation in the Guyanese these efforts, must undertake activities which are more economy is critical to sustaining economic recovery resource-intcensive in efLfct, to implement a broad-based from the depression of the 1980s. Guyana experienced enabling environmenr for private sector development, more than two decades of policies that established the including a morc effective privatization progrmm and, public sector as the principal actor in the economy. The where necessary, strengthening the regulatory role of the State controlled the major cconomic activities (bauxite State. The purpose of this report is to suggest whee the and sugar), owned most of the commercial and Government should focus its severely limited resources industrial companies, dominated the financial system, in carrying forward this program. and imposed severe controls on most ptivate sector transactions. These policies resulted in c rapid decline Improving die Private Sector Business Environment in output, the exodus of many of the better-educated and highly-skilled workers, and a severe deteriosation in the 4. Guyana is relatively frce of the unnecessary country's economic and social infrastructure. In light of bureaucratic requirements that hamper the privare sector this experience, the previous administration began the in many other countries. Nonetheless, clear process of creating a more appropriate environment for administrative rules need to be agreed upon and set out private-sector led growth by dismantling the system of regarding the basis for privatce sector operations in the economic controls. The elimination of most price councry. The weakness of the public sector makes the controls, freeing of interest rates, establishment of a required compliances burdensome, and many services market-based exchange rate mechanism, and removal of provided to businesses by the Government remain most tradc restrictions have improved efficiency and inadequate. In addition, a plethora of discretionary increased confidence in economic policy. However, incentives to businesses has croded the Government's progress has been slow on esscntial steps to transfer ability to collect revenucs and has contributed to a non- ownership of public sector cnterpriscs to the private transparent process of ncgotiating contracts and ventures sector. with the Government. 2. The economic problems hcing the economy and 5. The Government should complete the process the need for rapid and sustained growth to reduce poverty initiated by the past administration of eliminating makes it imperative to deepen the reform process by unnecessary restrictions on private sector activities. rapidly increasing the share of the private sector in all Adoption of the fast track for moving to the reduced economic activities. Decades of State domination of the CARICOM Common External Tariff (CET) rates is economy have left both infrastructure and public sector necessary to improve the efficiency of the economy and industrial enterprises in extremely poor condition, with reduce the incentive for contraband imports. Given obsolete and dilapidated equipment. Hundreds of Guyana's market detennined exchange rate system and millions of dollars in new investments will bc required relatively low wage costs, rapid implementation of the in most sectors of the economy, and the public sector lowcr tariff schedulc should bring substantial benefits lacks the rcsources to make such investments and has with few costs. Tradc licensing requirements should be shown that it cannot managc them efficiendy. Further, reduced to the minimum necessary to enforce tax the Government must devote its energics to the provision collection, cnsure compliance with international of those services that the private sector cannot currendy agreements, and meet health and safty requirements. supply effectively: education and health, some infrastructure, and the administration of justice. 6. The criteria used for granting discretionary Assigning the private sector the full responsibility for fiscal incentives (duty exemptions, tax holidays, and the production and marketing of goods and services is consumption tax exemptions) are not clear, the process is the only strategy that holds the promise of sustained nor transparent, and its impact on the allocarion of development. investment is difficult to determine. The process imposes a considerable administrative burden on 3. In a sense, the next step in the reform proess is investors, both because the need to generate excessive more difficult than the task faced by the last information and because of long dclays while the administration. The major achievements of the Government considers applications. The provision of previous Government were in stabilizing the economy discretionary fiscal incentives should be eliminated, viii along with complementary reductions in tax races to avoid imposing an excessive tax burden. 10. At the outset of the restarted program, it is important to consummate some relatively simple Increasing the Role of the Private Secor privatization transactions and thereby provide a positive demonstration effect. Furthermore, despite the need for 7. The Government should move forward rapidly speed, the procedures should be carefiully defined with a on a broad-based program to privatize public sector view to ensuring transparency and equal treatment. In assets in the economic sectors. This program should each case, any regulatory issues and framework should be continue to involve private sector capital and agreed upon at the outset. Thereafter, the transactions management in the sugar and bauxite industries, should focus on obtaining the highest price for continuc albeit in a more transparent and orderly properties sold, subject to an agreed set of "rules of the fishion, the privatizarion process for the industrial and game" without unnecessy conditions on the operation service enterprises controlled by the Public of the company or the provision of special benefits to Corporations Secretariat, and also extend the process to buyers. A strong effort should be made to prepare and the Government's share of banking and insurance. disseminate financial and operational information on Privatization should be accompanied by the the companies to be sold. Valuation of properties should establishment of an appropriate regulatory framnework be done by external agencies, to ensure the integrity of in industries that are not sufficiendy competitive or that the valuation process. The privatization procedures provide significant public goods. should be as open as possible. Sales of most assets should be done through an open outcry auction, and shoutd be & The Government should continue its efforts to widely publicized. For larger assets and companies sold involve the privatc sector in bauxite and sugar. Thesc as going concerns, where sealed bids will be necessary, two industries account for more than half of both the bids should bc opcned publidy. exports and output, and are the first priority for Government action. The introduction of private capital The Financial Sector and management into the bauxite industry is crucial to Guyana's development, given the importance of the 11. The Government should implement a industry, the opportunities afforded by Guyana's privatization program for the financial system. The position in the bauxitc market, and the sevcrely Guyanese financial secror is dominated by the State, deteriorated state of the existing capital stock. The which owns the bulk of financial assets and continues o enhanced private sector participation (including restrict entry. There is little competitive pressure, risk restructuring) of GUYSUCO is essential to provide the taking, or financial innovation. Some of the public capital to facilitate the rehabilitation of the sugar institutions are in extremely serious financial industry and to ensure efficient management. conditions, and will need financial and operational Complementary reforms would allow GUYSUCO to restructuring. While the liberalization of the financial retain the foreign cxchange it earns, transform the sugar system under the previous administration improved the levy into a fixed percentage of the EC price, and regulatory Framework governing the financial sector, eliminate GUYSUCO's monopoly on sugar. efficient financial intermediation will require increased competition and greater private sector 9. The former Government initiated the participation. privatization of smaller public sector enterprises. Howccr, the program was flawed by lack of 12. The next steps in financial sector reform are to transparency, diffuision of management responsibilitics, encouragc new entrants into the financial system and sel and questionable procedures. The new Government most public sector assets. New bank licenses should be should move as quickly as possible to define a granted as soon as possible. In the short term, the privatizarion program that cnsures an open process that Government should sell its remaining shares in the facilitates rapid privatization of the remaining Guyana Bank for Trade and Industry (GBTI), the enterprises operating in competitive markets. The National Bank for Industry and Commerce (NBIC), and privatization strategy should include most of the the GNCB Trust Corporation. The restmcturing of the companies now managed by the Public Corporations Guyana National Cooperative Bank (GNCB) must be Secretariat Most of these are small induserial or service completed, followed by its sale to the private sector. estblishments thar serve no strategic function in the Implementation of a loan recovery program for the economy. Rapid implementation would reduce pricate Guyana Cooperative Agricultural and Industrial investors' uncertinty and avoid further deterioration of Development Bank (MAIBANK) should continue, publicly-owned enterprises due to their uncertain status. followed by the development of alternative means of ix channeling donor funds through the financial system. including trade, mining, agriculture. Forestry and The Government should sell or liquidate public sector tourism. The reduction in the CET (discussed above) ix financial institutions that do not efficiendy fulfill a a key step in this regard. Customs administration Is leCgiimate purpose, including the Guyana Cooperative weak. Slow cuswoms procedures remain a barrier to an Mortgage Finance Bank (GCMFB) and the Guyana efficient trading system by imposing considerable coses Cooperative Insurance Service. Finally, an independent on private companies that comply with the law, while actuarial evaluation of the National Insurance Service the inability of customs to police the borders enablem (NIS) is necessary, followed by revision of contribution illegal traders to gin a substantial advantage over and benefit formulas, as well as investment policy domestic production. Incorrect declarations by guidelines. importers is common, as are inordinate delays in payments due to customs. A streamlining of customs 13. The privatimation of the financial system must be procedures, including benchmarks for performance, and accompanied by eflorts to strengthen the regulatory upgrading systems is an important requirement. framework, improve the effectiveness of supervision and to ensure that there is an adequate competitive 15. The prohibition of foreign participation in environment in the sector. The enforcement powers of small and medium-scale mining should be eliminated the Bank of Guyana remain limited, only some deposit- to facilitate access to foreign technology and capital. taking institutions are subject to supervision, and The requircment that all gold be purchased by the Gold prudential standards are not adequate. Necessary Board in Georgetown continues to impose a substantial improvements in the framework for competition among burden on gold miners. At a minimum, traders should financial institutions include the imposition of be licensed to purchase gold from miners. Idelaly, the uniform rescrve requirements on all deposit-taking Gold Board should be eliminated and the requirement institutions, elimination of remaining requirements to sell gold replaced by the requirement to declare gold for Bank of Guyana approval of deposits and loans in and pay taxes. Te mining sector suffcrs from a lack of foreign currency, and, in the medium term, unification effective environmental regulations, extended delays of the rate of taxation imposed on different financial imposed by the inefficiency of the Guyana Geology and instruments. Complementary efforts to strengthen the Mines Commission (GGMC), and a lack of institutional capacity of the Bank of Guyana in transparcncy in the administration of rules governing monetary policy management is also needed. the sector. Environmental regulations need to bc developed in the mining sector and strengthened in the Regulatory Structure in Major Commercial Sectors Ibresny sector, and enforcement mechanisms need to be improved. A review of the land tenure system should be 14. Finally, there is a need to rationalize the undertaken to facilirate the granting of tides to regulatory structure in all major commercial sectors, leaseholders. 1. INTRODUCTION 1.1. The past two decades have seen a progressive the economic cost in terms of lose hours of work has been decline in the role of the private sector in the economy. subsantial. The deterioration of all levels of the The takeover of bauxite, sugar, commercial banks and cducational system impaired essential skills of the major industrial and service enterprises, coupled with Guvanese workforce. Employers report that today's job the cstablishment of new public sector entcrprises, entrants often fail to meet basic literacy requirements placed more than halF the economy under the control of and fall 6r behind the educational level of new workers the public sector. Private sector activities were largely a few decades ago. This is a shocking indictment of the devoted to agriculture (particularly rice farming), educational system, in a country forrmerly celebrated for construction, some services, the smaller manufacturing high levels of literacy. While Guyana has, today, a severe enterprises, gold and diamond mining, and trading. shortage of teachers, the country also has supplied substantial numbers of teachers to the rest of the 1. Those areas of the economy dominated by the Caribbean. private sector were subject to strict controls which limited their ability to produce efficiently. Rice 1.5. The privne sector reacted in predictable ways farmers had to sell their product to State-owned mills, to the expansion of state control and failure of public miners had to sell their gold at distorted prices to the services. Wherc possibic, business was transacted outside Gold Board, many inputs were subject to excessively of the legal restrictions imposed by Government high import duties and consumption taxes, and the through smuggling, tax evasion, and various other mcns overvalued cxchange race and price controls introduced of cvading controls. The risk of such activities was not severe distortions in the relative prices facing private high owing to the decline in the public sectors ability sector businesses. Further, private sector activities were to enforce the law, and the profits could be significant. undercut by parasiatals with access to budgetary support To a certain extent, illegal trading helped ameliorate and preferred access to the Government-dominated the advcrse impact of controls. However, widespread x financial sector. evasion contributed to the erosion in public sector finances. and an underground economy is not the most 1.3. The economy suffered from the progressive efficient means of organizing economic activity. decline in the Government's ability to provide cssential infrastructure. The transportation network fell in 1.6. The most dramatic reaction to the serious disrepair, greatly increasing the cost of goods in deterioration in living standards and the problems Georgetown and making it exremely cosdy for private inherent in a controlled economy was massive entrepreneurs to operate in the interior. Lack of emigration, as many Guyanese left to enjoy a standard of maintenance made some interior roads impassable, and living that was no longer available in their own country. the deterioration of ferry services made river crossings a It is estimated that approximately 500,000 Guyanese live severe bottleneck. Frequent power outages forced abroad, about two-thirds of the number of people living businesses (as well as privane homes that could afford in Guyana. The wave of emigrants over the past two them) to operate on high-cost generators. Companies decades represents an enormous loss to the country. The thar used water in industrial processes had to dig their severe shortage of highly-trained personnel at all levels own wells or truck water from central locations. The of the civil service and the private sector is a severe breakdown in telephone services meant that it was often constraint on economic development. impossible to communicate within Georgetown, much less overseas, while some businesses had to operate 1.7. The situation today is the outcome of the entirely without telephones. Inadequate port facilities private sector trying to function under four fundamental required expensive transshipment of goods to larger and serious constraints; (i) the extremely poor status of ports. The deterioration of Guyana's network of sea the country's infrastructure; (ii) the extremely high level defenses led to flooding of agricultural and residential of dominance of the public sector in the economy, (iii) a land by sea water, and continues to threaten the coastal seriously weakened financial system; and (iv) a distorted strip where most of Guyana's farmland lies. incentive regime. 1.4. Perhaps the most serious impact of the decline 1.8. Since initiation of the Economic Recovery in the competence of the public sector was the inability Program (ERP), the Government has taken a number of to maintain basic health and education services. Health steps to ease constraints on private secor activities. Most facilities lacked essential drugs, equipment and price controls were eliminated, interest rates were personnel. In addition to the human tragedy inrvohld, liberalized, the exchange rate is now based on market 3 administrative requirements are limited to those recnunratdon and high turnover of staff, lack of neceay for tax compliancc for enforcement of normal definidon of ims role In relation to other agencies, rqulations at the municipal level (i.e. zoning, building assignment of woo many casks for which GUYMIDA ws coda) and for environmmcnul nd beath rcsons. There not prepared to fulfill, lack of implemcntation by are no legal provisions which favor domestic over GUYMIDA of a recommended reorganization, lack of foreign invescors, who can invest in any sector of the development or promotion of GUYMIDA's economy and can repatriate profits frdely. information and documentation center, and in generm lack of acceptance of GUTYMIDA's activities by the 2.5. Labor markets in Guyana are relatively free of private sector. Given the recent expericnce, the policy-induced distottions. The Labor Act provides a Government should consider whether it is uscful to voluntary framework for the setclement of labor continue GUYMIDA's efforcs to support the disputes, under which either labor or managemcnt may manufiicturing sector. The resourcs deoted to suh ask the Ministry oF Labor to intervene to mediate efrrs might be used more efficiently in higher- disputes. In the event of a strike, intervention by the priority activities. Ministry is automatic. This process provides a framework under which compromises can be reached, or visal Incendves at least work can rcsume pending resolution of a labor dispute. In any event, the Ministry's recommendations 2. Despite considerable improvemcnts in the are not legally binding on the parties involved. The strucure of tax races, the Cenrral Government remains only exception concerns strikes which interrupt the dependent for the bulk of revenues on trxes with provision of essenial services, as defined in the Essentia relativdy high rtes. Over 70% of tas revnues comcs Sarviccs Act (largely health services, transportation and from the comni ,ny incomne tax, consumption txres, and public utilities). If strikes afFecting essential services import duties. The company income tax race is 3596, cannot be resolved volunmarily, the Minister is with dividends subject to a 15% withholding tax. empowered to impose arbitration. A panel of three Consumption maxes are levied on both domestic goods arbiters (representing Govemment, employers and the mnd imports. with the exception of inputs used by trade unions) is appointed whose decsion is binding by registered rnanufaaurem Consumption x ratcs range law. This does not happen coo oten, the last GISe being from zero to 100%, although most goods are tzed at when arbitation was used to settc a strikc ainst the cithr 1 0% or 3D%. Imporr ranffs are in the proce of Guyana Electrical Corporation in 1991. being reduced, although at present most goods are charged between zero and 45% (se rhe ikublic Setor 26. Public services to the industrial sector sufFer Revicw for a discussion of the tax system). These high from the same problems facing other public sector tax rates would make many economic activitices activitics: rhe inability to pay adequate wages to attract prohibitively expensive and greatly reduce production, highly-qualified people. The Guyana Manufacturing were it not for a complicated system of ecemptions that and Induswtrial Development Agency (GUYMIDA) is the are granted on an individual basis. The Guyanese major source of assistance to the manufacturing sector. Government provides three kinds of discretionary fiscal Besides its responsibility For the approval of fiscal incentives income tax holidays; waivs of import duty incentives (discussed below) GUYMIDA promotes on nachincz,y equipment and raw naterials; and waiver investments through the provision of information on of consumption taxes on imported machinery, marlcets and technical processes. through evaluation of equipment and raw materials.I The promoras of a new invrminenr projects, through technical supporr to industrial project must apply to the Government enterprises by financing consultants, and through through GUYMIDA to obtain these incentives, and the financing training, tours and other promotional armnunt of incentives grnted varies by prqoct activities. 2.7. The mission was not in a position to do a detailed review of GUYMIDA's :--port activities. Howev, the comments by private semr businesses were lGuya also povides incentves dimugh dte incomoe =a code almost uniformly negative concening the value of which are similar to those provided in most countries, GUYlIDA:s services An evaluation of GUYlMIDA was including acclerated depredation4 cury ford of tradc carricd out in late-1991 by the UNDP, which indicated lss, and write-offof land devdopment ependitr he ehat GUYMIDA had not been effective in providing cde2 also provWides for remission of incme ax equl to the supporc to the manufacturing sector. The najor shae of exports in total revmue, up to balfthe income tax due constraints on GUYMIDA's acrivities indude the low othewise. 3 administrative requirements are limited to thosc remuneration and high turnover of staff, lack of necessary for tax compliance, for enforccment of normal definition of its role in relation to other agencies, regulations at the municipal level (i.e. zoning, building assignment o too many tasks for which GUYMIDA ws codes) and for environmental and health reasons. There not prepared to fulfill, lack of implementation by are no legal provisions which favor domestic over GUYMIDA of a recommended reorganization, lack of foreign investors, who can invest in any sector of the development or promotion of GUYMIDA's economy and can repatriate profits freely. information and documentation center, and in general lack of acceptance of GUYMIDA's activities by the 2.5. Labor markets in Guyana amr rdatively free of privatc sector. Given the recent expericnce, the policy-induced distortions. The Labor Act provides a Government should consider whether it is useful to voluntary framework for the settlement of labor continue GUYMIDA's efforcs to support the disputcs, under which either labor or managemcnt may manufacturing sector. The resources devotcd to such ask the Ministry of Labor to intervene to mediate efforts might be used more efficiently in higher- disputes. In the event of a strike, intervention by the priority activities. Ministry is automatic. This process provides a fiamework under which compromises can be reached, or "iscal Incentives at least work can resume pending resolution of a labor dispute. In any event, the Ministry's recommendations 2.8. Despite considerable improvements in the are not legally binding on the parties involved. The structure of tax races, the Centra Government remains only exception concerns strikes which interrupt the dependent for the bulk of revenues on t^xes with provision of essential servces, as defined in the Essential rdarively high rates. Over 70% of tax rerenues comes Services Act (largely health services, transportation and from the comi ny income tax, consumption tazes, and public utilities). If strikes affecting essential services import duties. The company income tax race is 35%, cannot be resolved voluntarily, the Minister is with dividends subject to a 15% withholding tax. empowered to impose arbitration. A panel of three Consumprion taxes are levied on both domestic goods arbiters (representing Government, employers and the and imports, with the exception of inputs used by trade unions) is appointed whose decision is binding by registered manufacturcrs. Consumption tax rates range law. This does not happen too often, the last case being from zero to 100%, although mosr goods are taxed at whcn arbitration was used to settle a strike against the either 10% or 30%. Import tarifis are in the process of Guyana Electrical Corporation in 1991. being reduced, although at present most goods are charged between zero and 45% (see the x'ublic Sector 26& Public scrvices to the industrial sector suffer Review for a discussion of the tax system). These high from the same problems facing other public sector tax rates would make many economic activities activities: the inability to pay adequate wages to attract prohibitively expensive and greatly reduce production, highly-qualified people. The Guyana Manufacturing were it not hr a complicated system of exemptions that and Industrial Development Agency (GUYMIDA) is the are granted on an individual basis. The Guyanese major source of assistance to the manufacturing sector. Government provides three kinds of discretionary fiscal Besides its responsibility For the approval of fiscal incentivecs income tax holidays; waivcrs of import duty incentives (discussed below) GUYMIDA promotes on machinery, equipment and raw matcrials; and waiver investments through the provision of information on of consumption raxes on imported machinery, markets and technical processes, through evaluation of equipment and raw materials.1 The promoters of a new investment projects, through technical supporr to industrial project must apply to the Government enterprises by financing consultants, and through through GUYMIDA to obtain these incentives, and the financing training, tours and other promotional am.mtnt of incentives granted varies by projecL activities. 2.7. The mission was not in a nosition to do a derailed review of GUYMIDA's zsu?port activities. However, the comments by private sector businesses were IGuyana also provides incentives through the income tax code almost uniformly negative concerning the value of which are similar to those provided in most countries, GUYMIDAls services. An evaluation of GYlvMIDA was including accderated depreciation, carry forward of rade carried out in lare-1991 by the UNDP, which indicated losses, and wrie-offof land development expenditurc The that GUYMIDA had not been effective in providing code also provides for remission of income tx equal to the support ro the manufacturing sector. The major share of exports in totd revenue, up to half the income tax due constraints on GUYMIDA's activities include the low otherwise. 2.9. Amount. The amount of taxes foregone due to Commission. In addition, representatives of the subject the fiscal incentives regime is difficult to estimate. ministries are invited for each'project. Within two Guyana follows the CARICOM Harmonization weeks of distribution, FIC agrees, either through a Tr6aty's prescriptions for fiscal incentives, which meeting or a round robin approval process, to provides a schedule of varying lengths of tax holiday recommend a certain level of fiscal incentives to dtc depending on the ratio of value added to gross revenue Ministry of Finance. Under the previous for each project Some 31 applications were received administration, the Director of the Office of the Budget for fiscal inceniives in the first ten months of 1992. Of at Finance made the final decision. In the new these, 21 received some forms of incentives: '17 were administration, the revicw proces has not fully settled grnted an exemption of the duty and consumption tax and it appeas that the applications are baing reviewcd by on imported machiney and equipment (the others do not the Director of the Office of Budget, the Treasury appear to have imported equipment), five received Secretary, and the Advisor to the Minister, with the final exemptions of duty and consumption tax on imported decision being taken by the Minister. inputs, and three received a 3-year income tax holiday. 2.14. Processing is exremely complex'and lengthy. 2.10. The importance- of fiscal incentives should Projects may require up to three months for review by decline as Guyana implements the new import duty races GUYMIDA. However, a large part of this time may recently agreed by CARICOM' members. Import duties involve preparation and revision of information for competing capital goods and raw materials are to required for application, rather than processing of dhe fall to 20% starting in 1993, and reach 10% by 1997, project by GUYMIDA. The FIC decision adds another and duties on non-competing goods are to drop to 5% 2-3 weeks, and it takes anywhere between 2-8 weeks to beginning 1993. A further reduction in consumprion obtain the final decision from Finance- tax trates, also would reduce the importance-of fiscal incentives. 215. Limitations of fiscal incentives. The fiscal incentives regime favors new industrial projects at the 2.11. Proess. GUYMIDA, an agency of the Ministry expense of capital investment devoted to maintenance, of Trade, Tourism and Industry, reviews requests for refurbishing, or balancing equipment. Similarly, fiscal incentives for industrial sector projects, which projects in agriculture and services sectors are account for most of the incentives granted. Applications considered only for customs duty exemptions, and do nor for fiscal incentives in tourism and the primary sectors receive tax holidays. The rationale for introducing are submitted to the concerned subject ministry. these biases in the allocation of investment is not dcear. This is particularly true in Guyana where productive 2.12. To obtain fiscal incentives, the promoters must, capacity is very badly depreciated. There is little provide GUYMIDA an excessively detailed project economic justification to favor new capacity creation application--the blank itself runs into 9 pages-- over replacement or maintenance of old capadty; in fact, requiring descriptive nformation concerning the the later may well serve national interests better. project, product description, project timetable, ownership structure, history, capital structure, capital 2.16 The criteria used for granting fiscal incentives cost estimates, financial plan, production methods, are -nor clear, which makes it difficult for the investor to machinery-and equipment, raw materials, market survey, anticipate, or evcn to understand the reason for, the level production and sales projections, operating costs and of incentives granted, and may encourage the use of non revenue, employment, and financial projections. economic criteria in decisions. The criteria fur fiscal Depending on the investors' preparation, providing a incentives include value added by the project, technology complete application may entail a few months after, the employed, employment creation, location of the project initial contact with GCUYMIDA and may require (rural or urban), foreign exchange eaned or saved, and' considerable assistance of the GUYMIDA staff. he size of the investment. However, there are no dear guidelines to translate these multiple and potentially 2.13. GUYMIDA forwards the completed conflicting criteria into fiscal incentives with any application to an inter-agency group called Fiscal degree of consiscency. For instance, the officials Incentives committee (FIC), which evaluates and concerned could not explain whether the Government recoMmends the type and extent -of fiscal incentivCs. favors capital-intensive modern technology or labor- GUYMIDA is the convener and secretariat of the FIC. intensive but less efficient technologies. Also, some The committee's six permanent members - include - confusion exists concerning what projects should be representation fiom GUYMIDA, Treasury, Cuswms and considered for fiscal incentives. For instace, certain Excise, Inland Revcnue, and the State Planning projects deared through FIC were subsequently rejected ., -I.