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Some Aspects of Petroleum Product Price Adjustment in the Context of Fund Programs, 1980-1982

Author(s):
International Monetary Fund
Published Date:
July 1987
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Introduction

1. Background

In the period 1970–82 the non-oil developing countries 1/ were subjected to a wide range of developments that overall had serious, adverse consequences for their balance of payments positions (see Table 1). 2/ One of the most important factors has been identified as the unfavorable movements in their terms of trade, 3/ which in turn were attributable largely to the oil-price shocks in 1973/74 and 1979/80. While the Fund decided to provide financial assistance with low conditionality (through the oil facility) 4/ in the wake of the first oil-price shock in 1973/74 and thereby “avert the danger of adjustment action that merely shifts the problem to other countries,” 5/ by 1979/80 the assessment of the world economic situation was sufficiently changed for the Fund not to renew the oil facility but to emphasize the need for adjustment. 6/ Indeed, with regard to the demand for oil and energy, it was concluded that

Table 1.Non-Oil Developing Countries 1/: External Current Account Balances and Selected Economic and Financial Variables, 1967–82
1967–72
Average1973197419751976197719781979198019811982
(In billions of U.S. dollars)
Current account–10.0–11.3–37.0–46.3–32.6–28.6–41.3–61.0–89.0–107.7–86.8
Oil trade balance–3.8–13.9–13.9–17.1–18.4–18.6–25.2–38.2–37.3–30.0
(In percent)
Current account balance 2/17.2–10.1–24.1–29.8–17.9–12.8–15.6–17.920.5–23.2–19.3
Terms of trade change–0.1 3/5.3–5.9–8.5–5.95.9–3.7–0.3–6.23.9–2.7
Foreign real interest rate 4/5.4–17.9–20.18.1–1.4–7.13.3–4.7–4.617.412.8
Real GNP Growth of major trading partners5.0 3/6.30.3–1.05.44.24.03.31.21.1–0.4
Memorandum items
Change in index of oil export unit value3.0 5/40.5225.85.16.39.30.148.762.010.1–4.6
Terms of trade change for net oil importers 1/0.1 3/4.0–8.7–7.55.65.8–3.4–3.5–9.1–3.7–1.9
(In billions of U.S. dollars)
Current account balance–8.3–8.8–31.9–36.4–24.9–23.8–32.7–51.0–74.1–86.2–76.3
Source: International Monetary Fund, World Economic Outlook, 1983; and International Financial Statistics.

For a listing of these countries, see Table 7 and International Monetary Fund, World Economic Outlook, 1983, Appendix B, pp. 168–69.

As a percentage of total exports of goods and services.

Average, 1968–72.

Eurodollar deposit rate adjusted for changes in an index of export prices of non-oil developing countries (expressed in U.S. dollars).

Average, 1962–72.

Source: International Monetary Fund, World Economic Outlook, 1983; and International Financial Statistics.

For a listing of these countries, see Table 7 and International Monetary Fund, World Economic Outlook, 1983, Appendix B, pp. 168–69.

As a percentage of total exports of goods and services.

Average, 1968–72.

Eurodollar deposit rate adjusted for changes in an index of export prices of non-oil developing countries (expressed in U.S. dollars).

Average, 1962–72.

“…Clearly, the role of changes in oil demand behavior in adjustment to the 1973-74 oil price developments was not a prominent one. However, in adjusting to the recent oil price increases, conservation of energy and diversification away from oil should assume more significance.…” 1/

In effect, in the wake of the second oil-price shock, the Fund emphasized the need to promote adjustment to higher energy prices. In part, members made this adjustment through policies implemented under programs qualifying for support under the tranche policies. During and immediately after a period when the average export price of the oil exporting group increased from $12,82 a barrel at the end of 1978 to about $34.70 a barrel in early 1981, a number of non-oil developing countries approached the Fund for support of their adjustment programs, 2/ In conjunction with these programs many countries undertook to adjust their domestic petroleum and petroleum-related prices to reflect the changed world market conditions.

2. Outline and summary findings

a. Outline

Against this background, this paper reviews the adjustment achieved under Fund-supported programs in the aftermath of the second oil-price shock, focusing on the adjustment in the volume of oil imports 3/ and the underlying domestic pricing policies affecting petroleum and related products. This assessment is carried out in two ways. First, the paper compares the adjustment in oil imports during the two periods of sharp oil-price increases, using two groups of countries, namely, countries with Fund-supported programs during 1980–82 (all of which were developing countries (DCs)) and the nonprogram DCs. Second, the study evaluates the petroleum product pricing and tariff policies of countries undertaking Fund-supported programs during 1980–82, using information related to stand-by arrangement (SBA) and extended Fund facility (EFF) programs concluded with the Fund during a 36-month period between January 1980 and December 1982.

The study first examines whether the pace of adjustment to higher oil prices differed between the developing countries that undertook Fund-supported programs during 1980–82 and those that did not (as indicated by the value of petroleum imports) and then attempts to trace the causes of the differing rates of adjustment. This approach, therefore, puts relatively greater emphasis on demand-side--i.e., consumption and import of oil--as opposed to supply-side issues; 1/ it does not make a detailed examination of the role of taxes as do, for instance, Tait and Morgan (1980).

Chapter II reviews the data sample used in the study. Chapter III analyzes the two main subjects of the study: (1) the developments in the volume of oil imports and the ratio of the volume of oil imports to real gross domestic product (GDP) for the developing countries; and (2) the general policies and support measures with respect to oil product pricing undertaken by members in the context of Fund-supported programs. Chapter IV presents conclusions derived from the study.

b. Summary findings

In summary, our analysis reveals that adjustment to the two oil-price shocks differed substantially between the developing countries with Fund-supported programs in the period 1980–82 and those without programs. Specifically, both groups of countries experienced comparably sized and relatively unsustained adjustment to the 1973–74 oil-price shock, presumably reflecting their ability to finance their way out of the crisis. In comparison, the adjustment to the oil-price shock of 1979–80 was greater and more sustained for all developing countries. However, developing countries with Fund-supported programs during 1980–82 achieved much greater adjustment in the aftermath of the second oil-price shock than did the nonprogram countries.

Thus, while program countries averaged an annual reduction of 3.5 percent in the volume of oil imports (5.4 percent relative to real GDP) in the period 1980–82, the nonprogram countries mustered a relatively meager 0.1 percent (2.2 percent relative to real GDP) over the same period. Underpinning this difference was the fact that 39 percent of all countries entering into Fund-supported programs during 1980–82 adopted general policies to price domestic petroleum products at least at world prices in the context of these programs. 1/ An even larger group of program countries--74 percent--undertook some specific petroleum price adjustment measures in support of the adopted general petroleum pricing policies, whether or not they had adopted world market pricing as a general policy in the context of Fund-supported programs. In addition, as part of the process of adjusting domestic petroleum product prices, a number of important follow-through policy decisions were made, including (i) petroleum product tax adjustments (affecting 46 percent of program countries); (ii) adjustment of secondary prices, for example, utility rates (46 percent of program countries); and (iii) avoidance of subsidies through exchange rate policies (13 percent of program countries). Exchange rate adjustments, which in Fund-supported programs are usually accompanied by a complete pass-through to domestic prices, increased in frequency over the period; in a few countries petroleum product prices were indexed to exchange rates (4 percent of program countries).

