Comparing Argentina in the 1980s with Argentina today, I am struck by a phenomenal change. For Argentina, the 1980s started off with the debt crisis and the war in the South Atlantic. The decade was characterized by negative GDP growth, capital outflows, persistent fiscal problems, and hyperinflation. Inflation averaged more than 300 percent a year before 1985 and more than 1,000 percent a year between 1986 and 1990, with two episodes of hyperinflation. Overall, the 1980s were a lost decade for Argentina.
Comparing Argentina in the 1980s with Argentina today, I am struck by a phenomenal change. For Argentina, the 1980s started off with the debt crisis and the war in the South Atlantic. The decade was characterized by negative GDP growth, capital outflows, persistent fiscal problems, and hyperinflation. Inflation averaged more than 300 percent a year before 1985 and more than 1,000 percent a year between 1986 and 1990, with two episodes of hyperinflation. Overall, the 1980s were a lost decade for Argentina.
In 1989 Carlos Menem, the candidate of the Peronist (Justicialist) party, won the presidential elections. Many domestic and foreign observers thought at the time that this turn of events would result in disaster. Mr. Menem was an obscure provincial governor with a reputation for populism. It seems that one of the things he was famous for was trying to escape fiscal discipline by, in effect, printing his own money in the province of La Rioja. He had said very little during the election campaign about his plans for the economy, but the Peronist party had opposed the few sensible attempts to improve the economic situation that had been made in the year or two before the elections. In July 1989, when the change of government took place, capital flight had intensified, inflation was running at 100 percent a month, and the peso had depreciated so sharply that it was nearly worthless.
Since then, the situation has improved markedly. In 1991 and 1992, real GDP growth averaged 9 percent a year.1 Inflation fell to less than 18 percent during the full year 1992 and to less than 8 percent in 1993—the lowest rates in Argentina in more than 20 years. International reserves have recovered to more than $12 billion; investment has risen by some 25 percent a year in real terms for three years in a row, and imports have more than tripled.
Many ascribe this turnaround to the “convertibility plan,” a law passed in March 1991 that anchored the new Argentine peso to the U.S. dollar at a rate of one to one, prohibited indexation, and outlawed financing of the budget by the Central Bank. While the convertibility plan was the cornerstone of the stabilization process, it was still only one element of a comprehensive program that included fiscal, monetary, and structural reforms, some of which were already well under way when the convertibility plan was adopted. When the incoming government initiated its stabilization efforts, policies were not well coordinated and lacked credibility. As a consequence, there were renewed episodes of inflation and economic instability, but each time the authorities responded with stronger measures.
Eliminating the Fiscal Deficit
The key to the success of the stabilization effort was the elimination of the fiscal and quasi-fiscal deficits. The performance of the nonfinancial public sector improved, and the sector generated a primary surplus (excluding privatization receipts) sufficient to cover interest payments on the internal and external debt. The overall improvement in public finances stabilized the stock of public debt and restored the country’s solvency.
The public sector had run annual cash deficits of 6–10 percent of GDP throughout the 1980s—deficits that were even larger if the accrued arrears to domestic suppliers, pensioners, and provinces, as well as to foreign creditors, are taken into account. By 1991, the cash deficit had been reduced to the equivalent of 1.3 percent of GDP, although domestic arrears continued to accrue to pensioners. By 1992, the accrual of arrears had been halted and overall equilibrium achieved.2
This significant turnaround is the result of a major reordering of public finances that has involved improvements in tax administration (probably the most important single factor) and tax reforms, curbs on expenditures, and privatization, which I discuss later. (While cash revenue from privatization amounted to less than 1 percent of GDP a year in 1991–92, the privatization process has also eliminated large recurrent subsidies to the inefficient state enterprise sector.)
Reforming the tax system
The story of how Argentina reformed its tax administration is a remarkable one. Over a relatively short period, a computerized system was set up that now covers around six hundred thousand taxpayers. At the same time, the tax administration system was simplified, and cross-checks were instituted to improve enforcement, particularly of the value-added tax (VAT).
With the improvements in tax administration and an increase in the VAT rate, VAT collections increased by 4.5 percentage points of GDP between 1989 and 1992. Social security contributions rose by 1.5 percentage points of GDP over the same period. These huge increases in revenue not only enabled the government to eliminate the deficit but also permitted it to simplify the tax system by abolishing highly distortionary taxes on exports and checking accounts that resulted in disintermediation, as well as other minor taxes that were complicated and difficult to administer.
Public sector expenditures were kept under tight control. Between 1990 and the end of 1992, approximately one hundred thousand jobs were eliminated in the central government, and around two hundred and thirty thousand—mostly in the areas of education and health care services—were transferred to the provinces. In this way, the provinces were given increased responsibility that reflected the increased revenues they received as a result of the revenue-sharing system. The government also secured an agreement from the provinces to shift some general revenues to the social security system. At the same time, major reforms, including substantial layoffs, were carried out in several of the public enterprises prior to privatization. Indemnity payments were made with privatization proceeds.
Downsizing the public sector did not reduce current expenditure in relation to GDP. Instead, the resulting “room” was used to raise salaries, which had been eroded by hyperinflation, so that the public sector was once again able to attract competent workers.
Complementing this fiscal housecleaning was the implementation of what is essentially a currency board arrangement. The Central Bank was effectively stripped of its discretionary powers. It was no longer required to finance the public sector deficit, and it stopped financing the provincial banks (Central Bank rediscounts to provincial banks had previously enabled the provinces to run up large deficits). In fact, under the convertibility plan, the Central Bank has almost no discretion to extend domestic credit; its main function is to intervene to maintain the fixed exchange rate. As a result, the money supply is determined by capital flows: inflows increase the money supply, and outflows cause it to contract.
With the adoption of the convertibility plan and other reforms, Argentina experienced large capital inflows that not only offset a large deterioration in the balance of payments current account but also boosted the money supply by 100 percent in 1991 and 60 percent in 1992. Even with this dramatic remonetization, however, the main monetary aggregates remained well below the levels of the early 1980s in terms of GDP.
Argentina’s successful stabilization effort has been backed by far-reaching structural reforms. One of the most extensive of these has been the restructuring and selling off of virtually the entire state enterprise sector.
Over many years, Argentina developed an extremely large public enterprise sector that involved itself in almost every economic activity. This involvement was particularly pervasive in the energy sector, where state enterprises produced almost all of the oil, natural gas, and electricity. State monopolies also dominated the airlines, railways, ports, waterworks, and petrochemical and telecommunication industries. The government of President Menem restructured and privatized state enterprises decisively and rapidly.
