In a move that upends decades of thought in economics on managing developing countries like Barbados, the former governor of the Central Bank of Barbados has proposed that the region import more.
Dr Delisle Worrell suggested increased imports as part of bold policy reforms focused on currency stability, arguing that only these measures will unlock sustained foreign investment and lift the Caribbean out of decades-long economic stagnation.
Economists in the region have long argued against increasing imports, fearing consumer demand would invariably drain foreign reserves and weaken a country’s capacity — or will — to grow GDP through domestic industrial development and exports.
But in his latest monthly newsletter, Imports Sustain the Quality of Life in the Caribbean, Dr Worrell, who also consulted for the International Monetary Fund and World Bank, said: “The patriotic sentiment that Caribbean countries import too much is at odds with the reality that our standard of living in this region is made possible by imports. The fact is, the greater the level of imports, the higher the standard of living.
“In order to increase the GDP of Caribbean economies, we must therefore increase our capacity to import. That means investing in tourist accommodation and services, exploiting oil, renewable energy and mineral resources, hosting more international business, financial and educational services, and investing in rum and other manufacturing facilities, all with a view to securing more foreign currency for imports.”
Dr Worrell contended that foreign earnings depend entirely on the Caribbean’s capacity to produce. He asserted that the export markets served by the region are so large that they can easily absorb whatever volume of goods and services Caribbean countries can offer.
“In order to increase capacity to earn foreign currency,” said the author of several economic publications, “the Caribbean needs investment, the largest share of which must be financed in US dollars to pay for imported construction materials, equipment, supplies, fuel, vehicles, and other requirements. Countries can attract this needed foreign finance insofar as they provide a competitive environment for investment.”
Breaking down his assessment, Dr Worrell stressed that maintaining Caribbean standards of living demands reliable supplies of imports.
“Caribbean nations’ sense of independence confronts the reality that everything supporting our modern lifestyle is either imported or produced using imports. It is impossible to sustain the standard of living of even the least well-off without the full range of imported items,” he argued.
He noted that, in economic terms, import dependence is a structural characteristic of small economies like those found in the Caribbean. Dr Worrell said this should not be viewed as a weakness, but rather as an inherent feature of the economy, similar to the country’s time zone.
Dr Worrell stated that in an import-dependent economy, an increase in the rate of growth will be matched by a proportionate rise in imports. He added: “An increase in imports is usually a good sign, indicating that investment is rising and the economy is on a sustainable growth path. The inverse also holds true: a decline in imports is usually a sign that the purchasing power of national income has diminished.”
The economist recommended that new capacity be developed through investments and financing in foreign currency to cover import costs.
“The most important policies our governments can pursue to promote investment are: 1) maintaining a stable and predictable exchange rate for the domestic currency; and 2) prudent management of public finances to ensure the country remains creditworthy in the financial markets of New York and London.
“With a stable exchange rate and an investment-grade rating for government foreign debt, countries are assured of foreign investor interest in the internationally competitive sectors of the economy. The final hurdle for potential foreign investors is often the efficiency of the public sector.”
He argued that public policy failures are the main obstacle to economic growth across the Caribbean.
“The Caribbean suffers no shortage of foreign investor interest in new projects in proven internationally competitive sectors such as tourism, oil, offshore medical schools, rum production, and international business and finance.”
He continued: “What stands in the way of expansion in these activities are exchange rates that are persistently threatened by devaluation, chronic deficits on the public sector current account, and government bureaucracy that fails to deliver public services effectively and with acceptable productivity. The solution to the Caribbean’s problem of anaemic growth lies in addressing these domestic issues.”
Pointing to robust increases in foreign direct investment as the barometer of a country’s progress, Dr Worrell said: “An increase in foreign direct investment across the region would be the surest indicator that Caribbean countries are lifting themselves out of the economic doldrums in which they have been stuck for many years.”
He suggested that small, rapidly growing economies require increased imports and the foreign exchange needed to purchase them. “To increase foreign earnings, the economies must expand their capacity to supply goods and services in which they demonstrate international competitiveness.”
emmanueljoseph@barbadostoday.bb
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