-: 5 by Finance because they were considered too "small"; however, there is no clear working definition of small 2.20. The Government should adopt the goal of projects agreed between GUYMIDA and Finance. reducing the role of discretion in administering the tax Prospective investors probably undertnd the intent or rqgime. The present tax regime is characterized by the application of these criteria evn less dealy, and it relatively high rates of import duties and consumption is unlikely that the fiscal incentives process actually tax, thus necssitating exemptions for some projects to encourages project formulations desired by the enable Guyana to compete with other countries for Government. In pracdce, subjective perceptions of the investments. A preferable stategy would be to estblish 'adequacy' of the projected caslflows, and possibly a tax systen without discretionary exeaptions but with political considerations, appear to determine the level low marginal rates. Such a system would have to be of fiscal incentive granted to each project designed so that sufficient revenue is generated for a sustinablc macroeconomic program, with rates low 2.17. The information and details required to enough to attract investors2 obtain fiscal incentives far exceed those required for merely establishing a new busines Most of the projects a) Consumption taxes range fromr zero to are small; of the 21 projecs granted fiscal incentives in cxtremely high rates for certain necessary the first ten months of 1992 12 had a total invstment of inputs, for example motor vehicles. A less than US$1 million, with the largest two being reduction and simplification of rates would US$6.2 million and US$3.6 million; the rejected permit the Govenment to generate necessary projects were typically smaller. For such small revenues while avoiding the need for investors, the time and efforts spent in obtaining fisca discretionary inocntives. If the Government incenrives is a serious impediment to businesses, wishes to impose differential tax rates based on although necessitated by the high levels of import duties use (for example, taxing companies a lower. rate.. and consumption axes. for motor vehicles than households), this differential rate should be given all 2.18. GUYMIDA has litte capacity to monitor the companies. businesses granted fiscal incentives to determine whether the goals of the project are met or the incentives used for b) The anticipated fall in import duties under the the purpose stated in the application. It is understood new CARICOM agreement should make an that the GUYMIDA and Finance officials attempt to elimination of import duty exemptions for relate the level of incentives, particularly tax holidays, most goods consistent with a reasonable tax rate to the projected value added of the project. There is a for investors. As the tariff rate on non- presumption that if, upon implementation, the project competing capital goods and inputs will be fails to gcnerate the requisite value added, the incentive only 5%, exemptions will have litde impact. will be withdrawn. Such ex post review is very difficllt However, tariffs wiEl be higher in the case of to undertake, given GUYMlDA's limited resources, and goods that compete with CARICOM in practice is not enforced. Also, it is likely that production, 10% for primary inputs and incentives granted some firms are not used for the capital goods and 15% for intermediate inputs. intended investment. For instance, vehicles are impored The Govcnmment rmight consider requesting an duty-free if they arc to be uilized for projects in excmption from CARICOM to reduce such ruramrernore areas, but such vehicles ar all too common rates, or lobbying for change in the CET. on Georgetown roads. c) Guyana's cerpoer income or ratc is 35%. As 2.19. To summarize, the fiscal incentives process has income tax holidays have not been shown w be both conceptual flaws and implementation difficulties. very effective in influencing invcstors' Its objectives are not dcearly justified. It is decisions, it is likely that such holidays could implemented with apparendy desirable, but vague, be eliminated without reducing the criceria that permit excssive subjectivity. ITe proces attractiveness of Guyana to investors. is excessively long and arbitrary from the investors' Depending on the revenue situation, the perspective. It consumes considerable resources of the Government should consider whether the Governmen, and is unlikely to have steered imnvstments elimination of holidays would allow any in the intended direction. The reforms of the fiscal incentives regime should aim to make them widely available, without discretion, and easy to undetnd a 2The BaWnks view ofdte Gumuese =x regme is provided in the priori. Public Sector Review. 6 room for reduction in rates. Alternatively, in many other countries. However, the weakness of the capital-intensive and long-gestation projects public sector means that compliance with those can and do enjoy effective tax holidays through administrative requirements that exist can be accelerated depreciation provisions and burdensome and that many of the sevices provided writeoff of initial expenses. Parameters of manuiacturers by the public sector are inadequate. Thus, these tax rudes can be easily adjusted to provide the principal constraints on growth of the additional incentives, while avoiding a case-by- manufacturing sector are the lack of both adequatc case scrutiny of each project. L afrastructure and a sufficiendy-educated labor forcc. The limited direct support for manufacturing 2.21. The proposed system of low tax rates, with any activities, such as provision of market information, exemptions provided to all companies, would reduce promotional activities, and technical assistance by economic distortions, provide a fairer and more GUYMIDA, has not been effective. While these transparent set of incentives, and greatly simplify, the activities are in principal useful, the Government administrative burden imposed on investors. This should consider if the resources devoted to GUYMIDA approach is likely to encourage greater investmcnt than might be used more effectively elsewhere. the present system of high tax rates, with exemptions granted after a lengthy and non-transparent approval 2.23. The fiscl incentives regime (tax holidays and process. This approach also would permit the exemptions from consumption taxes and import duties) Government to allocate its limited administrative introduces biases in investment allocation that are resources to other activities. The Fiscal Incentives difficult to justifr and imposes a considerable committee could be disbanded, and GUYMIDA could administrative burden on investors. Moreover, the focus on providing assistance to investors in meeting criteria for fiscal incentives are vague and the approval other, necessary administrative requirements and the process is extremely complex. Icngthy and not provision of information. transparent. The Government should consider eliminating the usc of discretionary fiscal incentives. Recommendations Reductions in tax rates would be necessary to avoid imposing an unrealistic tax burden on enterprises, 222 Guyana is relatively free of the unnecessary consistent with generating sufficient fiscal revenues to bureaucratic requirements that hmper the private sector support the macroeconomic progamnL Ill. INCREASING THE ROLE OF THE PRIVATE SECTOR A. Experience with Privatization 32 The former Government began a concerted attempt to privatize public corporations, and 14 of the The Role of the State 32 public corporations under the PCS were totally or partially privatized/liquidated by October 1992. 3.1. The State dominates most aspects of economic However, the implementation of the program raised life in Guyana. In addition to its presence in public widespread concerns about its transparency. The infrastructure (electricity, water and sewerage, program was halted by the new PPP/Civic transportation), the Government controls major administration in November 1992, even as public industries such as sugar processing, rice milling, and tenders were open for two units bauxite mining. Further, through a group of 32 enterprises under the supervision of the Public Management and Preparation Corporations Secretariat (PCS), the Government dominates and sometimes monopolizes engineering, 3.3. Management of the Program. The repair workshops, brick making, pharmaceutical, responsibility for privatizaticn of public sector units timber and log processing, paint-making, printing, has been divided between several agencies. A Divestment fishing, coconut and livestock, catdefred, processed Unit was set up under the Public Corporations foods, edible oils, retail distribution, and trading. Secretariat (PCS) to execute all logistical functions Public ownership for most of these companies serves no relating to the privatization program. The Divestment apparent straegc national purpose. Unit reported to, and executed the decisions of, the Divestment Policy Group. The President of Guyana . -. - 7 chaired the Divestment Policy Group which also history of the company, capacties, linc of business, included the Ministers of Trade, Finance, Agriculture, audited financial accounts, inventory of assets, etc. have and Industry. The Group made all the important generally been unavailable. For instance, the "Company decisions regarding privatization (acceptance of bids, Profile" distributed for Demerara Woods Limited (one etc). In addition, the Divestment Unit also reported to a of the larger companies sold) consisted of 1.5 pages of standing Cabinet sub-committee called the Monitoring rudimentary, descriptivc information. committee, comprising of the same Ministcrs, plus representatives of Bank of Guyana and some others. The 3.7. The paucity of information meant that Monitoring commirtce is a central Government investors had to spend considerable time and money in oversight body, and among others, periodically discussed investigating companies, including correspondenoe the privatization program. with PCS for further information, waiting while PCS collected and compiled information from the unit 3.4. Despite this structure, the two largest managers, meetings with PCS officials and ministers, privatization transactions - Guyana Telecommun- etc. Foreign investors would typically need to visit ications and Dcmerara Woods Ltd.-were handled by Guyana merely to obtain reliable basic information another agency, with little PCS involvement. Guyana first hand. The lack of readily-available information is Telecommunications was r.t on the first list of public one explanation for the limited investor interest in the units that PCS proposed to privatize. There was no clear sale of businesses as a going concern. Some of the units explanation for transfrring the largest privatizations have nor attracted serious offers despite repeated outside the purview of the PCS and the Divestment advertisements over a period of ycars. Policy Group. Potential problems of fragmented responsibility for privatization are lack of transparency, 3.8. Valuation. Valuation was performed both by lack of darity about authority for decisions, and lack of PCS and by external agencies. Of the 10 companies for uniformity regarding criteria and processes to be which information is available (of the 14 units fully or followed in soliciting and awarding bids. partially privatized), one did not seem to have been valued prior to privatization, four werc valued by the 3.5. Schedule. The scheduling of PCS units for PCS or the Chief Valuation Officer, two were valued by privatization was based on the need for State financial cxternal valuers, and two units whose assets were sold support for "poor performers" and the staff availability piecemeal were valued partly by the PCS/Chicf to manage the privatizations. The Divestment Unit Valuation Officer and partly by cxtcrnal valucrs. obtained approval for privatization of 10 corporations in the first phase of the program. Thcse were primarily 3.9. The practice of having one administrative unit, loss-making units; some had completely dosed down in this case the PCS, responsible for both valuation and with only skeletal staff remaining. The main intent in managing the program is nor desirble. One criteria for pri,%-cizing these units was to prevent any furdter drain evaluating the performance of the unit administering on Scate resources. Once several of thesc were privatization is the ultimate contract price relativc to privatized/liquidated or well along the way, 11 valuation. Thus, the unit would face a considerable additional units were identified as privatization incentive ro providc a low evaluation. Given the candidates. A unit would be "identified" as a importance of fair valuation in cxpediting negotiation privatization candidate through the initiative of the process, it is advisablc that che Government invest Divestment Unit or as a result of inquiries by interested necessary resources in obtaining an external, pro- investors conceming the units that were not formally fessional valuation. This expense may be a good invest- announced for privatizarion. Preparatory work for ment if it provides an improved basis for negotiation. privatization would bec carried out a task force for each unit, including representatives of management and the 3.10. As a rule, internally valued properties have s6ld Divestment Unit. for substantially more than the valuation, while those valued by external valuers have sold for substantially 3.6. Information. It was often difficult to provide less. A comparison of valuations and actual prices agreed sufficient information on the company so that investors for 23 transactions reveals that 20 properties appraised could make an informed decision. The accounts and by the Chief Valuation Officer or the PCS were sold, on other records of many Governmcnt-owned companics, average, for 38% above the valuation. By contrast, three induding such large entcrprises as Guyana Airways, have properties/businesses valued by external valuers were been in arrears for many years, with the audited accounts unavailable for several years. Standard prospectus providing reasonably detailed information on the 8 sold at 30A40% below the valuer estidnates.3 Given the the privatc sector in the economy. The program should perverse incentives facing the internal valuers (see pars. encompass the financial sector, the major productive 3.9), one explanation for the consistent underesdmation sectors of bauxite and sugar, and the industrial and by public sector valuers and overestimation by external commercial enterprises managed by the Public valuers is that the units were sold bdow their true valuc. Corporations Secretariat.4 The challenge facing the new Government is to proceed rapidly with the The Tendering Process privatization program, while avoiding the difficulties expenenced over the past few yen 3.11. Companies were either broken up and sold piecemeal, or sold as a going toncern. Several small 3.14. The Government should move immediately o properties (office or factory buildings, commercial set out its agenda for privatization, and then press land, furniture, stocks, etc.) were sold through a scaled forward with initial, less difficult transactions to bid, public tendering process. In some cases, these establish a good track record and provide momentum. In properties were subject to multiple tenders because the structuring the program, the Government should strive initial bids were considered too low. although some of for the maximum speed while ensuring transparency, these properties clearly received multiple competitive eFfective management, and correct valuation oF bids. The multiple tendering process (requiring properties. The design of the program should be as successive media advertisements and letters to earlier- simple as possible, should avoid unnecessary conditions round bidders exhorting them to revise upwards their on the sale of properties, and should takc into account oflirs) has been long and drawn-out, lasting as much as concerns over employee compensation and diffusion of 12-18 months. That standard office and commercial ownership. These concerns are elaborated below. properties should require such a lengthy disposal process is surprising and probably suggCsts lack of faith in the Timing sealed bid process. An open outcry auction, on site, may well have engendered more confidence in the 3.15. Initiitrin of Program. It is important that the Government's handling of ass to be privatized. Govemment proceed with the privatization program as quickly as possible. The management of the progm 3.12. In the early stages of the program, an important will provide a visible and dramatic signal of the new goal was gencrating foreign exchange, and executing Government's commitment to private sector transactions was critical to realizing of targets set under development. Success in the privatization process is the IMF program. Nonetheless, there appear to have important in itself, as well as to create a climate of been significant shortcomings in the privatizations that confidence for domestic and foreign private investors. werc carried out, and many participants have expressed Further, the uncertainty surrounding the future of dissatisfaction about the lack of transparency in the public sector companies and the low salaries have process. Specifically, the manner in which bids were impaired morale in the potential candidates for sdeectcd had many deficiencies. There was no dear cut privatization. Delays in privatization may lead to a loss process, and the procedures to publicize invitations for of critical staff necessary for preparing the units for an bids and their subsequent evaluation were not always orderly and profitable sale, as weil as for maintaining consisrent. Valuation of companies were also current operations. Many units face urgent operational inconsistent, and in certain cases negotiations were held problems and decisions regarding capital expenditure, with only a singlc buyer. which cannot be dealt with until the future ownership of the company is determined. Because the sale process B. The Future Program has been halted in mid-stream by the new Government, with the already announced sales and tenders of Guyana 3.13. The privatizatioms of parastatals is an essential Pharmaceutical, Guyana National Engineering element of the Government's overall program to Corporation (GNEC) suspcnded, there is an urgent need increase the efficiency of the cconomy and ensure to resume the privatizarion process as quickly as possible sustained development by encouraging a greater role for consistent with the need tO ensure a fair and competitive proces. 3An additional 10 transactions (fil business or specific assets) werre xcluded from this analysis becuse of insufficient information about the date of transactions and the applicable 4Tbis chapter deals with only the larter. The report covers exchange rats; however, the excluded transactions are not private sector involvement in the financial sctor in Chapter atypical of this paemr. IV and in the Stare's baunxie and supgr holdings in Chapter V. 9 3.16. Scheduie. The Government should prepare a made a principal, if not the only, objective for timetable for privatization that seeks to build and privatizing units under the PCS. While other increase the tempo of activity over the coming year. The initiatives-such as development of a stock market, Government immediately should announce its intention encouraging corporate democracy through diflusion of to privatize National Edible Oil Co., Guyana shareholding, and workers' participation--are laudable, Stockfeeds, GNEC, Hope Coconut, Mards Workshop, privatization of state units is not the only, or even the Guyana Pharmaceutical, Guyana Fisheries, Sanata most important way to achieve them. Pursuit of thesc Tcxtiles, National Padi, Guyana Rice Export Board, other goals may entail significant problems and should Guyana Stores, Guyana Narional Shipping, Guyana not be allowed to delay privatization of PCS units. National Printers, Guyana Liquor; Guyana Glassworks, and Guyana Airways. There is little purpose in 3.20. Transparency The procedures set out for continuing Government ownership of these units. privatization should be fair and transparent. All Simultaneously, the Government should promise to relevant regulatory action should be completed prior to resume sale proceedings and shortly thereafter announce or in conjunction with any privatization that such a timetable for selling remaining units. The actions would affect. The procedures should also reflect Government should set an ambitious, but realistic, goal guidelines to appropriately deal with unsolicited offers with regard to the pace of privatization. The target pace (which have often, in other countries, adversely affted of privatization should take into account the ability of the privatization process). the Government to performn the necessy tasks associated with the sale of public enterprises, and the markets' 3.21. Parial Government Ownership. Retention of absorptivec capacity. partial ownership in a. unir to be privatized would not be wisc. Retention of even a minority stake does not 3.17. The salc of Guyana Stores, GNEC, Guyana serve clearly identifiable purposes, and may result in Pharmaceutical, and Guyana National Printers should favored treatnent of the unit in the future, relative to receive priority because of their relatively clean other companies in the same industy. Thc Government accounts, profitable status, and the &ct they need littde may however stagger the sale of its stake in units where rcstructuring. Guyana Stores would be a particularly the size of the privatized company would restrict good choice to begin the program because of its competition. However, such partial (but majority) visibility and ease, and possibly immediate privatizations should be carried our under a clear plan improvements in service and quality that may be to sell all of the assets eventually, and under clear realized after privatization. Guyana Fisheries and agreemcnts that such subsequcnt sales would not interfcre Stockfeeds have already been pardy sold and the sale of with principal shareholders' controlling rights. the remaining assets should continuc. Soap & Detergent, Glassworks, and Hope Coconut may involve somc 322. Foreign Participation. The Guyanese valuation and legal title problems that may require investmcnt policy does not discourage foreign some time to sort out. investment; in facr, the previous privatizations gave local investors the impression that they were 3.18. Privatization of Guyana Oil, Guyana discriminated against. While there is no nced for- Electricity Corporation and Guyana Airways should be altering the policy, the Government needs to take steps to preceded by having in place an adequate regulatory ensure that privatizations will not favor either groups. framework and/or for those that are monopolies (Guyana Oil) the monopoly should be climinated. Conditions of Sale Issues pertaining to the Guyana Electricity Corporation should be handled in the context of the Government's 3.23. In keeping with the simplicity objeccive, the program for the power seaor. It may be possible to Govemmenr should refrain as much as possible from improve the purchase price of Guyana Airways through a seeking any promises concerning future production tactical deferral, and the company may require a public plans, injections of working capital, fixed capital, new issue. However, therc is little strategic reason for technologies, etc.5 Such discussions draw the continuing Government ownership of the Airways. Government into negotiations with individual investors, delay the process, and perpetuate the scope for Objectives and appearance of "sweetheart" deals. Instead, the 3.19. Simplicity. The objectives of privatization should be kept as simple as possible. It is recommended 5However, it may be beneficial for the Government to assume that realizing the best price for the public sector be the liabilities of parasatals before privatization. 10 Government should aim at a widely participated, Workers' and Small Shareholders' Participation in competitive sale process that extracts the most value. Acquisition Concerns for quality, safety, workplace standards, etc. should be addressed through industry-wide regulations, 3.27. A tender process for selling public not through specific agreements with new owners. A corporations favors bids by larger investors, especially good rule of thumb would be to not insist on any those with access to loan finance, with workers and specific regulations/agreements than would apply to diffused small investors being less able to participate in private units in a similar industry. acquiring these companies. Nonetheless, there are several reasons not to focus on diffiusion of privatized 324. By the same token, the Government should unit ownership at this point. First, many of the units are refrain from making investments in companies that are coo small to necessitate diffiused ownership, and some of due for privatization, offering to buyers of public the larger ones are either in serious trouble or only corporations special privileges such as monopoly rights, recently emerging from it. With the possible exception other arrangements which restrict competition in the of Guyana Stores, there are few good vehicles for mass sector, concessional loans, favored access to Government stock ownership. Second, institutional mechanisms contracts or purchases, favorable tax treatment, or any encouraging diffused corporate ownership do not exist. other regulatory arrangement that would favor the Guyana does not have a stock exchange, there is very little particular buyer vis-a-vis potential competitors. trading in stocks, and even treasury bill auctions are not always fully subscribed. Languishing. under-subscribed Redundancies issues is a real danger and would hardly serve the cause of privatization. Third, there is no reason why the 3.25. The two principal workers' concerns are acquiring investors would not voluntarily dilute their continuation of employment after privatization and (to shareholding to a controlling interest once these a lesser extent) the right to acquire ownership. So far, institutions are available. Finally, with treasury bill however, it is fair to say that there has been litde cause rates as high as 25% p.a., and the Government's for concern with respect to redundancies caused by precarious financial situation1 the time value of cashing privatization. Guyana faces acute shortage of workers at in Government shares cannot be ignored. all levels, and private wages are already considerably above public wages for comparable work. In somc of the 3.28. A balanced approach towards these conflicting privatized units, wages have significantly risen after considerations may be as follows. The Government privatization, probably because the new owners found it should declare its willingness to accept workers' buyout necessary to pay reasonable wages to encourage bids, since there is genuine apprehension about the productivity. In Demerara Woods, wages were raised by Govemrnment's reception of such bids. Workers/Unions 70% in February 91, 50% in July '91 and another 55% interested in a buyout should be encouraged to seek in March '92. Similarly, employment may be expected advise of local or foreign investment bankers or brokers to rise with an increase in output. to put together specific bids, and the Government may encourage potential investors to share equity with 3.26. Nonethdelss, as privatization continues, and workers. However, price should remain the sole aff&s sectors such as bauxite and sugar, the possibility criterion for winning the bids and che overall timetable of more widespread redundancies should not be for privatization should not be compromised to permit dismissed. The Government would need to look worker participation. carefully at issues related to mitigating the impact of privatization on employment. Some senior managers Managemeat and Preparation rmay be most likely to be affected by changes in personnel brought about new owners; such changes should not be 3.29. Management of the Program. A ministerial restricted. Employees that do lose thcir jobs due to Oversight committee (OC) provides a good forum to privatization should be ensured fair compensation represent different branches of the Government subject to existing laws or collective and individual concerned with privatization. Its main objective would bargain agreements. The retrenchment compensation be to ensure consistency, transparency and should be clearly agreed to prior to privarization to professionalism of the privatization program. The permit private owners to reach an informed valuation ministries of Finance, Trade, Industry, Agriculture and for the property. However, it would be desirable to Planning would logically participate in such a group. refrain from urging retention of the existing work The OC should be responsible for determining and firce by new owners. implementing a timetable of privatization, setting the conditions of sale for individual units, approving - - : privatization strategies (e.g. going concern sale, histories should be carefully examined to isolate the piecemeal sale) for different units, and overseeing the problems (unrealistically high valuation, failure to work of the operational unit for privatization that is interest relevant investors, perceptions that units were responsible for tidying up accounts, valuation, not available to some, etc.) that prevented their publicity, tendering, and post-sale follow-up. Once the privatization earlier. OC is formed, none of the individual privatization cases should be transferred to a particular minister or 3.35. Valuaton and Other Professional Senrices. secretariat. The views of different ministries Because of the Privatization Unit's responsibility for concerning pace, scheduling, proportion of assets sold, negotiation. (see suggestions below for reducing the role the manner of privatization and conditions of sale of negotiated salcs), as well as PCS's general oversight should be fully coordinated, and as far as possible responsibility, they should not be given the communicated through the OC. responsibility for the Government's internal valuation. In light of the problems experienced in the valuation of 3.30. The OC should continue to be supported by an properties under the last Government's program, the OC executing agency, a Privatization Unit (PU). PCS should seriously consider obtaining an external conrinues to be a good agency to entrust with this professional valuation at least for the larger units. responsibility because of the companies' reporting However, some caution should be exercised over the use relationships with PCS, preparatory work already done of the valuation. The valuation should give the at the PCS, and concentration of UNDP support there. Government information on the market value of the Moreover, it is recommended that a representative from property, but should not neccssarily be viewed as the the Finance Ministry be added to the Privatization Unit. minimum acceptable price. Ultimately, the true value As privatization transactions reduce the normal of the property is what the market will pay. As long as supervisory responsibilities of PCS, it would be easier the process has been open and competitive, the to draw the rdevant staff for the PU from PCS. Government should be willing to accept the market pricc. 331. The following chart describes the typical process of privatizaticn that the PU should implement, 3.36. Further, the general shortage of staff with overseen by the OGC relevant skills would argue in favor of using local or foreign investment bankers, brokers, or acoountants to 3.32. Preparing Units for Sale. The OC should help the Government in auditing, preparing a oversee preparation of an informativc prospectus for prospectus, canvassing for investors, and negotiating units to be sold. The ad hoc information production in price. For the larger units, the additional cost may well the past should be replaced by a conscious effort to be justified by the speed of negotiations or inform prospective investors. The OC should ensure improvements in price obtained. that all information-even if requested by, or generated in response to, the queries of specific investors--is Privatization Process disseminated in somc standardized form to all interested parties. 3.37. While preparation of the company, valuation and negotiations are important ways to safeguard 333. Several units appear to have significant Government's interests in privatization, none is as barldogs in terms of preparation of standard accounts important as ensuring wide, competitive investor and inventories, and/or extcrnal audit of their accounts. participation in the acquisition process. Ensuring such Thc plan for privatization should specifically provide participation mainly involves administrative and for realistic schedules and measures for getting the units' political skills, rather than technical, accounting, accounts prepared and preferably audited. Such valuation, or economic expertise. Given the competing information may be necessary in preparing a reasonably investment opportunities for Guyanese and foreign informative brochure. While outdated accounts is a investors and very modest bidding for previous somewhat endemic problem, privatizarion is an privatizations, there is a real danger of privatizations extraordinary exercise that merits provision of special not taking off. Thus ensuring a wide competitive resources from say, PCS, the Auditor-General's office, or participation should be dhe primary responsibility of external auditors. the OC. This entails several steps as follows. 