Let me give some examples of this process. Argentina has an old steel mill, built in the 1950s, called Somisa. This mill employed around 12,000 workers in the late 1980s. By the time it was privatized in 1992, the number of employees had been reduced to around 4,000 (it has since fallen to fewer than 3,000). Another example is the railway system, which had been decapitalized over many years and which employed around 60,000 workers at the end of the 1980s. Since the restructuring, employment has been reduced to under 30,000, freight lines have been leased to private entrepreneurs, and lossmaking passenger services have been either shut down or turned over to the provinces.
Yet another example is the oil sector. The giant state monopoly, Yacimentos Petrolíferos Fiscales (YPF), once ran all the oil exploration, refining, and distribution operations in the country. Early in the reform program, rights to develop many of YPF’s existing oil fields were auctioned off to the private sector. These auctions not only raised capital to facilitate the restructuring of YPF but also resulted in sharp increases in production from the newly privatized fields. Employment at YPF has declined from over 50,000 in 1989 to around 12,000; about half the reductions represent workers who have gone to work for private oil companies.
In a relatively short period, a large number of state enterprises have been sold off to the private sector, including airlines, electric companies, telephone and telecommunications companies, oil fields, refineries, petrochemical companies, defense industries, natural gas pipelines and distributors, and water and sewerage systems. Some main roads have been turned into private toll roads, and the private sector is expected to develop new road infrastructure. The biggest state enterprise of all—YPF—will be privatized in the near future.3
Privatization represents a fundamental change in a country that for decades followed the path of state capitalism. As already noted, privatization has generated cash resources equivalent to about 1 percent of GDP a year over the last two or three years, and at the same time it has enabled the government to pay off around $8 billion (face value) in external debt. Privatization and the associated restructuring have also led to important gains in efficiency. One Argentine minister delights in the story of an electric company serving Buenos Aires, which was losing some $200–$300 million per year yet was sold for around $1 billion when it was privatized. If the private sector is prepared to pay that kind of money, it clearly expects to be able to make profits of at least $200 million per year by improving the company’s administration.
Privatization has also enabled sectors that were starved for investment when Argentina lost its creditworthiness to obtain resources to finance new investments. For example, Argentina’s privatized telephone companies are now engaged in a massive new investment program that will greatly increase their capacity. This investment has been needed for many years but has become possible only since privatization.
The government tackled the problem of wage inertia by outlawing indexation in all forms and introducing a system that requires the Ministry of Labor to approve all collective wage contracts. Wage increases are approved only if they are justified by increases in productivity. The new system has been applied strictly, particularly to collective contracts that cover a wide range of industries or regions for which generalized productivity gains are hard to document. This policy has ensured wage discipline during the stabilization phase.
External sector liberalization
The Menem Government has continued the process of reducing tariffs and opening the economy to foreign competition that was begun under President Alfonsin. In 1991, Argentina became a signatory to the Treaty of Asuncion, which established MERCOSUR—the common market of the four Southern Cone Latin American economies. The average tariff had been reduced to about 13 percent by mid-1992, although more recently, with the raising of the statistical tax, it has increased to about 20 percent, ranging from zero on capital goods to 30 percent on consumer goods and cars. All quantitative restrictions have been eliminated, except for of those on the automobile industry, which is still protected by quotas equivalent to around 10 percent of domestic production.
Currency convertibility, which allows the U.S. dollar to be used in virtually all domestic transactions and provides complete freedom for capital movements, is another important way of opening up the economy. Currently, Argentina has no restrictions of any kind on current or capital transfers and maintains very narrow spreads for the Central Bank’s intervention rates.
As regards the deregulation of the domestic economy, Argentina used to have a string of government regulatory agencies—such as the grain and wine boards—which had their own separate taxes and monopolistic procedures. All of these boards have been abolished. Ports have been opened up and privatized, and restrictions on the use of domestic and foreign shipping have been lifted, reducing freight costs. Internal and interprovincial freight restrictions have been eliminated. Even the post office monopoly has been lifted.
Argentina’s macroeconomic and structural reforms have been accompanied by a series of policy measures aimed at restoring the country’s external and internal creditworthiness. At the time these measures were implemented, Argentina had been accumulating arrears to its commercial bank creditors since 1988. It was also in arrears with the Paris Club and was no longer eligible for international credit. To support the convertibility plan, the government negotiated a stand-by arrangement with the IMF that was later turned into an extended arrangement and then proceeded to restructure both its Paris Club and its commercial bank debt. The latter was first reduced, through the privatization program, from some $35 billion to around $27 billion; it was then consolidated and reduced through a Brady operation, so that the face value will be cut by a further $2.5 billion and the flow of interest payments by approximately $3 billion over the 30-year lifetime of the operation. As a consequence of these efforts, Argentina has restored its international creditworthiness.
The government has also undertaken a program to reestablish its domestic credit and address the large volume of domestic arrears accrued during periods of hyperinflation. Chief among these arrears were those owed to pensioners in cash or consolidation bonds and those owed to provinces and suppliers, which were mostly covered with long-term bonds.
The Overall Results
Since 1991, when the convertibility plan put the entire reform program into focus, Argentina has experienced large capital inflows, a sharp recovery in domestic demand, and an upsurge in economic activity. Before 1990, domestic demand had been repressed by declining real wages and employment and import restrictions. In 1991–92, with the slowing of inflation, the reappearance of credit, and the recovery in imports, consumption rebounded by some 10 percent a year in real terms and investment by 25–30 percent a year. But the economic recovery had started from a very low point, so that even this improvement was not enough to restore investment to the levels of the early 1980s.
With the boom in the domestic economy, overall employment rose by about 4 percent between 1990 and 1992, more than absorbing the labor that was shed as a result of the restructuring of the public sector. Thus, it was possible to dramatically reduce public sector employment without a major deterioration of social conditions. I cannot say that there has been no deterioration, because the unemployment rate did rise by around 1 percentage point in 1992, but this increase was in part the result of the rapid growth of the labor force that occurred as people who had previously been too discouraged to look for work began seeking employment.