II. The Sample Data

Data used fall in two sets, in line with the two broad objectives of the study. The first set of data includes the group of countries that undertook Fund-supported programs during 1980–82, which all fall within the non-oil developing countries (NDCs) as classified in the Fund’s World Economic Outlook exercise (Table 7). In order to evaluate the impact of the oil-price shocks and Fund-supported program policies and measures on NDC oil imports, the rest of the NDCs--i.e., the nonprogram NDCs--were used as a control group. However, since the NDCs include recent oil producers, some of them with substantial and growing exports, all the NDCs were regrouped into oil importers and oil exporters. The paper therefore focuses on two main groups, namely, the program oil importers and nonprogram oil importers.

The category of programs under review (i.e., programs agreed with oil importing countries) includes four programs with countries that have centrally planned economies. Because of the very extensive use of administered prices in these economies, changes in a set of prices--e.g., for petroleum products--are likely to trigger other changes in official prices, which imply a wider scale of official intervention than is necessary or likely in mixed or market economies to attain a target level of prices in a particular sector. Accordingly, it proved useful to examine oil price changes within the wider range of the price adjustments being undertaken in the centrally planned economies. The time series data on oil imports and GDP for all the NDCs were derived from the World Economic Outlook and other Fund data.

The second set of data used in this study concerns the broad petroleum pricing policies and the specific policy support actions taken by countries. In all, 86 programs were concluded between January 1980 and December 1982. Of these, 78 programs were in the upper credit tranches, either SBAs or EFF programs, and these programs form the focus of this study. There were 17 SBAs and 10 EFF programs in 1980, 18 SBAs and 10 EFF programs in 1981, and 21 SBAs and 2 EFF programs in 1982. However, among the EFF programs (which normally cover a three-year period), I was initially agreed in 1978 and 3 were initially agreed in 1979. All these programs continued into the period under review and have consequently been included in our analysis through the appraisal of the 12-month program segment covering 1980. The remaining 8 programs were first credit tranche programs with lower conditionality, which in some cases served as initial steps to upper credit tranche programs. While altogether 56 countries had programs with the Fund (see Table 7), the more relevant number in this context--i.e., countries with programs reaching into the upper credit tranches--is 54, with a number of them having more than one program during the three-year period. 1/

Tables 5 and 6 summarize the data available on petroleum pricing policies and measures adopted in the period 1980–82. In broad terms, these data have been classified to reflect the position of a country, with respect to petroleum product pricing, before, during, or at the end of the program period. The data on specific price measures have been arranged to permit, inter alia, some focus on attempts in Fund-supported programs to reduce or eliminate direct oil subsidies and indirect subsidies that may arise in establishing secondary price levels, such as those for utilities, as well as such subsidies arising from multiple exchange rate practices. 2/ In addition, since the removal of subsidies may result in tax adjustments, data on petroleum product taxation in the context of Fund programs have also, as far as possible, been included in the summary table.

Given that Fund-supported programs must be tailored to the circumstances of each country, specific adjustment issues, such as the petroleum price shock during 1979–80, had to be addressed in widely differing ways in individual programs. Accordingly, the available information on petroleum product pricing policies and measures taken, as well as the levels of prices, was not always directly comparable. Even within the same country, programs were canceled, modified, or replaced by other programs, sometimes resulting in some discontinuities in the data sets. Moreover, except in a few clear-cut cases, no attempt has been made to distinguish between those countries that fully implemented the policy actions specified in Fund-supported programs and those that did not. Clearly, these problems limit the scope and uniformity of the data and, consequently, constrain the analysis. At the same time, because of the highly aggregative nature of the analysis and the diversity of the countries covered, general inferences drawn from this analysis may not necessarily apply to a particular country or subgroup of countries.

III. The Major Findings

1. Trends in oil imports

An important aim of this study has been to determine whether oil-import volume in countries with Fund-supported programs during 1980–82 grew at a different rate from that in the control group of countries. To this end, Tables 2, 3, and 4, and Charts 1 and 2 provide summary data on the average growth rates for the volume of oil imports, along with the ratio of the percentage change in volume of oil imports to percentage change in real GDP, (oil intensity) for the combined group of countries that had Fund-supported programs during 1980–82 and for the nonprogram countries. Since these data are available for the period 1974 through 1983, they provide the opportunity to compare the impact on oil imports of the policies followed after each of the two oil-price shocks. For the latter period, the role of domestic petroleum pricing policies and measures adopted in the context of Fund-supported programs can be seen to have had an impact in terms of their effect on oil import volumes. While the data on the volume of oil are useful mainly in providing a measure of the direct impact on the balance of payments, the data on the oil intensity permit the greater efficiency of the use of oil to be taken into account, and thus provide a better indicator of the domestic impact, albeit one associated with relatively longer-term adjustment.

a. Trends in the volume of imported oil

Given that the analysis requires a comparison of two groups of countries over two different periods of time, the data in Table 3 have been further condensed into Table 2. In this form, the data, which apply only to the oil importers, highlight some similarities as well as substantial differences in the adjustment experiences of program and nonprogram countries in the two periods, 1974–76 and 1980–82. Common to both groups of countries is the fact that, on average, they adjusted more (in terms of moderating the growth or reducing the volume of oil imports) after the second oil shock than after the first, specifically the oil importing program countries experienced an average annual rate of growth in the volume of oil imports of 0.3 percent during 1974–76, while during 1980–82 their growth rate declined by 3.5 percent--a difference of 3.8 percentage points. Growth rates for the nonprogram oil importing countries over the same periods rose 0.3 percent and declined 0.1 percent, respectively, for a difference of only 0.4 percentage points. 1/

Table 2.Oil Import Volume and the Ratio of Oil Import Volume to Real GDP for Program 1/ and Nonprogram Oil Importing Developing Countries
PeriodProgram Countries 1/Nonprogram CountriesCountry Group Difference
(Period average annual rate of growth) 2/
Oil import volume
1974–760.30.3--
1980–82–3.5–0.13.4
Period difference3.80.43.4
Ratio of percentage change in oil import volume to percentage change in real GDP
1974–76–4.1–3.20.9
1980–82–5.4–2.2–3.2
Period difference1.3–1.02.3
Sources: Tables 3 and 4.

Countries with Fund-supported upper credit tranche programs during 1980–82.

Simple average.

Sources: Tables 3 and 4.

Countries with Fund-supported upper credit tranche programs during 1980–82.

Simple average.

