development plans: appraisal of targets and … · symbols of united nations documents are composed...

DEVELOPMENT PLANS:

APPRAISAL OF TARGETS

AND PROGRESS

IN DEVELOPING COUNTRIES

World Economic Survey 1964 - Part I

UNITED NATIONS

Department of Economic and Social Affairs

DEVELOPMENT PLANS:APPRAISAL OF TARGETS

AND PROGRESSIN DEVELOPING COUNTRIES

UNITED NATIONSNew York, 1965

NOTESymbols of United Nations documents are composed of capital letters com

bined with figures. Mention of such a symbol indicates a reference to a UnitedNations document.

E/4046/Rev.1ST/ECA/87

UNITED NATIONS PUBLICATION

Sales No.: 65. II.C. I

Price: $U.S. 1.50(or equivalent in other currencies)

FOREWORD

This report, World Economic Survey, 1964, isthe seventeenth in a series of comprehensive reviewsof world economic conditions published by the UnitedNations. It is issued in response to General Assembly resolution 118 (II), in which the SecretaryGeneral was requested to prepare an annual reviewand analysis of world economic conditions and trends.The report is intended to meet the requirements ofthe Economic and Social Council and other organsof the United Nations for an appraisal of worldeconomic conditions which may serve as a basis forrecommendations in the economic field. It is alsointended to stimulate interest in and discussion ofinternational economic problems among a moregeneral public audience.

Each year since 1955, the World Economic Surveyhas contained a study of a particular problem in thefield of economic development. Among the subjectsexamined have been economic growth in the firstpost-war decade, balance of payments problems inrelation to economic growth, inflation, post-war commodity trade and policies, experience and policiesrelating to investment and saving, industrializationand economic development, and foreign trade andeconomic development.

In its resolution 1708 (XVI), the General Assembly made a series of recommendations regardingintensification of activities in the field of development planning. As an initial step in response to thatresolution, a report on Planning for Economic Developmentl was prepared with the assistance of agroup of experts appointed by the Secretary-General.That report reviewed the experience gained and thetechniques in use in planning for economic development by different countries. A number of studiesof national planning experience prepared by themembers of the expert group as well as those submitted on request by Governments have recently beenissued as volume II of the report.2

In resolution 1708 (XVI), the General Assemblyalso requested the Secretary-General to examinequestions of development planning in one of the issuesof the World Economic Survey. The Economic andSocial Council, too, stated in its resolution 979

1 United Nations publication, Sales No.: 64.II.B.3.2 United Nations, Planning for Economic Development,

Volume II, Studies of National Plamning Experience: Part1, Private EMerprise and Mixed Economies (Sales No.:6S.II.B.3); Part 2, Centrally Planned Economies (SalesNo.: 6S.II.BA).

111

(XXXVI) that it looked forward to the publicationof a study on economic planning in the developingcountries in an issue of the World Economic Survey.In accordance with these resolutions, part I of thepresent report focuses attention on development plansand provides an appraisal of targets and progress inthe developing countries.

As background to the discussion, chapter 1 examines the major problems and policies which have abearing on economic progress during the Development Decade. In this connexion, special attention isdevoted to identifying critical scarcities which havehampered economic development as well as to national and international measures which have beenadopted to overcome them. Chapters 2 to 5 analyseat some length targets and policies contained in thecurrent economic plans of the developing countries.Chapter 2 provides an over-all view of the maincharacteristics of these plans; by tracing the interrelationships between the targets established in theplans, it brings out a number of important differencesas well as certain similarities in the strategies proposed by various countries. Chapter 3 explores ingreater detail the targets for production and manpower and the policies by which these targets aresought to be achieved. The various aspects of foreigntrade and payments, which have been of major influence in shaping the over-all character of development plans, are discussed in chapter 4. Chapter 5scrutinizes the targets and policies formulated in theplans in order to ensure an adequate rate of increasein the supply of resout'ces available for investment.In chapter 6, progress in the implementation of plansis discussed.

Part II of the Survey, which is issued as a separatevolume, contains a review of recent developmentsin the world economy and a discussion of a numberof topical problems. Chapter 1 provides an over-allview of salient changes in world production andtrade between 1963 and 1964. Chapter 2 describesthe principal developments in the industrially advanced private enterprise economies and· goes on toexamine two important current problems-the useof incomes policies for internal stabilization and thedifficulties facing the international monetary systemin the light of the payments imbalances of the reservecurrency countries. Chapter 3 analyses the economicchanges that occurred in the developing countriesbetween 1963 and 1964, and takes a closer look at

the problem of agricultural lag and food supply andat the difficulties some countries have experienced inmaintaining internal balance. Chapter 4 deals withrecent trends in the centrally planned countries,highlighting changes that are now under way in theinternal mechanisms of econ01llic managemellt andexternally in the problems of economic integrationamong the countries of the Council of Mutual Economic Assistance. Each of the regional chapters setsforth the economic outlook for 1965 as it appeared

IV

at the end of the first quarter of the year, drawingas far as possible on the replies of Governments tothe Secretary-General's questionnaire on economictrends, problems and policies, circulated in November 1964.

The World Economic Survey is prepared by theBureau of General Economic Research and Policiesof the Department of Economic and Social Affairsin the United Nations Secretariat.

EXPLANATORY NOTES

The following symbols have been used in the tables throughout the report :

Three dots (... ) indicate that data are not available or are not separatelyreported

A dash (-) indicates that the amount is nil or negligible

A blank in a table indicates that the item is not applicable

A minus sign (-) indicates a deficit or decrease, except as indicated

A full stop (.) is used to indicate decimals

A comma (,) is used to distinguish thousands and millions

A slash (/) indicates a crop year or financial year, e.g., 1960/61

Use of a hyphen (-) between dates representing years, e.g., 1961-1963,signifies the full period involved, including the beginning and end years.

Reference to "tons" indicates metric tons, and to "dollars" United Statesdollars, unless otherwise stated.

The term "billion" signifies a thousand million.

Annual rates of growth or change, unless otherwise stated, refer to annualcompound rates.

Details and percentages in tables do not necessarily add to totals, becauseof rounding.

Unless otherwise stated, Malaysia refers to the former Federation of Malaya.The term "Tanzania" has been used in tables to refer to the United Republicof Tanzania; the data for the United Republic of Tanzania relate to the formercountry of Tanganyika.

The designations employed and the presentation of the material in thispublication do not imply the expression of any opinion whatsoever on the partof the Secretariat of the United Nations concerning the legal status of any countryor territory or of its authorities, or concerning the delimitation of its frontiers.

v

TABLE OF CONTENTS

Chapter Page

1. PROBLEMS AND POLICIES IN THE DEVELOPMENT DECADE

Pivotal scarcities and national policies 2International policies and development planning 13Summary ,........................ 21

2. THE MAIN CONTOURS OF DEVELOPMENT PLANS

Planned ,rates of growth 23Planned changes in investment, consumption and the external balance .. 27The planned pattern of resouroe allocation 32The planned pattern of agricultural and industrial output 37Foreign trade targets 40Summary 41

3. PRODUCTION AND MANPOWER PLANS

Targets and policies for agricultural production 46Targets and policies for industrial production 54Manpower targets and policies 63

4. PLANS FOR FOREIGN TRADE AND PAYMENTS

Export targets 71Import targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Balance of payments targets 81

S. TARGETS AND POLICIES FOR THE FINANCING OF &Targets for domestic saving and external resources 87Targets and policies for private saving 91Targets and policies for public saving 93Measures for channelling financial resources 96

6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS

Recent trends in output 100Implementation of investment programmes . . . . . . . . . . . . . . . . . . . . . . . . . . .. 104Domestic saving and fiscal policies 108Foreign trade 110Summary and conclusion 115

ANNEXES

I. Titles of development plans 121

II. Statistical tables 123

vii

List of Tables

Page

1. PROBLEMS AND POLICIES IN THE DEVELOPMENT DECADE

1-1. Developing countries: Annual rates of growth in production and trade,1950-1964 1

1-2. Annual rate of growth in import capacity derived from exports of goodsand services, 1953-1954 to 1959-1960 8

1-3. Indicators of the supply of trained manpower, about 1960 12

2. THE MAIN CONTOURS OF DEVELOPMENT PLANS

2-1. Planned annual rate of growth in gross domestic product. . . . . . . . . . . . . . . 24

2-2. Planned annual rate of growth in per capita gross domestic product 24

2-3. Past and planned annual rates of growth in gross domestic product 25

2-4. Planned and past shares of gross investment in gross domestic product . . . . 28

2-5. Planned annual changes in the pattern of expenditure 30

2-6. Share of gross investment in gross domestic product in base year of planand planned share of public sector in gross investment 33

2-7. Planned distribution of public investment 35

2-8. Planned distribution of (total) gross investment 37

2-9. Relation between planned growth in agricultural and industrial production:Annual rates of increase 38

2-10. Planned relation between foreign trade and gross domestic product . . . 41

2-11. Summary of some main characteristics of current plans 43

3. PRODUCTION AND MANPOWER PLANS

3-1. Synopsis of content of plans for agriculture 47

3-2. Planned and past annual rates of growth in agricultural production . . . . . 48

3-3. Planned annual rates of growth in agricultural production and exports .. . 49

3-4. Planned and past annual rates of growth in food production . . . . . . . . . . . . 49

3-5. Planned reduction in share of imports in apparent consumption of food .. 50

3-6. Planned ratio of gross investment to increase in gross output in agricul-tural sector 51

3-7. Percentage distribution of planned public expenditure for agriculturaldevelopment 51

3-8. Planned annual rates of growth in agricultural output and cropped area . . 52

3-9. Synopsis of content of plans for industry 55

3-10. Planned and past annual rates of growth in manufacturing output 56

viii

11. Planned investment, growth in output and marginal capital-output ratioin manufacturing 57

3-12. Planned annual rates of growth in output of total manufacturing industryand of light consumer goods industries 59

3-13. Planned annual rates of growth in output of specific industrial commodities 59

3-14. Planned annual rates of growth in output of total manufacturing industryand of branches of heavy industry . . 60

3-15. Planned and past annual rates of growth in output of basic facilities 60

3-16. Planned and past annual rates of growth in output of construction and ofmining industries 60

3-17. Planned annual rates of increase in population and labour force. . . . . 64

3-18. Planned annual rates of increase in labour force and non-agricultural employment, and planned share of non-agricultural employment in labourforce. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

3-19. Relation between planned annual increases in labour force and non-agricultural employment 65

3-20. Planned share of education and other services in public investment .. 68

4. PLANS FOR FOREIGN TRADE AND PAYMENTS

4-1.

4-2.

4-3.

4-4.

4-5.

4-6.

4-7.

4-8.

4-9.

4-10.

4-11.

4-12.

5-1.

5-2.

5-3.

Synopsis of content of plans for foreign trade and payments .

Planned and past annual rates of growth in volume of merchandiseexports .

Planned and past annual rates of growth in total exports and past rate ofgrowth in world trade of major export commodities .

Planned share of major export commodities in total exports .

Planned and past growth in volume of merchandise imports .

Planned annual rates of growth in merchandise imports, total and com-ponents .

Planned and past elasticities of merchandise imports

Planned and past elasticities of merchandise imports, total and components

Planned annual change in trade balance and in balance of payments oncurrent account as percentage 'of gross domestic product .

Planned external financing of imports of goods and services .

Planned and past balance of payments on current account .

Planned and past balance of payments on current account, amortizationpayments and foreign exchange gap .

5. TARGETS AND POLICIES FOR THE FINANCING OF DEVELOPMENT PLANS

Synopsis of targets for financing of plans

Planned annual increase in share of saving in gross domestic product

Planned distribution of total supply of saving .

lX,

71

72

73

75:

77

78

79'

80

82

82

83

87

88

89

4. Planned and past marginal rates of gross domestic saving 90

5-5. Planned increases in gross domestic saving, gross domestic produot, con-sumption and population 91

5-6. Planned distribution of gross domestic saving . . . . . . . . 92

5-7. Planned and past marginal rates of private saving 93

5-8. Planned and past elasticities of current revenue and expenditure of Gov-ernment 94

5-9. Planned and past elasticities of total current revenue and tax revenue. . . . 95

5-10. Planned shares of sectoral investment and saving in gross domestic product 97

108

100

103

105

107

102

101

108

109

109

111

112

112

115

113

114

Planned and actual elasticities of merchandise imports

6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS

Planned and actual annual rates of growth in gross domestic product

Planned and actual annual rates of growth in per capita gross domesticproduct .

Planned and actual annual rates of growth in agricultural and industrialproduction .

Planned and actual annual rates of growth in food-grain production in fooddeficit countries .

Planned and actual annual rates of increase in gross investment ..

Planned and actual public investment, by major sectors .

Planned and actual changes in gross domestic saving in relation to grossdomestic product .

Planned and actual annual changes in public saving as percentage of grossdomestic product .

Planned and actual elasticities of current revenue and expenditure

Planned and actual elasticities of tax revenue .

Planned and actual annual rates of growth in merchandise exports

Planned and actual annual rates of growth in merchandise imports

6-1.

6-2.

6-3.

6-5.

6-6.

6-7.

6-4.

6-8.

Actual annual rate of growth in value of merchandise imports, by majorcommodity groups .

6-15. Planned and aotua1 deficit in balance of payments on current account .

6-16. Planned and actual financing of deficit in balance of payments on currentaccount .

6-9.

6-10.

6-11.

6-12.

6-13.

6-14.

ANNEX II

Statistical tables

125

125

123

123

Planned annual rates of increase in components of expenditure

Planned distribution of expenditure

Planned share of gross investment in gross domestic product and plannedincremental capital-output ratio .

II---4. Planned distribution of gross domestic produot .

II-I.

II-2.

II-3.

x

Chapter I

PROBLEMS AND POLICIES IN THE DEVELOPMENT DECADE

Item 1950-1955 1955-1960 1960-1964b

Table 1-1. Developing Countries: a Annual Ratesof Growth in Production and Trade, 1950-1964

(Percental(J'e)

Source: Bureau of General Economic Research and Policies of the United Nations Secretariat, based on StatisticalOffice of the United Nations, Yearbook of National AccountsStatistics a,nd Monthly Bulletin of Statistics; UnitedNations, "Handbook of International Trade Statistics"(mimeographed document E/CONF.46/12/Add.!), and Foodand Agriculture Organization of the United Nations,Monthly Bulletin of Agricultural Economics antlJ Statistics(Rome).

a Africa, Asia and Central and South America, excludingcentrally planned economies, Japan and the Republic ofSouth Africa.

b .1960-1963 for gross domestic product, total and percaptta, and for agricultural production.

C Crop years.d Including the Republic of South Africa.e Including Japan.

A balanced appraisal of progress in the first fewyears of the Decade, however, cannot be made without also taking account of the changes which havebeen introduced in the field of policies; and in thisrespect, recent years have seen some important developments. While the new initiatives that have beentaken at both the national and the international levelhave often been too recent to have yet much affectedthe actual course of events, it is such changes inpolicy which determine the prospects for better performance in the coming years of the DevelopmentDecade.

At the national level, the most striking event ofthe early nineteen sixties has been the widespreadadoption of planning as a tool of economic and socialpolicy. In the nineteen fifties, relatively few developing countries had national plans for economic andsocial development, though numerous countries hadelaborated medium-term programmes for specific

In designating the current decade as the UnitedNations Development Decade, the General Assemblyemphasized its acceptance of the accelerated economicand social progress of developing countries as aninternational responsibility. Moreover, by expressingthe objective of the Decade in quantitative terms, itestablished a measure for assessing the endeavourtowards fulfilment of this responsibility.1 The presentInternational Co-operation Year, coming at the midpoint of the Development Decade, presents an opportunity to appraise the progress which has so farbeen achieved and to reconsider both the nationaland the international policies which are required forrealization of the aim of the Decade. The presentstudy, in reviewing both national plans and measuresof developing countries and their implications forinternational policies, is intended to serve as a background document for such a mid-term appraisal.

The actual growth in income and output of thedeveloping countries during the first part of the nineteen sixties has generally not been sufficient to offerassurance that the target of the Development Decadewill be reached. For the developing countries as awhole, the annual rate of growth in gross domesticproduct over the first four years of the present decadeamounted to 4 per cent. Instead of the accelerationthat was hoped for, this denoted a deceleration overthe pace of advance recorded in the nineteen fifties(see table 1-1). Expressed in per capita terms, output during recent years has been increasing annuallyby only 1.5 per cent; this is to be compared with anannual rate of increase of over 2 per cent between1955 and 1960 and of nearly 3 per cent between 1950and 1955. A major reason for the weakening in theperformance of output compared with the nineteenfifties has clearly been the slow growth of agriculturaloutput experienced by most developing regions. Anda paradox of the recent situation has been the acceleration in growth of the volume of merchandiseexports combined with a deceleration in imports inconditions of relatively stable terms of trade. Theserecent trends in production and trade are describedand analysed more fully elsewhere in this report.But their broad significance for national and international policies need hardly be stressed.

1 The objective was defined as the attainment by thedeveloping countries of a minimum annual rate of growthin national income of 5 per cent by the end of the Decack

1

Gross domestic product. . . . . 4.9Per capita product......... 2.8Industrial production .Agricultural production:c

Africad .

Latin America .Far Easte .Near East .

Export volume 2.6Import volume 5.1

4.5 4.02.1 1.58.1 7.0

1.9 2.73.9 1.42.8 2.54.5 2.74.4 5.84.1 3.3

2 PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

sectors or regions of the economy. Since the turn ofthe decade, however, almost all of the developingcountries-often with the encouragement of nationaland multilateral agencies concerned with international development assistance-have undertaken theformulation of medium-term or long-term plans as ameans of assessing their requirements for sustainedgrowth and of guiding their current policy decisions.Two major events occasioning this upsurge in planning activity were the achievement of independenceby many African countries and the launching of theAlliance for Progress in Latin America. A morefundamental and general cause, however, was thewidespread realization that the acceleration of economic and social development requires a more longsighted approach to policy formulation; it has cometo be understood that current policy decisions canno longer be made simply in response to the circumstances of the moment but have to contributeactively to bringing about the structural and institutional changes which underlie economic development.

Some important new initiatives have also beentaken at the international level in the first few yearsof the Development Decade. The resources of theInternational Development Association-through theaction of its parent organization, the InternationalBank for Reconstruction and Development-haverecently been augmented in order to broaden theflow of international loans on easy terms to developing countries; and the policies of the InternationalMonetary Fund have been modified in recent yearsto make more explicit provision for the compensatory financing of short-term export fluctuations. Anevent of outstanding importance was the conveningof the United Nations Conference on Trade andDevelopment and its establishment on a permanentbasis; this body has the primary function of promoting the adaptation of international trading and financial relations in order to meet the needs of economicdevelopment. Further, in order to enhance the effectiveness of national planning efforts and to ensurethe necessary degree of co-ordination between national development and economic assistance policies,various efforts have been made to create an international framework within which plans might be reviewed. The international arrangements for suchreviews include the machinery established under theAlliance for Progress, the annual review procedures

under the Colombo Plan and the consortia and consultative groups convened under the auspices of theInternational Bank for Reconstruction and Development as well as the Organisation for Economic Cooperation and Development. In addition, the Contracting Parties to the General Agreement on Tariffsand Trade have recently constituted machinery forjoint study by developed and developing countries ofthe problems of trade and aid and for their collaboration in the planning of trade and the implementationof export targets.

The concern to reappraise international economicrelations in the light of the requirements of economicdevelopment has been a common theme runningthrough many of these new initiatives. Undoubtedly,the new machinery and approaches being evolvedhave greatly strengthened and broadened informeddiscussion of the appropriate role of internationalpolicies. Increasingly, more careful and systematicconsideration is being given to the separate elementsof which this issue is compounded. In the first place,views about the nature of the key scarcities confronting the developing countries are being graduallyclarified. Secondly, both at the national and the globallevel, the problem of measuring the gap betweenrequirements of key resources and the supplies currently available to developing countries is being givenmuch closer attention. Finally, as an integral part ofthis latter task, there has been recognition of the needfor more informed assessment of the extent to whichsupplies of key resources can be increased by thedeveloping countries themselves through the pursuitof appropriate domestic policies. Taken together,these elements are essential to the appraisal of international policies.

It cannot yet be said, however, that a consensushas emerged on these separate, though related, issues.While an adequate discussion of all the questionswhich might be raised in this context is beyond thescope of the present report, the review of nationalplans and planning experience which it contains doesprovide some of the background information necessary for such a discussion. In order that the reviewmight be considered in this perspective, it has therefore seemed useful-in the present chapter-to restatethe nature of the pivotal scarcities confrontingdeveloping countries and to indicate briefly theirimplications for national and international policies.

Pivotal scarcities and national policies

The pivotal scarCltIes which confront developingcountries in the process of their economic growthcan be reduced to three broadly different groups,namely, the supply of domestic saving, the supplyof human resources and the supply of key goods and

serVIces. Scarcities in the supply of key goods andservices, such as capital goods, food, essentialmaterials, power or transport, arise from the structural imbalances or rigidities which are a characteristic of the economies of developing countries. It

CHAPTER 1. .PROBLEMS AND POLICms IN THE DEVELOPMENT DECADE 3

is true that, except for certain goods and servicessuch as power and transport, domestic shortages insupplies of specific commodities can be overcome bymeans of imports. But when-as is the case for manydeveloping countries-the rate of growth in foreignexchange earnings is also limited by structuralobstacles to the diversification and expansion ofexports, it may not be possible to alleviate domesticshortages in this way. Thus, the underlying structuralrigidities which impede the expansion in productionof specific commodities either for export or for thedomestic market may manifest themselves in the formof foreign exchange scarcity. This particular shortageis such an important constraint for many developingcountries that it is properly identified as a separatescarcity. It is useful to bear in mind, however, thatdespite its practical importance, it is not a logicallydistinct category of scarcity.

In any particular developing country, one or theother of these scarcities is likely to constitute thedominant impediment to current economic growth.But among developing countries as well as withinany particular country at different periods of itsgrowth, the relative importance of these scarcitiesvaries. For the formulation of appropriate policiesat both the national and the international level, it istherefore necessary to identify the particular scarcities which, in the actual circumstances currentlyconfronting each developing country, are of primaryimportance in impeding growth.

THE SUPPLY OF DOMESTIC SAVING

Among the several scarcities which have just beenmentioned, inadequacy in the supply of saving iscertainly the most familiar. Since an aim of mostdeveloping countries is to raise the level of investment as a means of accelerating economic growth, anincrease in the supply of real resources availablefor investment constitutes a key objective of development policies. If the supply of domestic saving isinsufficient to realize the desired level of investment,then either an inflow of foreign capital has to besecured or, if this proves impossible, the level ofinvestment and the over-all rate of growth have tobe scaled down. The performance of domestic savingthus constitutes a principal consideration in appraising the development effort and in evaluatingthe appropriate contribution of foreign aid.

It is a commonplace that the problem of raisingthe level of domestic saving in developing countriescannot be solved by depressing the currently lowlevels of consumption but has to be tackled bylimiting the proportion of the annual increment intotal output that is absorbed in additional consumption. The task, in other words, is to raise themarginal rate of domestic saving above the averagerate. With any given rate of growth in total income

and output, the higher the marginal rate of savingthe more quickly will the average level of saving beraised. Thus, the performance of domestic saving ismost appropriately assessed by reference to themarginal rate of saving that can be achieved.

A factor of underlying importance in limiting themarginal rate of saving which can be achieved indeveloping countries is the high rate of populationgrowth. With population increasing in most countriesat an annual rate of 2 to 3 per cent per annum, theprimary task of maintaining current levels of percapita consumption is in itself considerable. Butfurther, it is rarely feasible to assume that economicdevelopment can take place without any growth atall in per capita consumption levels, except perhapsover short periods. Even though the community maybe "villing to forgo substantial improvements incurrent consumption levels for the sake of largerfuture improvements, some growth in per capitaconsumption is generally desirable, not only forsocial and political reasons but also as an economicstimulus to work and effort. The peasant, for example, can hardly be induced to employ betterfarming techniques and to put more effort into landimprovement if he is not to enjoy any direct benefitfrom the resultant gain in his output. Similarly, thegradual shift of the working population into moreskilled occupations, particularly in urban areas, isalmost bound to be associated with a rising averagelevel of real wages.

For related reasons, an upward trend in publicconsumption must also be envisaged as a concomitantof economic development. It is not merely that governmental services generally have to be enlarged tokeep pace with the growth of population. Much moreimportant is the fact that the expansion of publicservices such as education, health, transport oragricultural and industrial services, is itself a condition of economic development; these services arenot less important than fixed capital formation incontributing towards the raising of output. In thiscontext, it is pertinent to recall that in countrieswhich have already achieved relatively high levelsof income, economic growth has invariably beenaccompanied by an increase in the proportion ofgross national product allocated to public consumption. Of course, by no means all public consumptionnecessarily contributes to economic development; andan important step in policy formulation is to decidewhether or not it would be advantageous to moderatethe rate of growth in public consumption and thusrelease more resources for investment. Still, somegrowth in public consumption generally proves to beessential and, at least in the long run, it is likely toadvance at a rate somewhat above that of grossnational product. Thus, the trend in public consumption tends to reinforce the upward push ontotal consumption exerted by the private sector.

4 PART 1. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

The conclusion to be drawn from these commentsis that, provided the rate of increase in total outputrenders it possible, there are powerful reasons infavour of a minimum rate of growth in total consumption somewhat in excess of the rate of population growth. By how much this minimum rate shouldexceed the rate of growth in population is not aquestion that can be answered on a priori grounds;but it is worth noting that-as described more fullyin a later chapter-the annual rate of growth inper capita total consumption called for in the currentplans of most developing countries equals or exceeds2 per cent per annU111~. With rates of populationgrowth running between 2 and 3 per cent per annum,the planned annual rate of increase in total consumption has thus been set at 4 to 5 per cent. Thisamply illustrates how the requirements of increasingconsumption may severely restrict the marginal rateof domestic saving. If 2 per cent is taken as theacceptable minimum rate of growth in per capitaconsumption and the rate of increase in populationequals 2 per cent, then a marginal rate of domesticsaving of 20 per cent can only be realized if theannual rate of growth in total output reaches 5 percent. If total output were to rise more slowly orpopulation growth were to be more rapid, themarginal rate of saving would necessarily be lower.

The rates of growth in total output and in population are clearly of fundamental importance in circumscribing the extent to which an increase can beachieved in the proportion of domestic income thatis saved. If the marginal rate of domestic saving isto be higher than the average rate, the growth intotal output certainly has to exceed that rate ofincrease in total consumption which is deemed toconstitute a desirable minimum. By itself, however,this is by no means sufficient to ensure that anincrease in the rate of domestic saving will actuallytake place. Unless the processes and mechanismsthrough which saving occurs are adjusted to thisend, rising income and output may be associatedwith a proportionate or even more than proportionate increase in consumption. It is therefore aprincipal task of governmental policy to seek toestablish new patterns of saving behaviour. Apartfrom their direct responsibility for the level of publicsaving, governments can do much to create conditions conducive to greater private saving.

Some of the measures which can be taken are ofa general character which may not be specificallyintended to impinge on saving. It is not to be forgotten that in developing countries many of thedecisions to save are taken at the same time andby the same people as are the decisions to invest.Measures to encourage saving are therefore, in somepart, synonymous with measures to stimulate investment. This is particularly true of the rural areaswhere much of the investment by peasants or small

farmers is self-financed or, in any case, takes the formof investment in kind. Thus, very general measures,such as the redistribution of land ownership or theimprovement of conditions of land tenure, whichstrengthen the incentive of the peasant to invest maysimultaneously enlarge private saving. But the samealso holds, in some measure, for saving in the corporate sector. Conditions which stimulate corporateinvestment tend to encourage corporate saving. Manycountries have, in fact, sought to strengthen thegrowth of both corporate investment and savingthrough the offer of various tax concessions on newinvestments.

But there are also many measures of a more directnature which can foster private saving. The institutions and instruments for saving prevalent in economically advanced countries are often largely lackingin developing countries; the establishment of savingsbanks, the creation of insurance funds, mortgagefacilities and pension funds or the issue of government bonds are only some of the lneasures which canbe taken to facilitate household saving and encouragethe formation of new saving habits. For the massof the population in most developing countries, household incomes are too low to be much affected bysuch measures. The distribution of income, however,is generally wide and greater saving on the part ofthe middle and upper-income groups could be undertaken. Highly progressive rates of income-tax andtaxes on luxury consumer goods are means oftransforming some part of these incomes into largerpublic saving; but they are subject to the possibledisadvantage that they may reduce private savingout of disposable income. Some limited experimentshave recently been made with a tax on expenditureas a means of overcoming this weakness.

But it would be unrealistic to expect that mostof the positive measures which can be taken bygovernments would appreciably alter the behaviourof household saving, at least over the relatively shortspan of years normally covered by a medium-termplan. While these measures may have a considerablelong-term impact on the behaviour of householdsaving, the fact remains that the primary influencesshaping the course of household saving, are suchstructural forces as the level of household income,the distribution of income and its rate of growth.During the past decade, for example, the shareof household saving in gross domestic productactually declined in most of the developing countriesfor which data on saving are available. Governmentalpolicies of income redistribution by means of transferpayments, price controls or subsidies on staple consumer goods may have contributed to this declinein some countries, but a more general reason wasthe increase in the share of wage income in totalhousehold income; this was associated with anincrease in the number of wage earners-a structural

CHAPTER 1. PROBLEMS AND POLICIES IN THE DEVELOPMENT DECADE 5

Source: Bureau of General Economic Researchand Policies of the United Na60ns Secretariat,based on Statistical Office of the United Nations,Yearbook of National Accounts Statistics.

2 For a more detailed analysis, see United Nations,World Economic Sur7Jey, 1960 (Sales No.: 61.ILC.1),chapter 2.

3 This refers to saving out of net income before paymentof taxes.

4 Data on corporate saving are available only for a veryfew developing countries, but such information as existsdoes bear out the importance of the corporare sector. Inthree of the four countries shown below, for exampLe, thecontribution of corporate saving to the growth of total domestic saving between 1953-1954 and 1959-1960 far exceededthat which might have been expected from its initial level:

change which is an inevitable concomitant of economicgrowth. In addition, the decline in the share ofhousehold saving sometimes reflected the lower income and saving of unincorporated enterprises thatensued from unfavourable trends in the exportsector.2 It is no doubt possible that the tendencyfor househould saving to decline relatively to grossdomestic product as a result of increases in the wageearning labour force may be offset by other factors,and no firm conclusion can therefore be drawnabout the likely trend in household saving. Butthe data do indicate that household saving has notbeen a dynamic source of domestic saving.