In the initial phase of the program, domestic savings declined sharply and exports stagnated, for several reasons. World prices and demand for Argentina’s main commodities (agricultural products, petrochemicals, and steel) were weak as a result of the recession in industrial countries, although strong domestic demand absorbed some of the surplus. While exports stagnated, imports tripled, and the external current account deteriorated sharply, falling from a small surplus in 1980 to a deficit of around $8 billion in 1992, or 3.5 percent of GDP.
Despite the exchange rate anchor, inflation remained above industrial country levels for an extended period. In 1992, consumer prices rose by around 18 percent.4 Since the convertibility plan was adopted and the exchange rate anchored, consumer prices have risen by a cumulative 50 percent, and the Argentine peso has appreciated by about 30 percent in real effective terms, although one third to one half of this increase has been offset by the effects of tax changes and deregulation. The price increases have been concentrated primarily in the nontraded goods sectors, so that while the consumer index rose by a cumulative 50 percent, wholesale prices rose by less than 10 percent during the same period. This behavior was caused by the strong growth in domestic demand for nontraded goods, which have not been subject to the discipline of import competition.
Aware of the importance of maintaining international competitiveness, the Argentine authorities have been shifting the burden of taxation away from production toward consumption and reducing exporters’ costs by, for example, eliminating export taxes and lowering taxes on items such as diesel fuel. To encourage investment, import duties have been eliminated on capital goods, and a subsidy has been introduced on capital goods that are produced domestically.
Argentina’s new economic model is forcing a radical restructuring of production. For many years, Argentina has been a closed economy, with a very low ratio of foreign trade to GDP, but at the same time the country’s highly diversified industrial production is equivalent to some 27 percent of GDP. Faced with import competition, the industrial sector is being forced to restructure and improve productivity rapidly. Since the adoption of the convertibility plan, average real wages in the industrial sector (one of the few sectors for which such information is available) have declined by around 11 percent, and many industries have been shedding labor. Productivity throughout the economy has been rising by around 4 percent a year. These rapid productivity gains will help maintain international competitiveness, and as investment in the nontraded goods sectors accelerates, relative prices for these items are expected to fall.
Where does Argentina go from here? There are two main policy objectives at this point: (i) to lower inflation to industrial country levels; and (ii) to increase domestic savings, reducing pressure on the external current account. These objectives are being pursued through a strong fiscal effort and additional structural reforms. The fiscal effort is expected to increase the overall surplus in 1993, raising government savings and preparing the way for a major reform of the social security system. This reform will include gradually raising the retirement age from 55 for women and 60 for men to 65 for both; reducing average pensions by using the last ten years of earnings, rather than the last three years, as the base period for determining benefits; and allowing employees to apply their obligatory 11 percent employee contribution to private capitalized pension funds. These new capitalized funds should help raise overall savings, improve efficiency, and develop the country’s capital market.
Labor market flexibility is another area that needs attention. With a fixed exchange rate, it is important to increase labor flexibility so that enterprises can respond to the new competitive forces and opportunities and raise overall productivity. Thus, one important initiative will involve labor market reforms.
Argentina has achieved a great deal in the last few years through its bold, wide-ranging program of domestic reform. Inflation has been brought under control, growth has resumed, and the public sector is once again solvent. The country has also benefited from the decline in world interest rates and from the capital inflows that have resumed after a decade of capital flight. Argentina needs to keep inflation down to international levels, raise domestic savings, increase exports, and maintain net capital inflows over the medium term in order to sustain rapid growth. These items will be at the top of the country’s economic agenda for the next few years.
The Gambia, a small country on the west coast of Africa, is very different from Argentina. It is a small economy of some 850,000 people, most of whom live in rural areas. Some 60–70 percent of all Gambians earn their living from agriculture, and the level of human capital development is low. The enrollment rates in both primary and secondary schools are low, resulting in a poorly trained and inefficient labor force. The share of agriculture in GDP is around 20 percent; that of industry, about 12 percent; and the rest is accounted for by services.
The main difference between the reform experiences of Argentina and The Gambia lies in the fact that Argentina is to some extent a closed economy, as Martin Hardy has indicated, and can rely on its own resources. By contrast, African countries such as The Gambia must rely not only on their own resources but also on gaining the confidence of investors outside the country. Probably for this reason, the supply response of the economy to reform seems to have been far more protracted in The Gambia than in Argentina. Despite this and other differences, however, the two countries have had to follow the same difficult path toward economic adjustment.
The Economic Background
The Gambia became independent in 1965. For ten years it did reasonably well, but then the focus of domestic policy shifted to expanding the public sector. By the mid-1980s, this policy had led to a major crisis, which was exacerbated by exogenous factors, including severe droughts that affected the production of the country’s primary cash crop, groundnuts. All small, open economies that produce only one type of good are certain to have difficulties sooner or later. The Gambia is a typical one-product, small, open economy: 70 percent of its people are involved in the production of groundnuts, and most of the rest of the population works for the government. The Gambia has few natural resources. It only has plenty of people.
Until recently, the rate of population growth was thought to be about 3.4 percent, but the latest census (released in mid-June, 1993) shows that the rate is actually 4.1 percent, which is very high. This growth is the result not only of natural causes but also of migration flows. When even a few people from neighboring countries descend on such a small economy, the rate of population growth can climb, straining government services and agricultural resources and creating security problems. The constraints to economic growth in this situation are formidable.
Producer prices for groundnuts in both the domestic and world markets declined substantially during the late 1970s and early 1980s, but it was primarily inappropriate domestic policies that were responsible for The Gambia’s adjustment problem. In the late 1970s, the government increased civil service employment by 250 percent and simultaneously expanded the domestically financed component of investment expenditure, backing projects that were largely unproductive. At the same time, government commercial borrowing from abroad increased.
The decline in agricultural prices, the fixed exchange rate, and, in some years, bad weather together contributed to a weak economic performance. In the face of worsening terms of trade and rising domestic inflation associated with budgetary deficits, the fixed nominal exchange rate led to an increasingly overvalued real exchange rate. Thus, exporters had no incentive to surrender their foreign exchange proceeds to the banking system, resulting in increasing leakages of foreign exchange earnings. Exporters began to deal instead in the booming parallel economy and to sell their export earnings to neighboring countries. As a result, a vicious circle was created: the tax base was reduced, and the budget deficit widened even more. This situation reached crisis levels in the mid-1980s; by 1985, gross official reserves had fallen to only SDR 1.4 million, the equivalent of less than a week’s imports.
