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Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1984
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Recurrent costs

In researching the recurrent cost implications of the very rapid growth of the public sector capital stock in Saudi Arabia, I came across Peter Heller’s article in the March 1979 issue of Finance & Development (“The underfinancing of recurrent development costs”).

I found the article very informative, particularly as it appeared to point to an existing body of work that has been undertaken by the Fund and the World Bank. The article was, in fact, the most informative source turned up from a literature search that included a computerized key-word search. We were surprised how little of real value was revealed by this exercise, particularly in terms of “hard” information. The “myopia of planners” becomes easier to understand.

As there is much interest in this field, I wonder whether the author can suggest sources of hard information on the relationships between operation and maintenance costs and investment costs? In Saudi Arabia, where financial resources have not always been the limiting constraint, the structure of recurrent inputs for different types of projects is as important as their total value. As much of the recent development has been in facilities that are of a standard comparable with those of the developed world, sources of information on the recurrent-investment relationship in those nations would also be of interest. Information of this kind will be a useful complement to locally gathered data.

Conditions in the countries of the Sahel are radically different from those in the Arabian Peninsula. I would welcome readers’ comments on an equivalent body of cross-sectoral work relating recurrent and investment costs for developing countries investing in advanced western-style infrastructure. (Send to P.O. Box 947)

Riyadh, Saudi Arabia

Keith McDonald

Peter Heller responds:

The literature on recurrent costs has indeed advanced since I wrote the article for Finance & Development. A considerable amount of work has been done on the Sahel region of Africa, principally by the Club du Sahel of the OECD, which has sponsored many sectoral and country studies on the recurrent cost question, most of which are available from the Paris office of the Club. In addition, both Clive Gray of the Harvard Institute for International Development and André Martens of the University of Montreal are valuable sources of material.

There is voluminous material on the specific recurrent cost requirements of projects and investments in different sectors of developed countries. However, this is not generally arranged under the heading of recurrent costs, but rather on a sector-specific basis or under the heading of deteriorating urban infrastructure. For example, George Peterson of the Urban Institute in Washington, DC has sponsored several studies of the latter kind, which are, I suspect, available.

EMS and the U.S. dollar

It is a pleasure to read the paper by Horst Ungerer; the paper gives an in-depth review of the European Monetary System (EMS) against the aims set out at its inception and includes well-presented and informative charts. Witness, for example, Chart 1 excluding the pound-sterling component in the ECU and rightly so, compared with the chart of The Economist (March 26, 1983, p. 47) that includes the sterling in ECU.

The purpose of this letter is to invite the author’s views on an important factor influencing the performance of EMS that does not find explicit mention in the paper. It is true that the absence of clear signs of a convergence of economic policies has caused tensions within the EMS (the reflationary policies of President Mitterand forced a major realignment on October 5, 1981). However, another factor contributing to the tensions within the EMS is the volatility of the U.S. dollar. Just as the undue strength of the dollar is an important, albeit indirect, factor in the recent realignments of the EMS, its undue weakness had side effects on the first few realignments of the EMS. Because a weak dollar usually reflected a strong DM (though not fully the converse case), the dollar-DM axis seems to be an important and, at present, an uncontrolled outside factor in the EMS performance.

India

Dr. R.K. Murti Poolla

Horst Ungerer replies:

I agree fully that the volatility of the dollar, or more precisely the sharp fluctuations between the dollar and the EMS currencies because of the special role of the deutsche mark, may contribute to tensions within the EMS and exacerbate relative movements of EMS exchange rates. During the early years of the EMS, however, this factor played a much smaller role than could have been expected, since in 1979 the deutsche mark had been overvalued and the dollar undervalued. The subsequent steady strengthening of the dollar helped to conceal for some time divergencies in economic performance between EMS countries, thus actually lessening potential tensions within the EMS. While my article makes no explicit reference to this, the Fund’s Occasional Paper No. 19, on which the article is based, discusses it at some length (p.5).

Government expenditure—and management

Pierre Landell-Mills’ article, in the September 1983 issue, has prompted me to write. I have worked in various African countries since 1954 and I have witnessed a steady decline in standards of management—a decline that has largely been ignored in the media.

There are obviously many causes for the decline and some are more correctable than others. A major, and to some extent correctable, problem is the growing imbalance between government resources spent on salaries and those spent on travel and other items connected with government work. The trend in many countries is toward more and more government staff doing less and less work.

One wonders whether the World Bank could not assist more in helping Africans understand the decline that everyone knows exists. In particular, some analysis might show how governments have divided their finances and also how government structure has grown ahead of the economy that has to support it. Perhaps these things have been done already—but if so, they do not seem to have been widely publicized.

Chilanga, Zambia

Ronald Watts

Pierre Landell-Mills replies:

These issues were dealt with at greater length in the 1983 World Development Report, which contains a bibliography that would be of interest. In particular, the Fund has recently published a study entitled Government Employment and Pay: Some Comparisons, by Peter Heller and Alan Tait (Occasional Paper No. 24).

With regard to the query on whether the Bank might not “help Africans understand the decline that everyone knows exists,” our efforts have gone in two directions: first, we issue general publications directed at an audience of senior African officials (for example, Accelerated Development in Sub-Saharan Africa and the World Development Report 1983), containing policy advice that is also disseminated through a series of high-level seminars and workshops. Second, the Bank is in continuous dialogue with governments in an attempt to identify ways to strengthen institutions and to provide more effective technical assistance.

Remarkable Statistics Tool Tracks Prices of Major commodities of Developing Countries

“Commodity Trade and Price Trends has become a benchmark publication for people working in the commodities field. It’s especially useful for those who need summary information about trade performance by individual developing countries.”

Enzo Grilli, Segretario Generale Per La Programmazione Economica Ministero del Bilancio e Delia Programmazione Economica, Rome, Italy

The 1983-84 edition, now available, provides long price series for major commodities, such as tin, rubber and aluminum. For the first time Commodity Trade and Price Trends also covers petroleum products.

The Bank draws on data going back to 1950 for the time series for 39 commodities, thereby enabling meaningful analysis by economists, market analysts and international investors. The time series for trends in export trade goes back to 1960.

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