Export-led Growth is the Solution for developing economies like Guyana

Nov 26, 2015 Letters

Dear Editor,
I would be grateful if you published the following letter in your Letters Column. Its contents are essentially aimed at boosting goodwill and interest in Guyana as a trading partner and as a destination for foreign direct investment. The following focuses on the establishment of the desirable position from which countries should be operating, both with respect to their internal economic state and relative to their trading partners, and ultimately, the rest of the world.
Although originally constructed as a solution to Guyana’s currency problems, given that many developing and underdeveloped states are also faced by similar economic dilemmas, namely, balance of payments problems characterized by a chronic or consistent deficit and downward pressure on their local currencies, with some being further challenged by generally weak governance and institutional/regulatory frameworks, unemployment issues, low resource allocation in both financial and real sectors, consistent fiscal deficits and high foreign debt, with an accompanying constraint on access to international financial markets in some cases, it was felt that its contents would also resonate well with these states.
Countries faced by a consistent downward pressure on the value of their currency are typically challenged by an excess demand for foreign currency in their financial markets. This is essentially driven by factors linked to confidence in the country’s ability to meet it current and future foreign currency obligations, and is usually precipitated by the affected countries not generating the kind of foreign currency earnings necessary to meet their demands, meaning that they very probably regularly carry a deficit in their balance of payments. The solution to this problem is one that has in the main been embraced by China, and that is the pursuit of export-led growth.
Taking into account a country’s 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 these countries’ financial systems become flush with foreign currency, the desirable consequence now being stabilization of the local currency, with some possible upward pressure on its value. With the continual increase in international reserves, countries’ central banks should intervene to maintain stability of the local currency to avoid putting the value of revenue earnings from exports under pressure.
The simplicity of this proposal deliberately avoids the challenges of actually achieving this economic balance. The address of these is nevertheless integral to the successful pursuit of this outcome. They are summarized as follows: countries strengthen their governance and institutional and regulatory systems, which increases investor interest and confidence in their economies. They also achieve stability and predictability in inflation, and interest rates are accommodative. These conditions together facilitate increased investment and job creation, with emphasis placed on directing or coordinating investment activities through strong public/private partnerships to yield consistently higher export receipts, strengthening international reserves positions, increased taxes, higher personal incomes along with growing domestic demand, and increased delivery of social services to the public.
Specialists should note that other inflows through the balance of payments were also necessarily neglected for clarity.
Craig Sylvester

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