Chapter

Chapter 8. Developments in Primary Producing Countries

Author(s):
International Monetary Fund
Published Date:
September 1967
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The year 1966 as a whole was a favorable one for many primary producing countries,1 though in several regions agricultural output was held down by severe drought and certain countries faced serious problems of food shortages. In the later months of 1966 and early 1967, there was a marked slowing down in the expansion of the export earnings of primary producing countries. (See Table 2, p. 4, and Chart 22.) This reflected largely the slower growth of output and income in the industrial countries and a reversal of the upward movement of commodity prices which had occurred during the last quarter of 1965 and the first half of 1966 (Chart 23).

Commodity Prices and Exports

The rise in the over-all index of prices quoted for primary products on world commodity exchanges during the first half of 1966 stemmed mainly from the strong increase in metal prices. Over the year as a whole, mineral and metal prices were, on average, one fifth higher than in 1965 and two thirds higher than in 1961 and 1962. Prices of agricultural products other than food also increased quite markedly in the second half of 1965 and the first half of 1966, and during the latter period there was a slight rise in the index of prices for foodstuffs. Food prices were on average about 2 per cent lower in 1966 than in 1965, but they were considerably higher than in 1961 and 1962. Prices of other agricultural products were higher in 1966 than in 1965, but by early 1967 had fallen back to their lowest level during the 1960’s.

Unsettled labor conditions and crises of a political nature had a very considerable impact upon copper supplies and prices during 1966. Copper prices (which receive a heavy weight in the minerals and metals index) have since been adjusted downward from their exceptionally high levels in the first half of 1966 (Chart 24). Prices of lead, zinc, and tin weakened from 1965 to 1966, but nickel prices, which like aluminum prices had been largely unaffected by the general boom in nonferrous metal prices in 1964-65, were raised by the leading producer toward the end of 1966.

There were divergent price movements for various types of foodstuffs in 1966. A further strengthening occurred in cereal prices (especially rice), and there was a sharp recovery of cocoa prices. These increases were, however, more than counterbalanced by declines for certain other products. Sugar prices, which had been falling precipitously over the preceding two years from a very high level at the end of 1963, continued to decline in 1966. Prices of arabica coffees, mainly exported by Latin American countries, also weakened as a result of increasing supplies coming onto world markets.

The improvement in agricultural raw material prices during late 1965 and early 1966 was almost exclusively due to stronger prices for fine wools resulting in part from the limitation of Australian supplies by drought. Toward the end of 1966 and in the early months of 1967, wool prices weakened considerably, especially for exports from South America and New Zealand, as larger Australian supplies came onto the market and demand in Europe declined below its normal level. Cotton prices eased in 1966, rubber prices dropped after the first quarter of the year, and sisal prices continued to decline.

The increase in average prices for agricultural exports from 1965 to 1966 was in large measure due to strong demand for, or short supplies of, certain products of temperate agriculture over much of the year (notably wheat, wool, and meat). Such products are exported mainly by more developed primary producing countries. For less developed countries exporting agricultural products, the changes in prices from 1965 to 1966 were probably less favorable than the indices shown in Chart 23 would suggest, despite the fact that prices for certain major export crops (including cocoa, African robusta coffee, rice, and tobacco) improved considerably.

Chart 22.Less Developed Primary Producing Countries: Value of Exports in Current Prices, Import Purchasing Power of Exports at 1958 Prices,1and Value of Imports at 1958 Prices, 1955-First Quarter 1967

(Quarterly data, seasonally adjusted, in billions of U.S. dollars)

1 Value of exports deflated by the index of unit value of imports into these countries (1958 = 100).

Chart 23.Primary Producing Countries: Prices of Commodities Exported (Excluding Petroleum), 1962-First Quarter 1967 1

(1961 = 100)

1 Indices calculated by the National Institute of Economic and Social Research, London.

Chart 24.Selected Primary Products: Average Prices, 1963-First Quarter 1967

(1961 = 100)

1 Prices on London Metal Exchange.

Table 44.Export Prices (Unit Values) for Agricultural Products, 1962-66(Indices, 1961 = 100)
Food

and

Feed
Beverages

and

Tobacco
Raw

Materials
All

Agricultural

Products
World 1
1962101979699
196311099100106
196411311199110
196511210893107
1966 211411994109
Less Developed Primary
Producing Countries
1962100969497
19631189694104
196412011090108
196511410689104
1966
Source: Based on data published by the Food and Agriculture Organization.

Excluding Soviet countries and Mainland China.

Preliminary.

Source: Based on data published by the Food and Agriculture Organization.

Excluding Soviet countries and Mainland China.

Preliminary.

Changes in prices quoted on commodity markets are as a rule associated with much smaller changes in the average prices (unit values) received by countries for their exports of primary products. Table 44 shows that the average unit value of agricultural products entering into world trade rose by 2 per cent from 1965 to 1966, and had almost recovered its 1964 level. The unit value of agricultural exports of less developed countries, however, had fallen more sharply from 1964 to 1965, and probably did not rise significantly from 1965 to 1966. Although the unit value of exports of beverages and tobacco rose considerably, that of agricultural raw material exports from these countries was probably lower, and that of food and feedstuffs was probably about the same as in 1965 or lower. Over all, the unit value of agricultural exports from less developed primary producing countries in 1966 may have been about 5 per cent higher than in 1961.

The value of exports from primary producing countries is provisionally estimated to have risen by 7 per cent in 1966, following a 5 per cent increase in 1965. While exports from the more developed primary producing countries recovered sharply from the effects of drought and other factors which had slowed their expansion in 1965, those of less developed countries rose at the same 6 per cent rate as from 1964 to 1965. In both groups of countries the growth of exports from 1965 to 1966 was considerably higher than during the 1950’s (Table 45).

Table 45.Primary Producing Countries: Exports, 1953-66(Values in billions of U.S. dollars and percentage changes per annum)
Value of

Exports

1965
1953-60 11960-65 11964-651965-66 2
Primary Producing Countries47.14657
More developed countries11.148410
Less developed countries 336.04666
Countries mainly exporting
Petroleum10.28767
Other minerals2.0351225
Other nonagricultural products 43.2571217
Minerals and agricultural products3.344−16
Coffee3.4−1657
Foodstuffs and other beverages6.526625
Agricultural materials2.95393
Mixed agricultural products3.8273−1
Subtotal, four groups mainly exporting
agricultural products16.62663 5
Source: International Monetary Fund, International Financial Statistics.

Percentage increase (or decrease) expressed as a compound annual rate.

Preliminary.

Includes a number of very small countries (exports totaling about $0.7 billion in 1965) which are not allocated among the groups specified below.

Countries with substantial exports of manufactures or large entrepot trade.

Excluding Rhodesia, the exports of which declined very sharply, the percentage increase for the group is 5 and, for the total of the four groups, it is 4.

Source: International Monetary Fund, International Financial Statistics.

Percentage increase (or decrease) expressed as a compound annual rate.

Preliminary.

Includes a number of very small countries (exports totaling about $0.7 billion in 1965) which are not allocated among the groups specified below.

Countries with substantial exports of manufactures or large entrepot trade.

Excluding Rhodesia, the exports of which declined very sharply, the percentage increase for the group is 5 and, for the total of the four groups, it is 4.

There was, however, a much greater divergence in the development of the export receipts of various primary producing countries in 1966 than in 1965. Considerably faster growth of exports in 1966 than in 1965 was common to the group of more developed countries, certain less developed countries with a substantial export trade in manufactures and processed products, and the less developed countries exporting mainly minerals other than petroleum (whose exports rose by 25 per cent following a 12 per cent rise in the preceding year). Very large increases in export earnings were secured by a small number of countries highly dependent on exporting copper and by countries in which newly exploited resources of petroleum or other minerals were coming into production.

In contrast, the export proceeds of the less developed countries dependent on agricultural exports rose less from 1965 to 1966 than in preceding years. While the countries exporting mainly beverages or foodstuffs had a diverse experience, almost all of the countries exporting mainly agricultural materials or mixed agricultural products showed only slight increases or actual declines in the value of their exports (Table 46).

Balance of Payments

The principal changes in the payments balances of primary producing countries from 1965 to 1966 have already been set forth in Chapter 7 (pp. 79-81). While the majority of the more developed primary producing countries experienced improvement in their over-all balance of payments (Table 36, p. 80), only a small number of less developed primary producing countries did so. Those whose payments positions strengthened included several countries in the Far East whose foreign exchange earnings were increased as a consequence of the Viet-Nam conflict (Thailand, Viet-Nam, and the Republic of China), and Burma, Libya, Mexico, and Pakistan. Iraq’s substantial surplus in 1966 reflected an advance in the timing of payments of oil royalties and was followed by a deficit in the first quarter of 1967. Several other countries whose basic balances improved from 1965 to 1966 did not experience an improvement in their over-all position because of unfavorable changes in net flows of commercial bank funds and other short-term capital movements (including errors and omissions). These countries included Ghana and the United Arab Republic as well as certain ones in Latin America for which movements in gross reserves are of limited significance in view of the considerable importance of credit transactions. (See Chapter 7, p. 92.)