3.34. Certain units have been advertised for sale 3.38. First, the Govcrnment should publicize the repeatedly without apparent investor interest. Before program as widely as possible, using varied and well- offering them for sale again, their previous sale targeted publiciry means The program and the units 12 must be 'sold" long befbre the point of sale tender necessary. However, the bids should be opened in the advertisements for specfic units, through meetings with presence of the press and/or representatives of the banks and other institutional investors, industry/business business community (e.g. chamber of commerce associations, CARICOM and other foreign officials, reprcsentative). The very low first round bids received press conferences, contacts with overseas Guyansc, for certain standard commercial properties may mean communications with privatization press, other that bidders did not expect a truly competitive process, operators in the industry the pubic unit operates in, and and used initial bids mainly to be shortlisted for the use oF posters and other on-site publicity materials. negotiations. This mentality can be broken by publicly Given Guyana's size, non-conventienal and directed auctioning some small properties (vehides, office space, publicity can be free or extremely cost-effective in etc.) with no or low reservation price in an open auceton soliciting investor interest. However. caution should be with a certain amount of fanfare. exercised that informal contacts do not give any advantage to particular investors. The purpose of the 3.41. Fourth, as discussed earlier, the OC should publicity campaign should be publicity, not sales ensure that there is equal access to information by all negotiations. interested investors. To ensure this, criteria should be established for acknowledging all investor queries, and as fir as possible, available information-no matter who Tasks o) the original inquiry comes from-should be provided in 1. Valuation, tidy up accounts, prepare a standard forms. Bids by private investors are most rime- privatization prospectus varies sensitive. Frequently, complex financing and 2. Announce intenrion to privatize the partnership arrangements underlie private bids: thus specific unit, availability of the delays in agreement can fast erode interested investor prospectus, date the tender will open or group, making it more likely that the Government auction will be held negotiate with a single investor. 3. Distribute prospectus, field enquiries 2-8 4. Open tender, accept bids 1-4 3.42. Finally, once the privatization process gets 5. Conduct auction, or announce tender under way, there may be occasions of coilusion among results; award bid or announce a new interested bidders. Of course, investors should be free to tender form syndicates or partnerships to acquire control, 6. Open repeat render, if first round bids provided such partnerships intend to jointly own and unacceptably low 1-2 run the business rather than merely exdude competition. 7. AnnounCe acceptance, or postpone Sound valuation and reservation price provide one privatization if no acceptable bids 1 measure against collusion. Threat of being blackballed from future privatizations provides another. 339. Second, investors must perceive chat C. Recommendations privatization process will be fair and fast. These 3.43. The former Government initiated the perceptions respond better to demonstration than to 3 T assertion; thus the first privatizations under the new privatization of public sector corporations and was administration carry large signling value. A unit with succesful in increasing the role oF the private sector in relative simple valuation issues, clean accounts, and the economy. However, the program was flawed by a record of profitability should be used to demonstrate lack of transparency, a diffusion of management transparency of process. Guyana Stores may provide a responsibilities, and questionable procedures. The new particularly good opportunity in this respect. Government should move as quickly as possible to define a privatization program that ensures an open 3.40. Third, as fir as possible, assets should be sold process and facilitates rapid privatization of the through an open outcry auction, as this is the most remaining enterprises that operate in competitive transparent and simplest procedure. Commercial land, markets. The program should be guided by the buildings, vehides, furniture and other such properties following concerns: provide particularly good opportunities to sell through open outcry public auctions and demonstrate the a) the objective of the program should focus on transparency of the process. For larger asset or entire obtaining the highest price for properties sold businesses, and particularly where foreign investor in the shortest possible time, without interest is expected, a sealed bid tender/auction would be unnecessay conditions on the operation of the 13 company or the provision of special benefits to should eliminate the existing monopoly or buyers; have in place an adequate regulatory framework to oversee their operations prior to their b) employees that lose their jobs due to privatization; privatization should be ensured fair compensation. Thus far, this has not been an f) an Inter-Ministerial committee should be important problem, as the experience with responsible for overseeing the program, rceent privatizations has been for an increase in operational responsibility vested in a wages and few layoffs. However, this issue Privatization Unit. Considerable efforts needs to be dealt with carefully, especially as should be made to prepare and disseminate privatization exercises extend to more financial and operational information on the difficult candidates; companies to be sold. Procedures should be established to ensure that all potential buycrs c) the Government should allow for purchases of have equal acces to information. To the extent enterprises by workers and management. possible, valuation should be done by external However, these groups would have to compete companies, and with other potential buyers, with the highest g) care should be taken to ensure that the price the primary criterion for sale; procedures adopted generate confidence in the program. Sales should be widely publicized, d) there is no rationale for retention by the with as many sales as possible conducted Government of a minority stakc in privatized through an open outcy auction. For larger companies; assets and companies sold as going concerns, where sealed bids will be necessary, the bids e) companies that have a monopoly position in the should be opened publicly. market (such as Guyana Oil and Post Office) IV. THE FINANCIAL SECTOR A. Monetary Management domestic credit fell by 60% in real terms from 1987-90, largely because of a 75% dedinc (in real terms) in nct Money and Interest Rates domestic credit to the public sector as the Government tightened fiscal and monetary policies. The decline in 4.1. Monetn7 Aggregates. The Guyanese economy domestic credit to the private sector (in real terms) was experienced a severc decline in monetary aggregates in not as steep. In addition, individuals had acco to credit the second half of the 1980s. The onset of the Economic from Guyanese abroad, not all of which was channded Recovery Program in mid-1988 was accompanied by a through the banking system. Negative real interest rates continued fall in output (after an average decline of 3% and lack of confidence in the solvency of financial per year from 1980-88). While in nominal terms the institutions, in part because of poor regulation and money supply expanded sharply, inflation accelerated supervision, also contributed co the disintermediation. even faster owing to the rapid depreciation of the currency, the removal of price controls, and supply 4.2 The fill in monetay aggregates was slowed in disruptions. Ex-post, the demand for real balances fell 1991 and reversed in 1992 as the interest rate and foreign severely; M2 dropped from 92% of GDP in 1987 to exchange regimes werc liberalized, inflation fell, and 57% in 1990 (sce Table 2.2 in the Annex).6 Net confidence in Guyana's economic management and future increased. Key policies induded the unification of the foreign exchange market, the liberalization of 6At of these amounts are extremely high in terms of absolute domestic interest rates, and the establishment of a financial depth when compared to the financial dcpth competitive market for treasury bills. Net domestic esewhere in the Caribbean and internationally. Measurement credit doubled in real terms from end-1991 to 1992, and of financial depth in Guyana is sferly limited because of the M2 rose from 38% to 53% of GDP over the same probable under-esimation of GDP and the difficuty in period. GDP increased by 6% in 1991, and a similar arriving at an appropriate sarring point in order to measure rate of growth is estimated for 1992. rdative changes in savings. As a result, the figures for the degree of financial depth may be overstated. 14 4.3. Interst Rates and Spreards. Deposit, lending residents. The later appears to be an unnecessary and treasury bill interest rates were all below inflation restriction given the openness of the economy. It is prior to the liberalization of interest rates and simply be a hold-over from the period of capital introduction of competitive bidding for treasury bills controls prior to the Economic Recovery Program. in 1991 (seeTable 2.3 in the Annex ). It appears that interest rates have now risen substantially above 4.7. Taxation. Direct taxes on financial inflation, although the lack of a reliable price index institutions consist of a flat tax on profits of 35% (55% makes it difficult to say for certain. Commercial bank prior to January 1992). Tax rates on personal income lending rates averaged 33% in the first half of 1992 and are a flat 334113% (formerly in three brackets of 20%, 30% in the second half, and inflation is believed to have 30% and 40% respectively) and 45% for select been about 14% for the year as a whole. High ax-post companies. Interest from bank deposits is taxed only at a real borrowing and lending rates in 1992 were flat 15% rate, which is withheld at source7. The understandable, considering expected exchange rate differential between the tax rate of 15% on bank fluctuations and the considerable degree of uncertainty deposits and the corporate or individual tax rate for over future political and economic policies Continued other financial instruments has significant maintenance of sound macroeconomic policies and distortionary effects. Recognizing the importance of progress in addressing the serious structural problems the 15% tax on deposit returns for the Government's facing the economy should, over time, facilitate a revenue base, this mechanism should nor be tampered continued reduction in interest rates, broadly in line with in the short-term. However, in orderr to eliminate with international interest rates. the disrorrionary effects between financial instruments, the Government should consider in the medium term, 4.4. The liberalization of interest rates and taxing interest as ordinary income and applying the 15% increased private sector participation in the banking withholding on deposits towrards the total individual or systemn was accompanied by an increase in spreads. The corporate tax liability. Also, taxation of interest should spread between the weighted average commercial bank be uniformly applied to the New Building Society and lending rate and the time deposit rate increased credit unions in addition to other financial institutions. gradually from three percentage points at end-1988 to The Government should consider the revenue impact of nearly 12 percentage points at end-I 992. This is a very these changes, to determnine whether the increas in the high spread, given the low reserve requirements and tax burdecn could be offset by reduction in income tax absence of forced investments in the system, and may rate. reflect limited competition. Centrl Bank Autonomy 4.5. Reserve Requirements. Cash reserve requiremnents are 11% of demandt deposits and 9% of 4.8. The Constitution assigns the Central Bank an savings and time deposits. Liquid asset holding advisory role to the Government, so that the Bank of requirements are 25% of demand deposits and 20% of Guyana is not an autonomous institution. The President savings and time deposits, respectively. There are no can dismiss the Governor, and other top officials serve at fmrced investments in the system. However, in mid-1991 the pleasure of the Minister of Finance, who also has commercial banks were compelled to purchase G$4,089 veto or approval rights to many actions taken by the Bank. million in three year debentures issued by the Treasury. The Governml nt has the right to maintain an overdraft The debentures were issued at a variable rare linked to account with the Bank and the Bank must purec the the averge of the rates over the last three months' volume of treaury bills not subscribed at the monthly Treasury bils. Cash reserve requirements appear low auctions. This structre is modeled after institutional enough to not create an undue burden for efficient arrangements in Great BriiTan and in other countries1 financial intermediation. Liquid asset holding and should not in principle prevent the Central Bank requirements should be reviewed and calibrted as from playing an in%epecndent role. Nonthceless, needed for monetary policy purpose It is recommended consideration should be given to increasing the that all deposit-taing institutions, induding trust autonomous role of the Bank of Guyana. That companies, the New Building Society and credit unions independence, however, must only be earned by be subjctc to uniform rerve requirements for similar sesablishing a reputation for quality of analysis and intruments, action so that the recommendations of the Bank of 4p6. Fres ign aexange Restrictiuns. Currently, all loans or deposits in foreign currencr musc be approved 7ehc 15% rate is dhe final rate and nor just couned twards the by the Bank of Guyana as must be all loans to foreign personal or individu tax assssment d 15 Guyana carzy subsntndal weight within the GovernmenL and refiLsed to :'llect on the third bid. The Government Further, consideration should be given to potentially has stared that, in the future, institutions that fail to revising the Bank of Guyam Act to increase the Bank of collect on awarded bids would be barred from further Guyanis autonomy. participation in the auction. The Government should impose this penalty at the next instance of failure to Treasury Bill Auctions collect on an awarded bid, and should ensure that the policy is well understood by auction participants. Also, 4.9. Procedures. The Government introduced a the Government should consider charging a premium system of competitive bidding for treasury bills in June for early redemption of treasury bills, which would 1991. Under this system, the Government ofiers 90-day help to promote a secondary market. treasury bills at monthly auctions, with the amount determined by a projection of the liquidity position of 4.13. Impact On Interest Rates. The treasury bill the financial system and the Treasury. The treasury bills auction serves as an anchor for incerest rates in Guyana. are allocated by filling the orders starting from the The average discount rate applicable to the issue is lowest interest rate bid until the auctioned amou.at of established by the bids oF successful participants in the treasury bills is cxhausted if the auction is auction. The Bank rate (a reference rate for interest rates oversubscribed, or until all of the bids are filled if the in the system) is modified monthly, generally in such a auction is under subscribed. If the later occurs the Bank way as to add 1.2596 to the treasury bill rate (rounded to of Guyana retains the balance of the treasury bilk at the nearest 0.25%) observed at the previous auction. Actual average rate. On occasion, the Bank has rejected interest spreads between the Treasury Bill rate and Bank rate have rate bids that exceeded the average bid by three varied at times by more than 1.25%. The special deposit percentage points, even if the auction is under rate (the interest rates on funds deposited in short-term subscribed. accounts at the Bank of Guyana) is determined by subtracting 2.5% firom the Bank rate. These mark-ups 4.10. The procedure for participation at the auction are set by the Bank of Guyana in consultation with the is very simple. The auction dates are announced wdl in Ministry of Finance. advance. The amount to be auctioned and the amount and averagc rate of the previous issue are announced in the 4.14. As of December 1992, treasury bills paid gazette, an official newspaper, one week in advance of almost five percentage points above CDs offered by the deadline for bid submissions. To participate, one commercial banks, and even more compared to demand has to go the Bank of Guyana and fill out a form stating and savings deposits. This spread has contributed to the the amount of funds offered and the desired rate. The profitability of most of the banking institutions, which minimum bid is only G$500, or about US$4. Multiple hold over 50% of their portfolio in treasury bills and bids are allowed, and there are no fees or deposits in special deposit accounts at the Bank of Guyana. lhis required to submit bids for consideration at the auction. differential between instruments of similar risk (if anything, treasury bills are probably safer than bank 4.11. A number of accounts are given automatic and deposits) is partially cxplained by the tax system. guaranteed entry into the treasury bill auction at the Interest for treasury bills is taxed at the corresponding average winning rate. Those accounts include those held income tax rates for individuals or corporations. by the Caribbean Development Bank, Export-Import Interest income from bank deposits is subject to a flat Dcvelopment Bank, MIGA, Debenture Sinking Fund, 15% withholding tax. The corresponding after-tax Cities Sinking Fund, Personnel Investment accounts and rates (as of December 1992) for individuals was 15% for the Bank of Guyana Pension Plan. The amounts both tresury bills and three-month CDs. There is some requested by those accounts are automatically deducted question, however, whether everyone who receives from the amount of the treasury bill issue, and a treasury income from treasury bills pays all taxes owed, so that bill amount equivalent is purchased at the average tax considerations alonc would not necessarily explain treasury biJl rate. The total amount of those accounts has all of the spread between treasury bills and bank ranged from G$400 million to G$900 million, or deposits. As indicated above, in the medium term, between 15% and 25% of the value of the issue. What is consideraton should be given to taxing interest from left is auctioned to the public, any source as ordinary income and applying the 15% withholding tax against it (the amounts withhdd would 4.12. In the past, there was no penalty for refusing to be counted toward the overall taxes payable). collect on an awarded bid. At lcast two cases of failure to collect occurred. In one, a bank submitted three 4.15. Two factors may contribute to maintaining the diffcrent bids, collected the rwo more favorable ones, spread between treasury bills and deposits, and may in 16 generd impair the efficiency of the auction. First, the estimated inflation of 14%.8 It does not appear that the close relationship between the treasury bill rate and the system in itself greatly impeda interest rate adjustment, special deposit rate may reduce the tendency for so that changes in the system to reduce interest rates competition to reduce the treasury bill rate. The Bank further are nor urgent. The tansition to a system that of Guyana accepts deposits at the special deposit rate, set a encourages grater flexibility in interest rates should rate which is generally 1.25% below the average rate in only be taken when monetary conditions are sufficiendy the treasury bill auction. Thus, an institution which is stable to avoid any precipitous fill in rates and not awarded at the treasury bill auction can place the armeusurate pressure on the exchange rte. samc finds in special accounts at only a small difference in rates and a shorter maturity. Further, since a high bid 4.19. Other measures might be taken to increase increases the average interest rate in the auction and thus competition, for exumple by encouraging more bids by can influence an increases in the special deposit rate, a individuals and non-financial corporations. A large player in the auction may have an incentive to enter campaign to educate and inform the general public relatively high bids, with little penalty if some bids are about the auction could have some impact in expanding not accepted. participation. The provision of greater information about the auction also would be of use to current 4.16. Second, the treasury bill auction is dominated participants. There appears to be significant confusion by a small number of financial institutions. The five in the financial sector regarding the rules governing the commercial banks account for over 90% oF the bid value auction. For example, some of the major players in die and allocation of treasury bills, with one bank being a financial sector did not know that information on the dominant player in the market. By contrast, the vlue of quantity of treasury bilk to be auctioned was provided bids by individuals is quite small, usually taking up less by the Bank of Guyana and had various incorrect than 1% of the total issue, although the number of perceptions about the process used by the Bank of Guyana individuals submitting bids at the treasury bill auctions to accept bids. has been slowly increasing and is relatively large in numbers (usually equaling over 50% of the submitted Structure of the Financial Sector bids). 4.20. The financial sector is made up of the 4.17. A rcduction in the interest ratc the Government following institutions (see Table 1): pays on treasury bills is important to public sector finances. The outstanding value of treasury bills Tabb 1: STRUCTURE OF THE FINANCIAL SYSTEM increased from G$6.2 billion in 1991 to G$11.5 Crotal Assets, December 1992) blilion by end-I 992 (about 40% of GDP), a rise which G$bn % far outpaced the rate of inflation (14% in 1992). share Alternatives for reducing interest owed on treasury bills Commercial Banks 38.8 66.5 should be explored, and will become even more Trust Companies 1.5 2.6 important if the stock of treasury bills continues to rise. GAIBANK 5.6 9.6 Of coursc, such intercst ratc policy has to be weighted Guyana Cooperative Mortgage 0.1 0.1 against monetary policy objectives. One approach to Finance Bank facilitating a reduction in the treasury bill rate would New Building Society 2.7 4.6 be to lower the special deposit rate, by increasing the Domesic Uife Insurance 5.3 9.0 difference between the special deposit rate and the Bank Companies rate. This would increasc the monctary pcnalty for Pension Schemes 2.2 3.8 institutions which are not awarded treasury bills, thus National Insurance Scheme 2.1 3.7 encouraging greater competition in the auction. Such Credit Unions 0.1 0.1 should be considcred against objectives of maintaining a Total 58.4 100.0 stable exchange rate. *Estidued Notc Accounts hve not been reconciled so some doube 4.18. It should be noted, however, that the close link coundng mry axisL between the special deposit rate and the treasury bill rate Socwn: t Bak SoRDuB. has not prevented a decline in the interest rate on treasury bills. The average treasury bill ate has fallen from 31% at end-1991 to 23% at end-1992 compared to 8See pan. 4.3 fbr a discuaion of why inters rates may remain well above estimated inflation. 17 B. Analysis of the Financial Sysiem f) there are 43 credit unions (0.1% of assets), which mobilize funds though savings deposits a) the system is dominated by the five commercial and through 3shares purchased by each member, banks (67% of financial system assets) which essentially a type of savings deposit. Credit accept demand deposits (in addition to time and unions are largely moribund, due to limits on savings deposits) and perform traditional lending and deposit rates; and banking functions. The largest is the National Bank for Industry and Commerce (NBIC-51% g) the informal credit system appears to be highly State-owned), followed dosely by the Guyana developed, including family provision of National Cooperative Bank (GNCB--97% credit by input suppliers or buyers of output State-owned). Smaller banks are the Guyana (particularly the privatc rice mills), credit Bank for Trade and Industry (GBTI--30% from shopkeepers through a higher mark-up on State-owned) ant branches of the Bank of Nova goods, various types of consumer loans and Scotia and the Bank of Baroda. In total, the pooling of funds. The monthly interest rate State owns approximately 59% of the asses of can bc as high as 50%, but coercion or the hreat the commercial banking sectors; of coercion securing repayment apparently is rare. Little information on the size of this b) five trust companies (3% of financial system market is available. assets) undertake multiple fuictions, including mortgage financing, trade financing, trust Regulation and Supervision of the Financial System management, pension fund investment and brokerage services. They can acept time 4.21. Bankig regdadon is divided as follows. deposits, but are prohibited from accepting demand deposits. Currently these institutions a) commenrial banks, which hold demand de osirm are registered under the Companies Act and not are subject to the Banking Act of 1965 (Chapter subject to any regulation or prudential 85:01),asamended. TheBanlkingActrmandates supervision by the Bank of Guyana; parameters for the operation of commercial banks, including the role of the Bank of c) specialized State-owned development banks Guyana and Minister of Finance in control and include the Guyana Agricultural and oversight; select prudential requirements, Industrial Development Bank (GAIBANK- including minimum capital and capital 10% oF finandal system assers), which finances adequacy levels and Icnding concentration agricultural and industrial development limits; and licensing and financial reporting projects, and the Guyana Cooperative Mortgage requirements; Finance Bank (GCMFB-0.l% of assets) which finances home mortgages for low income b) the GNC&, Sate-ownd anu companies and families; other select stat-owned financal insciuogm are subject to the Cooperative * Financial d) the New Building Society (5% of financial Institutions Act of 1976 (COFA Act- Chapter system assets) is a private institution under its 75:01). The COFA Act provides a friamework own statutes which acts similar to a credit for oversight ant management of the union-it provides mortgage financing for its institutions under its purview. It also provides members (depositors) at subsidized rates; select prudential requirements and requirements of management. GNCB is e) there are six life insurance companies (9% of technically subject both to COFA and to the assets), the largest being branches of foreign Bank of Gu; ma; companies that operace throughout the Caribbean. Other sources of long-term funds c) the New RuinIg Sociey is subjec tO the New for investment in treasury bills, debenture, Building Society Act of 1973 (Chapter 36:21). mortgages and corporate finance include the The Act specifics parameters for the operations National Insurance Scheme (Social Security of the New Building Society, select prudential Systemn-4% of assets) and pension funds (4% limits, and licensing and minimum financal of assets); reporting requirements; 19 each institution; (d) initiation of partiA portfolio instiutions depending more on demand deposis inspections in each institution with loan dlaification (b a 9% and 45% of liabilities and equity) whil in accordance with the criteria proposed by die Center odts depending on time deposit (ween 8% and 36% for Economic Srudies in Latin America nd the of libDities and equity). Savers in Guyana have Caribbean (CEMBLAC); (e) recruitment of hioically been loyal to individual insitudoas, and approximtely half of the stff nedd for the Banling mrnser Rids beaween banks litde, in spite of reont Supervision Dcpartment; and (19 on the job and cmte;l inteest rate draentials. ning of stffE 4.31. Commercial banks gencrally have heavily 428 Continuation of the progrm for inscitudonal imnetd in uruwy bills and special deposits in the Bank stcngthening of tie Bank of Guyana's supervisory of Guyana. Vhile the GNCB as a mater of policy holds capacity and exaLion oF supervision to slect non-bank a rdatively small portion of its assets in these financial institutions (in accordance with the proposed irtumeam (s below), other instiutions hold bewe revised financial institutions act) are imnporant. Anncx 46% and 67% of their asses in these cwo acounts 2.4 indicaues a deriled, three-year program to strenghen Excluding GNCB, loans and advancs represented supervision, including provisions for technical becween 8% and 29% oF wol commercil bank an. assistance, dValopment of a cmpuerized credit risk monitoring system, and preparaion of implementing 4.32. Most commercial bank lending in Guyana is regulations and circulars consistenr with a revised through commercial overdraft licilides guaranteed by a Financial Institution Act. This program would require mortgae on a house or commrcial property. Hover, the allocation of substantial resources to the Bank of other forms of collateral are accepted, including Guyan for rhc purposws of supervision. Decisions on movable property. Wile most bankes idicated that the speed of implementtaion of the progam will naed the lgl fiamework was adequate to enforce collection to be taken in lightt of the need to devote rurces tO of colatal on loans in dAul, mos ao indicated an other activities and the severe budgetay consrints inadequate registy system and slow court procedur facing the public sector. While dre truat of collection did appear to be e&cri in improving loan compliance, poor ability to rapidly seize collateral and guaranteed property rights clearly Analy of tie Commerdl Baning System inhibited some potental commercial lending. A more thorough analysis would be useful to identify the range 4.29. The commercial banking system still suffers of collateral commonly accepted in lending contracts from many of the dleas of past Govemment polices It is possible that changes in laws or administaive and difficult econotaic circumstances. There is litde procedures could cxpand the forms of acceptable competirive pressure or risk-taking duc to wcak legal collateral, and hence improve access to credit. enforcement of conuacts (suh as the failure caer a check11 and capacity to adjudicate loan collateal), the 4.33. Without improved loan classification, attraivmness of low-risk financial instruments (treasury provisioning snd teporting procedures, it is difficult to bills and special deposits in the Bank of Guyana), render a judgment as to asset quality for individual structural factors in the economy that have made much of institutions. Morover, the criteria for loans in arres lending to commercial customers vcry risky or not have varied across isttutions. Based on the preliminy profitablc and the possible effects of the large share of loan reviews and initial inspections to date conducted by State ownership. Limited competitive pressure, along the Bank of Guyana. it appears that asset quality is strong with a severe dearth of qualified personne, has led to in most institutions, aldthough there are important littlc financial innovation. exceptions. Vey conservative credit policies and large holdings of Government assecs have to dare limited 430. Sources of commercial bank funding are poteantal posure in most of th commercial banks. As primary deposits held by the public, whch reprented the design of prudential regulat!ons and dhe capacity to between 70% and 90% of total liabdides and equity at implement them improve, other asset quality indicators end-September 1992. The composition oF each such as loan concentration wiI become more apparent. instirm on's depoit base varied coniderbly, ith ome 434 As above, it is difficulr to render a judgmnat as to capital adequacy for commercial bans until unifozm 11 Poor enrcement of chck obligaions and an intet in stndards for provisioning, income accrual and other avoiding tliabilietes has made checks an instnument of policies (suck as revaluation) are applied so that capital limired ue in Grana is uniform in composition. Neverthelss preliminary 19 each insticution; (d) initiation of partial portfolio institutions depending more on demand deposits inspections in each institution with loan classification (between 9% and 45% of liabilities and equity) while in accordance with the criteria proposed by the Center others depending on rime deposits (between 8% and 36% for Economic Studies in Latin America and the of liabilities and equity). Savers in Guyana have Caribbean (CEMBLAC); (e) recruitment of historically bcen loyal to individual institutions, and approximacely half of the staff needed for the Banking cransfr finds between banks little, in spitce of recent Supervision Department; and ($) on the job and external interest rate differendals. rmining of staff. 