A foreign exchange allocation algorithm for the acquisition of key spare parts and supplies in a developing country

Abstract

Most developing countries are severely constrained by the size of their foreign exchange reserve necessary for the purchase on the international market of certain key items to be employed in their industries, including the export sectors that are responsible for generating the foreign exchange in the first place. The scarcity of this foreign exchange creates enormous problems for these countries. To cope with this dilemma, certain countries resort to all kinds of gambles and approaches that may not be defensible. A rational basis for the allocation of this scarce resource is described in this article. It consists primarily of two components. The first part deals with an optimal strategy for the identification of key items through a criticality assignment routine. The second relates to the algorithm for allocating foreign exchange to a pool of critical items to maximize the returns from such an allocation. The case study is Guyana, a developing country in South America. © 1986 Operational Research Society Ltd.