As usual, the changes in payments positions of particular primary producing countries were generally associated with shifts in the balance of their trade. Marked improvement or worsening of the trade balance was in some cases related to highly favorable or unfavorable conditions for exports in 1966; however, some of the most striking changes in trade balances stemmed from changes in policies affecting aggregate demand or import restrictions.

In the context of rapidly rising exports, a number of petroleum or other mineral exporting countries (notably Saudi Arabia, Chile, Mauritania, and Zambia) as well as certain other countries (including Costa Rica and Guatemala, among the coffee exporting countries, and the Republic of China) experienced marked improvements in their trade balances from 1965 to 1966. The more favorable development of exports, along with declines in imports, greatly strengthened the trade balances of Australia and South Africa (Table 47).

On the other hand, a considerable number of countries exporting agricultural products experienced a worsening of the trade balance associated with a decline, or no increase, in the value of their exports from 1965 to 1966. Among such countries, the exports of Burma, Cambodia, Ceylon, Morocco, and Viet-Nam fell quite sharply in value while those of Colombia, Ethiopia, the Syrian Arab Republic, the United Arab Republic, and Uruguay either declined somewhat or did not increase measurably. Except in Colombia, where the decline was due mainly to the fall in coffee prices during 1966, and Viet-Nam, where the fall of exports was due to special factors, the unfavorable development of these countries’ exports was strongly influenced by adverse harvest conditions affecting agricultural output. (See below, pp. 106-107.) In some countries, notably Ceylon, Morocco, and the Syrian Arab Republic, imports increased substantially in part because of the need to supplement domestic food production.

Table 46.Less Developed Primary Producing Countries: Relative Changes in Exports and Imports, and Absolute Trade Balance, 1960-66(Percentage changes; value of exports and trade balances in millions of U.S. dollars)
Changes in Exports f.o.b.1Changes in Imports c.i.f.1Trade Balances2
Value of

Exports

in 1965 1
Average

annual

rate,

31960-65
1964-651965-66Average

annual

rate,

3 1960-65
1964-651965-66Annual

average,

1960-65
19651966
Countries exporting mainly
Petroleum10,20076761242,8103,0213,408
Venezuela2,740222415−61,3101,1121,031
Iran1,3009419288390322376
Iraq880652299360430480
Kuwait1,24052591719
Saudi Arabia1,390111818141715660682931
Libya8004292514102790475590
Others1,83053632−1
Other minerals2,0005122571415260258
Bolivia110171871330−5−20−11−10
Chile690710303−1167063148
Mauritania602216−538−27−306
Zambia5308133034172405201
Others610−2121891818
Other nonagricultural products3,200712176913−990−945
China, Republic of45022419133012−70−72−42
Hong Kong1,1401013169513−330−297
Korea18040474361559−290−244−430
Singapore980−3912−1107−248−215
Israel43015151711−300−332−258
Minerals and agricultural products3,3004−16157−10−60
Peru6709151426141002541
Indonesia710−2−261−4−7−1024
Morocco4304−1−122−117−30414
Tanzania1803−11346142920 655
Tunisia120−8175−12−100−131−141
Others1,240722−535
Coffee3,4006571−523170783387
Brazil1,6005129−3−1331190655460
Colombia5403−2−610−2349−20167−90
Costa Rica1106−12412281−20−49−24
Guatemala1901018231013−8−10−22−2
Ethiopia120911−412221−16−23
Ivory Coast28013−61215123147
Uganda1808−45924530 61719
Others430914999
Foodstuffs and other beverages76,500662555−290−137−98
Argentina1,490767−111−630294469
Panama80241310121513−90−100−107
Burma220−6−14−1−9−36203013
Ceylon41014−13−6−2537−30−3−73
Philippines770749637−10−24
Thailand6209513111440−90−157−360
Ghana290−16432−21−40−116−41
Kenya1505−32051626−54−85
Nigeria7501025659−7−80−786
Rhodesia44018−389−30
Others1,2605−178−110
Agricultural materials2,90039363−650−777−611
Malaysia1,2401122452130178179
Pakistan5306714105−14−330−513−294
Syrian Arab Republic1707−4−2−936−70−47−124
United Arab Republic6101127−213−350−391−348
Sudan2001−143−244−30−4−24
Others170174−2526
Mixed agricultural products3,80073−1551−1,560−1,942−2,063
Mexico1,150997653−350−431−378
Uruguay19087−3−7−2497324
India1,6805−4−551−5−980−1,254−1,068
Viet-Nam40−17−27−148209−230−330−641
Others7001214−37147
Sources: Based on International Monetary Fund, International Financial Statistics; balance of payments data reported to the International Monetary Fund; and staff estimates.

Derived from customs data. Figures for 1965-66 are preliminary.

Derived from payments data, exports f.o.b. less imports f.o.b. See Supplementary Note B, Table 77. Group totals include only the countries for which data are given. Figures for 1965 and 1966 are preliminary.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

Exports increased from $11 million in 1960 to $797 million in 1965.

Average 1964-65.

Average 1961-65.

Excluding Rhodesia, the exports and imports of the group increased by 5 and 6 per cent, respectively, in 1965-66.

Sources: Based on International Monetary Fund, International Financial Statistics; balance of payments data reported to the International Monetary Fund; and staff estimates.

Derived from customs data. Figures for 1965-66 are preliminary.

Derived from payments data, exports f.o.b. less imports f.o.b. See Supplementary Note B, Table 77. Group totals include only the countries for which data are given. Figures for 1965 and 1966 are preliminary.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

Exports increased from $11 million in 1960 to $797 million in 1965.

Average 1964-65.

Average 1961-65.

Excluding Rhodesia, the exports and imports of the group increased by 5 and 6 per cent, respectively, in 1965-66.

Table 47.More Developed Primary Producing Countries: Changes in Exports and Imports, and Trade Balances, 1960-66(Percentage changes; value of exports and trade balances in millions of U.S. dollars)
Changes in Exports f.o.b.1Changes in Imports c.i.f.1Trade Balances2
Value of

Exports

in 1965 1
Average

annual

rate, 3

1960-65
1964-651965-66Average

annual

rate,

31960-65
1964-651965-66Annual

average,

1960-65
19651966
More Developed Primary
Producing Countries
In Europe
Finland1,4278116995−136−225−228
Iceland1291416109516−44−7
Ireland6188−110117−300−415−363
Greece3281062410288−472−700−727
Portugal57612129111910−184−324−375
Spain9676130333419−795−1,759−2,005
Turkey46481364726−100−26−145
Yugoslavia1,0921422129−322−288−200−355
Total5,60191013141613−2,279−3,645−4,205
Australia, New Zealand, and
South Africa
Australia2,9939−26714−3100−335111
New Zealand1,0074−67695153120166
South Africa1,50741121015−745847428
Total5,5076−27813−4711−168705
Grand Total11,108841011156−1,568−3,812−3,500
Sources: Based on International Monetary Fund, International Financial Statistics; and balance of payments data reported to the International Monetary Fund.

Derived from customs data.

Derived from payments data, exports f.o.b. less imports f.o.b. See Supplementary Note B, Table 77.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

Sources: Based on International Monetary Fund, International Financial Statistics; and balance of payments data reported to the International Monetary Fund.

Derived from customs data.

Derived from payments data, exports f.o.b. less imports f.o.b. See Supplementary Note B, Table 77.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

Some of the most important changes in trade balances from 1965 to 1966 resulted from changes in import policy. Pakistan secured a large improvement in its trade balance after further restricting imports, while Brazil, Colombia, and Yugoslavia experienced a weakening of the balance following import liberalization in 1965. Burma, Ghana, India, and the United Arab Republic, whose foreign exchange positions became stringent during 1965-66, took steps resulting in a considerable reduction of imports, and consequently experienced some improvement or only slight further deterioration in the balance of trade from 1965 to 1966.

Changes in the domestic demand situation had an important influence on the trade balance of certain other countries. In Thailand and Turkey a deterioration in the trade balance was due principally to the rapid growth of domestic demand and the consequent steep rise in imports. In Thailand’s case, however, the 40 per cent rise in imports posed no problem inasmuch as there was a large increase in receipts on services account and in the inflow of official capital and transfers. In Israel measures to restrain the expansion of domestic demand curbed the growth of imports for the second year in succession and resulted in a strengthening of the trade balance. The marked improvement in Argentina’s trade balance was associated with lower imports of raw materials and semimanufactures accompanying a decline in domestic activity in 1966.