Table 3.Oil Import Volume of Non-oil Developing Countries, 1974–83 1/
Oil Importers and ExportersOil Importers
Year(s)All CountriesProgram Countries 2/Non-Program CountriesAll CountriesProgram Countries 2/Non-Program CountriesColumn (5) less Column (6)
(1)(2)(3)(4)(5)(6)(7)
(Average rates of growth) 3/
1974–4.4–6.9–1.4–6.2–7.1–4.52.6
19753.67.7–0.63.07.0–1.88.8
19764.11.07.33.91.17.2–6.1
197710.111.28.611.211.610.41.2
19784.34.24.56.86.57.6–1.1
19797.65.79.88.47.89.4–1.6
19802.31.52.80.80.40.7–0.3
1981–1.8–7.13.3–2.6–6.51.8–8.3
1982–3.9–3.8–3.9–3.9–4.5–2.8–1.7
19831.05.9–4.30.30.8–0.41.2
(Period average annual rates of growth) 3/
1974–761.10.61.80.20.30.3--
1974–773.33.23.53.03.12.90.2
1976–796.55.57.57.66.78.7–2.0
1979-821.0–0.93.00.7–0.72.2–2.9
1980-82–1.1–3.10.7–1.9–3.5–0.1–3.4
1980-83–0.6–0.9–0.5–1.4–2.5–0.2–2.3

List of countries appears in Table 7. Excludes Belize, Bolivia, Burma, Burundi, Cameroon, China, Colombia, Congo, Djibouti, Dominica, Equatorial Guinea, Gabon, Guinea, Hong Kong, Hungary, Lao P.D.R., Lesotho, Mexico, Portugal, Sāo Tomé and Principe, Western Samoa, and Zimbabwe.

Countries with upper credit tranche programs supported by the Fund during 1980–82.

Simple averages

List of countries appears in Table 7. Excludes Belize, Bolivia, Burma, Burundi, Cameroon, China, Colombia, Congo, Djibouti, Dominica, Equatorial Guinea, Gabon, Guinea, Hong Kong, Hungary, Lao P.D.R., Lesotho, Mexico, Portugal, Sāo Tomé and Principe, Western Samoa, and Zimbabwe.

Countries with upper credit tranche programs supported by the Fund during 1980–82.

Simple averages

Table 4.The Trends in the Ratio of Oil Import Volume to Real GDP for Select Non-Oil Developing Countries, 1/ 1974–83
Net Oil Importers
YearsAll CountriesUpper Credit Tranche Program Countries During 1980–82Nonprogram CountriesColumn (2) less Column (3)
(1)(2)(3)(4)
(Average rates of growth) 2/
1974–6.4–7.6–4.7–2.9
19750.61.5–1.42.9
1976–5.2–6.3–3.6–2.7
19776.26.75.31.4
19780.2–1.02.6–3.6
19790.6–2.85.8–8.6
1980–2.5–3.1–2.7–0.4
1981–3.7–6.9–0.7–6.2
1982–5.4–6.3–3.2–3.1
1983–2.4–4.1–0.4–3.7
(Period annual average rates of growth) 2/
1974–76–3.7–4.1–3.2–0.9
1974–77–1.2–1.4–1.1–0.3
1976–790.4–0.82.5–3.3
1979–82–2.7–4.8–0.2–4.6
1980–82–3.7–5.4–2.2–3.2
1980–83–3.5–5.1–2.7–2.4

For a complete listing of non-oil developing countries, see Table 7. Program countries include Bangladesh, El Salvador, Ethiopia, Guyana, Haiti, Honduras, India, Kenya, Malawi, Morocco, Nicaragua, Pakistan, Panama, Philippines, Sierra Leone, South Africa, Sri Lanka, Thailand, Uruguay, Yugoslavia, and Zambia. Nonprogram countries comprise Botswana, Brazil, Burkina Faso, Fiji, Ghana, Greece, Guatemala, Israel, Jordan, Malta, Nepal, Papua New Guinea, Paraguay, and Singapore.

Simple averages.

For a complete listing of non-oil developing countries, see Table 7. Program countries include Bangladesh, El Salvador, Ethiopia, Guyana, Haiti, Honduras, India, Kenya, Malawi, Morocco, Nicaragua, Pakistan, Panama, Philippines, Sierra Leone, South Africa, Sri Lanka, Thailand, Uruguay, Yugoslavia, and Zambia. Nonprogram countries comprise Botswana, Brazil, Burkina Faso, Fiji, Ghana, Greece, Guatemala, Israel, Jordan, Malta, Nepal, Papua New Guinea, Paraguay, and Singapore.

Simple averages.

CHART 1OIL IMPORTING DEVELOPING COUNTRIES: AVERAGE ANNUAL GROWTH RATE AND INDEX OF VOLUME OF OIL IMPORTS, 1974-83

Source: Table 3.

1 Upper credit tranche programs supported by the IMF during 1980-82.

CHART 2OIL IMPORTING DEVELOPING COUNTRIES: AVERAGE ANNUAL GROWTH RATE AND INDEX OF THE RATIO OF THE VOLUME OF OIL IMPORTS TO REAL GDP, 1974-83

Source: Table 4.

1 Upper credit tranche programs supported by the IMF during 1980-82.

The annual growth rate figures in the volume of imported oil (see Table 3) suggest that the sharp cutback in oil imports experienced by the different groups in NDCs in 1974 was not generally sustained, since by 1976 all categories of countries were experiencing average growth in the volume of oil imports in excess of 1 percent. Indeed, Chart 2 indicates that by 1977 the oil-intensity index was 100--the same level as in the base period of mid-1974. However, after 1979 both groups of countries initially put a virtual halt to the previous rapid growth in the volume of imported oil (i.e., growth rates of less than 1 percent by 1980 compared to more than 7.5 percent in 1979), and were able to hold down or even reduce rates through and beyond 1982, although the program countries did measurably better. These differences in the pattern of the volume of oil imports experienced by all NDCs after the two oil-price shocks may be due to the extent of the oil-price increases and in some respects to the length of the period during which such prices continued to rise. Moreover, the NDCs most likely reacted more cautiously to the second sharp oil increase, partly because of their experience with the first one--including the realization that their ability to borrow abroad to finance oil imports was severely diminished--and because they also faced the subsequent world economic recession of the early 1980s.

