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Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1983
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Lauchlin Currie

The Role of Economic Advisers in Developing Countries

Greenwood Press, Westport, CT, U.S.A., 1981, xiv + 270 pp., $27.50.

Dr. Currie’s book fills an important gap in development literature. After more than 40 years’ experience advising governments, he tries to pull together the threads and to seek a greater consensus on appropriate development objectives and policies. Dr. Currie played a central role in the formulation of New Deal policies in the United States in the mid-1930s; he led the first World Bank study mission—to Colombia, in 1949; and thereafter he has been advising the Colombian Government. He is, therefore, in a unique position to reflect on the role of economic advisers.

The book arises out of the author’s experience with macroeconomic advice—notably advice on monetary, exchange rate, tax, and price policies—and with sector and project advice, before addressing more general development issues such as the role of market forces versus specific policies. The process of development, according to Dr. Currie, strengthens a country’s capacity to adapt—a process implying “profound changes in habits, attitudes, customs and training.” These cultural changes are far more important than the quantifiable improvements in physical output and economic conditions that so much of the literature emphasizes. Throughout, the book combines insights specific to his experience with Colombian development, many of which are relevant to other countries as well.

Various principles for fruitful external assistance and advice are set out: coherence and focus in objectives and terms of reference; sensitivity to national goals and conditions; modesty and feasibility of proposals rather than recommendations for sweeping reforms; and provision for policy implementation. The actual results of policy advice, according to Dr. Currie, have been mixed in Colombia. In fact, the contribution of development and aid agencies—in promoting the physical integration of the country, supporting macro and sectoral policies, and in fostering capital markets—has perhaps been greater in Colombia than the author recognizes. He may also have understated the potential role of the international community in the developing world.

The author’s personal convictions on development are reflected in the book’s conclusions. It is noted, for example, that in complex macroeconomic areas, there is no effective substitute for trained national economists. It also emphasizes the importance of not recommending policies that could impede growth—as would measures to slow or reverse rural-urban migration and mobility. Another lesson the book passes on is that a “direct assault” on mass rural poverty requires a degree of administrative expertise beyond the capacity of most developing countries. The solution lies in increasing the demand for labor outside agriculture to raise the incomes of the gradually declining numbers engaged in agriculture. This lesson runs counter to the practice of many developing country governments and donor institutions.

How far can conclusions based on experience in Colombia (or in any single country) be applied to other developing countries? With a coalition government of the presidential form that has experienced relative political stability, a strong cadre of technicians, and a sound resource base, Colombia enjoys many advantages over other countries even at its per capita income level. Short-term macroeconomic measures are often more effective in steering growth there than elsewhere. Dr. Currie’s focus on markets and demand expansion as a means to spur growth is particularly well placed in the Colombian situation, and it is also a message worth emphasizing in many countries where these factors are neglected. However, many others have severe supply constraints, not simply relating to physical capital, but perhaps more important, to human capital, skill levels, and management capabilities. This study of Colombia and of the five countries chosen for comparisons—Brazil, Hong Kong, Republic of Korea, Singapore, and Taiwan—is not likely to help these others adequately. On the other hand, a full comparative discussion of developmental experiences is not the purpose of the book.

Dr. Currie sums up his reflections: “The less developed a country, the greater the need to satisfy basic human needs and lessen inequality. But the less developed the country, the greater the danger that giving top priority to these objectives will tend to extend the period of underdevelopment—Therefore, advice and aid are likely to be more effective the more they facilitate and promote … transformations and reinforce rather than obstruct natural or market forces.” He concludes that “The greatest contribution a government … can make to development is the initial adoption of policies that lead to a sustained period (ten years or more) of high economic growth.”

Guy Pfeffermann and Wood Thomas

Frances Stewart and Arjun Sengupta; edited by Salah Al-Shaikhly

International Financial Cooperation: A Framework for Change

Westview Press, Boulder, CO, U.S.A., 1982, xxviii + 204 pp., $24 (cloth), $10.50 (paper).

