Journal Issue


International Monetary Fund. External Relations Dept.
Published Date:
June 1988
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Liberalization not a panacea

Peter Hopcraft’s wide-ranging and stimulating article, “Grain Marketing Policies and Institutions in Africa” (Finance & Development, March 1987) is in danger of going over the top in equating market liberalization with nirvana. Life unfortunately isn’t like that. Governments in Sub-Saharan African countries, like those in developed countries, are unlikely for several reasons to withdraw from intervening in agricultural marketing. Given the uncertainty of food production owing to the vagaries of weather, and the difficulties of trade in food throughout much of the region, governments are rightly reluctant to rely solely on private traders and on the workings of the “free” market. Studies have shown that under free market conditions, the low income and price elasticity of demand for staple foods result in rapid fluctuations in consumer welfare—an undesirable and politically destabilizing feature. Government intervention to stabilize prices can therefore have net positive welfare implications.

Parastatal marketing agencies are not inherently inefficient, but their poor performance can often be traced to their having been given tasks in addition to those which they were originally established to undertake, and ones which act as a drain on their financial and managerial resources.

For this reason, it is important that the agricultural marketing parastatals in each country are studied closely before any recommendations are made on reducing their role in favor of private agents. Particular aspects that should be looked at include the reasons for their creation, their evolution, the markets (both internal and regional) in which they operate, and their political and resource constraints.

Experience has shown that the efficiency of marketing parastatals can be significantly improved if their role is reduced to one of straightforward crop marketing and if they are granted a degree of financial autonomy.

Blanket proposals such as those put forward in Mr. Hopcraft’s article risk “throwing the baby out with the bath water.”

Martin H. Fowler

Oxford, UK

Bringing labor and capital together

The problem of capital flight from debt-riddled developing countries has received considerable attention recently. Solutions such as those proposed by M.P. Dooley in “Market Valuations of External Debt,” (Finance & Development, March 1987) are unlikely to produce workable, sustainable solutions because the fundamental problem is neither recognized nor resolved.

There are few illusions or fantasies in financial markets: unless capital can earn a rate of return commensurate with the business, financial, and political risks, the certificates giving title to that capital will decline in price because there is insufficient value in the form of future returns to maintain price.

When the returns to capital decline, the solution is not to be found in the application of even more capital, a process which true to the law of diminishing returns will result in even lower returns and consequently even lower capital values and accelerated capital flight.

What needs to be kept in mind is that all too often the essential ingredient, the “yeast, “ to the development process is lacking. The “yeast” is effective and sound business management which synergistically brings labor and capital together. Where labor is idle or underemployed, and where suppliers of capital engage in capital flight or alternatively have their capital destroyed, one should evaluate the effectiveness of business management. In environments where undue interference, pressures, and political or governmental involvement abound, the process of business management will be constrained. In such a setting, there is no meaningful and sustainable development and there is little regard for individual rights and freedoms.

Capital flight is an attempt to rescue a scarce and precious factor from loss so that it can be applied productively elsewhere. If this is not done, capital is destroyed, and with demand curves which slope downward from left to right, among other things, the cost of capital rises for all other capital users.

Stan Paulo

University of Natal, South Africa


The Implications of Fund-Supported Adjustment Programs for Poverty

Occasional Paper No. 58

This study reflects the increasing importance the Fund attaches to the controversial issue of the effects of adjustment programs on the poor.

Using programs in eight selected countries, the authors examine the implications of the broad objectives and policies of the programs undertaken for different groups of the poor looking particularly at the effects of fiscal policies.

Price: $7.50 (special rate to students, faculty, and libraries = $4.50)

Available from: Publication Services, Box A-88-2, International Monetary Fund, 700 19th Street, N.W.,

Washington, DC. 20431, U.S.A.

Telephone 1202) 623-7430

For the Latest Analysis and Projections from the IMF

WORLD ECONOMIC OUTLOOK April 1988 October 1988

As part of a regular series, the World Economic and Financial Surveys, these publications give updated analysis and statistics on the major economic variables that affect the world economy. These variables cover global trade and output, financial flows (including debt), and indicators of financial policies, and are provided for the major industrial economies individually as well as for important country groups. The accompanying analysis pinpoints major recent developments in policies, as well as in markets, and examines their implications for individual countries and the global economy.

PRICES: For both World Economic Outlook, April 1988 and World Economic Outlook, October 1988: $25.00 ($16.00 academic rate)

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