Guidelines for monetary policy in small developing countries

Abstract

When attempting to speed up the process of structural transformation of small economies in developing countries, policy makers are confronted with a dire lack of finance. Such economies are often characterized by the presence of only one export industry, partly run with imported factors of production and based on the exploitation of the available natural resources. This industry usually has a dominant influence on the various macro-economic variables. However, as a rule, it has only limited industrial links with the rest of the economy, whose development potential is still being inadequately exploited. Consequently, the production base of the economy is usually dualistic and disharmonious, leading to substantial differences in productivity and income levels between different regions and sectors of industry. In these what might be termed "enclave economies," many projects must be undertaken to reform their unsatisfactory structure. For this purpose, the encouragement of domestic saving and a maximum use of the resulting savings for the financing of directly and indirectly productive investments are of vital importance.