The Reform Programs
At this point, the country turned to the IMF, adopting programs supported by arrangements under the structural adjustment facility (SAF) and later on under the enhanced structural adjustment facility (ESAF). The main objectives of the programs supported by the SAF and ESAF arrangements were macroeconomic stabilization and the reduction of structural rigidities. The IMF’s experience in The Gambia has demonstrated that if these objectives are not pursued together, the adjustment cost is likely to be high, and the reform program is likely to be unsuccessful.
In the early 1980s, The Gambia attempted several adjustment programs, some of them with IMF support. However, these early programs addressed neither the exchange rate nor the structural rigidities of the economy. The results were a tremendous disappointment to the government, because the programs consumed valuable political capital without generating positive results. Thus, starting in the mid-1980s and with the support of the IMF and other donors, The Gambia initiated far-reaching macroeconomic and structural reforms that have turned the country into a success story, an example of structural adjustment in Africa that worked. Significantly, the country has managed to weather substantial exogenous shocks since initiating the reforms and has established the foundation for a sustainable expansion in output.
The adjustment strategy that was adopted had three main objectives. The first was to restore an appropriate structure of relative prices, and thus strengthen economic incentives, by (i) adjusting the exchange rate so that it was closer to its equilibrium level; (ii) removing government interventions in the economy; (iii) liberalizing trade arrangements in agriculture; and (iv) freeing agricultural producer prices. The second was to establish and maintain stable macroeconomic conditions through fiscal discipline and restrained growth of the monetary aggregates in order to reduce inflation and support exchange rate policy. The third objective was to complement macroeconomic policies with structural reforms that would improve the environment for private sector development and, in the process, to reduce the costs of adjustment.
These reforms were not undertaken in sequence but rather were largely combined in an interlocking system. What determined the sequencing and pace of the reforms was simply the government’s ability to implement them effectively. While all the reforms were desirable, only a few could be undertaken simultaneously because of the weaknesses in the government’s ability to manage its economic policy and implement reforms.
External sector reforms
In January 1986, the currency was devalued and an interbank system was set up to determine the exchange rate level. The currency depreciated by 57 percent in nominal effective terms and by 44 percent in real effective terms in 1986. While the real effective exchange rate has fluctuated somewhat in subsequent years, it is currently at the level it reached in late 1986. The Gambia now has a flexible, market-based exchange rate system. Under this system, the exchange rate of the dalasi (the Gambian currency) is determined by the supply of and demand for foreign exchange. The Gambia has only three banks, so its success in this area seems to cast doubt on the myth that a country with a very small banking system cannot sustain a market-based exchange regime because a monopoly might corner the market. The exchange rate policy was supported by monetary policy reforms and a tightening of the stance of financial policies. In particular, in late 1985 and early 1986, the government lifted the controls on interest rates and set up a system of auctioning treasury bills.
As the country deepened its foreign exchange market, the Exchange Control Act, which contained numerous restrictions on both current and capital account transactions, began to seem increasingly irrelevant. Although the restrictions were on the books, nobody paid much attention to them. The authorities came to recognize that unless the fundamentals of the economy were right, any efforts to enforce exchange controls would be futile. Thus, the provisions of the act were suspended in January 1986. The act was formally repealed in November 1992, so that current and capital transactions were essentially liberalized soon after the introduction of the market-determined exchange rate system.
Since April 1990, the foreign exchange market has been deepened by the establishment of foreign exchange bureaus and The Gambia’s increasing importance as an importer and reexporter of consumer goods. The market now includes not only banks but large numbers of informal traders. The Gambia’s reforms, and especially the establishment of a market-determined foreign exchange rate, have encouraged regional trade flows. The country is a major entrepot for regional trade, because most of the neighboring economies still have high trade barriers and numerous controls on foreign exchange transactions. The Gambia is literally wedged into Senegal, for example, and it is often far cheaper for the Senegalese to buy goods in The Gambia than at home. The same is true for people from Chad, Guinea, Niger, and Sierra Leone. Buyers purchase imported goods in The Gambia for reexport to countries as far away as Mauritania and sometimes Nigeria.
Finally, the trade system has been liberalized. Soon after the introduction of a flexible exchange rate system in January 1986, tariffs were lowered, and specific import tariffs were converted to an ad valorem basis. In addition, the tariff rates on some of the most sensitive goods in the reexport trade were reduced significantly. The export taxes on groundnuts were eliminated in 1989, and the monopoly of the Gambia Produce Marketing Board (GPMB) in the market for groundnuts was lifted in January 1990. At the same time, a sales tax introduced in 1988 has helped reduce the government’s dependence on taxes on international trade.
The initial currency devaluation and the subsequent maintenance of the exchange rate at a market-determined level have enabled the government to raise agricultural producer prices in real terms. In order to induce exporters to surrender their foreign exchange earnings, especially for groundnuts, to the banking system, the official groundnut producer price was initially set higher than the export price. However, within two years the government eliminated this implicit subsidy. Then, as world prices for groundnuts fell, the domestic producer price was lowered, so that between 1985 and 1992 the real producer price declined by some 27 percent, in line with the declining world market price. By then, the GPMB no longer had a monopoly; the GPMB is scheduled to be privatized by the end of 1993, and crop marketing will thus be left entirely to the private sector.
In terms of macroeconomic policies, the government’s first priority was the budget deficit, which had reached 10 percent of GDP in 1985. The government needed to boost revenues, lower expenditures, and change the tax system in order to strengthen economic incentives and improve the quality of expenditures. The necessary measures combined elements of macroeconomic stabilization and structural reform.
The deficit was lowered from 10 percent of GDP in June 1985 to around 2 percent in June 1992. If special expenditures for the restructuring of public enterprises and the takeover of nonperforming loans accumulated by government-owned commercial banks are included, the deficit was 17 percent of GDP in 1987 and 4 percent in 1992. The budget for 1993 is likely to involve a deficit on the order of 2 percent of GDP, excluding grants. If grants are included, the budget balance shifts to a surplus of around 3 percent of GDP. The primary budget balance, excluding grants and foreign-financed investments, increased from a surplus of about 2 percent of GDP in 1986 to a surplus of about 7.5 percent in 1992. This surplus has allowed the government to make sizable net repayments to the banking system. In turn, the rate of growth of domestic credit has slowed without undermining the legitimate financing needs of the private sector.