4.31. Commercial banks generally have heavily 4.28. Continuation of the program for institutional invested in treasumy bills and spcial deposits in the Bank strenigthening of the Bank of Guyana's supervisory of Guyana. While the GNCB as a matter of policy holds capaciy and cxpansion of supervision to select non-bank a relatively small portion of its assets in these financial insticutions (in accordance with the proposed instruments (see below), other institutions hold betwcn revised financial institutions act) are importanL Annex 46% and 67% of their assets in these two accounts. 2.4 indicates a detailed, three-year program to strengthen Excluding GNCB, loans and advances represented supervision, including provisions for technical between 8% and 29% of cal commercial bank asses assistance, development of a computerized credit risk monitoring system, and preparation of implementing 432. Most commercial bank lending in Guyana is regulations and circulars consistent with a revised through commercial overdraft facilities guaranteed by a Financial Insitution Act. This progam would requtire mortgage on a house or commercial property. However, the allocation of substantial resources to the Bank of other forms of collateral are accepted, including Guyana for the purposes of supervision. Decisions on moveable property. While most bankers indicated that the speed of implementation of the program will need the legal framework was adequate to enforce collection to be taken in light of the need to devote resources to of collateral on loans in default, most also indicated an other activities and the severe budgetary constraints inadequate registry system and slow court procedures. facing the public sector. 'While the t-reat of collection did appear to be effective in improving loan compliance, poor ability to rapidly seize collateral and guaranteed property rights clearly Analysis of the Commercial Banling System inhibited some potential commercial lending. A more thorough analysis would be usefil to identilj the range 4.29. The commercial banking system still suffers of collateral commonly accepted in lending contracts. from many of the effects of past Government policies It is possible that changes in laws or administrative and difficult economic circumstances. There is little procedures could expand the forms of acceptable competitive pressure or risk-taking due to weak legal collateral, and hence improve access to credit. enforcement of contracts (such as the failure to cover a checklI and oapacity to adjudicate loan collateral), the 4.33. Without improved loan classification, attractiveness of low-risk financial instruments (treasury provisioning and reporting procedures, it is difficult to bills and special deposits in the Bank of Guyana), render a judgment as to asset quality for individual structumal factors in the economy that have made much of institutions. Moreover, the criteria for loans in arrears lending to commercial customers very risky or not have varied across instirutions. Based on the preliminary profitable and the possible effects of the large share of loan reviews and initial inspections to date conducted by State ownership. Limited competitive pressure, along the Bank of Guyana, it appears that asset quality is strong with a severe dearth of qualified personnel, has led to in most institutions, although there are important litde financial innovation. exceptions. Very conservative credit policies and large holdings of Government assets have to date limited 4.30. Sources of commercial bank funding are potential ecposure in most of the commercial banks. As primarily deposits held by the public, which represented the design of prudential regulations and the capacity to between 70% and 90% of total liabilities and equity at implement them improve, other asset quality indicators end-September 1992. The composition of each such as loan concentration will become more apparent. institution's deposit base varied considerably, wieth some 4.34. As above, it is difficult to render a judgment as to capital adequacy for commercial banks until uniform 11Poor enforcement of dceck obligations and an interest in standards for provisioning, income accrual and other avoiding tax liabilities has made checks an instrument of policies (such as revaluation) are applied so that capital limited use in Guyana. is uniform in composition. Nevertheless, preliminary 20 estimataes indicate that most institutions could satisfy an oversight should result in improved information about 8% standard of capital and reserves divided by risk- these institutions. adjusted sts12, owing to che lage holding oF treSury bills and special deposits which would likely require 438. The revised Financial Institutions Act should litde capital. It is also likely that existing commercial subject trust companies that take deposits to the oversight banks could mret the minimum capital requirement and regulatory authority of the Bank oF Guyana, and being proposed above, assuming that difficulties require that trst companies meet adequate prudential pertaining to the rclease of assigned capital for branches standards. The Act should include a minimum capital of foreign banks can be resolved. requirement (presently there is no capital requirement for trust companies), which potentially could bc set 435. Ic appears fiom published financial statement lower dun those for commercial banks, provided that sheet data that most commercial banks have been the trust companies continue to accept only time profitable during the past few years, supported by the deposits, and not demand deposits. Further, the Act increasingly high spreads. However, because historical should specify die conditions under which banking and datia on profitability have not becn collected nor is non-banking services (such as underwriting) can coexist interest accrual performed on a uniform basis, a in a financial institution. Provisions in a Securities Act systematic profitability assessment could not be (see below) could also specify conditions for undertaken. Further, it should be noted that because underwriting, public listing, etc. so as to establish Guyana docs not havc inflationary accounting standards, stronger rules for securitics markets ransactions. historically high nominal returns on equity have been nc&essary inh ordcr to maintain an equity base in real Credit Unions t.ers (see pars 4.69). 4.39. There are currendy 41 credit unions in Guyana Trust Companies which are members of the Credit Union League, an industry association that also provides for very limited 436. The four trust companies in Guyana together self-regulation. These institutions have a combined comprised G$1.5 billion in assets end-June 1992. The mcmbership of approximately 26,000. Most arc lrgest is GNCB Trust (62% of trust company assets), a organized at the work-place, although there are some Government-owned mortgage finance institution that church and community credit unions. Credit unions also manages pension funds and crust operations (see mobilize funds through savings deposits and "shares" bedow). Globe Trust (16% of assets) was started in 1991 purchased by their mcmbers which essentially are a type and engages in trade financing as well as somc of savings deposit. commercial financing for a 90-day period. Secure International Trust (13% of assets) primarily engages in 4.40. Credit union activities are largely inoperative, equity financing and underwriting, although does a being severely limited by a Ministerial Order that smail amount of commercial lending. Trust Company constrains the intercst rate on deposits to 6% and on Guyana (9% of assets) is a trust institution which cakes loans to 12%. During Guyana's inflarionary period, limited public deposits. these limits severely reduced the availability of deposits and the profitability of loans. While at one time credit 437. Without a formal financial reporting system unions served an important function as a savings vehicle or regulatory body providing oversight, it is difficult to for consumers, because of non-competitive rates, ascertain the financial position of individual trust individuals generally only save with credit unions if institutions. Moreover, without a regulatory body they have some likelihood of receiving a consumer loan scrutinizing asset quality, a judgment of capital at the below-market rate. Moreover, loans of credit adequacy is also difficulc. Given thcse caveats, while unions are now generally limited to small perional most trust companies in Guyana tend to be thinly loans used primarily for consumption, since the credit capitalized, the risk profile of their assets (some unions cannot generate larger savings volumes. holding significant Government sccurities or deposits in banks) may mitigate the need for too large a capital 4.41. Under the Co-operadivc Socicties Act, the basit Reform in the regulatory structure and improved relevant supervisory body for Credit Unions is the Department of Cooperatives in the Ministry of Public Workcs, Communications and Regional Development. The Credit Union Leaguc assists in the preparation of Th2lis ische standard adopted by the Baskc Committee on the accounts of its individual members and advises on Bmidng Regulations and Supervisory Pr=aices such mattes as reserve levels, provision for losses and 21 organizational questions. The Credit Union League has insurance companies apparently could be seriously a fill-time staff of five and its operating expenses arc decapitalized, although have not becn forced to stop funded by a lcvy charged on the member credit unions as writing new busincss. Some institutions only have the wdl as a funds from the Ministry of Public Works, resources to offer partial coverage of certain potential Communications and Regional Development. The liabilities, such as limited automobile damage Credit Union League also arranges insurance facilities liability coverage. Mosn life insurance companies face in case of a borrm-er's death through the Credit Unions difficulties of ruenrs term ransfrnuation-assets are National Association (CUNA), an international body. invested instruments of a much shorter maturity than In spitc of the stacutory requirements and the assistance liabilities. A consequence of the lack of long-term of the Credit Union League, there is actually litde financial instruments in the domestic economy. active supervision at present. Th&e havc, for example, been only a iw instances of credit union restructurings. 4.46. Measures to teform the insurance industry in Some mergers, however, have been arranged between Guyana should focus on improving the information smaller credit unions. Without any available recent data base, strengthening exing regulations, and developing on credit unions, no judgments could be made as to the the institutional capacity to apply such regulations. The financial health of these institutions. Insurance Act should be revised in the medium-term, taking into account revisions to similar lcgislation in 4.42. The exact role and finction of credit unions other Caribbean countries. The institutional capacity needs to be more dearly deFined lest they become a of the Commissioner of Insurance should be developed vehidce for escaping the capital provisions of a revised in accordance with a planned program. Finally, die Financial Institutioncs Act. Present limitations on information collection, distillation and dissemination interest rates should be gradually removed, with the either by the Commissioncr of Insurance or the Bank of timing linked to measures to improve the regulation of Guyana should be improved so as to better inform both these institutions, including development of the consumers and investors institutional capacity for e&ctive supervision. The 15% withholding tax on interest income (withheld at Socurities Market Development source) should be applied to deposits or shares in credit unions as the rates paid are liberalized, to the extent it is 4.47. While a formal stock exchange market does not cost-effective to levy and collect the tax. exist in Guyana, stccks are traded over-the-counter through an informal market, indeed sometimes through Isurance Companies newspaper advertisements. No legislation other than rhe Companies Act regulates this trading. Secure Trust 4.43. Therc ar currently 41 insurance companies in Company serves as a broker and underwriter for Guyana providing gcneral and life Insurance. Life approximately 13 companies of which approximately 4- insurmnce companies have been dominated by large 5 are activdy traded. Share capital has been raised insurance companies operating thi .ighout the through public offerings, with such offerings Caribbean for much of this century. sometimes placed broadly.13 The fixed income marker consists primarily of the market for treasury bills, and 4.44. The Insurance Act of 1970 is considered occasionally debentures. While private corporate bonds archaic and without sufficient specification of have not been issued, long-term debentures of public prudential guidclines. The institutional capacity of the oompanies have. Commissioner of lnsurance is essentially non-existent. The existing Act is not being enforced nor does the 4.48. There are a number of barriers to the foundation exist for implementing future legislation. development of securities markets in Guyana. Country, Finally, information which could facilitate the foreign exchange and project risks remain very high. effective operation of market forces in the sector is There is resistance to financing through markets which virtually non-existenr - a consequence of the lack of require public disclosure of corporate financial longer-term financial instruments in the domestic statements for fear of scrutiny by tax authoriries. economy. Restrictions on the investment of insurance companies and pension funds in secondary trading of securities 4.45. While data sufficient to undcrtake an analysis of the financial position of insurance companies are not available (other than consolidated financial statements 13Examples of thse are he offerngs of shares for GBIC from individual institutions), the financial position of NBlT and Denmrara Distillers LtL which deliberately some companies appears to be extremely poor. Some sought to attrc widepread ownesip. 22 inhibits the development of this market. Infornatdon period and interest payable based on the Government's 3- on cxisting trades and on the performance of companies month rreauy bill rate.15 is scarce or of limited reliability. Secondary markets for Government securities do not exist. Investor fears of 4.52. The last few years have shown some positive price fixing are considerable, given the limited results, largdy owing to the restructuring process. Net transparency of public trading and the process of sale of income increased in 1991, and the tightening of credit public enterprises. Finally, the absence of a Securities procedures has addressed many of the worst abuse. Act or a regulatory authority such as a Securities and During 1992, GNCB's deposit base grew both in real Exchange Commission restrains the development of terms and at a rate faster than for the commercial uniform transactions as well as inhibits confidence in banking system. GNCB did increase its administrative marker mechanisms. costs during 1991 and 1992, due to the large investments made in computerization and the upgrading of saff. 4.49. Securities marker development is an important Yet while GNCB's position has improved, significant goal in the medium-term but should not be a major financial and operational restructuring is still necessay priority for the first stage of financial sector reform. to place GNCB on a viable foodng. However, preliminary legal work could begin on drafting a Securities Act, revising the Companies Act (if 4.53. It is recommended that a comprehensive plan necessary) and formulating improved requirements for for the financial and operational restructuring of the disclosure of financial information. Development GNCB be formulated, with the intent of privatizing of a securities market would then require establishment the institution in the medium-term. This ofan agency to manage the process. recommendation stems from the following assumptions: C. Analysis of Principal Financial Institutions a) while the intent of the founding of GNCB may have had some rationale in its time, Guyana National Cooperative Bank (GNCB) currently there is no convincing rationale why the Government need be the owner of a 4.50. The GNCB was established to serve the commercial bank in order to ensure an commercial financing needs of Guyanese businesses, to efficient and competitive financial system. support investment in new business areas, to extend Further, equity in such an institution could financial services to unserved communities, and to serve better be placed in alternative uses. dc-facto as the Government's bank. GNCB's financial difficulties began in the mid-1980's as the economy b) GNCB's potentially very large debt overhang deteriorated, reflected primarily in the poor quality of (deposits greater than recoverable assets) likdy its loan portfolio, poor credit control policies limits the option of privatization in the short- resulting in credit misallocation, and in the large term since covering unprovisioned losses could disparity between the maturity of its assets and prove more costly than could be supported liabilities resulting in significant liquidity risk. immediately; 4.51. Rccognizing the severity of its financial c) liquidation could have a negative effect on difficulties (including a negative equity position), in confidence in the financial system and would 1990 the Governmrent installed new managemenr at potentially rcsult in a fiscal cost in any event; GNCB and began an analysis of the problem. Measures to financially and operationally restructure the institution were adopted, including a complicated transaction whereby a loss of G$1.0 billion, 27% of the 15Prompt payment of intrest on this obligation will stock of GNCB's portfolioi4, was transferred from dramatically affTect GNCBs income and cash low. If payment GNCB to the consolidated find and the issuance of a is not forthcoming, GNCB1s financial position will be debenture to the Govermment of Guyana cover provisions significantly compromnised. In addition, whilc charging established. The principal is due at the end of the losses to the Consolidated fund is consistent with Guyanese law, provision of a debenture (a fixed-income obligation) instead of cash to cover such losses results in an accounting MActual losses were estimated to bc higher and auditors convention which trankrs a loss from one scr of books to commented that provisions were not sufficient for uncolected another. Provision of the debenture does not in itslf interest. Annex 22 indicates the masures taken during 1990, capialize GNCB unti such time as the principal of the 1991 and the first half of 1992. deerred receivable is paid on a cash basis. 23 d4 uncertainty over the recoverability of GNCB's total assets in real terms by 9% and 8% respectivdy, portfolio limits a judgmznt as to the potential while at the same time total commercial bank assets fiscal cost of recapitalization to realize a declined in real tenns. profitable asset base and cover unprovisioned losses; and 4.56. NBIC's capital position also appears sufficicnt, provided that its portfolio is appropriately e) if it proves feasible to financially restructure classified and provisioned. While NBIC holds a GNCB, operacionally restructuring the relatively small capital base, the large proportion of its institution will necessitate some time to obtain assets held in Government securities and deposits in the demonstrated results. Bank of Guyana mitigate the risk posed against such capital. At end-September 1991, NBIC held only 12% Based on the observations above, it is recommended that: of its assets in loans and advances. As with GBT!, NBIC ti) a detailed financial assessment be done of GNCB increased its deposits and assets in real terms during from which the magnitude of losses would be more 1991, while both declined for commecial banks as a apparent and thus the range of policy options available; whole. During January-September 1992, deposit and (i) from such an assessment, a threc-year restructuring asset growth also outpaced that of the system as a whole. program be developed and adopted by GNCB's Board; (iii) the Government indicate its intent to privatize the 4.57. Both institutions appear to have been highly institution in the medium-tern, ideally at the end of a profitably in nominal terms, although until 1991, thrce-year timc frame is such a goal proves justified return on equity was either limited or negative in real based on the assesment; (iv) the institution should be terms. Salay and administrative costs have increased for registered under the Companies Act and its status as a both institutions from 1990 to 1992, although costs are Cooperative Society eliminated; and (v) an action plan still low by regional standards when measured as a for ics financial and operational restructuring be proportion of average assets. developcd, announced and impler ientation begun. 4.58. The Government should sell the remaining National Bank for Iadustry and Commerce (NBIC) and public sector shares in both NBIC and GBTI, consisten the Guyana Bank for Tradc and Industry (GBET) with the principles established in Chaptcr III. As apparendy solvent and profitable institutions, financial 4.54. GBTI and NBIC were wholly State-owned or operational restructuring probably is not necessay banks prior to the sale of shares to the private sector. prior to sale and increasing rheir rspective capial bases Presently, the public sector owns 30% of GBTI and could better position them in Guyana's growing market. -.ontrols 51% of NBIC. In general, both institutions are optimistic about the Guyanese commercial banking 4.59. The rationale for privatization of NBIC and market, having had their deposit and asset operations GBTI is as follows: (a) the Government's capital grow in real tcrms during 1991 and 1992. Both are invested in these institutions could better be placed in considering expansion plans, with NBIC considering those investments which are more appropriate to the expanding its branch network, particularly in State's role such as in providing infiastruct or human Georgetown and in other Guyanese cities. services; (b) Government revenues can continue to be generated from these institutions from taxes; (c) each 4.55. While the mission could not perform an in- institution needs additional capital for expansion depth analysis, GBTl's capital adequacy appears sound, which the Government cannot offer; (d) potential providing that its portfolio is appropriately classified oligopolistic powc by private sector owners in the and provisionedl6. GBlT increased its holding of financial sector can be controlled by other legal means; Government securities from 20% of its assets at end- and (e) private sector ownership could result in 1990 to 38% at end-1991. GBTI's profitability has been improvement in management. relatively strong, with return on average assets of 17% in 1991 and an expected increase in 1992. While GBTI's New Building Society salary and other staff costs have increased significantly to 3% of average assets in 1991, although so to did its 4.60. The New Building Society is a privatc profitability. In 1991, GBTI increased its deposits and financial institution operating under the Guyana Building Society Act, which provides mortgage financing for its members (depositors) at subsidized 16Acmual provisions indicated in its financal stanments arc a rates by passing on net income from its other smll proportion of its toal portfolio. investments. At October 1992, the New Building 24 Society paid 15% on its regular savings deposits and "menibers"--its depositors. In the lacer case, while there 18% on its "$5 Shares"; the later was roughly in line is no actual or implied policy of compensawory balances, with rates paid on similar deposits by commercial the New Building Society will use a mcmber's deposit banks. The New Building Society's lending race is history as a criteria for its creditworthiness assessment. 18%, a rate between seven and 16 points below the average mortgage lending rate in the system.17. The 4.63. The New Building Society appears as a solvent institution is abke to lend at essentially the same rate it and profitable institution with apparently strong borrows because it uses the revenues on its investments in management. Profitability was buoyant during 1990 treasury bilk and other securities to cross-subsidize the ard 1991, increasing the New Building Society's resere rates on its loan portfolio. In addition, the New position to 10% of assets at end-1992 (See Table 2.5 in Building Society pays no income tes and thus is able to the Annex). Were an 8% capital/risk-adjusted assets capitalize fully on the premium between treasury bill standard to be applied to the Ncw Building Society, the and timc deposit rates. The New Building Society has. institution would be easily more than filly capitalized since 1988 invested on average between 70% and 80% of (while the New Building Society does not have capital its assets in treasury bills and Government debentures per se. for the purposes of capital adequacy guiddincs, (See Table 2.5 in the Annex). At md-1992, only 9% oF its rcserves can serve as a proxy). The institution's its assets were held in mortgage loans. administrativc costs averaged less than 2% of average assets for 1988-1991. Such costs appear reasonable. This 4.61. In October 1992, the New Building Society figure is in parn due to the large share of assets in lent up to a maximum loan size of G$2.5 million Govcrnment securities, which require few resources to (US$20,000) for home mortgages or improvements on administcr. Administrative costs rose slighdy to 3.1% fully-owned property. The institution's management of average assets in 1992. estimated that between 80% and 90% of its loans were at the maximum amount. The institution lends up to 75% 4.64. Whil the New Building Socicty does appear of its valna ion of che property financed, which is to have a rather large number of its loans in arrears, its believed to be approximately 60% of the market valuc record of loan recovery has been very strong. After of the property. Since it is bdieved that an average several months of loan recovery measurs, the institution Georgetown home would sell for G$5 million, the will seek a judgment against the client. The process of New Building Society would therefore finance homes seeking a judgment most often has led the client to settl up to a slighdy lower than avcrage price range1 8. while the outstanding amount, and thus actual foredosures have the institution is not obligLted to lend for housing, irs been vry few over the institution's history. loans must be secured by home mortgages. Loans are generally for 15 years, although can be for 10 years or 4.65. While the New Building Society appceas to be seven years according to a client's needs. a profitable and solvent institution, it is necessary to ensure that it is properly supervised. The New building 4.62. While the New Building Society's heavily Society should be brought under the umbrella of a subsidized lending rate would appear to generate revised Financial Institutions Act which specifies the dramatic demand for its loans, some mitigating authority of the Bank of Guyana to regulate this circumstances limit such demand. The New Building institution. To ensure a level playing field, the tax- Society only lends against property with no other exempt status of the New Building Society should also outstanding encumbrances against it (i.e. a first be removed. mortgage). As indicated, the institution will only ceffectively lend for 60% of a. property's value which GNCB Trust Corporation (GNCB Trust) implies a relatively high down payment by the borrower. The institution is said to have strict 4.66. GNCB Trust is primarily involved iii creditworthiness criteria for the borrower, induding mortgage financing. In November 1992, the instieution strict requirements for financial information by the charged 32% on domestic residential mortgages and applicant. Finally, the institution only lends to 36% on commercial real estate financing. Mortgages tend to be for a maturity of 10-12 years (12-18 months for construction loans), although some loans have 17Technically the New Building Society, as all other non- prepaid beforehand. GNCB Trust also manages 12 banks is in Violation of the Rare of Interest Act of 1979 which pension plans, largely invested in treasury bills, short- stipulates a cap on mortgage intercst rates which can be charged. term deposits and in some equities. It charges a 18 6D6x GS5,000,000 =GS3,000,00 vass a mamum loan management administration fee and investment fee for size of G$2,500,000. . 25 pension fund management, which depends on the fund returns may not have been sufficient to avoid the erosion balance. of capita in relation to risk-assets. While in the 1980'S dedines in the levels of assets in red terms meant littlc 4.67. GNCB Trust is believed to be a financially pressure on earnings for maintaining GNCB Trust's strong institution, with relatively low arrears and strong capital base, grwth in 1991 and 1992 required strong asset quality. Approximately 63% of GNCB's assets at profitability. end-June 1992 were mortgagc loans, 6% commercial loans and 27% fixed-term deposirs in the banking 4.70. There appears no convincing rationale for system. While GNCB Trust has periodically held large having a Government-owned crst company. No specific amounts of treasury bills, at year-end 1992 it held none. market failures have been identified that the institution 'While precise data on asset quality (including arrears) is seeking to remedy, nor are clients attended to which was not available, it is important to note the widely held otherwise would not be. The Govcrnment should view that real estate prices in Guyana havc more than therefore develop a privatization strategy for GNCB outstripped inflation and that GNCB Trust's Trust, including both a dilution of the Governmcnt's experience with measures to placc borrowers in existing position through a new share offering(s) as well receivership has led in most cases to prompt cancellation as through the eventual salc of its position. Such a of arrears. privatization would enable the institution to grow in a manner to effectively compete with other trust 4.68. Short of a full inspection, it is difficult to companies as well as to open up the possibility of a judge the adequacy of GNCB Trust's capital in relation transformation into a bank under a revised Financial to its risk asscts. At end-December, 1991. GNCB Trust's Institutions Act. equity represented 6% of its total assets, although its share capital represented only 1%19. Examining the Guyaa Coopeative Agricultural and Industrial composition of GNCB Trust's asset portfolio, it Development Bank (GAIBANIO appears that its capital would be more than sufficient to cover the 8% standard against its risk-adjusted assets on a 4.71. GAIBANK provides credit and related advisory weighted basis (the standard proposed in Annex 2.1), services for agricultural and indusrrial projects. The provided that its portfolio is sufficiently provisioned. Bank is administered by nine members of the Board of Directors appointed by the Chairman of COFA. The institurion is prohibited from taking public deposits, Box I and funds its lending primarily from donor funds, and Calcuation of dRqlred Rodt of Reurnm on AvSCgO to a lesser cxtent Government resources and loan Asseht to Maintaln Constant Coveage of Ris*-Assets recoveries. Loan conditions generally have reflected the specified conditions mandated by the agency lending 1989 1990 1991 finds to GAIBANK As a result, about 95% of dte total Asss IOOD. 175.9 300.8 porfolio has been for industy or agro-industry. With Inflation Jan. I-Der 31 104.7% 75.9% 71.0% its 16 branches and 277 employees, GAIBANK is likely 7% ofTotal Assets1 7.0 123 21.1 the most important financial institution servicing non- Req. Incr. in Capital urban areas. (From Net. Inc.) 53 87 Req. Incr. In Capital 4.72. As of November 1992, GAIBANK charged an v&.AUeU) 3.9% 3.7K interest rate of 25% for domestic currency loans, and 15% for loans denominated in US dollars. In addition, 1. Assumes weights of 7/8 of assets of 100% and 1/8 of borrowers pay an appraisal fee of 1.25% of the loan assesat0%. 2amount. its maximum loan size was G$10 million (US$80,000). Approximately 89% of the amount of its loans are denomoinated in US dollars and 11% in Guyana 4.69. While historical figures on profitability are dolls. Loans are made for a period up to ten years, with not available, recent data suggest significant returns on up to two years grace and indude all types of financing average assets, of 3.5% and 4.3% for 1991 and 1992 from working capital to capital investment. All loans respectively. However, as shown in Bax I above, such have variable rate dauses. GAIBANK finances up to 70% of the project cost. Generally GAIBANK seeks either real estatc or real assets as collateral for loans. 19 t is epected diat the offering of bonus shares could serve as a mecanism to convert retained earnings to capitl. 