While the long-term fluctuation in oil import growth for the period under review is generally similar for program and nonprogram countries, there were noteworthy shorter-term divergencies in their pattern. With reference to the oil importers, the average annual rates of growth in the volume of oil imports for the period 1974–76--the three years following the initial oil-price increase in 1973--are virtually indistinguishable for program and nonprogram countries. However, Table 2 shows that the country group difference in the average annual oil-import volume for the period 1980–82 was 3.4 percentage points whereas it was zero for the period 1974–76; that is, while both groups of countries expanded the volume of oil imports at the same rate after 1973, the volume of oil imports for program countries fell by an average of 3.4 percent annually, more than that for nonprogram countries after 1979. These findings conform to the a priori expectations that all NDCs, whether they participated in Fund programs following the first oil-price shock (with access to the oil facility) or not, had access to external financing, making it possible for them to sustain average annual growth rates (0.3 percent) in the volume of oil imports. In sharp contrast, the adjustment experience of the two groups of countries during 1980–82 diverges substantially: the nonprogram countries’ volume of oil imports remained at a virtual standstill (actual average decline of 0.1 percent) while oil importers undertaking Fund-supported programs curtailed their average growth in the volume of oil imports by 3.5 percent annually. Reflecting this development, the period difference for the program countries--3.8 percentage points--far exceeds that for nonprogram countries--0.4 percentage points--suggesting that the former adjusted much more than the latter in terms of reducing their volume of oil imports after the 1979–80 oil-price shock. 1/

Annual data indicate that as of 1979, program and nonprogram countries each averaged growth rates in the volume of imported oil in excess 7.5 percent. In 1980 both groups sharply curtailed their oil-import growth to about 0.5 percent. However, differences began to emerge between the two groups of countries in 1981, when program countries reduced their volume of oil imports by 6.5 percent and in 1982 by 4.5 percent, while they resumed growth, albeit marginally, by 1983. In contrast, the nonprogram countries accelerated the rate of growth of their volume of oil imports to 1.8 percent in 1981 but reduced their level of imports by 2.8 percent in 1982 and marginally in 1983. In effect, the adjustment experience of the two groups differed both in timing and magnitude, as program countries reacted a year earlier than the nonprogram countries by reducing the volume of oil imports and by larger magnitudes in two consecutive years. In 1983 program countries had resumed growth in their volume of oil imports (albeit at a lesser level relative to the 1974 base) while nonprogram countries had not.

In terms of indices (see Chart 1), program countries (i.e., with programs during 1980–82) had higher average indices for oil imports than did the nonprogram countries during 1974–78. However, this trend was reversed around 1978–79 when the index of oil imports for program countries for the first time fell below the index for nonprogram countries. In the next three years, the divergence between the indices for both groups of countries accelerated annually mainly on account of relatively greater adjustment in the demand for oil by program countries.

Among the causes of the lower growth rates of oil imports for program countries during 1980–82 were adjustments in the domestic petroleum product and secondary prices during this period which, as indicated below, were an important part of Fund-supported programs.

b. Trends in the volume of imported oil relative to real GDP

Data constraints limited the estimates of the changes in the volume of imported oil relative to real GDP, as shown in Table 4 and Chart 2, to a smaller sample of countries, namely 21 program and 15 nonprogram countries versus 42 and 33, respectively. Nevertheless, conclusions from the available evidence are strikingly similar; in particular, program countries and nonprogram countries achieved greater adjustment in their oil imports relative to real GDP after the second oil shock than after the first, even though the relative adjustment for country groups differed substantially. In the three years after the initial oil-price increase in 1973, the program (i.e., those that undertook. Fund programs during 1980–82) and nonprogram countries reduced their volume of oil imports relative to real GDP--the oil intensity--by roughly comparable magnitudes. This is the result we would have expected considering the availability of external resources for all countries to finance oil imports. However, after the 1979 oil-price increase program countries reduced their oil intensity by 3.2 percentage points more annually than did nonprogram countries over the next three years. In summary, the country group period difference of 2.3 average annual percentage points (see Table 2) indicates the considerably greater degree of adjustment undertaken during 1980–82 by countries entering into Fund-supported programs relative to the nonprogram countries on one hand, and, on the other, relative to their own adjustment to the first oil-price shock.

From the data on the volume of oil imports with respect to real GDP, the oil intensity declined in most years for both groups of countries. For program countries, the oil intensity declined consistently between 1978 and 1983: from -1.0 in 1978 to -4.1 in 1983. Perhaps program countries can be characterized mainly by the year-to-year acceleration in the reduction in the oil intensity from 1977 to 1981, which reached its lowest levels in 1981 and 1982. For the nonprogram countries, there were very large annual swings in the magnitude and direction of change in the oil intensity. It is also noteworthy that between 1977 and 1979, there was sustained growth in the oil intensity for the nonprogram countries; this growth before the second oil-price shock, was barely offset by the subsequent reduction during 1980–83.

A comparison of the two groups of countries reveals that program countries, a number of which had adopted world pricing policies for oil before 1980 (see Table 5), had some energy-related adjustment momentum in the pre-1980 period. The apparent success of policies and measures adopted in conjunction with Fund-supported programs might have been enhanced because they reinforced a trend that was already discernible in the pre-1980 period. 1/ On the other hand, it is likely that the relatively worse situation in the nonprogram countries provided much more scope for adjustment in relation to the program countries; if the nonprogram countries had undertaken adjustment in a timely and orderly fashion, they might have had better results in reducing the oil import intensity factors. The cumulative effect of adjustment measures, as reflected in the indices in Chart 2, illustrates the greater reduction in the oil-intensity factor achieved by the program countries before the second oil-price shock and the program period. Differences in the cumulative effects emerged in 1978 and widened sharply thereafter; the latter trend was further magnified during the program period. By 1983, the index for nonprogram countries was identical to its 1974 level. For program countries, the index in 1983 was 20 percent below its 1974 level.

Table 5.Aspects of Petroleum Product Domestic Pricing Policies and Measures Under Stand-By Arrangements and Extended Fund Facility Programs, 1980–82
1980198119821980–82
SBAEFFSBAEFFSBAEFFSBAEFFTotalTotal
Program characteristics(Number of programs)(Number of countries)
1.Upper credit tranche1710181021256227854
(In percent of total) 1/
General pricing policy
2.Preceded by below-world-market pricing5370442010 2/10036504054 3/
2a.Of which: with provisions to price at world market 4/(67) 5/(86) 5/(78)(100)(--)(--)(65) 5/(73) 5/(68) 5/(72) 3/
Specific pricing measures
3.With evidence of some price adjustments828067506710071687174
4.With explicit provisions for price measures245050704310039644652
5.Below-world-market pricing by end of program and/or end-198217--11--10 2/100119913
6.Specific mention of some price adjustments prior to program----62024--119107
7.Pricing policies linked specifically to reduction in subsidies--301720145011271517
8.Price adjustment reflecting explicit tax changes5920502029--45193746
9.Specific mention of adjustment in secondary prices476022404310038554246
10.Specific mention of adjustment in prices reflecting exchange rate developments----11--241001191013
11.Multiple exchange rates with petroleum products at preferential rate----11--291001491315
Memorandum items(Number of programs)
12.Total2210 6/2010212632286
13.Preceded in previous year by an upper credit tranche program 7/618313--24--24
14.Preceded by below-world pricing policy97922 2/2201131
15.With policy provisions to price at world market6 5/6 5/72----13 5/8 5/21 5/
Source: International Monetary Fund.

With reference only to upper credit tranche programs or countries as indicated in row 1.

Includes one program where measures were implemented but subsidy was unintentionally not entirely removed, and one program where some products were priced below world-market value.

As appropriate, refers to (a) countries that had not adopted policies to price at world-market prices before entering into program; (b) those in category (a) above that adopted such policies In the context of a program.