The reduction in the deficit was the result in part of an improvement in the ratio of government revenue to GDP and in part of a reduction in expenditures relative to GDP. On the revenue side, the currency devaluation of 1986 and the expansion in economic activity since then (the overall growth rate rose from a negative figure in 1985 to about 3.4 percent per annum thereafter until 1992) provided a boost to government revenue. Per capita real incomes overall did not rise much, but this stagnation is related to the drought that has affected agricultural output in Africa since the late 1980s. If agriculture is excluded, the average rate of growth of real GDP rises to 4.4 percent a year from 1985 to 1992, suggesting that there have been significant gains in real per capita incomes in urban areas.
The expanded tax base has also allowed the government to change the tax system to strengthen economic incentives and promote equity. First, the government’s excessive reliance on taxes on international transactions was reduced by cuts in import duties. Second, a 10 percent sales tax was introduced in 1988 on both domestic and imported goods and services, and export taxes were eliminated in 1989 to remove anti-export bias. Third, personal income tax rates were reduced from 10–75 percent to 0–35 percent. At the same time, the brackets were widened in order to strengthen economic incentives without necessarily lowering the revenue yield. The ratio of income tax collections to GDP remains at about 2–3 percent; thus, while the reforms have been neutral from that point of view, they have produced enormous gains in terms of efficiency. Nonetheless, the tax system still relies heavily on indirect taxes on international trade, as the sales tax applies to imports as well as domestic goods.
The ratio of total domestic revenues to GDP, including a small amount of nontax receipts, rose from less than 20 percent in 1986 to 23 percent in 1989, but it has since declined by about 2 percentage points because the government has used its discretionary power to provide exemptions from customs and other duties in order to promote economic activity, particularly in the manufacturing sector. However, in early 1992, the authorities realized their mistake and eliminated all discretionary incentives. Investment incentives are now based entirely on the 1988 Development Act, and the government no longer has discretionary power to grant additional tax incentives.
Total government expenditure, on the other hand, was reduced from 27 percent of GDP in 1986 to 25 percent in 1992. This reduction has been achieved largely by cuts in current expenditure and, to a lesser extent, investment. The domestically financed component of investment expenditure has been reduced from 4 percent to 1 percent of GDP, but at the same time the government has expanded investment financed by foreign grants and concessional loans. In addition, although overall government investment expenditure declined from 7 percent to 5 percent of GDP between 1985 and 1992, the quality of investment has improved, as evidenced by the increase in real GDP. This improvement is attributable to measures taken with the assistance of donors such as the World Bank that have established strict criteria for selecting investment projects in order to minimize unproductive expenditures.
With regard to recurrent spending, the government has undertaken a substantial reform of the civil service that has reduced public sector employment by 10–20 percent since 1985. This reduction has been difficult for a democratic government such as The Gambia’s. Also, civil service salary levels were not raised in nominal terms between 1985 and 1989, resulting in a substantial decline in real wages. Even since 1989, salary levels have been increased in two increments of just 6 percent each, which is still very low in relation to inflation. However, the civil service has accepted these “austerity measures” in the spirit of cooperation, believing that everyone must contribute to the cost of adjustment.
As regards other current expenditure, the government has eliminated subsidies, which in recent years have sometimes been as high as 10 percent of GDP (including the large subsidies to groundnut producers). Adding in the cost to the government of assuming non-performing bank loans and public enterprise debts to the Central Bank, the subsidies amounted to even higher levels in 1987, 1988, and 1990. But these outlays were one-time phenomena. There are no longer any budgetary subsidies for agriculture or state enterprises, and all prices paid by public entities are determined on the basis of commercial criteria. This part of the reform was assisted by a major restructuring program that included the privatization of public enterprises.
Public enterprise reform
What has been done in the public enterprise sector? Prior to 1986, there were 34 public enterprises in the state sector, 19 of them fully owned by the government. Some 22 enterprises have now been either liquidated, sold, or leased to the private sector. Of the fully government-owned enterprises, four remain in the government’s portfolio, including the Central Bank. The government has achieved these reductions by avoiding activities the private sector is better suited to perform. The authorities raised little money in this divestiture process, because the public enterprises were not sold for full and immediate cash payments. Nonetheless, the government did bring in some revenues—on the order of 1–2 percent of GDP—and also saw great improvements in the efficiency of the enterprises it sold.
The enterprises that have been restructured include the public utilities company, which distributes water and electricity and operates sewage facilities. This company has been leased out to the private sector for the next ten years; beginning in late 1993, the private firm that operates the company will begin determining electricity tariffs on the basis of commercial criteria, although the government will continue to own the basic electrical generating facilities. The provision of electricity has been problematic in the past, in part because the company’s limited capacity could not meet demand and in part because of inefficiencies, poor management, and other problems. The result has been that every major company and many individuals have had to maintain their own generators, adding to the costs of production and to household expenses. A larger and more efficient enterprise for the distribution of electricity should reduce production costs and help create economies of scale.
The main monetary policy reforms have included the following:
A more restrictive credit policy and the lifting of interest rate controls;
The introduction of treasury bills;
The shift from a system of credit ceilings for the banking system as a whole to an indirect system of monetary control;
The introduction of Central Bank financial instruments; and
A revision of the Central Bank Act to strengthen bank supervision and minimize discretionary interventions by the government.
In an effort to reform the government-owned commercial bank, The Gambia Commercial and Development Bank (GCDB), which had been the largest commercial bank in The Gambia’s banking system, the government assumed the bank’s nonperforming assets in 1989 and 1992. The GCDB was finally sold to the private sector in June 1992. The government has encouraged the entry of new banks into the banking system and has taken other measures that should lead over time to a reduction in the spread between bank deposit and lending rates. Interest rates have been positive in real terms throughout the period since 1986, supporting the exchange rate policy. However, some people have argued that the government has been overly conservative in maintaining high real interest rates, which may have inhibited the expansion of credit to the private sector and caused other problems.
In relation to other structural reforms, in late 1992 the government undertook an important long-term initiative to improve the public sector’s management capacity through training and other programs. This initiative reflects the authorities’ recognition that unless they strengthen their own institutional capacity, they cannot properly manage the ongoing adjustment process. They have also tried to promote productive agricultural activities in areas other than groundnuts, contributing to a substantial change in the composition of GDP and the diversity of exports. Groundnuts were once the main export commodity, but they now account for only around 10 percent of total foreign exchange earnings from exports of goods and services. Tourism has become the main source of foreign exchange earnings, but export trade has expanded substantially to include other nontraditional horticultural products.