Table 48 provides a summary of changes from 1965 to 1966 in the balances of payments of 20 less developed countries. Of the 12 countries whose basic balances improved, 8 benefited from rapid growth of total receipts. The principal factor in the improvement of the basic balances of Chile and the Republic of China was the substantial increase in exports of goods and services. In Korea, Thailand, and Viet-Nam, receipts for goods and services also rose quite exceptionally from 1965 to 1966, but the large over-all surpluses of these 3 countries were in the main due to the greatly increased inflows of official financing. Mexico, too, benefited from a greatly increased inflow of private long-term capital. In Peru an increased inflow of government capital and aid more than offset the sharp reduction in the inflow of private capital. The improvement in Argentina’s basic balance reflected, besides the increase in the trade surplus, a marked reduction in the outflow of private long-term capital (which had amounted to over $100 million in 1965) and a net inflow of government capital and aid, following a net outflow in 1965.

The declines in the basic balances of Brazil, Ceylon, Colombia, and Uruguay from 1965 to 1966 were mainly occasioned by the changes in trade balances noted above. Although imports of goods and services rose by 22 per cent, Brazil remained in surplus on the basic balance and was able to make substantial repayments of foreign debt in 1966. In Colombia, in addition to the deterioration in the balance on goods and services, the net inflow of private capital in 1965 was replaced by an outflow in 1966. Pakistan’s basic balance worsened from 1965 to 1966 despite the marked improvement of the trade balance; earnings from transportation and government services declined, and the net inflow of private long-term capital and government capital and aid was considerably reduced. Changes in capital movements were responsible for the reduction of the surpluses of Iran and the Philippines. In Iran the net inflow of private long-term capital declined from its exceptionally high level in 1965. In the Philippines the outflow of private long-term and short-term capital became substantial in 1966, and the net inflow of official capital and aid was halved as a result of reduced borrowing in the U.S. market and smaller drawings on loans from the International Bank for Reconstruction and Development. The worsening of Nigeria’s payments position from 1965 to 1966 was due mainly to an increase in investment income payable overseas and in payments for other services; there was also a decline in receipts of official financing.

Table 48.Selected Less Developed Countries: Changes in Certain Elements of the Balance of Payments, 1965-66
Percentage Changes, 1965 to 1966Absolute Values,

in 1966, in

Million U.S. Dollars
Changes, 1965 to

1966, in Million

U.S. Dollars
Exports of

goods and

services
Net inflow

of private

long-term

and official

capital1
Total

receipts 2
Imports of

goods and

services
Basic

balance
Over-all

balance
Basic

balance
Over-all

balance
Countries which experienced improvement of the basic balance
associated with rapid increases in total receipts
Viet-Nam1166681701261288791
Korea571179059107998190
Thailand24142413412318580106
China, Republic of25−44171029374434
Chile274730241284753−3
Mexico1090176−222320069
Peru1517161561−2014−35
Argentina8315729226141−101
Countries which experienced improvement of the basic balance
despite little increase or decline in total receipts
Sudan−14744−10−1527
United Arab Republic7−153−1−47−2553−8
Burma−193−6−16882935
Ghana−12−44−14−24−29−5169−71
Countries which experienced deterioration of the basic balance
Brazil88822222−51−191−284
Uruguay2−33−221567−425
Ceylon−11−6−116−43−41−76−51
Colombia−4−66−1233−239−8−337−38
Iran9−125103419−69−19
Philippines94371184−46−72
Nigeria5−734−63−23−19−22
Pakistan1−33−15−14−6−22−2239
Source: Data reported to the International Monetary Fund. For details of countries’ balances of payments in 1965 and 1966, see Supplementary Note B, Table 77.

“Official capital” comprises central government capital and transfers.

Covers the first two columns plus receipts from private transfers.

Change from net outflow to net inflow.

Change from net inflow to net outflow.

Source: Data reported to the International Monetary Fund. For details of countries’ balances of payments in 1965 and 1966, see Supplementary Note B, Table 77.

“Official capital” comprises central government capital and transfers.

Covers the first two columns plus receipts from private transfers.

Change from net outflow to net inflow.

Change from net inflow to net outflow.

Progress in Less Developed Countries

The comparatively slow growth of exports in recent years for many less developed countries that depend upon agricultural exports occasions increasing concern. In most of the countries that achieved a fairly rapid expansion of output from 1960 to 1965, the main stimulus was provided by the rapid growth of the export sector induced by the important demands of the industrial countries for specific products. On the other hand, in a considerable number of countries the failure to achieve an adequate growth of foreign exchange earnings has imposed a brake on the rate of economic development and has in some cases entailed grave difficulties for the internal management of the economy or severe balance of payments difficulties.

Exports and Growth 2

The real product of the less developed countries appears to have increased on average by some 4 to 4½ per cent a year from 1960 to 1965. This was a somewhat smaller increase than that during the previous five years, and the growth of per capita output was distinctly lower than in the second half of the 1950’s. Although the expansion of output in many instances compared not unfavorably with that in industrial countries, it was often insufficient to ensure any significant rise in per capita real incomes because of the rapid increase in population. Moreover, the gains were very unevenly distributed (Table 49). Per capita output rose appreciably in some areas: Southern Europe, the Middle East, the Far East excluding Indonesia, Mexico and Central America, and Central Africa. However, per capita output rose slightly or declined in other areas accounting for nearly two thirds of the total population of less developed countries: South America, South Asia, North Africa, the Democratic Republic of Congo, and Indonesia.

Table 49.Less Developed Primary Producing Countries:1 Annual Growth of Population and Real Domestic Product, by Regional Groupings, 1960-65
Compound Percentage Growth Rates
RegionPopulation,

1960

(Millions)
Real

product
Population

growth
Per capita

product
Southern Europe 2867.51.56
Middle East 3766.62.34
Far East 41256.13.03
Central Africa 51753.72.12
Mexico and
Central America585.33.02
South America1444.22.71
South Asia 65923.32.2less than 1
North Africa 7280.82.2−1 to -2
Indonesia100
Probably negative
Congo, Dem. Rep. of16
Source: OECD, National Accounts of Less Developed Countries, February 1967.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.)

Cyprus, Greece, Malta, Portugal, Spain, Turkey, Yugoslavia.

Iran, Iraq, Israel, Jordan, Lebanon, Syrian Arab Republic, United Arab Republic.

Cambodia, Republic of China, Korea, Malaysia, Philippines, Thailand, Viet-Nam.

Ethiopia, Ghana, Kenya, Malawi, Nigeria, Rhodesia, Sudan, Tanzania, Uganda, Zambia, and (as a group) Cameroon, Central African Republic, Chad, Congo (Brazzaville), Dahomey, Gabon, Ivory Coast, Malagasy Republic, Mali, Mauritania, Niger, Senegal, Togo, and Upper Volta.

Burma, Ceylon, India, Pakistan.

Algeria, Morocco, Tunisia. The decline in per capita real product reflects a steep decline in Algeria.

Source: OECD, National Accounts of Less Developed Countries, February 1967.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.)

Cyprus, Greece, Malta, Portugal, Spain, Turkey, Yugoslavia.

Iran, Iraq, Israel, Jordan, Lebanon, Syrian Arab Republic, United Arab Republic.

Cambodia, Republic of China, Korea, Malaysia, Philippines, Thailand, Viet-Nam.

Ethiopia, Ghana, Kenya, Malawi, Nigeria, Rhodesia, Sudan, Tanzania, Uganda, Zambia, and (as a group) Cameroon, Central African Republic, Chad, Congo (Brazzaville), Dahomey, Gabon, Ivory Coast, Malagasy Republic, Mali, Mauritania, Niger, Senegal, Togo, and Upper Volta.

Burma, Ceylon, India, Pakistan.

Algeria, Morocco, Tunisia. The decline in per capita real product reflects a steep decline in Algeria.