Includes programs in which countries adopted world-market pricing during negotiations leading to but prior to the program itself. Data on programs derived from rows 14 and 15.

Excludes programs/countries with policy to price only some oil products at market price and/or those cases in which market pricing policies were adopted but not Implemented or maintained.

Includes four extended Fund facility programs, one first agreed in 1978 and three in 1979, which continued during the period under review.

There were, in addition, three programs that were preceded by first credit tranche programs.

Source: International Monetary Fund.

With reference only to upper credit tranche programs or countries as indicated in row 1.

Includes one program where measures were implemented but subsidy was unintentionally not entirely removed, and one program where some products were priced below world-market value.

As appropriate, refers to (a) countries that had not adopted policies to price at world-market prices before entering into program; (b) those in category (a) above that adopted such policies In the context of a program.

Includes programs in which countries adopted world-market pricing during negotiations leading to but prior to the program itself. Data on programs derived from rows 14 and 15.

Excludes programs/countries with policy to price only some oil products at market price and/or those cases in which market pricing policies were adopted but not Implemented or maintained.

Includes four extended Fund facility programs, one first agreed in 1978 and three in 1979, which continued during the period under review.

There were, in addition, three programs that were preceded by first credit tranche programs.

It remains to be seen whether the apparent reversal toward a growth in the real income elasticity of oil imports in 1983 will be sustained. Among the reasons for this renewed growth would be the declining world oil prices more recently in evidence, the strong recovery from the 1981–82 recession experienced by some developing countries, and the fact that with the process of development, GDP composition will inevitably favor relatively more energy-intensive sectors and/or technology.

2. Pricing policies and supporting measures

The second major goal of this study has been to investigate the pricing policies and specific pricing actions of countries that undertook Fund-supported adjustment programs in the 1980–82 period. Tables 5 and 6 summarize data on general pricing policies and specific measures. In addition to data on the number of programs undertaken each year over the 1980–82 period, Table 5 contains a tabulation of the specific policies and measures related to programs. Table 5 also provides data on countries that adopted policies and measures as well as data on the Fund-supported programs under which such policies and measures were adopted. While the analysis concentrates on countries to provide a link to the adjustment in oil imports described above, it is also useful to review the data on programs as a given country may adopt incremental policies and measures, for example, via several Fund-supported programs. From the data available for the three-year period, as shown in Table 5, 1/ one can deduce the following salient features.

Table 6.Petroleum Product Tax and Secondary Price Measures Under Stand-By Arrangements and Extended Fund Facility Programs, 1980-82
1980198119821980-82
SBAEFFSBAEFFSBAEFFSBAEFFTotal
(Number of programs)
Upper credit tranche programs17101810212562278
(In percent of total)
Tax measures
Programs with more than one tax measure610610----495
Increases in import taxes12206205--71810
Increases in excise taxes241017--5--14512
Increases in other taxes29--2210----16513
New tax measures----6------2--1
Lowered taxes----6------2--1
Secondary price adjustments
Electricity tariff3560174043100325538
Transport (road, railway, air)4130173033100303632
Memorandum items
Primary price adjustments
Measures specifically included in programs225050704310396446
Pricing policies linked spefically to reduction in subsidies--3017201450112715
Source: International Monetary Fund.
Source: International Monetary Fund.

a. Pricing policies

General policy statements concerning the pricing of domestic petroleum products were included in Fund-supported programs largely in reference to world prices (rows 2, 2a, and 3 of Table 5). In a few cases, such policies were referenced to a particular exchange rate. Of the 54 countries undertaking Fund-supported programs during 1980–82, 54 percent (29 countries) had no prior policy to price petroleum products at world-market prices, and of this latter group 72 percent agreed to a general policy to be implemented in the context of their programs to price petroleum products at world-market prices. In effect, 39 percent of all countries entering into Fund-supported programs (i.e., 21 countries) adopted policies during 1980–82, as part of programs, to price domestic petroleum products at least at world-market levels within the period covered by the program. Of the remaining 33 countries, 7 had programs in 1979 (i.e., one year ahead of the period covered by the study but during which oil prices increased very rapidly) and adopted world-pricing policies as part of these programs. 1/ Thus, world-pricing policies for petroleum products adopted in the period 1979–82 as part of programs affected 28 countries, or slightly more than one half of countries undertaking programs during 1980–82. Of the remaining 26 countries, 19 already had in place, when they entered into programs, policies to price petroleum products at least at world-market prices, while only the remaining 7 had not adopted policies to price at world-market levels at the end of the period under review.

Annual data on programs further illustrate the progress made in adopting policies on petroleum pricing. The percentage of programs agreed prior to adopting world-pricing policies indicates, on the one hand, the magnitude of the required policy adjustment that existed in 1980 (53 percent of SBAs and 70 percent of EFF programs) and, on the other hand, the extent to which this problem diminished in 1981 (44 percent of SBAs and 20 percent of EFF programs), and was virtually fully addressed by 1982 (excluding the special case for the EFF programs in 1982). The role of Fund-supported programs in addressing the incidence of below-world-market pricing policies is reflected in Table 5. No less than 67 percent of the SBAs and 86 percent of the EFF programs undertaken by countries with inappropriate pricing policies included provisions to adopt world-market pricing policies as part of the program. These percentages increased to 78 percent and 100 percent, respectively, in 1981. During 1982 policy provisions were no longer necessary as mos’ countries already had world pricing for petroleum products. Data on the averages for the period 1980–82 indicate that 36 percent of SBAs, 50 percent of EFF programs, and 40 percent of all programs were negotiated with countries that had less than world-market pricing policies before the programs took effect; over 65 percent of the programs in each category succeeded in correcting these pricing policies during a program. However, these numbers are biased downward given the fact that some countries had up to two programs within the period, even after adopting appropriate policies.

b. Supporting price measures

The available information indicates that price adjustments, either for oil or related products, were undertaken in 74 percent of the countries or were associated with 71 percent of all programs during the 1980–82 period in support of the general pricing policy (Table 5). On the other hand, explicit provisions for petroleum product price measures in support of policies were incorporated by 52 percent of the countries or 46 percent of all programs (39 percent of SBAs and 64 percent of EFF programs). The available information indicates that some programs were designed without explicit provisions for price adjustment, 1/ e.g., in cases where countries had a good track record of implementing policies, but nevertheless these measures were recorded as they occurred.

It is noteworthy that the adoption of specific price measures was much more common than the adoption of world-market pricing policies within the period 1980–82, whether one considers country data (74 percent versus 39 percent) or program data (71 percent versus 27 percent). 2/ Fund-supported programs seem to have played a useful role in encouraging countries to undertake measures even when such programs did not specify the adoption of the more general world-pricing policies. Indeed, as explained below, some price measures were undertaken by countries that, in the end, were still pricing domestic petroleum products below world-market value.