The central theme of this interesting book is that the current international monetary system provides an unsatisfactory framework for international trade and payments and therefore requires far-reaching reforms. The book, issued by Oxford University’s Center for Research on the New International Economic Order, reviews the main sources of dissatisfaction and provides a range of alternative proposals to solve the problems of the system. The authors claim “the interest of development as the major consideration,” but take into account the interests of the other parties in the world economy, namely, the industrial countries and the members of the Organization of Petroleum Exporting Countries (OPEC). Unfortunately, the book’s analysis ends in 1981, and some important elements of the system it seeks to reform have changed since then—OPEC surpluses in particular.

The book covers seven major areas of concern and presents proposals for a reformed international monetary order: (1) Recycling. The authors argue that developing countries will continue to require major transfers of resources. The recycling by commercial banks—the major source of financing in the 1970s—should continue, but additional resources can be channeled by strengthening existing public institutions and by creating new organizations, such as a Third World Agency, that would move funds from OPEC to the Third World directly. (2) Improvement in international financial mechanisms. The uncertainty about loan terms could be reduced by loans denominated in special drawing rights (SDRs), by using other forms of indexing, or (for financing imports to the developing world) by a global loan guarantee scheme. (3) Low-income countries. Aid could be increased and redirected to the poorer countries in the form of direct transfers, interest rate subsidies, and loan guarantee facilities. (4) Conditionality. The conditionality associated with the Fund’s financial support is reviewed critically. Other sources of finance and alternative policy packages are explored. (5) International currency. The book dismisses proposals for commodity-backed international currencies as impractical and supports the use of the SDR to provide better control on international liquidity and to transfer resources to the developing world through a link between SDR allocations and concessional finance. (6) World economic management. In light of the alleged vacuum in world economic management, it is proposed that a World Development Council be founded, initially as an advisory body. (7) South-South cooperation. A number of proposals are presented to improve cooperation among developing countries, to strengthen their “self-reliance,” and to promote “South-South” trade and ease payments problems.

In general the “South” should attempt to institute its own Bretton Woods.

The authors indicate that most of the proposals require a degree of cooperation that is not present in existing organizations that are viewed as efficient—the World Bank, the Fund, and the regional development banks. But the book fails to point out that reform would require a shift of attitudes within the organizations as well as a modification of the institutional environment. Therefore, it is unrealistic in assuming that success of the reforms described is likely.

Past developments are discussed with particular poignancy and balance, and in a well-documented fashion, based on material issued by international organizations. The relevance of the changes the book proposes is unfortunately somewhat dated. The large OPEC surpluses, on which it bases many proposals, have narrowed for many OPEC countries since 1981 and were reversed into large deficits for others. In consequence, the industrial countries are returning to the traditional surplus position they experienced prior to the oil price increase of 1973, thereby shifting the source of funds for developing country borrowers.

Many of the various proposals described in the book have been amply discussed but one central issue may be noted: the adjustment and conditionality recommended by the Fund and to some extent by the World Bank. The authors question conditionality and present alternative lines of action. It is indicated that Fund programs place emphasis on the control of inflation and on a turnaround in the balance of payments without an explicit emphasis on the fulfillment of basic needs or on income distribution. What is not recognized is that initially all corrective programs have to deal with major adjustments of aggregated demand to keep them in line with available resources. These adjustments are not determined by different objectives, economic philosophy, or the political system, but by the economic reality imposed by prevailing international economic conditions and the circumstances of the particular country. The adjustment has to occur in any event, and some alternatives proposed in the book may be more painful, with more reduction in efficiency and greater costs in terms of income distribution, than would have occurred in the context of a Fund program. Finally other proposals are erroneously based on financing as an alternative and not as a complement to adjustment.

Claudia M. Loser

Russel J. de Lucia, Henry D. Jacoby and others

Energy Planning for Developing Countries: A Study of Bangladesh

The Johns Hopkins University Press, Baltimore, MD, U.S.A., 1982, xx + 298 pp., $24 (cloth).