Table 50.Less Developed Primary Producing Countries:1 Relative Changes in Exports of Goods and Services, Capital Inflows, Total Receipts, and Imports of Goods and Services, 1960-65 2

(Average annual precentage changes)3

IIIIIIIV
Exports

of goods

and

services
Net inflow

of private

long-term

and official

capital4
Total

receipts

(I + II)5
Imports

of goods

and

services
Most rapid growth of total receipts in column III
(over 8 per cent per annum)
1.Libya7065553
2.Nicaragua17431917
3.Honduras1471716
4.Spain16141730
5.Bolivia17111513
6.El Salvador13351510
7.Portugal15701515
8.China, Republic of21−51414
9.Peru9601414
10.Uganda10651413
11.Yugoslavia17−181411
12.Ethiopia12131313
13.Greece14171315
14.Israel1671213
15.Pakistan6191212
16.Thailand11221212
17.Guatemala1221112
18.Panama1331110
19.Saudi Arabia871110
20.Costa Rica641911
21.Iran73197
22.Nigeria10699
23.Paraguay9996
24.Viet-Nam116910
Medium growth of total receipts in column III
(4-8 per cent per annum)
25.Chile71283
26.Jordan17187
27.Mexico81687
28.Philippines11−1776
29.Tanzania8477
30.Tunisia−12577
31.Turkey8475
32.Uruguay827−6
33.Dominican Republic−3768
34.Iraq6665
35.Korea20−965
36.Malaysia52165
37.Colombia42252
38.India41156
39.Brazil4124−5
40.Ecuador5−145
41.Morocco21243
42.United Arab Republic13534
Lowest growth or declines in total receipts in column III
43.Ceylon1192−2
44.Sudan3−626
45.Syrian Arab Republic562
46.Venezuela724
47.Ghana−2−15
48.Haiti−3−11
49.Burma6−2−1
50.Argentina66−3−2
Source: Data reported to the International Monetary Fund. Absolute data for 1965 are shown in Table 77 of Supplementary Note B.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.)

Countries ranked in descending order of change in total receipts for exports of goods and services and net capital inflows, shown in column III.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

“Official capital” comprises central government capital and transfers.

Also includes receipts from private transfers.

Change from net inflow to net outflow.

Change from net outflow to net inflow.

Source: Data reported to the International Monetary Fund. Absolute data for 1965 are shown in Table 77 of Supplementary Note B.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.)

Countries ranked in descending order of change in total receipts for exports of goods and services and net capital inflows, shown in column III.

Percentage increase (or decrease) from 1960 to 1965 expressed as a compound annual rate.

“Official capital” comprises central government capital and transfers.

Also includes receipts from private transfers.

Change from net inflow to net outflow.

Change from net outflow to net inflow.

In almost all of the countries where total real output was rising rapidly from 1960 to 1965—i.e., by 7 to over 10 per cent per annum—exports of goods and services were rising considerably faster, in some cases by as much as 15 to 20 per cent per annum or even more. In a number of these countries, a principal factor underlying the rapid growth of exports was the existence of unusually close connections with, and the accessibility to, rapidly expanding industrial markets in Europe (Spain, Greece, and Yugoslavia) or in the United States and Japan (Hong Kong, Korea, and the Republic of China). The close ties between Israel and the industrial countries exercised a similar effect in promoting the expansion of Israel’s trade. The situation of these countries, as it were on the periphery of the industrial world, encouraged increasing foreign demands upon their productive facilities and substantial inflows of foreign capital; it favored the expansion of earnings from tourism and stimulated emigration of workers to industrial countries. In another group of countries, including oil producing states in Arabia, Libya, Mauritania, Liberia, and Gabon, the rapid growth of real gross domestic product reflected sharply increasing production for export of oil and other minerals by foreign-owned concerns. The same factor was important for Bolivia and Nigeria, where total output rose somewhat less, but more than in most of the other countries in the same regions. In Peru, rapidly expanding exports of fish meal provided a strong stimulus to the domestic economy. Rather different factors underlay the rapid growth of exports from certain other Far Eastern and Central American countries and from Mexico. Dwindling exports of rice from certain major suppliers in Southeast Asia provided a stimulus for increased rice exports from Thailand; the reduction of Cuba’s trade created special opportunities for increasing exports of sugar from neighboring countries. The increased strategic interest of the United States in Southeast Asia has also spurred the expansion of exports of goods and services from certain countries in the Far East. In addition, some Caribbean and Central American countries benefited from the favorable price developments created by the international limitation of coffee exports and from U.S. price supports for cotton production.

Most other less developed countries experienced increases averaging 4-8 per cent a year in their exports of goods and services from 1960 to 1965. However, a certain number of countries—including many of those in which there was the least growth in per capita output—experienced a slower growth of exports and at times encountered serious balance of payments difficulties. Among the most important in this latter group were Burma, Ceylon, India, and Indonesia; Brazil, Colombia, Ecuador, Haiti, the Dominican Republic, and Costa Rica; Algeria, the Democratic Republic of Congo, Ghana, and Tunisia; and the United Arab Republic.

In most countries the growth of foreign exchange receipts from 1960 to 1965 corresponded fairly closely with that in their exports of goods and services (Table 50). In some countries, however, the growth of total receipts was considerably enhanced by a faster rise in the net inflow of private long-term and official capital (including transfers) than in exports of goods and services; among them were several countries whose exports of goods and services stagnated or rose comparatively little over the period, such as the Dominican Republic, Tunisia, the United Arab Republic, and Venezuela. Other countries favored by rapidly expanding inflows of capital and aid were Costa Rica, El Salvador, Honduras, and Nicaragua in Central America; and Iran, Pakistan, Peru, Saudi Arabia, and Uganda. On the other hand, in a few countries the growth of total receipts was less rapid than the expansion of exports of goods and services. This was the case for several countries which received exceptionally large inflows of official capital and aid in the early 1960’s (Korea, the Republic of China, Israel, Jordan, and Viet-Nam), as well as for Argentina and the Philippines, where heavy inflows of private long-term capital in 1960 had given way to net outflows in 1965 (Table 51).

A number of less developed primary producing countries attained a high rate of fixed investment and a rapid growth of foreign exchange receipts in the early 1960’s as a consequence of the exploitation of scarce mineral resources or the existence of special circumstances favoring the expansion of trade with industrial countries. In many less developed countries, however, development was hampered by the slow growth of foreign exchange earnings and by rising imports of other than investment goods.

Table 51.Less Developed Primary Producing Countries Which Received Large Net Inflows of Long-Term Capital in 1960 or 1965 1(Net inflows expressed as percentages of receipts from exports of goods and services)
Official and Private

Long-Term Capital
Official Capital2Private Long-Term Capital
196019651960196519601965
Countries which were less dependent on
such inflows in 1965 than in 1960
Korea2105320840213
Viet-Nam1561271531283−1
Jordan154731527221
Israel624140232218
China, Republic of6114521094
Libya57−362−5−3
Bolivia534021273213
Argentina42−41341−7
Ghana40373714323
Nigeria3528872721
Turkey3024262044
Guatemala25161441112
Panama2415116139
Philippines2151279−2
Sudan19121993
Ecuador171311469
Uruguay1669175
Yugoslavia163163
Countries which were more dependent on
such inflows in 1965 than in 1960
Pakistan51914580611
Tunisia28902152738
India465437569−2
Dominican Republic4949
Greece2428156922
Peru427−110517
Ethiopia25261519107
Iran8225−1323
El Salvador421−14517
Paraguay2021791312
Morocco13201320
Costa Rica52043117
Haiti131613133
Thailand101661046
Uganda318616−32
Colombia715−1689
United Arab Republic415164−1
Source: Data reported to the International Monetary Fund.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.) Countries listed in this table are those in which the net inflow of private long-term and official capital and transfers was equivalent to 15 per cent or more of receipts from exports of goods and services in 1960 or 1965.

Comprises central government capital and transfers.

Source: Data reported to the International Monetary Fund.

Greece, Portugal, Spain, Turkey, and Yugoslavia are here included with less developed primary producing countries. (See p. 101, footnote 2.) Countries listed in this table are those in which the net inflow of private long-term and official capital and transfers was equivalent to 15 per cent or more of receipts from exports of goods and services in 1960 or 1965.

Comprises central government capital and transfers.

The comparatively slow growth of output in the agricultural sector has also posed severe problems for many less developed countries with rapidly increasing populations. Since food consumption accounts for a considerable share of total consumption in low-income countries, the rate of population growth implies a minimum growth of real consumption, which in practice will have first call upon output or foreign exchange resources. This situation poses especially difficult problems for countries with a rapidly growing population and limited exports of non-agricultural products, since in their case the simultaneous attainment of an expanding volume of exports and of rising total consumption must of necessity depend on the achievement of a fairly rapid expansion of agricultural output. Failure to attain a sufficient increase in agricultural output will result either in limited export growth as increased demand for foodstuffs restricts production of export crops, or in the pre-empting of a rising proportion of slowly growing exports to pay for imports of foodstuffs. If shortages of food occur, pressure on scarce foreign exchange resources is also likely to be increased because of the consequent intensification of inflationary pressures.

While the expansion of agricultural production for export has in some cases been held back in recent years by the slow growth of world demand for certain commodities, in a number of countries the production of staple food crops has failed to match, or has barely kept up with, the increase in population. As a consequence, a considerable number of countries (including Ceylon, India, Pakistan, the Philippines, the United Arab Republic, several other countries in the Middle East, some of the smaller West African countries, Chile, Colombia, and Jamaica) have become more dependent on cereal imports from the developed countries or from a few less developed countries in the Far East and South America which have exportable surpluses of grain. For less developed countries as a group, total agricultural exports net of food imports have recently risen by less than 4 per cent per annum; there has been no increase in the net agricultural exports of less developed countries in Asia and the Middle East (Table 52).