With regard to the other component of privatesaving, namely, corporate saving, the case is different.Provided that the economic outlook is conduciveto new investment and that the physical resourcessuch as imported capital equipment are available forrealizing new investment, saving out of corporateincome tends to be high. The proportion of corporateincome that is saved, in fact, is frequently of theorder of 30 to 70 per cent.3 Consequently, if thesize of the corporate sector is relatively large andif the proportion of national income accruing to thissector is increasing, the prospects for achievementof a relatively high marginal rate of domestic savingare decidedly improved. This means that a relativelyhigh marginal rate of domestic saving would besomewhat easier of attainment in the more industrialized countries or in countries where oorporateorganizations bulk large in the export sector.4 Thisis an important point· to bear in mind in assessingand comparing the saving performance of individualcountries.

The role of corporate saving need obviously notbe confined to the private sector. In some countries,marketing boards in the export sector have performed

PhilippinesJamaicaChina (Taiwan) ..Colombia

Share. of corporate saving intotal domestic

saving, 1953-1954

301666

Share in increasein total domestic

sa.ving, 1953-1954to 1959-1960

33472760

a function similar to that of private corporations mraising the level of saving. The same is true ofother countries where public corporations have beenestablished in the industrial sector. It is a fact, however, that the pricing policies of governments withregard to the goods and services sold by publiccorporations have sometimes tended to restrict thesaving of these bodies. The pricing of goods andservices beLow their market value has usually beendefended as a device designed to stimulate privateinvestment and output or as a means of protectingthe consumption standards of low-income groups.While such policies may occasionally be imperative,they have to be weighed against the possible lossto public saving that ensues from their pursuit.

The efforts of governments to raise the level oftotal domestic saving can obviously be most effectively expressed through the impact of their policieson public saving. It is inevitable, therefore, that thefiscal and budgetary policies of governments shouldconstitute the central consideration in any assessment of the adequacy of the saving performance ofindividual oountries. Mention has already been madeof the reasons why-at least in the long run-somegrowth in public recurrent expenditure in relationto gross domestic product is generally to be expectedas a feature of the process of economic development.This means that, even if only to prevent a fall inpublic saving, public revenue must also generallyincrease somewhat more rapidly than the growthin gross domestic product; thus, in order to realizea continuous expansion in public saving, the growthin public revenue must be appreciably greater. Experience of the past decade, however, indicates that,in most developing countries, public revenue barelykept pace with, or fell short of, the expansion inexpenditure; and the contribution of public saving tothe growth in total domestic saving was commonlynegligible and sometimes negative.5

There are several familiar reasons for the relativeinelasticity of tax revenue in deveLoping countries.A large proportion of tax revenue has generallybeen derived from import and export duties; andthe trend in receipts in these taxes has frequentlybeen affected adversely by the sluggishness in exports, by shifts in the composition of imports to commodities which attract lower duties and by the factthat, since many duties are specific, revenue has notrisen in line with price increases. The lack of progressivity in personal income-taxes has similarlymeant that rising incomes have not necessarilyyielded a more than proportionate increase in revenuefrom these taxes; even where income-taxes arehighly progressive, this has apparently not alwaysassured a more than proportionate advance in revenuebecause of the combinati.on of a high tax base and

5 See World Economic Survey, 1960, chapter 2.


changes in income distribution.6 Inefficiency in taxcollection leading to widespread tax evasion has alsocontributed to poor yields from progressive incometaxes. In a number of countries the growth in yieldsfrom corporate taxes, while certainly more buoyantthan revenue from personal income-taxes, has beenrestrained by the provision of tax relief-in variousforms-to stimulate corporate investment. Finally,revenue from land taxes has often failed to increasein line with the growth of agricultural incomes andoutput; land assessments have frequently not beenrevised for many years and have failed to reflect theincreases in capital values resulting from land improvements.

Among the developing countries, there has generally been considerable room for improvement offiscal systems in order to raise the elasticity of taxrevenues. Income-taxes, for example, could frequently be made more progressive and the tax basecould be enlarged; tax evasion could be reducedthrough more efficient tax collection; or land assessments could be revised to take account of increasesin values. In countries where extensive use has beenmade of consumption taxes, these have proved to beparticularly effective in raising the level of totalrevenue, and in many other countries there remainsconsiderable scope for such taxes; these need notmake the tax structure more regressive if taxes onsemi-luxury and luxury goods are relatively highand if the direct taxes paid by the higher-incomegroups are sufficiently progressive. Thus, in general,it seems true that the level of public saving couldbe raised through appropriate fiscal reforms althoughthe magnitude of the increase is necessarily limitedby the need to increase the volume of public recurrent expenditure for economic development.

In conclusion, it may be said that in most developing countries the influence of governmental policieson the trend of total domestic saving has thus farbeen quite circumscribed. More vigorous action couldfrequently be taken to influence both household andcorporate saving, partly through institutional andother measures to encourage saving but also throughthe exercise of restraint in the use of measures whichdepress such saving. There is also much scope forpositive action to accelerate the growth in total revenue and to restrain the growth in current expenditure. It has to be recognized, however, that in theconditions of most private enterprise and mixedeconomies, there are restrictions on the possible influence of governmental policies. Of underlying im-

6 In India, for example, although taxes are highly progressive at the upper-income levels, the elasticity of personalincome-taxes in the period between 1951/52 and 1957/58was found to be only about 0.6. This was because the bulkof the growing personal incomes was not subject to tax atall or attracted taxes only at very low rates. See G. S.Sahota, Ind1{Jn Tax Structure and Economic Development(New York, Asia Publishing House, 1961).

portance in limiting the marginal rate of domesticsaving is the rate of growth in total income andoutput on the one hand and the rate of growth inpopulation on the other. Moreover, the growth ofsaving in individual developing countries is considerably affected by the particular structural andinstitutional characteristics of their economies, mostnotably, the relative size of the corporate sector.

The considerations discussed in thi~ section suggest that while, in conditions of adequate growthin income and output, a higher marginal rate of domestic saving is generally attainable in developingcountries, there may frequently be a fairly modestupper limit to this rate in conditions of stable prices.In the experience of developing countries duringthe past decade, comparatively few appear to haveachieved marginal rates of domestic saving in therange of 20 to 25 per cent; and, as will be seenlater, among most of the countries which did achievesuch rates, a combination of special circumstances-in the form of high rates of growth of exportsand dominance of the export sector by large corporate enterprises-usually prevailed. It must, afterall, be borne in mind that the initial level of domesticsaving in many developing countries has been verylow; if the level of domestic saving has been in theregion of only 10 per cent of gross domestic productin the recent past, then the realization of a marginalrate of domestic saving of about 20 per cent in theimmediate future-say, over the period of a fiveyear plan-implies an extremely sharp change inthe saving behaviour of the economy. In special circumstances-where, for example, the size of thecorporate sector is relatively large and a substantialproportion of the increase in income accrues to thissector-this may prove possible. But, in general,radical changes which would have substantial impacton the average level of saving within a relativelyshort period do not appear feasible. Thus, in countries where the past level of domestic saving has notpermitted a level of investment sufficient to ensurean adequate rate of growth in output, the realizationof the latter aim has been dependent on an inflowof foreign capital.

THE SUPPLY OF FOREIGN EXCHANGE

While, for many developing countries, the levelof investment has been limited by the available supply of real resources, thi,s does not necessarily meanthat the key consideration has been the aggregatesupply of saving. Shortages in supplies of specificreal resources may often assume greater importancethan the aggregate supply of saving in hinderingthe growth of investment. The scarcity of trainedmanpower which is discussed later constitutes onesuch specific shortage. In the present section, at-


tention is turned to the role of shortages in suppliesof key imported commodities.

The structural rigidities or imbalances which giverise to persistent scarcities in supplies of key commodities or services may occur at several points inthe economy of a developing country. Among themost widely experienced of these scarcities is thatarising from the inflexibility in domestic suppliesof equipment and materials required for investment;and it is primarily, though not exclusively, thisscarcity which accounts for the central role assignedto foreign exchange supplies in the economic growthof developing countries. If a developing country isunable to overcome its lack of a domestic capitalgoods industry through increased imports of capitalgoods, then an increase in the proportion of domesticincome that is saved may fail to permit the intendedincrease in the volume of investment. The higherlevel of investment could be attained only if theforeign exchange scarcity were relieved. In suchcircumstances, the primary limitation on the levelof investment would not be the supply of savingbut the supply of foreign exchange. This distinctionhas important implications for policy both at thenational level and with regard to foreign aid. Depending on whether the level of investment, is hindered by domestic saving or by structural rigidities,policy prescriptions would be quite different.

Judged by their balance of payments positions,it might appear that a situation of foreign exchangescarcity has been general among developing countries. It is a familiar fact that most developingcountries have experienced a deterioration in theirbalance of payments positions during the post-waryears. The tendency for imports to rise more stronglythan export earnings has been common. In a majority of developing countries, for example, theproportion of imports of goods and services financedby exports of goods and services has been appreciably lower in recent years than it was in the earlynineteen fifties. This trend has been reflected in thedrawing down of foreign exchange reserves and inmounting external indebtedness.

By itself, however, a tendency towards deficit inthe current account balance is by no means evidencethat foreign exchange scarcity has generally been adominant hindrance to economic growth. In a number of countries, ,the increasing deficit in the currentaccount balance has reflected the fact that foreigncapital has been drawn upon in order to supplementdomestic saving. The inability to raise the level ofdomestic saving at stable prices has impeded thegrowth of investment; in order to realize a higherlevel of investment, encouragement has been givento the inflow of foreign private capital, or the government has sought to augment its own resources

by securing official loans or grants from abroad.Of course, the augmentation of domestic by foreignsaving has often not taken place in such an orderlyfashion and in conditions of stable prices. Balanceof payments deficits have also emerged because ofthe failure of the authorities to curb excess demand.Development programmes which have been overambitious in ,relation to the willingness or capacityof the economy to save at stable prices have generatedrising domestic prices and intensified demand forimports. In some circumstances, the pressure ofdomestic demand has also led to the absorption ofexportable supplies by the domestic market, thuslowering export receipts and aggravating the balanceof payments deficit.

If resort is made to foreign capital in order tosupplement domestic saving, whether or not thisensues from domestic inflationary pressure, then abalance of payments deficit need not be evidence offoreign exchange scarcity as a separate constrainton the rate of investment. In these circumstances,the dominant constraint on the level of domesticinvestment is properly identified as the supply ofsaving rather than the supply of foreign exchange.Foreign exchange only becomes a primary restrainton investment and output if the growth of the latteris restricted by insufficiencies in supplies of specificcommodities which, by reason of structural rigiditiesor natural endowment, cannot be produced in adequately increasing volume at home. The question iswhether, if additional supplies of imported materialsand equipment become available, a higher level ofdomestic investment would be possible without theemergence of excess aggregate demand. A situation in which foreign exchange scarcity impedesgrowth thus implies that the economy is potentiallyable to generate a greater volume of domestic savingat stable prices if an increase in investment can berealized.

Somewhat better than the over-all balance of payments position as an indicator of this situation is thetrend in import capacity derived from exports ofgoods and services. It is a reasonable presumptionthat, among countries where the rate of growth inimport capacity has been relatively low, the likelihood has been stronger that foreign exchange scarcity has acted as a dominant hindrance to economicgrowth. A low rate of growth in import capacity willgenerally have reduced the ability to circumventstructural rigidities in the domestic economy throughincreases in imports. Of the countries shown intable 1-2, for instance, it would be a fair suppositionthat the growth of investment and output in thosecountries which recorded relatively high rates of increase in import capacity-exceeding, say, five percent per annum--during the nineteen fifties was notprimarily impeded by foreign exchange scarcity. This


Table 1-2. Annual Rate of Growth in ImportCapacity Derived from Exports of Goods andServices, 1953-1954 to 1959-1960a

Source: Bureau of General Economic Research and Policies of the United Nations Secretariat, based on StatisticalOffice of the United Nations, Yearbook of InternationalTrade Statistics and Yem"book of National AccountsStatistics; International Monetary Fund, Balance of Payments Yearbook and International Financial Statistics(Washington, D. C.) .

a Derived by using import price index a,s deflator. ForKenya, Malaysia, Morocco, Nigeria, Pakis,tan, Tanzania andthe United Arab Republic, import capacity derived frommerchandise exports only. In some cases, owing to limitations of data, time period differs from that stated.

b Excluding inter-trade with other East African countries.

inference, at any rate, might appear to be valid atleast for those countries in which acute foreign exchange scarcity was not present at the outset of theperiod. For ,other countries which entered the periodwith structural disequilibrium in their balances ofpayments, the most that can be said is that the problem of foreign exchange scarcity may have diminished over the period. Among the countries shownin table 1-2, this, for example, w,ould apply to China(Taiwan) where a high rate of growth in importcapacity during the nineteen fifties was accompaniedby heavy, though diminishing, dependence on foreignaid.

However, even if qualified by reference to the initial balance of payments position, the trend in importcapacity is obvi,ously no more than a crude and partial indicator of foreign exchange scarcity. Since countries differ in their productive structures and in theircurrent requirements of strategic commodities to sustain growth, the rate at which imports have to be

(Percentage)

Country

China (Taiwan) .MalaysiaGhana .Iran .SudanVenezuela .Jamaica .Trinidad and Tobago.Tanzania · .Morocco .Nigeria .Chile.. . .Ceylon .Ecuador .India .United Arab Republic. . .Tunisia .Philippines .Ethiopia .Bolivia .Kenya .Pakistan .

Importcapacity

12.111.39.79.49.07.77.47.06.6b

6.3

3.93.42.62.62.4

1.60.3

-0.2-0.7-1.2-1.9b

-4.9

expanded in order to maintain a given rate of growthmay also differ. Given the structural rigidities andthe evolving composition of demand prevailing ineach country, differences necessarily emerge in therate at which supplies of key commodities have tobe drawn from abroad. But further, it has to be remembered that structural rigidities can be lessenedand the composition of domestic demand modified,if appropriate policies are pursued. Thus, any judgement regarding the presence or absence of a situation of persistent foreign exchange scarcity necessarily involves an evaluation of the role of governmental policies in lessening structural rigidities andmodifying demand. It is not enough to know thatthe growth in import capacity has been low in relation to the growth in investment and output; forappropriate policies can relax the constraint imposedon investment and output by foreign exchange scarcity. In other words, it would not be particularlymeaningful to identify foreign exchange shortage asthe primary limitation on the growth ,of investmentand output if, in fact, the shortage were caused, ora:ggravated, by inappropriate governmental policies.

Measures to shift the composition of domestic demand away from imported commodities constituteone line of action which can be taken to relieveforeign exchange scarcity. It is quite true, as hasbeen mentioned above, that if a country is sufferingfrom shortages of imported supplies of equipmentand essential materials, measures designed solely toincrease the volume of domestic saving may prove aninadequate solution. Since the import content of domestic consumption expenditure is lower on theaverage than that ,of domestic investment expenditure, efforts to increase the level of domestic savingmay not, in themselves, release sufficient foreign exchange to finance the imports required for the equivalent increase in investment. In this event, an, increase in the proportion of income allocated to sa~ingand investment would simultaneously intensify pressure on the external balance and weaken demand inthe domestic market for output of consumer goods.However, it is also true that, if measures to raisethe level of domestic saving are so tailored as tofall with greatest impact upon consumer demandfor imports or are accompanied by foreign trade policies designed to cut the demand for such imports,the foreign exchange component of domestic savingcan be raised. 7 Moreover, measures to raise domesticsaving and restrain domestic consumption expenditure may, in some circumstances, permit the diver-

7 In practice, the latter measures have usually been appliedwithout being closely geared to mor'e general measures toraise the level of domestic saving. The consequence hassometimes been that the pressure of domestic demand ondomestic output of consumer goods has been raised. Thishas often resulted in the unplanned emergence of lightconsumer goods industries producing semi-luxury goods andsubstitutes for the products that can no longer be imported.


sion of more goods and services to export marketsand thereby improve export performance.

Of greater importance in the long nm than theabove measures are policies designed to lessen theinflexibility in domestic supplies of scarce commodities. The flexibility in supplies may possibly be enhanced by more active measures both to acceleratethe growth in foreign exchange earnings through amore intensive export drive and by measures to raisedomestic .output of imported key commodities. ,!\Tithregard to exports, this raises the question whethertheir growth is impeded by external demand conditions or by the exportable supplies currently madeavailable by the economy. For most developing countries, mainly dependent as they are on exports ofprimary commodities, external demand conditionsrather than exportable supplies have been the dominant factor determining the rate of growth in theirexports. Still, measures to promote the diversification of production for export and to develop newmarkets through such measures as trade agreements,better marketing facilities and improved quality control can contribute towards lessening this constraint.In certain instances, moreover, exportable suppliesof primary commodities have failed to expand in linewith external demand owing to the inadequategrowth of domestic production and the absorptionof a rising proportion of output by the domesticmarket. In some of the more industrialized countries which have acquired the capacity to develop anexport trade in manufactures, export performancehas sometimes also been weakened by the fact thata growing domestic demand has absorbed exportablesupplies; as has just been noted, greater restrainton domestic consumption could release supplies forexport. Thus, in general, despite the obvious limitations, more effective governmental policies with regard to exports could contribute towards lesseningforeign exchange scarcity.

Scarcities in supplies of imported key commoditiesmay also, to some extent, be lessened by appropriategovernmental policies to raise domestic Pf.oduction.However, since scarcities in supplies of specific imported commodities reflect the structural rigiditieswhich are characteristic of the economies of developing countries, policies to lessen these scarcities arein effect policies to remove the structural rigidities;accordingly, no substantial short-run increases indomestic output can usually be expected even if policies to this end are vigorously implemented. N evertheless, it should be expected that governmentalpolicies would be directed towards removing thesesources of scarcity as rapidly as possible. Manycountries, for instance, rely heavily on imports offood and raw materials to supplement domesticsupplies. This situation may coexist with strong efforts to raise the productivity of domestic agriculture; and reliance on imported supplies may be

unavoidable until such time as these efforts bearfruit. Again, it may not be feasible for many developing countries at the present stage of their industrialdevelopment to enter into large-scale domestic production of such capital goods as machinery andtransport equipment. Dependence on external sourcesof supply may be inescapable. But in so far as foreign exchange resources can be released through thedevelopment of other import-substituting industries,a possible means of lessening the foreign exchangeconstraint on supplies of capital goods is offered.

Thus, in a situation of foreign exchange scarcity,it would be expected that, wherever feasible, policiesboth to promote exports and to replace importswould be vigorously pursued. If the growth of investment and output is impeded by foreign exchangescarcity, the effect of such policies in graduallybringing about a reallocation of domestic resourcescould relieve the constraint imposed by structuralrigidities. In other words, .over time, an increase inthe level of investment expressed as a proportion ofgross domestic product, can be realized if a greaterproportion of domestic resources is utilized to provide, directly or indirectly, the supplies necessaryfor investment. While such a change would necessarily be acoompanied by an increase in the proportion of domestic income that is saved, this obviouslydoes not mean that an increase in domestic savingwould be sufficient to bring this change about. Othermore specific measures would also have to be employed in order to direct investment into the appropriate channels.

The conclusion from this discussion is that a number of elements necessarily enter into any judgementof whether foreign exchange rather than domesticsaving constitutes the dominant constraint on thevolume of investment. If foreign exchange scarcityarising from structural rigidities were the primarylimitation, it would be a necessary but not a sufficientcondition that there should be a persistent tendencytowards balance of payments disequilibrium. Thecase is strengthened if this tendency is associatedwith a relatively low rate of growth in the capacityto import derived from exports of goods and services.But the argument only becomes conclusive if scarcities in supplies of key imported commodities continueto impede the growth of investment and output despite the pursuit of vigorous governmental policies,not only to restrict inessential imports, but also tolessen structural rigidities. In such a situation, aninadequate rate of growth in investment and outputcan only be overcome if foreign exchange earningsare supplemented by an inflow of foreign capital.

THE SUPPLY OF FOOD

The importance of structural rigidities in impedingthe growth of deveLoping countries has not been con-


fined to the constraint which they impose on thesupply of capital equipment. In the discussion of domestic saving, it was pointed out that, if the paceof expansion in total output fails to exceed someacceptable minimum rate of growth in total consumption, the prospects for raising the level of saving areremote. The need to satisfy the current requirementsof an expanding population constitutes a first claimon output. However, in order to meet consumptionrequirements it is not enough that the growth intotal output should exceed the requisite minimumrate of growth in total consumption. It is also essential that the supplies of specific goods and services should be expanding in the right proportions.In particular, the requisite minimum rate of growthin total consumption cannot be met unless suppliesof essential consumer goods, notably food, are growing at the appropriate pace. An adequate rate ofgrowth in food supplies-no less than an adequaterate of growth in supplies of capital equipment-isa condition of the attainment of higher levels of investment, income and saving in developing countries.

The role of the agricultural sector in economicdevelopment was a source of much misunderstanding in the earlier post-war years. The developmentof agriculture and of industry were often posed asalternatives and, since the former was identifiedwith perpetuation of the status of developing countries as primary producing economies, the emphasiswas usually placed on industrial growth. In morerecent years, it has come to be recognized that thesetwo sectors are not mutually exclusive but mutuallyinterdependent in their development. Still, it remainsquestionable whether there is yet full appreciation ofthe crucial role which agriculture plays in limitingthe pace of economic growth in the economy· as awhole.

This central role does not simply derive from thestatistical fact that agriculture generally accounts fora large share of total output and its rate of growthaccordingly weighs heavily in the over-all rate ofgrowth. Much more important is the economic factthat the rate of increase in agriculture supplies conditions the rate at which the output of other sectorscan be increased. For agricultural products that constitute industrial raw materials, this relation isreadily understood. But for food supplies, it is lessplainly evident and, perhaps for this reason, not always fully appreciated.

It is always formally true that, if the growth infood supplies restricts the pace at which total consumption can be expanded, a lower rate of growthin total consumption can be reconciled with a givenrate of growth in total output through raising therate of saving. In practice, however, the ability ofgovernments to effect this reconciliation is severelycircumscribed. If marketed supplies of food cannot

be increased at a rate somewhat in excess of the rateof growth of the population in the urban areas, therate of growth in urban demand has somehow to berestrained if rising food prices are not to ensue;and there is generally no solution to this quandarybut to restrain the expansion in development expenditure and thereby to limit the growth in urbanemployment.

This situation has been present in many developing countries, though it has frequently been mistakenly identified as a short-term problem. The typical course of events in the short term has been thatan expansion in development expenditure has generated an increase in demand for marketed suppliesof food and, if food supplies have not increased inline with demand, food prices have risen and realwages in the urban areas have fallen. To avoid aggravation of the situation, either the growth in urbanemployment has had to be restrained through therestriction of development expenditure or food supplies have had to be augmented through imports. Inthe former case, progress in implementation of thedevelopment programme has been directly impaired.In the latter case, unless there has been no foreignexchange shortage or it has been possible to financefood imports through foreign aid, the need to utilizeforeign exchange for imports of food has restrictedthe ability to import capital equipment and essentialmaterials and has thus indirectly impeded the investment programme.

Such a series of events has manifested itself repeatedly in many developing countries, reflecting apersistent tendency for agricultural output to fail toexpand at an adequate rate. This is evident enoughfrom the data presented later in this report. In therecent past, the rate of growth in total agriculturaloutput or in food production has equalled or exceeded 4 per cent per annum only in very few countries. In fact, in most countries, domestic food production has either failed to keep pace with, or hasonly barely exceeded, the growth in population. Simply in order to maintain per capita consumptionlevels, or to allow some slight improvement, the volume of imported food has generally had to be increased.

Since population is increasing in developing countries and since there is also an urgent need to raisethe very low nutritional levels, the social importanceof enlarging food supplies is clearly very great. Whathas been stressed here, however, is that the rate ofexpansion in agricultural output and, in particular,of food output is also an underlying determinant ofthe tempo of over-all economic growth. In the circumstances of most developing countries, it is hardlyconceivable that an adequate rate of growth in totaloutput can be realized for a sustained period unlessagricultural output is increasing at a somewhat

'CHAPTER 1. PROBLEMS AND POLICIES IN THE DEVELOPMENT DECADE 11

greater rate than the growth in population; and sincepopulation is generally increasing at a rate of 2 to;) per cent per annum, this would mean a rate of in,crease in agricultural output in the order of 4 percent. Without sufficient growth in supplies of agricultural materials for industry and in food suppliesfor urban populations, the pace of industrial growthand the level of investment activity in general cannot,in practice, be sustained. On the one hand, if agricultural production fails to expand at a sufficientpace, it may constitute one of the structural rigiditiesthat underline foreign exchange scarcity; this maylimit the level of investment by restricting the supplyDf foreign exchange available for imports of investment goods. On the other hand, even if domesticoutput of investment goods or the availability of project aid would permit the initiation of additional investment, the inflexibility in food supplies may ruleout further investment expenditure. Thus, measuresto increase agricultural output are an integral partboth of policies to relieve foreign exchange scarcityand of policies to raise domestic investment, incomeand saving.

THE SUPPLY OF HUMAN RESOURCES

For most developing countries, either the aggregate supply of saving or the supply of key commodities has been the dominant restraint on the growthof investment and output. But this has not been trueeverywhere. In some countries, scarcities in the supply of trained manpower or limitations in administrative capacity of government have restricted the volume of other resources which could be effectivelyutilized for expanding investment and output.

Almost all countries have, of course, experiencedscarcities in supplies of specific skills which haveimpeded the growth in output of particular branchesof economic activity. But in a number of countries,the dearth in supplies of trained manpower has beengeneral. There have been shortages not only of technical manpower at all levels but also of managerialand supervisory staff and of administrative personnelto man governmental services. In such countries,even though additional resources other than trainedmanpower were available, a larger development programme could not be undertaken without a considerable loss in the efficiency of resource utilization. Thisis to be contrasted with the more common situationwhere supplies of trained manpower and the administrative capacity of governments are sufficiently flexible to permit the implementation of larger development programmes without marked deterioration inthe average level of efficiency.

The data shown in table 1-3, although they referonly to a few classes of manpower, neverthelesssuggest the substantial differences among countriesin supplies of trained manpower and in levels of

educational attainment. In general, the situation ofAfrican countries compares unfavourably with thatof countries in other regions. But there are widevariations among individual countries not only asbetween regions but also within the same region.

Of course, for eoonomic growth, the relevant consideration is the pace of expansion in supplies oftrained manpower and in the administrative capacityof government. It has been suggested, for example,that few countries could consistently sustain an annual increase in the Vlolume of total investment muchexceeding 10 per cent because, at a higher rate, acuteshortages of trained manpower and organizationaldifficulties in handling and operating the larger flowof new projects would be encountered. It is hazardous to place a figure on this limit to absorptive capacity but the notion that a limit exists is certainlyvalid. Particularly in countries where the stock oftrained manpower is absolutely small, the pace ofexpansion in supply is critical to the size of the development programme that can be contemplated. Forthis reason, the careful study of manpower requirements and the long-term planning of educational andtraining programmes have been essential.

The planning of supplies of trained manpower isan activity of quite recent origin in developing countries, and numerous countries have so far devotedonly limited attention to this feature of economicdevelopment. Because of past experience, however, anumber of countries have been more actively awareof one aspect of the general problem of human resources, namely, the administrative capacity of government. A review of the administrative capacity ofgovernment has not infrequently led to the conclusionthat this factor, and not the availability of financialor other resources, is the primary limitation on thesize of the development programme which could beundertaken. Sometimes, this has no more than reflected the general scarcity of trained manpower, butoften it has also arisen from the outmoded nature ofthe organizational structure or from malpractices inpersonnel management. A common sympton of sucha situation has been a recurrent tendency for actualdisbursements to fall substantially short of the sumsannually allocated for development expenditure in thegovernment budget. Among certain countries, a similar situation has sometimes prevailed with regard toforeign aid. The possibility of obtaining more officialcapital from abroad has existed, but the lack of sufficient qualified staff to prepare and implement projects or programmes suitable for foreign financinghas restricted the ability to take full advantage ofexisting opportunities.

The pace at which the economy can organizean expanding flow of development projects andprogrammes is what is generally known as its absorptive capacity. If the absorptive capacity of the


Table 1-3. Indicators of the Supply of Trained Manpower, about 1960

Supply of high-level manpower perEnrolment100,000 of population Enrolment at

at secondary universities

Region and country Teachers., £ngineers Physicians level as per- and equivalentprimary and and centage of institutes per

and scientists dentistsa population aged 100,000 of pop-secondary 15 to 19 years' ulationC

levels

AfricaEthiopia 22 1 5

Sudan .. .. ............... 91 2 5 34

Tanzania 115 4 5 2 9

Tunisia ............ 232 153 18 64

Zambia ......... "'" 243 2

Nigeria ................ 257 2 5 4

Malawi ................ 260 5 1

Congo (Democratic Repub-lic of) ................. 282 4d 4

Uganda .......... 294 6 5 6 14

Kenya ............. 316 9 11 4 5

United Arab Republic ..... 408 50 46 19 399

Ghana ......... . ......... 445 13 6 26 29

Morocco ......... 7 40

Senegal .......... " 4 55

AsiaSaudi Arabia ...... 83 2 6

Pakistan 202 1 16 167

Iran 246 13 14 90

India ........ . ..... ' .... 302 24 15 22 220

Republic of Korea. 346 28 32 397

China (Taiwan) 523 300 36 37 329

Malaysia 692 18 25 475

Burma 10 17 63Philippines 25 976

Syria 17 223

Central and South AmericaBolivia , ........ 283 35 10

Colombia ............ 411 50 16 296

Peru 444 30 16 253

Jamaica 481 13 42

Brazil .............. , .. 489 50 18 132Venezuela ....... ,",." .... 594 65 22 355Chile ....... ",., ... 75 34 257Trinidad and Tobago ..... 27 61

Source: United Nations, Compendit<m of Social Statistics: 1963 (Sales No.: 63.XVII.3);United Nations Educational, Scientific and Cultural Organization, Basic Facts and Figures(Paris, 1961); F. Harbison and C. A. Myers,Education, Manp'ower and Economic Growth(New York, 1963).

a Data generally refer to early nineteen fifties,

economy restricts the flow of new projects and programmes to a level below that which other resourceswould permit, then the shortage of trained manpoweris clearly the dominant scarcity.8 This has obvious

8 It should be borne in mind, however, that the absorptivecapacity of the economy and the supply of resources otherthan trained manpower available for developmental purposes

and differ among countries regarding qualifications of persons covered.

b Duration of school years at secondary levelvaries.

