The ultimate vote of confidence in the decisions made by policymakers is when they attract foreign investment to a country. The following interview with Lord Brian Griffiths of Goldman Sachs Europe identifies some of the key ways in which policymakers can achieve this goal and sustain outside investment in their economies over the long term. The first major challenge facing any government is to create a stable financial environment. The key to stability is establishing a track record of low inflation which in turn means a low fiscal deficit and monetary policy aimed at preventing credit expansion. Low inflation means low interest rates, better industrial relations and more stable exchange rates.
Foreign investors view low inflation as the bedrock on which to build a market economy.
Next, there is the challenge of liberalizing and restructuring the economy and taking the necessary measures to free up markets, including labor markets. Other priorities must be transparency in macroeconomic policy and statistics, as well as in the banking and corporate systems. Finally, foreign investors value the freedom to repatriate profits. Restrictions on taking money out of the country are a major disincentive to foreign companies. None of this is easy to achieve.