Table 52.Less Developed Primary Producing Countries: Growth of Exports and Imports by Major Commodity Groupings, 1961-65 1(Average percentage increase per annum)
Countries in
AllLatinMiddle
CountriesAmericaAsiaAfricaEast
Exports
Agricultural exports4.56.13.03.49.5
Food imports 2,36.05.87.32.48.8
Agricultural exports net of food imports3.86.24.04
Nonagricultural exports
Ores and metals9.28.59.010.9
Fuels8.74.0−2.039.010.2
Manufactures14.016.712.015.413.6
Total net of food imports 2,37.36.34.911.310.1
Total exports7.16.25.59.510.0
Imports 3
Machinery and transport equipment7.40.910.812.99.1
Metals6.12.57.36.57.7
Total capital goods7.21.29.911.88.9
Fuels2.02.63.4−4.06.1
Raw materials4.96.71.47.512.1
Chemicals7.56.67.47.910.2
Passenger road vehicles5.52.110.72.77.5
Other manufactured consumer goods4.73.14.33.29.1
Total excluding food5.52.56.56.49.0
Total imports5.62.86.65.79.0
Sources: Based on United Nations, Monthly Bulletin of Statistics, March 1967, Table E, and May 1967, Table B.

The coverage of the commodity groupings shown in this table is described in footnote 1 to Table 53.

It has not been possible to include Section 4, Animal and vegetable oils and fats, which in the source data is not distinguished from Section 2, Inedible crude materials other than fats.

Import figures are derived from matrix tables of world exports and show the growth of exports from the world to the group of countries indicated in the column heading.

Increased deficit.

Sources: Based on United Nations, Monthly Bulletin of Statistics, March 1967, Table E, and May 1967, Table B.

The coverage of the commodity groupings shown in this table is described in footnote 1 to Table 53.

It has not been possible to include Section 4, Animal and vegetable oils and fats, which in the source data is not distinguished from Section 2, Inedible crude materials other than fats.

Import figures are derived from matrix tables of world exports and show the growth of exports from the world to the group of countries indicated in the column heading.

Increased deficit.

For the less developed countries as a group, exports of metals, ores, and petroleum rose twice as fast as exports of agricultural products from 1960 to 1965, and exports of manufactures rose three times as fast. However, in 1965 manufactures still accounted for only 5-7 per cent of the total value of exports from less developed countries in Latin America, Africa, and the Middle East (Table 53). The much higher share of manufactures in the trade of Asian countries reflects India’s and Pakistan’s dependence on exports of cotton and jute textiles and the substantial exports of manufactures of Hong Kong, Korea, the Republic of China, and Singapore.

On an f.o.b. basis imports of capital goods were equivalent in value to more than one third of the less developed countries’ total exports both in 1960 and in 1965. In Asia and Africa, capital goods imports rose relatively faster than exports over this period. In Latin America, where the need of certain countries to make heavy repayments of short-term and medium-term debt kept the growth of imports lower than that of exports, the restraint of imports fell very largely on capital goods, which rose by 1 per cent per annum in value and scarcely at all in real terms.

Table 53.Less Developed Primary Producing Countries: Relative Importance of Trade in Major Commodity Groupings, 1961 and 19651(Exports or imports as percentages of total value of exports)
Countries in
All CountriesLatin AmericaAsiaAfricaMiddle East
1961196519611965196119651961196519611965
Exports
Agricultural exports51.346.557.357.061.455.669.655.49.79.6
Food imports 2,316.916.210.09.823.425.022.717.311.811.2
Agricultural exports net of food imports34.430.347.347.238.030.646.938.1−2.1−1.6
Nonagricultural exports
Ores and metals9.510.311.812.97.48.515.416.2
Fuels29.331.027.325.07.65.68.120.784.284.6
Manufactures9.211.83.24.722.628.85.87.25.46.2
Unclassified0.70.40.40.41.11.51.10.50.7−0.2
Total net of food imports 383.183.890.190.276.775.077.382.788.289.0
Total exports100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Imports 3
Machinery and transport equipment28.829.135.028.529.736.129.633.518.317.7
Metals7.37.17.76.79.910.56.65.95.24.8
Total capital goods36.136.242.735.239.646.636.239.423.522.5
Fuels10.78.86.45.69.38.69.95.96.85.9
Raw materials7.67.05.95.914.412.25.14.74.34.6
Chemicals8.78.89.910.010.511.38.48.04.34.3
Passenger road vehicles2.42.32.62.31.92.33.42.62.01.8
Other manufactured consumer goods22.520.615.814.127.226.032.625.716.716.2
Unclassified4.03.02.61.36.36.03.41.81.61.8
Total excluding food92.086.786.074.3109.1113.098.988.059.357.0
Total imports108.9102.896.084.1132.5138.0121.6105.371.068.2
Sources: Based on United Nations, Monthly Bulletin of Statistics, March 1967, Table E, and May 1967, Table B.

The commodity groupings shown in this table and in Table 52 comprise the following one-digit sections, two-digit divisions, or three-digit groups of the Standard International Trade Classification—Agricultural Exports, Sections 0, 1, 2 (except 28), and 4; Food Imports, Sections 0 and 1 (food, beverages, and tobacco); Ores and Metals, Divisions 28, 67, 68 (except 681); Fuels, Section 3; Exports of Manufactures, Sections 5, 6, 7, and 8 excluding Base Metals, Divisions 67 and 68 except 681; Imports of Machinery, Section 7 excluding passenger road vehicles (groups 732.1, 732.6, 732.9, 733.1, 733.4); Imports of Raw Materials, Sections 2 and 4. Unclassified Exports and Imports include Section 9 (Parcel Post, Live Animals not for food, etc.) as well as unclassified trade.

Excludes animal and vegetable oils and fats (see Table 52, footnote 2).

Import figures are derived from matrix tables of world exports and show the value of exports of each commodity grouping from the world to the group of countries indicated in the column heading, expressed as a percentage of its total export receipts in the same year.

Sources: Based on United Nations, Monthly Bulletin of Statistics, March 1967, Table E, and May 1967, Table B.

The commodity groupings shown in this table and in Table 52 comprise the following one-digit sections, two-digit divisions, or three-digit groups of the Standard International Trade Classification—Agricultural Exports, Sections 0, 1, 2 (except 28), and 4; Food Imports, Sections 0 and 1 (food, beverages, and tobacco); Ores and Metals, Divisions 28, 67, 68 (except 681); Fuels, Section 3; Exports of Manufactures, Sections 5, 6, 7, and 8 excluding Base Metals, Divisions 67 and 68 except 681; Imports of Machinery, Section 7 excluding passenger road vehicles (groups 732.1, 732.6, 732.9, 733.1, 733.4); Imports of Raw Materials, Sections 2 and 4. Unclassified Exports and Imports include Section 9 (Parcel Post, Live Animals not for food, etc.) as well as unclassified trade.

Excludes animal and vegetable oils and fats (see Table 52, footnote 2).

Import figures are derived from matrix tables of world exports and show the value of exports of each commodity grouping from the world to the group of countries indicated in the column heading, expressed as a percentage of its total export receipts in the same year.

Growth of Output in 1966

The occurrence of severe drought over much of Northwestern Africa and the Middle East, the continuance of serious drought in the Indian subcontinent, and adverse agricultural conditions in several other regions of Asia and in parts of Latin America led to declines in agricultural output or in food production in a large number of less developed countries in 1966. In the majority of countries, the growth of real gross domestic product was smaller than in 1965 or 1964; in India, however, there was a recovery of output following a decline from 1964 to 1965.

Largely owing to the effects of drought, the deceleration of output growth in 1966 was particularly marked in Africa, and aggregate output is estimated to have increased by 2 per cent, against 4 per cent in 1965 and 1964. In Nigeria total production rose by more than 5 per cent despite a cutback in development expenditures. In Ghana, gross fixed investment fell by 13 per cent and output failed to increase for the second consecutive year; in both 1965 and 1966 cocoa production was held down by unfavorable weather and by the low farm prices which discouraged efforts to maintain output. Agricultural conditions were quite favorable, however, in East Africa. Mining output in the Democratic Republic of Congo rose in 1966. The taking over of the Union Miniere du Haut Katanga in December 1966 was followed by the suspension of exports, but substantial export shipments were resumed in March 1967.