A useful reference work for developing countries that are starting to engage in energy planning. This work provides a readable account of the methodology behind energy demand estimates, energy price analysis, agricultural analysis for energy planning, and the links between energy and macroeconomic models. However, the efforts put into each of these activities should be carefully tailored to the specific needs of energy managers so that the output is timely and capable of being achieved. In many cases what the authors call “crashing through”—a rapid diagnosis of energy issues and options—is likely to be more valuable to countries in the short to medium term.

Essays and papers on economic issues from the International Monetary Fund, the Group of Thirty, and the Institute for International Economics

In economic literature there has always been room for short, topical, and well-written essays on specific issues. The advantage of this genre is that essays are more focused than a book, more fresh than collections of seminar papers, and more “relevant” and accessible than articles in academic journals. Readers will be familiar with the long-established Essays in International Finance, published by Princeton University and currently under the direction of Peter Kenen. Three relatively new series have been added to the distinguished Princeton line. The first is the Occasional Papers published by the Fund. These constitute fairly long papers on a variety of issues originally prepared by Fund staff members for internal purposes. The unique feature of this well-researched series is that they present a great deal of information that is generally not available elsewhere, since much of it is based on primary sources to which Fund staff have unique access in the course of their work. The September 1982 and March 1983 issues of Finance & Development carry a list of the most recent papers in this series, with details of how to obtain them.

The second series consists of the Occasional Papers published by the Group of Thirty (obtainable from The Group of Thirty, Two World Trade Center, Suite 9630, New York, NY 10048 U.S.A.). These essays are quite short and somewhat schematic in nature; recent publications include Coordination of National Economic Policies by Jacques Polak and Exchange Rate Policy Reconsidered by Otmar Emminger. The third series offers policy analyses in international economics published by the Institute for International Economics (11 Dupont Circle NW, Washington, DC 20036 U.S.A.). These comprise longer and more substantive papers with a distinctive policy bent. Publications to date include The Lending Policies of the International Monetary Fund by John Williamson, “Reciprocity”: A New Approach to World Trade Policy? by William Cline, and Trade Policy in the 1980s by Fred Bergsten and William Cline.

These three series constitute a major contribution to the literature on international economics and, together with the Princeton series, provide the generalist as well as the specialist with solid analysis and considered judgments on the economic issues of our time.

Robert Solomon

The International Monetary System 1945–1981

Harper and Row, New York, 1982, xvi + 432 pp., $26 (cloth).

Jacob S. Dreyer, Gottfried Haberler, and Thomas D. Willett (editors)

The International Monetary System: A Time of Turbulence

American Enterprise Institute for Public Policy Research, Washington, DC, 1982, iii + 523 pp., $25.95 (cloth), $14.95 (paper).

If the international monetary system continues to be beset by problems and difficulties, it is surely not because of a lack of writing on the subject. Much of this avalanche of literature, as is the case with these two books, consists of reissues of previous writings and the proceedings of numerous conferences on this subject. The Solomon book is an updated and expanded version of an earlier work that covered 1945–76. It is essentially a historical book by someone who for many years was very close to the center of international monetary developments. It is quite an enjoyable book for the personal touch the author brings to his subject and for the flow and clarity of his writing. By contrast, the book edited by Dreyer et al is more uneven and somewhat more technical. But it contains a number of papers that can complement and add analytical focus to issues brought up by Solomon. The Dreyer book records the proceedings of a 1980 conference that brought together a large number of distinguished academics and policymakers, too numerous to name. The issues these two books discuss (such as exchange rate volatility) have not gone away; but in a sense both seem somewhat dated in light of the huge debt problems that have afflicted the international economy in the past year. Unemployment has become a major international concern, but given the recent course of events, authors and conference organizers need not fear this fate.

Jagdish Bhagwati (editor)

Import Competition and Response

The University of Chicago Press. Chicago, 1982, ix + 410 pp., $32.50 (cloth), $15 (paper).