While the frequency of adoption of general petroleum product pricing policies generally declined over the period (Table 5), the incidence of implementation of specific price measures was relatively low in 1980 (24 percent for SBAs and 50 percent for EFFs--row 4 of Table 5), increased rapidly, peaking in 1981, and then abated somewhat in 1982. For 1981 and 1982 the percentages of SBAs with specific price actions out of the total of such programs in the year were 50 percent and 43 percent, respectively, while the comparable percentages of EFFs were 70 percent and 100 percent, respectively. The differences in pattern over time can be attributed in part to a greater willingness to implement specific price measures in support of the general policies. Table 5 (row 6) indicates that programs included more frequently over the period specific mention of some price adjustment measures before, although not necessarily prior actions formally linked to programs. At the same time, those countries that first undertook a Fund-supported adjustment effort in 1981 may have faced a relatively greater need for adjustment, hence the relatively greater incidence of specific price measures. Such provisions, however, abated in 1982 as more countries had undertaken at least the initial price adjustments and as world oil prices themselves were leveling off and declining somewhat.

c. Incidence of below-world-market prices

The adjustment in petroleum product prices discussed above indicates that the incidence of program countries’ pricing these products below world-market equivalence declined over the three years covered; for SBAs such pricing declined from 17 percent in 1980 to 11 percent and 10 percent in 1981 and 1982, respectively (Table 5, row 5). Although fewer, EFF programs appear to have incorporated more concrete action than have SBAs to adjust petroleum product prices. These programs cover a longer adjustment period and normally incorporate more structural adjustment measures. Excluding the two EFF programs in 1982, virtually all the EFF programs adopted policies and implemented measures to bring average domestic petroleum product prices to world-market levels. The differences between EFF programs and SBAs are further illustrated by the fact that in 1980, 86 percent of countries entering into EFF programs with inappropriate pricing policies adopted world-market pricing policies with programs, compared with 67 percent of countries entering into SBAs (Table 5). Moreover, in terms of incorporating specific petroleum product pricing measures, EFF program countries were consistently above SBA countries (Table 5).

The incidence of below-world-market petroleum product pricing throughout the period was associated mainly with centrally planned and oil producing and/or exporting economies (for the latter group, see also IBRD, The Energy Transition in Developing Countries (1983), p. 16), whose circumstances differed from the other typically oil importing and mixed or market-oriented developing countries.

Essentially, only 9 upper credit tranche program countries out of a total of 54 countries (9 upper credit tranche programs out of total of 78 programs) completed a program within the period (or continued to the end of the period under review) with petroleum product prices on average below world-market levels. Two of these countries, however, adopted policies, within the context of existing or subsequent Fund programs during 1980–82, and implemented measures to bring domestic petroleum product prices at least to world-market level. One country undertook to adjust domestic petroleum product prices to eliminate subsidies. However, this adjustment was made only toward the end of the program and did not entirely remove the subsidies. Of the remaining 6 programs, 2 were undertaken by centrally planned economies, and 2 by oil producing and oil exporting countries. The centrally planned economies made significant petroleum product price adjustments, although within a wider context entailing an economy-wide cost/price realignment. In 1 case, this wide-scale price restructuring had an impact equivalent to 2 percent of GDP. All these changes represent official intervention since prices are administered centrally, and, therefore, focusing on the adjustment of petroleum product prices during 1980–82 may not adequately show the extent of official commitment to adjust these economies in light of the oil-price shock of 1979–80. Moreover, programs designed for these 2 centrally planned economies envisaged a gradual process of economy-wide price adjustment extending over several years with Fund support, and these programs extended beyond the end of the period under consideration. In any case, 1 of the countries adopted a policy before the program to price oil at world prices when it was used as an industrial input; thus subsidies applied only to oil used in other activities.

For the oil producing and/or exporting countries the main policy focus appears to have been cost recovery rather than opportunity cost (i.e., parity with international prices). In any case, for some of these countries, in particular the oil exporters with EFF programs, there were substantial domestic price increases to compensate either for relatively very low starting price levels or for, inter alia, significant exchange rate adjustment, even though petroleum product prices on average remained below world prices.

d. Subsidies

While a major objective of adjusting petroleum product prices was to achieve world-market parity and pass on to the users the economic costs of oil products, one aspect of such policies was the elimination of subsidies. However, relatively few programs contained explicit statements about the objective to eliminate subsidies. Specific mention was included in 17 percent and 14 percent of the SBAs in 1981 and 1982, respectively, and 30 percent, 20 percent, and 50 percent of the EFF programs for 1980, 1981, and 1982, respectively, (Table 5, row 7). While there is no standard for reporting such cases in Fund programs, the higher reported incidence of subsidy reduction effort in EFF programs may point to the greater emphasis on petroleum product prices in medium-term programs.

e. Tax measures

Qualitative indicators suggest that taxes played an important role in petroleum product price adjustment (46 percent of countries--Table 5, row 8). It is, however, not discernible whether the tax measures were seen as instruments of energy policy or instruments of revenue mobilization, or both. Neither is it possible from the available data to determine the trends in effective tax rates on petroleum products. Petroleum product price adjustment entailing explicit tax changes occurred in no less than 59 percent, 50 percent, and 29 percent of SBAs in 1980, 1981, and 1982, respectively. The incidence was much less in EFF programs, namely, 20 percent of programs in both 1980 and 1981 (Table 5, row 8). That the trend toward tax adjustment was declining over time is not surprising, since the scope for further adjustment diminished as countries phased in world-market pricing policies and measures. Table 6 provides some details of the tax measures. The most common tax increases occurred in import taxes, followed by excise taxes (which were the most common single tax increase in SBAs). Other taxes, including sales tax, special levies, abolition of exemptions, and other unspecified taxes, were also important as a group. These tax measures mainly reflected the increase in existing taxes since only 6 percent of countries undertaking SBAs in 1981 introduced a new tax, and in the same year 6 percent of the countries in the same group abolished a tax.

f. Secondary prices

The incidence of adjustment in secondary prices--transportation (road, railway, and air) tariffs, and electricity tariffs--also played an important part in Fund programs, occurring in 46 percent of all countries undertaking upper credit tranche programs (Table 5, row 9). Overall, such adjustments were associated in 38 percent of all SBAs between 1980 and 1982 and in 55 percent of EFF programs over the same period. Details of these adjustments (see Table 6) indicate that electricity and transport tariffs were each adjusted with about the same frequency in the context of SBAs (about one third) but with greater frequency overall and in favor of electricity tariffs (55 percent compared to 36 percent for transport tariffs) in the context of EFF programs over the three-year period. Clearly, Fund-supported programs, while focusing on petroleum product conservation and price adjustment (the latter associated with the financial position of nonfinancial public enterprises (NPEs), particularly utilities), also viewed resource allocation as of critical importance. In this context, the Fund staff has on occasion used the analyses of the IBRD staff to frame policy outlines toward particular sectors (e.g., electricity and transportation), more often in structural adjustment arrangements associated with EFF programs. In general, IBRD analyses have been helpful when the IBRD has been actively engaged in projects within that sector.