Drought slowed down the expansion of production in several Middle Eastern countries, notably Iraq, Jordan, and the Syrian Arab Republic. The growth of output also slackened in the United Arab Republic, where the cotton crop was affected by disease and industrial production was limited by shortages of imported materials and parts. In Iran, however, excellent agricultural conditions prevailed in 1966, and a high rate of growth with rising public and private investment continued under conditions of price stability, favored by a marked improvement in public finances. In Israel the earlier rapid expansion of output had been accompanied by inflationary pressures, rising wage costs, and increasing strain upon the balance of payments; in 1966 the authorities sought to restrain the growth of aggregate demand by limiting public investment.

A relatively rapid expansion of output continued to be experienced by many Asian countries, although, except for India, the output of this region rose considerably less in 1966 than in 1965. Adverse developments in 1966 were most marked in Burma and Indonesia. In Burma total output declined because of a 5 per cent fall in rice production in the 1965/66 harvest, and the 1966/67 crop is expected to be even smaller owing to unfavorable climatic conditions. In Indonesia agricultural production rose in 1966, but total output increased little as industrial production was kept at a low level by shortages of imported materials and parts.

Output rose less than in 1965 in Ceylon, Malaysia, and the Republic of China. In Pakistan and the Philippines the rate of growth was about the same as in 1965, while in Thailand and Korea still more rapid rates of expansion (8 and 10 per cent, respectively) were attained. In Pakistan agricultural production did not increase, as a poor wheat harvest offset a rise in nonfood crops. The output of nonagricultural goods and services rose substantially under the stimulus of high defense spending and rising private consumption, but public sector investment was cut by 20 per cent. In the Philippines industrial production revived in 1966, following a relaxation of credit restrictions and a campaign to limit the smuggling of imported manufactures; rice production rose comparatively little, however, and imports were required to meet the growing demand. In Thailand rice production was lower than in 1964/65, but there was a substantial expansion of other export crops. Services and construction industries experienced a boom as a consequence of U.S. military expenditures and work for the Asian Fair and Asian Games, and public sector expenditures for economic development and defense increased very considerably.

The growth of output in Latin America from 1965 to 1966 appears to have slackened for the second successive year and is estimated to have amounted to about 4 per cent. The slowing down of expansion in 1966 occurred mainly in Argentina and Brazil. Both of these countries had smaller crops in 1966, following a very good year in 1965. In Argentina fixed investment declined, and total output fell slightly after rising by almost 8 per cent in both 1964 and 1965. In Brazil the growth of the economy was somewhat slower than had been anticipated, partly because of the unfavorable agricultural harvests following an exceptionally good year in 1965. Real gross domestic product rose considerably less in 1966 than in 1965. Although there was a strong recovery of industrial production in 1966, there was no marked reactivation of private investment activity. Public sector investment, however, continued to grow very rapidly. Elsewhere in Latin America, output rose less in 1966 than in 1965 in Costa Rica, Ecuador, Guatemala, and Honduras, and rates of investment were reduced. Output appears to have risen somewhat faster than in 1965 in Bolivia, Colombia, Mexico, Peru, and Uruguay. In Mexico agricultural production, especially of export commodities, rose less than in the preceding year, but public investment was restored after a temporary cutback in 1965, and private investment continued to expand. Public and private investment also increased in Peru.

Financial Developments and Prices

In many less developed countries the unfavorable agricultural situation was an important factor underlying the faster rise in the cost of living in 1966 than in preceding years. In many instances, reduced agricultural production also had important indirect effects upon import availabilities and the finances of the public sector. In the countries most affected by adverse agricultural conditions, the need to import foodstuffs resulted in more stringent restriction of other imports, including those for maintenance and development purposes. Output in manufacturing industries catering to the home market was limited not only by reduced demand but also by severe shortages of imported materials and components, leading in some cases to scarcities even of industrial goods.

Public sector finances in such countries weakened. Current expenditures were increased by higher prices and larger spending for relief, support of agricultural incomes, or agricultural credits. At the same time there were declines in revenues derived from both rural and industrial sectors and in receipts from import duties and taxes on agricultural exports. Thus, the deterioration in agricultural supplies was an important element in the worsening of public sector finances that occurred during 1966 in India, Burma, Pakistan, the Philippines, Algeria, Morocco, Tunisia, the United Arab Republic, Jordan, Iraq, Mali, and Ghana.

Deterioration of the budgetary situation was commonly associated with sharp increases in current public expenditures rather than with higher capital spending. Larger defense expenditures were a factor in the worsening of public finances, notably in India, Indonesia, Iraq, Malaysia, Pakistan, Thailand, the Sudan, and the United Arab Republic. In a number of Latin American and African countries, substantial government deficits arose to a large extent from failure to cover the mounting costs of wages and salaries in the public sector by tax revenues and from heavy transfers to public enterprises and state and local authorities to enable them to meet increasing wage bills without raising charges or local taxation commensurately. In India, Pakistan, some French-speaking African countries, and the United Arab Republic, reductions in the inflow of foreign aid contributed to the worsening of the budgetary situation.

In contrast to these adverse developments, prices continued to rise only moderately in a number of countries where output was expanding at a satisfactory rate, as in the majority of Central American republics, Mexico, Venezuela, most of the East African countries, Iran, Malaysia, and Korea. In Korea, where a high rate of inflation in the early 1960’s was occasioned by sharply increasing investment in the context of inadequate food supplies, the rate of increase in prices has declined since 1964 as both domestic and imported supplies of food and manufactures have increased and public sector finances have improved. Fiscal receipts have expanded substantially in recent years as a result of better tax administration and of rapidly increasing money incomes, output, and imports.

Certain countries—among them several, such as Chile, the Democratic Republic of Congo, Iran, and Panama, which benefited from a marked rise in their export receipts—secured a considerable improvement in public sector finances in 1966. In a somewhat less favorable export situation, Brazil, Israel, and Paraguay achieved a considerable strengthening of public finances by deliberate policy measures. In Iran the attainment of a budget surplus in the first half of the fiscal year 1966/67 was the result of increased receipts of a nonrecurrent nature from the oil sector. Government revenues in the Democratic Republic of Congo were increased both by higher taxes levied upon imports and exports and by the substantial expansion of exports. The budgetary deficit was also reduced from its high 1965 level through the initiation of stricter control over expenditures. In the first half of 1967, however, a large budget deficit reappeared, mainly because of increased expenditure abroad and a decline in revenue resulting from the dispute over the operation of the Union Miniere. Export proceeds declined while domestic prices rose more rapidly. As a consequence, the exchange control system came under severe strain and a new rate of exchange was established in late June.

Stabilization Efforts

In four of the largest South American countries, the efforts being made to reduce the rapid rates of inflation met with varying success during 1966. The achievement of price stability is rendered more difficult in these countries by the length of time for which rapid inflation has continued almost uninterrupted and by the consequent development, not only of severe distortions in the price structure but also of arrangements, intended to protect the real income of various groups against erosion by inflation, which tend to intensify and prolong the inflationary process. The rate of inflation in 1966 was further reduced in Chile, where the cost of living rose by 17 per cent, against 26 per cent in 1965 and 38 per cent in 1964. In Brazil the cost of living again rose by over 40 per cent from 1965 to 1966. The rate of inflation was more rapid in 1966 than in 1965 in Colombia, while in Argentina it was higher in both 1965 and 1966 than in the two preceding years.

The financial problems confronting the authorities in Chile were eased in 1966 by the strong demand for its exports of copper. The growth of exports, and the adoption of a flexible exchange rate policy, permitted the Government to liberalize import controls. The tariff structure was simplified, and increased incentives for developing new exports were introduced toward the end of the year. While seeking to control inflation, the Government also pursued a policy of income redistribution in favor of lower-income groups through increased expenditure on education, housing, and social services. Measures were taken to promote a diversification of the structure of output, by strengthening the agricultural and industrial sectors. The continuing increase in public expenditures could, however, pose a problem for the stabilization program if export receipts and revenue rise more slowly in 1967 than over the past two years.

The 40 per cent price rise in Brazil in 1966 was partly attributable to the process of raising certain prices to economic levels and to the impact of low crop production upon staple food prices. The continued high rate of inflation occurred despite the implementation of effective measures to control the expansion of bank credit. The adoption of a more flexible price policy for coffee enabled Brazil to sell its entire quota in the 1965/66 crop year, and during 1966, in contrast to preceding years, the finances of the coffee sector were a contractionary factor in the credit situation. Better food supplies and the restraint maintained over wage increases were reflected in a smaller rise in the cost of living in the first quarter of 1967 than in the same period of 1966. Substantial further progress was made in 1966 toward simplifying and liberalizing the exchange and trade system, with the discontinuance of various exchange rates, the transfer of a large number of imports from the restrictive Special to the General category, the introduction of a lower tariff schedule in March 1967, the removal of some export taxes, and the virtual abolition of export licensing.