C Including higher technical schools, trainingcolleges and theological schools. Definitionsvary among countries.

d Not including vocational education.

implications for policy. While more comprehensiveeducational and training programmes and measuresto strengthen administrative systems are a general

are not entirely independent of one another. The ability ofthe economy to mobilize additional resources for development programmes also depends, in some measUre, on theadministrative capacity of the government.


requirement of developing countries, these becomematters of the highest priority in countries wheretrained manpower is the dominant scarcity. In orderto meet the acute demand for high-level and middlelevel manpower, the fullest possible use has to bemade of the existing output of secondary schoolpupils through measures to facilitate further training both at home and abroad, and every effort hasto be made to expand the output of secondaryschools as quickly as possible. Clearly, however, suchmeasures can only effect a radical transformation inthe manpower situation over an extended period ofyears, and, in the meantime, domestic supplies ofskilled manpower must be augmented by foreign personnel if larger development programmes are to beundertaken.

OTHER SCARCITIES

The above analysis of the key scarcities obviouslydoes not embrace all the shortages which may confront developing countries at one time or another.Structural rigidities may give rise to shortages, notonly of capital goods or food but also of other keygoods or services. Such shortages, however, canmostly be relieved through imports and are thereforepart of the more general problem of foreign exchangescarcity. But there are exceptions, most notablypower and transport shortages. The emergence ofbottlenecks in power or transport has not infrequentlyimpeded the growth of total output, revealing theneed for more careful forward planning of power andtransport requirements. These, however, have beenless fundamental than the scarcities in supply of keyresources discussed above.

International policies and development planning

Action to lessen the main constraints on the acceleration of economic growth is necessarily the primary responsibility of the deve10ping countries themselves. For reasons which have just been analysed, itis none the less apparent that there are many limitations on the effectiveness of unaided efforts. At theirpresent stage of development, these countries cannothope to achieve high and sustained rates of economicgrowth unless the commercial and foreign aid policiesof the developed countries are also attuned to thisobjective. The measures which the developing countries have pmposed to undertake are reviewed in theanalysis of current plans contained in the followingchapters. In the remainder of this chapter, attentionis turned to some of the main implications of development problems for international policies.

AID REQUIREMENTS AND POLICIES

Virtually all current development plans assumethat foreign capital will be forthcoming to supplementdomestic resources. International flows of capitalplayed an important role in the development of anumber of countries throughout the nineteenth andearly twentieth centuries; and while the nature andaims of economic development have 'changed in manyrespects, the need for foreign capital to promotegrowth in developing countries is as much presenttoday as it was in the earlier periods. But whereasin the nineteenth century international lending andinvestment were undertaken by private capital inresponse to the opening up of opportunities for highreturns, international development financing in thepresent day predominantly involves the use of publicfunds. It is therefore a matter of public concern thatthese funds be used in the most effective way and in

a manner which will reduce the need for externalassistance as speedily as possible. These considerations have stimulated the interest of donor countriesin problems of development strategy and planningand, in particular, they have focused attention on theneed for appropriate criteria to assess developmentalrequirements and performance. Partly to facilitatesuch assessments, national and multilateral agenciesconcerned with international development assistancehave encouraged developing countries to elaboratedevelopment plans. These have served to provide anover-all view of available resources, to indicate thelikely increase in requirements and to clarify the roleof domestic policies. On this basis, it has been possible to form a clearer impression of the nature andmagnitude of the gaps in domestic resources whichmight be filled by means of external assistance.

This task of assessing the magnitude and the kindsof aid required by the developing countries is closelybound up with the issues discussed in the precedingsections. Identification of the key scarcities confronting these countries is a first step in this process ofassessment. But donor countries and institutionsalso seek assurance that adequate domestic efforts tolessen these scarcities are being made. Some donorcountries, in fact, make the adoption of appropriate"self-help" policies a pre-condition for the grantingof assistance.

Evaluation of the adequacy of the policies beingpursued by a developing country is both a complexand a delicate matter. Some indication of the variouspolicies that would be appropriate to lessen the different kinds of constraints which may confront countries has been given in the preceding sections. Butclearly, both the nature of the obstacles and the


adequacy of the policies are questions on which theremay be wide differences in interpretation. In practice,the reviewing bodies in donor countries and institutions have based their economic judgements on ageneral analysis of the economy, on past policies andperformance and on the recommendations containedin plans. Because of the confidential nature of thesereviews, however, the economic criteria which havebeen applied are not generally known. This in itselfhas been one factor impeding the emergence of amore unified approach to the allocation of aid amongthe donor countries and institutions; and a more systematic exchange of views on the weight whichmight be given to different criteria has been one important function of the machinery for consultationamong both donor and recipient countries establishedin recent years.

Kinds of aid

The particular nature of the key scarcItIes confronting a developing country go far towards deter...mining both the magnitude and the kinds of aidwhich it requires. If, for example, the low level ofdomestic saving is identified as the dominant hindrance, the magnitude of aid requirements can beestimated as the difference between the volume ofinvestment needed to realize an adequate rate ofgrowth and the expected level of domestic saving at stable prices. Alternatively, if the capitalinflow is viewed as a supplement to foreign exchangereceipts, requirements may be estimated on the basisof export projections and assumptions about the imports needed to attain a desired rate of growth. Thesetwo kinds of measurement do not merely representdifferences in statistical technique, but address themselves to two kinds of shortages in resources. Thesemay be quite different in magnitude, and it is important that capital requirements should be measuredon the basis of the larger of the two gaps. If, forinstance, the foreign exchange gap is larger than thesaving gap but foreign aid requirements were measured in relation to the latter, import requirementscould not be fully met and the target for over-allgrowth might have to be lowered.

Similarly, differences in the nature of the keyscarcities largely determine the kinds of aid that arerequired. In the face of an acute shortage of skilledmanpower, for example, considerable emphasis in aidpolicy has to be placed on technical assistance. However, while large-scale technical assistance may oftenbe necessary, it usually needs to be combined withcapital aid to produce the desired results. Concentration of effort on elimination of a shortage of trainedmanpower may increase a country's ability to raisethe level of investment faster than its ability tosave. Unless foreign capital becomes available to raisethe level of investment, some of the benefits oftechnical assistance may be lost.

Where domestic saving is insufficient to supportan adequate level of investment without the emergenceof inflationary pressure, external assistance may berequired to cover, not only the foreign exchangecomponent of any additional investment but also partof the domestic costs. If aid is confined to the financing of imports of capital goods, lack of resources tomeet domestic expenditure may prevent the investment from taking place. In practice, what is morelikely to happen in such cases is that local savingwill be diverted from other uses to the project forwhich aid has been allocated. In that event, totalinvestment will increase only by an amount equivalentto the imported capital goods. The provision of aidas a general supplement to the domestic resourcesavailable for investment has, in fact, been a commonpractice in programmes of assistance to formerdependencies, notably in Africa.

In countries where foreign exchange is thedominant scarcity, external assistance serves primarily as a supplementary source of import finance.If assistance is provided for specific investmentprojects, local costs can usually be financed from therecipients' own resources. However, in cases of severeforeign exchange shortage, it may be necessary toprovide aid not only to finance the direct import requirements of projects but also to cover some part ofthe demand for imported goods which will arise fromthe increased income generated by additional investment. In general, where a country's administrativemachinery is adequate to the task of implementing adevelopment plan, programme assistance or generalbalance of payment assistance is preferable in viewof the wide range of imports for which aid isrequired and also because it enables the recipientcountry to plan the use of its total foreign exchangeresources more efficiently.

Finally, in countries where the inflexibility indomestic food production contributes to the scarcityof foreign exchange, the provision of aid in theform of food can also make an effective contribution towards relaxing the constraints on growth.If food supplies fail to keep pace with the growthin demand, a country with inadequate foreign exchange resources may be unable to increase investment expenditure because the resultant increase inincome would create inflationary pressures. In thatevent, the receipt of food aid can facilitate an expansion of investment and employment in conditionsof domestic price stability.

External assistance in relation to current plans

Actual estimates of the external assistance required to bridge the gap between requirements anddomestic resources have invariably been included inthe current plans of developing countries. The targetsand assumptions on which these estimates have been


based are explored in some detail in the chapterswhich follow. But it may be noted here that, inalmost all the plans reviewed in the present report,the planned annual deficit in the balance of paymentson current account has been expected to be substantially larger than it was in the immediate past.In fact, if the planned deficits of the seventeen countries included in table 4-10 are taken together, thetotal deficit is approximately twice as great as thatprevailing in the past. Moreover, this understatesthe increase in the net inflow of foreign capital whichis assumed. While some countries were previouslyable to finance their deficits partially by drawingdown their reserves, few, if any, have expected to beable to reduce their reserves further in order tofinance deficits arising during their current planperiods.

The increase in the net inflow of foreign capitalimplied in current plans would, if realized, representa substantially greater expansion in the net annualflow of capital to developing countries than haf1actually occurred in the recent past. Between 19561959 and 1960-1962, the net flow from all sourcesto developing countries increased by only one-fifth.It is true, however, that there has also been atendency towards the concentration of aid on selected-countries in recent years; in fact, during the periodjust mentioned, the net outflow of capital to thecountries included in table 4-10 (excluding Venezuela) increased by 40 per cent. But though thistendency towards concentration may persist, fulfilment of the foreign aid expectations of all thesecountries remains highly improbable on the basisof recent trends.

Even though very large, the estimated deficits inthe balance of payments on current account under~

state the total requirements of developingoountriesfor external assistance since they do not take account of amortization payments. The amortization ofoutstanding external debts constitutes a first claimon foreign exchange resources, and the projectedcurrent account deficit is only feasible if the inflowof new funds is large enough to cover this deficitand replace current foreign exchange receipts absorbed in debt repayment. The majority of planshave indicated that annual amortization paymentswould be considerably larger than was the case inthe immediate past. In some countries, they havebeen expected to be as large as, or even largerthan, the current account deficit, while in most countries they amount to between one-fifth and twothirds of the deficit on current account. The grossrequirements for foreign capital during the planperiod are thus substantially larger than net requirements and, moreover, represent a greater increaseover their past level than do net capital requirements.

Not many of the current plans have indicatedthe expected magnitude of annual investment income

payments, but the available data suggest that thesehave been expected to be substantially larger thanin the years immediately preceding the plan. Apartfrom the countries where investment income payments arise chiefly from private investment inexport industries and where such transfers consequently tend to move in line with export receipts,the rise in investment income payments has beenexpected to absorb a larger proportion of exportreceipts than in the past. The implication is thatthe net inflow of external capital will partiallyserve to compensate for the transfer of incomearising from past borrowing and that the net addition ,to the real resources available to countries foreconomic development will be equivalent to only apart of the net capital inflow.

The problem of debt servicing

The increase in interest and amortization payments projected in current development plans isindicative of the marked growth in external indebtedness of the developing countries which has occurredin recent years. So sharp has this increase been thatthe problem confronting the developing countries inmeeting the interest and amortization payments required to service their external debt has becomeone of the central issues of international developmentpolicy.

Some impression of the magnitude of the recentincrease can be obtained from estimates made bythe International Bank for Reconstruction and Development. 9 These indicate that the outstandingpublic and publicly guaranteed debt of thirty-fourdeveloping countries increased from $6 billion in1955 to $16.3 billion in 1962.10 The consequentgrowth in the debt servicing burden of developingcountries has been very considerable. Amortizationpayments on such outstanding public and publiclyguaranteed debt increased more than threefold overthe same period while interest payments almostquadrupled.11 By contrast, receipts from merchandiseexports of these countries increased by less than10 per cent. This meant that, by 1962, interest andamortization payments had risen in amount to an

9 "Economic Growth and External Debt-A StatisticalPresentation", document submitted by the InternationalBank for Reconstruction and Development to the UnitedNations Conference on Trade and Development (EICONF.46/40).

10 The outstanding debt of all developing countries otherthan those in south and south-east Europe was estimated at$25 billion in 1962.

11 The sharper increase in interest payments may seemsurprising in view of the general easing of lending termssince the late nineteen fifties. But the easing of interestrates on official lo.ans from some donors was apparentlyoffset by the growmg share of guaranteed private creditsat high interest rates in the total amount of outstandingdebt and by the increased contribution to the total supplyof aid-funds of some donor countries whose interest ratesare relatively high.

16 PART 1. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVE LOPING COUNTRIES

equivalent of 13 per cent of export receipts. Thesepayments, moreover, related only to public andpublicly guaranteed debt and did not include servicepayments on private credits or the transfer of incomefrom private direct investments.

A number of factors have underlain the extraordinary growth in the external indebtedness anddebt servicing burden of the developing countries.Of fundamental importance has been the initiationof policies in the developing countries to accelerateeconomic growth. For some of these countries, aninflow of foreign capital has become essential inorder to supplement the low levels of domesticsaving and to achieve an adequate rate of domesticinvestment. For others, the coincidence of efforts toaccelerate domestic growth with sluggish trends inworld demand for their exports has placed foreignexchange scarcity in the forefront as the dominantimpediment to growth. Confronted by structuralrigidities which prevent an acceleration in exportearnings or the rapid development of domesticsubstitutes for imported investment and other goods,countries have had to rely on an inflow of foreigncapital to finance part of their import requirements.Thus, in general, the implementation of policies foreconomic development has been partly conditionalupon the institution of aid programmes under whichcapital is provided in response, not to market incentives but-at least in principle-to the requirements of economic growth.

But further, there is little doubt that there was inthe past a general tendency to disregard the persistent nature of the sluggish trend in export earnings of most developing countries. Much foreignlending and borrowing to relieve foreign exchangescarcity took place on the assumption that suchscarcity was a temporary phenomenon. Many loanswere accordingly scheduled for repayment within arelatively short period; their terms were not relatedto the time required for the investment to pay itsway and even less to the time required to effect thestructural adjustments which would relieve foreignexchange scarcity.

Of the two components of debt servicing, namely,interest and amortization payments, this has particularly affected recent trends in the latter. To aconsiderable degree, the recent increase in amortization payments reflects the unfavourable maturitystructure of a large proportion of the external borrowing which took place in the latter part of thenineteen fifties. Developing countries made extensiveuse of export credits offered by manufacturers indeveloped countries to finance imports of capitalgoods or other manufactures. Such credits, usuallyprovided under government guarantee, were largelyrepayable within five years or less. Loans with relatively short maturities were also obtained from for-

eign banks or official lending institutions fOf theconsolidation of commercial arrears or for generalbalance of payments support. In consequence of suchfinancing transactions, the average life of the outstanding external debt has become relatively short.12

A further factor contributing to the recent rise inamortization payments has been the expiration ofgrace periods on official loans obtained in the latterpart of the nineteen fifties. Since such loans oftenallow grace periods of around five years, amortization payments on the growing volume of loansgranted after 1956 have increased appreciably sincethe beginning of the present decade.

It is true that the recorded increase in public andpublicly guaranteed external debt tends, in somedegree, to overstate the growth in the total debtservicing burden of the developing countries. Theincrease in public or publicly guaranteed externaldebt since the mid-nineteen fifties has been accompanied by some curtailment in the flow of privatecapital to the developing countries for direct investment; and the consequent shift in the compositionof capital flows has probably reduced the averagerate of return payable on all foreign capital. Evenallowing for this qualification, however, it is quiteevident that the growth in the debt servicing burdenof developing countries has been very considerable.

It has come to be fairly widely recognized thatpast international aid policies were deficient in theirdisregard of the problem of debt servicing. In thepast, the prevailing approach was to finance importsof equipment for specific development projects onterms which were considered appropriate to theindividual projects. The problem that emerged at thenational level of servicing the various loans whichhad been received was not taken into account but wasregarded as an issue which was the sole responsibility of the recipient country. In the event of acutedebt servicing difficulties, assistance was provided onan ad hoc basis in the form of balance of paymentsloans, consolidation credits or similar financial accommodation. In the recent past, the increased emphasis on programme aid in place of project aid hasenabled recipient countries to accommodate debtservice payments somewhat more easily in their foreign exchange budgets; this, however, has only provided temporary alleviation to the problem of debtservicing by postponing it to a later date.

Dissatisfaction with the past approach has led,in recent years, to the introduction of some important changes in aid policies, especially among theprincipal donor countries and institutions. In par-

12 The International Bank for Reconstruction and Development estimated that, as of 1962, the average life of the external public and publicly guaranteed debt of developingcountries was slightly more than eight years. See "EconomicGrowth and External Debt-A Statistical Presentation"op. cit., page 15. '


ticular, there has been a notable shift in policytowards the substitution of soft loans for hard loans.Thus about one-half of the official bilateral loanscurr;ntly extended to developing countries c~r.ryrates of interest of less than 3 per cent and matuntIesof twenty years or more, whereas, as recently as1961, only about one-quarter of all new official loa~s

were made on these relatively lenient terms. In addItion, much greater attention has been given to thepossibility of varying the combination of grants andloans on different terms in order to adapt the totaldebt burden more suitably to the circumstances ofthe recipient country. It should be noted, however,that these changes in aid policies have also beenaccompanied by a reduction in the flow of cashgrants to developing countries, and this has, to someextent, offset the benefits derived from the easingof lending terms.

Underlying these changes in lending P?licy hasbeen a concern to bring the terms on which loansare extended more closely into line with the prospective debt servicing capacity of the recipient countries. It would have ;to be admitted, however, thatcurrent views on how the debt servicing capacity ofa developing country should be assessed are far fromhaving been crystallized. Yet the notion of d~bt

servicing capacity which is actually employed togUldeforeign aid policies is influential in decisions aboutthe volume, kinds and terms of the aid to be extendedto individual recipient countries.

At least until recently, debt servlcmg capacityhas usually been defined in terms of certain practical short-term limitations on the ability of a country ~o make financial transfers abroad for meetingdebt obligations. This has been evaluated on the basisof the ratio of debt service payments to foreign exchange receipts from exports of goods and services.Since debt service payments cannot be varied in thelight of changes in external receipts, the ratio is anindicator of the degree of flexibility in a country'sbalance of payments. A high ratio suggests that itmight be inadvisable to provide more foreign loanssince, in the event of a downturn in exports receiptsor of an unforeseen increase in import requirements, the recipient country might encounter debtservicing difficulties. Even from the standpoint ofan appraisal of short-term servicing prospects, however, the debt service ratio is subject to major qualifications. It neglects, for example, the magnitude ofthe foreign exchange reserves or compensatoryfinancing facilities that may be available to offset adecline in export receipts. Nor does it take accountof the degree of flexibility that may exist in imports; if imports exceed the basic requirements ofthe economy, it may be feasible to reduce them in theevent of a decline in export receipts. Finally, it ig-

nores the internal transfer problem that must alsobe overcome to service foreign debt.

But the fundamental objection to this measure isthat it does not define debt servicing capacity in thecontext of economic development. While short-termconsiderations cannot be dismissed as irrelevant,the debt service ratio does not constitute a measureof debt servicing capacity which is related in anyway to the long-term growth objectives of th~ ::ecipient country. If it is accepted that the. defimtl?nof debt servicing capacity should be conSistent Withthe aim of realizing adequate rates of growth in thedeveloping countries, then the whole approach ~~ itsassessment becomes quite different. Debt servlcmg,after all is not solely a financial transaction but entails the'transfer of resources from the borrowing tothe lending country. But if a net transfer of realresources to a developing country is required for theachievement and maintenance of an adequate rate ofgrowth, the country will be able to service externaldebt only so long as the net financial inflow exceedsthe net inflow of real resources required to sustainthe agreed rate of growth.13 If it does not, the resources needed for debt servicing can only be obtained through a reduction in import requirementsand, hence, in the over-all rate of growth.

Seen in this light, debt service capacity becomesdependent on the long-term trends in the domesticsaving performance and foreign trade performanceof the developing country. So long as domestic saving falls short of the investment required to sustainthe agreed rate of over-all growth or so long asexport earnings fall short of import requirements forsuch growth, a transfer of resources from abroad isnecessary. But in these circumstances, the developingcountry will even be unable to meet the investmentincome payments component of its debt servicingobligations without an additional inflow of externalcapital. When the gap is bridged, the country willno longer require external assistance to replace theresources used to meet investment income payments.But fresh borrowing from abroad will still be necessary to cover the amortization of debts accumulatedin the past.

The practical implication of this longer view ofdebt servicing capacity is that developing countriesrequire external assistance not only to bridge thegap between their domestic saving and investmentrequirements or between export earnings and importrequirements, but also to meet their debt serviceobligations. And this makes a very considerable dif-

13 The net inflow of real resources is equivalent to theimport balance on goods and services which become availablefor current consumption and investment. The net financialinflow is equivalent to the current account deficit on goods,services and investment income payments; investment incometransfers are financial payments which are not associatedwith an inflow of real resources at the time they are made.

18 PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND· PROGRESS IN DEVELOPING COUNTRIES.

ference to the total volume of external assistancewhich they need.

It has been noted earlier that current developmentplans have been based on the assumption that therewould be a very substantial increase in the net inflow of capital. It is true that the planned rates ofgrowth in total output have generally represented avery considerable acceleration over the rates actuallyprevailing in the past. But even if a more modestacceleration had been assumed, it is still quite certainthat this would have implied a substantial increasein the net inflow of capital. Further, it is also withoutdoubt that most developing countries will continueto need a large net inflow of external assistance inthe years following the completion of their currentplans.

But, as a consequence of the continued need fornet borrowing from abroad, the external indebtedness of the developing countries is bound to increase. Moreover, the magnitude of the likely growthin the debt service burden is very considerable. Thus,it has recently been estimated that, if the net annualoutflow of official loans from developed to developing countries were maintained at its present level ofapproximately $2.5 billion and if these loans continued to be extended on present average terms, thenthe burden of debt servicing would rise to $5.2 billionin 1970 and to $6.8 billion in 1975.14 It should berecalled that the total gross outflow of long-termfunds-both public and private-from developed todeveloping countries has currently been running atan annual rate of about $8 billion. Were this rate toremain unchanged, the debt servicing of officialloans alone could absorb by far the greater part ofthe gross outflow by 1975. Far from there being anincrease in the net transfer of real resources to developing countries, as assumed in their plans, the nettransfer would progressively diminish.

'While the problems created by the growth in thedebt servicing burden of developing countries haveled to the introduction of beneficial changes in the aidpolicies of some donor countries and institutions,their implications, not only for the terms of aid butalso for the volume of the gross outflow of capitallikely to be required, are still far from having beenfully appreciated. Recent policy decisions in donorcountries have actually led, not to an increase butto a levelling off in the total amount of official loancommitments to developing countries. Were thistrend to remain unchanged, the prospects for thefinancing of the investment and import requirementsof developing countries would not appear to beencouraging.

14 A Study of Loan Te1'1ns, Debt Burden and Development, Agency for International Development, United StatesDepartment of State (Washington, D.C., April 1965).

TRADE POLICIES

Trade policies of developed countries

Adequate foreign aid policies are only one aspectof the favourable external conditions required bydeveloping countries for the achievement of adequatedomestic growth. For most developing countries,.trends in foreign trade are of fundamental importance in determining the growth in their capacity to,import as well as, quite frequently, the growth indomestic income and saving. Thus, the commercialpolicies pursued by developed countries with regard'to imports from developing countries are not less.important than their foreign aid policies. In principle, these should reinforce one another, but inpractice, liberal aid policies have frequently beenpursued concurrently with restrictive commercialpolicies. Yet the extension of aid and the relaxationof restrictions on access to domestic markets are,to some extent, alternative measures. This is especially true for those developing countries where foreign exchange scarcity has been a dominant hindrance to domestic economic growth. In these countries, an increase in export earnings can contributeas much to the lessening of this constraint on growthas an equivalent increase in the net inflow of aid.

As is brought out in a later chapter, many of thecurrent plans of developing countries have aimed toachieve an acceleration in the rate of growth of theirexports. It has had to be recognized, however, thatthe scope for accelerating the growth of traditionalprimary product exports is limited by the relativelyslow growth of world demand for many of thesecommodities as well as by the various restraintsimposed on imports by developed countries. Thedeveloping countries have therefore looked to diversification as a means of expanding their exports. Butdiversification involves finding outlets for exports ofprocessed products and manufactures in the face ofcommercial policies in developed countries whichtend to inhibit the growth of such trade. Althoughdiversification may be expected to contribute to anacceleration of exports even within the limit of existing import policies, major advances cannot beachieved without a liberalization of these policies.

There are relatively few primary commodities inwhich trade is not affected by some form of importrestraint such as tariff restrictions, quantitative controls or fiscal charges.15 While the severity of existinglimitations varies according to commodities and importing countries, their total effect on world tradein primary products is considerable. Some of theserestraints are a corollary of domestic agriculturalpolicies in the developed countries while others aim

15 For a full description of these obstacles and an appraisalof their impact, see World E.conomic Survey, 1963, I.Trade and Development: Trends, Needs and Policies (SalesNo.: 64.ILC.l), chapter 5.


to protect domestic producers of minerals and fuels.Certain tariffs and fiscal charges, on the other hand,are imposed for revenue purposes. The nature ofthese restraints and measures for their progressivereduction have long been the subject of study anddiscussion in international bodies and they wereamong the major items on the agenda of the UnitedNations Conference on Trade and Development.

Many developing countries look to the establishment of processing facilities for their export commodities as a means for increasing the value of theirexport. But the scope for development along theselines is at present limited by the import policies ofmany developed countries. For primary productswhich are normally traded in crude form, processingfacilities have been built up in the importing countries, and in order to ensure the full utilization ofsuch facilities, tariffs and import quotas tend todiscriminate in favour of imports of crude materials.The extent to which exports of processed productscan be expanded therefore depends on the willingnessof the importing countries to modify their importpolicy, as well as on the ability of the exporters tomaintain processing costs at a competitive level. Thisis a field where international co-operation can· yieldsignificant gains for the developing countries~in theshort run through changes in import policy and inthe long run through concerted action aimed at theredistribution of processing facilities in favour of theexporting countries. Such a redistribution is alreadytaking place in the special case of foreign ownedmining and petroleum enterprises, some of whichhave been enlarging processing facilities close to thesource of the raw material rather than in the importing country. But, at present, even these are sometimes affected by measures to protect competingproducers in the importing countries.

While the domestic processing of export productsrepresents a step towards reducing the heavy dependence of developing countries on primary production for their foreign exchange earnings, trade inprocessed products is subject to the same long-termworld market influences that affect exports of crudematerials. Since world trade in manufactures is bothmore buoyant and more stable than trade in primarycommodities, the developing countries are beginningto look to exports of manufactures in order to ensurea more rapid growth of their export receipts. Buteven apart from its beneficial effect on foreign exchange receipts, the development of an export tradein manufactures is frequently also essential to efficient industrialization. At the present time, manufactures from developing countries are faced withvarious restrictions in the markets of developedcountries. Products such as textiles, which developingcountries are able to produce at competitive prices,are limited by restrictions applied by many importingcountries for the purpose of protecting domestic

producers against "unfair competition". Other manufactures rnay not be competitive in the markets ofdeveloped countries under existing. tariffs becauseof relatively high production costs. Therefore, ifmanufactures are to make a growing contribution tothe export receipts of developing countries, therestrictions imposed by importing countries need tobe reduced or eliminated; to give added impetus, ithas also been suggested that developed countriesshould accord preferential treatment to manufacturesfrom developing countries.16

Co-ordination of policies among developing countries

International measures to facilitate the realizationof development targets, however, are certainly notconfined to action by the developed countries alone.Closer co-operation among the developing countriesthemselves can also contribute towards this end. Oneaspect of such co-operation lies in the better coordination of targets for exports to developed countries, the other in measures to expand trade witheach other.

In setting targets for their major exports ofprimary products, most developing countries havebeen guided by their expectations about the trends inworld demand for these products; and, as will beseen in a later chapter, these expectations generallyappear to have been based on the assumption thatfuture growth in demand would broadly conform totrends in the recent past. Having set their targetsfor their principal primary commodity exports inline with these expectations, they have implicitlyassumed that they would maintain their accustomedshare of world markets. At the same time, however,countries have generally planned for some diversification of their exports in the field of primary commodities as well as through the development of anexport trade in manufactures or semi-manufactures.And where countries have set targets for minorexports or where their principal exports have, in anycase, been of minor importance in supplying worldmarkets, there has been a tendency to set targetsmore by reference to domestic supply conditionsthan in conformity with expected trends in worlddemand. Primarily for this reason, the planned increases in exports of primary products could, ifrealized, result in some intensification of competitionin primary commodity markets among the developingcountries, particularly between the major and minorexporters of the same products. Shifts in sources ofsupply of primary commodities, as in other products,are bound to occur, and countries cannot be discouraged from developing new lines of production ifdomestic supply conditions appear propitious. But

16 For a full description of the obstacles to and measuresfor the expansion of manufactured exports, see WarldEconomic Survey, 1963, I. Trade and Development: Trends,Needs and Policies, chapter 7.


it would be to the common advantage if the developing countries had greater knowledge of eachother's intentions in this regard. For lack of information, most plans, in setting their export targets,have had to neglect the likely increases in suppliesin other producing countries on their own exportprospects.

To some extent, such information is being gatheredby interna.tional commodity study groups and inconnexion with existing commodity agreements, butthe range of commodities covered is limited. On theother hand, bodies engaged in the review of development plans for the purpose of evaluating aid requirements have access to the relevant informationon trade only to the extent that producing countriessubmit their plans for review; and consequently theinformation relating to individual commodities whichmay be gleaned from these reviews is not comprehensive. More intensive efforts by the developingcountries to exchange information about their programmes for exports could be to the common advantage since it could help to lessen the danger thatmutually conflicting targets might be established.

The other, and more important, field for co-operation among developing countries lies in explorationof the possibilities for the expansion of trade witheach other. In the recent past, regional trade cooperation has, in fact, aroused much interest, notsimply as a means of expanding exports, but as aninstrument of general development strategy. Thisinterest has stemmed, in large part, from recognition of the fact that the size of many developingcountries-measured in terms of their population andnatural resource endowment-constitutes an obstacleto the efficient growth of a diversified industry. Forsome countries, the domestic economy is too smallto support the large industrial complexes requiredfor future industrial growth; for others, large industries, while able to operate on a scale which istechnically efficient, enjoy a monopolistic positionwhich discourages economic efficiency. Enlargementof the market through expansion of trade in manufactures with other countries has thus been seen asa means of fostering efficient industrial growth.Faced with the difficulty of finding export outletsfor their manufactures within the existing international trading structure, developing countries havebegun to look to regional trading arrangements as apossible solution. The basic aim of th~se arrangements is the creation of protected markets to permitthe acceleration of industrial growth through diversification or the realization of gains obtainable fromspecialization. It should be added that interest inthe establishment of trading groups has also beenstimulated by the fact that, under the rules of theGeneral Agreement on Tariffs and Trade, developingcountries are unable to discriminate in favour of

each other's products except within the frameworkof such formal groupings.