Overall, a number of factors have contributed to the success of The Gambia’s adjustment efforts in recent years. The first is the government’s strong political commitment to the reform process and its willingness to modify policies in light of changes in the external and domestic environments. For instance, policies have been tightened on a number of occasions to ensure the program’s continued success. The second factor is the donor community’s support, in the form of concessional financial and technical assistance. The Gambia relies heavily on foreign assistance, which now constitutes something like 20 percent of GDP, one third of it technical assistance. The third factor is the authorities’ willingness to attack virtually every area of economic policy. The results in some areas, such as growth, have not been as strong as they could have been, but not because of any lack of effort and commitment.
Finally, let me briefly recap The Gambia’s current economic situation and comment on its agenda for future reforms. Overall, macroeconomic performance has been very good. Inflation has come down to around 4–5 percent in 1991–92. GDP is growing reasonably well. The external current account deficit, excluding grants, has been reduced from a peak of 22 percent of GDP in 1987 to 14 percent in 1992; including grants, the current account is currently in a modest surplus. The overall balance of payments has been in surplus since 1985, allowing the government to eliminate external payments arrears and build up its foreign reserves. The debt-to-GDP ratio has fallen from 113 percent to 86 percent and the debt service ratio from over 100 percent to just 22 percent.
These figures represent an enormous improvement in The Gambia’s economic situation. However, much remains to be done. The country faces major problems in terms of the fragility of its macro-economy and its continued heavy dependence on re-exports, which are sensitive to external and especially to regional developments. The economy’s output base is also fragile. The main emphasis of future policy must be on diversifying the economy’s output and export base in order to reduce the country’s heavy dependence on reexports and external assistance.
Since Martin Hardy’s presentation has been very fair in pointing out the achievements of Argentina, I will concentrate on what the government sees as the main weaknesses of the current situation. These issues have raised concerns among potential investors and caused some observers to fear that Argentina’s new reform program could collapse.
First, there is the problem of real exchange rate appreciation. The record over time shows huge fluctuations in Argentina’s exchange rate levels: periods of extreme overvaluation are followed by drastic real depreciations, which in turn are the result of repressed inflation, a lack of fiscal discipline, and the use of nominal anchors that are not supported by the appropriate economic fundamentals. Commonly, the fiscal accounts have been relatively balanced, but there have been serious quasi-fiscal problems—that is, deficits—in the provinces, which eventually required assistance from the Central Bank.
Many policymakers believe, however, that the reform process initiated by the present government is different from the other reforms Argentina has initiated, because the government has learned that fiscal discipline is a necessary condition for successful adjustment. Also, at this stage of Argentina’s current reform program, the government is attempting to shift its focus from aggregate demand to broader supply-side questions. There is concern about developments in productivity, because increased productivity is probably the necessary condition for successful overall reform.
Let me now touch briefly on the behavior of relative prices seen as the ratio of wholesale price inflation to consumer price inflation. During the past two years, wholesale price inflation has not been significantly higher in Argentina than in the United States. Argentina has even demonstrated that it has the potential to achieve negative rates—that is, actual deflation—occasionally. However, although the high rate of consumer price inflation has declined somewhat, it has not yet reached the low levels seen in developing countries generally or in the United States. For only the first time in 20 years, a single-digit figure for the cumulative annual price increase seems to be a reality. This gap between the consumer price index and the wholesale price index can largely be explained by two factors. First, gains in productivity have led to wage increases in the manufacturing sector without any corresponding increases in producer prices. Ronald McKinnon spoke earlier about this phenomenon, which occurs in every country where a process of sustainable growth has started. The growth rates show that Argentina has without a doubt experienced an increase in productivity, in part as a result of excess capacity and in part as a result of the reforms, which have reduced the relative price of investment with respect to consumer goods.
Because wages in the service sector tend to move in line with those in the manufacturing sector, and since productivity gains are normally lower in the service sector, there has been a structural trend for prices in the service sector to increase more than those in industry. So the behavior of relative prices over the last two years should not be surprising. The greater the productivity increases in the industrial sector, the sharper the relative price increase in the service sector.
These developments do not entirely explain the gap in relative prices, however. The other part of the explanation lies in the consumption boom that followed stabilization. While this boom will tend to disappear as competition pares down the margins, the end of the boom will not mean the end of the differential. I agree completely with Mr. Hardy that the main objective of Argentina’s current policy should be to achieve convergence of these different inflation rates.
Another development that has had both positive and negative effects is the renewed inflow of capital. The government continues to pay special attention to ensuring foreign exchange convertibility in its purest form. In fact, Argentina is a textbook example of a fixed exchange rate system. Along with just a few other countries in the world—Panama and Estonia, for example—it operates on a dollar standard. Because the inflow of capital determines the current account balance, that balance is perceived as a result of the capital inflow and not as an independent phenomenon. And while external savings are welcome, the government does not want them to be a substitute for domestic savings, especially in the medium and long term. Investors, and even Argentines who repatriate capital, are not myopic; if they invest, it is because they share the same knowledge and information that domestic residents have. At some point, Argentina could in fact attract more capital inflows than it requires to remain solvent, but if there is a crisis of confidence, capital will flow away rapidly, and the cost in terms of credibility will be high.
However, the country can be fairly optimistic on these matters, for two reasons. First, in today’s international environment, the conditions prevalent in the markets are expected to remain more or less the same for some time. In particular, international inflation is not expected to increase greatly; relatively moderate rates of growth are anticipated in the industrial countries for the next few years; and the environment should be characterized by relatively high liquidity. Therefore, if a country like Argentina, which is an emerging market for investors, continues to improve its economic structure and proves itself a suitable country for investment, there should be no reason for foreign investors to lose confidence in it. Argentina ought to continue to have access to capital from abroad. However, given that in the Argentine system there is no such thing as a foreign exchange gap, the government does not want to overuse foreign credit to finance consumption. The key to avoiding the excessive use of foreign exchange for consumption expenditures is to increase the domestic savings rate.
In addition, contrary to what is sometimes stated, the Argentine external sector is not extremely weak. In fact, according to some indicators, it is stronger than the corresponding sectors in, for instance, Chile and Mexico. Argentina can be seen as a Mexico that started later or as a Chile that started much later. For example, Argentina’s international reserve level now equals 11 months of imports, as compared with Chile’s, which equals 9 months, and Mexico’s, which equals 6. The current account deficit of the balance of payments represents less than 3 percent of GDP, compared with 3.2 percent for Chile and 7 percent for Mexico. And the external debt is equivalent to 25 percent of GDP, compared with 45 percent in Chile and 40 percent in Mexico.
