World Development Report 1984
World Development Report 1984
World Development Report 1984
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Because the public sector in low-income coun- without excessive cost to themselves, they will<br />
tries is large in relation to GDP, cutting imports need to expand their exports rather than just<br />
usually means cutting public spending. Although reduce imports. Any worsening of global prosgovernments<br />
may have scope for reducing spend- pects in terms of increased protectionism and furing<br />
without damaging long-term growth, budget ther rises in dollar interest rates would erode the<br />
cuts too often damage programs with the greatest ability and perhaps even the willingness, of borcapacity<br />
for raising the economy's growth poten- rowers to service their debt.<br />
tial. Some of them may be classified as current As in trade, so in finance there is a need for<br />
spending; but education and health budgets are concerted international action. The success of<br />
better seen as investments in human capital. developing countries' efforts to deal with the rigid-<br />
Most human development programs have long ities and distortions in their own economies<br />
gestation lags. Their output is not directly tradable depends in part on the actions of official and priand<br />
often is not even marketable. Commercial vate suppliers of finance. For the poorer countries<br />
financing of such investments is therefore unrealis- the main challenge for the international commutic.<br />
A real increase in concessional assistance is nity is to find ways of supporting policy reform<br />
needed, and has been for several years. Yet, at through additional flows of concessional assisttimes<br />
of their greatest difficulty, low-income coun- ance. This has been the challenge in the negotiatries<br />
have found that official aid has been falling in tions for the seventh IDA replenishment (see Box<br />
real terms. This trend must be reversed if low- 3.5), the discussions for possible supplemental<br />
income countries are to make any progress in the budgeting to IDA, and the extension of the Lome<br />
years ahead and the lot of the poorest people is not Convention.<br />
to deteriorate any further. For the middle-income countries the actions of a<br />
wide range of private and public institutions are<br />
International action important. Commercial banks have typically relied<br />
on borrowing countries' agreements with the<br />
This chapter has shown that the world economic International Monetary Fund (IMF) as a basis for<br />
outlook would brighten considerably if every restructuring existing claims and, in selected cases,<br />
country took steps to improve its own domestic for committing additional funds. Increases in volperformance.<br />
The onus on the industrial countries untary lending by the commercial banks in the<br />
is greatest, because growth prospects throughout long term is an important ingredient in the restorathe<br />
world would be transformed if they overcame tion of growth momentum in middle-income<br />
the rigidities and inflationary fears that slowed developing countries. But the transition back to<br />
them down in the past ten years. Even without fully voluntary lending requires prudent managesuch<br />
benefits, the developing countries could do ment on the side of both borrowers and lenders.<br />
much to help themselves through policy changes Official institutions, particularly the IMF, the<br />
that increase the flexibility of their own economies. <strong>World</strong> Bank, and the regional development banks<br />
That said, some measures need to be taken at an can be helpful in this regard both by assisting in<br />
international, not purely domestic, level and in a the design of more effective developing-country<br />
coordinated way. A trade-liberalization initiative policies and by expanding their own lending in<br />
that concentrated on the newer and proliferating support of policy reforms (see Box 3.5). Efforts by<br />
forms of protectionism-various nontariff barriers, these institutions to encourage private direct<br />
especially those affecting developing countries- investment should also continue. Finally, it is<br />
would make an important contribution to restoring important that official export-financing institutions<br />
the momentum of the world economy. It is also adjust to the greater risks of lending to developing<br />
essential to start liberalizing trade in agriculture. countries in a nondisruptive fashion. What is<br />
Just as the liberalization of trade in manufactures required need not be very dramatic for any single<br />
provided a once-for-all but sizable boost to produc- institution, provided they all act constructively.<br />
tivity growth in the late 1950s and early 1960s, so Measures that would result in increased financial<br />
the same approach to agricultural trade, combined flows to developing countries to help them underwith<br />
the reversal of the recent protectionist meas- take structural adjustment and maintain long-term<br />
ures on industrial products, could boost productiv- financial viability will help make trade liberalizaity<br />
in the 1980s. tion easier by improving their short-term balance<br />
Freer trade is also vital for solving the debt crisis. of payments outlook. In turn, liberalization would<br />
For the developing countries to service their debt expand exports and would tend to strengthen<br />
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