Back Matter

1

Civil service wage negotiations for 1998 were concluded in July 1998, which included 9½ percent increase from January 1, 1998 and additional increases ranging from 4½ percent (for higher grades) to 20½ percent (for lower grades) effective July 1, 1998.

2

In 1998 the NIS decided to begin to hold government papers of longer-term maturities, which shifted the receipt of interest on their papers from 1998 to 1999.

3

Three additional technical persons were hired in early 1999 and additional computers and office equipment were put in place by March 1999. The training started in February and will last for about a year.

4

Set at the level of cost recovery to the Rice Board.

5

Between 1991 and 1998 central government employment declined from 17,800 to 9,400 and total public sector employment (including state enterprises) decline from 65,700 to 36,300 (Table 8). However, this data does not include security forces, teachers, public health care workers, regional administrators, and staff in autonomous agencies.

6

Of these, only the Guyana National Co-operative Bank (formed by the merger of two state-owned banks in May 1995) is still state-owned. In October 1997, a 51 percent share of the National Bank of Industry and Commerce (NBIC), formerly owned by the government, was sold to the Republic Bank of Trinidad and Tobago.

7

Because of weak performance, the Guyana Co-operative Mortgage Finance Bank (a specialized financial institution established in 1973 to provide home mortgage for low-income families) was closed at end-1998 and its loan portfolio was transferred to the Guyana Co-operative Financial Services.

8

The New Building Society, the main mortgage-finance institution is governed by the Co-operative Financial Institutions Act (COFA), while the insurance companies are under the supervision of the Commissioner of Insurance.

9

Special deposit rates applied to banks’ excess reserves at the central bank and remained in effect until end-1994, after which excess reserves became nonremunerated.

10

This replaced the previous system which required that the deviation in yield in bids in a current tender be no more than two percentage points of the average yield in the previous tender.

11

These included all commercial banks and trust companies and other deposit-taking institutions; insurance companies remained under the supervision of the Commissioner of Insurance.

12

The Government of Guyana does all importation of fuel to the country through GNEA, which does documentation and importation and sells to private distributors, GUYOIL (government owned) and government departments, all at the same price.

13

Exports of gold required permits from the Guyana Gold Board. Licenses were granted to eight local dealers in May 1997 for one year experiment and has been extended by another year from April 30, 1998.

APPENDIX I Guyana: The Strengthening and Reorganization of the Bank of Guyana (BOG)

1. Efforts to strengthen the functioning of the central bank (the Bank of Guyana) have proceeded in earnest over the last few years and have culminated in the passage by parliament at end-November 1998 of the revised Bank of Guyana Act (1998). These efforts have aimed at the modernization of the bank’s structure and operations, enhancing its autonomy, and increasing its capacity to conduct monetary policy.

2. Key reforms prior to the passage of the revised BOG Act included the following:

  • (i) Strengthening the income and balance sheet positions of the bank by reducing foreign debt liabilities on its portfolio either through debt relief or by the transfer of foreign debt from its books to central government. Under the Paris Club debt-stock reduction operation for Guyana in May 1996, BOG’s foreign liabilities were reduced by about US$287 million. Also, in 1997 foreign liabilities of US$145 million owed to Paris Club creditors were transferred from the BOG to central government. Largely because of these operations, BOG’s net foreign asset position was substantially strengthened (from -US$540 million at end-1995 to US$14 million at end 1998), and the bank started to make profits since 1997 (amounting to G$458 million in 1998).

  • (ii) The introduction of a reserve money programming framework in early 1998 to improve liquidity management in line with the foreign reserve and inflation objectives, and to enhance the coordination with debt management. This framework guided the bank in open market operations (through the treasury bill auctions) and in interventions in the foreign exchange market.

  • (iii) The implementation since May 1995 of the Financial Institutions Act (FIA) which aimed at ensuring the safety and soundness of the banking system by the strengthening and modernization of the regulatory and supervisory framework under which the central bank operates. The FIA expanded the central bank’s supervision to all deposit-taking institutions; and raised to internationally accepted standards (Basle committee and BIS standards) the prudential requirements as to capital adequacy, loan classification and provisioning, and exposure limits on single-borrower and concentration of ownership of financial institutions.