g. Exchange rate factors

Specific mention of adjustments in petroleum product prices to reflect a pass-through of exchange rate developments occurred in 11 percent of the SBAs in 1981, and this more than doubled to 24 percent of a larger number of programs in 1982 (Table 5, row 10), affecting 13 percent of all countries undertaking upper credit tranche programs over the three-year period. In view of the relatively greater number of exchange rate adjustments in programs in late 1981 and 1982, changes in exchange rates became an important factor in petroleum product pricing decisions worldwide and in Fund-supported programs, while world-market prices were stabilizing and starting their more recent decline. In this connection two programs in 1982 introduced specific petroleum product pricing indexation to exchange rate movements. Examination of the exchange rate developments in Fund-supported programs indicates that transitory multiple exchange rate regimes became quite frequent in the latter part of the period under study. In 1981, 11 percent of the SBAs had multiple exchange rates, while the figure reached 29 percent in 1982 (Table 5, row 11). In all cases petroleum products were imported at the most preferential rate, resulting in an implicit subsidy through the exchange system. 1/ A separate subsidy issue arises where, regardless of the agreed exchange rate to be reflected in petroleum product prices, some lags may occur in passing through the price effects of an exchange rate adjustment, possibly giving rise to explicit subsidies of a transient nature. Yet, in other cases, the domestic prices, product taxes, and/or petroleum prices may be maintained at levels that would generate resources to the government and thus reduce the implicit subsidy arising from the preferential exchange rate. In any case, dual or multiple exchange rate practices are normally expected to be transitional in Fund-supported programs and indeed for Fund members at large. The existence of such transitory exchange market arrangements reflects a greater concern with the need for overall, as opposed to single sector, price structure realignment. The impact of exchange rate factors on domestic petroleum product prices could be viewed as part of a late stage in the delayed but inevitable adjustment for a number of countries, particularly those that did not undertake domestic measures, in time or in full, following the 1979–80 oil-price increase and were subsequently faced with severe balance of payments problems. Major exchange rate adjustments may have been one instrument to deal with such problems, however, necessitating support measures such as a full pass-through to domestic prices if the exchange rate policies were to succeed. Ironically, a comparable impact of exchange rate adjustment on domestic oil prices may have resulted, at least for recent oil exporters, from similar balance of payments problems stemming, however, from the successful energy conservation policies of major oil consumers. In any case, the world economic recession, together with volatile developments in exchange markets, also resulted in external shocks not unlike those of the oil-price shock in 1979–80, which brought about adjustments in domestic prices of oil products.

IV. Conclusion

A principal conclusion of this study is that in the wake of the second oil-price shock, Fund-supported adjustment programs (i.e., programs during 1980–82) played an important role in adjusting countries’ demand for oil imports to the new pricing realities during the three-year period ending 1982. There is evidence that all non-oil developing countries were more successful in reducing oil demand following the 1979–80 price adjustment than during the period after the 1973–74 price increase. However, countries with Fund-supported programs reduced their demand for oil to a far greater extent during 1980–82, with imports, in volume terms, declining on average by 3.5 percent annually in the period 1980–82, compared with 0.1 percent in nonprogram countries over the same period. Estimates of the growth of oil imports relative to that of real GDP indicate similar results as program countries apparently effected an adjustment far exceeding that achieved that by nonprogram countries. The reduction in the imports of oil relative to real GDP declined on average by 5.4 percent annually during 1980–82 for program countries, compared with 2.2 percent for nonprogram countries in the same period. The experience of Fund-supported programs and of the control group suggests that the emphasis on domestic adjustment in the early 1980s, compared with the encouragement to countries to “recycle” or finance the unprecedented oil-price increase in 1973–74, contributed to this outcome.

Fund-supported programs helped foster the adoption of policies to-price petroleum products at least at world-market (import-cost) levels and the measures to give effect to such policies. The evidence clearly shows that Fund-supported programs had a direct bearing on specific price measures both in support of the general pricing policies and outside such policy statements; 74 percent of all countries undertaking programs implemented specific petroleum price measures, while 39 percent adopted general pricing policies in the context of programs. Oil price measures were taken, therefore, even where some countries did not adopt a more general pricing policy objective in a program context. The provision for specific measures in Fund-supported programs was a major reason for their implementation, affecting 52 percent of all program countries.

Program design was adapted to changing circumstances as the incidence of measures in support of more general pricing policy objectives increased in mid-period and declined after successful implementation, and subsequently as the world oil prices declined. The primary price measures affecting petroleum products also incorporated substantial tax measures for revenue and/or sumptuary purposes and were followed through with important secondary--utility and transport--price adjustments. There is evidence of greater success in price adjustments in longer-term structural adjustment programs--for the EFFs rather than for SBAs--reflecting perhaps a greater willingness of countries adopting EFFs to implement energy conservation measures as part of their medium-term adjustment development strategy.

While petroleum-related price adjustments were virtually universal in Fund-supported programs, the implementation of policies to set petroleum product prices at least at world-market levels was more successful in mixed or market-oriented, oil importing developing countries than it was for centrally planned and oil producing/exporting non-oil developing countries. Nevertheless, the latter two groups of countries also undertook petroleum product pricing adjustment, which, considering the generally lower starting product price levels and the commitment in several of these programs to adjust prices in light of depreciating exchange rates, may have exceeded in magnitude (in percentage) even those undertaken in countries that succeeded in pricing at world-market levels. The sharp fluctuations in the exchange markets and the occasional adoption of transitory, dual, or multiple exchange rates appear to have become important factors in the domestic pricing of oil in many developing countries over the period 1980–82. To the extent that oil was imported at the preferential official exchange rate, an implicit subsidy, however temporary, emerged. The fact that transitory subsidies of this nature have emerged in Fund-supported programs suggests that priority was given to overall domestic price structure realignment, through exchange rate adjustment, in favor of particular sectors like energy consumption, provided the delay in passing through the energy-pricing adjustment was short.

In the face of such major external shocks, timely and orderly adjustment is clearly preferable. These two key ingredients require not only policy commitment but also concrete specific action in support of the adopted general policies. While Fund-supported programs adapted to changing conditions to promote successful adjustment to the second oil-price shock, better documentation is needed at least to permit more detailed follow-up and eventual evaluation of the past experience. In this regard, more detailed information on various petroleum product price levels and factors, such as subsidies and taxes that affect them, could have provided a basis for a more accurate analysis and thus stronger or more robust conclusions.

As regards future trends in the oil sector, the need for adjustment to reduce or eliminate subsidies arising from the exchange rate levels is likely to continue, independent of the level of world oil prices. Adjustments in domestic petroleum prices, taxes, and secondary prices on energy have already occurred with the most recent fall in world oil prices as the political process in each country determined who benefited from the lower oil prices. To the extent that such gains accrue to the public sector--i.e., the government, the public utilities, or other NPEs--it would imply, inter alia, that future adjustment to world oil-price increases may follow a different pattern from the largely private sector adjustment that occurred during the 1980–82 period.