Arrangements of an extensive nature for regionalintegration have so far been relatively few in number.One arrangement of long standing is the East AfricanCustoms and Currency Union between Kenya,Uganda and the United Republic of Tanzania. Thisis the oldest among the many groupings now inexistence in Africa. These countries have a commonexternal tariff and customs administration and maintain a number of common services, notably railways,telecommunications, higher education and research.Industrial development has none the less proceededmuch faster in Kenya than in the other countries,in spite of the introduction in 1948 of an interterritorial industrial licensing system. This was designed to attract new industries by offering securityagainst uneconomic competition and to ensure thateach of the participating countries would obtain atleast some new industries. In practice, this systemappears to have had little effect in furthering industrial development in the region as a wholeY Othergroupings in Africa have been of very recent origin.In 1964, for example, agreements were reached toestablish the Maghreb Economic Union comprisingAlgeria, Libya, Morocco and Tunisia, and theCentral African Economic and Customs Union comprising members of the Equatorial Customs Unionand Cameroon. It may also be noted that, under theauspices of the Economic Commission for Africa, agroup of experts has recently been considering thepossibility of establishing an African payments union.

One of the most far-reaching of recent initiativesis the agreement between six Central AmericanRepublics embodied in the "General Treaty ofCentral American Economic Integration". ThisTreaty provides for the elimination of customs dutiesover a five-year period and the establishment of acommon external tariff on a substantial proportion ofimports from outside the group. But its most interesting feature is the provision that manufacturingplans requiring access to the entire Central Americanmarket in order to operate with reasonable efficiencymay be designated "integration industries" and givenimmediate free access to all the national markets. Inorder to ensure the equitable distribution of integration industries, no member may acquire a secondintegration industry until all other countries haveone such industry. Plants established outside theintegration programme are subject to the usual dutiesand are to receive free entry only at the end of thetransition period. Arrangements for integration industries are under intergovernmental control and the

17 United Kingdom Colonial Office, East Africa, Reportof the Economic and Fiscal Commission, February 1961,Cmnd 1279 (London).


promotion and financing of co-ordinated industrialdevelopment is undertaken by a regional institution.

Another major initiative taken in this field inrecent years was the establishment of the LatinAmerican Free Trade Association. The Treaty ofMontevideo, under which the Association wasfounded, provides for the elimination of tariffs andother restrictions on "substantially all" the mutualtrade of its members over a twelve-year period. TheTreaty also lays down the very broad outlines ofcertain other arrangements, but leaves the detailsfor subsequent negotiation. These arrangementsrelate to the co-ordination of agricultural development and trade policies, the co-ordination of industrial development policies, and the negotiation of"mutual agreements on complementarity by industrialsectors". The firm commitments under the Treatyrelate primarily to the freeing of existing trade.Although it makes provision for the elimination ofbarriers on products which are not currently tradedamong the participants, there is no compulsion todo so. The Association is thus less specificallyoriented towards regional industrial developmentthan is the Central American Customs Union, andapart from its provisions regarding tariff reductions,the Treaty of Montevideo involves few specific commitments other than those relating to negotiation.Member countries have concluded several industrialagreements under which all intra-regional barriersto trade in specific industrial products are to beeliminated and national tariffs and other restrictionson imports from the rest of the world are to bebrought to a common level. But the successful implementation of these agreements depends on thewillingness of importers of these products within

the region to shift their sources of imports to regionalsuppliers.18

Elsewhere, numerous other agreements have beenreached for economic co-operation among pairs orgroups of countries. These agreements have invariably been much more specific in character than thefree trade or customs union arrangements justdescribed. They have usually related to the multinational development of common natural resourcesor economic facilities, such as river basin development or the construction of common transportationfacilities. In a few cases, they have also applied tothe establishment of particular industries. An important means whereby such forms of regional orsub-regional co-operation can be enlarged lies in theestablishment of regional development banks; thesecan serve to mobilize resources, not only for thefinancing of national but also of multi-nationalprojects. Such banks have been established in Africaand Latin America and, under the auspices of theEconomic Commission for Asia and the Far East, acommittee of nine Governments has been constitutedto consider draft statutes for a similar bank in theAsian region.

These various arrangements have been significant,not only because of the direct benefits which theyyield, but also because they provide a foundation formore extensive co-operation. There is no doubt thatthe scope for such arrangements, even of an ad hoccharacter, is far from having been fully exploited.

18 It should be noted that proposals for the creation ofa Latin American common market were very recentlysubmitted to the Governments of Latin America. A statement of these proposals is contained in document TD/B/l1.

Summary

This chapter has reviewed the key scarcities whichconfront developing countries in the process of theireconomic growth. These scarcities in the supply ofdomestic resources available for investment, in thesupply of key commodities or in the supply of trainedmanpower are present, in varying degree, in alldeveloping countries. Identification of the particularscarcities which constitute the dominant hindranceto growth in the current phase of development inwhich each country finds itself is an essential firststep in the formulation of appropriate nationalpolicies. It is incumbent upon the governments indeveloping countries to take measures to lessen thesescarcities as rapidly as possible. It has to be recognized, however, that the institutional and structuralcharacteristics of developing countries which underliethese scarcities do not yield readily to rapid change.

A favourable constellation of international policiesis a necessary condition of adequate progress in thedeveloping countries towards achievement of thetarget of the Development Decade. This applies noless to the commercial policies pursued by thedeveloped countries with regard to imports fromdeveloping countries than it does to their foreignaid policies. Foreign exchange scarcity is such awidespread source of hindrance to growth that theexpansion of both trade and aid are essential. Manyof the current plans of developing countries haveproposed measures to achieve an acceleration in thegrowth of their export earnings, usually throughexport diversification. But, while diversification maybe expected to contribute to the expansion of exportseven with the limits of the existing import policiespursued by developed countries, major advances


cannot be achieved without a liberalization of thesepolicies.

While the relaxation of commercial restrictions onimports from developing countries could lessen thetotal volume of aid required, more effective aidpolicies nevertheless remain essential. In certainrespects, aid policies have been substantially improved in recent years. Effective steps have beentaken to integrate aid policies more closely withnational development programmes, and a valuablepattern of co-operation between developing and donorcountries has emerged. This co-operation has, in fact,encouraged developing countries to draw up plansfor the acceleration of economic growth despiteunfavourable trends in foreign trade.

Nevertheless, the current level of aid in relationto the likely requirements of developing countries isfar from encouraging. The past efforts of developingcountries to accelerate economic growth have beenaccompanied by a steady increase in their externalindebtedness; in many countries, debt servicingobligations have begun to encroach upon the re-

sources needed to maintain levels of investment andrates of growth. And, despite a recent easing oflending terms, there is every indication that thisproblem will be greatly magnified in the future.

The growing debt service burden has pointed upthe need to reconsider debt servicing capacity inrelation to the objective of adequate growth in thedeveloping countries. And this, in fact, is true offoreign aid policies as a whole. Undoubtedly, muchprogress has been made in recent years towards abetter understanding of the process of developmentand of the role of foreign aid. The appraisal ofnational efforts and the integration of aid policieswith national programmes, however, are endeavourswhich are still in their infancy; and much morework remains to be done in such fields as the assessment of requirements, the appraisal of performanceand the evaluation of debt servicing capacity. Theanalysis of current plans in developing countriesand the review of recent progress in plan implementation which are contained in the followingchapters provide some of the background information necessary for this work.

Chapter 2

THE MAIN CONTOURS OF DEVELOPMENT PLANS

In recent years almost all developing countrieshave undertaken the elaboration of national plansfor economic and social development. For a few countries, current plans constitute the second or third ofa series. But for most countries, they represent thefirst endeavour in drawing up plans of a nationalcharaoter. They differ from previous planning exercises in that they do not deal solely with particular sectors of the economy, but consider thetask of economic development in the context of theeconomy as a whole. Indeed, particularly amongthe newly independent countries, these first planshave frequently served as the vehicle for a generalexposition of the policy of the government on allmajor issues affecting the economic life and socialwelfare of the country.

It is the purpose of the present and the followingthree chapters to review the targets and policiescontained in the current plans of a number of devel-

oping countries. The progress which has been madein the implementation of these plans is outlined ina later chapter. For the present, attention is confinedto the plan documents themselves and no attemptis made to assess the current operational significanceof these documents. By the same token, differencesamong countries in the official status of their planshave been ignored. While the plans of a few countries have been enacted into law and are binding onall executing agencies, they have more generallybeen approved by the legislative bodies as generalstatements of governmental intent which would besubsequently translated into specific legislative actsor administrative instructions. Certain of the plansreviewed in this chapter, however, have not beenratified and their official status remains uncertain.In a few countries, moreover, the plans, thoughadopted, appear to have been virtually abandonedas a consequence of political or economic changes.

Planned rates of growth

The planned rates of growth in total output provide the simplest possible quantitative summary ofnational plans. The annual rates of increase whichhave been set as targets in the current plans ofthirty-eight developing countries are shown intable 2-1, and it will be seen that the range ofvariation has been wide. No country has plannedfor an annual rate of growth of less than about4 per cent, a rate which numerous developing countries only barely achieved, or even failed to achieve,in the past decade. Only a few countries, moreover,have aimed for annual rates of growth of less than5 per cent. For the great majority of countries, planshave called for annual rates of 5 per cent or more.Indeed, for as many as one-third of the countries,an annual rate of growth greater than 6 per centhas been envisaged. Of course, since the expectedrates of population growth have usually been high,these rates of ,:-rrowth in total output have generallyappeared much more modest when translated intoper capita terms. In more than half of the countries,the planned rates of growth in per capita output, in

23

fact, has lain somewhere below 3.5 per cent perannum (see table 2-2).

The rates of growth in total output which mostdeveloping countries have proposed as targets fortheir plan periods would, if realized, mark a verydecided improvement over past trends. The transformation would obviously be greatest in those countries where past rates of growth in output werenegligible (see table 2-3). It is hardly surprisingthat such countries have planned for the greatestacceleration in the rate of growth; but it is moreremarkable that these also number among the countries which have chosen the highest rates of growthas their targets. By contrast, a few countries havenot planned any acceleration over their past ratesof growth or have even allowed for some deceleration.But it will be noted that such countries mostlyrecorded relatively high rates in the past. In mostcountries only moderate rates of growth were realizedduring the nineteen fifties, and their plans havegenerally proposed the achievement of an acceleration in growth of the order of one to 2 per centper annum.


Table 2-1. Planned Annual Rate of Growth inGross Domestic Producta

(Pereentage)

Table 2-2. Planned Annual Rate of Growth inPer Capita Gross Domestic Product"

(Percentage)

Approximate plannedrate of growth Country Plan period

APproximate plannedrate of growth

Country

MauritaniaMaliSenegalCongo (Brazzaville)China (Taiwan)Congo (Democratic Republic of) b

VenezuelaBoliviaSyriaTunisiaUnited Arab RepublicBurmaMoroccoTanzaniaCamerooncCambodiaCeylonChileColombiaEcuadorIndiaIranJamaicaRepublic of KoreaEthiopiaGhanaPakistanPhilippinesThailandKenyaTrinidad and TobagoSudanUgandad

Upper VoltaNigeriaeMalaysia

4.5

2

1.51

2.5

86.565.55

3.53

4

Source: See table 2-1.

aSee foot-note a to table 2-1.b 4 to 6 per cent.C 3.5 to 4 per cent.d 1 to 2.5 per cent.e 1 to 2 per cent.

1963-19661961-19651960-1964

1965-19691961-19641963-19661962-19671962-1971

1964-19681960-1970

1960/61-1964/65

1960/61-1964/651964-1973

1961/62-1964/651959-19681960-1964

1962/63-1966/671962-1966

1964/65-1969/701962-19711960-19801961-19701961-1970

1963/64-1969/701961/62-1965/66

September 1962March 1968

1961-19661960-1964

1963/64-1967/681964/65-1969/701961/62-1970/71

1964-19681962/63-1966/671960/61-1964/651961/62-1965/66

1961-19651962/63-1967/68

1963-1967

MauritaniaMaliChina (Taiwan)Congo (Democratic

Republic of)bSenegalVenezuelaJordanBoliviaCongo (Brazza-

viIIe)Ivory CoastSyriaUnited Arab Re-

publicEcuadorBurmaCeylonMoroccoPhilippinesRepublic of KoreaTanzaniaTunisiaCameroonChileColombiaGhanaIndiaIran

ThailandCambodiaJamaicaKenyaSudanTrinidad and

TobagoEthiopiaPakistanUgandaC

.. MalaysiaNigeriaUpper Volta

4.5

4

6.56

5

5.5

7.57

98.58

Source: Bureau of General Economic Research andPolicies of the United Nations Secretariat, based on nationaldevelopment plans. For titles of these plans, see annex l.

a For Malaysia and Tanzania, data refer to the formerFederation of Malaya and Tanganyika, respectively.Throughout this study planned growth rate refers to annualcompound rate, calculated for the period between the baseyear and the final year of the plan and generally fromdata in prices of the base year. Base year usually refersto the year preceding the first year of the plan or someearlier year. In a few cases, owing to limitations of data,the first year of the plan has been employed as base year.Base years of plans are listed in annex table II-2. Insome subsequent tables dealing with individual economicsectors, again because of limitations of data, base yearsin a few cases differ from those stated. For Morocco andTanzania, calculations pertain to the period ending in 1965and 1970, respectively; for all other countries final yearsof plans are as indicated in the last column above.

Except for the following countries, data refer to grossdomestic product at market prices; Cambodia, Ceylon and

Note a to table 2-1 (continued)

Jamaica, gross domestic product at factor cost; China(Taiwan), Iran, Malaysia, Pakistan and Republic of Korea,gross national product at market prices; India and Syria,national income; some French-speaking African countries,prodttction interiettre brute.

Colombia's plan indicates two target rates of growthbased on different hypotheses; for simplicity all calculations in this study refer to the lower target rate. Malaysia'splan shows certain targets in constant prices as well asin current prices, taking into account the anticipated declinein export price of rubber; the growth rate shown aboveis derived from data in constant prices, but where appropriate in subsequent discussion current price targets havealso been used.

Figures have been rounded to the nearest full or halfinteger.

b 7 to 9 per cent.C 3.5 to 5 per cent.

CHAPTER 2. THE MAIN CONTOURS OF DEVELOPMENT PLANS

Table 2-3. Past and Planned Annual Rates of Growth in Gross Domestic Producta

(Percentage)

25

Group and country'A nnual rate of growth

Past Planned

ApProximatedifference

Countries indicating very IOJrge planned acceleration overp'OJSt rate of growth

Morocco .Bolivia .Syria .Tunisia .Congo (Democratic Republic of) .

ChileTanzania .....

-0.4 6 6.5

0.9 7 60.8 7 61.6 6 4.53.8 8 4

2.5 5.5 33.2 6 2.5

Countries indiwting substantial planned acceleration overpast rate of growth

Ceylon .Ecuador .India .Pakistan .Sudan .

United Arab Republic .China (Taiwan) .Colombia .Kenya .Burma .

Cambodia .Ethiopia .Nigeria .Philippines .Republic of Korea .

Cotmtries indicating either no significant planned acceleration or some planned decline over past rate ofgrowth

Malaysia .Thailand .Venezuela .Ghana .Jamaica .

Trinidad and Tobago .

4.1

4.3

3.62.5

3.2

5.0

6.74.2

3.5

5.2

3.8

3.42.6

5.2

4.9

3.55.2

7.55.9

8.4

IDA

66.5

5.5

4.5

5

785.556

54.5

46

6

4

5.585.55

5

22

222

21.51.51.51

11111

0.5

0.5

0.5-0.5

-3.5

-5.5

Source: Bureau of General Economic Research and Policies of the United NationsSecretariat, based on Statistical Office of theUnited Nations, Y mrbook of National AcCO'untsStatistics; United Nations, Economic Bulletinfor: Latin America: Statistical Supplement(Santiago), and national development plans andnational statistical sources.

In interpreting these planned rates of growth intotal output, it is to be borne in mind that theyconstitute objectives which the developing countrieshave set themselves, and not predictions of the actualcour,se of events. Over-all targets have rightly re-

a For details on planned rates of growth, seefoot-note a: to table 2-1. Past period data referto the period between 1953-1954 and 1959-1960or a shorter period where data for years statedare not available; they have been conformedas far as possible to plan data.

b Countries are listed within each group indescending order of approximate differencebetween pa,st and planned rates of growth.

fleeted national aspirations to accelerate economicand social development, though they have necessarily been tempered by an assessment of the realpossibilities for improvement. In determining theplanned rate of growth in total output, most coun-


tries have, in fact, begun from some general notionof the long-run rate of growth which they considerdesirable to attain. Some countries, for example,have stated their long-term objective in terms ofan increase in per capita income over a given periodof years; particular instances are the plans of Burmaand the United Republic of Tanzania which call fora doubling of per capita income in a period of fifteento sixteen years. Other countries have expressedtheir aim in terms of a given rate of growth of perwpita income; the Latin American countries participating in the Alliance for Progress programme,for instance, have taken an annual rate of growthin per capita income of 2.5 per cent as a minimumobjective. Still others have expressed their aim interms of the achievement of self-sustaining growthwithin a given period; this, for example, was definedin the Nigerian Plan as the realization of a level ofdomestic savings of 15 per cent or more of grossdomestic product by 1975.

Within this framework of general aspirations, thetask confronting each developing country has beento formulate a feasible plan which would yield a rateof growth approximating the desired rate as closelyas possible. In the first instance, most countries haveestimated the attainable rate of growth by makingsome assessment both of the supply of resourcesfor investment likely to become available over theplan period and of the marginal capital-output ratiolikely to prevail over the period.Thus, the construction of a financial plan for investment has usuallybeen one of the first tasks undertaken in plan formulation. Estimates have been made of the supplyof financial resources likely to become available tothe public sector for developmental purposes; tothis, rough estimates of the expected trend in investment and saving in the private sector have beenadded. Since most countries rely on foreign capitalto augment domestic resources, the determinationof prospective trends in foreign trade and paymentshas also constituted an integral part of preliminaryplan formulation.

The degree to which these preliminary estimatesof the over-all rate of growth have been subject tofurther refinement and revision has varied considerably among countries. In the main, this has depended upon the amount of detailed planning whichhas gone into the elaboration of produotion and investment plans. In the initial, highly aggregativestage of estimation, the assumed marginal capitaloutput ratio has usually been based on past experience, perhaps roughly modified to allow for expectedchanges in investment composition or capacity utilization. However, in so far as detailed plans havebeen drawn up for the various sectors of production,it has been possible to estimate the over-all rate of

growth more accurately by summation of these morespecific targets.

Most plans have, in fact, established targets foroutput of the major sectors of production, but theyhave differed in the degree to which these sectoraltargets have been disaggregated. None of the developing countries reviewed in this chapter has, ofcourse, elaborated targets for all the specific goodsand services which are produced, or are likely to beproduced, in the domestic economy. Quite apart fromthe fact that this would be well beyond the capacityof the planning machinery in most countries, planning in such comprehensive detail generally wouldnot serve any useful purpose. Whether the publicphilosophy favours a private enterprise, mixed orsocialist economy, a large part of productive activityin all these countries is subject to private decisions.Consequently, a comprehensive elaboration of specifictargets would not be operationally useful, since manyof these targets would be beyond the capacity ofgovernment to implement. This is not to say thatplans have failed to set any specific targets at allfor output in the private sector. In numerous plans,targets for the output of certain key commoditiesproduced wholly or part1y in the private seotor havebeen indicated. In the agricultural sector, these haveincluded targets for major export crops and fordomestic food crops; in the industrial sectors, targetsfor certain essential consumer or producer goodssuch as textiles, cement, steel or fertilizers havebeen indicated. However, the primary purpose ofsuch targets has been to serve as guide-lines todecisions in the private sector. They have not reflected detailed plans for investment and outputelaborated in advance; rather, they have been indications of the increases in output which wouldappear to be feasible on the basis of fairly broadassumptions about the supply of resources likely tobecome available for investment and about the additional output likely to be produced by the new investment. Consequently, the margin of error in overall plan targets has unavoidably been considerable.

An important qualification in this regard arisesfrom the fact that, while the share of the privatesector in total output is generally very large, thepublic sector is usually expected to account for asubstantial part of total investment. Commonly, theplanned share of public investment in total investment has ranged from one-third to over one-half. Fora large part of the total investment programme,therefore, governments have generally been in aposition to elaborate plans for specific projects andto estimate the consequent increases in output likelyto ensue from implementation of these projects. Thishas been particularly true of countries where directparticipation of the public sector in the commoditysectors of production has been envisaged in plans.

CHAPTER 2. THE MAIN CONTOURS OF DEVELOPMENT PLANS 27

Where the bulk of public investment has been intended to strengthen the infra-structure of theeconomy or to enlarge social services, the effectof the investment on output has been less easy togauge. However, even where direct public investment in commodity production has been assignedan important role, it is by no means always truethat detailed plans for such investment have beenworked out in advance of the introduction of theover-all plan. In a few countries, particularly thosewhich have engaged in planning for some years andwhich have accordingly built up an extensive planning organization, considerable efforts have goneinto the preparation of major projects prior to planimplementation. But, in general, programmes forpublic investment over the plan period have onlybeen partially translated into specific proj ects whoseinvestment requirements and contribution to outputare fully known in advance.

For these reasons, even in countries where production and investment plans have been worked outin some detail, a large element of rough estimationhas entered into the assessment of the increase intotal output likely to result from the expected volume

of investment. However, while the large margin oferror inherent in the over-all targets should certainly be bome in mind, this fact does not detractfrom the value of the plans. It is not the accuracyof the estimated rates of growth but the vigourand appositeness of the policies proposed for theirrealization that constitute the measure of plans. Therates of growth that actually transpire may deviateappreciably from the targeted rates, not only becauseof the rough nature of the estimates, but also becauseof the advent of unpredictable events. The importance of the quantitative targets contained in plansi,s that they mirror the strategies which, on the basisof reasonable assumptions about the future courseof events, have been proposed for the achievementof national economic and social objectives; and itis these strategies which are of central interest. Thebroad review of targets for investment,saving, output and foreign trade contained in the following paragraphs seeks to bring out some of the main contrasts among plans in the nature of these strategies.The governmental measures which have been envisaged for the implementation of these targets arediscussed in subsequent chapters.

Planned changes in investment, consumption and the external balance

The proportion of total output which is to be setaside for increasing the productive capacity of theeconomy is a key decision of development strategy.For most developing countries, past levels of investment have not been sufficient to permit the realization of adequate rates of growth in total output,and an increase in the level of investment has therefore been seen as a primary condition of acceleratedgrowth. Inadequate levels of investment, it shouldbe noted, have not been a feature of all developingcountries. The past levels of investment in somecountries, such as Burma, Jamaica, Trinidad andTobago, and Tunisia, appear to have been relativelyhigh, the share of investment in gross domesticproduot having reached or exceeded 20 per cent;and in some of these countries, plans have accordingly envisaged no change or even a decline in theproportion of resources allocated to investment. Inthe great majority of countries, however, a principal objective of plans has been to raise investmentto a level substantially above that prevailing in theyears immediately preceding the plan. Thus as canbe seen from table 2-4, it has generally been envisaged that the share of investment in gross domestic product would be considerably greater in thefinal year of the plan than in the base year.1

1 Planned annual rates of growth in investment are shownin annex table II-I.

The magnitude of the planned change in investment has none the less varied considerably amongcountries because of the different assumptions madeabout the growth in total output and about thevolume of additional domestic and external resourcesthat might become available for investment. When,for the sake of comparability, the changes over thewhole of the plan periods are reduced to averageannual changes, it will be seen that in most countriesthe planned annual increase in the share of investment in gross domestic product has been high.2 Onlyin a few countries has no change or even a declinein this share been proposed. In most countries theincrease is within the range of 0.4 to one per centper annum; in some, it is greater than one per cent;and in the exceptional instances of Morocco andPakistan, the planned increase reaches the very highfigure of 2 per cent.

The magnitude of these planned increases in theshare of investment can perhaps be more readily

2 Since plans differ in the time periods which they cover,the changes planned by countries in the share of each component of gross domestic product are not strictly comparable.Where changes in components expressed as percentages ofgross domestic product have been presented, they haveaccordingly been reduced to annual changes through divisionof the planned change by the number of plan years. Thisprocedure has been followed throughout this study unlessotherwis'e indicated.


Table 2-4. Planned and Past Shares of Gross Investmentin Gross Domestic Producta

(Percentage)

ShareCountryb

Morocco .Pakistan .Republic of Korea .Tanzania .Malaysia............. . .

Senegal '" .Tunisia .Ethiopia .Philippines .Ceylon .

United Arab Republic .Colombia .Ecuador .Kenya .Chile .

India .Bolivia .Venezuela .Ghana .hm .Jamaica .Nigeria 'Sudan .China (Taiwan) .Trinidad and Tobago .Burma .Jordan .Mali .

Base yearof plan

1010141212102411121415191514131115192114201510202822

Final yearof plan

222023241715321518211825201818142020231620151019242017e

18e

A nnual increase in share

Planned Past

2.0 -1.92.0 0.51.51.4 -0.41.2 0.41.00.9 -0.90.80.8 0.20.7 0.80.7 -0.20.6 0.60.60.60.5 0.30.5 0.80.40.4 1.40.3 0.80.2 2.7

1.30.80.9

-0.2 0.7-0.7 1.5-0.8 -0.3

Source: See table 2-3.a For Ghana, Iran, Jamaica and the Sudan,

data refer to share of gross fixed investmentin gross domestic product; for India, theyrefer to the share of nert investment in nationalincome. For Iran and Venezuela, plm data arefor the plan period as a whole. Planned investment data for a number of countries includesome outlay in addition to investment in fixed

appreciated if their cumulative effect over a periodof years is considered. Thus, an increase of oneper cent per annum means that, over the short spanof five years, the share of investment in gross domestic product would rise by 5 per cent. Were itpossible to achieve such an increase in the proportionof resources allocated to investment, the rate ofgrowth in total output could be very substantiallyaccelerated. In developing countries, the incrementalcapital-output ratio has generally been within therange of 2 to 3 and this could yield an accelerationin total output approaching or exceeding 2 per centper annum.

The immediate question that arises in regard tothese planned increases in the share of investmentis how the additional resources necessary for their

aJssets and stocks. For other details, see footnote a to table 2-1 md foot-note a to table 2-3.

b Countries are listed in descending order ofplanned annual increase in share of gross investment in gross domestic product, except Jordanand Mali for which such information is notavailable.

e Plan period as a whole.

realization are to be obtained; and this is consideredin the paragraphs which follow. There is, however,another question which can also be raised, thoughit has often not been accorded much attention inplans; and this is whether the organizational, administrative and technical capacity of the economy willexpand sufficiently to prepare, construct and operatethe large annual increase in the volume of newprojects implied by these increases in investment.The past growth of investment in most countrieshas been limited primarily by the supply of physicalresources that can be made available for ,this purpose; and plans have generally concentrated on thisfactor as the key determinant of future increases.But it is pertinent to bear in mind that, at the higherrates of increase in investment which are contemplated in most plans, the administrative and technical

CHAPTER 2. THE· MAIN CONTOURS OF DEVELOPMENT PLANS 29

capacity of the economy to implement an expandedflow of new proj ects must also be enlarged. An important consideration in this respect is the futuresupply of ,trained manpower. As is brought out inthe next chapter, however, not many plans haveclosely analysed their future requirements and supplies of trained manpower, and the adequacy ofthese supplies over the current plan periods istherefore a matter of conjecture. Before consideringthe means by which the additional resources areto be made available for investment, however, it hasseemed worth while to recall that the availability ofthese resources alone does not necessarily 3Jssure therealiz3Jtion of an increased rate of investment.

The additional resources necessary to realize theplanned increases in investment may come eitherfrom a reduction in the proportion of domestic resources absorbed by consumption or from an increa:sein the proportion of total resources drawn fromabroad; the former is synonymous with an increasein domestic saving and the latter with an increase inthe defic1t in the balance of payments, both beingexpressed as percentages of gross domestic product.The changes envisaged in individual plans withregard to the roles of domestic and external resourcesare discussed in the following paragraphs, and it willbe found that, while most plans have called for areduction in the share of consumption, the plannedchanges in the role of external resources have beenmixed. In considering the more detailed analysiswhich follows, however, it should be borne in mindthat a planned decline in the share of consumptionin gross domestic product does not necessarily implyan absolute reduction in total consumption; for, theplanned level of gross domestic product-with whichconsumption is compared-has always been assumedto increase. In fact, as will be seen in a la:ter chapter,all countries have assumed in their plans that theabsolute level of total consumption would rise; whath~s been proposed is that a larger share of the increased output should be set aside for investment.By the same token, a reduction in the share of external resources does not necessarily mean an absolute decline in the net inflow of these resources.Even less does i,t necessarily imply that an elimination of dependence on external resources by the endof the plan period has been proposed. It is true thatsome countries have envisaged an absolute reductionin dependence. But very few have actually soughtto elimina:te their dependence completely.

The changes in the utilization of resources whichare proposed in the plans of developing countriescan be seen by comparing the actual pattern ofexpenditure in the base year of each plan with theplanned pattern of expenditure in the final year.Again, since plans differ in the time periods whichthey cover, it has been necessary to reduce these to

average annual changes; and these changes areshown in table 2-5.3

The countries shown in table 2-5 have been classified into three broadly different groups accordingto the magnitude of the planned change in the shareof consumption-or, in other words, of domesticsaving-in gross domestic product. In the first groupof countries, plans have proposed substantial increases in the share of additional resources to bereleased from consumption in order to augmentinvestment or to reduce the relative dependence onforeign capital. In the second group, the increasesin the share of resources to be released from consumption have also been appreciable, though significantly smaller than in the first group. In the thirdgroup, little or no change in the share of consumptionhas been planned and, in one extreme case, theproportion of resources to be absorbed by consumption has actually been planned to increase.

Within each of these three groups, two subgroupscan be distinguished according to whether the relative dependence on foreign capital has been plannedto decrease or increase. Thus, within the first groupof countries, the plans of Morocco, Pakistan andthe United Republic of Tanzania have assumed thatthe external balance, when seen in relation to grossdomestic product, would be more unfavourable atthe end of the plan period than it was at the beginning.4 In other words, it has been envisaged thatthe share of investment in total output would beaugmented, not only by a reduction in the share ofconsumption, but also by an increase in relativedependence on external resources. Given the substantial reductions in the share of consumptionproposed in these three countries, it is thus notsurprising that their planned increases in the shareof investment are among the highest of all thecountries shown in the table.

Among most of the other countries in the firstgroup, relatively large increases in the share of investment in total output have also been planned.These, however, have not been as great as the plannedreductions in the share of consumption, since anotheraim of the plans has been to reduce the relativedependence on external resources. As has just beenmentioned, care has to be exercised in interpretingthe meaning of these planned reductions in dependence on external resources. Some of the countries in this group have in fact assumed that theirdependence on a net inflow of external resourceswould continue to be substantial by the end of their

3 The distribution of expenditure in the base year andfinal year of each plan, from which the annual changesshown in table 2-5 have been computed, are set forth inannex table II-2.

