Mr. George A Mackenzie, Mr. Philip R. Gerson, and Mr. David William Harold Orsmond
This study examines the composition of fiscal adjustment - tax and expenditure policies and administrative procedures, and some aspects of public enterprise reform - in a sample of eight countries (Bangladesh, Chile, Ghana, India, Mexico, Morocco, Senegal, and Thailand) during a period of fiscal reform (usually 1978-93), to determine whether and to what extent the fiscal reforms fostered growth during the adjustment period.
This paper summarizes the authorities’ stabilization efforts, how these efforts were subsequently reinforced by certain key structural reforms, and other related developments that help explain the remarkable performance of the Dominican Republic’s economy in the 1990s during which the country achieved one of the highest output growth rates in Latin America, combined with low inflation, and a much improved external debt profile. The authorities often resorted to external arrears as a means of financing the external current account deficits of the 1980s. Although rescheduling agreements were reached with the international banking community and with the Paris Club of official creditors in the mid-1980s, they met with limited success until the authorities embarked on their stabilization program of the early 1990s. Large and persistent fiscal deficits represented a significant burden for monetary policy. Although at the beginning of the decade more than half of the public deficit was financed by foreign loans, episodes of default on external and domestic government debt led to a progressive drying up of these sources of financing.
Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno
The Eastern Caribbean Central Bank is one of just a few regional central banks in the world and the only one where the member countries have pooled all their foreign reserves, the convertability of the common currency is fully self-supported, and the parity of the exchange rate has not changed. This occasional paper reviews recent developments, policy issues, and institutional arrangements in the member countries of the Eastern Caribbean Currency Union, and looks at the regional financial system, its supervision, and the central bank's initiatives to establish a single financial space. The paper includes a large amount of statistical information that is not readily available elsewhere from a single source.
Mr. Benedict J. Clements, Mr. Liam P. Ebrill, Mr. Sanjeev Gupta, Mr. Anthony J. Pellechio, Mr. Jerald A Schiff, Mr. George T. Abed, Mr. Ronald T. McMorran, and Marijn Verhoeven
The reform of fiscal policies and institutions lies at the heart of structural adjustment in developing countries. Although the immediate aim of such reform is to reduce fiscal imbalances to achieve macroeconomic stability, the long-term goal is to secure more durable improvements in fiscal performance. This study reviews the fiscal reform experience of 36 low-income developing countries that undertook macroeconomic and structural adjustment in the context of the IMF's Structural Adjustment Facility and Enhanced Structural Adjustment Facility during the period of 1985-95.
This is the first of a group of papers dealing with various aspects of Fund-supported adjustment programs. The other two, The Global Effects of Fund-supported Adjustment Programs by Morris Goldstein and Fund-Supported Programs, Fiscal Policy, and Income Distribution by the Fiscal Affairs Department, will also be published in the Fund's Occasional Paper Series.
Mr. Ishan Kapur, Mr. Jerald A Schiff, Mr. Michael T. Hadjimichael, Mr. Philippe Szymczak, and Mr. Paul Louis Ceriel Hilbers
The first sub-Saharan African country to pursue broad economic and structural reform - aided by external finance and technical aid - Ghana is an example of adjustment with growth. Ghana's experience, discussed in this paper, illustrates the need for complementary policy actions and the right sequencing and speed of reforms.
Kuwait has made an impressive recovery from the damage and disruptions caused by the August 1990 invasion by Iraq. Oil production and capacity have been fully restored to preinvasion levels, as has infrastructure. The reconstruction and rehabilitation effort has contributed to strong GDP growth, while inflation has been contained. Fiscal deficits have been reduced in a gradual and steady fashion, the current account has resumed its traditional surplus position, and foreign assets remain comfortable (albeit at a reduced level compared to the preinvasion levels) and are rising. Progress has also been made in resolving the domestic loan problems resulting from the invasion and the earlier informal stock market crisis.
The Fund’s Articles of Agreement make it clear (Article I) that promoting the growth of output and trade is a primary objective of economic policy and that eliminating payments disequilibria should be sought in accordance with this objective. Fund-supported adjustment programs consequently have to be designed to achieve a viable balance of payments within the context of improved long-term growth performance and price stability.1 Nevertheless, Fund policies and programs have come under mounting criticism in recent years in the press, as well as in certain academic circles, for failing to encourage economic growth.2 Indeed, it has been frequently argued that rather than fostering the growth of output, Fund programs tend to cause a slowdown in economic activity, increased unemployment, and a general worsening of living standards.
Many studies on international tax comparisons have been undertaken since the early 1970s.2 While controversial, such studies have facilitated more subtle comparisons of a country’s tax performance than would be afforded by focusing on its simple tax ratio. This paper provides a comparable framework for comparisons of both functional and economic expenditure patterns of countries having similar economic and demographic positions. It also provides an implicit technological norm for predicting the economic characteristics of a country’s expenditure pattern, based on its choice of priorities for functional expenditures.
Ms. Kalpana Kochhar, Mr. Erik Offerdal, Mr. Louis Dicks-Mireaux, Mr. Mauro Mecagni, Ms. Jianping Zhou, Mr. Balázs Horváth, Mr. David John Goldsbrough, and Ms. Sharmini Coorey
Following the severe economic shocks—a sharp deterioration in the terms of trade and higher world interest rates—of the late 1970s and early 1980s and the ensuing debt crisis, a large number of developing countries undertook adjustment policies in order to restore growth on a sustainable basis. However, the mediumterm response of growth and investment to these policies was frequently slow, even in countries that undertook significant measures. This study is born from that experience, and it aims to identify how adjustment policies could better contribute to reinvigorating growth in developing countries. The influence of macroeconomic policies and core structural reforms on the mainstays of growth—investment, saving, total factor productivity, and employment—is examined drawing upon the experience of eight developing countries. These are Bangladesh, Chile, Ghana, India, Mexico, Morocco, Senegal, and Thailand. The group was chosen to include both low- and middle-income cases as well as examples of countries that have, or have not, encountered external debt crises, and to include countries—most notably Chile and Thailand—that have achieved a markedly higher growth rate following a period of adjustment. The focus of this study is on policies and their effects rather than to estimate the independent effect of Fund-supported programs on growth. The analysis builds on separate studies prepared for many of the countries in the context of the IMF’s regular consultations with member countries, known as Article IV consultations, as well as on many other books, articles, and work in the IMF and World Bank.1 The main lessons emerging from studies other than this are summarized in Appendix I.