In 1980 the average world price of raw sugar had been US$0.13 per kilogram. By 1984, that price had fallen to US$0.02. As sugar prices collapsed, Belize's terms of trade deteriorated, and from 1980 to 1985 GDP grew an average of only 1.2 percent per year. The crisis was compounded in 1982 when, for thÍÍÍe first time since 1974, the United States government implemented a sugar quota system. The result was a reduction in total sugar exports from about 5 million tons in 1980-81 to about 1 million tons by 1987.

Also contributing to the worsening of Belize's balance of payments was the sudden collapse of the country's reexport business. As a reexporter, Belize imports goods and then resells them in neighboring countries (primarily Mexico), or merely transports them, collecting fees for port and road facilities. The arrangement is attractive because of Belize's relatively low shipping costs. However, Mexico's economic payment crisis of 1982, which reduced Mexican imports, put a dent in Belize's foreignexchange earnings as well. Reexports had amounted to 37 percent of export earnings in 1981 but fell to 16 percent in 1983, contributing to a 35-percent drop in total export earnings during that period.

The economic crisis of the early 1980s brought with it escalating trade deficits. In 1981 Belize's net international reserves had stood at US$1.1 million. By the end of 1984, the country had a trade deficit of US$13.6 million.

The economic crisis was a factor in the defeat of the People's United Party government in 1984 (see Political Parties , ch. 9) it also led to implementation of a standby arrangement with the International Monetary Fund (IMF--see Glossary) in December of that year. The IMF agreement marked the beginning of the country's adjustment process. The agreement provided access to 7.1 million units of special drawing rights (SDRs--see Glossary) over a sixteen-month period and called for a reduction of the publicsector deficit and a tightening of the country's credit policy by means of higher reserve requirements and higher interest rates. Credit had expanded at an annual rate of 15 percent from 1981 to 1984 because of escalating government debt.

A small open economy is dependent on developments in external markets and generally experiences few domestically generated inflationary pressures. Belize's currency, the Belizean dollar (see Glossary), had been pegged to the United States dollar at a rate of US$1=Bz$2 since 1976. Belize's rate of inflation, therefore, was likewise pegged to that of its major trading partner. Between 1980 and 1983, consumer prices increased by 25 percent in Belize. During the same period, they went up 21 percent in the United States. This modest inflation contrasted sharply with the hyperinflation that pushed prices up by more than 1,000 percent per year in many other countries in the region. Yet, the 4-percent 271 differencce between United States and Belizean inflation during those years resulted in a real effective exchange-rate appreciation and, consequently, a worsening of Belize's relative position in the export sector. This trend was later reversed when the Belizean inflation rate fell slightly below that of the United States.

Data as of January 1992