In Colombia, the faster rise in prices in 1966 mainly reflected the increase in import prices which resulted from the gradual depreciation of the peso under the exchange reform initiated in September 1965. Following the liberalization of import controls at that time, imports rose rapidly from their severely restricted 1965 level, the acquisition of import inventories being financed to a large extent by bank lending. By mid-1966 the payments position was under severe strain, and the deterioration was aggravated by the fall in the price of coffee in the later months of 1966. Export receipts declined steeply, and the authorities reintroduced exchange controls in November. There was, however, a marked improvement in government finances in 1966 as a result of higher receipts from import duties and the sales tax. Domestic activity responded to rising government expenditures. Wage increases were moderated by public arbitration and, although there was a considerable expansion of bank credit to finance coffee stocking, the rise in domestic prices and wages was smaller, relative to the change in the exchange rate, than after the devaluation in 1962.

In March 1967 the exchange system in Colombia was liberalized, and most transactions are now effected in the certificate market with a flexible exchange rate. This system and other recent measures are expected to encourage the expansion of exports other than coffee and to permit a gradual relaxation of restrictions on imports. Steps have also been taken to strengthen further the fiscal position and improve the control over monetary expansion.

In Argentina the cost of living rose by 38 per cent in 1965 and 30 per cent in 1966, following somewhat smaller increases in 1963 and 1964, and the budgetary situation continued to pose severe problems. Despite a substantial reduction, the deficit in 1965 still amounted to almost 3 per cent of the national product. In 1966 revenues were adversely affected by the smaller rise in taxable output and incomes caused by the poor harvest and by increasing tax arrears, as well as by the decline of imports and the abolition or reduction of certain export taxes. At the same time, expenditures rose considerably, mainly as the result of higher wages paid to government employees and larger transfers to state enterprises and decentralized agencies.

The heavy deficits incurred by the Government—for the most part not for the purpose of financing public investment, but rather in directions tending to raise the level of aggregate consumption—have been the principal factor underlying the high rate of inflation, the low rate of growth, and the recurrent balance of payments crises experienced by Argentina since the war. Rapid increases in wage rates have, to a large extent, reflected the inflationary tendencies resulting from the financial policies pursued, but pressure by the unions has at times been a factor in the rate of cost increases.

Until late 1958 a complex system of controls—operated to a large extent through the exchange system—hampered the development of agricultural resouces in Argentina. A realistic exchange rate has not been consistently applied in the 1960’s, although the exchange rates adopted have provided rather more adequate incentives to export than previously. On the whole, the environment has not been conducive to the formulation of long-term plans in the agricultural sector, which supplies the bulk of exports and a large part of domestic consumption. Industrial development has, on the other hand, been encouraged by the prohibition of many imports and by tariffs ranging up to 325 per cent or, in a few cases, even higher. Nonetheless, manufacturing output has not risen much faster than agricultural output in the 1960’s, and in a number of capital-intensive industries capacity has been underutilized for several years. The very strong inducements to industrial investment and import substitution encouraged a surge of investment in 1958-62, heavily financed by short-term and medium-term borrowing abroad. It has since been necessary, as in Brazil, to hold gross domestic expenditure below output in order to repay this foreign debt.

In March 1967 the Argentine Government adopted a comprehensive series of measures aimed at slowing down the rate of inflation and improving the allocation of resources. The revised budget for 1967 provides for a sharp reduction in the deficit through higher internal taxes, higher taxes on exports related to the exchange rate adjustment, increased utility charges, restraint on government spending, and a firmer wage policy. All wage contracts were adjusted in April and May, the increases granted being related to the length of time since the signing of the existing contract. No further wage increases are contemplated until the end of 1968. In addition, the program calls for a slower expansion in central bank credit. In order to foster a satisfactory balance of payments performance and a higher inflow of capital, the exchange rate was changed from about 250 pesos to 350 pesos per U.S. dollar, and virtually all restrictions on payments and transfers were eliminated. As part of the plan to improve the functioning of the economy, particularly in the industrial sector, the tariff system has been reformed. Import duties have been reduced substantially, most import prohibitions have been lifted, and export subsidies have been eliminated.

In India the authorities have placed a maximum emphasis on securing a high rate of capital formation, through the development of basic and heavy industries. Despite considerable recourse to deficit financing during the second plan, which ended in the fiscal year 1960/61, prices rose only moderately up to that time, partly as a consequence of some exceptionally good harvests. Moreover, exports expanded rather slowly for several reasons. The high rate of increase in money incomes led to increasing domestic consumption and reduced the margin of agricultural production available for export. The orientation of industrial investment toward basic industries meant that investment did not result in larger supplies of finished manufactures for export, and the inducement to expand exports of consumer goods was comparatively slight in the context of strong demand conditions in the domestic market.

During the course of the third plan, inflationary pressures were greatly intensified in India because of a drought, increased defense expenditures required by the hostilities with Mainland China and with Pakistan, and the drying up of the flow of external finance when the latter conflict broke out. The budget for the year ended March 1967 provided for increased revenue from sales taxes, excise duties, and direct taxation, while reducing development expenditure. Emphasis was placed upon certain investments which might quickly yield increases in agricultural production and upon the completion of projects already under construction. Additional ad hoc measures of export encouragement were adopted, including import entitlement and tax assistance schemes. However, these quickly became exceedingly complex to administer and failed to provide exporters the certainty of continued incentives. Efforts to enforce a stringent reduction of imports by licensing overburdened the administration of import controls, and in early 1966 import licensing came to a virtual standstill because of the extreme shortage of foreign exchange; the need for more fundamental measures thus became clear.

In June 1966 the rupee was devalued by 36.5 per cent, the complex export promotion schemes and the tax credit certificate scheme covering a wide range of nontraditional exports were terminated, and duties were imposed on a number of traditional exports (such as tea and jute manufactures) to siphon off the windfall gains from the devaluation. Imports of raw materials and component parts have since been liberalized substantially, and subsidies on a limited scale for specific engineering and certain other exports have been reintroduced. The 1967/68 budget, presented in May 1967, increased taxes on domestic consumption of luxuries (including tea, coffee, and cigarettes), footwear, and postal services; and it sought to avoid deficit financing and to effect a shift in development expenditures toward agriculture.

In Pakistan defense expenditures were reduced and development outlays were restored to a higher level in the 1966/67 budget. Revenue from customs and excise taxes, personal income taxes, and corporate taxes was expected to rise substantially. While there was considerable progress in reducing the public sector reliance on bank credit during 1966, a rapid rate of monetary expansion continued as the increase in credit to the private sector accelerated in a situation of slackening industrial activity. The financing of public expenditures out of local currency counterpart funds and bank borrowing is being held down pending an anticipated increase in the inflow of official transfers and capital.

The Government in Indonesia is attempting to raise revenues from taxation and from profits on the sale of foreign exchange, to make public enterprises self-supporting, and to streamline the administrative machinery. Since the initiation of the stabilization program in October 1966, the exchange rate has been allowed to fluctuate, and negotiations have been undertaken with Indonesia’s creditors to permit a rescheduling of debt and the granting of emergency import credits.

A program of economic rehabilitation was introduced in the spring of 1966 by the Government of Ghana. The budget covering the period from mid-1966 to mid-1967 provided for a substantial reduction of development expenditures through the elimination of uneconomic projects. Revenues have also declined, however, as a consequence of lower cocoa exports and reduced imports. During the course of the year cash deficits and net internal borrowings were reduced by the availability of increased external support, including drawings from the Fund. In December 1966 an agreement was reached between Ghana and its creditor countries to reschedule the repayment of its medium-term outstanding debts.

Renewed stabilization efforts are being made in the Sudan, where the earlier program suffered a setback in 1965/66, owing to a steep rise in defense expenditures and to a slower growth in tax revenue due in part to an inflexible cotton marketing policy. The government deficit widened and the budgeted increase in development outlays was curtailed. Toward the end of the 1965/66 fiscal year, the sharp reduction in foreign reserves led to a severe intensification of restrictions on current payments. In July 1966 a comprehensive program was adopted to strengthen the financial structure; cotton marketing policy was changed to dispose of the large cotton stocks, and tax revenues were increased by the introduction of new taxes and by raising import surcharges, sugar monopoly profits, and excise duties. A stand-by arrangement for $28.5 million was agreed by the Fund in September 1966, and the stabilization program was modified in May 1967.

In summary, a number of the primary producing countries that have recently encountered severe balance of payments difficulties have adopted a comprehensive series of corrective policies. These have encompassed, in the first place, measures to strengthen the finances of the public sector and, where necessary, to establish more effective control over the extension of credit to the private sector. These measures have usually been accompanied by a substantial adjustment of overvalued exchange rates, or the introduction of flexible exchange rates, and by the abolition or simplification of multiple exchange rate practices, import controls, and specific export promotion devices in order to place greater reliance on the market mechanism to secure an improved allocation of resources.3 Where necessary, policies have placed increasing emphasis upon raising agricultural output. In certain countries that have suffered from a wage-price spiral, efforts are being made to implement a rational wage policy.

