Front Matter

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March 2003 • Volume 40 • Number 1

Finance & Development is published quarterly in English, Arabic, Chinese, French, Russian, and Spanish by the International Monetary Fund.

English edition ISSN 0015-1947

Laura Wallace


Asimina Caminis


Jeremy Clift

Elisa Diehl

Christine Ebrahim-zadeh

Natalie Hairfield


Luisa Menjivar


Lai Oy Louie


Lijun Li

Kelley E. McCollum


Kenneth S. Rogoff



Peter Allum

Francesco Caramazza

Adrienne Cheasty

Paula De Masi

Andrew Feltenstein

Paul Hilbers

Ashoka Mody

Piroska M. Nagy

Mark Plant

Thomas Richardson

Jerald Schiff

Garry J. Schinasi

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AS WE GO to press, the possibility of military conflict casts a shadow over the global economic outlook—and especially the economic outlook for the Middle East and North Africa. The March issue of Finance & Development focuses on this region, asking why so many countries have been stuck on slow growth paths for at least the past two decades, effectively sidelined from globalization and the benefits of closer economic links with the rest of the world. About 30 percent of the region’s population—one of the fastest growing in the world—lives on less than $2 a day, and the job picture is bleak, fueling social tensions and migration. In six articles, we examine the different reasons—from lagging political reforms and dominant public sectors to underdeveloped financial markets, high trade barriers, and inappropriate exchange rate regimes. The contributors conclude that the region’s best hope lies in sticking to the economic reforms that will put it back on the high growth path of the 1970s, which had been made possible by the surge in oil prices. The encouraging news is that those countries that did undertake reform in the late 1980s and early 1990s—such as Egypt, Jordan, Mauritania, Morocco, and Tunisia—and those that have undertaken reform more recently—such as Oman and Bahrain—have reaped the benefits of higher growth rates and greater integration with the world economy. But in those countries where the reform momentum has faltered, growth rates have reverted to their low averages.

Of course, the volatility and unpredictability of oil prices and revenues—and the worry about what to do when the oil runs out—pose major challenges for all oil-exporting countries, not just in the Middle East. We read in “What goes Up …” that policymakers would do well to follow some prudent guidelines—in particular, trying to avoid a stop-go pattern of expenditure related to oil price movements and taking a longer-term view on the use of exhaustible oil resources. But on this score, many oil-exporting countries have performed poorly. Why is that so? In “Managing Oil Wealth,” the authors identify some of the underlying political determinants of fiscal performance in a wide range of political regimes. They argue that mature democracies—as opposed to other regimes, such as factional democracies—clearly have an edge in managing oil wealth. But, whatever political system is in place, cautious expenditure management is a continuing struggle.

* * * * *

With this issue of F&D, we introduce two new features and a new look to spice up our offerings and enhance our readability. In People in Economics, we shine the spotlight on Vernon Smith, one of the winners of the 2002 Nobel Prize in economics for his pathbreaking work in “experimental economics”—a field that allows economists to test market theories in a controlled laboratory environment. Is economics inching closer to the precision of the physical sciences? In Back to Basics, we study the phenomenon called “Dutch disease”—the problems that can arise for an economy when there is an influx of revenues from natural resources, foreign aid, or other sources.

In Straight Talk, Kenneth Rogoff, the IMF’s Economic Counsellor and Research Department Director, argues against grandiose schemes to coordinate interest rate policies for the dollar, the yen, and the euro at the international level. He insists—taking a perhaps heretical stance—that the benefits of any scheme, no matter how well designed and implemented, would be small compared with those flowing from the Group of Three central banks’ simply following good domestic monetary policies.

Laura Wallace


Finance & Development welcomes readers’ comments. Letters should not exceed 250 words and may be edited for length and clarity. Please address letters to the Editor-in-Chief, Finance & Development, International Monetary Fund, Washington, DC, 20431, USA or e-mail to

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  • Unfulfilled Promise

    • Given its natural and cultural resources, why isn’t the region doing better economically?

    • George T. Abed

  • Living Better

    • MENA countries need to improve social policies to raise living standards

    • Sena Eken, David A. Robalino, and George Schieber

  • Wanted: More Jobs

    • With its large, growing labor force, MENA needs to foster growth to create jobs

    • Edward Gardner

  • Failed Legacies

    • After years of central planning, MENA’s economies are stagnant

    • Adam Bennett

  • Banking on Development

    • Why financial sector development is crucial

    • Susan Creane, Rishi Goyal, A. Mushfiq Mobarak, and Randa Sab

  • Should MENA Countries Float or Peg?

    • The advantages of moving from fixed to flexible exchange rate regimes

    • Abdelali Jbili and Vitali Kramarenko


  • What Goes Up …

    • How can oil-exporting countries prepare themselves for the day the oil runs out?

    • Steven Barnett and Rolando Ossowski

  • Managing Oil Wealth

    • The political economy of oil-exporting countries

    • Benn Eifert, Alan Gelb, and Nils Borje Tallroth

  • Commodity Currencies

    • Commodity-exporting countries and their exchange rates

    • Paul Cashin, Luis Céspedes, and Ratna Sahay


  • Letters to the Editor

  • In Brief

  • News from international agencies

  • People in Economics

    • Jeremy Clift interviews Nobel Prize winner

    • Vernon L. Smith

  • Picture This

    • The Middle East dominates world oil

    • Bright E. Okogu

  • Back to Basics

    • When countries get too much of a good thing

    • Christine Ebrahim-zadeh explains Dutch disease

  • Straight Talk

    • Kenneth S. Rogoff argues against schemes to coordinate dollar, yen, and euro monetary policy

  • Book Reviews

    • The Ills of Aid: An Analysis of Third World Development Policies, Eberhard Reusse

    • Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium, Roger Porter, Pierre Sauvé, Arvind Subramanian, and Americo Beviglia-Zampetti (editors)

    • Globalization and the Politics of Development in the Middle East, Clement M. Henry and Robert Springborg

    • Globalization and Firm Competitiveness in the Middle East and North Africa Region, Samiha Fawzy (editor)

    • Monetary Policy and Exchange Rate Regimes: Options for the Middle East, Elina Cardoso and Ahmed Galal (editors)

    • State-Owned Enterprises in the Middle East and North Africa: Privatization, Performance and Reform

    • Merih Celasun (editor)