1 Investment Policies in the Arab Countries: The Basic Issues


Since the onset of the debt problem in the early eighties, developing countries have been in the grip of a deep and protracted economic crisis. For them the decade of the eighties has been aptly described as a lost decade as their standard of living suffered stagnation or even deterioration. Most of them have incurred unsustainable external deficits and experienced high rates of inflation, crushing debt-service burdens, and sluggish growth in gross domestic product (GDP). Part of their woes is undoubtedly ascribable to an unfavorable external environment, notably, mediocre growth in the industrial countries, a rising tide of protectionism, stagnation of financial flows, and worsening terms of trade. While these factors are important, they fail to offer a satisfactory explanation. A good part of the blame lies with domestic factors. In a large number of cases poor economic management is responsible for widespread macroeconomic and structural distortions and for failure to implement timely and effective programs of adjustment in the face of deteriorating external conditions.