4 For Morocco, however, this reflects the exceptional factthat, owing to political changes, there was a substantialcapital outflow in the late nineteen fifties.


Table 2·5. Planned Annual Changes in the Pattern of Expenditurea

(Percentage)

-0.6 0.6-0.6 0.2 0.4-0.6 0.6-0.5 -0.8 1.4-0.5 0.5-0.4 0.3 0.2

-0.5 0.8 -0.3-0.5 0.8 -0.3

Gro'uP and country

Group I. COtlntries indicating very large planned decline in share of total consumPtion

(a) And planned reduction or no change m relativedependence on external resources

Republic of Korea .Tunisia .. ,United Arab Republic.BoliviaSenegal .Ceylon .Chile .China (Taiwan) .Ecuador .

(b) And planned increase in relative dependence (m

external resourcesMorocco .Tanzania .Pakistan ,.,."" .. , .' .

Group II. Countries indicating substantial decline inshare of total consumption

(a) And planned reduction or no change in relativedependence on external resourcesColombia " .. , .Iran .,., , , ,., .KenyaBurma ., , .. , , , .India "... . "., , .. , .Ghana .. , ,., , , .

(b) And planned increase in relative dependence onexternal resources

Ethiopia ,., ", , " ,Philippines '. , , .

Group III. Coun·tries indicating slight or no planneddecline in share of total consumption

(a) And planned reduction or no change in relativedependence on external resources

Trinidad and Tobago.Nigeria , , , , .Sudan , , " .

(b) And planned increase in relative dep'endence onexternal resources

Venezuela ",.",., .Jamaica , , " .Malaysia , , , , .

Consumption

-2.5-1.9-1.5-1.4-1.3-1.1-0.9-0.9-0.8

-1.2-1.0-0.9

-0.1

-0.2

0.8

Grossinvestment

1.50.90.70.41.00.70.5

-0.20.6

2.01.42.0

-0.7

0.4

1.2

Externalbalanceb

0.91.00.81.00.40.40.31.00.1

-1.0-0.4-1.2

0.8

-0.2-0,1-2.0

Source: Annex table II-2.

a See foot-note a to table 2-1 and foot-note ato table 2-4.

b Balance of goods and services excluding

plan periods. But the important point is that thisdependence has been planned to be relatively smallerthan it was at the beginning of the plan periods. InChina (Taiwan), the Republic of Korea, Tunisiaand Senegal plans have all supposed a continued netinflow of foreign capital by the end of the plan

factor income. However, for countries wheretotal output refers to gross national product ornational income (see foot-note a to table 2-1)data pertain to balance of goods and allservices.

period; but it has been expected that its relativeimportance would be substantially reduced. Thedependence of these countries on external resourcesin the years immediately preceding their currentplans was exceptionally large, and it has thereforebeen an objective of their plans to achieve a greater


measure of self-reliance in advancing their economicgrowth.

Among the other countries in this group, namely,Bolivia, Ceylon, Chile, Ecuador and the United ArabRepublic, the planned reductions in relative dependence on external resources actually imply theachievement of equilibrium or of a surplus in theirbalances of payments on current account by the endof their plan periods. It has been expected that theresources for domestic investment and consumptionwould be met entirely from domestic output and fromimports financed wholly out of current exportearnings. Thus, the plans of these countries havesought to achieve self-reliant economic growth withinthe space of their current plan periods. This, it willbe understood, does not mean that current plans havenot been made contingent upon a net inflow offoreign capital; all these countries have assumed thatsuch an inflow would take place in the course oftheir current plans. Moreover, though targets havecalled for a surplus in current account by the end ofthe plan period, a gross inflow of foreign capital maystill have been assumed as necessary to financeamortization payments. Even so, the targets set inthe plans of these countries are clearly exceptionaland differentiate them sharply from the plans ofmost other countries.

In the second group of countries, a mixed patternof increased and decreased relative dependence onexternal resources is apparent. In Ethiopia and thePhilippines, plans have aimed at achieving relativelylarge increases in the share of investment in totaloutput, partly through increased relative dependenceon external resources. For the Philippines, this hasimplied a shift from a surplus to a deficit in theexternal balance and for Ethiopia, an increaseddeficit. In Colombia, Ghana, India and Kenya, appreciable shifts in resources towards investment havebeen planned without substantial changes in therelative dependence on external resources. ForGhana and India, this means a continuance of theirfairly heavy relative dependence on external resources. For Colombia and Kenya, the externalbalance has been expected to record a positivebalance in the final year of the plan as it did in thebase year.5 Within this same group of countriesBurma constitutes an exceptional case; it has beenproposed that an appreciable reduction in the shareof consumption would be accompanied by an evenlarger reduction in the share of investment, the

5 For Colombia, this is based on the hypothesis ofconstant export prices. On the alternative hypothesis ofdeclining rrices, a deficit is proj ected.

resources thereby released being applied to the Improvement of the external balance.

Among the countries in the third group, only verysmall or negligible changes in the pattern of expenditure have been planned in Nigeria and theSudan. In these two countries, the pattern of expenditure planned for the final year of the plan isabout the same as that prevailing in the base year;this suggests that no radical changes in policy havebeen contemplated as regards the utilization ofresources. In Trinidad and Tobago where the proportion of resources allocated to investment in thebase year of the plan was exceptionally high, theplan has proposed a reduction in the share of investment and an increase in the size of the surplus inthe balance of payments on current account. InVenezuela, the plan has called for an appreciableincrease in the share of investment, to be madepossible partly through a reduction in the share ofconsumption and partly through an increase in relative dependence on external resources. In this case,however, the increase in relative dependence actuallymeans a reduction in the relative size of the favourable balance on current account. A similar changehas been planned in Malaysia, where it has beenproposed that a strongly favourable external balancein the base year of the plan should be allowed togo into deficit in the course of the plan; this hasbeen planned to permit not only a large increase inthe share of investment, but also a simultaneousrise in the share of consumption.

. The pl~ns of de~eloping countries have clearlydIffered WIdely both 111 the magnitude of the plannedincreases in the proportion. of domestic income tobe saved and in objectives with regard to the futurebalance of payments position. A few countries havecoupled the objective of a substantial increase ininvestment with the aim of eliminating dependenceon a net inflow of foreign capital by the end of theircurrent plan periods. Most countries have assumedthat an inflow of foreign capital would continue toaugment the supply of domestic resources for investment. More often than not, however, the relativeimportance of external resources in supporting theplanned increases in investment has been expected todecline as a consequence of intensive efforts to raisethe level of domestic saving. Moreover, even wherean increase in relative dependence has been contemplated, a substantial increase in domestic savino-:-,has nevertheless been generally posed as an objective.The particular targets and policies proposed forrealization of these broad changes are reviewed inthe sections on foreign trade and payments plansand on domestic saving plans which are containedin later chapten;.


The planned pattern of resource allocation

Besides determination of the proportion of totalresources to be made available for investment, asecond key decision which has to be talu;n in theformulation of plans is the allocation of these resources among the various sectors and branches ofthe economy. This is influenced by the targets setfor investment, consumption and the external balanceon the one hand, and by the resource endowment andexisting structure of the economy on the other. Thetask is to decide upon the pattern of resourceallocation which, in view of the existing economiccharacteristics of the country, would appear to ensurethe greatest progress towards the realization ofnational aims. This decision is never reached in anymechanical way, but rather constitutes the outcomeof the positions taken on a number of major andclosely interrelated issues of economic development.It reflects, for example, views about the long-termstructural changes in the economy which are requiredto create the conditions for self-sustaining growth;it reflects opinion on the extent to which the growthof the economy should be integrated with international trade; it reflects the assessment of whatconstitute the key bottle-necks to growth in thecurrent plan period, and, perhaps most important,it reflects the positions taken by governments regarding the extent to which resource allocationshould be determined by the market mechanism orshould be subject to central decision.

Since the sectoral targets for private and publicinvestment are based on distinctly different considerations, the planned allocation of total investmentis best analysed in terms of these two components.In setting targets for private investment in thevarious sectors of the economy, countries appear tohave been guided primarily by the past performanceof private investment within each of these sectors.Initial plans for output of the different sectors ofproduction have constituted the framework withinwhich sectoral targets for private investment havebeen determined. The task has been to assess theextent to which the past performance of privateinvestment might be expected to improve in responseto the requirements for increased output postulatedin the plans. An important factor entering into thisassessment has been the expected influence of actualor proposed governmental policies designed to stimulate or assist private investment. It has sometimesalso been hoped that, as the result of favourablepolicies, an inflow of foreign private capital wouldsubstantially augment domestic private investment.Of course, in some countries, more concrete information about plans for private investment in particular sectors has been available; the investmentrequirements of especially large projects being initiated by private firms have usually been known to

planning agencies and, where the output of a sectoris mainly in the hands of corporate enterprises,consultations with the representatives of these enterprises have enabled planning agencies to make wellinformed estimates of the investment possibilities.

It is evident, however, that the targets set forprivate investlnent in the different sectors of theeconomy have been mainly in the nature of estimatesof the likely or desired performance of such investment. While governmental policies to promoteand redirect private investment can influence thevolume of investment undertaken in particularsectors, such investment primarily depends on privatedecisions. Thus, the differences which exist amongcountries in the expected distribution of privateinvestment among sectors reflect not so much differences in governmental policies regarding resourceallocation, as differences in the expected performanceof private investment within sectors. While the underlying assumption has been that the pattern ofprivate investment would be conditioned by theplanned changes in the composition of demand, ithas also not been possible to assume that the responseof private investors to the changes in market demandwithin particular sectors would be of the appropriatemagnitude; for this has depended on the variousinstitutional factors which influence the vigour ofprivate initiative in the economic field.

It is in the public investment programme thatdifferences among plans regarding policies for resource allocation emerge most clearly.6 The governmental programme for development expenditure, infact, constitutes the heart of a development plan.This is partly for the obvious reason that such expenditure is wholly under the control of the government and may therefore be allocated in conformity with the national plan. But it is also becausepublic investment expenditure is less bound byordinary market considerations; it may thereforebe utilized to bring about structural changes in theeconomy which would not otherwise be realized ifreliance were placed exclusively on private investors.It must be borne in mind, however, that the allocation of public development expenditure reflects notonly views about the structural changes in theeconomy requisite for economic growth, but also thephilosophy of government with regard to the appropriate spheres of public and private initiative.

6 It should be noted that the data on public investmentcontained in plans generally refer to the planned volumeof public funds to be made available for investment andnot to planned purchases of assets by the public sector.Thus, the data include credits or grants to the private sectorfor the purpose of investment and, to this extent, they donot measure the planned increases in publicly owned assets.


It should be noted at the outset that the size of thepublic investment programme in relation to totalinvestment does not, by itself, imply major differencesamong countries in policies of resource allocation.While in some countries planned public investmentmay have been intentionally increased at the expense of private investment-principally through thesubstitution of public for private ownership of themeans of production-the more typical aim has been

to increase public investment in order to augmenttotal investment. Thus, in many developing countriesdifferences in the shares of the public and privatesectors in total investment have depended, in largemeasure, on the relative vigour of private investmentactivity.

This is brought out quite clearly by the data shownin table 2-6. In countries where the share of grossdomestic capital formation in total output has, in

Table 2-6. Share of Gross Investment in Gross Domestic Product in Base Year of Plan and Planned Shareof Public Sector in Gross Investmenta

(Percentage)

Share of gross Pkmned share <>f public sector in gross investmentinvestment in

Commodity production Basic facilitiesgross domesticCountry· product in

Total Total Agri· Miningbase year Manufac- Total Power Transport Servicesof plan culture turing and com-

munications

United Arab Republic .. 15 65Pakistan .............. 10 64 57 83 45 29 75 96 67 66Ceylon . . . . . . . . . . .. . . . . 14 62 62 57 73 89 100 85 43India . . . . . . . . . . . . . . . . . . 11 61 55 60 --52-- 89 95 86 34Sudan ................. 10 60 58 75 9 33 71 100 66e 56Iran .................. 14 55 81 51Senegal ............... 10 55 30 78 17 10 100 100 100 63Tanzania .............. 12 53 46 77 42 25 93 62 100 44Chile ................ 13 52 20 32 3 20 72 76d 70 71Morocco .............. 10 48 32 40 47 17 94 58 100 63Ghana ............. 21 47 37 25 100Jordan ............... 47 45 67 79 91 37Burma ................ 22 45Ecuador ............... 15 43Kenya ................ 14 41Malaysia ..... ........ . 12 41Venezuela ............. 19 36 21 60 7 10 79 68 85 34Republic of Korea .. 14 35 23 56China (Taiwan) ....... 20 29 20 20 35 18 40 30e 57 30Colombia .............. 19 29 11 12 2 1 52 68 47 35Philippines ............ 12 23 12 30 4 9 40 100 20 11Jamaica ............... 20 20Trinidad and Tobago ... 28 19 6 51 6 62 100 44 19

Source: See table 2-1.a Except for the following countries, planned share refers

to the plan period as a whole: for Malaysia and in thecase of sectoral data for Colombia, it refers to the averageof the base year and the final year of the plan; for Trinidadand Tobago, estimates have been obtained by relating the annual average of public investment in the plan period as awhole to the 'annual average of private investment in thebase year and the final year of the plan. For India andMorocco and in the case of sectoral data for Ghana, thedata are hr net investment; for the Sudan they pertain

the past, been relatively low, the share of publicinvestment in total planned investment tends to berelatively high. In other words, since the past levelof private investment has been relatively low, heavyreliance has been placed on investment by the publicsector to raise the level of total investment duringthe plan period. Thus, past economic circumstancesas much as the economic philosophy of governments

to net investment excluding the subsistence sector, andfor Iran to development expenditure. For several countriesinvestment data exclude stocks. In general, the distinctionbetween public and private investment is according to thesource of funds.

b Countries are listed in descending order of plannedshare of public s'ector in total investment.

e Including distribution.d Electricity, petroleum and coal.e Including Shihman Reservoir Project.

have been a principal reason accounting for thedifferences among countries in the role assigned tothe public sector in total investment activity. Undoubtedly, in some countries, the relatively largeshare of the public sector has conformed with anexpressed preference for public ownership of themeans of production, while in others it has beenregarded solely as a policy of necessity; but whatever

PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

the viewpoint the broad outcome has often beensimilar. This is not to say. that the particular economic philosophy of the government has been withoutinfluence on the share of total public investment inplanned aggregate investment; this must undoubtedly have modified its share in individual countries,particularly when compared with their own past experience. But, for the kind of inter-country comparison made here and for the group of countriesshown in table 2-6, it appears that differences ingeneral economic circumstances have been at leastas impo,rtant an explanation.

The influence of the position taken with tegardto the appropriate spheres of public and privateinitiative is perhaps more evident when plannedpublic investment in individual sectors is considered.In most countries, as might be expected,basicfacilities have been assumed to lie largely or entirelywithin the public sector; the main, if not the entire,burden of planned investment in basic facilities hastherefore usually been carried by this sector (seetable 2-6). Though there have been greater variationsamong countries, the public sector has also tendedto account fot a substantial, if smaller proportion oftotal development expenditure in services. This sectorincludes general administration, education and otherservices which are everywhere regarded as the function of government; but it also includes expenditureon publicly financed housing, an element of policywhich varies considerably among countries. The moststriking differences among countries, however, haveappeared in the share of total investment whichgovernments have planned to undertake in the commodity sectors of production.

In the agricultural sector, the share of the centralauthorities in planned agricultural investment appears to have been related to their share in totalinvestment throughout the economy as a whole.\Vhere government is to account for a relativelylarge share of total investment, its planned share ofagricu1t.ural investment is also relatively high. Thisimplies that, in countries where particular emphasishas been laid on public inveiiiment to raise the levelof total investment, an important reason for thisemphasis has been the considered need for publicaction to augment private investment in the agricultural sector. Countries in which this is particularlyevident include Ceylon, India, Pakistan, Senegal, theSudan and the United Republic of Tanzania.

It is in manufacturing production that the shareof the public sector in total industrial investmenthas been influenced most obviously, though certainlynot exclusively, by views regarding the appropriateareas of public and private initiative. While almostall countries have planned to undertake some publicinvestment in manufacturing industry, the role assigned to public investment in this sector has varied

sharply. Its planned share has been very high insuch countries as Ceylon, India and the Republic ofKorea and very low in such countries as Colombia,the Philippines and Trinidad and Tobago. The largeshare of public investment in India and the Republicof Korea has partly reflected the priority given intheir plans to the development of heavy industry; butit has also reflected the readiness of the public authorities in these countries to take direct public actionin order to realize the accelerated development ofheavy industry. In India, this has been supportedby the fact that, on general political grounds, certainbranches of heavy industry are expressly reservedfor public ownership and control. Certain othercountries have similarly expressed a preference forpublic ownership and control, particularly in thefield of heavy industry. But this has not greatlyaffected current public investment programmes because, in view of their stage of industrialization, thesecountries have not stressed the development of heavyindustry at the present time. It would be erroneousto suppose, however, that any clear-cut dichotomyexists between developing countries in regard to therole assigned to the public sector in manufacturingindustry; rather, the positions taken by countrieshave ranged over a fairly broad spectrum. While, ina majority of countries, manufacturing industry hasbeen regarded as-at least in principle-the domainof private enterprise, some public investment hasnone the less been frequently envisaged. The actionhas usually been sustained on the grounds that thedevelopment of a particular new industry was essential, but that private investment for the industrywould not be forthcoming. Not only has the extentof such action varied among countries, but there hasalso been a considerable range of variation in theparticular institutional form which it has taken; ithas ranged from the establishment of new enterprises under outright public ownership and control,through various forms of mixed. public and privateenterprises, to the creation of privately ownedenterprises with the aid of financial and otherassistance from governments.

The strategy implied in public development programmes can be most readily appreciated by considering directly the planned pattern of public investment. The sectoral distribution of planned publicinvestment is shown in table 2-7. The data reveal therelatively heavy emphasis which, as just noted, hasbeen placed on public investment in agriculture 151'such countries as Ceylon, India, Pakistan, the Suda~and the United Republic of Tanzania; a similaremphasis is evident in Jamaica, Jordan, Malaysia,Morocco and the United Arab Republic. They alsoindicate the wide variations among countries in therelative importance assigned by the public sector toinvestment in manufacturing industry. By contrast,they bring out a striking similarity among countries


Table 2-7. Planned Distribution of Public Investmenta

(Percentage)

Commodity production Basic facilities

Group and co'untry Total Agricul- Min£ng Manu!ac- Total Powe·r Transport Servicestuye turing and C011}-

m1f..nications

Countries indicating ~Phas·is on com-modity prod~!ction and basic facilities

United Arab Republic .............. '. 55 24 I 31 25 6 19 20India .......... . . . . . . . . . . . . . . . . . . . . 48 21 --27-- 42 17 25 10Pakistan ........................ '.,". 48 35 3 10 29 10 19 23Ceylon " . ., ....................... 47 23 24 30 10 20 23Republic of Korea ................... 38 45

Countries indicating emphasis on com-modity production and services

Jordan ............. - ............ - .. 45 45 26 26 28Morocco ........................... 41 26 6 8 19 2 18 40Sudan . . . . . . . . . . . . . . . . . . . . . 41 32 9 28 6 22b 32

Countries indicating emphasis on 'basicfacilities and servicesIran . . . . . . . . . . . . 37 19 2 17 37 11 26 26Jamaica . . . . . . . . . . . 34 32c 3 25 11 14 41Tanzania .......... - ... . . , . . . . . . . . . . 33 22 2 10 28 3 25 38China (Taiwan) ........... .. ....... 30 12 3 15 48 22d 26 22Malaysia .......... , ... - ......... , .... 30 25 1 39 19 20 31Burma ............................. 27 15 2 10 37 8 29 36Nigeria ........... 27 14 l3e 44 19 26 29Senegal ...... , .. .... , ...... 26 19 2 5 38 4 34 36Venezuela ...................... 25 17 2 5 35 10 25 40Philippines ..... , ..... , . .... . 24 11 1 12 69 43 26 7Kenya ....... . . . . . . . . . . . . . . . . . . 21 -.-17-- 4e 35 45Trinidad and Tobago ................ 17 14 4 50 26 24 32Chile ........ . .......... 15 6 8 43 17f 26 42Colombia . . . . . . , . . . . . . . . . ......... 6 5 1 52 13 38 42

SOll.ree: See table 2-1.a Construction is generally included in services, except

in a few cases where it is included in total commodityproduction. For the United Arab' RepUblic, the data referto the average of the base year and the final year of theplan. For other details, see foot-note a to table 2-6.

in the proportion of planned public investment to beallocated to transport and communications; for mostcountries planned investment in this sector has fallenwithin the range of 20 to 26 per cent of total publicinvestment.

On the basis of the information about the planneddistribution of public investment,. three roughly,different groups of countries can be identified. Thesegroups reveal broad differences in the relative emphasiswhich has been placed in public developmentprogrammes on public action to develop commodityproduction, basic facilities or services. The largestgT(mp includes, among others, such countries asColombia, Kenya, Nigeria, Malaysia, Senegal, thePhilippines, the United Republic of Tanzania andVenezuela, where public development programmesbave concentrated mainly on the development of basicfacilities and services. Planned public development.expenditure on the commodity sectors of productionhas been relatively modest and has, moreover, been

b Including distribution.C Including Harker's Hall Multipurpose Reservoir Project.d Including Shihman Reservoir Project.e Trade and industry.f Electricity, petroleum and coal.

concentrated very largely in the agricultural sector..The plans of Jordan, Morocco and the Sudan, whichare the three countries forming the second group,have also called for relatively large expenditure onservices, but in contrast to the countries in the firstgroup, they have .tended to emphasize commodityproduction rather than basic facilities. Planned expenditure on commodity production has again beendirected largely to the agricultural sector. The thirdgroup of countries consists of Ceylon, India, Pakistan,the Republic of Korea and the United Arab Republic,where the principal emphasis .in development programmes has been on the directly productive 5ectorsof commodity production and basic facilities ratherthan on services. With the exception of Pakistan,the proportion of public expenditure allocated tomanufacturing industry as well as to agriculture hastended to be high in these countries.

The principal source of difference in public development programmes has clearly lain in the proportion

36 PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESSIN DEVELOPING COUNTRIES

of resources allocated to commodity production onthe one hand and to services on the other. For certainof the countries which have allocated a relativelylarge proportion· of resources to services, an influential factor has been the emphasis placed oneducation and training. As will be seen in the following chapter, such countries as Senegal and theUnited Republic of Tanzania have earmarked asmuch as 12 to 14 per cent of total public developmentexpenditure for education and training. Among mostof the countries reviewed here, however, the differences in the share of services in total public investment are not ascribable to this factor but to thediffering emphasis placed on expenditure on housingand the development of other social services. Thus,in countries where the share of services is relativelylow, this mainly reflects a decision to restrict expenditure on public housing and other social servicesin favour of investment in the directly productivesectors.

Of course, the sharp differences among countriesin the allocation of public development expenditurewould not be particularly significant if these wereexpected to be offset by equal, but opposite, differences in the distribution of private investment. Ithas already been suggested that, to some extent atleast, public investment has been used to compensatefor expected weaknesses in the performance ofprivate investment in individual sectors. And it is,in fact, true that when the distribution of total investment is considered, the str.ong contrasts amongcountries that are apparent in the allocation of publicinvestment tend to be lessened, at least when comparison is made between the three broad categoriesof commodity production, basic facilities and services.While the range of variation among countries in theproportion of public investment allocated to commodity production-and conversely, to services-isvery considerable, it is narrower in the case of totalinvestment. The tendency towards greater similarityamong countries in the planned distribution of totalinvestment than of public investment is even morestrikingly evident when the shares of manufacturingindustry in total investment and in public investmentare compared; the wide variation in the proportionof public investment allocated to industry diminishessharply when total investment is considered.

Still, the tendency towards greater similarityamong countries in the distribution of total investment than in the distribution of public investmentshould not be overstated. The influence of the strategies expressed in public development programmesupon the allocation of total resources has con-

tinued to be quite readily apparent. This certainlydoes not mean that the sectoral distribution of totaland public investment has tended to be the same ineach country; Basic facilities, for example, generallyaccount for a larger share of public investment thanthey do of total investment. But the point is thatwhen comparisons are made among countries of thedistribution of total investment, much the same contrasts appear as were evident from the comparisonsof public investment only.

Among the countries whose public developmentprogrammes placed the main emphasis on commodityproduction and basic facilities, targets for total investment have generally tended to reveal a similaremphasis (see table 2-8). This relation is clearlyevident in the plans of India, Pakistan, the Republicof Korea and the United Arab Republic. By contrast, in the larger number of countries whose publicdevelopment programmes assigned a relatively largeproportion of resources to services, the distributionof total investment has generally conformed to asimilar pattern. It was also noted above that countries differed quite sharply in the proportion ofpublic investment which they have allocated to agriculture, and a similar contrast is generally evidentwhen the distribution of total investment is considered. The weight given in public programmes tothe development of agriculture has been the dominantdeterminant of the planned share of this sector intotal investment. In manufacturing industry, the differences among countries in the share of publicinvestment allocated to this sector are largely offsetby the targets for private investment. But, as discussed in the next chapter, the influence of publicdevelopment expenditure none the less remains evident in the proposed allocation of investment betweenheavy and light industry. It is in India, the Republicof Korea and the United Arab Republic that theplanned share of total manufacturing investment inheavy industry has been largest.

It is quite true that, for certain countries, theplanned allocation of total investment among sectorshas differed substantially from the planned distribution of public investment. In the plan of Trinidadand Tobago, for example, although public investment has been heavily oriented towards basic facilities, it has been assumed that there would be arelatively large volume of private investment in commodity production and this has considerably affectedthe planned pattern of total investment. In the main,however, similar contrasts have been evident inthe distribution of total investment as of publicinvestment.

CHAPTER 2. THE MAIN CONTOURS OF DEVELOPMENT PLANS

Table 2-8. Planned Distribution of (Total) Gross Investmenta

(Percenroge)

37

Commodity Production Basic facilities

Group and country Total AgricultHre

Mining Manufacturing

Total Power Transport Servicesand com-

munications

Cmmtries indicating emphasis on com~

modity production and basic facilities

Bolivia ................. , ........... 61 14 32 12 17 6 11 23Pakistan ... . .............. 54 Z7 4 22 24 7 18 22United Arab Republic ................ 54 25b --29-- 28 12 15e 18India " . .......... . . ................ 53 2Z --31-- 29 11 18 18Republic of Korea ................... 51 17 6 28 49d

Countries indicating emphasis on com-modity production and services

Morocco ................ - .......... 60 31 6 23 10 1 8 30Tunisia .. . . . . . . . . . . . . . . . . . . . . . . . . . . 55 39 4 11 10 4 7 35Trinidad and Tobago................ 52 5 30 13 16 5 11 33

Cmmtries indicating emphasis on basicfacilities and services

Ethiopia .......... . .......... 49 23 5 20 24 4 20Ghana ...................... 48 20 5 24 20 4e 16Jordan .. . . ,., ........ 48 32 2 14 16 2 14Ceylon ....................... - ..... 47 24 20 20 6 14Senegal ........ - .......... ,_ ....... 47 13 7 27 21 2 19Philippines . . . . . . . . . . . . . . . . . . . . . . . . . 45 9 3 33 40 10 30China (Taiwan) . . . . . . . . . . . . . . . .. . . 44 17 3 25 35 2Zf 13Sudan ... . ......... . ................ 43 25 1 16 23 3 20gVenezuela .......................... 43 10 11 19 16 5 11Chile .............................. 38 10 7 21 31 12b 19Tanzania ........................ -., 38 15 2 21 16 3 13Colombia ........................... 36 13 7 16 28 6 23Ecuador ............................ 36 15 1 19 26 10 15Iran .................... , .... , .. , .. 1 18

2832363332

1521344231

463638


a For Bolivia, Ghana and Tunisia, data (ire for net investment. For other details, see foot-note a to table 2-6.

b Including High Dam.

e Including Suez Canal.

d Tertiary production: power, transport and communica-tions, and housing.

e Volta River Proj ect only.t Including the Shihman Reservoir Projeot.g Including distribution.h Electricity, petroleum and coal.

The planned pattern of agricultural and industrial output

While the differences among countries in the allocation of investment are instructive, they are notsufficient in themselves to provide an adequate impression of the relative emphasis which plans havelaid on development of the different sectors of theeconomy. This is particularly true of the directlyproductive sectors formed by commodity productionand basic facilities. Differences among countries inthe pattern of investment within these seotors do notnecessarily mean that comparable differences existin the planned pattern of increase in output. This is

because there are differences among countries bothin the relative size of the main commodity and basicfacility sectors and in the relation between a givenvolume of investment and the resultant increase inoutput within each of these sectors. In this latterregard, the outstanding example is the agriculturalsector where, owing to ,the wide differences inclimatic conditions, soil fertility and other naturalcircumstances, there are substantial variations amongcountries in the volume of investment required torealize a given increase in output. Thus although,


as has just been noted, the proportion of total investment assigned to the agricultural sector has beenconsiderably greater in some countries than in others,this has not necessarily implied that a greater relative increase in agricultural output has been planned.For such reasons, it is useful to supplement thecomparison which has just been made of investmentpatterns with a comparison of targets for output inthe directly productive sectors.

The rates of increase in output planned for thedirectly productive sectors are shown in table 2-9,and it will be seen that there has been considerablediversity among countries in the relationship obtaining between rates of increase in agricultural andindustrial output. Among countries which haveplanned to achieve comparatively high rates of increa:se in agricultural output, some have also aimedfor high rates of increase in industrial production,

Tahle 2-9. Relation hetween Planned Growth in Agricultural and Industrial Production:Annual Rates of Increasea

(Percentage)

G1'OUp and countr)1

COtmtries indicating high rate of growthin both agriculture and industry

Venezuela .China (Taiwan) .Republic of Korea .United Arab Republic .

Total

85.555

Food

124.556

Total

9.511.5b

11

JvI ant'fac'tu,ring

13.512.511.5e

13.5

Mining Basicfacilities

4.5 115.5 9.5

27.5 5

Construction

15

-0.5

Countries indicating high rate of growthin agriculture and moderate in industry

Bolivia .Chile .Morocco .Ghana .Kenya .

6.55.55.555

7.5

2.54.53.5

8

6

8.5 8.5 5.5 176.5 6 79 4.5 77.5d 55.5 3 7 5

Countries indicating moderate rate ofgrowth in agriculture and high inindustry

Ceylon .India .Tanzania .Sudan .

Cmmtrie.s indica.ting moderate rate ofgrowth in both agriculture and ituliustry

Colombia , ..Ecuador .Trinidad and Tobago .Tunisia .

Countries indicating low rate of gro"UJthin agriculture and high in illdustry

Philippines .Ethiopia .