26 4.73. GAIBANK's financial position has been of sub-borrowers accounts, procurement of goods and extremely volatile in its recent history, due to services and accounting for securities. Auditors drew fluctuations in the spread between its borrowing and attention to the nxgative nct worth oF GAIBANIK proper lending rates, sharp changes in the valuation of assets and of G$781 million which was more than ofliet by the liabilities from cxchange rate depreciation, and positive net worth of the IDB 154 project which helped problem loans. GAIBANK sustained significant losses to make GAIBANK's consolidated equity position firom 1988-1991 in large part due to losses from foreign positive as a result of the accounting for foreign exchange fluctuations (see Table 2.8 in the Annex) 20. exchange revaluation indicated in pam 4.73. In 1989 alone, exchanges losses amounted to 38% of the total average assets of the bank during the period. In 4.76. Mitigating some of GAIBANK's assec-based 1991 however, GAIBANK enjoyed large foreign risks is the relatively large amount of funds it holds in exchangc gains due to the severe distortions created by the non-loan portfolio assets. At the end of 1992, 20% of accounting convention used 21. GAIBANK's net GAIBANK's assets were held in fixed deposits in the financial margin has gradually increased from below GNCB (mostly counterpart funds earmarked for IDB 7% of average assets in 1988 to 16% in 1991, but loans) and 1%ofassem wereheldintheBankofGuyana. declined to 12% in 1992. Such financial margins The later are earmarked funds which wer derived from however were more than offset by foreign exchange the 1989 recapitaization. While GAIBANK generally effects, provisions and write-offs. does not allow for loan rollovers, it does accrue interest for a period of two years after which accrued interest is 4.74. During the second half of the 1980s, reversed. An important issue in loan recovery is that the multilateral loans and capital injections from the defaule fee charged by GAIBANK is 15%, which is the Government enabled GAIBANK to increase the size of samec ratc as the US$ interest rate chlrged. In this way, the 'its asset base in real terms while most of the rest of the borrower accrues interest on unpaid principal but hces financial sector agencies are were in a process of no penalty rate per se. Further, such a default fec (penalty disintcrmediationL From 1985 to 1992. GAIBANK's interest) is often waived when loans are re negotiated, assets increased in size 97% in real terms while the thus reducing the repayment by the borrower. financial sector declined 27% in real terms, commercial banks 23% and trust companies incrcased 4.77. GAIBANK's administrative costs have 12%. gradually been reduced, as a percent of average assets, between 1988 and 1992. Salaries and benefits have 4.75. A management letcer from the Auditor General fallen from 2.2% of average assets in 1988 to an average for GAIBANK's 1991 consolidated accounts suggested of 1% of average assets in 1992. Albeit, reduction in that 57% of the porcfolio was contaminated of which wage and benefit costs has come about by real wage 22% was in arrears two years or more. Further, the depression resulting in difficulties in retaining staff, as initial conclusions of the Auditor General's review of weli as a staff reduction to the current 277 employees the enu-1 992 accounts of GAIBANK's portfolio related from the 375 at end-1990. Non-salary administrative to the. IDB #154 credit (approximately 2/3 of costs have also been reduced since end-1987 in relaion to GAIBANK's consolidated portfolio) was that 74% of average assets, having fillen from 3% in 1988 to 1%in this portfolio was contaminated. Attention was also 1992. GAIBANK has reduced its branch network fr'om drawn in the 1991 report for the need for improvement eight to seven branches and has reduced the size of in internal controls regarding the management and selected branches. supervision of loan portfolios, periodic reconciliation 4.78. GAIBANK har begun a process of restrucuring since 1990, including staff reductions and 20The reasons for the foreign echange losses stem front (a) improvements in operating procedures. A capital former loans made in Guyana dollars while the associated injection of G$100 million was provided in 1991 to GAIBANK liability remained in US dollars; and (b) cross- pull GAIBANK out of its negative equity position. currency exchange risk not filly reimbursed by the Howevcr, the restructuring process has not gone far Govenmment of Guyana. enough. A team of consultants was scheduled to bgin 2G1 CABANK revalued all assecs denominated in USS to reflect development of a restructuring plan in early 1992, but to deraluaEion, resulting in foreign exchnge gains, yet lef mosc date this work has not started. In early 1993, measures foreign currency liabilities valued at historical cxchange ratcs. were adopted to monitor and improve loan recovery, Revaluation of all of GAIBANrCs liabilities at the exhange induding improved tracking of loan arrears. rate prvailing on the balance sheet dare would have materially altered GAIBANICs financial position. 27 4.79. Significant measures arc needed in to both (approximately US$500,000) at end-1992. GCMFB focus the role of GAIBANK as well as to improve the management has indicated that approximately 2% of its efficiency with which it intermediates funds: First, the loans are in arrears. However, this figure refrs to the rationale fior directing credit to specific sectors the total payments in arrears and not loans affected by necessity of the Government taking the acdit risk of arrears. Rollovers are indicated to be minimal but no final borrowers is unclear and needs to be careflully central policy exists with respect to rollovers nor is data reviewed. The Government should carefully review the kept on them. credit conditions for GAIBANK's clientelc in order to better determinc which market filures exist and the best remedics to confront such failures. Once identified, it Box 2 is likely that GAIBANK could better serve small GCMFB Intenst Rate Structuro on Modlgge Loans farmers and small businesses by channeling credits through the commercial banking system by acting as a Loans madc prior to April 1, 1989 to: second-tier institution. This approach to the allocation Cooperatives 8.5% of donor funds would imply transforming GAIBANK Individuals up to G$30.000 (US$240) 11.5% into a significantly different institution. Also, in Individuals between GS30,000-$75,000 (US600) 15.0% association with a modification of GAIBANK's role, Individuis between G$75.000-$150,000 (US$1.200) 20.0% revised financial and operational restructuring measures would be needed: (i) Modifications are needed in the Loans made sinceApril 1. 1989to: accounting conventions used to reflect exchange rate Cooperatives 10.5% fluctuations22 so as to improve the transparcncy of Individuals up to G$30.000 (US$240) 13.5% GAIBANK's accounts; (ii) Relistic financial objectives Individuals bentw G$30.000-$75,000 (US$600) 20.0% and projections should be developed based on expected Individuals btween G$75.000-$150.000 (US$1,200) 24.0% loan recoveries and liability commitments, operating costs, future new funding sources and expected fiscal Sou CCMFB support; and (iii) A revised organizational design, staffing plan, credit policy, internal audit function, operational procedures and transition program fior 4.8 GCMFB's most severe financial deficiency is operations as a second-tier leding institution need bc that it is far too small to support its administrative developed and implemcnted. infrastructure. GCMFB has had no new sources of additional funds since 1988 and thus has funded itself Guyana Cooperative Mortgage Fnance Bank exdusively from loan recoveries, currently estimated at (GCMFB) G$i million (US$8,000) per month. With a staff of 51 and four branches, this is a very small revenue base to 4.80. The GCMFB finances low income housing cover administrative costs, not to mention moderate from Govcrnment funds. GCMFB lends for home interest costs on liabilities and funds for new lending. acquisition or improvements, up to a maximum loan In 1991, salaries and benefits absorbed 9% of average size of G$150,000 (US$1,200),according to the interest assets (45% of total revenues) and other operating rate structure indicated in Box II. Most loans are for a expenses absorbed 8% of average assets (37% of total maturity of 20 years. As inflation has greatly eroded the revenues). When one considers that GCMFB does not real value of GCMFB's maximum loan size, most incur the costs of mobilizing public deposit these are financing has been for small home improvements. In very high costs in relation to its small earning asset base. addition, since GCMFB will finance improvcmcnts Whe management has indicated that much of this cost only on homes in which there is no other leans (i.c.. first structure relates to housing-related support provided to mortgages), its clientele has been severely circumscribed. its clientele, the institution may be over-dimensioned relative to its lending volume. GCMFB is said to have 4.81. GCMFB has radically decreased in size as its the lowest salaries of all COFA institutions and, asset base has eroded because of inflation. The therefore has had the most difficulty and recruiting and institution's assets declined 90% in real terms from keeping staff. 1985 to cnd-1992, equaling only G$67 million 4.83. The Government should review its strategy for supporting low-income housing and consider the future 22 Revaluation of both assets and liabilities valued or of GCFMB in die context of such a strategy. Given the denominated in foreign currency should be reflected as of die high cost and limited resources of GCFMB in balance set date Accounrs adininsered for the Governmcnt fncing low-income housing, the Govenment shoudin of Guyana should receive similar treaunentf 29 for the 1990 finandal stm ents indicated could not financial control in the Institution through imprved effectively reconcile the income account of the informadon processing and disbursement control Scheme23; and (c) existing internal financial procedures. Pollowing receipt of the actuarial informatin is inadequate to rnder a judgment as to the valuation and its endatiorm the wcntribution and mumor assetquality of invested fnds. benefit formulas could be revised both to unuur the olvency of the sytem as wdl as the sufficiency of the 4.91. NIS's resoures are invested primarily in bencfit24, and operational restructuring masures Government of Guyana debentures (56% of se) and should be adopted. Future investments in Government deferred receivables (14% oF ast), each of which in scuities or secuties of Govemnment entities shoul be geal have rtes of interest significandy bdow market at ram no less thu the trensuy bill uction rate and rates as wedl as below inflation (sec Table 2.11 in the should reflect markt maes. Finally, investment policy Annex). Most Rdcentures have a 14% intcmt rate (in guiddines of the insdtution should be reviewed so as to G$) and a five-year moratorium on interest and capital facilitate investment in longer-term assets, subjeet to payments (beginning in 1987). Such below market carefil control. interst ras have decapitalized de finds of the NIS. In real terms asset have declined 77% from end-1989 to [natinsre for Private Entaprise Development (PED) cnd-1992. Thes losscs of capital represent efective subsidies fiom the NIS to its respective (Goverment) 4.94. IPED ic a private, non-profit and tax-xempt borrowers. Real wage depression and limitations in organization founded in 1986 to serve small and covered wagcs has also limited rhe flows of new medium sale enterpris Funding for the PED comes contributions. largely from foreign official sources, including IDB, USAID, and ehe British and Canadian aid programs, 4.92. The NIS has a staff of 650 ( clers) and 13 often at concessionary zates. In 1991 it lent G$103 branch offices. In 1992 adminiwarive costs equaled million in 540 projects, or an average loan of 40% of colected contributions vereS the 11% amount G$191,000. Intest chrgs are sec to be slighdy below reommended by auaries, in part due to the very low the bank sate, and wee 29% in March 1992. Although levd of collected contributions because the ceiling on management has indicated tht about five percent of its insube nings hs remained at G$I0,000 per month portfolio is in arrars, IPEI) maes a profit since irs (US$125). Some efforcs have been made at funding is dedved fiom grants or loans on concsionay computerization. induding the purchas of a VAX 4000 terms It has three brnches outside of Georgetown. The inicomputer and six persl computers. WMhil most IPED appears to be performing an imporant fancnion, processing is donr manually, efforts are being made to subject to necemy oversight of its donors. computerize records D. Reconns 4.93. The NIS system provides small benefits to retrees, at reativel high adminisuative costs and has Mounesy Policy suffered losses due to fraud (see footnote 18). An actuarial valuation of the NIS should be undertken 4.95. The Government successfilly implemented a immediatel; to establish a basis for policy decisions. liberalization of Oinancial policics which freed Such an a_essmnt could be reinforfed by contrncting an interest mtes, eased capital controls and estblished a independenr actuary to render a second opinion. marker-based exhange re mechanism. Fuzrher policy Measures should be undern to improve the level of changes to improve the Framework for competition among financial institutions indude the imposition of uniform reserve requirements on all deposit-taking 2Tlhe rMort to management by the audit indicted that: institutions, dimination of remaining requirements 'DuringrheDurmeoftheaudiitwas disoverd that benefir for Bank of Guyana approval of loans in foreign payment voudem wc rcled in firudulnt payments in currency and to non-resdents, and. in the medium-term, 1989 and 1990. Atgnps to qunf the amount invohed in unifying the rate of txtion imposed on different these faudulent payments procd fltilc as a high percentage of financial instrumnts die paid vouches sclmed for inveStgion culd nor be produced. No pwvison wS made in the accunts for the low sutainaL As a sauk. in dic financial satanas. unpaid bees of $6,595,724 has been umdemd and the ess of This would have a significanc ipt on sver e of the income ovacpenditnres aE$206.3 10,653 has been ovtnad ccnomy (induding labor mare effcs) and should be by.an undetrmined amount' evAluated curfuily. 29 for the 1990 financial statements indicated could not financial control ina the institution through improved effectively reconcile the income accounts of the information processing and disbursement control Scheme23; and (c) existing internal firnncial procedures. Following receipt of the actuarial information is inadequate to render a judgrnent as to the valuation and its recommendations, dhe contribution and returns or asset quality of invested finds. benefit formulas could be revised both to ensure the solvency of the system as well as the sufficiency of the 4.91. NIS's resources are invested primarily in benefit24, and operational restructuring measures Government of Guyana debentures (56% of assets) and should be adopted. Future investments in Government deferred receivables (14% of assets), each of which in securities or securities of Government entities should be general have rates of interest significandy below market at rates no less that the treasury bill auction rate and rates as well as below inflation (see Table 2.11 in the should reflect market rates. Finally, investment policy Annex). Most debentures have a 14% interest rate (in guidelines of the institution should b reviewed so as to G$) and a five-year moratorium on interest and capital facilitate investment in longer-term assets, subject to payments (beginning in 1987). Such below market careful control. interest rates have decapitalized the finds of the NIS. In real terms assets have declined 77% from end-1989 to Institute for Private Enterprise Development (IPED) cnd-I 992. These losses of capital represent effective subsidies from the NIS to its respective (Government) 4.94. IPED is a private, non-profit and tax-exempt borrowers. Real wage depression and limitations in organization founded in 1986 to serve small and covered wages has also limited the flows of new medium scale enterprises. Funding for the IPED comes contributions. largely from foreign official sources, induding IDB, USAID, and rhe British and Canadian aid programs, 4.92. The NIS has a staff of 650 (90% derks) and 13 often ar concessionary rates. In 1991 it lent G$103 branch offices. In 1992 administrative costs equaled million in 540 projects, or an average loan of 40% of collected contributions verses the 11% amount G$191,000. Interest charges are set to be slighdy below recommended by actuaries, in part duc to the very low the bank rate, and were 29% in March 1992. Although level of collected contributions because the cciling on management has indicated chat about five percent of its insurable earnings has remained at G$10,000 per month portfolio is in arrears, IPED makes a profit since its (US$125). Samc efforts have been made at finding is derived from grants or loans on concessionary computerization, including the purchase of a VAX 4000 terms. It has three branches outside of Georgetown. The minicomputer and six personal computcrs. Whilc most IPED appears to bc performing an impormnt function, processing is done manually, efforts are being made to subject to necessary oversight of its donors. computerize records. D. Recommendations 4.93. The NIS system provides small benefits to retirees, at relatively high administrative costs, and has Monetary Policy suffered losses due to fraud (see footnote 18). An actuarial valuation of the NIS should be undertaken 4.95. The Government successfully implemented a imrnediately to establish a basis for policy decisions. liberalization of financial policies which freed Such an assessment could be reinforced by contracting an interest rates, eased capital controls, and established a independent actuary to render a second opinion. market-based exchange rate mechanism. Furrher policy Measures should be undertaken to improve the level of changes to improve the framework for competition among financial institutions include the imposition of uniform reserve requirements on all deposit-taking 23The report to management by the auditors indicated that: institutions, elimination of remaining requirements "Durng rsc course of the audit it was discovered thar benefit for Bank of Guyana approval of loans in foreign payment vouchers were reyded in fraudulent payments in currency and to non-residents, and, in the mediutn-tcrm, 1989 and 1990. Anmps to quanir the amount involved in unifying the rate of taxation imposed on different these fraudulent paymnents proved futile as a high percentage of financial instruments. the paid vouchers selected fr investigation could nor be produced. No provision was made in the accounts for the loss sustained. As a resulk in dte financial sitaraents unpaid bmefiu of $63595,724 has been underted and the excess of M2This would have a significant impnct on several areas of the income over expenditures of$206,310.653 has been overstated economy (induding labor market cffs) and should be by an undaermained amount" evaluated carefilly. 30 4.96. Improvements to the treasury bill auction regulatory institutions, better collection and could be considered, for example ensuring that penaldes dissemination of Information, and, in the medium temnm, are imposed for failure to collect on awarded bids, revisions to the Insurance Act. Specific charging a premium for early redemption of treasury recommendations for new legislation and a progrm to bills, and providing more information concerning the strengthen supervision are indicated in Annex 2.1. auction procedurs. In the medium- term, considertion While ecuriies market deeopment is not an immediate should be given to increasing the spread between the priority, preliminary legal work could begin on treasury bill rate and the special deposit rate, to drafting a Securities Act, revising the Companies Act (if encourage more competition in the auction. necessary) and formulating improved requirements for the disclosure of financial information. Supervision and Regulation The Role of the Public Sector 4.97. An overhaul of the Banking Act is essential to strengthen the enforcement powers of the Bank of 4.99. The Government should adopt a long-term Guyana, extend supervision by the Bank of Guyana to all program to increase regulated private sector deposit-taking institutions, and improve prudential participation in the financial system. This program standards including, inter-alia, capital adequay, loan should include the licensing of new comnmercial banks classification, provisioning, lending concentration, and to increase competition and improve efficiency. A financial reporting. An increase in the minimum review of public sector institutions is required to capital requirement for commercial banks should be determine which of these efficiently address problems implemented as soon as possible followed by careful that require public sector intervention and which could consideration of pending applications for banking be liquidated or sold to the private sector. A strategy for services. Continuation of the Government's program to the privarization oF public sector financial institutions strengthen supervision and (resources permitting) could include (a) in the short term, the selling of all extension of supervision to all deposit-taking Governmcnt shares in GBTI, NBIC, GNCB Trust and institutions is important for the long-term health of the GCIS; (b) the restructuring of the GNCB, followed by financial swem. its sale to the private sector; (c) implementation of a loan recovery program ant measures to reduce exchange rate 4.98. Improvements in the supervision and risk for GAIBANK, followed by the development of regulation of non-bank financial institutions indude: alternative means of channeling donor funds through the (a) for c conmpanies, the setting of minimum capital financial system; (d) transference of the functions of requirements and detailing of conditions under which liquidation of GCMFB to a Governmental agency so as banking and non-banking services can coexist in one to adopt more efficient means of supporting low- institution; (b) for credit unions, liberalization of income housing; and (e) an independent actuarial interest rate limitations coupled with improvements in evaluation of the NIS FollowtJ by revision of regulation, and application of the withholding tax on contribution and benefit formulas, as well as investment interest income; tc) for insurance companies, policy guidelines. improvements in regulations, strengdtening of 31 V. REGULATORY STRUCTURE- IN M UOR COMMERCIAL SECTORS 5.1 Apart from the urgent need to privatize and non-tariff bariers that are employed by tde Region's deal with the weaknesses in the financial system which major trading partners. have been dealt with above, the overall incentive regime in the country needs to be improved. The distortions 5.4. The Government should implement the fut caused by the current regulatory structure in the major track CET rates (5-30% in the first year) by July 1. 1993. sectors such as trade, mining, and agriculture are a At the next CARICOM review of progress under the serious obstade to sustained economic growt.L In the CET reduction program, it would be to the context of the resources available to the Government, the Government's benefit to request faster implementation regulatory framework in each of thesc major areas need of the final CET rates (5-20% range) than set out in the to systematically assessed and normalized. The purpose recent agreement. Given Guyana's market exchange rate of this chapter is to highlight key issues in each of these and relatively low wages, rapid implementation of the major sectors and provide recommendations on possible lower tariff schedule should bring substantial benefits remedies. with few costs. This process should bc accompanied by the elimination of tariff exemptions, to avoid a decline A. THE TRADE REGIME in Government revenues (see below). A1 BARRIERS TO TRADE 5.5. Tariff Exemptions. Guyana has a complex system of tariff exemptions which results in a highly- The Tariff Sucture differentiated structure of effectivc protection. Guyana provides tariff exemptions either as part of a pacage of 5.2 The Common External Tariff Guyana adopted fiscal incentives or through separate approval by the the CARICOM Common External Tariff (CET) and Ministry of Finance, as provided under section 13 of the rules of origin in the first quarter of 1991. The CEIT is Customs Act. In 1990, over 50% of imporrs in value a highly-differentiated tariff schedule ranging from terms were exempt from duty. Of this amount, about 0% to 45%. with the following broad categories: (a) half either were duty-free under international tariff rates from 5-10% on imported inputs and basic agreements (largely the CARICOM agreement) or commodities (certain foodstuffs and other critical consisted of oil imports that paid only minimal duties supplies) that do not compete with CARICOM in 1990. The issue of fiscal incentives is discussed later production; (b) tariff rates from 20-30% on inputs and in this chapter. The Government should strongly basic commodities that do compete with CARICOM consider eliminating other discretionary duty production; (c) a 30% rate on final goods (excluding exemptions in the interest of improving the transparency basic commodities) that do not compete with of administration. CARICOM production; and (d) a 45% tariff rate on final goods (excluding basic commodities) that compete 5.6. The recent decision to revise the CET gives with CARICOM production. added urgency to the need to reduce exemptions. Simulations on the impact of the new tariff structure 53. The October 1992 CARICOM Heads of show that Guyana may cxperience a considerable fall in Government meeting agreed on a revised tariff schedule, revenues as rates are reduced. Table 2 shows the impact under which the tariff will be lowered in three phascs to on theoretical tariff revenues (that is, revenues if there arrivc at a range of 0-20% as early as January 1, 1997. were no duty exemptions) of applying the new tariff The adjustment path will differ somewhat among schedulc to the imports in the first quarter of 1991. countries, and some exceptions to the maximum rate of This time period is used because it was the only one for 20% will continue to permitted even after 1997. For which data were available in the appropriate form and at the bulk of goods, the maximum rate will be lowered the level of disaggregation necessary to perform the from 45% tv either 30% or 35% from January 1, 1993; simulation. The simulations are performed using two to 30% or 25% from January 1, 1995, andt to 20% from assumptions for the impact of the change in duty rates in January 1, 1997. Table 3.1 in the Annex shows the the volume of imports purchased: a) no change in the transition path for major categories of goods. The most volume of imports (import elasticity equals zero); and important exception to the reduction in tarifTs concerns b) a percentage rise in the volume of imports equal to the agricultural goods, wherc a 40% rate will bc applied in percentage fall in the tariff-inclusive price (import recognition of the wide range of producers subsidies and elasticity equals minus one). When th- weighted mean 32 tariff rate falls from 19% (as in the first quarter of through a reduction or elimination of tariff 1991) to 23% (with the new CET structure in 1993), the exemptions.25 amount of theoretical tariff revenues (revenues that would have been collected if there were no exemptions) would fall by about 30%. The fili in revenues that Table HE IMPACT OF TARIFF EXEMPTiONS actually will be experienced with the implementation of the new CET rates will be less than this, as a large CET Tariff Rates Percnmge Change in Revenues portion of imports are covered by exemptions. The With New CET Rates and impact on actual revenues also will depend on other Removal of Exemptions factors, including changcs in GDP, in the exchange rate, in international prices and in market demand fbr W a 0 ELW a -I Guyanese products 1/931 - :2/94 82% 91% 195- 12196 71% 81% Tobl 2. IMPACT ON REVENUES OF THE NEW CET 1/97 48% 59% STRUCTURE Source: 1JRDtffesdmats CET Taiff Rates Ch:gr eh Theoreilcal Revenues Implemcntation Import Elasticiy Trade Restrictions Dare Mean Tariff Rate Zro Minus One 5.8 Prior to 1988, rhe Government maintained an 1/91 19% extensive list of import prohibitions and restrictions, 1/93-12194 13% -31% -28% and required licenses for most imports as a means of 1195 - 12196 12% -36% -32% rationing scarce foreign cxchange. Since that time, the 1/97 . 10% -44% -40% Government has greatly reduced the list of restricted or prohibited imports Restricted imports include flour, Note Thesfigures incluad only th ehange in rvnues laundry soap, cigarettes manufactured outside of due to fls in tariff rws, and do not reflect chanpes in CARICOM and inputs for the manufacture of carbon exm mpdes or in ether impon tae or eample, dioxide. Prohibited imports include meats, poultry, conmmptkm rats on impon4. jams, marmalades, fruit jellies. fruit punch, groundnuts, camumption Avra on impora). mangoes, pineapples, grapefruits and oranges. The So. M8RD staff esdmarea adoption of a market-based cxchange rate removed the need for quantitative restrictions to ration foreign exchange, so hat import licenses are now required only 5.7. The expected fall in revenues could be reduced for prohibited or restricted imports.26 Import licenses by eliminating tariff exemptions. In the first quarter of for all goods arc supposed to be granted within 48 hours, 1991, exemptions reduced actual duty collections to less although some established traders indicated that the than 40% of theoretical revenues. More interestingly, approval process is subjcct to delays. Table 3 compares the actual revenucs collected (first 59e quarter of 1991) with the revenues thac would have been 59 Export licenses are recquired for a varist of collected using the revised CET rates and diminating foods, hides and kirns, gold ndprecious stones, and scrap all exemptions. Clearly, the removal of ex:emptions metal. Licenses are required to ensure that products meet would lead to a substantial rise in revenues, even under helth and qualit st dards, to ensarc that exporters have the new tariff rates After the new CET structure is paid taxes on the product (particularly for minerals) and fuily in place and average tariff rates fall by almost half to guard against the export of stolen goods (the rationale of the present structure, removal of exemptions would still result in a revenue increase of almost 50%, 25This discmssion docs not rake into account the potential far compared to actual collections in the first quarter of improvements in customs administration to increase revenues 1991. Thus, Guyana can enjoy the benefits of lower (see below). tariff rates while avoiding a fall in fiscal revenucs 25 Both 'prohibited" and "rericted" imports are simply tiose that require a license. The licensc for prohibited imports must be approwed by the Minister of Trade, and the license for restrcted imports by the Permanent Secretary, Ministry of Trade. 33 provided For licenses on export of scrap metals). The commercial bank) from established traders for the Ministry of Trade, Tourism and Industry administers estimated import duty. If payment is not made in the the licensing system. Some licenses can be processed specified time period by the importer, then customs within 48 hours, although licenses that require revicw would redeea the bond. by other ministries (for example licenses thdt must be approved for health reasons and licenses for agricultural 5.14. Third, the consignment of goods is examined products) may take longer. by the customs officer for consistency with documentation. If the duty is paid and the 5.10 The Governmcnt should reduce both import documentation is correct, the goods are released. In and export licenses to the minimum necessary to ensure principle, this inspection should be done only against a that goods meet health and safty standards, to comply sample of goods within a consignmcnt or against 'a with internarional agreements, and to assist tax samplc of consignments. Howvere, both the Customs enforcement. Guyana is highly competitive in many of Department and private traders reported to the mission the products now controlled by import licenses, so that that a rdatively high incidence of incorrect dedlarations in many cases the system is not required to protect local had resulted in an increase in the number of inspections industry. In the case of exports, licenses required for tax done by Customs, so that at times they inspect 90% of the enforcement could be granted on the spot on presentation submitted invoices. This practice has led to a of proof of payment of taxes, and most other export considetable increase in the amount of time goods have licenses could be eliminated. waited in port. If customs procedures were computerized, then information on the record of past A.2 PUBLIC SECTOR INSITUTIONS consignmcnts could be used to determine which goods to inspect, which would kelp reduce the number of Customs inspections required and allow importers with a good record to receive their goods more quicldy. 