World Development Report 1984

Middle-income countries
Major exporters Other oil-importing Oil-exporting
Lows-income Africa of manufactures countries countries
High Low High Low High Low High Low
case case case case case case case case
1983' 1995 1995 1983' 1995 1995 1983a 1995 1995 1983a 1995 1995
-4.3 -7.1 -5.2 -0.6 -18.8 -1.5 -12.2 -16.7 -9.9 15.0 -9.6 1.5
-0.8 -1.3 -1.3 -22.2 -22.6 -25.5 -7.4 -7.3 -8.8 -16.6 -17.9 -19.3
-0.4 -1.0 -1.0 -3.5 -5.1 -5.9 -2.2 -3.6 -3.9 -2.7 -3.9 -4.3
-0.5 -0.3 -0.3 -18.7 -17.5 -19.6 -5.2 -3.7 -4.9 -13.9 -14.0 -15.0
-4.3 -7.0 -5.8 -22.8 -40.5 -26.7 -17.5 -17.8 -14.3 -10.0 -32.1 -21.9
1.8 2.8 2.4 3.1 5.0 4.3 2.3 3.2 2.9 2.2 3.1 2.7
1.4 3.4 2.7 11.8 27.7 17.1 7.5 12.5 9.5 32.3 22.3 13.8
1.6 3.2 2.6 4.3 8.6 6.1 4.0 8.0 6.1 3.6 7.9 6.0
-0.2 0.1 0.1 7.5 19.2 11.0 3.5 4.6 3.4 28.7 14.3 7.8
22.2 38.3 30.1 224.9 350.6 245.4 97.6 142.8 112.4 199.7 293.7 200.6
42.2 50.2 41.4 26.3 20.5 16.0 39.8 35.0 29.2 38.9 30.4 22.3
242.0 234.7 224.1 99.6 59.0 50.7 177.5 145.4 137.2 133.0 90.1 78.7
24.8 19.1 20.6 20.0 10.5 11.4 28.7 20.2 22.9 21.4 16.0 17.0
a. Estimated.
b. Excludes official transfers.
c. Net disbursements.
Policy requirements of the High case demand for money and greater investment, the
prospect is that both short-term and long-term real
The difference between this basic Low case (vari- rates of interest will remain high in comparison
ants of which are discussed below) and the High with those of the 1970s.
case hinges on the performance of the industrial Inflationary expectations have not disappeared.
countries. If they could regain the productivity In the major industrial countries, the "core" rate
growth and high employment they managed in of inflation-measured by the rise in the GDP
the 1950s and 1960s, the High case would be deflator-is running at between 1 percent a year in
achieved. There is little sign that they would be Japan and 9 percent a year in France; in the United
prevented from doing so by some fundamental States it is about 4.5 percent. While low by recent
deterioration in the rate of technological progress. standards, these are not rates that can be ignored,
On the contrary, in some fields-telecommunica- especially in the light of past experience of the
tions, electronics, biotechnology-the pace of tech- inflation cycle.
nical change appears to be accelerating. It there- Given the unfavorable context, neither higher
fore seems probable that faster growth depends on employment nor lower interest rates is likely to be
tackling the problems that dogged the industrial brought about in any durable way merely by
countries in the 1970s. increasing nominal demand. Moreover, in the long
run, the financing of public spending will probably
Deficits, savings, and interest rates become still more difficult in developed countries.
In many, the political will to increase taxation is
Economic recovery is likely to stimulate higher limited, but the pressures for more spending
saving in industrial countries. But since the oil remain strong.
exporters' surplus has disappeared and the United If they are to avoid a resurgence of inflation,
States is running a large budget deficit, global sav- most industrial countries will need to maintain
ings rates are unlikely to regain their level of the tight monetary policies. Given the fiscal pressures,
early 1970s, at least not in the immediate future. To the real cost of borrowing is likely to remain high.
the extent that industrial-country recovery in the For that reason alone, budget deficits will tend to
context of lower inflation leads to increased grow as the real interest burden is compounded
39