The only indicator that is less favorable in Argentina is, as Mr. Hardy said, exports. At only 6.6 percent of GDP, Argentina’s export position is less than favorable. The ratio of external debt service to exports is 38 percent, compared with 31 percent in Mexico and only 20 percent in Chile. The relatively low level of Argentine exports relative to GDP is not a new phenomenon, and reversing this situation will probably take some time. At the same time, stabilization has resulted in an increase in domestic consumption, which naturally reduces exports. Additionally, the terms of trade are at their lowest level of the century, according to estimates by the Economic Commission for Latin America. Under these conditions, it is surprising that the level of exports has not declined, but in fact it has increased slightly. And I want to emphasize that the difference between Argentina and countries like Chile and Mexico is that Chile and Mexico began their structural reforms much earlier and thus have already benefited from their decision to invest in new export business. Argentina is just beginning to invest in its exporters.
My final point involves the most important question for Argentina’s economy today: what can be done to help increase the country’s savings rate? Some aspects of government policy will be crucial, and there will be other, endogenous influences. Unfortunately, there are no real indicators for measuring the potential effects of government action.
Some of Argentina’s neighboring countries, like Chile, have raised their savings rates from among the lowest in Latin America to among the highest, a process that required several years. But once Chile’s savings rate did rise, it helped the country become a very serious exporter. Chile’s social security reform may also have helped not only to increase savings but also to improve the quality and the terms of those savings. Argentina is following Chile’s example in this matter, although perhaps in a less dramatic fashion, because the Argentine Congress has not yet made the move from the state system to private pension funds mandatory. However, although the new system will be voluntary, the incentives should be sufficient to make most people want to move into the private pension system, increasing the national savings rate by 1–2 percent of GDP. One consequence of this reform will be the phenomenal redistribution of income Argentina will experience, because one generation will have to finance its own pensions as well as the pensions of those who have already retired. This factor is likely to raise the overall savings rate.
A large number of Argentines pay very low taxes—for example, the self-employed and many professionals, who enjoy relatively high incomes but are taxed little or nothing because the personal income tax system is not working properly. The government plans to tighten up the system to reduce tax evasion, so that tax rates do not have to be increased and can possibly be lowered over time to reduce the costs of employment.
The government’s projections also indicate that government consumption will decline, not in absolute terms, but as a percentage of GDP. The tax system, once everyone begins paying taxes, is expected to be fairly neutral on savings, because it is based on a small number of taxes. There will be a value-added tax (VAT) that effectively taxes consumption, because in Argentina outlays for investment are fully deductible. The income tax also avoids burdening investment, since the only type of capital income that is subject to this tax is corporate profits. Even in this case, there is no double taxation: the tax is levied only on firms, not on dividends.
There will be other developments as well. The relation between savings and growth, for example, works in two ways. There is a feedback mechanism, as investment links savings with growth, and growth with savings. Overall, it is hard to assess what will happen in the important area of savings. While the investment gap during the rest of this decade is likely to fall, it is unlikely to be reduced overnight. Rather, it will probably decline at the rate of 1 percentage point per year. However, this path is probably sustainable and may allow Argentina to reach the year 2000 with 1–2 percentage points of GDP in external savings.
Momodou Clarke Bajo
There are no real points of contention between myself and Michael Hadjimichael on the situation in The Gambia. It is a fact that macroeconomic stability has been restored in The Gambia because the government has adopted appropriate policies, including a free market approach in the allocation of resources and appropriate monetary and fiscal measures. Mr. Hadjimichael also mentioned that external donors have played a substantial role. However, notwithstanding the progress The Gambia has achieved in terms of stabilization, the economy remains vulnerable to the vagaries of the climate and to unfavorable external developments. It is especially sensitive to regional developments, as Mr. Hadjimichael noted, because of its many commercial transactions with neighboring countries. As a result of these various problems, economic performance relative to population growth has not been sufficient to create a satisfactory increase in average real per capita incomes. Real GDP has grown by an average rate of 3.4 percent in the six years between 1985–86 and 1991–92. However, given the high rate of population growth and the low level of growth in the agricultural sector, the overall economic growth rate has not been sufficient to make much impact on the standard of living of the average Gambian, especially in rural areas.
It is my view that The Gambia’s low level of output growth can be explained by the low levels of investment and national savings. Gross investment in The Gambia is estimated to have increased from 9.6 percent of GDP in 1986–87 to 20.6 percent in 1989–90, but it has declined to an estimated level of 19.2 percent of GDP in 1992–93. Although the domestic savings rate has shown some improvement, it is still only around 8 percent of GDP. For high and sustained economic growth, such investment and savings rates are clearly inadequate.
This situation highlights an important point: the pursuit of macroeconomic stability is not the entire solution to the problem of stimulating economic growth. Attention also must be paid to the strong links between savings and investment, on the one hand, and between investment and growth, on the other. It is therefore necessary to direct current policies primarily toward improving private sector savings and investment. I mention this point simply to draw attention to some of the issues for The Gambia’s future in terms of necessary policy initiatives. If I may borrow from something Mr. Hadjimichael said early in his talk, it is clearly necessary to address more forcefully the structural problems that are deeply rooted in The Gambia’s economy. Rapid population growth, an underdeveloped human capital base, scarce natural resources, and a degraded environment are among the important factors that continue to impede additional gains in real per capita incomes.
In the immediate future, and looking forward to what the authorities are now considering, one important step is further liberalization of the financial sector. As has already been mentioned, at the commencement of its reforms, The Gambia had only three banks, the largest of which was in serious trouble. This bank has now been privatized. The need to liberalize the sector further and to encourage new entrants has become increasingly clear. The newly privatized bank has been licensed and a number of other new banks have applied for licenses.
Also critical to the process of further reform is the expansion of the financial sector into rural areas. Many policymakers believe that much can be achieved in terms of increased savings if financial services can be extended into more of the rural areas—but not through direct government intervention. Rather, commercial banks and other credit institutions must be encouraged to expand into some of those areas. A considerable amount of progress has already been made in this direction, and more is expected.
On another point, efforts are being made to introduce an export enterprise zone. Such a zone is consistent with the government’s recognition of the fact that, given the country’s small size, economic solutions must be based on export-oriented growth.