Countn:es indicating low rate of growthin agriculture and moderate in industry

Jamaica .Malaysia .Pakistan

4.54.54.54

4.54.544

32.5

332.5

8.55.578.5

4.5

4

5.52

4

10.5

10.5

7

56.5

11

57

12lie14.521

8.58.57.58

10e

13.5

7.56.5e

8.5

425

732

52.5

2

6

7

8.5Sf

72

7.5

64.5

13

12.56

125

12

9.510

512.5


a Data refer to value added except for food, where theygenerally refer to quantum of food production. For thePhilippines, data are for net output. For other details, seefoot-note a to table 2-1.

b Excluding construction.e Including mining.d Including construction.• Quantum of output.f Including commerce.


while others have established appreciably lower targets. Similarly, among countries which have plannedmore moderate rates of agricultural growth, significant differences exist in the planned rates of industrial expansion. The same holds true of countrieswhere the planned increase in agricultural outputhas been comparatively low.

Clearly, forces making for similarity among countries in the planned pattern of output have tended tobe outweighed by other factors giving rise to diversity. These have been compounded of differencesamong countries both in policies with regard to resource allocation and in their general economiccircumstances.

One such source of difference lies in the relativesize of the manufacturing sector. In some of theleast industrialized countries, modest levels of industrial investment have been associated with veryhigh planned rates of increase in industrial outputsimply because of the small initial size of the industrial sector. This, for e:lCample, goes far towards explaining why the rates of growth in manufacturingproduction which have been planned in Ethiopia,the Sudan and the United Republic of Tanzania areamong the highest of the rates planned anywhere(see table 2-9). Again, even though the relativesize of the manufacturing sector and the plannedvolume of investment may be similar, the projectedrates of increase in output may have differed becauseof differences in policy with regard to the development of light and heavy industry. As is discussedmore fully in the next chapter, the emphasis placedon heavy industry has varied among countries; andwhere investment in industries with long gestationperiods has been expected to bulk large, the increasein output resulting from a given volume of investment might be expected to be lower over the courseof a medium-term plan. Further, where existingindustrial capacity has been under-utilized at theonset of the plan period, it has often been possibleto assume a greater increase in output than wouldbe warranted solely by the additional plannedinvestment.

But the factors which appear to have been of mostgeneral importance in accounting for the diversityin the relation between agricultural and industrialgrowth are the role assigned in plans to exportsand the emphasis placed upon domestic productionof food to replace imports. It has to be borne in mindthat, for the developing countries reviewed here, themajor part of their exports are derived from agricultural or mineral production. The possibilitiesfor the expansion of exports in the light of expectations with regard to the future trend in excternaldemand for major primary products have thus beena major factor determining the target for total agri-

cultural or mineral output. Differences among countries in the planned rates of increase in agriculturalor mineral output have been partly the outcome ofdifferences in the structure of their exports andin the expeoted trends in external demand for theseexports. For example, the relatively low rates ofgrowth in total agricultural output planned in Pakistan and the Philippines have reflected the restrictedgrowth expected in world demand for their majoragricultural exports; the planned increases in production of food for ,the domestic market have, infact, been as high as in many other countries. Similarly, targets for mineral output, at least amongcountries where this sector assumes significant proportions, have been primarily determined by considerations relating to exports. Thus, the targetsset in Bolivia, Chile, Jamaica, Morocco, Trinidadand Tobago, and Venezuela as discussed later inthe chapter on foreign trade and payments plans,have reflected differing expectations with regardto external demand and domestic supply conditions.

Contrasts anlOng countries in the targets setfor agricultural output have also arisen from thevarying emphasis placed upon the expansion of foodproduction for the domestic market. It is true that,as brought out more fully in the detailed analysisof agricuLtural plans contained in the next chapter,the plans of most developing countries with regardto production for the domestic market have beenvery similar in their general aims. The objectivehas been to raise domestic output in order not onlyto satisfy the expeoted increase in domestic demand,but also to reduce dependence on imported supplies.Some countries, however, have placed particularemphasis on the expansion of domestic food production as an important means of conserving scarceforeign exchange. In fact, the planned growth ratesin food production have tended to be particularlyhigh in countries where, in the recent past, thevolume of food imports has been unusually largeand has been increasing.

It is apparent that the faotors influencing thetargets set for agricultural, mineral and manufacturing output have varied with the circumstancesof each country and that no common relationshipbetween the planned rates of increase in agriculturaland industrial output has therefore prevailed. Thisis not to say that behavioural or technical relationswhich make for similarities among countries in thepattern of increase in output have not been evidentat all. As discussed more fully in the next chapter,the targets set for the output of basic facilities havegenerally been quite closely related to the targetsestablished for other sectors. The planned growthin power output has been largely determined by theexpected increase in industrial production, and addi-


tional requirements for transport and communications facilities have been broadly related to expectedgrowth in total economic activity of the economy,and particularly of commodity output. Again, theincrease in output of the construction industry hasbeen determined by the expected rate of growth intotal investment and by any planned change in itscomposition between construction and equipment.Thus, the main consideration in setting targets for

these sectors has been their consistency with thegrowth in input requirements likely to be generatedby the rest of the economy and with the total supplyof resources available for investment. But, as betweenthe broad sectors of agriculture and industry, differences among countries in both circumstances andpolicies have clearly been more influential in shapingthe relationship between their planned rates ofgrowth in output.

Foreign trade targets

In deciding upon the pattern of investment andoutput, countries have necessarily given much weightto the role to be played by the foreign trade sector.As has just been noted, the targets for agriculturaland mineral production have been heavily influencedby export plans; and plans for imports have necessarily been much affected by the changes assumedin the inflow of foreign capital that were discussedearlier. However, a more explicit consideration ofexport and import targets is helpful in order toclarify the role which foreign ,trade has been expected to play in national plans.

Foreign trade plans have been conditioned byplans for domestic expenditure and output and, atthe same time, have contributed to the determinationof these plans. On the one hand, the targets formerchandise imports have reflected the plans madefor the rate of growth in domestic expenditure andoutput and the changes in their composition; onthe other hand, the targets set for export earningshave limited the potential growth in imports and,hence in domestic activity. If the provisional estimates of import requirements have exceeded thetargets initially set for export earnings supplementedby the expected inflow of foreign capital, it hasbeen necessary to choose from among the alternativesof a deceleration in planned domestic growth, ascaling down of import requirements through anexpansion of import-substituting activities, an increase in dependence on foreign capital, a moreintensive drive to increase export earnings or somecombination of these measures.

The room for choice between these alternativecourses of action, however, has usually been quitecircumscribed. The possible rate of growth in exports that can be planned is limited by the likelytrend in external demand and the structure of theexport sector. Most countries have counted uponsome diversification of exports to accelerate thegrowth in earnings. Still, the feasible changes inexport composition that can be introduced overcurrent plan periods are quite restricted and theexpected growth in export earnings has therefore

continued to be dominated by prospects for thetraditional primary commodity exports. As a consequence, for most countries, the planned rate ofgrowth in exports has tended to be lower than, orat least not to exceed, that in gross domestic product;in other words, the proportion of their gross domestic product which is to be exported has beenexpected to decline or to remain unchanged (seetable 2-10). The lowest rates of expansion in exportearnings have been expected in such countries asCeylon, Jamaica, Malaysia, Trinidad and Tobago,and Venezuela. For these countries, exceptingCeylon, a deceleration in the growth of exportshas been planned in comparison with past trendsfor special reasons discussed in a later chapter. Formost other countries, however, an acceleration inth: growth of exports has been planned even thoughthIS may not have been sufficient to maintain theshare of exports in gross domestic product. In afew countries the planned rate of growth in exportshas been particularly high and has meant that anincreasing proportion of domestic output has beenexpected to go into foreign trade. The most strikinginstances in this regard are Bolivia, China (Taiwan),Ethiopia and ,the Republic of Korea; only for thesecountries can it be said that plans have been distinctlyexport-oriented.

It has been assumed in nearly all developingcountries that the growth in foreign exchange receipts derived from export earnings would be supplemented by an inflow of foreign capital. As hasbeen discussed earlier, however, most countries haveaimed to reduce their relative dependence on external resources during their current plan periodsor, at least, not to permit any increase. In relationto the planned increase in gross domestic product,the size of the deficit in the external balance hasbeen expected to diminish or to remain unchanged.Fulfilment of this condition has meant that theplanned rates of growth in merchandise importshave generally had to be lower than planned ratesof increase in exports. In other words, as can be

CHAPTER 2. THE MAIN CONTOURS OF DEVEI"OPMENT PLANS

Table 2·10. Planned Relation between Foreign Trade and Gross Domestic Producta

Merchandise exports as percen- ]1erchandise imports as percentagetage of gross domestic product of gross domestic product

Countr,yb Base year Annual change Base year Annual changeduring during

plan period plan period

Malaysia 48 -1.5 38 0.4Trinidad and Tobago ... .......... 58 -1.5 62 -2.1Ceylon .......... - .... 32 -0.9 34 -1.2Tunisia 22 -0.4 27 -0.7Venezuela .............. 27 -0.4 15 -0.6

Jamaica 27 -0.4 34 -0.5Philippines . . . . . . . . . . 8 -0.3 11 -0.1Ecuador .. 16 -0.2 17 -0.3Morocco ........... 21 -0.2 23 0.3Colombia ... 22 -0.1 22 -0.5

India 4 -0.1 7 -O.1c

Kenya 23 -0.1 29 -0.1United Arab Republic .... 12 -0.1 17 -1.1Sudan 16 20 -0.5Pakistand ......... 6 10 1.1

Chile 11 0.1 11 -0.1Ghana .. , - ........ .................... 22 0.1 25 0.1Burma ..... ,_ .... 18 0.2 23 -1.0Tanzania ......... 25 0.2 25 0.4Nigeria ... . " ,', ..... 15 0.3 19 0.1

Bolivia 17 0.5 26 -0.5Republic' of Korea. 2 0.6 19 0.1Ethiopia .......... 9 0.7 11 1.0China (Taiwan) . . .......... - ... 12 0.8 20 -0.6

41

S OU1'ce: See table 2-1.a See foot-note a to table 2-1.b Countries are ranked in descending order

of annual decline in merchandise exports as apercentage of gross domestic product.

seen froni table 2-10, it has generally been assumedthat the share of imports in gross domestic productwould not only decline but would also decline bymore than the share of exports.

These planned changes in imports, as will bediscussed later, stand in marked contrast to past

c Estimated from the annual average forthe plan period as a whole.

d Total imports referring to 1960/61-1964/65are partly estimated.

trends when in most countries the supply of importsrose in relation to the growth of gross domesticproduct. In fact, they constitute not only one ofthe most striking structural changes proposed inplans .but also one of the targets most difficult ofattainment.

Summary

In this review of the main characteristics of current development plans, a number of importantdifferences a's well as certain similarities have beennoted in the strategies proposed by the various countries. Some countries have planned to achieve ambitious increases in the level of total investment overthe course of their current plan periods; others haveproposed more moderate, though still substantial,increases; and a few have envisaged no markedchange. Most countries have accepted a large increasein the proportion of domestic income that is savedas the condition for realization of their higher investment levels. While almost all countries have pre-

dicated their plans on the assumption that therewould be a net inflow of foreign capital during theplan period as a whole, one or two have· planned toeliminate their dependence on external resources bythe end of their current plans and a number of othercountries have aimed to reduce such dependence.Still others, however, have expected that their dependence on external resources would continue toincrease.

In the allocation of the total resources availablefor investment between the three broad sectors ofcommodity production, basic facilities and services,


plans have differed mainly in the relative emphasisplaced on commodity production on ,the one handand services on the other. For a few of the countrieswhich have emphasized investment in services, asignificant influence has been the weight assignedto the development of education. In the main, however, the allocation of a relatively large propor,tionof resources to services has reflected the prioritygiven to housing and other social services.

The allocation of total resources for investmenthas been considerably influenced by the strategyexpressed in the public development programme.This has been reflected, not only in the distributionof total resources between commodity productionand services, but also in the relative emphasis placedon the development of heavy industry. In the fewcountries which have given high priority to thedevelopment of heavy industry, public investmentin the manufacturing sector has been significantlylarge.

There have been appreciable differences amongcountries in the pace at which the output of agriculture and industry have been planned to increasein relation to one another. While there are forcesmaking for similarity in planned patterns of output,these have been outweighed by the differences amongcountries in policies and economic circumstances.The greatest similarity among countries is evidentin the targets set for the output of the power,transport and construction industries since thesetargets have generally been determined in the lightof the input requirements likely to be generated by

the growth in investment and output .of the rest ofthe economy. The targets for output, however, havebeen influenced, not only by the planned levels ofinvestment, but also by such factors as the relativesize of the manufacturing sector, the relative emphasis on heavy industry and the availability ofunder-utilized capacity. Targets for agriculture andmining have been, in part, influenced by the role ofthe export sector in agriculture and mining and bythe targets set for agricultural or mineral exports:they have also reflected the emphasis placed upon thedevelopment of domestic food production to replaceimports. While progress towards self-sufficiency infood supplies has been one of the common featuresof plans in developing countries, some countries-particularly those with heavy food deficits-have placedparticular emphasis on this aim.

Finally, plans have differed considerably in thetargets set for exports and imports. While the plansof a few countries have been distinctly exportoriented, most have assumed that the relative sizeof the export sector would contract over the planperiod. The share of imports in total domesticsupplies has also been generally expected to undergoa relative decline, and in some countries this planneddecline has been very substantial. Certain countries,however, have expected that their relative dependenceon imports would increase.

To facilitate comparison, the differences amongcountries in regard to these major characteristics oftheir plans have been summarized schematically intable 2-11; for this purpose, countries have beengrouped in the same way as in table 2-5.

Table 2-11. Summary of Some Main Characteristics of Current PlansR

Targets for investment and the external sector

Average level over wholeplan period as

percentage of grossdomestic product Relative emphasis in tar,gets

for output of commoditysectors of production

Industry and domestic foodproduction

Domestic food production andmineral exports

Composition of ontput

Industry, domestic food production and agricultural exports

Agriculture

56

10

PMblic invest1nent aspercentage of total

investment in 1n.anttw

facturing industry

Pattern of Public i,westment

Relative emphasisin public invest~

ment program-me·

Industry

Industry and basicfacilities

Basic facilities andservices

Imports

Substantialdecline

Substantialdecline

Substantialdecline

Moderateincrease

E:rports

Substantialdecline

Moderatedecline

Substantialincrease

Substantialincrease

Change over plan period as percentageof gross domestic Product

I nvest11~ent

Substantial

Substantial

Very large

Moderate

Substantial

3

12

10

E:rternalresources

21

23

31

15

In'Vestme'nt

Group aHd count'f'Y

United Arab Republic

Tunisia ...

Republic of Korea

Bolivia .,.

Senegal

Group I. Countries indicatingvery la,rge increase ~n shareof domestic saving HI grossdomestic product

(a) And reduction in relativedependence on externalresources

Ceylon

Chile

China (Taiwan)

Ecuador

19

16

20

18

2

6

4

Substantial

Substantial

Negative

Substantial

Substantialdecline

Moderateincrease

Substantialincrease

Moderatedecline

Substantialdecline

Moderatedecline

Substantialdecline

Substantialdecline

Industry and basicfacilities



73

20

18


Mineral and agricultural exports

Industry, domestic food production and agricultural exports

Industry

(b) And increase In relativedependence on externalresources

Morocco .

Tanzania

Pakistan

16b

18b

16 10

Very large

Very large

Very large

Moderatedecline

Moderateincrease

No change

Substantialincrease

Substantialincrease

Substantialincrease

Agriculture ands·ervices


Agriculture andbasic facilities

17

25

29

Agricultural exports


Industry and domestic foodproductj'on

Tahle 2-Il. Summary of Some Main Characteristics of Current Plans (continued) ........Targets for investment and the external sector

Average level over wholePattern of public investment Composition of outp"t

Group and countryplan period as Change over plan period as Percentage

percentage of gross of gross domestic Produ,ct Relative emPhasis Public investment as Relative emphasis in tar.qetsdomestic product in public invest~ percentage of total for o"tput of commodity .'"0'

men,t programme investment in manu- sectors of production >-Investme1tt External Investment Exports Imports facturing industry i:':l

resources I.{ Ii' J ,..,l""

Group II. Countries indicatingt:Isubstantial increase in share tr1

of domestic samn,g m gross tiidomestic product t"'

0(a) And l'eduction or no

.'1:1;:::

change in relative depend~ tr1

ence on external resmtrces :ti,..,Colombia 25 c Substantial Moderate Substantial Basic facilities and Domestic food produotion and '1:1............... t"'

decline decline services agricultural export5 >-:ti

Iran 16 2 Moderate Basic facilities and 51 en...............services

~Kenya . . . . . . . . . . . . . . . . . 16b Substantial Moderate Moderate Basic facilities and Agriculturedecline decline services ;g

Burma 21 4 Negative Moderate Substantial Basic facilities ande:;

.............. en

increase decline servioes >-t"'

India ......... 12 3 Substantial Moderate Moderate Industry and basic 52d Industry and domestic food 0decline decline facilities production "'J

22b 5 Moderate Moderate Domestic food production and,..,

Ghana Moderate >-i:':l

increase increase agricultural exports ~trj,..,

(b) And increase m relative en

dependence on external >-,:ti

resources t::

Ethiopia 14 5 Substantial Substantial Substantial Industry and agricultural ex- "d. . . . . . . . . . . i:':lincrease increase ports 0

~

Philippines 16 2 Substantial Substantial Moderate Basic facilities 9 Industry and domestic food lO'tr1

decline decline production enen

'"'"Group III. Countries indimting :tislight or no increase in share t::of domestic saving in

trjgross <i

domestic prod~tcttr1t"'0

(a) And l"eduction or no '1:1'"'"change in relative depend- 2:

ence on external resources~

C"lTrinidad and Tobago .. 26 8 Negative Substantial Substantial Basic facilities and 6 Agriculture 0

c:::decline decline services 2:Nigeria ................ 15 6 No change Substantial Moderate Basic facilities and g

increase increase services tr1fIl

Source: See table 2-1.a For differences in definitions of output and investment, see foot-note a to

table 2-1 and foot-note a to table 2-4. Data on annual changes in investment,merchandise exports and merch3!ndise imports as percentages of gross domesticproduct are shown in tables 2-4 and 2-10. Groupings based on these annual changesare 3!S follows. Investment: more than one, very large; 0.5-1, substantial; 0.10.4, moderate. Merchandise expor'ts and imports: 0.3 or more, substantial; 0.1-

Substantial Substantial Substantial Basic facilities and 10 Domestic food productiondecline decline servIces

No change Substantial Substantial Basic facilities and Agriculturedecline decline services

4 Very large Substantial Substantial Basic facilities and Industrydecline increase services

0.2, moderate. Details regarding pattern of public investment and composItion ofoutput are shown in tables 2-7 and 2-9. Countries are listed in the order followedin table 2-5.

b Average of the base year and the final year of the plan.e On the assumption that the terms of trade would deteriorate, the plan

indicates the net inflow of external resources.d Including mining.

Industry and domestic foodpmduction

33Agriculture andservices

Substantialdecline

No changeNo change3

16

20b

20

11

Malaysia

Jamaica .....

Sudan

(b) And increase in relativedependence on externalresources

Venezuela

Chapter 3

PRODUCTION AND MANPOWER PLANS

It is the purpose of the present and the followingtwo chapters both to explore in greater detail themain targets of development plans which were setforth in ,the preceding chapter and to review thesetargets in the light of past experience and of the policies proposed for their implementation. In this moredetailed analysis, the targets for output have beentaken as the point of departure since these targetsconstitute the final aim of plans to which all the other

changes proposed in plans are geared. Besides theproduction plans for agriculture and industry, however, this chapter also contains a review of manpowerplans. On the one hand, the supply of labour and,particularly, of trained manpower is one of the principal means for the realization of production plans;on the other hand, production plans largely determine the extent to which the problem of unemployment or under-employment is to be lessened duringthe plan period.

Targets and policies for agricultural production

Though the current plans of developing countrieshave invariably recognized the strategic role. of agriculture, it is industry which has been expected toconstitute the most dynamic element in economicgrowth. It would be erroneous to suppose, however,that agriculture and industry have been posed ascompeting sources of economic growth; plans, in fact,suggest that one lesson which has been well learnedfrom the nineteen fifties is the complementary natureof agricultural and industrial growth. Hardly anydeveloping country, in view of the character of itsnatural resource endowment and the trends in worlddemand for primary products, has been able to consider the possibility of accelerating domestic growththrough specialization in agricultural production forexport; this is a fact which has been amply recognized for many years. On the other hand, the emphasis on industrial development has sometimes ledto an undue neglect of the role of domestic agriculture in over-all growth; and this has given rise todifficulties that have seriously impaired the progressof the economy as a whole. Domestic food productionhas often failed to keep pace with the growth in population; supplies of raw materials for the newlyestablished industries have not been forthcoming insufficient quantities; and in some countries, agricultural exports have even fallen short of the moderategrowth in world demand. Foreign exchange expenditure on imported food and materials has increasedand, in some cases, export earnings have also declined. Industrial growth has consequently beenimpeded either by the recurrent need to restrain

46

domestic expenditure in order to dampen inflationary pressure on urban food supplies or by shortagesof imported capital equipment and industrial materials. It is a reflection of this experience that currentplans have generally given special attention to agricultural development and, in particular, to food production and the foreign exchange implications ofagricultural growth.

It is perhaps indicative of the importance assignedto agricultural growth that, in contrast to plans forindustry, plans for the agricultural sector in nearlyall countries have set targets for a range of specificcommodities. Most plans have assumed that, throughtheir programmes for public expenditure, governments would play a substantial role in the development of agriculture; and the establishment of targetsfor output has provided a framework for guidingpublic investment programmes. Although such targets have been set, however, it is apparent that theplanning of the inputs necessary to facilitate theirachievement has often not been worked out in anydetail, but has been left for later decision in theprocess of plan implementation (see table 3-1).

The method of estimating targets for output hasbeen broadly the same in all countries. In principle,targets have been set by balancing the estimatedfuture demand against general views about the possibilities for increased production as shaped by thelikely availability of resources. On the demand side,estimates have been made of requirements both fordomestic consumption and for export. As regards

CHAPTER 3. PRODUCTION AND MANPOWER PLANS

Table 3.1. Synopsis of Content of Plans for Agriculture

N"mber of Inp"t targets

Ccyuntrycrops for Land settlement Irrigation Fertilizers Capital

which o"t· and reclamation and flood equiPme'l'ltp"t targets and soil con- controlare specified servation

Tunisia . . . . . . . . . . . . . . . . . . . . . 41 Yes Yes Yes YesUnited Arab Republic ......... 30 Yes Yes Yes YesChina (Taiwan) ............. 16 Yes Yes Yes YesCeylon ......... 12 Yes Yes Yes YesBurma ... S Yes Yes Yes Yes

Iran ... - ..... . . . . . . . . . . . 19 No Yes Yes YesPakistan .. - .. . . . . . . . . . . . . . . . 12a Yes Yes Yes NoIndia ........ ..... ...... - .. lOa Yes Yes Yes NoVenezuela . . . . . . . . . . . . . . . . . . - 30 Yes YesGhana · - .................... 23 Yes Yes No NoTanzania . . . . . . . . . . . . . . . . . . . . 14 Yes Yes No NoTrinidad and Tobago......... 12 Yes Yes No NoKenya . . . . . . . . . . . . - ........ -. 9 Yes Yes No NoMorocco . . . . . . . . . .. . . . . . . . . . 6 Yes Yes No NoChile ...... - ................. 4 Yes Yes

Republic of Korea ............ 4 Yes Yes No NoMalaysia ............. - ...... 3a Yes Yes No NoEthiopia ...... - .......... 12a No No No YesSudan ........ . ........ ...... 11 No Yes No NoNigeria . . . . . . . . . . . . . . . . . . . . . 4 No Yes No No

Jamaica ..................... Yes Yes No NoColombia .. - .. - ..... " ... " ... " 17Bolivia · .. .... ...... "." .... "" 15Philippines "" .. " ...... 13 No No NoSenegal "." ...... Yes No No No

EcuadorJordan · .... " ............... " No No No No

Source: See table 2-1.a Targets for groups of crops.

47

food crops, for example, the effects of growth in population and per capita income on the demand for foodhave been assessed; however, the effect on demandof changes in prices or of the possible substitution oflower-quality by higher-quality foods at higher levelsof income has usually been ignored. But a few countries,such as Ghana, have also utilized nutritionalnorms as a guide in determining food requirements.

The main difficulty in establishing targets hasarisen from the supply side. In the first place, theproblem of raising agricultural output is not just amatter of increasing the supply of agricultural inputs,such as irrigation, fertilizers, improved seeds or capital equipment; the effective utilization of these inputsis also heavily influenced by the complex institutionalfactors affecting the incentives of farmers and peasants. But even aside from these factors, there aresubstantial difficulties in estimating the technical relation likely to prevail between the physical inputs andoutput. Since output is the product of a number of

joint inputs, a mechanical separation of input-outputratios may produce serious errors in the estimationof output. Thus irrigation water and fertilizer, whenapplied separately, may add only a small increase tooutput, but when applied jointly may produce proportionately a much larger output. This joint effecthas been difficult to take into account in determiningtargets.

Moreover, while the effect of joint inputs couldperhaps be ignored, the problem of competing inputscould not be avoided, and some solution, howeverarbitrary, has had to be adopted in order to allocateinvestment among alternative uses. Thus a choicehas had to be made between major irrigation projectsand minor irrigation works, between community development and extension services, or between chemical fertilizer and livestock. In major projects, suchas river valley projects or major irrigation schemes,cost-benefit studies have sometimes been used to provide a guide to investment decisions. In most cases,


however, investment decisions have refleated thejudgement of the planning authorities and ministriesbased on their partial knowledge of past experience.

PLANNED AND PAST RATES OF GROWTH

IN PRODUCTION1

The increases in agricultural output projectedin plans have frequently been very high. As many asten of the twenty-three countries shown in table 3-2

Table 3-2. Planned and Past Annual Rates ofGrowth in Agricultural Productiona

(Percentage)

Annual rate ApproximateCountry difference

Planned Past

Jordan ................. 12.5Venezuela 8 5.1 3Bolivia ............ 6.5 4.1 2Chi.1e . . . . . . . . . . . . . . . . . . . 5.5 1.0 4.5China (Taiwan) ...... 5.5 3.8 1.5Morocco ... . ............ 5.5 -0.7 6Republic of Korea ....... 5 2.9 2Ghana ............... 5United Arab Republic ... 5 3.1 2Kenya ............... 5Ceylon .......... 4.5 2.6 2Ecuador .......... 4.5 2.8 2India 4.5 2.2 2.5Tanzania 4.5 2.7 2Colombia 4.5 3.6 1Trinidad and Tobago ..... 4Sudan ... .............. . 4Tunisia ... 4 3.3 0.5Philippines 3 1.1 2Jamaica 3 2.8Malaysia ........... 3 2.9Pakistan 2.5 0.6 2Ethiopia ................ 2.5 1.9 0.5

Souerce: See table 2-3.a Data are for value added in the agricultural sector, ex

cept for past growth in Ceylon, where they refer to volumeof output. For other details, see foot-note a to table 2-1 andfoot-note a to table 2-3.

have planned for an annual increase in output of 5per cent or more, and most countries have envisagedrates of growth equal to, or exceeding, 4 per cent.It is apparent that, if these planned rates were tobe generally achieved, a significant break with thepast performance of agriculture in the developingcountries would have occurred. Throughout thenineteen fifties, the annual rate of increase in agricultural output generally did not exceed 3 per centand often fell below this figure. In fact, agriculturaloutput in a number of countries failed to keep pacewith the growth of population.

1 Throughout this report, data on past trends refer tothe period between 1953-1954 and 1959-1960 unless otherwisestated.

Typically, the target for agricultural output hasimplied an acceleration in the growth of output overpast performance of the order of about 2 per centper annum. In only a few countries, such as Ethiopia, Jamaica, Malaysia and Tunisia, has the plannedrate of growth corresponded roughly ,to past performance; and in these countries both the past andthe expected rates of growth have been relativelymodest. But for the great majority of countries, thetargets which have been set have been clearly basedon the assumptions that the resources available forexpanding agricultural output would be considerablyenlarged and that the institutional difficulties whichweaken the incentive of peasants and farmers to raiseoutput would be substantially lessened.

THE PLANNED PATTERN OF PRODUCTION

In assessing the feasibility of the targets for totalagricultural output, a factor of some importance isthe emphasis which has been placed in many planson food production for the domestic market ratherthan on cash crops for export. It has commonly beenthe experience in the past that the production of cashcrops for export has been more responsive to changesin market demand than has domestic food production; this has been because food production takesplace largely within the traditional subsistence sector. Thus, in stressing domestic food production asthe main source of the planned acceleration in totalagricultural output, plans have sought the greatestgrowth in the least flexible segment of the agricultural economy.

Clear instances of emphasis on domestic food production are to be found in the plans of such countriesas Ceylon, India, Pakistan and the United ArabRepublic (see table 3-3). Although these countriesdepend heavily on exports of agricultural commodities, expected trends in world demand for these exports have not encouraged them to establish hightargets for their production. In certain other countries, such as Bolivia and Venezuela, very high ratesof expansion have been planned for both agriculturalexports and domestic food production but, since exports account for a relatively small proportion ,of totalagricultural output, it has again been the plannedpace of expansion in food production that has beenthe dominant factor accounting for the high plannedrate of increase in total output. There has, however,been a number of countries, including China (Taiwan), Colombia, Ethiopia, Ghana, Morocco and theRepublic of Korea, where plans for exports haveexerted a significant upward influence on the targetfor agricultural output as a whole. But it will benoted that, in most of these countries, substantialrates of increase in domestic food production havealso been envisaged.

CHAPTER 3. PRODUCTION AND MANPOWER PLANS 49

Table 3-3. Planned Annual Rates of Growth inAgricultural Production and Exportsa

(Percentage)

But plan targets for food production have alsobeen heavily influenced by the desire to reduce foreign exchange expenditure on imports. In almost allthe plans for which data on planned imports of foodgrains and apparent domestic consumption are available, a reduction in dependence on imports over theFoodTotal

Agricultural prod,u;tion Agrie"lturalexportsGroup IMtd country

Table 3-4. Planned and Past Annual Rates ofGrowth in Food Productiona

Sotwce: Bureau of CXeneral Economic Research and Policies of the United Nations Secretariat, based on StatisticalOffice of the United Nations, Yearbook of National AccotmtsStatistics and Monthly Bulletin of Statistics; Food and~griculture Organization of the United Nations, Productton Yearbook (Rome), and national development plans. .

a Data generally refer to quantum of major food-grains.For other details, see foot-note a to table 2-1 and foot-notea to table 2-3.

current plan period has been envisaged (see table3-5); and a number of countries, such as Bolivia,China (Taiwan), India, Pakistan, the Philippinesand the Sudan, have aimed to achieve the completeelimination of dependence on imports of food-grainsby the end of ,their current plans. These targets forimport ,substitution have obviously affected the targets set for domestic production; thus, it is not coincidental that in such countries as Bolivia, Ceylon,the Sudan and Venezuela where substantial reductions in dependence on food imports have been envisaged, relatively high targets have also been selectedfor domestic food production. However, while thereasons underlying the general emphasis placed onan acceleration in the growth of domestic food production can be readily understood, the questionremains as to how far such an acceleration is feasible.