  • (iv) Enhancing the bank’s monetary management and economic research capacities, and improving its organization, payments, budget and audit, and information management systems with technical assistance from the Fund. Achievements in these areas included the operation and enhancement of a competitive weekly treasury bill auction system (further strengthened by the removal of limits on bid prices as of January 22, 1999); development of the statistical data base and reporting system including the compilation of the balance of payments statistics; automation of check clearing and the establishment of a National Clearing House; and introduction of a Foreign Exchange Market Information System (FEMIS) for bank and nonbank cambios and guidelines for banks foreign exchange risk management.

  • (v) Restructuring of the bank and strengthening of its human resources functions through staff training (including through participation in the courses and seminars at the IMF Institute), improving internal communication within the bank, and establishing and strengthening of the policy unit in the bank.

3. The revised Bank of Guyana Act (1998), which amended the previous Bank of Guyana Act of 1995, had originally been tabled in Parliament in 1997 but had lapsed because of the December 1997 elections. The new act recapitalized the bank, allowed the transfer of further foreign debt liabilities from its portfolio to central government, barred the bank from extending credit to the public sector, and introduced other changes to increase the efficiency and autonomy of the bank in performing its functions. Key features of the act are as follows:

  • (i) increased the bank’s authorized and paid-up capital to G$l billion (from G$6 million which has remained unchanged since the bank’s establishment in 1965). The recapitalization was effected through the issuance of marketable securities by the government to the bank; these securities will be used by the bank solely for open market operations and will be rolled over upon maturity.

  • (ii) increased the number of the bank’s directors from five to six (with the Governor and Deputy Governor appointed by the president and the rest by the minister of finance); staggered the directors’ terms to expire one year apart; and empowered the Governor in consultation with the Board to appoint, reorganize, train and determine the conditions of employment of staff and consultants. Under the repealed Act, all directors were appointed simultaneously and their terms ended concurrently, and the finance minister set the terms of conditions of employees and consultants. The above-noted amendments would provide the bank with a larger measure of autonomy and continuity at the policy-making level.

  • (iii) allowed the transfer of foreign debt liabilities (amounting to US$64 million) owed to non-Paris Club creditors (Argentina, Kuwait, and Libya) from the bank’s books to the central government.

  • (iv) prohibited the bank from extending any credit (including by means of advances and negotiable securities) or guarantees directly or indirectly to the government or the public sector entities. This provision, beside helping to maintain the bank’s net worth, would enhance its capacity to promote a non-inflationary macroeconomic environment. In the past, large fiscal deficits have been partly financed by credit and guarantees by the central bank. Also, the bank’s quasi-fiscal activities including borrowing externally in support of the budget deficit, and making loan guarantees and interest payments on behalf of the Government have been largely responsible for the bank’s losses and negative net worth.

  • (v) authorized the bank to issue and trade its own securities for the purposes of open market operations (beside trading in government securities for open market operations purposes already allowed under the previous act). This provision, together with the recapitalization of the bank, will substantially increase the bank’s ability to conduct a more active monetary and exchange rate policies especially through more extensive open-market operations.

  • (vi) charged the bank with the sole responsibility of preparation of the balance of payments accounts and the external assets and liabilities position of the country. This formalized the practice which had been in effect for the preceding year and half, before which the compilation of the balance of payments was shared between the bank and the Bureau of Statistics (due to the inadequate technical resources at the two institutions). The provision would increase the efficiency of the balance of payments compilation and reporting and ensure greater consistency between the balance of payments and monetary accounts.

  • (vii) formally mandated the bank with the responsibility of the custody and management of Guyana’s external reserves (denominated in foreign currency and gold).

  • (viii) removed the requirement that financial institutions incorporated outside Guyana should maintain a proportion (25 percent) of their statutory reserves in foreign exchange. The abolished requirement, which originally was intended to garner foreign exchange, has been rendered inconsistent with the liberalized exchange rate regime and the FIA regulations of creating a level playing field in the financial system.

  • (ix) authorized the bank to examine all records, accounts and books of licensed financial institutions and their holding companies or affiliated subsidiaries, stipulated the due notices and fines for failure to submit such information, and assured institutions of the confidentiality of the provided information. This provision seeks to ensure full disclosure and transparency of operations of financial institutions with a view to safeguarding the soundness of the individual institutions and the financial system.