Table 7.Non-Oil Developing Countries
Program Countries 1/Nonprogram Countries
Net Oil Importers
BangladeshAfghanistan
BarbadosArgentina
BurmaBahamas, The
Central African Republic 2/Belize
China 3/Benin
Costa RicaBotswana
Côte d’IvoireBrazil
Cyprus 3/Burkina Faso
DominicaBurundi
El Salvador 2/Cameroon
Equatorial GuineaChile
EthiopiaColombia
Gambia, TheDjibouti
GrenadaDominican Republic
GuineaFiji
GuyanaGhana
HaitiGreece
Honduras 2/Guatemala
HungaryGuinea Bissau
IndiaHong Kong
JamaicaIsrael
KenyaJordan
KoreaLebanon
Lao P.D.R.Lesotho
LiberiaMaldives
MadagascarMalta
MalawiNepal
MaliNetherland Antilles
MauritaniaNicaragua
MauritiusNiger
MoroccoPapua New Guinea
PakistanParaguay
PanamaPortugal
PhilippinesRwanda
RomaniaSāo Tomé and Principe
SenegalSeychelles
Sierra LeoneSingapore
Solomon IslandsSt. Vincent
SomaliaSuriname
South AfricaViet Nam
Sri LankaWestern Samoa
SudanYemen Arab Republic
TanzaniaYemen P.D.R.
Thailand
Togo
Turkey
Uganda 2/
Uruguay 2/
Yugoslavia
Zaīre
Zambia
Zimbabwe 3/
Oil Exporters
BoliviaBahrain
GabonCongo
MexicoEcuador
PeruEgypt
Malaysia
Syrian Arab Republic
Trinidad and Tobago
Tunisia

Countries entering into programs supported by the Fund during 1980–82.

Countries entering into first credit and upper credit tranche programs;

Countries entering into first credit tranche programs only.

Countries entering into programs supported by the Fund during 1980–82.

Countries entering into first credit and upper credit tranche programs;

Countries entering into first credit tranche programs only.

References

The author would like to thank C.A. Yandle for his many valuable suggestions. In addition, numerous helpful comments were made by Alan Tait and Oystein Pettersen and, on earlier versions of the paper, by Margaret Kelly and Omotunde Johnson. Ziba Farhadian and Tarja Papavassiliou provided valuable computer assistance. The usual disclaimers apply.

For a listing of these countries, see Table 7.

A number of studies on the adverse developments that have affected the non-oil developing countries (NDCs) over the period 1970–82 have identified a variety of external and domestic causes. The prominent factors have been those affecting the demand for NDCs exports as well as the cost of their imports (terms of trade and growth rates in industrial countries), the extent and success of domestic adjustment undertaken (principally the level of real effective exchange rates), and the cost of recourse to external resources where such an option had been exercised. (See, for instance, Reichmann (1978); Dell (1980); Dell and Lawrence (1980); Killick (1981); Dell (1982); International Monetary Fund (1982); and Khan and Knight (1982 and 1983).

Conditionality attached to the oil facility required purchasing Fund member country “to cooperate with the Fund in order to find appropriate solutions for its balance of payments problem”; Executive Board decisions further required purchasing members to avoid “competitive depreciation and the escalation of restrictions on trade and payments,” and to pursue “policies that would sustain appropriate levels of economic activity and employment, while minimizing inflation,” (International Monetary Fund (1974)). See also Guitian (1981) especially p. 17.

Committee of Twenty communiqué of June 13, 1974, p. 221.

The second oil-price shock was perceived at the time to have relatively much longer balance of payments effects than the first shock in 1973/74 on the basis of projections of large and persistent surpluses in oil exporting countries (International Monetary Fund, World Economic Outlook, 1980, 1981). This, together with evidence at the time of incomplete domestic adjustment to the first oil-price shock by many countries and the limited scope for additional financing by many non-oil developing countries, provided the background against which it did not appear prudent to encourage member countries to opt to finance their way out of the crisis. For a discussion of the relevant issues concerning Fund conditionality in this context, see Nowzad (1981); Guitián (1981); Dell (1982); Polak (1982); and, on aspects of global adjustment, see Amuzegar (1983).

International Monetary Fund, World Economic Outlook (1980), p. 74.

A description of the relevant Fund programs is provided in Khan and Knight (1981).

While a decline in the volume of imported oil is not necessarily desirable, especially for developing countries (DCs), from the point of view of stabilization, particularly given the magnitude of the external shock and the need to find a substitute energy sources, such a decline would appear inevitable. However, in the medium to long term, following successful and, it is to be hoped, timely and orderly adjustment, including on the supply side, the DCs’ economies would be expected to resume growth in the demand/importation of energy supplies.

Some of these issues have been covered extensively in an IBRD study on developing countries. The study focused on the need to increase the efficiency of energy use; expand and diversify investment programs to increase the supply of energy, especially from indigenous sources; mobilize resources to meet such new investment requirements; and strengthen management and institutional capacity in the energy sector. (See IBRD, The Energy Transition in Developing Countries (1983), and Rovani (1983).)

In most cases policy statements included commitments to increase domestic prices of petroleum products and related products or services in the course of the program. In practice such prices were substantially adjusted as prior action preceding the program or at the beginning of the program and subsequent adjustments were implemented in the course of the program.

Several countries had first credit tranche as well as upper credit tranche programs during the period 1980–82.

The level of prices or the extent of subsidies in this study refers to direct overall products or group of products rather than to each and every product. In fact, there was and continues to be cross-subsidization of specific petroleum products in many cases.

If the results for oil producers/exporters are added in (Table 3, Columns 2 and 3), these findings are not measurably altered.

If results for one more year in each period are added in, that is, to generate average annual changes in the growth of the volume of oil imports for the periods 1974–77 and 1980–83, these findings are not measurably altered.

This development is perhaps not surprising because one would normally expect adjustment to be more successful in cases of sustained efforts. More significant, though, the dilemma of evaluating Fund-supported programs with reference to a specific time period is highlighted. The evidence in Table 5 suggests that several countries tend to be prolonged users of Fund resources and that measures adopted in the period prior to a particular program (or programs) may have a significant impact during that particular program or in subsequent programs. Accordingly, in evaluating programs one needs to allow for the sometimes considerable lag effect of measures.

As indicated in Table 5, there were only two EFF programs in 1982. These programs were with oil exporting countries with somewhat similar economic characteristics. This similarity, and the fact that there were few observations, makes it essential to treat these two programs separately from the others if meaningful conclusions are to be drawn.

That is, there were 7 countries--6 with SBAs and 1 with an EFF--all of which adopted world-market pricing policies as part of Fund-supported programs in 1979.

On the basis of rows 3 and 4 of Table 5.

Derived from Table 5, rows 1 and 15.

Countries entering into Fund-supported programs in 1983 and 1984 continued to show sensitivity to petroleum product pricing. In cases where countries were committed to pricing petroleum products at least at world-market levels and undertook major exchange rate depreciation, they frequently adopted a less-than-complete initial pass-through of the effect to domestic petroleum product final prices.

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