A conference volume of mathematical papers that aims to fill a gap in trade theory, especially regarding issues such as import penetration and competition. The papers fall into three major categories: economic theory (papers on adjustment to imports, the efficiency cost of dynamic adjustment, and the case for protection and adjustment assistance, respectively); political economy of protection (including papers on the potential for lobbying for changes in policy on labor migration and capital flows, a trade model with economies of scale and product diversification, a model of tariff lobbying in the context of a simple two-sector economy, and an analysis of the possibility of governments buying out protectionist lobbies); and empirical analysis of adjustment problems and policies (including a very interesting discussion of the impact of adjustment in a Lancashire town). For academia and trade specialists.

T.E. Barker. A.S. Dowries, and J.A. Sackey (editors), Perspectives on Economic Development, University Press of America, Washington, DC, 1982, xx + 304 pp.

David Bigman, Coping with Hunger: Toward a System of Food Security and Price Stabilization, Ballinger, Cambridge, MA, U.S.A., 1982, xxxii + 351 pp., $35 (cloth).

Landrum R. Boiling with Craig Smith, Private Foreign Aid: U.S. Philanthropy for Relief and Development, Westview Press, Boulder, CO, U.S.A., 1982, xv + 330 pp., $25 (cloth).

Rod Cross, Economic Theory and Policy in the UK, Martin Robertson, Oxford, U.K., 1982, ix + 223 pp., £10.

Carl K. Eicher and Doyle C. Baker, Research on Agricultural Development In Sub-Saharan Africa: A Critical Survey, MSU International Development Paper No. 1, Michigan State University, East Lansing, Ml, U.S.A., 1982, xi + 335 pp., free to individuals and institutions in the Third World; $8 in higher income countries.

T. Scarlett Epstein, Urban Food Marketing And Third World Rural Development, Croom Helm Ltd., Totowa, NJ, U.S.A., 1982, 260 pp., $28.50 (cloth).

Pere Escorsa (editor), El desarrollo industrial en los anos 80, Marcombo Boixareu Editores, Barcelona, Spain, 1982, x + 464 pp.

Just Faaland, editor, Population and the World Economy In the 21st Century, Basil Blackwell, Oxford, U.K., 1982, viii + 264 pp., £17 (cloth).

Richard E. Feinberg, Subsidizing Success: The Export-Import Bank in the U.S. Economy, Cambridge University Press, New York, 1982, xi + 189 pp., $34.50.

Bent Hansen and Samir Radwan, Employment opportunities and equity in a changing economy: Egypt in the 1980s, International Labor Office, Geneva, 1982, xviii + 293 pp., SwF 35.

John Hudson, Inflation: A Theoretical Survey and Synthesis, Allen & Unwin, Inc., Winchester, MA, U.S.A., 1982, xii + 171 pp., $24.50.

Prof. Ryushi Iwata, Japanese-Style Management: Its Foundations and Prospects, Asian Productivity Organization, Tokyo, 1982, iv + 123 pp.

Melvyn B. Krauss, Development Without Aid: Growth, Poverty and Government, McGraw Hill, New York, 1982, xi + 208 pp., $17.95 (cloth).

Richard Medley (editor), The Politics of Inflation: A Comparative Analysis, Pergamon Press, New York, 1982, xii + 249 pp., $29.50.

Pierre Pascallon, Le Système Monétaire International—Théorie et Réalité, Les Editions de L’Épargne, Paris, 1982, 528 pp., F 120.

Hubert Schmitz, Manufacturing in the Backyard: Case Studies on Accumulation and Employment in Small-scale Brazillian Industry, Allenheld Osmun & Co., Totowa, NJ, U.S.A., 1982, 232 pp., $26.50.

Jonathan E. Sanford, U.S. Foreign Policy and the Multilateral Development Banks, Westview Press, Boulder, CO, U.S.A., 1982, xiv + 279 pp., $20.

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