5.11 Custeons administration. A number of businessmen cited delays imposed by customs as a 5.15. Smuggling. Smuggling appears to be significant cost to their opcrations. Customs suffers widespread, encouraged by the high consumption tax and from the problems afflicting other public sector tariff rates coupled with poor enforcemrent. Guyana is a institutions in Guyana: low pay and related difficulties large country with long borders that are difficult to in hiring or keeping qualified staff, plus lack of the police, particularly given the lack of resources provided capital goods needed to carry out responsibilities to Customs for enforcement. Transport of dry goods (particularly inadequate computer facilities and (such as cigarettes and groceries) from Suriname across transport). Some improvements in administration are the Courantyne River is perhaps the dominant source of possible within the limited rcsources available, but any illegal imports, but they also enter from Venezuela and substantial progress will require the allocation of dirough the ports in Georgetown. additional funds to customs. 5.16. Enforcement of the tax system is essential to 5.12 To consider possiblc improvements, it is domestic industry. Smuggled goods enjoy a large useful to provide some detail on customs procedures. competitive advantage on many domestically-produced First, import documenttion, including the invoice, products due to the evasion of taxes. The recent decision ship manifest, bill of lading and where necessary an to reduce tariff rates and measures to reduce the import license are reviewed by customs. This appears to dispersion of consumption tax rates should reduce the be a serious bottleneck in customs administration, with benefits from smuggling, and further reductions in considerable delays reported by traders. For its part, consumption tax rates, particularly of cigaretres and Customs cites the frequent errors in invoices that require alcohol, would permit greater competitiori from additional time to check, for example by comparing domestic suppliers. However, it is unlikely that with previous invoices or by requesting further reducing some of the higher tax rates will have an information from importers. appreciable impact on smuggling without more effective enforcement. 5.13. Second, the appropriate tariff dassification is determined and the customs duty and consumption tax Government Services to Exporters calculated. It appears that delays in payment by importers are frequent. Onc approach to speeding 5.17. The New Guyana Marketing Corporation processing of goods and avoiding disputes is for the (GMC). The GMC provides support services to Government to accept a bond (redeemable at a exporters of non-traditional agricultural products. 34 Perhaps the most direct support prmvided by GMC is to 5.20. The Export Promotion Council does nor assist exporters in meeting documentation requirements appear to fulfill a useful purpose. It's own activities imposed by the Governmnt. Exporters of non- have not been very successful, and it duplcates similar traditional agricultural products, fish and crafts come (also not very effective) operations of GUYMIDA and to GMC offices with their shipping documentation. the Ministry of Trade, Tourism and Industry. The GMC then helps the exporter to prepare the appropriate Government needs to evaluate precisely what role public documentation to meet Government requirements, clears sector entities should play in providing information the documents with Plant Quarantine, the Bank of and other assistance to exporters, and dctermine how such Guyan and Customs, and then provides the clarances to assistance can be organized efficiendy. The provision the exporter. Thus, GMC handles all of the clearmnces of marker information and other cxport promotion necesmy for most agricultural products. Any additional activities has made an important contribution to the clearances, for example obtaining a health certificate development of the export sector in other countries. for the export of fish, must be filfilled by the exporter. However, the record of such activitics in Guyana is not It generamly takes a maximum of two to three days to very good, and care must be taken to ensur that the complete this process, for which GMC charges a fee of public sector does not waste its critically short supply of G$500 per transaction, which covers most of the costs both financial resources and technical skills. involved. From reports by GMC staff and a few of their dient$ it appears that GMC provides a valuable scvice. AS3 RECOMMENDATIONS Trade Rgime 5.18. GMC also p-ovides information to exporters, 5.21 The Government has established an open including studies of market trends, reports on regime governing international Lrade and payments, international wholesale and retail prices, advice to which should be firthered by the recent CARICOM farmers on production and marketing (generally done decision to revise the CET. The remaining through agricultural extension personnel in each impediments to trade concern public sector region), and information on the price and volume of administration and infrastructure. Improvements in Guyanese exports by product nd country. GMC also customs administration and reductions in trade intervenes on occasion to assist exporters with particular licensing requirements would reduce the costs imposed problems. For example, GMC has assisted exporters in an private businesses which comply with the law, securing payments from overas buyers. encourage tax compliance and help ensure a level playing fiedd. Improvements in the infrastructure 5.19. The Export Promotion CounciL Tne Export supporting trade also are necessary to reduce costs and Promotion Council is under the Ministry of Trade, facilitare access to extrmal markets. Elimination of Tourism and Industry, and is charged with providing tariff exemptions is essential to reduce the erosion of support to exporters of manufactures. The Council customs revenues expected under lower CARICOM provides some information on marker opportunities for tariff rates. The Government should review services manufactures, through regular publication of now provided exporters to reduce the duplication of newsletters and by informing potential suppliers of services and eliminate those activities that are not cost market demands. The Council serves as Guyana's link effective. with the CARICOM a-port Development Project (based in Barbados), which does market research, B. THE MINING SECTOR provides technical assistance in some sectors, andl promotes CARICOM exports abroad. The Council's B.1 SECTORAL DESCRIPTION budget is limited; it spent a little over G$5 million in 1992, or about US$41,000. Ir does not appear that the Badcground Council has been very successful in providing useful assistance to exporters, in part due their lack of interest 5.22. Guyana lies on the margin of the great expanse in the Council's activities. Questionnaires on the of ancient crystalline rocks known as the Guiana Shield, Council's services senc to exporters elicit few responses, one of about 20 large areas world-wide of ancient rocks and a recent press conference was attended by only one of which are denominated "shields" or "cratons". The the twenty manufacturers invited. It also appears that the Guiana Shield is not well devcloped: parts of it have Government has not provided dear direction. The been geographically and geologically explored only governing body that is supposed to oversee the Council during the post-War period. Even so, minerals from the has nor met for the last three years, and management did Shield, including bauxite, gold, diamonds, iron ore, notappear to understand clearly the role the Govcrnment kaolin, and formerly manganese are an important expected the Council to play. component of the economy of the region. 35 5.23. Gold was discovered in quantity in Guyana procurement, shipping and mineral extraction. The about 1880, diamonds in 1887, and bauxite in 1906. company also is responsible for marketing of bauxite. These three minemlls have been the mainstay of Guyana's mining activity during the past century. The peak year 526 No other mineral production has bcen of gold production was 1893 (138,000 ounces) reported except sporadic and trivial amounts of following which the annual yield fell slowly. The last soapstone, amethyst, topaz, kaolin, silica sand, and a few important lode and dredge mincs dosed during the other minerals. Apart from gold and diamonds, 1950's in the wake of post-War inflation, and a low in significant potential exists in Guyana fir largc-scale officially-declared production was reached in 1972 production of kaolin and of high-purity silica sand (1400 ounces). Nwarly 90% of historical gold produc- from the coastl plain sediments. tion has come from small suction dredges and pork- knocker operations (small groups mining with hand Bauxite Mining 27 tools), with the remainder from lode mining, bucket- line dredging, and hydraulicking. Since 1950 there have 527. Guyana's state-owned bauxite mines have been no underground mines in the country. Officially- sulfered considerable reverses in the past decadc. In part, reported gold production in 1992 will be near 80,000 this is due to a fall in Guyanais shre of the high-value ounces (2.6 tons; excludes any late-1992 production from bauxite refractory market through increased production Omai), a 60-year record. Guyana's actal gold produc- in competing countries. However, these problems have tion is undoubtedly much higher-perhaps as much as been exacerbated by the failure to reduce the very high 200,000 or even 250,000 ounces per year. Most producers structure of fixed costs, deteriorating mining and pro- under-report their production to avoid payment of cessing plant machinery and equipment, gradual deple- royalties and taxes, and because of practical difficulties tion of existing mining deposits, labor conflicts due to attached to selling gold legally in Gcorgetown. overmanning and deteriorating compensation, and dra- matic erosion of mar-igerial and technical capabiiity. 5.24. Diamond production peaked at 214,000 carats in 1923, after which the richest and terrace gravels 528. The Government is committed to improving became more difficult to find and work, reaching a low production and efficiency in bauxite mining through of 15,000 carats in 1979. Reported diamond production involvement of the private sector. In pursuing privat- vill be about 30,000 carats in 1992. Production is ization of the bauxite sector, the Governmenr invited under-reported for the same reasons as gold, but probably ALCAN of canada and Reynolds of the USA-the two not to the same degree. Most comes from pork-knocker companies that had their operations nationalized in the pick-and shovel operations in rivcr gravels, wich a 1970s-ro consider their remurn to Guyana by acquiring smaller amount from dredging. The downstream the Linden and Babice operations, rcspectively. economic benefit to Guyana of gold and diamond mining is reladecly small; nearly a2l the gold and 5.29. ALCAN performed a study of the Linden diamonds are cxported in ingot or uncut form. Very operations in 1990, which concluded that the Linden small gold-jewelry and diamond-cutting industries company would bc a viable and attractive economie and exist, employing only a few scores of people. financial proposition if operated in accordance with appropriate industry standards. Howcver, the study noted 5.25. Bauxite is Guyana's major mining activity and that the infrastructure, managerial, operational and its main industrial activity, accounting for about 40% financial capacity of the Linden facility were seriously of merchandise exports and 30% of GDP. Bauxite re- deteriorated. A substantial effort would be needed to serves are widespread in Guyana in an inland bdt rougly restore Linden to a commercially viablc position. paralleing the shoreline. Iron and silicon impurity Despite the basic attractiveness of the Linden operation, levels are quitc low. This makes Guyana's bauxite negotiations to involve ALCAN as an equity investor (together with a few other countrics) suitablc for usc in failed, along with similar discussions with another the refractory, abrasive and chemical markets, where major mining company. In the same way, discussions tight chemical specifications have ro be met. Hence, with Reynolds regarding their possible involvement in Guyana's product enjoys a large premium over metal- the Berbice operation have not yet produced a satisfactory lurgical bauxite. The two major bauxite operations, at Linden and Kwakwani, were nationalized with compensation in the 1970s. The state-owned company 27 The discussion of bauxite mining is taken frorn available formed to manage these properties subsequendy expand- Bank documents. Since the bauxite industry is in Govement ed to cover four operating subsidiaries, in construction, hands. this paper placs more emphasis on the gold nd diamond sector, which is largey in private hands 36 outcome. Essentially, the barricr to increased private 5.32 Pork-knockers. Tlhese people are classic sector participation in the existing bauxite companies is garimpeiros - miners working in the jungle in groups the unusually high risk inherent in converting existing of 3 to 15 men, using primitive hand cools and facilities into a commercially viable operation. On the traditional methods to recover gold and diamonds from other hand, Reynolds has agreed to a joint venture with near-surlice placer or soil deposits. Some hold their Aroima, which is reportedly performing well. own daims, but many work as partners or tributors However, Rcynolds was able to secure generous (lessees) of claim-holders. The equipment necessary to exemptions for this venture and operates the enterprise mine a daim may includc a largc sluicc-box or "torn," a almost exdusively with overseas accounts water pump, a portable generator. and an outboard boat motor; possibly US$2000 worth of equipment. While 5.30. The introduction of private capital and man- yield data are difficult to come by, it is unlikely that a agement into the bauxite industry is crucial to Guyana's claim will continue to be worked if it does not yield development, given the importance of the industry, the 1/2 ounce of gold per man-month, or about US$200 in opportunities afforded by Guyana's position in the diamonds. bauxite market, and the severely deteriorated state of existing capital stock. Rebuilding the industry is not 5.33. Dredge and smal vein-mine operators. The feasible under public sector ownership, due to the Guyana Gold and Diamond Miners' Association has Govcrnment's lack of capital rcsources and the 235 mcmbers, representing over 90% of the dredged difficulty in ensuring that public scaor managers fice gold production. By far the largest lode mine (besides incentives appropriatc to a commercial industry. In the Omai, see next section) is at Nine-Mile, where US$1-2 previous Govemment, progress towards privatization of million worth of mechanized equipment is installcd at the bauxite industry was slow, even after the basic policy an open-cut vein-mining operation. About 440 dredges decision was made. It is imperative that the present are currently licensed, of which about 350 are working Government move quicldy in this area, at any one time. Some 70% of dredge owncrs have only onc dredge, while a number have two to six. The largest Stucre of Gold and Diamond Mining two owners have seven and nine dredges 5.31. Insroduction. Three groups are involved in 5.34. The dredges used in Guyana are typically 10-15 gold and diamond mining: garimpeiros ("pork- meters long, floating on pontoons or oil drums, and knockers" in Guyana); dredgc and small vein-mine containing basically a suaion pump and hose, a large operators; and foreign comparies. The government is sluice table, and rudimentary living quarters for the active in non-bauxite mining only as a minority carried crew of 5 to 8 men. Gold- and diamond-bearing sand partner in several projecrs. Each listed component is and gravel from the river bottom is vacuumed up characterized briefly in Table 4, and is discussed below. dtrough the hose and discharged across the sluice table, which has riffiles to collect the heavy minerals. The hcavy-mineral concentrate is then washed with mercury, Table 4t STRUCTURE OF GOLD AND DIAMOND MINING to recover the gold and diamonds. Because the gravel- Po*k FMDe Fde. d laden water is discharged across dhe sluice cable at a very Owmnp lmocke Drdge Copoaom £n reprene high race, and because the discharged material consists of N'mr&' 7-8.000 300 5a-0 1a mixture of rocks, gravel, sand, silr, and varying sizes and shapes of gold particles, the recovery of gold is very &upkymcm -15,000 3.0 1.000 25 inefficient. Tests have suggested that recoveries of 30- SlIm ~ 40% are typical. In some operations, two or three Sirm e.f GefW Prdiurd 30% 70% a 1% dredges work in tandem, with the second and third dredges simply taking in tailings discharged from the SPaofD D 0% O5% O 1% dredge ahead. Typically, the second and third dredges will recover nearly as much gold as the first dredge, Amn! Capita demonstating the low efficiency of rhe recovery systems. Repiml 1 3-10 10-50 1 Diamond recovery is even lower, probably averaging 5- (-35$ ml) 15%. NItr he sabl ad6opjmd 1993eldpredaen af25Z.000 ewsa Om4 u4ilbis aqpad so e kheta 5096 farepdudonm 5i35. With the increase in the world price of gold . L . - . -since 1975, a number of technologies have been devised Sornc law s Srfjannaer. to increase gold recovery in gravity-feed systems, and several canrepreneurs (mainly foreign individuals) have 37 attempted to introduce high-tech recovery equipment to reserve at Omai is 41 million tons grading 1.6 gramns Guyana's dredging industry. They have been gold per con: there are no by-products except very small unsuccessfldl for several reasons: the high import duties amounts of silver. Omai is expected to produce 225,000 on mining equipment; the difficulties in adapting the to 250,000 ounces of gold per year (about equal to technology to conditions specific to each specific current gold production in Guyana), employing about mineral deposit; the reluctance of dredge owners to 700 workers will be on sitc. Equally important, it wil submit to experimcntal down-time fior their equipment, offer a showcase of modern technology to other miners; lacitng any prior guarantee of increased return from an it is the first sizable, mechanized gold mine in the untested method; logistical difficulties in crying new countrysince 1950. methods under arduous and isolated field conditions; and legal and bureaucraic obsacler to joint ventures or 539. There also a small group of foreign other arrangements which would reimburse the entrepreneurs chat typically import new technology on a foreigner for the technology provided. small scale, in association with Guyanese partners. The technology has induded geological ideas, diving 53& A growing trend in the dredging business is the methods, gold and diamond rccovery techniques, and movement away from the long-worked and depleted other areas. Due to various legal and capical barriers river channels, into terrace gravels covering flats (discussod later in his report), individuals entrepreneurs alongsidc the current rivers. These areas contain similar have tended w stay only a short time in Guyana. Those but older gravels, deposited during previous swings of who are successfiul tend to keep a low profile becausc of the river course. The move toward terrace mining the difficulties thy face in operating Ieally in dhe (land mining") will likely engender significant country. changes in Guyana's dredging industry. Dredging on an active river is normally undertaken without exploration B.2 INFRASTRUCITURE AND SERVICES in advance; if dredging in one spot is not rewarding, the dredge is driven a frw meters or a kilometer to another Transportation spot to try again. Terrace mining wil requirc advance exploration, definition of reserves, dearing of forest, 5.40 Guyana's location and cimare dictate t the provision of water to work the dredge, a definite work logistics of tmnsportation, communication, and supply plan, and a capital reserve for prc-production expenses are paramount to the success of any endeavor in the and restoration. Dredging will be transformed into a countrys interior. The lack of infrastructure in the programmed and managed activity with long-term interior is the most common complaint from the goals. Work crews will have a bctter- defined division mining sector. Most of the gold- and diamond-mining of labor (land dearing, dredging, water provision, etc.) areas are in roadless jungle where therc are few airstrips than now. Perhaps most importantly, a land-based and even finding a clearing to land a helicoptcr can be operation will have the potential for proper recovery difficult. Guyana's rivers, while large and abundant, are equipment, which in some cases cannot be fit onto a suitable for navigation only by smaD boats which can be smaOl river dredge, but can be installed on land beside a portaged around rapids ponded dredge. 5.A. Roads. The Government is unable to provide 5.37. At the same time, the inefficient dredge much in the way of infrastructure to I-Lge areas of the operators will be driven out of business by declining interior, where most mining occurs. The lack of roads returns from active river channels, some of which have and poor quality of ecisting roads are major obstacles to been continuously dredged since the 1950's. If they mining operations. Although there are two localities cannot raise capital .or cxploration and dearing, and in Venezuelawhere paved roads reach the Guyana border, cannot efficiently manage a long-rangc work program, there are no roads oni the Guyana side within 150 km of they will nor be successful in terrace mining. This either location. A road from Georgetown to the process has already begun, and Georgetown newspapers Brazilian border at Lethem has been completed seveal now carry advertisements offering dredges for sale. times during the past 35 years, but each time has become impassable due to lack of maintenance. The road is 538 Foreign companis. Foreign companies have being constructed again with Brazilian aid, but even been continuously involved in Guyana only since 1984, when completed will be passable only to trucks much of when Golden Star began exploration. By far the largest the year. The other principal roads in the gold- and non-bauxite mining enterprise in Guyana is the Omai diamond-mining areas are unsurfaced. The roads have project.' Omai is a large "greenstone" type gold deposit, deteriorated significandy during the past 5 years. For located about 200 km from Georgctown. The ore example, in 1987 it was possible to drive from 38 Georgetown to Nine-Mile by LUnd Rover or 4-wheel- increases the risk of flying. The Government drive pickup truck in about 9-10 hours. In 1992 the should consider locating fuel deposits at Issano Road portion of the route is impassable aecept to L-Aem, Mahdia, and Port K2ituma; and Bedford trucks, and the trip requires 20-22 hours. The natunla deterioration of roads due to weather has been c) airstrips are generally in poor condition. A aggravated since 1985 by wear and tear from heavily- number of airstrips cxist in the interior of laden Bedford trucks carrying dredges and other mining Guyana, but the only ones receiving any equipment. Road maintenance is entirely in the hands of government maintemnce at all are at Lethem road users. and Port Kaituma. Users must maintain the others at their own initiative. Several operators 5.42. Air tranort The lack of adequate roads means stated thart thy would like the ability to restrict that many mining operations must rely on cosdty air the use of airstrips which they have built transport for food, fuel, personnel, and parts A drum of themselves (with government permission) to fuel delivered by plane into the intcrior carries a service their mining areas. However, once an transportation charge of about US$30. Given that airstrip is certified by the government (after construction and maintenance of roads to these areas being constructed entirely at private expense) it would require prodigious investments of time and is open to all users, including heavier aircraft moncy, it is likely that air transport will continuc to be than were originally intended, and including a major component of gold and diamond mining aircraft bcaring unwanted visitors (unlicensed economics for a number of yeas. gold and diamond buyers, drug dealers, prosticutes, thieves). 5.43. There appears to be a severe shortage of air transport. Some of the dredge operators operate their Telecommunications own aircraft, charter services arc available, and the government's Civil Aviation Department (CAD) 5.45. Within the interior, telecommunications are charters fixed-wing and helicopter aircraft, most of almost entirdy by private radio. The telephone system which belong to the military. However, the availability does not function west of the Essequibo River or south of of helicopters and larger cargo aircraft is extremely Linden. Postal service is restricted to irregular service limited. Miners report that the Governmaent has refused at Mahdia, Lethem, and one or .wo other points. Two- to provide licenses for the this equipment, perhaps for way radio permics may be obtained by priv,ate parties, but security reasons. This has left the Civil Aviation there is a certain amount of license fees, bureaucratic Department as the monopoly supplier of such services, delay, and restrictions on the type of equipment and presendy the Department is unablc to provide any permitted. helicopter service to the private sector, and only limited cargo servicc The Government should consider whether Land and Survey Data it is possible to permit expanded use of helicopter and cargo aircraft by the mining sector,< as the lack of 5.46. A considerable amount of information has sufficient air transport is a scrious constraint on mining becn compiled about Guyana's geography and gcology. operations. This data base indudes aerial photography of the entire country, 1:50,000-scale maps for most of the country, 5.44. Other air-transport problems in Guyana relate reconnaissance geologic mapping of the north half of to operating logistics: the country, and airborne geophysical surveys of selected areas in the north. This information has been a) there are no navigational beacons except in the invaluable in its application to mining, as well as other Georgetown-Timeri area. Sevcral additional activities. automatic beacons could bc installed at 3 or 4 additional localities, to allow for pilots to 5.47. Data-base information has traditionally been locate their positions while flying in the available to the public through sales of specific photos, interior; sheets or quadrangles, by either the Lands and Surveys Dcpartment or the Geology and Mines Commission b) it is difficult to obtain aircraft fuel except (and their predecessor agencies). In rcent years, however, near Georgctown, which means chat planes must the capability of the agencies to reproduce, or even to carry sufficient fuel for a round trip. This maintain, the materials has diminished to the point greatly reduces the effective cargo payload (thus where the original data base is beginning to deteriorate. increasing the cost per kilogram delivered) and For example, the air-photo negatives originally 39 produced in the 1950's are stored at die Lands and Surveys ares would be to finance their education elsewhere, Department in Georgetown, where the uncertain power especially after the first one or two years of university. supply creates unstablc storagc conditions. The photo- enlargement camera at Lands and Surveys, used tO make photo prints at various scales, has been broken for several B.3 LEGAL AND REGUIATORY FRAMEWORK years, and negatives must be taken to commerial photo labs in Georgetown whenever prints are needed. The 5.50. The regulatory framcwork for mining in combination of unsatisfactory storage conditions and Guyana is composed of sevcal elements: the Mining Act cxcecssive handling and transport of negatives has led to and its regulations, mineral agreements negotiated with damage of die negatives by mildew, cracking, scrtching1 large companies, the Income Tax Act, and the Gold and bending. In addition, the images are now mosdy 25 Board AcL The Mining Act encompasses all minerals to 30 years old, and in some cases outdated by changes duc cxccpt those on certain lands granted to private partics to river meanders, timber operations, etc. Similar prior to 1910 (mainly in coastal areas), and those in problems exist for the originals of topographic maps Amerindian reserves. Bauxite is covered by separate regulations. Petroleum and radioactive minerals also 5.48. The amount of information readily available have separate legislation. from the existing geophysical surveys has been largdy extracted by past users. A new generation of geophysical Foreign Verss Local Miners coverage is needed, using modern technology, induding refined EM (electro-maignetic) surveys, verrical- 5.51. Background. A major source of controversy intensity magnetics, and SIAR (side-looking airborne surrounding the Act is its reservation of 'small and radar). Recently, a SLAR survey was undertaken of a medium mining" to Guyanese nationals. This category restricted area in central Guyana on an experimental is largely made up of portknockers and dredging basis, with very promising results. New geophysical operations, but is not clcarly defined in the Act, which surveys can be madc available digitally (on computcr has created some ambiguity concerning treatment of a disks) rather than only graphically, so that users can few mining operations. Eligibility for the "small and eectronically manipulate the data for their own needs. medium mining" category is made on a case-by-case Very lirde original geological investigation has been basis, with considerable room for administrative carried out in Guyana since the 1960's. Most geological discretion. Since this determination can have work done since 1970 has been limired ro either specfic significanc monetary implications for the miner, the cask-oriented investigations, usually of sites of decision needs t- be governed by objective criteria. immediare economic interesr, or more general work carried by foreign researchers who lack continuous 5.52 Small and medium-scale miners essentially contact with affairs in Guyana. lice a different tax regime from larger companies and are subject to separate restrictions: Educational Services a) small and medium-scale miners are subject to a 5.49. - As elsewhere in Guyana, the supply of highly- 2% withholding tax on their gross rcevnue, but crained and educated workers is limited. Local are not eligible for cxceptions from import operators mentioned difficulty in finding and duties or consumption taxes. These miners can retaining skilled workers such as engine mechanics, elect to enter into a mineral agreement (see welders, truck drives, etc., and there is a dire shortage of below) and face a different tax system. In fac, competent engineers, geologists and other scientists. over 98% of eligible gainers choose the 2% The only instittion of higher learning in Guyana is withholding tax, perhaps because it results in a the University of Guyana, located sveral km east of lower tax rate but certainly because the Georgetown near the coast. The Mining Engineering paperwork requirements arc much less; and program started in 1977 but was interrupted, so that relatively fcw students have graduated, and only 2 have b) smal and medium-scale miners that elect the ever obtained a four-year degree. It is contemplated to 2% tax are required to operate as intividuals start a two-year Geology curriculum, also within the (solc proprietors), which impairs the Faculty of Technology. Guyana's population of 750,000 efficiency of management, may interfecre with is rather small to support a fully-fledged engineering obtaining financing, and makes it more and geology program. A more cost-effective means of difficult to deal with foreign companies. providing a quality education for Guyanese in these 40 5.53. Foreign companies are required to enter into of local miners to compete in international markets. separate mineral agreements with the Government, and The impact of obsolete technology and less-attracdve two of the larger, national companies have dected to do sites for dredging (as the better properties are exploited) so. Mineral agreements are documents which contain can already be seen in the failure of some mining terms (negotiated within fixed limits) relating to taxes, operations. In addition, the present regime does not royalties, gold sales, dividends repatriation, exploration provide a clear place for individual entrepreneurs chat expenditures, import duties, and other matters relating are not Guyanese nationals, and those now operating in to a particular mineral property. The agreements are the country are extremely limited in the businesses they sanctioned by Presidential order. The major difference can undertake. The Government should eliminate the in treatment compared to the smaller mining companies exclusion of foreign companies from small and is that the agreements usually subject companies to the medium-scale mining, provided that sufficient standard corporate income tax (presently 35%), but saFeguards are in plaCe to ensure that the larger provide for duty-free importation of equipment and companies do not use this as a vay of gaining access to the inputs. Agreements have also changed other aspects of the simplified tax regime. tax regime. For example, the tax payable on dividends repatriated overseas is 15%, but some agreements have 5.57. Mining agreements. The alternative to included a lower figure. individual mineral agreements would be to fix the tax regime for all large-scale activities in the law. The 5.54. This discussion raises three difficult questions: major advantage of a mineral agreement is that it alows (a) should the smaller, local mining companies be taxed for flexibility to adapt to the special characteristics of a differently from foreign companies; (b) should foreign given mineral property. A negotiated agreemenc has a companies be allowed to participate in small and better chance of being satisfactory to both the medium-scale mining, and (c) should foreign companies government and the company. The major disadvantage is be subject to individual agreements. that it al!ows for considerable administrative discretion and reduces the transparency of the incentives regime 5.55. Tarxe The 2% tax rate for small and medium- facing foreign companies. To date, the mineral scale miners reduces their incentive to improve their agreements may have served a useful function in a rechnology, as they have to pay significant duties on country which previously received almost no foreign capital imports and they cannot take deductions for mining investment, and which had a poor reputation increased capital or operating expenses. On the other among foreign companies as a place to do business. At hand, most of these mining operations cannot maintain this point, however, it may be usefil to consider the records necessary to filc income tax statements, and establishing a fixed incentives regime for large-scale those that can have the option of signing an agreement to mining, with appropriate grandfathering of existing pay the normal tx A special tax regime for dhe smaller agreements. mining outfits is therefore reasonable. The Gold Board 5.56. Foreign participation. The prohibition of foreign participation in the small and medium-scale 5.58. The Guyana Gold Board was established in mining sector effectively cuts off the local mining 1982 as the sole buying agent for gold from miners, sector from the benefits of foreign technology and although some of the mineral agreements allow the sale capital. Foreign companies cannot have an ownership of gold overseas directly. The requirement of selling intercst in local mining operations, and it is extremely, gold to the Board at the ofFicial, overvlued exchange difficult for such operations to borrow (their only rate acted as a significant tax on gold mining, and collateral being moveable equipment located outside of declared gold production plummeted by 1983 to less Georgetown, which are generally not accepted as thun one-third of the 1981 level. Since 1983, a number guarantees by commercial banks). If the local operation of revisions of Gold Board policy, including cannot sell equity nor borrow, it is difficult to pay for calculation of sales at market exchange rates, have the foreign technology and expertise they dearly need.28 increased the proportion of production going to the While the prohibition of foreign participation protects Board, to the currcnt lcevl of perhaps 4D-50% of all the access of some local miners to sites in Guyana, the mined gold. The improvements in Gold Board policies denial of foreign expertise ultimately erodes the ability have eliminated many of the complaints of dredge miners and pork-knockers, but some still remain. 