United Arab Republic.India .............

8 12 12.5 Philippines6.5 7.5 18.5

...........

5.5 4.5 7.5b Iran . . . . . . . . . . . . . . .. .

5.5 2.5 5.5 Republic of Korea .....5 4.5 6.5 China (Taiwan) .....5 3.5 Colombia5 5 25 CXhana4.5 4.5 5

............

2.5 2 5.5 Pakistan " . ......... .

Tunisia ..... ........ .

Past

0.50.6

2.3-3.0

0.7

-0.53.60.2

-3.6

-3.8-6.3

6.2

1.7-0.8

Per capita

8.55.55.555

3.53.522.52

1.51.51.52

2

0.50.5

0.5

PlannedPast

10.2

4.2

2.3

2.63.63.3

-0.3

4.31.74.9

2.3-2.2

-0.9-3.7-0.3

Total

128.58.57.5

76

5.55.5554.54.54.544

3.52.52

Planned

(Percentage)

Kenya .Morocco .Ethiopia .

Country

VenezuelaCeylon .Sudan .Bolivia .Tanzania .

2

4

32.5

68.55.5758.545.54

54.54.54.54

4432.5

Whatever ,the target for agricultural exports, theprojected rate of increase in domestic food production has generally been relatively high, amountingin most countries to an annual increase of 4.5 percent or more (see table 3-4). And the reasons inducing countries ,to set such relatively high targets arenot difficult to appreciate. For many countries, theexpected rates of growth in population alone arebetween 2 and 3 per cent per annum. While theplanned increases in food production amply exceedexpected rates of growth in population, it must beremembered that a rising level of per capita incomehas also been assumed in all plans; and this has hadto be taken into account in estimating future foodrequirements. With the income elasticity of demandfor food often as high as 0.8 in developing countries,and with the planned growth in per capita incomeoften assumed to exceed 2 per cent per annum, theadditional food requirements implied by plan targetshave been substantially greater than the expectedincreases in population.

Source: See table 2-1.a Data for total agrkultural production refer to value

added in agriculture; for food production generally and forexports, they refer to quantum. Data for food generallypertain to major food-grains only. Discrepancies in totaland components may arise in some cases owing to diifferences in concepts and time periods. For other details, seefoot-note a to table 2-1.

b 6.5 to 8 per cent.

Countries indicating emphasis on exports as wellas 01t domestic food productionVenezuela .Bolivia .China (Taiwan)MoroccoCXhana .Kenya . .Republic of Korea .ColombiaEthiopia

Countries indicating emphasis on domestic foodproductionUnited Arab Republic ..Ceylon .IndiaTanzaniaIran .SudanTunisiaPhilippinesPakistan .


Table 3-5. Planned Reduction in Share of Importsin Apparent Consumption of Fooda

(P c1'ccntagc)

Share of imports inapparent consump,tion Annual

Coumtry of food reduction

Base year Final yearin share

of plan of Plan

Ceylon 44 14 2.7Sudan . . . . . . . . . . . . . . . 27 2.7Bolivia . . . . . . . . . . . . . . 27 2.1Pakistan ............. 8 1.7Venezuela ........... 18 11 1.4India ................ 5 1.1Philippines . . . . . . . . . . 4 1.0Iranb . . . . . . . . . . . . . . . . 8 2 0.8United Arab Republic 14 10 0.7Colombia ............ 7 6 0.2Republic of Korea .... 4 3 0.2China (Taiwan) ...... 8Ghana ............... 13 14 -0.2

Source: See table 2-La See foot-note a totable 2-Lb Data refer to net imports.

AGRICULTURAL POLICIES

Investment policies

The realization of plans for an acceleration in thegrowth of agricultural production constitutes one ofthe most difficult of the tasks confronting the developing countries. In the past, the tradition-boundcharacter of the agricultural economy has formed apowerful barrier to the introduction of more modernmethods of production; within the confines of theprevailing institutional structure, changes have beenviewed with mistrust by landowners and peasantsalike and, at best, have been accepted only grudgingly and slowly. Thus, in formulating policies forthe implementation of agricultural plans, governments have had to concern themselves, not only withthe problem of increasing the level of investment andother development expenditure in agriculture butalso with measures to reform the institutional structure and to strengthen the incentive of farmers andpeasants to utilize more modern methods of production. In assessing the feasibility of plan targets, bothof these aspects of policy have to be considered; theyare discussed separately in the paragraphs whichfollow.

Plans for investment in the agricultural sectorwere touched upon briefly in the precedingchapter; but before further comment is made here,a word of caution is necessary. In most plans, thedistinction drawn in national accounts between theinvestment expenditure and current expenditure ofgeneral government has not been rigidly adhered to.The expenditure classified as investment has fre-

quently included expenditure on other items besidesfixed assets or stocks. Especially with regard toplanned public expenditure on agriculture, it hasoften been neither feasible nor particularly useful toattempt to distinguish between investment and consumption expenditure. Expenditure on fertilizers oragricultural extension services, for example, has beenno less significant for agricultural development thanexpenditure on irrigation works or machinery. Inthis context, the concept of development expenditurehas been operationally more meaningful than that ofgross capital formation. In practice, while some planshave distinguished between investment and total development expenditure, most have tended to useinvestment as a broad term which includes majoritems of development expenditure that would not beformally defined as capital formation; and this shouldbe borne in mind in the present analysis.

The proportion of total investment allocated toagriculture has varied quite widely among countries(see table 2-8). It has tended to be particularly highamong countries in the Middle East and NorthAfrica; thus in Jordan, Morocco and Tunisia, theplanned share of agriculture in total investment hasexceeded 30 per cent. By contrast, it has tended to,be especially low in Latin American countries; ill'Bolivia, Chile, Colombia, Ecuador and Venezuela,.this proportion has not exceeded 15 per cent. In mostof the countries of Africa and Asia, the share haslain somewhere between these two extremes, usuallybeing within the range of 20 to 30 per cent. It wilInot be surprising, however, that when rates ofgrowth in agricultural output are considered therehas been no corresponding division of countries byregions. The allocation of a relatively high proportion of total investment to agriculture, in otherwords, has not necessarily meant that the rate ofgrowth in agricultural output has also been high.In part, this has reflected the differences amongcountries in the relative size of the agricultural sec'tor and in the planned volume of total investmentas a percentage of gross domestic product. In largepart, however, it has also arisen from the wide differences in the increase in output expected from agiven volume of investment.

The diversity in expectations regarding the relation between investment and output is amply illustrated by the data shown in table 3-6. The relationbetween investment and the expected increase in output has varied from as little as one in the UnitedRepublic of Tanzania to over 4 in Trinidad andTobago. Differences among countries in climatic conditions and soil fertility have undoubtedly contributed heavily to the variations in the volume ofinvestment estimated as necessary to achieve a givenincrease in output; this alone, for example, probablyaccounts in large measure for the relatively high pro-

CHAPTER 3. PRODUCTION AND MANPOWER PLANS 51

Table 3-6. Planned Ratio of Gross Investmentto Increase in Gross Output in AgriculturalSector"

by these countries as a means of obtaining quickresults, especially where large tracts of virgin landare available.

Source: See table 2-1.a See foot-note a to table 2-1.

portion of total investment allocated to agriculturein countries of the Middle East and North Africa.However, differences among countries in the patternof their planned development expenditure in agriculture have also contributed to the wide dispersionin their investment-output ratios. Where a largeproportion of planned development expenditure hasbeen devoted to major irrigation works or the establishment of new organizational forms needed forservicing modern agriculture, such as extension, research and marketing services, a relatively modestincrease in output over the current plan period hashad to be assumed; for, though their benefits mayextend over many decades, such investments mayhave long gestation periods. On the other hand,where the emphasis in development expenditure hasbeen placed on investment in assets such as tractorsor small-scale irrigation works or on the expansionin supplies of current inputs such as fertilizers, improved seeds or pesticides, the benefits in increasedoutput have been more immediately expected.

A major influence on the pattern of investmentexpenditure in agriculture has been the role of thepublic sector. As has been seen earlier, the share ofthe public sector in total agricultural investment hasvaried quite widely, but in a majority of countriesit has been substantial and in some it has accountedfor the preponderant part of total investment. Publicinvestment has generally been allocated to activitieswhich private investment can scarcely be expectedto undertake but which are, nevertheless, critical foragricultural growth. Thus, the major irrigationworks, land reclamation, soil c'Onservation, extensionservices, co-operative societies and community development, agricultural research and agricultural credithave received large shares of public investment.Moreover, some countries, such as Ghana and theUnited Republic of Tanzania, have undertaken toorganize large-scale state or co-operative farms onthe ground that the transformation of peasant cultivation is necessarily slow and halting, and that theoverhead cost is relatively high. Large-scale statefarms or co-operative farms have been advocated

Table 3-7. Percentage Distribution of PlannedPublic Expenditure for Agricultural Development

The emphasis which has been placed in publicinvestment programmes on the development of eitherthe agricultural infra-structure or ancillary servicescan be readily seen from table 3-7. In general, direct

Organization,

servicesand

other

--9--13 618 16-----49--40 1518 4914 5714 76

CroP production, animalhusbandry,

forestry o.ndfisheries

9180665145322810

I rrigationl

drainage,land reclama-

tion andimprovement

and soilconservation


JordanSudan .India .Pakistan .Burma .Iran ..JamaicaTrinidad and Tobago ..

Country

expenditure on crop production or animal husbandryhas accounted for a minor part of total public expenditure.

A further factor of importance in accounting forthe diversity among countries both in the plannedpattern of investment and in the expected relationbetween investment and output is the degree towhich plans have envisaged an enlargement of thearea under cultivation. In some densely populatedcountries, a substantial increase in the area undercultivation has not been a practical proposition, andany increase which has been planned has been largelya matter of bringing land previously considered assub-marginal into production. For these countries,the growth in total agricultural output has dependedalmost entirely on the increase in yields per acrethat can be achieved. This, for example, has beentrue of the increase in agricultural output plannedin Chile, China (Taiwan) and the Republic of Korea; the planned increase in the area under cultivation has been small or negligible and main reliancehas been placed upon the realization of increasedyields (see table 3-8). At the other extreme havebeen countries such as Bolivia and Venezuela wherethe availability of large tracts of virtually unusedland has permitted the introduction of large landdevelopment and resettlement schemes. In fact, inBolivia, the achievement of the high rate of growthplanned for total agricultural output rests verylargely on the success with which the programme

Country

Trinidad and TobagoJordan, United Arab Republic, VenezuelaChile, China (Taiwan), Colombia, Paki-

stan, Republic of KoreaCeylon, Ethiopia, SudanTanzania

Ratio

4 to 5.3 to 4 .2 to 3.

1 to 2 .Less than. 1..


Table 3-8. Planned Annual Rates of Growth inAgricultural Output and Cropped Areaa

(Percentage)

Agricultural Cropped TotalCountry output per agricu.lt~tral

acre area MttP14,t

Chile ............... 5.5 5.5China (Taiwan) 5 0.5 5.5Republic of Korea. 4.5 0.5 5Venezuela 4.5 3.5 8United Arab Republic 3.5 1.5 5Trinidad and Tobago 3 1.5 4Ceylon 2.5 2 4.5Bolivia ., ........... 1.5 4.5 6.5Jamaica . . .. . . . . . . . . 1.5 1.5 3Sudan .............. 1.5 2.5 4

Source: See Table 2-1.a Data for agricultural output refer to value added in

agriculture, except for Burma where they refer to production. For other details, see foot-note a to table 2-1.

of land development and resettlement is implemented; it is the additional output from the areasnewly brought under cultivation rather than theincrease in yields per acre which has been expectedto make the target for total output possible. Mostcountries appear to lie somewhere between theseextremes; both an increase in the area under cultivation and an increase in yields have been expectedto contribute to the growth of total output. Forsome countries, enlargement of the area under cultivation may have represented a relatively easy andeconomical way of raising agricultural output; thisis particularly true of countries where there are stillfertile but under-populated areas. In others, heavyinvestment may have been required to enlarge thecultivated area; in the United Arab Republic, forexample, bringing the semi-arid zones under cultivation has necessitated the construction of very largeirrigation schemes. But, though the requisite investment may have been large, one advantage of a policyof land development that has been generally notedin plans is that modern methods of production canbe readily introduced into these new areas.

Policies for institutional reform

Land reform and related measures

The principal obstacle to agricultural developmentin the developing countries is not so much the inadequacy of resources for investment as the difficultyof implementing the development programme. Thedifficulty in implementation arises from two typesof impediments. The first follows from the peculiarities of property relationships in land and the secondfrom the traditional social structure and psychological values often associated with it. In many countries,particularly in Asia and Latin America, the exis-

tence of extreme inequality in land ownership is associated with absentee landlordism, landlessness, excessive competition for tenancy, high rent, usury andinadequate incentives for the peasants and smallholders. Investment in improvement of land andinterest in advanced methods of cultivation consequently suffer, since neither the landlord nor thetenant is anxious to take the risk involved in suchinnovations. The lack of enterprise in agriculture isfurther aggravated by the attachment of the peasantsto the traditional mode of life with which the traditional methods of cultivation are intimately linked.Thus, the rural structure of property ownership,production techniques and the cultural values of ruralsociety are interwoven in a system which is stronglyresistant to change. Efforts to improve the techniqueof cultivation in isolation from its social and economicmilieu have but small chance of success in such asituation.

In the plans of those countries which have advocated land reform, the aim has been primarily toreplace functionless landownership by peasant proprietorship. Such a change has been expected toenhance social justice and to increase social integration. From the point of view of economic growth,its main contribution has lain in loosening the holdof tradition on agriculture and on rural life in general. The peasant has become interested in improving his own land and in obtaining a higher yieldfrom it. The advice that the extension officers andthe community development organizers may give hasbeen more eagerly listened to; and agriculturalcredit, fertilizers and improved seeds have been morereadily demanded. Measures such as agricultural extension services and rural self-help movements, whichhave often been tried for decades without muchimpact in many countries, have acquired a newmeaning.

Of the plans reviewed in this report, only eighthave explicitly indicated provision for some measureof agrarian reform in their current plan documents.However, a number of countries which do not mention land reform measures in their plans, such asBolivia, China (Taiwan), the Sudan and the UnitedArab Republic, had already introduced programmesof land reform prior to the drafting of their plans.2

In certain other countries which had also previouslyinitiated measures of land reform, these programmeshave run into serious difficulties owing to politicalopposition, the inadequacy of financial provisions,the scarcity of administrative personnel and theabsence of cadastral surveys and ownership docu-

2 See United Nations, Progress in Land Reform: ThirdReport (Sales No.: 63.IV.2); Land Bureau of TaiwanProvincial Government, Land Reform in Taiwan (Taipei),May 1955.


mentation. Finally, there are some countries wherethe question of land reform is still under discussion.

Several countries seeking to introduce land reformhave experienced a number of side effects which haveaffected agricultural performance unfavourably. First,a prolonged political debate on land reform has adversely affected current investment on land. Secondly, land reform has removed the traditionalsources from which supplies of physical inputs havebeen obtained; it has therefore been necessary tosupplement land reform with other measures tocreate new channels for the marketing of inputs andoutputs and to provide new sources of credit. Thirdly,the size of the holdings after redistribution has sometimes become smaller than what the optimum wouldbe in relation to factor supplies. In the plan of Bolivia, for instance, mention was made of the diffi:culty of introducing technological innovations intoagriculture owing to the fragmentation of landholdings consequent upon land reform. This situation hascalled for the organization of co-operatives, as hasbeen suggested in India, or for programmes of landconsolidation, as in China (Taiwan) and Kenya.

The need for educating the farmers and peasantshas been emphasized in all the plans. As in the planof the United Republic of Tanzania, it is not the sophistication in the plan which determines its success,but the attitude of the peasant. The plans have madeprovision for several types of institutions to bringabout a change in the attitude of the peasant. Themost common has been the establishment and expansion of agricultural extension services. Some of theplans have provided for the establishment of anetwork of community development organizations.Others have advocated the formation of farmers'associations under official sponsorship. The educational role of the co-operative movement has alsobeen recognized and the expansion of co-operationin production, marketing and financing has beenfavoured. An innovation proposed in the plans ofEthiopia, Ghana, India, Jamaica and Kenya is theformation of large-scale state farms for the purposeof both demonstration and production. The plan ofGhana has favoured the formation of large statefarms in order to obtain quick results; the trainedpersonnel of the agricultural ministry have beenutilized to manage the farms.

Price policy

The crucial role of an effective price policy for thesuccessful implementation of planning in a mixedeconomy has been well recognized in the plans.Among the many objectives of a price policy, theneed for price stabilization and the use of price incentives to stimulate the investment and productionefforts of peasants and farmers have been most com-

53

monly advocated in plans. Thus, the Indian plan hasdrawn attention to the possibility of inflationary pressure being generated by the heavy investment programme undertaken under the plan and has notedthe adverse effects of increases in prices of food,other essential commodities and export products. Theplans of Ceylon, China (Taiwan), Ghana, Iran,Jamaica, the Philippines and Trinidad and Tobagohave suggested the adoption of measures whichwould ensure an adequate income to farmers so thatincentives might not be adversely affected by suddendeclines in prices.

The measures suggested in the plans to fulfilthese two objectives of price policy have consistedof subsidies and taxation to influence productionand investment; guaranteed price; buffer stocks andopen-market operations in food-grains; marketingboards, co-operative marketing and state trading;public monopolies in trade, particularly of majorexport products, imported food products and majorinput products, and production and price controls.The most generally favoured measure seems to bethe operation of a system of subsidy, taxation andguaranteed prices. These have been widely advocatedand adopted because of the comparative ease withwhich they can be put into effect. vVhere the administration is not strong, however, the policy of subsidy or guaranteed prices is liable to be misused.3

Moreover, it is difficult to withdraw a subsidy orprice guarantee once it has been introduced, eventhough it may lead to over-investment in the production of a commodity and a heavy drain on theexchequer. The guaranteed price system can be givenadded strength by buffer stock operations; but bufferstocks require extensive organization, the buildingof warehouses in all important trading centres, andconsiderable skill in market operations; and, savein India, this measure has not been seriously considered in developing countries. Marketing boardsand organizations under public or semi-public authority have been used more extensively, particularlyfor export commodities and for imports such as foodgrains and fertilizers which are in wide demand. Anumber of plans, especially in Africa and LatinAmerica, have paid considerable attention to theproblem of the marketing of rural produce. The monopolistic control exercised by traditional traders isbelieved to have severely impaired the effectivenessof prices as an incentive to greater output on thepart of the peasants, since price increases have beenlargely absorbed in middlemen's profits. The organization of marketing co-operatives, the constructionof storage facilities and the provision of grading andstandardization services are among the measures

3 Cf. Government of Ceylon, Budget Speech, 1960-1961,by the Minister of Finance (Colombo), page 14.


which have been proposed, or taken, to remedy defects in the marketing system.

Credit policy

A major element in agricultural policy is concerned with the provision of adequate credit for thefarmers and peasants. The credit needs of the smallfarmers and peasants in developing countries arecommonly met by the landlords, the moneylendersor the large farmers, who occupy a monopolistic position as suppliers of credit. The interest they areable to charge is consequently high and the conditionsof repayment are onerous. This has discouraged investment in agriculture and the use of credit forimproving techniques of cultivation. To meet theneed for rural credit, plans have suggested the formation of agricultural banks and the extension ofcredit by co-operatives or agricultural developmentcorporations on more liberal terms. In India, forexample, the Food Corporation, which was recentlyestablished to facilitate the supply of food-grains tothe cities, has been authorized to issue loans tofarmers and to accept repayment in grains. Co-operative credit societies, however, usually cannot providethe long-term credits particularly needed for landimprovement. Co-operative land mortgage banks andagricultural development corporations are the appropriate organizations for such loan3. For the properfunctioning of land mortgage banks, firm titles toland and efficient valuation are required, and theseoften do not exist in developing countries. In manyof the plans, particularly for the African countries,provision has therefore been made for cadastral surveys and the registration of titles as steps towardsproviding the security ,of tenure without which along-term interest in improving land and capitalassets can hardly be nurtured.

Other measures

Numerous other measures have been discussed inthe plans for agricultural development, most of whichhave been in operation in many countries for a longtime. Thus, expansion in agricultural research andtraining, preparation of cadres of all ranks for theextension services, community development and cooperative organizations, development of plant andanimal breeding centres and veterinary hospitals,extension of rural self-government, and arrangements for participation of the rural population indetermining the plan targets are some of the moreimportant measures that have been suggested inplans.

Faced with an unbridgeable gap between what isneeded and what can be provided for agriculturaldevelopment, a number of novel suggestions havebeen introduced in some plans. Thus, the Sudanplan has suggested the formation of mobile veterinary hospitals, the plan of Kenya has proposed theestablishment of large co-operative land settlements,the Indian planners have decided to initiate a ruralworks programme to provide employment for therural unemployed. The Ethiopian plan has proposedto establish agricultural tool and equipment makingfactories and to arrange for the renting of heavierequipment through co-operatives. The plan of Bolivia has suggested the establishment of agriculturalmachinery stations in newly settled areas. The planof Ghana has recommended use of the services of theworks brigade for agricultural development. Whilenot all of these experiments may be successfullyimplemented, they should nevertheless contribute toknowledge of the techniques of agricultural development.

Targets and policies for industrial production

While plans have generally been careful to giveproper weight to agriculture, the importance assigned to agricultural development has none the lessbeen rooted in the recognition that it constitutes acondition of industrialization. All plans have acceptedindustrialization as the central feature of their longterm economic growth; and in current developmentplans, it is industry which generally constitutes theleading sector.

Industry-which is broadly conceived here to include power, transport and communications, construction and mining as well as manufacturing industry proper-has received considerable attentionin most plans. But the extent to which plans havebeen expressed in some detail has varied consider-

ably both among countries and as between the different major sectors of industry. At the level ofbroad targets, almost all plans have specified targetsfor the output of manufacturing industry as a whole,and most plans have indicated the volume of investment required to realize these targets (see table 3-9).The output and investment requirements of powerhave also been generally stated. Fewer plans have included estimates of the planned increase in total output of the transport and communications industries,the reason being that a number of countries do notpossess statistical information about the value ofproduction in these industries; most plans, however,have indicated the amount of investment which theyhave proposed to undertake in transport and communications. Output and investment in mining have


also been generally specified though with more exceptions than in the case of other industrial branches.

While almost all plans have contained targets forthe output of manufacturing industry as a whole,in a number of plans these targets have not been

55

expressed in any greater detail. Fewer countries haveindicated targets for the major branches of manufacturing industry, and, of the countries listed intable 3-9, more than one-third have not detailed anytargets at all for specific commodities and only about

Table 3-9. Synopsis of Content of Plans for Industry

Targets for manufacturingTargets for basic

Country Total Industrial branches Output targets facilities and mining a

foy more orOutput I "1,vestment aut- In- less than 25 Output Investment

put vestment commoditiesb

China (Taiwan) _.0 ..•••••• Yes Yes Yes Yes More PTM PTMColombia ................. Yes Yes Yes Yes More PT PTMEthiopia ., ••••••••••• 0 ••••• Yes Yes Yes Yes More PTM PTMTunisia ....... " ...... - .... Yes Yes Yes Yes More PTM PTMChile ............. Yes Yes Yes Yes M PTM

India ..................... Yes Yes Yes No More P PTMMorocco .................. Yes Yes Yes Yes Less PTM PTMRepublic of Korea ....... Yes Yes Yes Yes PM PTMUnited Arab Republic ..... Yes Yes Yes Yes PTM PTVenezuela .. - .............. Yes Yes Yes Yes PTM PTM

Bolivia . . . . . . . . . . . . Yes Yes Yes Yes Less PTM PTMCeylon ............ Yes Yes No No More PT PTEcuador .. ';'" ............ Yes Yes Yes No PM PTMPhilippines ........... 0._. Yes Yes No Yes Less P PTMSenegal .. - ............ - ... Yes Yes Yes No Less PTM PTM

Trinidad and Tobago ...... Yes Yes No No More PTM PTMBurma ................... Yes No Yes No Less No PTGhana .......... - ...... , .. Yes Yes No No Less M PTMJamaica .................. Yes No Yes No Less PTM NoMali . . . . . . . . . . . . . . . . . . . . . Yes No Yes No Less P No

Pakistan .................. Yes Yes No No Less T lVI PTMSudan .................... Yes Yes No No Less PTM PTMTanzania ............... - . Yes Yes No No Less PTM PTMMalaysia . . .......... Yes No No No Less No NoJordan •••••• ,••••••••••• 0' Yes No No No Less No PTM

Kenya .... Yes No No No Less PTM NoIran ., No No No No Less P PTMNigeria No No No No Less No No

SO'uree: See table 2-1.a P: Power

T: Transport and communicationsM: Mining

In Jordan, Malaysia, the Philippines and the

one-fourth have stipulated targets for more thantwenty-five individual products. In this regard, oneof the most detailed plans is that of India wherethe planned increases in output of more than onehundred products have been indicated.

The amount of detail in plans has, in considerablemeasure, been related to the role assumed by thepublic sector in manufacturing production. In mostcountries, the development of manufacturing industryhas been regarded as largely a matter for privateinitiative. The targets set for the output of manufacturing industry as a whole have been based onviews about the amount of private investment that

United Arab Republic, some targets for investment and output relating to basic facilities ormining are included with those relating tomanufacturing.

b "Less" in some cases may mean nil.

might be undertaken and on some assumption concerning the capital-output ratio. It has often not beendeemed worth while to break these targets downinto greater detail since the decision to initiate or expand specific industries has rested in private hands.This has not necessarily meant that governments havebeen uninterested in the particular kinds of industriesthat would be established or expanded within theplan period. Plans have often indicated that governmental policies affecting private investment, such asfiscal measures, tariffs or import controls, would beexercised to give preference to industries whichwould yield relatively large benefits in terms of for-


eign exchange saving, the expansion of employmentopportunities or some other criterion. But, in orderto guide these policies, it has not been considerednecessary to elaborate specific targets; each new industry is to be considered on its merits as and whenits initiation is proposed by private investors.

A number of countries, however, have establishedtargets for the different branches of manufacturingproduction even though they have also assumed thataction to realize these targets would depend on private investors. In certain of these countries, such asJamaica and Tunisia, such targets have been setwith the aid of input-output tables.

Based on targets for consumer expenditure, oninfonnation about the income elasticity of demandfor the various classes of manufactures, and onknowledge of the input requirements of using industries, estimates have been made of the requirementsfor final and intermediate goods by the mainbranches of manufacturing production. Allowing forthe scope for import substitution and for actual possibilities of increased domestic output, targets havebeen reached for the main branches of manufacturingproduction. Since, however, these targets have beenexpressed for groups of products, they have not, bythemselves, provided direct guidance to private investors in determining whether to enter into theproduction of specific commodities, and the main useof these exercises has been to assess whether thetargets for output and imports of the main sectorsand branches of production are internally consistent.

Only among some of the countries indicating targets for branches of manufacturing production havetargets for specific commodities been spelled out inany significant number. In one or two countries atan early stage of industrialization, such as Ethiopiaand Trinidad and Tobago, these targets have relatedmainly to final consumer goods or other light manufactures. The purpose in specifying targets has beenpartly to suggest to private investors where promising fields of investment appeared to lie and partly,at the same time, to point out the kinds of new industries towards which governmental policies would bemost favourably disposed. In Trinidad and Tobago,for example, schedules of "pioneer" industries havebeen drawn up as guides to private investors of thekinds of industries which, in the view of the Government, appear to be most promising and suitableat the current stage of development.

In the main, however, where targets for specificcommodities have been proposed, these targets havereferred not to final consumer goods but to producergoods whose increased output is considered of particular importance for the economy. Typical productshave been cement, fertilizers, iron, steel and, in theindustrially more advanced countries, the various

classes of machinery and transport equipment. Suchtargets have usually been given in countries whereit has been the intention of the government, eitherby itself or in combination with private investors,to undertake the necessary investment. The targetsfor these intermediate goods have generally beenestimated directly from the expected increases inrequirements of using industries and from the scopefor import substitution; where a number of usingindustries have been involved, the targets have beenbuilt up through completion of commodity balances.

PLANNED AND PAST RATES OF GROWTH

IN MANUFACTURING INDUSTRY

There has been a wide range of variation amongcountries in the rates of growth planned for manufacturing industry. In a few countries, most notablyChile, Kenya and Malaysia, the planned rates ofgrowth have been modest, but in a oonsiderable number of countries, high rates of increase exceeding12 per cent per annum have been proposed (seetable 3-10).

Table 3·10. Planned and Past Annual Rates ofGrowth in Manufacturing Outputa

(Percentage)

Annual rate ApProximateCountry difference

Plann~d Past

Sudan ................ 21Tanzania ............. 14.5 5.8 8.5Ethiopia .............. 13.5 5.5 8United Arab Republic .. US 12.5 1Venezuela ........ 13.5 9.8 3.5China (Taiwan) 12.5Jordan ......... 12.5Ceylon ... 12Republic of Korea ... 11.5 16.2 --4.5India ................. 11 7.0 4Philippines 10 9.9Morocco '" . 9 2.7 6Bolivia 8.5 -4.7 13Colombia 8.5 6.4 2Ecuador 8.5 4.6 4Pakistan ........... 8.5 7.1 1.5Tunisia 8 4.6 3.5Jamaica 7.5 9.3 -2Trinidad and Tobago .. 7.5Chile 6.5 2.4 4Malaysia 6.5Kenya 5.5

S auree: See table 2-3.a For Jordan, including mining and power; for Malaysia

and the Philippines, including mining. For other details,see foot-note a to table 2-1 and foot-note a to table 2-3.

For practically all countries, the planned rates ofgrowth represent a substantial acceleration over thepace of expansion actually attained in the past. Onlya few countries have achieved rates of increase


equalling or exceeding 10 per cent per annum inpast years and, most commonly, the actual growthrate has lain within the range of 5 to 7 per cent.Jamaica and the Republic of Korea are the onlyinstances in which the planned rate of growth fallsbelow the rate recorded in the recent past. In Jamaicathis has reflected the planned deceleration in over-allgrowth which,. as mentioned earlier, has been expected to follow from less favourable trends in theexport trade. In the Republic of Korea, the plannedrate of growth-though still relatively high-has beenexpected to decline, partly as a consequence of thegreater emphasis given to the development of capitalintensive heavy industry in the current plan periodand partly because the past rate reflected reconstruction activities.