The comparatively slow growth of demand for imports of agricultural commodities into the industrial countries as a group poses a major problem for many less developed countries in the pursuit of their development goals. The largest and most populous of the less developed countries, which provide a large share of the world supply of staple agricultural commodities, face particularly severe difficulties in expanding their traditional exports. For such countries, some of which already possess a relatively broad industrial base, the need to develop exports of manufactures is therefore particularly vital. This need, in turn, makes the avoidance of a high rate of inflation essential. Apart from the social inequities caused by inflation, the adverse effects of rapidly rising prices upon private saving and the direction of investment have their counterpart in increasing strains on the external balance. It becomes at first difficult, and subsequently impossible, to maintain the rate of fixed investment because of the increasing problem of expanding foreign exchange receipts from exports and capital inflows, and perhaps even more because of the problem of restraining the increasing diversion of limited foreign exchange resources to the purchase of less essential imports or to the financing of capital outflows.

For many less developed countries, the problem of raising foreign exchange earnings, and hence of maintaining a satisfactory rate of growth, could be reduced by easier access to markets in the industrial countries.4 However, this would not obviate the need for the less developed countries to solve two related problems of development that have become increasingly apparent in recent years: ensuring an adequate expansion of agricultural production as the basis for industrial development, and avoiding inflationary pressures caused by the failure to reconcile competing demands upon the limited resources of the economy.

Progress in More Developed Countries

Among the more developed primary producing countries, the six higher-income countries (Australia, New Zealand, and South Africa and the European countries of Iceland, Ireland, and Finland) have achieved satisfactory rates of economic growth during the 1960’s. In the course of the last two years, however, all these countries experienced periods of somewhat slower growth. In Australia the slowdown (in the year ended mid-1966) was mainly occasioned by severe drought conditions. Production in South Africa was also affected by drought; however, there and in the other four countries lower rates of growth resulted in part from policy measures taken in response to adverse balance of payments developments. Each of the three European countries and New Zealand faced considerable difficulty in raising capital abroad since their borrowing possibilities were limited by the tight monetary conditions and high interest rates prevailing in international capital markets during much of 1966. The inflow of private capital into Australia nevertheless increased substantially, and there was a heavy inflow into South Africa in the year to mid-1966.

In Australia real gross national product in the year ended June 1966 was only about 1 per cent higher than in 1964/65. The drought led to declines in farm income, output, and investment. A more moderate rise in consumer outlays than in the proceeding 12 months was also related to increased taxes and to the slower growth in wage and salary incomes. Much of the stimulus to the more rapid economic expansion that developed in the second half of 1966 came from a more favorable export situation and a very large wheat harvest. Australia’s over-all balance of payments swung back into surplus in 1966 (Table 36, p. 80) as exports recovered and imports declined slightly. The substantial increase during 1966 in the net inflow of private capital, concentrated in the first half of the year, was more than offset by a net outflow on account of official capital and aid.

In South Africa the rate of economic expansion lessened toward the end of 1965, as both private and public investment declined following three years of strong advance, but faster growth was resumed in the second half of 1966. Real gross national product rose by 5½ per cent from 1965 to 1966, about the same increase as in the previous year. The balance of payments on current account improved in the first half of 1966 as imports fell sharply, partly because of the tightening of import restrictions in August 1965. A heavy net inflow of private capital during 1966 was a factor in the resumption of faster growth. This, together with a selective relaxation of import controls in July, led to renewed expansion of imports. Nevertheless, the current account remained strong as exports, particularly of manufactured goods, also rose. Additional monetary and fiscal restraints were imposed at various times in the second half of 1966 and early 1967, and import restrictions were further relaxed.

In New Zealand private investment flattened out in 1966, and the pace of expansion slowed following three years of rapid growth. A large current account deficit was incurred in 1965, when exports declined with lower wool prices. In 1966 a further widening of the deficit on invisibles offset much of the improvement in the trade balance that resulted from an increase in the volume of wool exports coupled with a more moderate growth of imports. An already weak payments position was exacerbated by a sharp fall in wool prices toward the end of 1966. Thereafter, the Wool Commission began purchasing wool to support the market and wool exports, which normally account for about 30 per cent of export receipts, were severely curtailed.

The financing of New Zealand’s current account deficit during 1966 became increasingly difficult. A further loss of reserves over the year was prevented by heavy official borrowing, which included a considerable amount of short-term assistance. Drawings on the Fund, equivalent to a total of $37 million, were made in 1966 and the first half of 1967. In the meantime, the Government adopted a number of measures to lessen inflationary pressures and reduce the strain on the balance of payments. These included the abolition of certain major food subsidies, a tightening of installment credit terms, a strengthening of control over the operations of finance companies, and the imposition of stricter import licensing.

In Finland the expansion of output began to slow down in the latter part of 1965 following a very rapid growth in 1964. Real gross domestic product increased little more than 2 per cent from 1965 to 1966 after rising 5½ per cent from 1964 to 1965. The slowdown in 1966 stemmed largely from the flattening out of fixed investment, under the impact of disinflationary policies adopted during 1965 and early 1966 in order to strengthen the external position. In 1964 there were exceptionally favorable opportunities for placing Finnish bonds with investors in the United States and Western Europe, and the heavy inflow of private capital had made it possible to finance a sharp increase in imports while still adding to reserves. The net capital inflow, however, declined with the tightening of international capital markets in 1965. Although the growth of imports subsided in 1965 and 1966, the current balance did not improve inasmuch as the growth of exports also slowed down because foreign demand and prices for exports of forestry products weakened, particularly in 1966. Reserves declined in both 1965 and 1966, and in March 1967 the Fund agreed to a stand-by arrangement for $94 million.

In Ireland also, the expansion of output slackened in 1965 and decelerated further in 1966, when real gross domestic product scarcely rose. The inflow of private capital declined after 1964, and the ensuing tightness in the banking system was reinforced by monetary and fiscal measures taken in the latter part of 1965 and in the first half of 1966 to reduce the strain on the balance of payments. The slight growth of output in 1966 was associated with a decline in the rate of fixed investment and with a slower growth of private consumption. Imports changed little from 1965 to 1966, and the current account position improved appreciably. Total foreign exchange reserves rose by 20 per cent.

In general, the lower-income primary producing countries in Southern Europe benefited from exceptionally favorable harvest conditions in 1966 and achieved large increases in output (8-9 per cent). In Portugal, however, the expansion of output slowed down as a consequence of a poor harvest and a slackening in manufacturing production. In Spain measures of economic restraint lessened the investment boom and led to some deceleration of the growth of output in the second half of 1966. Price increases moderated and the growth of imports was reduced. The further strengthening of the surplus for tourism and transfers partly offset the widening of the trade deficit, and the net inflow of private capital appears to have increased. The over-all balance of payments nevertheless deteriorated from 1965 to 1966, and in January 1967 Spain made a large drawing on the Fund. In Greece there was a sharp rise in manufacturing output, reflecting the coming into operation of new plants. Pressure on resources, however, gave rise to price increases and a further worsening of the trade balance, despite a very marked expansion of exports occasioned by sales of wheat stocks. In Turkey 1966 was a year of record agricultural production and increasing private and public investment. Prices, which had risen rapidly in the second half of 1965, went up little in 1966 as a consequence of a restrictive credit policy in the first half of the year, smaller wage increases, improved food supplies, and sharply higher imports. In Yugoslavia the growth of industrial production in 1966 slowed to a rate of about 4 per cent, reflecting the expected effects of the implementation of the July 1965 economic reform, restrictive credit policies, and less buoyant foreign demand. Industrial employment declined as a concomitant of adjustment following the reform. Imports expanded by 22 per cent from 1965 to 1966 following a slight decline in the preceding period. Wage and farm incomes rose sharply in the second half of 1966, and additional measures of restraint were taken.

The year 1966 was thus a generally favorable one for the more developed primary producing countries. Nevertheless, the payments positions of a number of these countries came under increasing strain because of reduced capital inflows, falling prices for certain primary products, or declines in foreign exchange receipts associated with the slowing down of expansion in the industrial countries. Six of the countries made one or more drawings on the Fund in 1966 and the first part of 1967.

1See footnote 1, page 55.
2In this section several of the primary producing countries in Europe (Greece, Portugal, Spain, Turkey, and Yugoslavia) are considered with the less developed countries with which they share many problems of development by reason of their low per capita income.
3See Chapter 4 for a more complete discussion of the relation of foreign exchange policy to development.
4See Chapter 4, page 47.

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