28Seepart. 533 foradisussion of the inadequate pmcessihg 5.59. Currently, the Gold Board buys gold from technology employed by local miners. licensed miners at a price of 94% of the previous 41 London afternoon fix in US dollars. The exchange rate This system would allow for the same level of control used to Guyana dollars is 3 points less than the average of of gold trading as the present one, while greatly casing 5 bank selling rates the previous day. Miners are then administration and reducing the burden on individual paid 20% in US dollars, and 80% in Guyana dollars. miners. A more cffective measure would be to eliminatc The royalty of 5% and an income tax of 2% are the Gold Board and simply require the declaration of deducted. gold and payment of taxes prior to export. A system of licensed gold sellers could be established to control the 5.60. The major problems with Gold Board export of gold for tax purposes. This approach would purchasing are: eliminate some of rhe inefficiencies in centralized Government sales, and a requirement of declaration, if a) miners must come to a singlc locality in appropriately administered, would provide as effcctive Georgetown to sell their gold for cash.2 5 control as the present requirement of gold sales. This Considering the attendant delays and risks for system is siMilar to rhac presently used for diamonds. men working months at a time in remote interior locations who musr travel to Diamonds Georgetown over poor roads, this is a major inconvenience; 5.62. Diamonds arc declared at the GGMC and royalties and taxes are paid there. Because sales prices on b) arranging a salc, waiting while it is smdtced diamonds arc negotiated for each stone, and values are and assayed, and certifi,ing the result can take an easily manipulated for fiscal reporting purposes, the entire day; GGMC fixes a per-carat royalty of G$150 per carat. The miner is free tO sell to licensed diamond buyers, c) the Gold Board often does not have sufficient after paying the G$150 per carat and a 2% gross income csh on hand to cover its purchases, and thus pays tax. The actual value of stones and manner of payment by check, another complication in Guyana are agreed between the buyer and seller. Few complaints where checks are seldom used and may take arc heard about this system. Although it is probable that considerable time to clear; thcre is considerable under-reporting of production by miners, in order to avoid payment of royaltics and taxes, d) substantial resources are required to deal with it is not clear whether there is greacer under-reporting retail-level purchases from over 8,000 licensed of diamonds as compared to gold. miners; and Environmental Considerations c) the arrangements for selling gold overseas under the previous administration did not 5.63. Guyana's incerior regions arc sparsely appear to maximize revenues nor provide for populated and densely forested. The principal issues the budgeting of gold receipts along with other include: revenues: sell orders were given by the President's office on the basis of immediate. a) contamination of soil and water by mercury is a cash necds, without any apparct selling hazard of present gold and diamond operarions. strategy. Mercury is used to recover gold in both pork- knocker and dredge operations, particularly in 5.61. The rationale for thc Gold Board is co capture che former, where mercury is used in larger as much oF the taxes and royalties from gold production quantities and with less control; as possible. The present sysrem, however, appears to be too restrictivc. There are two alternatives that the b) concamination of rivers by silt and disturbance Government might consider in reforming the present of riverine habitat from dredging operations arrangenents. At a minimum, the Government should have nor actually been documented, but could allow for licensed gold merchants who would purchase occur in some areas; and the gold from mincrs and sdl it to the Gold Board. c) there is some evidence of microbial contamination of rivers ncar mining camps, 29'Te Gold Board has licesed some shopkepers to rcociv which could be easily remediet or prevented. gold fiam mniners on a barter basis (gold for supplies), but there ae still relatively fw shops in the mining areas, and the 5.64. Currently there are no lcgal guidelines for miner must accept the shopkeepees price for supplies. environmental control of mining, and therefore no 42 enforcement of environmental standards. A draft of medium-scale versus large-sole mining; (b) a lack of Environmcntal Protcction Act has becn in circulation sufficient in-house legal and financial expercise at the for somc time, and legislative action is expected during GGMC and Natural Resources Agency, (c) the lengthy 1993. The GGMC is working on the second draft of an chain of command for decisions - from the Ministcr of environmental management agreement, which will be Mines (until recendy the President of Guyana) to the applied to evcry mining operation in the country. Natural Resources Agency, to the GGMC, all located on Environmental reclamation bonds have already been diffarent premises in Georgetown; and (d) insufficicnt requested from all new permit applicants, but none have data-handling capability (e.g. computers) to manage complied yet in the absence of a final agreement. The effectively the large number of existing mineral tides. draft contains 3 pages of environmental guidelines about surface disturbances, hydrocarbon disposal, 5.68. Administration of the mining sector suffers mercury usage, toxic discharges, soil retention, silting from a serious lack of transparency. Many documents of river waters, and other matters. The draft is probably and procedures are not available to the public. For quitc workable, most of the requiirements are based on example, a map showing the location of prospecting common sense and efficient operation as well as licenses already issued has never been made available to environmental considerations. The effectiveness of the general public. Terms of mineral agreements monitoring of the terms of the agreements, however, is already negotiated are noc public. The lack of not yet known. Companies signing Mining Agreements information is a serious dectcrrent to interested investors. are subject to more stringent rules, induding filing of The new Government should ensure that GGMC an environmental impact statement. The Government procedures are as open as possible. Administrative should move as expeditiously as possible to present the decisions regarding large versus medium-scale status, Environmental Protection Act to the lcgislaturc and to resolution of claim disputes between miners, and other issue the environmental management agreement. In decisions, should be carried out with the right of open addition to the need to strcngthen protection of the audience, and should be rendered with a written environmeCnt, the lack of rules creates some unccrtainty justification. on the part of investors. BA RECOMMENDATIONS Mining Administration Lcgal and Regulatory Framework 5.65. The Act and regulations are administered by the Guyana Geological and Mincs Commission 5.69. Given the importance of the bauxite industry (GGMC), under the supervision of the National and the severely deteriorated state of the existing capital Resources Agency. The technical capabilities of the stock, the introduction of private sector capital and GGMC have deteriorated: there is no longer in fact any management is a high and urgent priority for geological survey, the mines inspection and arbitration Government action. The previous administration mandate is essentially not exercised, and the GGMC is moved slowly in this area. This Government should act unable to maintain an accurate file of locations of quickly to privatize the bauxite industry, in conjunction mining properties. settlements of mining disputes with the proposed World Bank Group assistance. through the GGMC are slow, costly, and have been accompanied by accusations of favoritism. 5.70. The Government should eliminate the prohibition of foreign involvement in the small and 5.66. Private sector representatives repeatedly noted medium-scale mining sector. While the introduction of the long delays in the processing of routine applications foreign firms might erode the competitive position of at the GGMC. Permits are required for dredgers and some domestic operations, it would encourage industrial-scale exploration and mining companics, efficiency and provide access by local minecrs to foreign whereas pork-knockers work under a simplified claim capital and technology. The Government also should system. Prospecting license applications, which should review thc necessity for separate mineral agreements be processed in a few weeks, typically take more than a with each of the larger firms, with a view towards year. While disputes or clouded title can result in establishing a single regime governing all of the larger processing delays, excessive delays are cxtremely miners (with appropriate grandfathering of agreements common, even in what should be straightforward caLses. now in force). Some easing of the prcsent, ovcrly- restrictivc regime governing the sale of gold is 5.67. The bureaucratic delays within GGMC are necessary. At a minimum, traders should be licensed to apparently duc to several factors: (a) a lack of dear-cut purchase gold from mincrs. Ideally, the Gold Board policics in some areas, such as the absence of a definition should be eliminated and the requirement to sell gold 43 replaced by the requirement to declare gold and pay value added accounted for almost 38% of GDP, 45% of taxes, with a system of licensed gold exporters to help registered merchandise exports, and 35-40% of total enforce taxes and royalties. Effective environmental employment. Agricultural production is heavily based regulations need to be adopted as soon as possible, along in sugar and rice (31% and 6% of agricultural value with issuing the environmental management agreemcnts. added respectively), with other important crops produced mainly for the domestic market (plantains, Administration. pineapples. coconuts, cassava, coffec, and citrus). Livestock production contributes to about 7%, fishing 5.71. A review of the structure and procedures used by activities another 34%, and forest activities about 5% of the Guyana Geology and Mines Commission (GGMC) is agricultural GDP. Livestock and crop production (with necessary to reduce delays in processing and improve the exception of sugarcane), is characterized by the transparency. Government supervision oF the mining predominance of small farms. There are, however, sector would be strcngthened through freer provision of several larger agricultural operations that include information, including mining titles and mineral private rice growers, some medium- and large-sized agreements. Administrative decisions regarding large- forest and fishing operations, and large public-sector versus medium-scale status, resolution of claim disputes enterprises such as the Guyana Sugar Corporation between miners, and other decisions, should be carried (GUYSUCO) and the Livestock Development Company out with the right of open audience, and accompanied by (LUDCO)-both in the process of being privacized. a written justification for the decision. 5.75. As a consequence of interventionist and Infrastructure and Services distortionary policies, the performance of the agricultural sector during the past ten years has been very 5.72. The road network in the interior serving poor. Value added in agriculture ftll by 2.8% per year mining installations is urgendy need of repair and from 1980-91. The decline in agricultural output had a maintenance. However, road improvements will severe impact on the economry the sugar indusry alone require considerable resources, and should be considered (including sugarcane and sugar-milling activities) in the context of the overall investment budget. accounted for almost 60% of the decline in total GDP Improvements in thc regulatory framework govrning during the 1983-90 periocL air transport indude the licensing of additional helicoptcrs and cargo airplanes, permission for aviation 5.76. The ERP has greatly improved the incentives fuel depots at interior locations, definition of a framework facing the agricultural sector. Most price realistic policy on use and maintenance of privately- controls have been eliminated, most quantitative trade built airstrips, and casing of restrictions on two-way restrictions have been lifted and remaining import and radio licensing. export licenses are relatively easy to obtain for most crops, a unified exchange ratc has been established, the 5.73. A strengthening of the information base monopoly of rice exports has been removed, and the serving mining operations is extremely important. Government is in the process of improving management Measures should indude restoration and prcservation of in, and ultimatcly privatizing, many of the public current geographic and geologic data base materials; enterprises which formerly dominatet the sector (rice preparation of a proposal for new multi-purpose aerial mills, livestock development, the sugar industry). Thesc surrey to produce air photos, SLAR images, vertical- reforms have already had a significant impaa in sharply field magnetics, and electromagnetic coverage; training increasing output, particularly in the sugar and rice of technical field teams for GPS (Geo-Posirioned sectors. Satellite) determination of ground control points in the interior; and the strengthening of the geological C.2 THE REGUIATORY FRAMEWORK capabilities of the Geology and Mines Commission. Sugar C. AGRICULTURE, FORESTRY AND TOURISM 5.77. The domestic sugar market, dominated by the State-owned Guyana Sugar Corporation (GUYSUCO), C.1 SECTORAL PERFORMANCE remains subject to considerable controls: 5.74. Guyana has ample land area that is suitable for a) GUYSUCO is allowed to retain only 17.5% of cultivation, and agriculture has traditionally been one its foreign exchange earnings, which was a of Guyana's key economic activities. In 1990, dte sector's major reason for the decapitalization of the 44 induscry during the I 9S0s. Efficient operation improved agriculturd and processing practices. These of GUYSUCO will require elimination of measures, together with good weather, resulted in an restrictions on its use of foreign exchange, increase in output in 1991 sufficient to meet the EEC quota, for the first time in four years. It is estimated that b) the Government imposes a separate tax on production increased even further in 1992, to about 8% GUYSUCO's sales to the protected European below the desired level of 250,000 tons. However, it is market. This tax, or rugar levy, is equal to 70% clear that substantial investments, on the order of of the diffcrence between the preferential EEC US$120-175 million, will be required if GUYSUCO price and 115% of the world price of sugar. is to maintain this performance in the future. As the The Government has in the past rebated a Government lacks the financial resources necessary for proportion of the levy due to GUYSUCO's poor investments on this scale and the benefits of private financial situation. While the Government management have been demonstrated, the Governmcnt's should capture at least part of the subsidy strategy should be to attract private investment with the granted by the European Community, the levy as goal of transforming GUYSUCO into a majority structured is not efficient. The world price is privately-owned and marnged company. not really a free market price owing to the prevalence of dumping, and the world market Rice is extremely thin. Thus, the tax is higher and more volatile than it would be if the world 5.80. The rice subsector is subject to various sugar market were efficient. The Government controls, but their impact is limited. The Government should consider transforming the sugar levy in (appropriately) captures part of the subsidy that is a fixed percentage of the EEC price; and granted by the European Community to Guyana rice through a 15% tax on the preferential tariff. The c) GUYSUCO has a monopoly on the production, Government also requires that the domescic market be import and sale of sugar in the domestic supplied before rice export licenses are granted. In market, which has resulted in a relatively high practice this measure is non-distorting since the rice price of domestic sugar. The Government sets sold in the domestic market is of inferior quality and the domestic price of sugar equal to the border cannot be exported. More importantly, rice exports are price (as shown by GUYSUCO's import costs) sei;l regulated by the Guyana Rice Export Board plus the 45% CARICOM tariff. The high (GREB) who monitors that rice exports meet its tariff results in relatively high domestic sugar contracted specifications. GREB charges 3% of the prices compared wo the world market. The Goy- value of exports, which appears to be an excessive ernment should eliminate GUYSUCO's import payment for the service provided. The Govemment monopoly, removing the need for direct CGo- should reduce this tax co a level sufficient to cover the ernment regulation of prices. The administrative cxpenses of the GREB. Government also should consider lobbying for a reduction in the CARICOM tariff on sugar, Land Tenure which acts as a tax on domestic consumers. 5.81. According mt the most recent farm survey (1978) 5.78. GUYSUCO suffers from serious management about 45% of the Guyana's farmmland is the property of deficiencies that have resulted in a deterioration in the State and is leased to farmers. The lease contracts are infrastructure, a severe decline in output, and repeated inefficient because they do not provide long-term failures to meet the EEC quota. These problems have security of land ownership. The contracts have a been due to inappropriate government policies which duration of only 20 to 25 years, cannot be renewed drained resources from the company and limited irs automatically, and the Governments' administrative access to scarce foreign exchange, and the low level of difficulties have led to the granting of many lease wages which resulted in a loss of managemcnt personnel, contracts on a provisional basis. This insecurity declining labor participation, and industrial disputes. discourages the demand for land-specific investments and has impeded access to credit because land cannot be 5.79. The Government signed a management contract used as collateral.30 In addition, many of the leasing with Booker Tate in 1989 to take over daily operations of GUYSUCO, to prepare a feasibility study to rehabilitate and rationalize the industry, and to idendfr 30The same pmblems tend to apply fOr priatly-ned land financing for the investment program proposed under bcause of the lack of adequate citling services. According to the study. Bookers raised wages and introduced the Minity of Ag tue derearenly morethan 45 arrngements contain provisions that limit farm size, based on experiences of similar forests dsewhere in the therefore constraining land consolidation into optimal- world, but additional rcsearch is needed to determine sized units. Further, land is leased at fees that are well the appropriatc standard in Guyana. bdow market values. The current average annual fee is less than US$0.05 per ha. The State does not collect the 5.85. Even if the rules governing forestry fees and obtains practically no revenue from these development were adequatc, they are not effectively arrangements (roughly US$17,000 in 1990) which are an enforced. The Guyana Forestry Conr.mission (GFC), is important source of rents for some lessees. responsible for granting cutting rights, collecting royalties, enforcing environmental safeguards, 5.82. The former Government was planning to grant controlling exports and collecting export fees, and full tides to all lessees with land holdings of less than conducting industry development activitics. The agency 15acres. According to Government estimates this would is clearly unable to perform its functions, having-- cover at least 80% of all current leases. This policy among its 170 employees.-only one professional forester could provide a significant boost to the sector and is a (other than the expatriate commissioncr whose tenure necessary complementary measure to the improvements lasts two years). In fhe, the GFC seems to be a perfect in agricultural policy already achieved. example of the 'capture" theory of regulation (i.e., a regulatory agency controlled by the industry that it is Forestry supposed to regulate). The GFC is largely unable to collect the fees it is due and is unable to enforce 5.83. The tropical rainforest of Guyana covers about planning requirements and cnvironmental safeguards. 161,000 square kilometers (approximately 75% of the Moreover, there seems to bc a largc amount of discretion land area) and is composed of hundreds of hardwood on the treatment regarding taxes and royalties granted to species. Guyana is one of the few countries in the world different firm.. and the most pertinent information on that still has the majority of its forest intact and is how GFC deals with individual timber operators is adopting policies to manage these resource in a regarded as confidential and is not publicly available. sustainable manner. Only about 40% of the forest area is An overhaul of the operations of the GFC is essential to presently accessible and only 10% is being exploited; a strengthen staff qualifications, improve the transparency total of 3.7 mil.ion hectares have been allocated for of the decision-making process and provide for more commercial use by ten large companics and 250 medium effcctive enforcement of regulations. and small operators, which arc supplying the domestic nwrker and some CARICOM countries. Development Research and Extension of the wood processing industry has been hindered by financial constraints, the lack of basic infrastructure 5.86. Lack of appropriate technology is a significant (principally the inadequate electricity supply but also a constraint on the agricultural sector. The lack of kiln drying facilities), staff shortages at all unavailability of quality seeds is a particular problem levels, a lack of equipment and spares as well as high for the production of rice and of non-traditional crops. freight costs for exports outside CARICOM. For more than ten years, technological improvements in agricultural activities have been extremely limited, as 5.84. The liberalization and privatization process research and extension activities suffered from the h;s triggered a rapid growth of foreign investment in public sector's severe budgetary and administrative forest and timber activities. The Government has problems. With the exception of sugar, technology gen- welcomed the economic initiatives in this area and has eration is the responsibility of the National Agri- been granting forest concessions based on the premise culture Research Instirute (NARi). a semi-autonomous that forcsts will be harvested in a sustainable manner. public sector institution. Although NARI's The concept of sustainabiliry has been defined as one effectiveness has been limited by lack of resources, it has that will not alter the tropical forests ecosystems and made some advances in the development of new rice seeds will provide a sustained yield of wood products. and in secd multiplication. As NARI has focused the However, a sound scientific basis to determine what is vast majority of its efforts in rice, responsibility for required for such managenent does not exist. At present, livestock research has been assumed by the Caribbean the Government allows the harvesting of 20 m3 per ha. Agricultural Research and Development Institute with some assistance from the Inter-American Institute for 5,000 ownership titles waiting to be regularized. This Cooperation on Agriculture. Unlike rescarch4 in which repreents an exceedingly high number since according to the a foundation exists for improvement, extension is in 1982 7arm household survey, there were roughly 12,000 total disarray. Efforts have been initiated to re-activate privatelr owned farms in Guyana. the extension service. The proposed plan (sponsored by 46 the Inter-American Developmaet Bank) culls for reuni- accommodation and aviation are now being completed; ficadon of the entire system in the Ministry of others may be developed in the fiture, if necessary. The Agriculture. However, the key question of how to attract Association also would orpanize regular inspections to quality staff within the public sector's salary scale has ensure. compliance with the agreed standards. hile the not been addrcssed. standards would be voluntary, the Tourism Association would cerdir only those projeces in compliance. The 5.87. Greater private sector participation is essential fear of bad publicity would provide considerable to improvc research and extension services. For example, incentive for companies to meet the sandards. Given the many large rice growers already have their own lack of Government resources and the importance of technical staffand have expressed interest in establishing managed development of tourism in Guyana, the a technical service to growers. An association of rice policing of tourism activities by a private organization producers and millers could be established to oversee the makes sense. The Government should carefilly monitor collection of funds for research and extension. Under this process, however, to ensure that the Association does this proposal, NARI would have to present research not unduly restrict competition. projects for approval and financial support, to ensure that NARI's activities are indeed responsive to the needs 5.90. As with other sectors, the lack of Government of the industry. services is a serious impediment to tourism. Most importandy, the poor security situation in Georgetown The Tourism Sector acts as a considerable disincentive to visiting Guyana. The detcrioration of law and order is remarked on by 5.88. Guyana has some potential for tourism, par- visitors and Guyanese alike, and needs to be addressed for dicularly what is now rcfrrcd to as eco-wourism, due to reasons which go far beyond the impact on tourism. Onc the attractiveness of its tropical forests, birdlife, and thing the Government could do without committing water resources. The opening of the economy has en- additional resources is to easc visa requirements. The couraged a greater exploitation of tourism oppor- combination of the information requiremcnts and the runities a few Georgetown hotels have opened branches lack of Guyanese embassies makes the process more in the countryside for guests who wish to spend time in troublesome than usual for tourists. For example, the more rustic surroundings, and hotel investment in Guyana consulate has on occasion refused to fax a visa Georgetown is increasing, along with an expansion of form to US applicants, resulting in a delay of 4-5 days to the available trips to the interior. Tourist services are mail the form. There are only a few Guyanese embassies concentratmng on low-volume, high yield activities such in Europe, requiring a prospective tourist to wait to as small trips to the interior to meet specialized needs. receive forms or to undercake considerable travel just to While more room for growth remains, the apply. By contrast, many other Caribbean countries do opportunities for tourism in Guyana are limited. Since not even require visas for their principal market in Guyana lacks sand beaches, the primary attraction for North America. The Govemment should consider tourists is the relatively undisturbed rainforest. Any either eliminating the visa requiremcnt altogether or large-scalc development of tourist facilities would providing for issuance of a visa at the airport. destroy the principal a*raction that tourists look for in Guyana. Operators of even small facilities in the rain- C.3 RECOMMENDATIONS Agriculure, Forestry forest said that they did not wish to expand fiuher on and Tourism current sites, to avoid damaging the peaceful atmosphere provided their guests. Thus, the development of tourism 5.91. Improvements in the regulation and manage- needs to be carefilly managed to be sustainablc ment of the sugar and rice sectors are necessary. Concerning sugar, the Government should press forward The Regulatory Framework with the privatization of GUYSUCO to ensurc that recent production gains are sustained. Complementary 5.89. Thcre are few restrictions on the development reforms would include elimination of restrictions on of tourist facilities, beyond those imposed by GUYSUCO's access to foreign exchange, transformation municipalities on hotels to ensure health and safety. of the sugar levy into a fixed percentage of the EEC However, the Tourism Association of Guyana, a private price, and climination of GUYSUCO's import mono- organization representing hotels and companies poly on sugar. The Government should continue to operating tourist attractions, is developing standards for capture part of the subsidy granted rice exporters the operation of tourist facilities. These standards through the rice levy, but should reduce the 3% euport would provide minimum operating guidelines and tax on rice used to finance the Guyana Rice Export recommendations for best practice. Standards for boats, Board. 