57

For certain of the countries planning the highestrates of increase in manufacturing output, namely,Ethiopia, the Sudan and the United Republic ofTanzania, the very small size of the manufacturingsector is undoubtedly important in explaining therapid increases in output which are expected. A givenvolume of new investment in these countries willyield a larger percentage increase in output than inother countries where the initial size of the manufacturing sector is substantially greater. There have,in fact, tended to be much smaller differences amongcountries in the proportion of total investment allocated to manufacturing industry than there are inthe relative size of this sector (see table 3-11). Theplanned share of manufacturing industry in totalinvestment, for example, has been about as high in

Table 3-11. Planned Investment Growth in Output and Marginal Capital-outputRatio in Manufacturinga

Share of manufacturing in

Country

Chile .China (Taiwan) .Philippines .India .United Arab Republic .Venezuela .Colombia .Ecuador .Malaysia .Jamaica .Morocco .Pakistan .Republic of Korea .Trinidad and Tobago .Bolivia ; .Jordan .Kenya .Ceylon .Ethiopia .Tanzania . .Sudan .Ghana .

Gross Totaldomestic Plannedproduct investmentin base

year of plan(percentage)

27 2121 2519 3317 2517 2416 1914 1714 19141313 2313 2213 2813 1311 1211 1498 205 204 212 16

24

Plannedincreasein grossdomesticproduct

333538

393022212419

2729211521102020121534

Planned marginalcapital-output

ratio inmanufacturing

1.83.8

1.6

1.72.6

3.13.3

2.6

3.13.32.2

2.2


a In general, investment refers to gross fixedinvestment. For Bolivia, Ghana, India, Moroccoand the Sudan, data are for net investment.For India, share of manufacturing in base yearof plan includes construction and electricity, gas

Ceylon and Ethiopia as it has been in Chile, althoughthe former two countries are among the least industrialized of the countries listed in table 3-11 whilethe latter is among the most industrialized. It is forthis reason that the contribution of manufacturingindustry to the increase in total output has also

and water. For Pakistan and Tanzania, investment in manufacturing includes construction.For Ghana, manufacturing output includes construction; for Malaysia and the Republic ofKorea, it includes mining; for Jordan, it includes mining and power. For other details, seefoot-note a to table 2-1.

tended to differ less among countries than might havebeen expected from the differences in the initial sizeof the manufacturing sector. There has been sometendency, in other words, for the least industrializedcountries to plan for a relatively greater expansionin the manufacturing sector.

58 PART 1. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND' PROGRESS IN DEVELOPING COUNTRIES

Other factors, however, have certainly also contributed to the relatively high rates planned in somecountries and to the lower rates planned in others.Clearly, the volume of investment planned to beundertaken in manufacturing industry has been aprimary reason for these differences. But ,circumstances affecting the relation between investment andoutput have also been of importance.

In some part, relatively high rates may reflectthe expectation that existing industrial capacity couldbe more fully utilized. The plan of Venezuela, forexample, noted that considerable excess capacityexisted in the period immediately preceding theinception of the plan, and its fuller utilization hasbeen expected to contribute to the expansion of output. Some other plans also observed that shortagesin supplies of imported materials had periodicallyled to under-utilization of capacity and that greilterefforts wOllld be made to maintain a more even flowof imports in order to obviate this problem. The planof India also stressed the importance of the properphasing of projects so that completed projects wouldnot be idle because others, planned to provide theirinputs, were still under construction.

A high planned rate of growth in total output mayalso partly reflect the expectation. that a number ofmajor projects initiated and largely constructedbefore the first year of the plan would enter intoproduction during the plan period; in India, forexample, the three new steel mills whose construction absorbed a substantial proportion of total investment during the second plan were expected toenter into operation in the course of the current planperiod. Finally, a high planned rate in output mayreflect the knowledge that the kinds of investmentto be undertaken during the plan period would yieldrelatively large increases in output per unit of capital.

Taken together, such factors become apparent inthe marginal capital-output ratio implied by thetargets for investment and output. Information aboutthe marginal capital-output ratio is available only forcertain countries but it is of some significance thatin such countries as Venezuela and the United ArabRepublic, which have planned for high rates ofgrowth in output, the ratio is very low. This suggeststhat, in addition to the volume of investment, theother factors just mentioned have been important incontributing to the high rate of growth in outputwhich has been assumed.

PLANNED STRUCTURAL CHANGES IN MANUFACTURING

INDUSTRY

By no means all countries, as mentioned earlier,have sought to spell out the structural changes inmanufacturing industry to be realized over the planperiod. A number of countries have confined their

comment in this regard to the enunciation of certaincriteria which would guide, governments in the ap~

plication of measures affecting the choice of projects;these criteria, as discussed later, have most frequentlyemphasized foreign exchange earning or saving as abasis for project selection. But within the limits setby such criteria, it has been assumed in these countries that the structural changes in manufacturingindustry over the plan period would be determinedby market forces. In a number of other countries,however, the plans have attempted to make explicitthe structural changes expected to be realized overthe plan period; and the analysis contained in thissection necessarily concentrates on these' countries.

The planned changes in the broad composition ofmanufacturing output have been shaped, first, by thestage of industrial development so far attained and,secondly, by the extent to which government policyhas emphasized the rapid development of heavy industry as a necessary condition of ~ccelerated futuregrowth. It should be recognized, however, that thesetwo factors have been, to some extent, interdependent.In countries at an early stage of industrialization,the development of heavy industry-even if statedexplicitly to be a long-term objective-has not beenemphasized in current plans. In the plans of bothEthiopia and Ghana, for example, the establishmentof a heavy industry has been formulated as a longterm aim, and it has been proposed that this shouldbe given priority in later plans; while some initialsteps, such as the preparatory work for establishmentof a steel mill, have been envisaged in the currentplans, the main emphasis has been placed on thedevelopment of consumer goods industries in order tolessen the heavy dependence on imported supplies.At this stage of industrialization, it clearly representsa more efficient use of resources to expand importsubstituting consumer goods industries, thereby releasing foreign exchange for the financing of imported capital goods, than to develop capital goodsindustries while remaining dependent on importedconsumer goods. Thus, the influence of governmentalviews regarding the development of heavy industrybecomes apparent, as will be seen below, only whenthe planned structural changes in semi-industrializedcountries are contrasted.

Some partial evidence of the planned changes inthe structure of manufacturing production is providedby the data shown in table 3-12 on the relative ratesof growth in output of the light consumer goodsindustries and of manufacturing industry as a whole.The difference between these two rates of growthreflects the relative emphasis placed on the expansionof industries other than light consumer goods. It willbe seen that this relative emphasis has varied substantially among countries, the difference being greatestin China (Taiwan) and the United Arab Republic.The difference has been much less marked in some


Table 3-12. Planned Annual Rates of Growth inOutput of Total Manufacturing Industry andof Light Consumer Goods Industries

(Percentage)

Annual rateCountry Approximate

Total Light consumer differencegoods

United Arab Republic 13.5 7.5 6China (Taiwan) 12.5 8.5 4Colombia 8.5 6 2.5Republic of Korea 11.5 9.5 2.5Venezuela 13.5 11 2.5

Chile ......... 6.5 4.5 2Ecuador .. , . 8.5 6.5 2Bolivia 8.5 7.5 1Tunisia .. . .......... 8 7 1

Source: See table 2-l.a Light consumer goods industries include food, textiles,

clothing and foot-wear. Countries are listed in descendingocder of approximate difference between planned rates ofgrowth in output of total manufacturing industry and lightconsumer goods industries. For other details, see foot-notea to table 2-1.

of the less industrialized countries, such as Boliviaand Tunisia, and this has probably reflected theirstage of industrialization. But it is evident that it isnot the stage of industrialization alone which accounts for the contrasts among countries. Chile, forexample, is certainly not less. industrially advancedthan China (Taiwan) and the United Arab Republic.

However, the difference in growth rates betweentotal manufacturing industry and light consumergoods industries does not necessarily reflect solelythe relative emphasis placed on capital goods industries, though this can be a principal reason. Indiscussions of the development of heavy industry,this is usually understood to be roughly synonymouswith the growth of a broadly based capital goods industry capable of providing much of the machineryand other capital equipment required for productiveactivity. But there are many classes of industry apartfrom the light consumer goods industries- whosedevelopment, while necessary, does not signify thefirst stage in the growth of a capital goods industry.In fact, as has been pointed out in an earlier WorldECOnOl11,ic Survey,4 industrial growth in developingcountries, even at the earliest stages, consists not onlyin the development of light consumer goods industries but also in the growth of certain producer goodsindustries for whose output there is a substantialdemand and which do not depend heavily on inputsfrom other manufacturing industries. Typical examples are cement, nitrogenous fertilizers and steel.As may be seen from table 3-13, a number ofcountries at quite different stages of industrialization

4See United Nations, World Econom.ic Survey, 1961(Sales No.: 62.ILC-l), chapter 1.

59

have actually planned relatively high rates of growthin output of these products or have proposed theestablishment of such industries within their currentplan periods.

Thus, the differences among countries in the relative rates of growth in output planned for totalmanufacturing industry and for the light consumergoods industries are undoubtedly influenced by therelative emphasis placed on such producer goodsindustries as cement, fertilizers and steel. Indeed,for some of the less industrialized countries, thedifference in relative growth in total output andoutput of light consumer goods probably arises verylargely from the increases planned for these intermediate goods industries.

Table 3-13. Planned Annual Rates of Growth inOutput of Specific Industrial Commoditiesa

(Percentage)

Country Steel Cement Fertilizers

Burma .. 32Ceylon 26 To startChina (Taiwan) 13 17 33Colombia ., - ........ 16 7 56Ethiopia To start 8

India ........ 22 9 51Iran ..... To startPakistan .. ' . 23 52Repubic of Korea . . 10 21 To startSudan ... - ..... 9 To start

Tanzan~a To start To startTrinidad and Tobago To staTt 5 21Tunisia .. 8 5 20

Source: See table 2-1.a See foot-note a to table 2-1.

A more direct indication of the relative emphasisplaced on the development of a broadly based capitalgoods industry can be obtained from the targets setfor the output of the basic metal industry, the metalproducts industry and the chemical industry. Theseform three of the four main components of a capitalgoods industry. The fourth is the machinery andtransport equipn1ent industry, but plans generaJly donot indicate targets for this industry separately frommetal products. However, if the growth rates plannedfor the first three industries are considered together,some.impression can undoubtedly be formed of therelative emphasis placed on the creation of a capitalgoods industry.

On the basis of these targets, countries fall intotwo groups, as shown in table 3-14. In China(Taiwan), India, the Republic of Korea, the UnitedArab Republic and Venezuela, the rates of growthplanned for these industries have been high in comparison with the rates of increase in total manu-


facturing output. By contrast, in the other countriesshown in the table, although the data are less complete, rates of growth have differed much less sharplyfrom the over-all rates of increase in manufacturingoutput. Of course, the output of these industries needby no means be confined to the production of capitalgoods or of intermediate products for capital goods.Durable and other consumer goods may also beproduced by these industries and high planned ratesof growth therefore do not unquestionably signify anemphasis on capital goods production.

Table 3-14. Planned Annual Rates of Growth inOutput of Total Manufacturing Industry and ofBranches of Heavy Industry"-

(Percentage)

Total Branches of heavy industryCountry manufac-

t~tring Basic Metal Chemi-industry metals prod'ucts cals

Ethiopia ... 13.5 106United Arab Republic 13.5 46 19 22Venezuela 13.5 55 26 13China (Taiwan) 12.5 20 41 19Republic of Korea 11.5 18 20 15

India 11 19 20Colombia ., . 8.5 14 14 11Ecuador ... 8.5 15Tunisia ..... 8 7 13Jamaica .... 7.5 6Chile ....... 6.5 8 9 8

Source: See table 2-1.a Metal products include electrical and other machinery

and transport equipment. Chemicals include petroleum products and rubber. For other details, see foot-note a totable 2-1.

PLANNED AND pAST RATES OF GROWTH IN OTHER

INDUSTRIAL BRANCHES

The planned and past rates of growth in the othermajor branches of industrial production-namely,power, transport and communications, constructionand mining-are shown in tables 3-15 and 3-16. Ashas been mentioned earlier, the increases in outputplanned for the power, transport and communicationsand construction industries have been, in largemeasure, dependent upon the increases planned inother economic activities; and in those countrieswhere mining is an important sector, targets havebeen related to foreign trade plans as described morefully in the next chapter.

The rates of increase planned for output of thepower industry have, in general, been quite closelyrelated to the planned rates of growth for manufacturing industry. Thus, the highest targets forpower output have been set in such countries asEthiopia, Ceylon, China (Taiwan), the Sudan andVenezuela where high rates of growth in manufacturing production have also been planned; and the

Table 3-15. Planned and Past Annual Rates ofGrowth in Output of Basic Facilitiesa

(Percentage)

Transport andCountry Power communications

Planned Past Planned Past

Ethiopia ............. 19.5 11.3 6.5 9.4Venezuela ............ 18 18.5 8 3.6Ceylon ............... 17.5 5.5China (Taiwan) ...... 14 8Sudan . . . . . . . . . . . . . . . . 13.5 4.5b

Tanzania . . . . . . . . . . . . 12.5 18.3 8 6.2United Arab Republic. 11.5 1.3 3.8Jamaica .............. 10 11.2 5.5 7.8Kenya ............... 8.5 6.5Trinidad and Tobago .. 8.5 5

Ecuador ........... - .. 7.5 9.5 2.2Morocco 7 3.1 5.5Bolivia ............... 6.5 5.5 4.0Tunisia .............. 4.5 5.3 1.5 3.1Malaysia ............. c 4.5d 5.8d

Jordan . . . . . . . . . . . . . . . 3Pakistan . . . . . . . .. . . . . 6.3 4 3.8

Source: See table 2-3.a See foot-note a to table 2-1 and foot-note a to table 2-3.b Including commerce.C Included with transport.d Transport and utilities.

Table 3-16. Planned and Past Annual Rates ofGrowth in Output of Construction and ofMining Industries

(Percentage)

Constr1tction MiningCountry

Planned Past Planned Past

Bolivia ............... 17 9.6 8.5 -3.5Venezuela ............ 15 3.3 4.5 8.4Ceylon ............... 13Malaysia ............. 12.5Tanzania 12.5 1.7 4 8.2Ecuador ............. 12 10.6 7 '6.0Tunisia .............. 12 -4.2 2 0.9Ethiopia . . ........... 10 13.0 52.5 7.0Philippines ........... 9.5 5.3Jordan ............... 9

Chile ................ 7 1.3 6 1.0Morocco ............. 7 -11.2 4.5 5.5Sudan ............ 6 25Jamaica 5 13.2 2 23.6Kenya ............... 5 3

Trinidad and Tobago .. 5 3United Arab Republic .. -0.5 9.5 27.5 22.3

Sottrce: See table 2-3.a See foot-note a to tabLe 2-1 and foot-note a to table 2-3.

lowest targets are to be found in such countries asEcuador, Morocco, Trinidad and Tobago and Tunisiawhere the planned expansion in manufacturing industry has been relatively modest. Of course, the


correspondence has not been exact since power isalso utilized by other sectors of production as wellas by households. In a similar way, the expectedrates of growth in ,output of the transport and communications industry have been roughly related tothe planned increases in general economic activityand to commodity production in particular; indeed,the estimates of the growth in output of this industryhave probably more often been reached by referenceto the planned increase in over-all activity than bydirect estimation ,of the possible increases in thevolume of activity within industry. Again, the increases in output of the construction industry havedepended directly on the growth in constructionactivity envisaged in investment plans; thus, theincreases have reflected both the planned rates ofgrowth in total investment and planned changes inits composition as between machinery and equipmenton the one hand and oonstruction on the other.

POLICIES FOR THE IMPLEMENTATION OF INDUSTRIAL

PLANS

Public investment policies

Almost all governments have assumed primary,if not sole, responsibility for the implementation ofplans relating to basic facilities. As has been seen inthe preceding chapter, public investment has usuallyaccounted for the main part, and not infrequentlyfor the whole, of total investment in basic facilities.In manufacturing industry, however, governmentshave differed considerably in the positions whichthey have taken regarding the role of the publicsector.

Some countries have stated that the direct roleof the public sector in manufacturing industry wouldbe very limited. In the plans of Kenya and Malaysia,for example, it has been indicated that it would bethe policy of the Government to rely on privateinitiative for the development of manufacturing industry; the role of the public sector would be confined to the provision of basic facilities and otherservices needed for manufacturing production. Inthe plan of Kenya, it was noted in support of thisposition that the resources of the Government available for development expenditure were, in any case,limited.

In a larger number of countries, a more pragmaticposition has been taken. While a preference has beenexpressed for private ownership and control of manufacturing industry, this has not precluded proposalsto undertake direct public investment in order tosupplement private initiative. The plan of Iran, forexample, stated that public investment would beundertaken only after it had been established thatprivate investment would not be forthcoming; itwas fo'reseen that such public investment would take

61

place in large-scale industry. The plan of Pakistanalso indicated that public investment would be confined to activities in which sufficient private investment was not undertaken as well as to certain otheractivities of strategic importance. Similarly, in China(Taiwan), although it was considered that new industries should, in principle, be privately operated,the plan noted that government initiative still hadto be exercised in the area of basic industries sincethese are large-scale in operation and involve highbusiness risks. Again, the Venezuelan plan indicatedthat public investment would be limited to projectswhich, by virtue of their magnitude or risks, werenot sufficiently attractive to the private sector orwhich, in view of their importance were consideredto be more appropriately undertaken by the Government. In practice, this has meant that public investment would take place in the metallurgical andpetrochemical industries; even here, however, it hasbeen envisaged that public participation would belimited to the basic stage of production, leaving theinitiation of later stages of production, if possible,to the private sector.

In certain other countries, a more positive andcontinuing role has been formally assigned to thepublic sector. In India, for example, according toits Industrial Policy Resolution of 1956, which formsthe basis of industrial planning, the future development of specified industrial activities considered ofstrategic importance to the economy was designatedas the exclusive responsibility of the State. Forcertain other activities also specified by the Resolution, the possible co-operation of the private sectorwas envisaged; all other unspecified industrial activities were considered to be the province of privateinvestment. In the current plan, public investmenthas been concentrated on heavy industries; it hasbeen expected, however, that private investmentwould playa larger role in certain of these industries,such as fertilizers.

It is clear that the role envisaged for public investment in manufacturing industry has usually beenclosely linked to the development of heavy industry.Where the rapid growth of heavy industry has beenplanned, a more active role has usually been assignedto the public sector. Public investment, in otherwords, has usually been concentrated in heavy industry, and where considerable emphasis has beengiven to the development of heavy industry, theshare of the public sector in total manufacturingindustry has accordingly tended to be relatively high.In India, for example, 70 per cent of total publicinvestment in manufacturing industry has beenplanned to be absorbed by the chemical and metalindustries alone; in the Republic of Korea, the shareis 60 per cent and in Pakistan, 54 per cent. Andin these three countries the planned participation


of the public sector in manufacturing industry hasbeen relatively large.

There have been certain exceptions to this general feature of public investment. In the Sudan,for example, some 96 per cent of public investmentin manufacturing industry has been destined forabsorption by light consumer goods industries. But,in the main, the role assigned to the public sectorhas centred around heavy industry. It has been considered in a number of countries that heavy industry is strategic to the growth of the economy,and public action has been deemed necessary toensure its establishment and expansion. The investing habits of the public in many developing countries have favoured projects whose returns are fairlycertain and quickly realized; but in heavy industry,because its capital intensity is high and the gestationperiod long, the requisite investment is large andreturns are slow to materialize.

Criteria for project selection

Besides these general considerations relating tothe role of the public sector in industrial investment,many plans have enumerated more detailed criteriaintended to guide public policy in the selection ofspecific projects. Most plans have attached primaryimportance to the likely effect of new projects onforeign exchange earning or saving; preference hasusually been given to export-promoting or importreplacing projects. The extent to which the manufacturing activities of new projects are intended toconsist of the processing of indigenous materialshas also been an important criterion in a number ofplans. In order to economize on the use of scarcecapital, most plans have also indicated a preferencefor projects and production methods which are labourintensive and have quick gestation periods. Forreasons explored in the following section, however,it is doubtful whether these latter criteria haveassumed much operational significance in the fieldof manufacturing industry. A number of plans have,in fact, stated that these criteria should be set asidewhen other considerations appear more important.

In certain plans as, for example, that of Venezuela,it has also been suggested that accounting or shadowprices should be used in project evaluation in thepublic as well as the private sect()r. The purposein proposing the use of these notional prices hasbeen to make corrections for the deficiencies inherentin market prices which arise from market imperfections and from the fact that market prices do notreflect external economies. Some use has been madeof accounting prices in the Philippines. And inPakistan, in the course of the first plan, before thedevaluation, a shadow foreign exchange rate wasused. However, there is no evidence of widespreaduse of such prices.

Measures to influence the private sector

Since, in most of the countries whose plans arereviewed here, manufacturing industry lies largelywithin the private sector, the main instrument forthe implementation of plans in this sector consistsin governmental measures to stimulate private investment and output. Yet in most plans, although theirimportance is recognized, such measures are discussedonly briefly and usually in rather general terms. Inpart, this has been because the specific nature of themeasures to be implemented has necessarily been leftto later decision by the legislative and executiveauthorities. But, in large part, it is also because noradically new policies have been proposed; the measures envisaged have represented a continuation orelaboration of policies already being pursued.

Regarding the actual measures proposed in plans,fiscal incentives for investment in manufacturing industry have been widely suggested. Thus, severalplans-including those of Ethiopia and Iran-havepointed to tax holidays and the exemption of reinvested profits from full taxation as means of stimulating investment. Accelerated depreciation allowances, which lessen the risk of investment and providecapital at comparatively low cost, have also beenmentioned as, for example, in the plan of Trinidadand Tobago. But perhaps the most frequently mentioned device of fiscal policy are tariffs in their roleas a protective measure against import competition.Plans have also commonly suggested relief fromduties on imports of machinery and materials required by new industries which are considereddesirable.

Import controls have often served the same purpose as tariffs in stimulating domestic investment.In some countries as, for example, India, these havebeen employed in conjunction with other licensingmeasures to allocate scarce capital equipment andother materials in accordance with the· priorities laiddown in the plan. In the plan of Pakistan, by contrast, it was suggested that the licensing of resourcesfor investment be confined to foreign exchange andthat, aside from this condition, resource allocationbe allowed to respond to market forces.

Plans have generally recognized a need tostrengthen institutions for the provision of creditand equity capital to industry. Governments haveproposed to sponsor the establishment of, or toenlarge, such financial institutions, and developmentprogrammes have frequently allotted funds to theseinstitutions in order that they might initiate or enlarge their lending activity. Such institutions, moreover, have often been empowered to borrow fromcentral banks or to negotiate loans from foreignlending institutions. Indeed, these institutions havebeen assigned the major task of ensuring that the


implementation of private investment decisions wouldnot be frustrated by the lack of resources in theprivate sector. Particular emphasis has been laid insome countries, such as Chile, Ethiopia and Pakistan,on the intermediary role of such institutions in developing a domestic market in industrial equities.It has been envisaged that these institutions wouldpromote industries by investing in industrial equitiesbut that, as soon as the industries had become viable,they would seek to sell these equities to the public.In this way, it has been hoped to mobilize morefunds for industrial investment and to accustom thepublic to holding a presently unfamiliar class of asset.

A large number of plans have also mentioned thecreation of industrial estates. These estates typicallyprovide overhead facilities, including power andwater, are located advantageously from the point ofview of transport, and provide vocational trainingas well as repair and other overhead facilities whichindividual manufacturers would be unable to provideand maintain but which, when used by many, becomeeconomical. Thus, the current Indian plan has proposed the establishment of 300 such estates, locatednear small and medium-sized towns and in selectedrural areas where power, water supply and otheressential facilities can readily be provided. The construction, rental and eventual sale of factory andother buildings on such estates are also a featureof some plans, such as those of Trinidad and Tobagoand Venezuela. Since land and buildings representa large proportion, if not the major part, of the fixedinvestment required in many projects, the availabilityof buildings and land on a rental basis substantiallylessens the investment, and consequently the risk,which manufacturers have to undertake in establishing a new project.

Plans have also referred to a number of othermeasures designed to stimulate private industrialinvestment. The plan of Jordan, for example, hasstressed the importance of legislation to define thelegal rights and obligations associated with ownership, including the extent of liability of partners andshareholders, protection to patents and provisionsunder which they are licensed. A number of planshave pointed to the importance of setting and enforcing quality standards for manufactured goods tobe sold abroad as well as domestically. In view ofthe prestige of imported manufactures and the mis-

63

trust for locally produced goods in many developingcountries, such quality standards and their enforcement might also be viewed as an import-substitutingdevice. Further, references to the importance of research and the spreading of information on production and marketing methods and prospects at homeand abroad have been quite common. The plans ofColombia and of Venezuela have emphasized theimportance of research, teaching and other informational activities. Noting the significance of technical assistance, or "extension" type of activities bypublic and private institutions, they have suggestedthe expansion of these activities. The plan of Ethiopiahas attached considerable importance to an industrialpromotion service as well as to a technical agencyintended to identify possible projects and to helpprivate industry in planning their implementation.

Such activities need not be designed merely toassist larger-scale or medium-sized industry. Indeed,some plans have given considerable weight to measures designed to improve the skills, output and salesof craftsmen and small-scale manufacturers. In] ordan, a Small Crafts Service Institute has beenproposed to help craftsmen. In India, where someprotection has been given to village industry fromthe competition of foreign and domestic large-scaleindustry in order to lessen its effects on income distribution and employment, the current plan hascontemplated that more emphasis be given to increasing the efficiency of village and craft industriesso as to improve their competitive ability. Besidesgiving loans, subsidies, training facilities and technical ,and marketing advice to artisans, the Government has proposed that they should be organizedalong co-operative lines.

In conclusion, it may be said that, while the measures proposed to stimulate private investment andoutpllt have been widely employed in the past, ithas generally been intended to apply them more extensively and vigorously. However, the expectationthat there would be an acceleration in industrialgrowth has generally been founded less on the expected influence of new policies intended specificallyto stimulate industrial investment than on the assumption that the more favourable conditions ofover-all growth envisaged in the plan would evokehigher levels of private investment and output.

Manpower targets and policies

In manpower planning, developing countries areconfronted simultaneously with excess supplies ofunskilled labour and widespread shortages of trainedmanpower. They have therefore had to undertakethe twofold task of enlarging employment opportu-

nities and of increasing the supply of trained man

power. The targets and policies of plans in relation

to these two aspects of manpower are described

separately below.


Tahle 3-17. Planned Annual Rates of Increase inPopulation and Lahour Force

(Percentage)

Source: See table 2-1.a For Burma, China (Taiwan) and Colombia, data refer

to economically active population; for Malaysia, Philippinesand the Sudan, they refer to employed population. For otherdetails, see foot-note a to table 2-1.

ing the labour force has, in almost all countries, beengreater than the planned increase in the numbersof additional jobs to be created in the non-agricultural sectors (see table 3-19). In other words, countries have been faced with the fact that the numberof persons remaining under-employed or unemployedwould continue to increase over the course of theirplan periods. Of the countries for which data areavailable, only the Philippines appears to have beenexceptional in this regard; the planned increase inthe number of jobs in non-agricultural activities hasexceeded the total increment in the labour force.Thus, while the plans of developing countries haveusually stressed the importance of enlarging employment opportunities in the non-agricultural sectors, it has generally had to be recognized that theimpact of industrialization programmes on the employment problem would be limited, at least overthe course of their current plan periods. In view ofthe social importance of raising the level of employ-

CountryAnnual rate

Pop,dation Labour force'

1.72.6 2.83.02.0 2.8

2.0-2.52.8 3.22.11.6 2.62.2 2.2

2.3 2.83.0 3.43.1 3.02.3 1.82.43.3 3.02.0 1.83.3 3.22.8 2.3

2.5 3.12.52.8 3.83.12.0 2.02.9 2.73.0 3.2

Republic.

AfricaEthiopiaGhanaKenyaMoroccoNigeriaSudanTanzania .Tunisia .United Arab

Central and South AmericaBolivia .ChileColombiaEcuador ....Jamaica .. , .Trinidad and Tobago .Venezuela .

AsiaBurmaCeylonChina (Taiwan)Indi<a .. 'IranMalaysia .Pakistan .PhilippinesRepublic of Korea.

PLANS FOR EMPLOYMENT

Not all plans have contained explicit targets andpolicies regarding employment. Of all the countriesreviewed in this chapter, some two-thirds estimatedthe possible increase in the labour force over theplan period. But only about half of the countries havespecified targets for increases in non-agriculturalemployment. The main basis for these estimates hasbeen the planned increases in output of the industrialsector or the planned increases in investment withinthe sector. In the Indian plan, for example, theestimates of the additional employment to be generated by some industries were derived from theplanned increases in output, allowance being madefor the expected increases in productivity; for otherindustries, employment coefficients were applied tothe additional investment expected to be undertaken.Clearly, the degree to which it has been possibleto make accurate estimates of the additional employment likely to be generated by production plans hasdepended largely on the amount of detail in theseplans; and, as has been pointed out earlier, the plansof many countries have not c.ontained much detail.It should also be noted that, in some plans, employment targets have been set not .only by referenceto planned changes in production and investmentbut also in relation to social objectives; it has beenassumed that the employment target would, if necessary, be realized partly through the initiation ofspecial employment-creating projects.

Among the countries for which estimates havebeen made, the expected annual rate of increase inthe labour force over the current plan period hasgenerally been in the region of 2 to 3 per cent. Therate of increase in the labour force has usually beenroughly in line with the expected rate of growthin total population though, primarily because ofchanges in the age distribution of the population,there have sometimes been differences between thetwo rates (see table 3-17).

Most countries have assumed that the rate ofincrease in non-agricultural employment would substantially exceed the rate of increase in labour force.The greatest rate of increase has been planned in thePhilippines where, it will be recalled, the emphasisin production and investment plans has been on theindustrial sector. Relatively high rates of increasehave also been assumed in Ceylon, Colombia andGhana. In contrast to most other countries, however,the rates of growth in non-agricultural employmentprojected in Burma and in Trinidad and Tobagohave differed little from the expected rates of increasein total labour force (see table 3-18).

Despite the higher rate of increase in nonagricultural employment than in total labour force,the expected increase in the number of persons join-


Table 3-18. