Guinea

Guinea had a decade of central planning with a banking system operating in effect as a monobank. This was succeeded by a long period of on-and-off reforms which included a growing focus on price stability and repeated major changes to exchange rates and exchange rate arrangements, together with an increased role for interest rates and the issue of central bank and government securities, but without organised markets for those securities or an interbank money market.

YearsTargets and attainmentClassification
1974-85Guinean franc, issued when Guinea left WAMU in 1959, replaced in 1972 currency conversion at rate of 1:10 by syli, which is fixed to USD and then from mid-1975 to SDR; limited banking system, state-owned; central bank aims to control credit, screening individual requests and at times setting overall targets; interest rates set by central bank and rarely varied; central planning with heavy controls on trade, exchange and prices; parallel markets for forex and some goods, with large premia; banks obliged to lend to state enterprises for projects approved in central plans, lend very little to private sector; mid-1970s growth boosted by increase in bauxite mining; some very limited financial and external liberalisation from mid-1970s, more from 1980; currency conversion exercises 1981-2 designed to reduce cash hoarding and eliminate counterfeit notes; after coup 1984 new government announces major change in direction of policy away from central planning towards market mechanisms; statistical database poormultiple direct controls MDC
1986-20171986 six non-viable state-owned banks liquidated, three new partly state-owned foreign-affiliated banks start operating, central bank restructured; 1986 Guinean syli replaced at par by new Guinean franc, plus temporary second forex window, with massive depreciations of both markets then weekly auctions to set second window rate, and exchange rate unification mid-1986; interest rates adjusted more often, bank lending to public sector brought under control, but monetisation of economy (excluding use of USD, French francs and CFA francs) and bank lending to private sector remain low; 1991 reserve requirements and prudential ratios for banks, real interest rates become positive, but still no government financial instruments; stabilisation and reform proceed unevenly, with periodic (mainly fiscal) slippages; heavy continued dependence on enclave mining sector; forex auctions continue but rate is managed, mainly with reference to USD; 1992 retail forex bureaux allowed; 1993 treasury bills issued at first on tap then via monthly auctions, most interest rates deregulated, reserve requirements unified, central bank refinancing scaled down, facility for rediscounting of treasury bills; ongoing improvements in regulation and supervision of banking system; 1994 increased independence for central bank; late 1994 interbank forex market with further liberalisation; adverse effects from Asian financial crisis 1998 and security issues in neighbouring countries 1999-2002; late 1999 forex auction at central bank introduced in eventually successful attempt to unify existing official forex market (dominated by two-bank cartel, and with intervention by central bank) and parallel (forex bureaux) market; 2002-4 central bank finances large fiscal deficits, and refuses to allow exchange rate to float, with marked rise in parallel premium; 2005 moves to liberalise and unify forex market, which reduce parallel premium, but market remains partly segmented (with few interbank trades); short-term government bonds and central bank bills held mainly by banks, no secondary market or repos, policy role of interest rates limited; rising dollarisation; 2006 renewed fiscal-monetary expansion, increasing political turmoil; 2007 new government, stabilisation policies and central bank reforms; end-2008 coup, military in power till early 2011, but tensions and some violence continue; 2009-10 reversion to fiscal dominance, 2011 back to stabilisation and structural reform, with exchange rate float; monetary policy now operated mainly through reserve requirements and interest rates; 2012 falls in prices of country’s commodity exports; Ebola outbreak late 2013, seriously affecting economic activity and public spending; 2016 further liberalisation and new auction arrangement for forex; statistics improved but still weak in some areasloosely structured discretion LSD

Selected IMF references: RED 1972 pp58-61; RED 1974 pp45, 46, 60-2; SR 1974 pp1-2, 6; RED 1976 pp37, 54-5; SR 1977 p3; RED 1981 p58; SR 1981 pp9-10; RED 1983 pp49-50; SR 1983 pp1-3, 10-11, 12-15; SR 1984 pp1-3, 9, 11-13, 14-15; RED 1986 pp26-7, 37; SR 1986 pp5-6, 8-9; RED 1987 pp19-21, 39-42; SR 1987 pp2-5; SR 1988 pp8-9, 10; SR 1991 pp2-3, 10-11, 35; RED 1993 pp1-7, 23-5, 42-3, 80-92, 98-101; SR 1994 pp8-9, 11; BP 1995 pp20-2, 29-30, 53-8; SR 1995 pp9-10; SR 1999 pp9, 10-11; SR 2000 pp14, 72-3; SR 2002 p21; SR 2003 pp4, 7, 9, 10-11; SR 2004 pp10, 13-15; SISA 2005 pp20-8; SR 2005 pp9-12; SR 2007 pp7-11, 15-17; Memorandum of Economic and Financial Policies June 2011, ¶¶1-5, 20-6; SR 2012 pp6-12; Fourth Review under ECF July 2014 pp9-10; Fifth Review under ECF January 2015 p8; SR 2016 pp17, 21-4.

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