This study asseses trade liberalization in programs supported by the IMF by reviewing multiyear arrangements in the 1990s and six detailed case studies. It also discusses the main economic factors affecting trade policy targets.
Trade reform is an important aspect of the Fund’s purposes and objectives. Article I of its Articles of Agreement explicitly refers to the importance of trade for economic prosperity and growth.1 The Fund’s role in the area of trade policy is complementary to that of other international institutions, in particular, the World Bank and the World Trade Organization (WTO) (Box 1).2
A liberal trade regime is an important factor in encouraging economic growth and efficient resource allocation. The case for open trade policies and consequent resource allocation improvements and enhanced medium-term growth prospects are well known and supported by a large body of theoretical and empirical work (Box 2).
To assess trade policy in Fund-supported programs,9 a review was conducted of all multiyear arrangements initiated and terminated between January 1990 and June 1996.10 The review examined trade reform targeted and implemented during the program period, and noted factors that influenced trade reform. This section first describes the methodology, then assesses the restrictiveness of countries’ trade regimes at the start of the program, the targeted change in restrictiveness envisaged, and the overall restrictiveness at the end of the program. It continues with a discussion of program targets, monitoring, overall results, and ambitiousness, and factors that influenced trade reform in the programs and some implications for program design.
Based on six detailed case studies, this section expands the analysis of trade reform in Fund-supported programs to cover a longer time period, to include the design and negotiation stages of programs, and to examine more closely the factors influencing program design and implementation. Its objectives are to analyze (1) the trade reform effort over a seven-year period, both within and outside the context of Fund-supported programs; (2) the evolution of program targets and the influence of different factors, particularly fiscal considerations, on program design; (3) the implementation of trade reforms and the factors contributing to or inhibiting the implementation of these reforms; and (4) the elements that may have contributed to successful trade liberalization and the lessons that can be drawn.
Liberal trade policies complemented by appropriate macroeconomic and other structural policies in Fund-supported adjustment programs have an important impact on allocative efficiency and thereby on economic growth. Trade reform also contributes to improved transparency and good governance by reducing incentives for lobbying for trade protection and opportunities for rent seeking and by eliminating administrative discretion. These factors underline the importance of trade reform as a key component of structural adjustment efforts.