47 5.92. A common form of land tenure in the 5.94. The Government should promote greateir agricultural sector is the leashold1 which impairs private sector participation in the management of efficiency by not providing fort long-term security of research and extension activities, to improve tenwre. In addition, many of the leases have provisions management and ensure that these efforts are more limiting the size of Farms, and in general the fees for treponsive to the needs of farmers. For example, leases are well below market values. The Government producert associations in the rice sector could be give should consider plans by the former administration to responsibility for the managemrent of funds devoted to grant fiul tides to all lessees with laLndholdings of less research and extesion. than 15 ars 5.95. The Government should continue to cooperate 5.93. Better definition and improved enforceznent of with the Tourism Association of Guyana to develop and regulations governing forestry developmenit is essential monitor compliance with voluntary standards for the to ensre the sustainable exploitation of this important tourist industry. At the same rime, the Government natural resoDurce. An overhaul of the Guyana Forestry should ensure tha the process is not used to unduly Commission is required to strengthen management and restict competition. The Government also should eas improve the transparency oF operations. visa requirementsi which would encourage both tourists and foreignkbusinessmnen to come to Guya;a. '~~~~~~~~~~' 49 ANNEX 1.1 RECOMMENDATIONS FOR THE PRIVATIZATION PROGRAM Issue Major Concerns Timin I. Schedule Dcfine list of companies eligible for privatization and Immediately I ______________ timetable fbr sales Begin sales of profitable entarprises with dean acrounts Over next six (e.g. Guyana Stores, Guyana Pharmaceutical, GNEC, months and Guyana National Printers) dIniate cfforts to evaluate enterprises, clean up accounts Privatizr Guyana Oil and Post Office once adequate regulatory framcwork for sector is established I. Preparation Use external valuation to the extent possible Throughout . ~program Begin program to organize accounts of enterprises Immediately II. Policy issues Primary ob_ective should be sal at the highest price Do not retain any Government ownership Avoid imposing either speial benefits or conditons for operation of privatized company or that do not .__________ apply to other companies in sector Ensurc that cmployes dmissed as a result of privatization receive fair compensation, but do not imposc conditions for retention of workforce on new ____ ____ ____ ow ners _ _ _ _ _ _ IV. Process Publicize widely as possible . 'Where possible, sell through open outcry auction Throughout progra Whcrc scaled bids ncessary, open bids in public Throughout progrramn Ensure equal access to infiormation for all potential Throuhout investors program V. Management Estblish inter-ministerial committee to manage Immediately .___________ program, supported by PCS ._,,, 51 Page lot 2 1. Guyana limbers Limited 2. Guyana Telecommunications Coporatin 3. Guyana Nichimo Limited 4. Guyana National Trading Corporation Limited S. Guyana Leate Craft Limited 6. Livestock Development Company Limited (party) 7. National Paint Company Limited S. Demeram Woods Limited 9. Guyana TranSport Services Limited 10. Qualihty Foods (Guayana) Limited 11. Sijan Place Restaurant 12. Guyana Fisheries Limited 13. Guyana Rice Miffing & Mareting Authority 14. Guyana Stockfeeds Limited (partially) 1. National Edible Oil Company Limitied 2. Guyana Stockfids Limited - Farm Processing Unit 3. Guyana National Engineering Corporation 4. Hope Coconut Industries Limitd 5. Mards Workshop 6. Guayana Airways Corporation 7. Guyana Phannaceutical Corporaion S. Guyana Fisheries Limited 9. Sanata Telles Limited 10. Guyana Electricity Corporation 11. National Padi & Rice Grading Centre 12. Guyana Rice Export Board 13. Guyana Stores limited 14. Guyana National Shipping Corporation 15. Guyana National Printers Limited 16. Guyana Oil Company Limited 17. Guyana Soap & Detergent Company 18. Guyana Post Office Corporation 19. Guyana Glass Works 20. Guyana Liquor 21. Guyana Sugar Corporation 22. LIMINE 23. BERMINE 24. National Bank for Industry and Commerce 52 ANiNEX 1. Page 2 of 2 25. Guyana Natonal Coopeadtve Bank 26. Guyana Dank for Trade and Industry 27. Guyana Agricultual and Industrial Development Bank 28. GNCB Trust 29. Guyana Cooperative Mortgage Fmance Bank 30. Guyana Cooperative lnsuranc. Society GUYANA Salient Finlamcil Statstics of Public Carpontlons Remaining to be Privatked NET ASSETS PROPFr BEFORE TAX PROFIT BEFORE TAX asat 12/3191 12131191 1990- I11991 STAFF EARNINGS CORPORATIONS/ GSM (SM GSM LEVELS PER SHARE COMPANIES Audidiled Audiicd iUnaudited Audited Unaudited 8/31/92 USS NATC>ALPAD[ AND RICH ORADINO CENTRE OUYANARICEEXPORT 9.331 - . 9.041 - 24 NA. BOARD (as of 1990) .GCUYANA 8rORRESLATED 292.443 - 222.300 109.900 - 110 12.38 GUYANANATIONAL SHIPPING CORPORATION 107.963 . 121.088 - . 52.001 - 216 23.93 GUYANANATIONAL PRINTERS LIMITED 62.595 34.357 16.290 . 331 66.91 CUYANA OIL COMPANY 136,352 228.986 - 90.134 * 149 190.8S GUANA SOAP& DETERGENTCOMPANY 1,613 - (3.811) - 0.718 - 39 -254.46 GUYANA POSTOFFICE CORPORATION NA. . * 71.323 - 22.785 533 N.& (aor uly) NATONA DL OIL COMPANY L1D NA. _ 2.Zl599 - 3,342.000 219 NA. GUYANA Salkent Dinauclad Statldist of Public Croramioe n~~~~ - '~ ~ ~ ~ ~ ~~~~~~~~~~~~eann to be . .v ! NETr ASSET PROFIT BEFORE TAX PROFIT BEFORE TAX sat 12/31/91 12/31/91 1990 - 12/1991 STAFF EARNINGS CORPORATIONS/ Usm U$M (ism LEVELS PER SHARE COMPANIES Audited Unaudted Audited Unudhcid AudtiedI Unaudited 8/31/9 U_LS$ GUYANA NATIONAL ENGINEERIN CORPORATION LIMITED 288.330 -145.244 - 9.479 1296 0.23 HOP,E ATE NA. NA. NA. NA. NA. NA. NA. MARDS. N.A. --(1.350) *(868.000) 16 N.A. GUAAAIRLWAYS CORPORATION LIfMITD (1919) N.A. --536.429 -74.505 422 N.A. GUAAPHAIlMA(EUmCAL CORPORATIN LRAMIFD 283.681 102.ODO - 82.300 -149 265.93 OY AFIsHERIE NIIE 11).NA.. 18.151 -(6.733) 14 N.A. SANATA THXTILS LIMiTE 139.268 7.074 -14.782 -440 N.A. GUYANA- ITR cny CORPORATION (1989) NA. 1335.469 (309.818) 149 N.A. .._ _ - -OPNSAdtJIUadld'ufld|Uudld Atle 0VaJlo 8/2 _US GtNrANA NATION^L LNGING~~~~ ~~ .1 CORPORAUON LIM1TBD 288.330 . 14S.2U - 93.479 * 1296 0.23~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I. Recommended Action Propam-for Finandal Sector Reform Mnu AsTakn |artS Mach| Second 6 Mos ,. lTIdS 6 Me ThIG aoKrl and ByoNd 1. Improveme In Refulattign and Sulvhggon of Depoalt-ickln Inlinuilons A. Modificaton to o Mwm capital - o M lIancl nitIo Act Ino LAw. Beln drAi And Comb= Inyhmedm oof Cowas I zpmesdo. the Renultorn poviaona modified for a Daft and put Into law conformn Inlemtation, of xuaL b or FiacI faukuthm Act and of FInancIalkudon Erne t m-w commercia banb. asudm to the COPA Act ad FinancIl Tnshtda Act. eoeoenint hielio. Act an e _mciu o Rviaed Finail moified Conyanles At and rpeal the IegstcL nsiwdoc Act drfted 1979 ROS of nteAt Act and Capial o Reviw Tro Law and and under teview by hum Corl Act. mike aa nrecaq. the woernmnt. a Requed by Slnlada C eOr eet uypetvdooofGAlBANKby SW oa a periodic beds. B. bIprovement o Inttional c4pcity of Course NW Shaanc t promern for Conde pogm, Including CornLae Implcme-a of Coo e Inylemmtdon of In the BO Improved with lnymvemcnt in the lstuonal capaciy of broaden the breadh of Progm Poam. banirn of *amal audlne, the Bank Superiaon Depanet of die supvlsdo to include now Depoit4sklng Ae proceduu and Ban of Guyana (SO - See Anmx 2.4), Insitutoas overed undet the .nslbdoe seaff traing. including tan of seff and davectms Act. o Ravew of revlee of proceduree anl rne. Commeria Dankd begun. H. Inypovemao In MP RDepot mubntted a Undetaka usarurs racomnmudedd by the Condoe ilmpematka of a Cotlsiu plmpafcs of C4os lnlmessdoaof LA MosryPolleu to Uoveranect and IMP aspoct InhadS Irvemaas In proqnm WM mapp of provg with rpol of piog A wpo of Masmag under rnevw prowIding tid pmcedums for tbe inny bgl echnical amiBe, teICnical auilane. chn assace. ueconmeadalona for aucton. o Enret ia ykut laycoeo in a Contne end eqand pqrgrm or to dw Bank of MO.e ,y agSent. tchni asesme to the BDO Recob Guya Act o AmanAmal to Bak of Depamen. Guya Act drAfted erd oUrdfy r vm requres acnr under reviw by fin l intoea. . ovemmue. o Review proposd em 0dmato BAk of o Lopgeoeerm trryr Guyan Act un modla necenaey. Ubillsroduced. . _ m. Tlan oth of o l5%wloldgte nx aoinate prd gcsf ofgovWa of nx inoenmsmmore"co Begnp r,afgsdua inacial fail inlaan pfi. of at poIces. "&Ap d=oftcgula kwasru Inst Impblecm4d. a lume tx-f sans of Nm Bild:g corpes sad IafIda ta O Corporate taxes wred Soiety, nr to finanil es or An peonal eis o Iniase mauue to recociule tax whh&Usd tx -eon dm,ulified. ae of debt ad equitky Intruae. Tray Ill iS Dealbe. o Tax policy uter rview a Revise any duty an finecial with IDA esisanc. trnaiow as waantd. 'IF Recommended Action Program-for Finandal Sector Reformn IV. Simnogheningth SelecA financilt lrnsiwlo oa 0 Eiblis Commine reportng to the Review roerViU=c with act[ca Raviwew "m anceswithaetion Reie eeMmMKncown Role of the Suat as ncluded fit PrivatizAeton Mh-liur or Funanc responsible for plan "eau. titn trgets. unties plan lgueu. anOwner or Policy Pagier. revisng the role of the Stae hath Financial stitutions FLinania Sector MAd caznytng out policy refom measirs. o Establishz plan for the zshabiliatoa. privatizadon and liquidation of State- owned financil Iaitulo a UtakingIto account finanl "ctor Nantay A. ONCE Now Bond appoined and Aopt by Bom ad a plan for finandial erd Contlwjo mn Intsy Contime runxcuui CoPIiurdvgiz . If recovery Meanures on operailCona tesrtudnice ading to reatzuchdnag uaAlSt. cafievt. epetioorRes- no.perfonnin loans NCRes eventual puivatulzaon. accelerated. B. 0BTI and NuIC GBTI IndicateA in Begin both new share offerin And sale of Coe iou ad .conlu de PIvaizaow Polcy Paper ezisting horv din. prlvurotlzton mteSes. as first stage Candidate for C. ONCB Tnrst Devekar privatizatlon mtrategy aNW, ic Corainue of Sbcoclde poabicI, initiat. share uales. privadzatlon mawrAsu. ________________ D. GABANK o Lmn moaltorig and o Redefin the role and ftficio l and Irplemm plndo penioa Contils to ileute_ Conp 1mafkymu recovery reuares purpose of GAEBANK t flonosi a AMd finolan mia eeu lng. rstructudng pan ss*uhtilgpla. Inproved, second-tier Intiudttion. o Portfolio loass o Accelerato loan reovery eawarusi. IBcased ao WIiat plan of opcraIocasi and fiancial resuuetur ce ldig. __ _ __ _ mautu_. E. GuyaN New sar offeri_ Develop privauizaton stategiry ad, If ComUnuo privao luon and cooperatie Initiated, posible. intiate share sales. copdvete. Insuance Service P. GuIyAna ovninesiewlgg o Undertakse ftherevaluatioan of opedhur- Conmpueliuicltduloaa Couprive porImy towavd. low tem stntegy for low lncom housing nterce of remain ast Mortgage incomes housing, and nmecanisms for suppon. as necessr. FInance Bank o Eablish role (if any) of Ov MFt In the low Income housing ntoategy. o Modify GCMAFB legal composition to that of an agency oc liquidate so as to corfom with the kv loe ivco housing _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ _eategy. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __stra_ tegy rC tRwpSkt;vc pdlcy ude bw tean tegy for losv l#eas bou ttettsoee OttC lOU~~~~~' Recommended Action Program-for Finandal Sector Reform V. Thmromvem inathe Develo and beuinaCcle q ib Regnlatdoc an bmeatia oif a @f * paga o hyoveS Superu of to IWMgYe de laikial- bkad gqam of u kLuuantaComal eapaty ofAib C 7a_ul Ceuimerof and unmaon PE of 1as . l ie a Daft goi Ac alacncqmanylog .a Deig or. CoaSia t VI. Improremsnc In the o Acuriai udy of a Undake ackaadal ndy of schebr ob a FN garecep ofrthe aofuo bEs mablih dent 0 Cbo #mml mo. Desgn and FinAntl scheme by tLO ha ILO. acturidl valuation and k impa-bmesd n d 1id anqea Maagement of she nitlaIud. a l«ito measuges to inrovo intrnl resommaadoaa, rvise pla f a spoby Pgudel hiv adq p n_ d Nadonal 'ancc o Covered wage bas fumnikl coatrol duouhl imveod deign, coszlbdaa nd benefit an lnvesat pnsadwe qesamdalsmnh Schane. incresed. informadon pioceaing ad diburwemnt formulu. Gav. in Govt. uniie of control pmcedune. o Adopt opersdonal mtszcudngW Covemment asde. too o Complete conyutedzatioa ercilse. meanun aeeodazs Withh be at no l- da ik tbs ecowndulaa o f die Tuny Eill madoa au 'cta! repo,L ad rSeam matr te). W o RevIew inveas polcy a lin cac reis plau gutdelne and Invest din, eoulbtd and _. procd.urn sd tmodif " benefit focumuls. necessy to mitae te a CoedIo to ilceat psasibilky of dessphliano. operdocal mterctzrig VII. Cedatl Markseu Modified Cmynles Act a DRA and anouwc piz for developuntes Eabblit aud hanp l a Dnk ed pM hue Law a auvelooanu palm Cepial lame of Overths.Cousettlading facUlty In mllree to fautsa Sinueu An, huts ConrMl Act. the Bank of Guyua. scondar mttet fo Tmama Imgle g reg&ci o Eeabrh end put into openrdo mawu Bial c u aDeba . o NSbisi bsml for pub liHe nroicaon o Ovaer.sh- foaddom a Sea_af r CmnaerTrading. ad Damage Corduds OW). o Develop isiwelo II GNC, Ira.davhg Vrmhfuum& DSJ Mum 5~~~~~MaW Tube k heamd HaN of 190 Mafflo Tabs h 131 wMam Tabs kIW UWen otW M:w. * NMau a 15mw m. - a vmr -aul MN l ague h1 o New and mneS bau of Dims.. Rw i__ Oewubsl * Dims.. d A&bk O pamda as Fim omalbamd, Sd mtstha , .~~: - __k .u .d aS._ ,~~~~~6 . eWo to be w_uusc bssmw a loft Opna=s&spouepeinUlk d toukb las SEa pUs,. egud.. -mk ad usnhb. :a ASh wp*d la e da Md*abe 0M rb_ula hia aqee o Cc auo &eman aueaSaz Heum. Cansd, Cashk C od rana cd eb. pbXHu a C D vaee* Weal New -,mj myisi - uSd SW at ld s CR-M ADuse DIMs. a PA aoto*bdI apSe it do U sokbob. Va5 OM h t ass beige, aWealS m i Ad h Fi _ _ m A. ZS a - _ ASdm k -V a h wa a d__i *A ha p 0 u WaLk -'mb ma at "* OElm Sm. Cdk Feat i We II edbjapWepaad pakt a Coo Pdk y e d ad mewe. l imhlkgu Rapabs- mu I Om lod OEM IF S gawk eWyS I, e a d du b a a. (a) CaiA cua pe . Ca Dp Fkudal 2. NeuAubdl at . ame-a 1 s ud ed b6al.m(b)Daub is 01mi i abe p do Ces at lMO A . Cal 3. NI&Akad& at sem w*b pud a eophy s"md a1bc reapima. Mu- U-eday nat of deasa pcjd - 9=el in wdsk 4. Fatabrh ci ht Ibla as DnAh Uitmps and valaA hular as -tftUh .5 - . Cd) Maa sla dams i wsali fat tw edd Scam. S. Pstatme tunas scaVke a -W S Yam. b Mb.a heal MusaOAs salute? rp+j &Fpela as aut-ia Wm wflw to lm hartS - Ltd- CO Muims shaiy "ha Fe mwI- ektlow. Qj Wkft dSs ci MmA AdIP low) eS atas x I 7LEnh. am in & p s tt k ad Ls akt kI ad Ie. le tm pevabb. las whet twi beak bab is walk upb by M haAg e a - Jar Imm .d I *anA hEaps a Ca OCUIs. W Spdlf_ of cdm aah ft. wets. - f Lu" W-ANe. S. SysmAle asi, x*kba as #Id mcld for amlase.hp lm1. e OGm mat slet ad oa t Id s * GCR1 Fi.l Pogwbde bAto he. do argbi ofa nu* o atb BNat' o 1io4 Fb .C CJfuafw DI,ia ROD). m.achint Waf t ao a t ekbinub TaS_ san qp.wueal otf .ppalmu IN oudatg adrm w d _ * &g _ s dm! ahas A|e. Lua uuuled asaeaa perbg 0m rnmpefacug tur. t - d nc a AmWbb ate ku patlle do *ma Y5 p l __ mue Sr peerfAmg In ei tm dwat s d pwlah aS nlaS beds W ae umS * r Saerbg penSame tam masd uW sed. uasam wla s.a -cin c(misdntag tw. a Now e5h5a of kam lad t db peepuksl.a ta sagaupbmia o kat&tqAm a blows Aam .41a lpom GEAR blq by 3E-b laga eof. iapa, a lsp mAsia hasv *n PeAk plat a Loom da.af - Ca) s hu Dan Sm Ama -d14 Lot I. eM Mpeld Art pAN) a NMi Ktotobm herSOy baa Lou epi die hu _ ari_ si as *m habbS asa _aglpub mav ape e sa_h f t-mlfla aw, as mba Ad t er Agait I M rab UgSl. _SE - bpea maga a1 ea f maiNae h W ad d ou mould besot cVAy l lb r Sb Ale. WA m a eS nvA a h m o a timppe Sabc a at uam. aMe sia lbs h dal S& CU. WS Oe a Mh hm simusdt o ai amaIbe. meaaIasdg dm a alemh 0t paeelkty tid y a Cb mat SoN * 25% of e Seued kau < 25% of paid-tp cpil and resrveL Leadn capital ad publishe res o Unecurd lan. C 10% Ao p capil d rewerves. Conea- to any ae puon. naions I. Liiam oDanBkb casal lend s tand o Aggregae lmit of 100% of cqital and mem suld be appliod for the - of all Leaing to 2% of capital ad temv to credit. to reltd patic. Rasid director, to any firs a Additonl im ould be applied to osplayec (% of esolune for unserd Paies which a Director pesicp crdi4t). o Canot grai ueamed o Law sould deady pc1 criteia hr d4termining rlad paun ad pressed elated redits ger hnm w yen pardea. enluome. P. Limit; an o Cannot finne qainn o Sold at be able to fince aginst scurit of their own aes or via tid parie to oth_ secuity of it ow shre. effec a simil t camction. faaeingby oCaso eage in wholeal a Shoud no be able to eogpgin non-financial mrice b.uineaaea(excpt inumace). finaIal or mail utd, cast acquire a nvatmna in any fincial srvice sbdary compay shuld be deducted form v liutina any par of any commecial, capital for puqiua of pamenual regultion rtio calulations. agricultural or indurial o Fxed aat holding restriio sbould be pecified by regulaon. unetkn. o Can purhba or hold movable propey up wto 25% of capidtl and merves. 62 ANNIRX 2.3 Page 3 of 3 0. Dagdame N. o INnma i I Ybaldl aul md be codued mr a I eqalor nalrel Ncldl c Rarodoe atsw .eelcbp balwoom mabddaa citef dpen oc yu_ aoad be Co4qual_. hadaitad walblz -1 inipahd naphwl .ISIOShIPUIISWU..A bubhip bnrdlaqr d penL o RDldoatlp be1we asubdneby Om DOM an fit. egaIo by a Sacua and EDebaa Como.lom undw e flaew Secudda. Act shoald be apeidf lmate Act. o gRqudama doMa apesi) makden coat. mIssdaIdp baw.. do opwaho of bu_ co.pmdau dock bpm_n, - Sabu megan, - tal ad ______ ___________ hua6nOet bemba"sen bathA -o p ar t .dat Saldfia EL Prdes M ian pietis hw wpaidE. on4omrnap wit; pnWeal odiKl S.d be R_gadm Inda inS. Act, bOdig a dras to emma ta met peasla a *4jd to eft - Gamma! he~~~~~dWats Phetaeihmidwo be =wmffhaly tug to pravi d. o eblemoheadys for DAM .,_1 . P_b~~~~~~rtoafi. L Otr M be ac og S o Cuitna Ir applBon ad maabcc for haulg manna abould be ex I ploit I k e lw mquImsase dbdar to be -to. publc eN t ly enyms. for macain nt . a Cahaa tac end ptpr pause (owmn) A.oId be lea. a beating 3. Aunk Ammdau k reqoIre, whIc BOO flusd hat S. panw to daaimdn A. thumnt and damfn of mudsti. a be rsAl rdipb ely wit 4 mnot. ails .ad of bnmt?a financial yiew._____________________________________ IV. Necuomic Daenk at hod narn Nctr ib FlHnn! inallom Act aort hAt of aGym Act should qiify 1aa or Rapladam equhmnwa aN lIpmid m r m- requirea ow Uqid -m hdoldn ruqidmnae. RUbar, h Acts da d aye 550 of duneS la DaaudLy of _b.in OIG to anbahi mah requiman. Enbiflua ai 105-240% of ri : . - A-. - .imd by BOG. 63 63 h xAmu 2.4 Ruconinnded Temical Aula . Prta for tMe Bank ot Germ -omn Supeisn Depbtmet mM T_ r4IIu6 4 11 hu i p Pu4 I KN u4 -p -_ -(- - l d_ Roah _imuuu. uudum (hmdh _mIs id buma lmdium. Hsmhuicnufn .uhsm).ofhos unhnum m __ C-. L___ __ IL GNAW Fh.uuh * Dinpinpinbm.um Huh 3pD Tmhhm .1 cm"nmm* ..uomiw TueddhgyUw amddqiwn. rhm AmuIIAuIa uukbghdhI e~ ~~~~~M md6 _ o Rahm aDm I t e Dalt _ -mm o at mbkhgdm h muwinadm .5mwb. dubiu ima RPMum. whhnim puvIuupuiudh uummmsnd ondul * upuoed u. eF. Ca i u a W bp2 20 gwem _ML b.pm Csidk hhmbFmeklfu mik hdl, . ._. IV. Deienulanaf e * Pamlhu km ehbiine a 1am _ehu muwo bn_ Dugiadm16 Olmdlmdam guilulhu u...h 4i SWnla i OM. ducul. - cbmlum Cd g*wee_m rAM _ _dbdi Ag . yhd. ud *dId[W dE 0h0dh a lam nguluduuum uuld * smog"h .Mgin.ibfl6 rmh ;; a . - zl_ ^_ Is~~~~~~la i_ i_ , ~~~mL wuhi Nmmguw V. Dwide;mmw cadkI - a __hgmuiuimMaU Beh.u id cnapia a OvaiuufItMI C ugsouNJ uu rag" uinm.m V. 5 D d kwwe* a D _ _w I - -d a d& rim u 4 B*_ BO.U_bm G.M u _ " __ bl e _I_ 1 I FbM ~~um (40% atu V. Dmle* .I Cidhzhk a u uf e D _ d- udufh a u d * 3qlmshke_ e D.uftdudih ' ~- . -L_ __ 64 Table 2.1 UYANA AcoLta of the Banklng Uystem (and of Y"ri 1987 1998 l99 1990 1991 1092 1917 1938 1919 lo9 1931 1992 Of '000 000 Nt Intemrden Reev (0.1071 1063131 (21.1933 (27,8911 l74.0361 171.3471 Percent of Nt Dofemtlo Crect Neot Ooreato reit 0,577 8,613 11,009 14.191 27,174 al770 100.0 1100.0 ¶00.0 100.0 100.0 100.0 Putbl5 Sear. Oe 6,351 7.081 9,162 9.034 5.730 4.161 96.0 89.2 78.9 63.7 21.1 6.7 Centdal 0overmet 06515 7.777 9,948 10.020 111.9 10.762 91.1 90.3 84.8 70.0 36.4 17.4 S,oa Serkdy, PuhNo P on Fund P639 1411 11941 (290) (1.33I1 13.0732 (1.01 (0.51 11.01 42.01 17.11 (6.01 Pubis EnlpelpdAalther Net) (1029 (859 16021 17053 (2.2223 13,6291 (1.61 (0.69 14.33 15.03 18.29 (5.7) Pivmae uo 097 1.591 .2,566 4.160 6.072 8,735 16.0 19.5 22.1 29.3 24.6 14.1 Cntingency Resemrve (OGre (4,2569 (4.44) 117,5401 (26.9201 s2,20921 (6598271 l64.72 152.22 (1619 (1631 (1929 (94.93 Unaaislgsd_0tme 3.49a 3.636 17,422 20.324 00.858 107,501 53.2 44.6 150.1 189.7 240.0 174.0 Cout.rpa UntrAn lted Forgn Exdian (3.8229 (3.7162 (19.0341 (27.0301 (70,6703 (45.1531 Uubialis to eRt of Fn, Sp. 350 671 se9 1.435 2.779 3.190 Exteral PaymentlDepat. 679 789 9s9 916 740 619 MeidunTen UebilItee 93 203 945 767 1.969 1.726 Percet of UabIltle to the Pdvate Setor db"i lothe Privte9 eoutr 3.170 4,354 6.680 10.211 18.316 30,137 100.0 100.0 100.0 100.0 100.0 100.0 Ml 1,141 1.657 2.383 3.432 6.009 7.737 36.0 38.1 36.2 33.6 32.9 25.7 M2 1.800 2,463 3,809 6,913 10,267 18.365 58.7 56.5 57.9 58.6 56.0 60.9 PdvateplalrS"lu 170 234 398 797 2.051 4.045 5.3 6.4 S.9 7.8 11.2 13.4 11987- 1987 1989 1989 1990 1991 1992 1999 1989 1990 1991 1992 1992 1992 Gt 000,000 _ - Net Intermatona Reservee 1(9,071) (47,1121 177.2891 157,8113 184.548) (71,3471 32 1641 25 (46) 16 (33 Net DrnelmoCrsdt 74,391 04.277 42,327 29,415 31.033 61.770 1149 (343 (312 5 99 (171 Publi Sector INel 71,825 57.322 33,402 18,725 6.551 4,161 (201 (423 1449 (061 (363 1949 Cenral Govenent 73,687 58,042 35,903 20,770 11,293 10.762 (211 138) 1421 1461 (56 (851 Socdal Scudty. Puhilo Ponan Fd 17071 13071 10723 (5801 (2.2001 13.0731 67 1119) 14 12801 1393 (3361 Public Enterpri.eeO11er (Net (11 553 (4131 (1.8291 11,4641 12.5371 (3,5289 54 13422 20 (731 (391 (2051 Prlvajeetor 11,159 11.873 9.356 8,022 7,020 8.735 6 (212 lei 1123 15 1221 Contlngoney Raev IGmei (45,1331 133.5431 (63.9501 153.7381 (59,4899 (968027) 30 (913 16 (11l 1 1223 Uncleselfl.dOther 39,536 29,624 03,518 55.800 76,351 107.601 (289 122 1123 37 41 172 Countewprt UneqLited Foreign Exohan (43.2281 127,7331 109,3971 156.0253 (90.70S9 145.1531 36 (1503 19 1441 44 (43 Uabilltiea tofeRt ofFn. y e. 33902 6,007 3.528 2,975 3.173 3.190 20 1303 (101 7 1 1191 Extenal Payment Dpolta 7,677 6,888 3,491 1,899 952 519 (233 (411 140) 155) (39) 193) MIdiumTern tlUblltlae 1.062 1,518 3.44S 1.690 2,249 1,725 44 127 (543 41 (231 64 Uebtlesioh*_PrivatelSotr 36.854 32.493 23.991 21,165 20.917 30,137 (91 (263 412) (11 44 (161 ml 12.901 12,308 8.087 7.113 6.662 7.737 (41 1301 (191) (4 13 (40) M2 21.035 18.379 13.83a 12401 11.713 18935G 1131 (249 (113 lo3 57 (13) Priae Cepklduepku 1.918 1,746 1.415 1.652 2.342 4,045 (91 1191 17 42 73 111 CPI Index 935 1,417 2,900 5,101 9.258 10,572 Annuul Poewnt Cha 61.5% 1047% 75.99 81.6% 14.2% CumulndvaPem.tClhnge 1031.0% 840.3% 254.6% 107.3% 14.2% Source: IMF, Bnk of Guyn . ,f- 0 - - -, , Table 2.2 GUYANAs Monetary Surypy ta$ in Million) Quami- x1 Money K2 GDP 1983 1,200 1984 500.0 924.8 1,424.8 1,410 1985 613.1 1,095.6 1,708.7 1,630 1986 724.8 1,334.5 2,059.3 1,821 1987 960.5 1,656.8 2,617.2 2,851 1988 1,399.0 2,161.3 3,560.3 3,599 1989 2,020.0 3,136.0 5,156.0 9,074 1990 2,907.1 4,896.1 7,803.2 13,815 1991 4,720.0 8,119.9 12,839.9 33,622 1992 6,872.6 14,306.0 21,178.5 40,359 Percent of GDP 1/ Quail- II money N2 1984 35.5 65.6 101.0 1985 37.6 67.2 104.8 1986 39.8 73.3 113.1 1987 33.7 58.1 91.8 1988 38.9 60.1 98.9 1989 22.3 34.6 56.8 1990 21.0 35.4 56.5 1991 14.0 24.2 38.2 1992 17.0 35.4 52.5 source: Bank of Guyana Statistical Bulletin, Dank of Guyana estimates. 1/ Average Stock/GDP of PerLod. 66 Table 2.3 GUYANA: Interet Rts and Spread lIn Pmrcnt, End 1 Purled) Nominal Ras Conm Thres Spaesi Sank Month Depost Wghtd YEAR Sevings Time Tree. In Prime Avg Coer Dopout Deposit ilel Boo Landing Lending PrIco Rat Rats Rate Rae Rat Rate Index I 1980 10.5 11.0 11.5 n.a 13.5 na. 14.1 1981 10.5 11.0 11.0 n.e. 13.6 n.. 22.2 1912 11.5 12.0 12.8 n.e. 15.0 n.e. 20.9 1933 11.5 12.0 12.8 nse. 15.0 nse. 14.9 1984 11.5 12.0 12.8 n.o. 15.0 n.e. 25.2 1935 1t1. 12.0 12.8 na. 15.0 n.M. 15.0 1986 1 1.5 12.0 12.8 n.. 150 n.e. 0.6 1987 11.5 12.0 10.4 n.e. 15.0 n.s. 34.6 o139 10.5 12.0 10.8 n.o. 14. 15.0 51.5 1389 31.5 32.3 33.8 n.s. 36.0 37.0 104.7 1990 27.5 28.1 28.8 n.a. 31.0 -32.4 75.9 1991 -June30 25.1 29.1 30.8 n.a. 34.7 35.8 81.5 1351 - Deenmb r31 26.2 29.2 30.9 30.0 33.5 35.2 91.5 1992 - June 30 19.9 21.2 23.4 24.8 27.5 33.0 14.2 1392 - Oeoeber31 1 6.6 18.2 23.0 21.8 25.9 29.8 14.2 Spreads Comnn Bank WgOtd Comm Tie Trse. Trm. Prime Avg Bank Month El EliI Lending Lending Wghtd Time Rote Rat Prime Rote Rote Avg Depost linus UMnus Landing linus Minus Lending Rate Throe Specidal Rate The Three Rate Linus Month Dapoit Mnus Month Month lOuwo SaWng TIMe In Tress. Tina rma. Prim Deposit Deposit BOG ol Deposit Deposit Landing Rate Rote Rate Rate Rase Rae Rate 1980 0.5 0.6 n.e. 1.9 2.5 nA. n.e 1311 0.5 0.6 n.e. 1.9 2.5 n.e n.a. 1982 0.5 0.9 n.s. 2.3 3.0 n.. n. 1983 0.5 0.8 ne. 2.3 3.0 n.a. na. 1984 0.5 0.8 n.. 2.3 3.0 nae. n. 15a5 0.5 0.8 n.a. 2.3 3.0 n.e. nFA. 1386 0.5 0.8 n.e 2.3 3.0 ne. n. 1987 0.5 (1.6) n.e. 4.6 3.0 n.s. nA. 1988 1.5 11.21 n.e. 4.0 2.8 3.0 0.2 1989 0.8 1.5 n.a. 2.3 3.7 6.3 1.6 1390 0.8 o.6 n.a. 2.3 2.9 4.3 1.4 1991 -June 30 4.00 1.73 n.e. 3.87 5.60 6.7 1.? 1991 -December31 3.00 1.69 0.9 2.61 4.30 6.0 1.7 1992 -SJune 30 1.30 2.23 (1.31 4.07 6.30 11.8 5.5 1992- Dcenber31 1.60 4.80 1.3 2.90 7.70 11.6 3.9 Soure: Bank o Guyan Stadetcde Bulletin. 11 Throgh 1986, Indces -w pedod averages. 67 Tab ad4 a ts n e A. _ tr Ia taao s ats ton low IN"t low* low nPB 1t2 IM ltO UIM IM IO Ing m l2 _fW . d Totl Svin. Must IIIIILUE _OP.' an _ vaa 1to12 ao.tMW a 40aa m.4s IMT.J Ountnatual_ bedim 324 SWON MO 1316 1446 34.720 3a7 4. WA &U mo t.0 e61. SI Cun "a 23 64 240 3 490 1no U" 1.4 IJ M.2 a US oIdw _u1_y 77 241 a *V7 SA4W 1.3 I.110 L *.7 4U 7 * 4 4.1 4J GAUSS t 71 l7i 463 171 42Z 4.02 6.131 a.z am aLO 7J L. 11.4 3 uCoopeMRL_.* 2N 41 I1 so 57 56 67 1.7 A 067 0A 4 02 1 0. 0.1 a.Uh ln. Camp. 131 2,7 iN 11534 31t 4.131 1230 7.7 016 6. 10.7 12.4 ta 3A swi hni 12 141 243 327 3o 1.104 2.m 7Ja 30 a7 n 3a a.7 iA M kwo . oohi 21 at W 1a213 1ci t t.m 1.aa 2.11t 1Ja 16 .1 13 ILI 73 a.i a CmiJtUrbin3 7 i1 3# 42 42 a 30 0.4 03 064 0.1 02 01 0.1 TOTAL IWi 101I 1.331 4. 3 1.242 11m 234it4 4042 t 41 100. 100.0 1000 100.0 10 100.0 ItOaO 1 IM ti'sm toa low tar Ista tamO lift 1tl2 1m l36 an t 19a0 ltal tIo l 32 1332 13t N120 Gt 00t0O0 misS Ponmm Change Into c 0ulOno 1=4 01.473 10337 IOS n4.m1 6.411 120.775 72.3 314 30.2 3220I 12.3 3IA 210 wte 7 Csumtld Sat. 37.20 N,3427 44503 32.136 214461 2120 33*27 31. (13 (273 11L271 4. 3.51 U 1M3 (1 thlCai on1 1376 1,71 1S1." 1,024 1.01 I.5441 43.0 21.3 (23.3 112.n (0 10*A 67 1a 11 milam EaSly" SA6 3.43 3M .a 31 2.501 21 1.31 Ztan 21.s 0s oan n 11 uA 40o 61 :3 aS It .UX2 25112 3 4.2t 4.212 1.1 5.6l ItI 2-4 0I= 24A gi 57 3? a Coo rap -Fitn. lank 1.122 T 70 435 213 115 3 67 140.3 0. ItJ 403 (43.1 1I.2 IlI uts ha. Comp. 16Uh2 4.I 4311 3.12 46042 16 3.20 (7* 63.6 382A 40 ta 6. 1 a *so n saln 1.ltt 2.3111 1AN 1.112 1.813 1.713 Z.34 41.I122.43 M4.3 63 (10.2 3.3 (M 4 21 1h. Eaus af 12.143 t3i 1 3.033 4.311 3.231 t.141 t U 1 A.31.1 (4) 01.31 (823 an0 P76 C ntsa/ 231 2t1 261 161 W 57 oo n . 64. 4304.1 (11.24 l M3 TIOTALIWSO 3001 67.741 "4.4 6721 14.271 46.113 4O0 U541 stuO 612. 621 (10.4 2. 114 33 31 1. C0l 1indi 2 atl 1.417 2.301 6.1032 .260 10.575 A.. twa 144.7% 11.4S 104.7S 711J% 01.% 14.2% Cwnuw Chsmw 306% 1337% 03S 2160% 107.3% 142% Il135 33gm.delvd lintl l gw u.id y 1 bhitlin (onaiua Indau. 110 Wl dahad le IiON m d.. rad bln iadn toin 1n30 I 1to36 aonaw pda bW 21 1310daawn: 1W Mmdii ifaic 1113 dat atiti f1 pon nonSby 13 Inlatn oUrban CmnwrP_mo Und IM UI S RUpm. iia&inad - tam& Inen-uiuW 1992s 1331 and 1332. w t:o and 135 _ a aimwd uon ha oqud Untie tun to 16 Igwo. 13 lWAi amanmd me i ii M nanmisW I 14U1lIlti. 68 - Tb 2.6 New BuMdn Soedy Rn.btli Stmimmwa (at in MUII 19o3 1989 IWO 1991 1992 1988 1989 1990 1991 1192 Pwae of Tobt Asets. Cah 29.4 22.2 61.1 36.9 47.2 6.6 3.2 5.8 5.8 1.8 Acarued Interest 37.0 740 106.1 146.4 121.0 7.0 10.8 10.1 8.8 4.5 Loeis 80.2 89.3 95.5 115.4 236.4 15.2 12.4 0.1 0.9 8.9 Mortgage 890.0 85.1 95.4 115.4 238.2 16.1 12.4 9.1 0.9 8.9 Othwr 0.2 0.2 0.1 0.0 0.2 0.0 0.0 0.0 0.0 0.0 InvetmntB 380.7 501.6 784.4 1,290.0 2240.3 71.9 73.1 74.0 77.6 84.2 Foreign 4. 4.0 6.0 20.9 71.4 0.0 0.6 0.5 1.3 2.7 Dometio - Undw 8 Lont! 141.2 252.5 834.6 1.157.7 209S6. 26.7 38.2 80.4 09.7 78.3 DneOstl. Owe. a Monhdw 23.6S 236.1 144.2 111.4 83.3 44.5 34.3 13.7 6.7 3.3 Debtors and Pepraym 0.4 0.1 0.1 0.8 0.3 0.1 O 0.0 0.0 0.0 sdAast 1. 3.1 4.2 12.2 16.2 0.4 0.5 0.4 0.7 0.6 TOTAL 629.5 686.3 1,051.4 1.001A 2686.5 100.0 100.0 100.0 100.0 100.0 UADmEsRESERVES Dep0eit/Shws 445.5 603.4 922.8 1.409.7 2.244.9 B4.1 87.9 87.7 84.8 84.2 PReular Depoits 44.1 54.2 89.7 102.6 181.1 8.3 7.9 6.6 6.2 6.0 M11fle aous Crdito 0.5 0.9 1.2 33.3 38.9 0.1 0.1 0.1 2.0 1.6 R_srwa 39.4 27.9 689.0 19 221.7 7.4 4.1 55 7.0 10.0 TOTAL 529S5 686.4 1.051.5 1.661.5 2806.5 100.0 100.0 100.0 100.0 100.0 l198 1983 19O 1991 1992 1998 199 1990 1991 1992 REVENUES Peent of Average Aseats 2V kbtrest 31 66.1 113.0 222.7 375.9 403.0 18.6 19.8 25.6 2717 21.4 Fem 0.2 0.2 0.2 0.5 59.0 0.0 0.0 0.0 0.0 2.7 Foreign Exchange GaI 1.2 3.6 2.6 32.1 0.2 0.4 0.2 1.5 TOTAL 65.2 120.4 228.5 379.0 654.1 160. 19.8 26.1 27.9 25.8 EXPENSES Interet 48.4 123.4 184.4 293.9 390.7 12.3 20.3 21.2 21.7 17.8 Adrn*intraive Ceost 4.4 8.5 12.0 27.3 67.7 1.1 1.4 1.4 2.0 3.1 TOTAL 52.8 131t9 198.4 321.1 448.3 13.4 21.7 22.6 23.7 20.7 NET ICOMETrawnfrrad 12.4 111.51 30.1 57.9 105.0 3.2 11.91 3.5 4.3 4.9 Source: N3S Annuwl PRput BDnk of Guy.u Staesd Edalen. 11 Soure: Dak af Guy. Smetiod uEtln. 21 Aset Dat w_ not avaiig for _id-Dsownber 1987. Therefore, to ainve at an inconlavwrage asset figur masts for sn-i9-889 wwr date at s 1999 InflIon rafe to arr iv the mid-1987 fure. 31 /Icluds profits on ade of investmet and f8ud assets. 69 Tdb 2* Rinmna Stblmu_ Eanm - GNCB 1989 100 loll 192 133 1100 1*91 1i2 IS 000,000 _ _ _ _ _ _ _ _ _ _ _ _ _ ETS Prt4t of Asma C NhndDptlmnOI 32 421 78e 1242 2.7 8.7 10.0 r1. Othw Shwn-rm lw1i 343 67 742 1017 9.3 1.4 A .4A I | SaBansw lthendahwdchud ceinCtian 274 573 313 730 7.3 11.9 11.7 A bom ohaw Ovwmnsnt lgthudonr Th1mD.o0.pmwithl'mninBanka 122 136 250 140 3.6 3.J 3.2 1 A D.paaItuInBa.PaymmitaAurrausSchmes 110 108 105- g8 3.2 2.2 12 1 11 RevacrbMo from Cmorwlldated Fund 1000 1000 1000 20.80 1237 10.7 In n tO1 370 1261 1650 2.9 7J 11.9 17.7 LOANS AND ADVANCES Grow Lens wd Advances 2530 3777 4769 5444 74.7 77.9 00f 13.1 Provions fcLo n Losas -164 -1272 -1231 -1387 44 .2.2 -16.7 -14 ProvisionsforUnmolectsdlnlrstwm -10 4644 -1267 -1370 -3.0 -11J0 -1A .210 atLes mw Advane 2330 1941 2282 2087 07.2 40.0 2.0 22.3 Taxatin rovmmble 3 B 0.1 0.1 FPzad A_b 36 44 330 334 1.0 0.0 4.2 a OdwAsa 6as 129 182 210 1.7 2.? 2.3 2.2 TOTAL ASSETS 3457 4948 7960 0373 100.0 100.0 100.0 100.0 UABIUlTIES PFrnst of U&MIs Depoulla-ODamud 449 506 1161 1052 13A 10.0 16.6 11.0 Sawvngs 1180 1386 3222 4379 34.7 320. 43A 621 Thi 1468 2050 2474 3003 43.4 43.0 33.3 32.4 Subotda 3070 4411 8847 3124 91.4 92.6 32.1 35.8 iatdon 20 0.8 Ddnim a a 0.2 0.1 other Labinltoa 264 35O 584 424 7.9 7.3 7.9 4A TOTAL UABILMES 3359 4787 7431 9648 100.0 100.0 100.0 100.0 Perdof A_ EQUITY 108 81 429 -171 3.1 1.7 6.5 -1. 19W3 1990 1091 1902 lo38 1393 1331 1032 REVENUES Pam of Averaee -a.W nrtanlawo 637 656 620 387 15.3 13.4 9.8 4.6 noomefmarnCCaiMnwy 112 109 93 344 3.2 2.8 1.S 4.0 Ce4munlman *ande uvieclwmu c 17 34 281 114 0.6 0.8 4.1 1.3 n re' seamFr t 20 41 230 317 O 1.0 3.0 3.7 naen 1mn depoit. with forqn banks 9 44 64 27 0.3 1.1 1.0 0.3 ForeIn Exche GUans 87 211 627 2.5 5.1 8.3 Totl Ravuae 781 996 1796 1189 22.2 23.9 29.2 13.8 EXPENSES Interest an deposis G00 770 1284 1278 14.5 18.? 20.2 14.J SearllendWeSWARM 34 64 11 188 1.0 1.3 1.9 2.2 Operstin Ea,e, 30 82 137 140 1.1 1.6 2.1 1.7 Depr cuedou 3 6 14 18 0.1 0.1 0.2 0.2 Other 1 4 6 3 0.0 0.1 0.1 0.0 SLibtrt7 To 126 274 356 2.2 3.0 4.3 4.1 Tota Expns 684 902 1558 1632 16.6 21.7 24.6 18.9 reilnco e8aforePuviionlN Taxation 198 03 236 *443 5.6 -2.2 3.7 -.1 ProvWmfonrLemnLoes 117 1120 92 167 3.3 26.3 IA 1. Not Proll8ifore Tax 80 -1027 145 -599 2.3 -24.7 2.3 -7.0 Tax 45 43 13 0.7 NatPreftAftw Tax 36 -1027 101 -659 1.0 -24 1.6 -7 Tanfer to Statuory Fzrd -6 27 *46 0. 0.7 O 0.7 Chusom to Conratdatcd Fund 1000 24.1 RectineodEsArnin 19 0 66 -699 0.5 0.0 O -7 Savint GNCB adited ard uwAited Finmidal Statemnwt. ' 1090 Asia war 063,680 nillon. 70 TiS 2.7 GM TNAt Fmid Sflu. 409 hME.. H ODD.O ASa frnne( YuTl Arni CaS 0.1 0.Q I. 1.5 tD 0.1 0.1 4 0 0.e h _eenhl not. MO. suA uMAo sm nXO 04a 7z.o 74.1 a" Mwqp Lou 174.6 221.1 200.5 2DA 4.4 M3 73.4 U.S 3.2a 62.7 Lent*b wdftlvebdWA 24.7 9 114 57J 96A 11.2 120 11.8 7. LS Mod Leu 0LI 0.0 OA 0.0 OA0 00 Ft1ldm 0. 1I 11.11 11(0.3) 4.2 10.21 _autunt h NIIIC 0 e.o OA 0.0 0.0 0.0 T.memayIt 153 261 L0 101.1 2.4 L5 1.E 14.0 Ot"u fu 4.9 2I 091 146. 200A 22 0.7 1" 1. 1S1 26. _ # fmPwmd 1 Zll 22.2 1.5 2.2 Z3 Tm Hemuwa 4, 52 O6 0.6 ftep_d.e 4.0 3.7 2.2 0Lo 0L 0.2 P_ed A_a i.s LS to0 m7 10.1 Ile 1i 1.i 12 1.0 0dm Asi 6.1 7.4 ZI 25 Tod 220.0 20.2 451.4 727.0 .2 100.0 100.0 1D 100. 10O Oupuiu 192.2 240 265.7 5IQO 516t Il:l 7539 91.0 oe.7 64. edikm md Ams* 4.0 2.9 52.2 46.5 CSO 2.5 1.3 11.3 6a 63 Taden 1.9 1.6 1.9 0.4 0.2 0.2 Odw 2S. 49. 3.16 .4 as l 11. 6 05B 0.5! OA Tale 2116 294.7 424.3 611.3 9w01 97.1 97.9 04.0 917 92.2 EauITY LO 6. 27.1 46.7 .76.1 2.0 1.2 6O 6A 7.3 hm Capll 6.6 GA 6.6 ao5 66 2.0 2o2 1.6 0.3 0.7 Rated Ewre 16.S 35J uSO 2.7 4.9 5.8 Lem lghurd a Cpo me u.3 2.0 0.9 0.5 0.3 irn Irn. lgo 1i9i 19i2 TM rn usa 1M lsU ASE RidsmtOtq CobS O 1.1 3.6 2.0 6.0 31.1 214.9 (43.21 193.0 h_I 1T27.1 1,041.4 747.1 615.8 MA.4 t31.U (S3 (17J1 7.1 Mw%w Lu 1.3.7 Wtl.2 623 434.5 95A.4 013 22 420.31 =3. Lom Pa, mad ina SaW. 134.7 142 106.5 680 551 (22a. (22a 121 t(L71 SMnS LOW= 0.3 0.1 0.0 111.81 (" ftovhh. 1.90 (1.2 81.11 lwia IhnUmC 0. 0. 0.0 (44.91 (A124 Teey a 23.7 S9. 16.5 116.3 134.1 (52.2 =1.3 2 ILOI R ii T ledh 35B. 7.5 14.2 167.0 2.0 (73.43 1,904.6 la 55.7 Oake. ud lguyme 1B.9 204 22.2 5.6L (15.51 TM R _esuifl 5.1 5.2 2.4 puds 5.3 4.2 2.2 $49.13 148.51 And A_ine 31.7 21.1 16. 9.9 10.1 (32.51 21.4A 0 2.1 Olsw _M 45.6 27.1 t40.51 (100.0 law 1.541.9 1,0953 935.7 E3D3 965.2 133.11 114.3 (11I.3 1.2 tARTtES Depoe 1.3S.1 079. 7516.0 795.5 3IL. (2m5 (12.72 15.1tI 1i beldbug ad Leest 24. . 14.2 110.2 53.1 me.5 1522 6721 (51.31 14.5 Tur_ 3.9 1.7 1.9 855.93 11.1 odo 196.0 lBZ1 7A 3.9 L.O (7.11) (95 (47.0 12L1 TYae 1.1919 1,D74.4 579.5 77.1 90D.1 (3z2) (11.1) 111.51 14A ECwrY 449 21S 5.1 52.2 7.1 8s5.1) 125.1 17.11 44.0 Sbe Ctud 449 23.9 120 7.5 L.o 51.11 (43.11 44.9) (12t4 Ritdtd Esrko 25.1 40.9 as 19.0 B e.2 Lamt Amu_in Cmpid 7.5 3.3 to 1500 Q20.43 1159B189 urn IBM int ir 199 iT SB 19921 102 IIEWEIWES Ring of Auwvu A_bi _~sa 107.1 1B5.1 235.6 2B.5 31.4 27.3 F_ t7. 15.9 27.5 2.1 2.7 3.3 0dm ~~~~ ~~~~ ~~~~~~~~ ~~0.0 0.0 0.0 0.0 0.0 0.0 Tale 114.9 201.0 213.2 30.5 34.1 21.1 DW