APPENDIX II Guyana: Reform of the Insurance and Securities Trading Industries

1. Reform of the insurance and securities trading industries is an important element of the government’s effort to enhance the business environment and increase the role of the private sector in the country’s economic development. In December 1998 the parliament passed two bills to establish the regulatory frameworks for the insurance and securities trading industries. Two independent boards, the Insurance Commission and the Securities Council, would be formed and their respective heads appointed (by end-1999) to oversee the implementation of the two acts and monitor the activities of the insurance and securities sectors in accordance with the newly passed legislation.

2. The Insurance Act (1998): This act, drafted in collaboration with the associations of the insurers and insurance brokers in Guyana, replaced the previous insurance legislation developed in the 1970s. The act provided for the regulation of the insurance industry, including promotion of competition and consumer protection. The act opens new avenues for insurers to adequately cater for the needs of the insuring public, particularly through new products and better services.

3. Total assets of the insurance companies expanded rapidly from G$398 million in 1985 to G$10.8 billion at mid-1998. Guyana’s six insurance companies currently hold the largest share of the assets of nonbank financial institutions and can play a major role in mobilizing long-term financial resources and developing Guyana’s capital market. Insurance companies have pursued conservative policies in the investment of their substantial resources, opting mainly for the safety of the foreign sector. At mid-1998, about 45 percent of insurance companies’ assets were placed in foreign securities, loans and bank deposits, with the rest invested locally in the banking system (10 percent), private sector businesses (11 percent), government securities (1 percent), and other assets. The new act provides incentives to insurance companies to invest more in loans to local businesses (see below).

4. Key features of the new act are the following:

  • (i) The Commissioner of Insurance is to be invested with the power to regulate the insurance industry, a much stronger role than under the repealed act. The commissioner is appointed by, and reports directly to, the minister of finance and could be removed by him with the approval of the president. The commissioner is authorized to appoint actuaries, consultants, managers, and other staff. Under the new act, the commissioner is relieved from being the principal arbitrator in disputes between clients and insurer firms and agents, but he would be represented on an insurance arbitration board (see below).

  • (ii) The commissioner’s office may, if necessary, supplement its budget (primarily funded by registration fees, fines and allocations by the National Assembly) through a levy assessed on the insurance industry (insurers, insurance brokers, underwriters association and pension fund managers under the commissioner’s jurisdiction).

  • (iii) All insurers are required to make a deposit with the commissioner’s office and maintain statutory funds. Long-term insurers (life, health, and pensions) will deposit an amount equal to G$5 million per class of insurance business, while general insurers (accident, sickness, motor vehicles, etc.) will deposit the greater of G$5 million or 20 percent of net premium revenue in the preceding year. In addition, insurers are required to establish a statutory fund equal to their liabilities (to policyholders) and contingency reserves (less amounts deposited with the commissioner’s office). Long-term insurers are required to invest 85 percent (as against 95 percent under the previous act) of this fund in Guyana. Also, the act increased the fines for offences on companies and individuals.

  • (iv) The provision that all insurers should maintain statutory funds allows for greater consumer protection and corporate stability than under the repealed act, which required only long-term insurers to maintain statutory funds. Also, the new act provided incentives for companies to invest in the common stocks of the Guyanese companies by reducing the domestic investment required (from 85 percent to a minimum of 75 percent) if the insurer invested in the common stock or long-term debt of companies in Guyana. The act provides a similar incentive for the investments of funds of pension plans. These provisions are intended to coordinate the Insurance Act with the new Securities Act to promote investment in public companies in Guyana.

  • (v) Two new entities for dispute resolution are to be established: (a) an Insurance Arbitration Board (composed of representatives of the commissioner, and the associations of insurance firms and brokers) to resolve disputes between policyholders and insurers, and (b) an Insurance Board of Review (IBR) to listen to appeals of the decisions of the commissioner. Appeals from the decisions of the IBR are resolved by the High Court (instead of the minister of finance under the repealed act).

  • (vi) Insurance brokers and agents are to be directly regulated by the commissioner who is empowered to issue a code of conduct for them. This improves on the repealed act which required the commissioner to have insurance companies registered but not regulated by his office. Also, the new act authorized the commissioner to register and regulate pension plans (which previously fell under the jurisdiction of the Inland Revenue Department). This was deemed more appropriate since many pension plans are managed by insurance companies.

  • (vii) Policyholders are enabled to name beneficiaries and beneficiaries to collect benefits without being affected by the policyholder’s will (unlike under the previous act in which benefits were paid to the estate of the insured). Also, the act introduced a provision which prevented insurers from voiding policies based on the state of health of the insured (except if the insured failed to disclose something or lied about the state of his health). These provisions are considered to offer consumers greater protection than under the previous act.

5. The Securities Industry Act (SIA), 1998: The act regulates the securities issuance and trading in Guyana through provisions for the registration and efficient operation of securities’ issuers, brokers and dealers, and their respective associations. The act constitutes the first step in the development of a stock exchange in Guyana and repeals comparable parts of the Companies Act (1991) and the Capital Issues (Control) Act (1995). It aims to encourage long-term financing and capital formation by fostering a deeper and more efficient capital market, protecting purchasers of securities, and promoting professional and ethical conduct in the securities industry. It is expected that the act will allow wider ownership of shares by Guyanese and encourage more companies to go public to make use of available capital. Also, the act will assist in implementing transparent disclosure mechanisms for share offerings.

6. The act was modeled after the Trinidadian securities act, taking into account the local conditions, especially the relative immaturity of the Guyanese securities market (compared for instance to that of Trinidad and Tobago or Jamaica). This will increase the likelihood that the securities laws and practices developed under the act will be in harmony with those in neighboring Caricom states and enhance Guyana’s interest in becoming a significant participant in the regional capital market. To enhance the effectiveness of the act, the government has mounted a campaign to inform the public of the benefits of having a securities exchange. This is particularly important in view of the fact that there is no well established securities market in Guyana and most companies are family-owned businesses. Since December 1993, a Call Exchange has been in operation, but the trading has remained thin and the exchange has been witnessing a declining turnover.

7. Key features of the act are as follows:

  • (i) A Securities Council will be established to administer the act and advise the minister of finance on matters relating to securities. The council will have three-five members (including an officer from the Bank of Guyana), and a chairman—all appointed by the minister of finance. The council will appoint a manager to handle day-to-day operations and will be funded from appropriations approved by parliament and from fees paid by securities’ issuers and dealers, and other securities intermediaries.

  • (ii) Self-regulatory organizations (SRO), such as securities exchanges, clearing agencies, and associations of securities companies and intermediaries, will be recognized by the council (subject to approval by the Minister) and will be charged with the task of licensing of securities companies, dealers, and brokers. Relieving the council of the tasks of licensing and monitoring the conduct of market activities will reduce its administrative and financial burden and better ensure the application of substantive standards of professional and financial competency.1

  • (iii) Companies based in Caricom states or companies registered as foreign businesses in Guyana are eligible for registration with the council. This would promote economic regionalism within the Caricom and also encourage foreign investment and participation in the Guyanese securities market and business activity.

  • (iv) A self-regulatory clearing agency is to be formed for the purpose of enabling participants to trade in securities by book entry instead of physical delivery of certificates. This is expected to facilitate trading, enhance confidence and promote an efficient securities market.

  • (v) Comprehensive standards are set forth regarding malpractice, the conduct of business by securities professionals, insider dealings, and takeover bids. In particular, the act prohibits market rigging transactions (e.g. deceptive devices and schemes, “churning” or excessive trading in clients’ accounts etc.); mandates the disclosure of certain conflicts; requires the mailing of confirmations and the maintenance of records; regulates “insider trading” by requiring persons owning more than a stipulated percentage (to be established by the council) of a reporting issuer’s securities to publicly disclose the amount, nature and purpose of its ownership; and regulates certain aspects of takeover bids including requirements for public disclosure and treatment of all stockholders on equal footing (e.g. in case of excess tendering the purchase from all stockholders on a pro rata basis, or paying the best price to all tendering stockholders). The act stipulates that self-regulating organizations could not make rules (e.g. by virtue of the authority delegated to them by the council) that contravene these standards.

APPENDIX III Guyana: Summary of the Tax System as of December 31, 1998

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1

This approach of assigning licensing responsibilities to self-regulatory organizations rather than to the securities council or commission is similar to that used in Trinidad and Tobago and the United States (where in the latter the principal SRO is the National Association of Securities Dealers and its affiliate Nasdaq Stock Exchange), but not in Jamaica.

Guyana: Recent Economic Developments
Author: International Monetary Fund