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A proposal on wealth creation and recovery for Guyana
Aug 23, 2014 Letters
DEAR EDITOR,
A couple of years back I grappled with the problem of the erosion of wealth and incomes that resulted from depreciation and inflation in Guyana. I dreamed up a solution which I would like to share with the public – the business community in particular – to provoke thought in this direction.
Depreciation results from an excess demand for foreign currency in the financial markets. In Guyana this means that we are not generating the kind of foreign currency earnings to satisfy our demand for it. Logically then, we simply need to step up production and increase exports to facilitate an increased foreign currency inflow. Taking into account our natural increase in demand for foreign goods and services, consistent increases in foreign currency inflows in excess of this demand should naturally lead to higher levels of international reserves and stability of the exchange rate, a much sought-after target.
Extrapolating further, persistently higher international reserves will create a situation where Guyana’s financial system is flush with foreign currency, the desirable consequence now being upward pressure on the local currency. In this situation, the upward pressure on the local currency should ultimately translate into a situation characterized by downward pressure on prices. The product market is unhindered, and the market is in balance, to say the least. With the continual increase in international reserves, the appreciation of the currency should be entertained and carefully managed so as not to have a significant impact on the local currency value of exporters’ receipts.
And this, I submit, is where I propose our economy should be. Here, our wealth has grown significantly as a result of a larger national output and higher export receipts, and our producers are faced with a situation of declining local currency values from their exports. This I propose to be our ideal scenario, since at this point, businesses will now have to seek to maintain or increase profits by generating greater efficiencies in their entire operations, which, provided that they are significant, can now translate into reductions in the prices of their goods at the market, meaning that they are also increasing their competitiveness globally. And our consumers are the winners.
Craig Sylvester
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