Comments: Maria Ramos

Ke-young Chu, Sanjeev Gupta, and Vito Tanzi
Published Date:
May 1999
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I am struck by how different these two very interesting papers are, but also by how common the challenges and issues they describe are. For me, the most important issue in these papers is the formulation of the right questions. The questions that arose this morning from Amartya Sen’s presentation and from other speakers on the panel were about equity: what equity means, how it should be measured, and how we can determine the right combination of structural and institutional changes to ensure sustainable and equitable growth.

In reading Grzegorz Kolodko’s paper, I was fascinated to see the diverse and changing measures of the Gini coefficient in Eastern European countries during their transition. But the following questions were not really answered: What has happened to some of the other measures of equity? What has happened to literacy rates, for example? What has happened to unemployment? What has happened to health indicators?

Another unanswered question concerns the sequencing and the institutional and structural changes required for reforms to take place, and for sustainable growth and equity to take root. I also would like to know why, if privatization is a priority in so many transition economies, this policy does not meet people’s expectations. If you have widespread privatization but no institutional and structural reforms to ensure that shared ownership is widespread and capital markets are functioning, what does privatization mean? Is privatization designed to improve income distribution? The sequencing of policies and priorities is important in determining how we take sustainable growth and equity forward.

For many reasons, reading about the Chilean experience hit close to home for me as a South African. Incidentally, I have to be very careful with what I say, because Archbishop Ndungane is here. I think that one reason the clergy is here—which is a good idea—is that the church is close to the people, and the archbishop is one of the biggest proponents of keeping government close to the people and focused on what the people need.

South Africa is a young democracy. The new government has been in power since April 1994, and we face an election—our second—sometime next year. As Sen pointed out this morning, South Africa is an exciting country and one full of challenges, many of which are not so different from those in many other emerging economies. We have been able to benefit from the experiences of the others.

South Africa’s reform process is focused on a number of areas; I will mention three of these. The first is macroeconomic stability. Here, I agree with what Eduardo Aninat says in his paper: there is no substitute for sound economic policies. They may take longer to implement and yield results, but the opposite of sound economic policies—for example, the boom-and-bust policies that characterized the South African economy before the elections—are in no one’s interests and do not lead to greater equity or sustainable growth. Moreover, those policies take away the element of predictability and make all other economic decisions difficult, if not impossible. South Africa now has a macroeconomic policy built on a set of sectoral policies, and the two work well together. This coherence in economic policy is important.

The second area I want to touch upon concerns fiscal policy. Much is said in the paper on Chile of that country’s experiences with fiscal policy. South Africa’s fiscal policy reform has a number of facets. On the one hand, we have focused on deficit reduction and have managed to bring the deficit down from some 10.3 percent of GDP in 1993/94 (the year before the election), to an estimated 3.5 percent of GDP for 1998/99. We are reducing the deficit not simply because we think it is a popular thing to do, or, as our minister of finance often points out, because we have any great economic ambitions to join the European Union, but because we are looking for those degrees of freedom required to reprioritize within a fiscal framework. We believe that a reprioritization that focuses on social policy and social expenditure is critically important.

But our fiscal policy reform is not just about the deficit reduction program. It is also about enhancing and focusing on outputs and on the quality of expenditure. As it is, we spend 60 percent of our budget on social policy. The questions we in the ministry of finance are focusing on now—and we are forcing our colleagues in the social spending departments to do likewise—are about quality and efficiency. What do you get for every rand you spend on education? And how do you begin to develop measurable outputs? More money spent on education does not necessarily guarantee a good education. That is in fact our history, and this we need to overcome.

We have instituted a number of other structural reforms in our budget process. This year, for the first time, and with an election looming, we have shifted from year-on-year budgeting to three-year budgets, which we publish at both national and subnational government levels. Each of the nine provinces produced a three-year budget for the first time. We are pushing this new three-year budget, supported by yearly policy statements, into the public domain. We are asking the bishop and our organizations of civil society to engage in this budget, to start debating whether our policy priorities are correct and what we should get for our money. Furthermore, we are asking the legislature to focus on the budgets before them and to have an early debate on these budgets’ policies and priorities. Early on, we introduced other changes to enhance fiscal discipline. For example, proceeds from privatization are not counted as part of ordinary revenue but as extraordinary revenue, and therefore cannot be used to finance current expenditures. These revenues have to be used to reduce government debt or to further investment in infrastructure. We think these important aspects of fiscal reform are needed for fiscal sustainability and for a deficit reduction program that is more than just a numbers game.

The third and last area includes the structural and institutional reforms that, from South Africa’s experience, are critical if we are going to achieve sustainable growth with equity. In South Africa, as probably in some other countries, we have gone through fundamental changes in both the political and the fiscal management systems. On the fiscal side, one of these changes is decentralization. But we have started by asking questions about the capacity of the subnational governments. What is it that we need to have in place; for instance, what other measures of transparency and accountability would make the decentralized system work? Another example can be found in Kolodko’s paper on the Eastern European economies, which discusses tax reform, high tax rates, and high levels of tax evasion. Again, the choices here are between institutional and structural reform on the one hand, and simply the development and the printing of yet another policy paper. In South Africa, we believe that we can change all the tax policies we want, but unless we have the fiscal capacity to implement these policies, we will not get far. We have therefore focused on strengthening the administrative capacity of our tax authority. We have also focused on the regulatory environment—Mr. Levy also pointed to this aspect, and I agree with him completely.

Another issue we cannot afford to ignore is the reform of the public sector. In his opening to Parliament the other day, President Nelson Mandela said that the government is not an employment agency, and he is absolutely right. The role of government is to deliver high-quality, efficient services and to ensure that these services are directed to meeting people’s basic needs. We need a courageous review of the scope of government activities and public sector reform—which means dealing with issues of corruption as well.

In conclusion, I return to the issue of the sequencing of policies. One can try to do all of them at once, but one must establish priorities. It is absolutely impossible to try and do all of these policies together and, at the same time, try to achieve the goals of sustainable growth with equity. South Africa’s brief experience shows us that there are no miracles and no short-term solutions to these dynamic and complex problems, particularly when one is trying to solve them in the context of a global market.

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