Government must move to lift the level of its foreign exchange reserves above the current level of about three months cover if it is to cope more effectively with ‘shocks’ like the current global financial crisis, according to Guyanese economist Dr. Maurice Odle.
“A larger amount of foreign exchange reserves and a largely improved fiscal balance situation would have allowed the Government to engage in a countercyclical expenditure policy to maintain the current level of economic activity when the global financial crisis begins to really bite,” Odle told a forum organized by the Georgetown Chamber of Commerce last week.
“It is interesting to note that Trinidad and Tobago has a $US 9 billion strong Heritage and Stabilization Fund in addition to its normal reserves of $US2.5 billion.” Odle said, adding that other Caribbean countries had deliberately opted for over five months import cover. According to Odle while some of these funds are managed by United States firms that have been “bailed out” of the current crisis, these funds are “ring fenced” and therefore not endangered. “It begs the question as to whether there should not be greater geographical and currency diversification of financial placements,” Odle said.
“In Guyana’s case there is going to be a particular problem with respect to price and availability of foreign loans. The global financial crisis has brought to the fore the need for a more meaningful role of the state in market-driven economies of both developed and developing countries,” Odle said.
And according to the Economic Adviser to the CARICOM Secretariat the current global financial crisis bespeaks the need for a greater degree of production and market diversification to cushion the effects of global economic crises. He said that Guyana remains a “very structurally dependent country with a considerable amount of vulnerability” adding that a greater degree of regional integration with an increase in intra-Caribbean transactions could partially compensate for this exposure to external shocks.”
Meanwhile, Dr. Odle told the forum that the current crisis underscores “some of the serious asystemic weaknesses” of the international financial architecture including the International Monetary Fund (IMF). ”Small, vulnerable countries like Guyana should not have to pay for the reckless financial actions of others. Developing countries need to be well-represented in any new Global Stability Forum,” he added.