In the area of public expenditures, the emphasis has been and will continue to be on developing the human resource base. As Mr. Hadjimichael mentioned earlier, The Gambia’s human resources are underdeveloped. The illiteracy rate is around 75 percent and the rate of primary school enrollment only around 55 percent. Because of this underdeveloped base, The Gambia does not have the critical mass of trained workers necessary to seize the opportunities the present environment provides for more rapid economic growth. And it is not only the education sector that is underdeveloped, but the health sector as well.
Above all, The Gambia’s strategy with regard to future economic development is to continue to distance the government from any activity of an economic nature and to allow the private sector to play the major role in these areas. In this general spirit, the main crop marketing corporation has been privatized already, and, as Mr. Hadjimichael described, the utilities company’s operations have been privatized through a leasing arrangement with a foreign firm. These actions are the current focus of the government’s commitment to ongoing reform.
Summary of Discussion
The discussion on Argentina covered a number of issues, including unemployment as a consequence of privatization; the organization and delivery of certain public goods under the new, more privately oriented system; the exchange rate and competitiveness; and the effects of reforms on income distribution.
In discussing privatization and unemployment, several participants expressed surprise that Argentina’s large public industries have been able to implement far-reaching changes in ownership and organization without generating massive unemployment. Two explanations were offered for this success. The first was that the improved growth performance resulting from the new policies has allowed private enterprises to absorb many of the workers laid off by restructuring industries in the public sector. The second was that much of the employment in public sector industries such as railways is really “disguised” unemployment at low wages. In addition, many employees turn up for work for a few hours only and then move on to second jobs or their own small businesses. Thus, unemployment has been somewhat less serious in Argentina than many anticipated.
Discussing how industry is owned and operated, some participants argued that many of the goods supplied by publicly owned industries involve significant externalities—that is, the social returns are higher than the monetary returns. For this reason, shifting activities such as road building from the public to the private sector is certain to result in an undersupply of some key public goods. While the main speakers did not dispute this idea in theory, they drew attention to several factors that had reduced its significance in Argentina. It was pointed out, for instance, that under the former system of public ownership, the delivery of many goods was so unreliable that the goods were in effect undersupplied. But as the role of the private sector expands in Argentina, investment increases, and more capital flows in from abroad, the quantity and quality of some public services are beginning to improve.
Turning to export competitiveness, it was noted that Argentina’s inflation in 1991–92 relative to that of the United States was around 100 percent. The speakers were asked whether the real exchange rate appreciation associated with this large differential is the main reason for the relatively disappointing export performance. The lead speakers agreed that it is but emphasized again the many steps—in particular, the tax reforms—that have been taken to mitigate the effects of this loss of competitiveness. The main problem for the future, it was agreed, is that there is a clear limit on the extent to which fiscal and other cost-reducing measures can continue to provide adequate compensation for further exchange rate appreciation, especially as the economy enters a phase of somewhat less dynamic growth.
Some participants argued that Argentina’s extensive privatization program and the emergence of new, private monopolies are likely to adversely affect income distribution. However, the speakers disputed this supposition, arguing that the high inflation rates prevailing before the reforms began had always been the greatest threat to Argentina’s most vulnerable groups. The available evidence indicates that the situation for the poor has improved significantly since the economy has stabilized.
The discussion focused on three areas: the special problems faced by smaller countries in the adjustment process, the methods used to deal with the nonperforming loans of failed state commercial banks, and the types of social safety nets needed to help absorb workers laid off from civil service jobs.
It was pointed out that once an economy such as The Gambia or, for instance, the Republic of Maldives has its monetary and fiscal policies in reasonable shape, it can obtain the financing and other ingredients necessary for rapid growth. But such economies are extremely sensitive to external shocks; this fact argues for export and production diversification as key elements of reform strategies. For instance, The Gambia’s economy is exposed not only because of its traditional reliance on groundnuts but also because of the fragility of some of its new sources of foreign currency, primarily tourism and reexports. One speaker noted that the large reexport business seems to depend directly on economic distortions in neighboring countries and presumably will suffer once these countries achieve some level of economic stability. For this reason, The Gambia’s search for diversified exports must be viewed as an ongoing effort.
In terms of the nonperforming loans of failed state commercial banks, it was explained that the government of The Gambia has had less difficulty assuming these loans because only one bank is involved. The asset and liability positions of public enterprises with the bank have merely been shifted to the government account at the central bank. The bad loans have been transferred to an “asset recovery trust” that will try to collect on them, using streamlined legal procedures. The commercial bank has since been able to sell its healthy assets and liabilities to a new private company. However, it was agreed that in Africa generally, bank restructuring poses problems for interest rate policy. Government bonds transferred to banks for recapitalization should not carry overly high interest rates, which can create a problem of moral hazard. But interest rates must be high enough to enable the banks to begin earning the profits necessary to rebuild their capital.
There was a brief discussion of the types of social safety nets that are needed to help absorb workers who lose their civil service jobs. The Gambia’s Government has offered these workers a separation package that includes severance pay based on length of service; retraining; help in finding new positions; and small credits to finance new businesses. Additionally, the extended family typical of Africa—an important part of the social safety nets there—has mitigated much of the social cost of the layoffs.
The discussion ended with a recapping of the main lessons about adjustment that can be drawn from the experiences of Argentina and The Gambia. The Gambia strongly emphasizes the need for a sustained political commitment from its government and a willingness to take risks. The country’s limited administrative capacity is an important reason for not trying to do too much all at once.
The Argentine perspective was somewhat different. It was argued that while administrative capacity there is indeed an issue, the reform effort in that country needed to take full advantage of the consensus created at the end of the 1980s by the enormous public distaste for hyperinflation. The early fiscal correction was essential, and certain structural reforms—such as deregulation—were easier to implement before economic stability was established. Once the immediate crisis was over, the political debate became more rigorous and further important reforms—social security may be an example here—was more difficult to achieve. In short, while there are technical grounds for undertaking some reforms only at certain times, there may also be opportunities that must be seized if reforms are to succeed.
In July 1993, 45 percent of the share capital of YPF was placed in the domestic and international markets, and a further 13 percent was exchanged two months later against consolidation bonds issued to clear pension arrears. The cash proceeds of the sale amounted to over $3 billion.
This presentation draws on a recent paper by the author on the adjustment experience of The Gambia since 1985, The Gambia: Economic Adjustment in a Small Open Economy, IMF Occasional Paper 100 (Washington, D.C.: The International Monetary Fund, 1992).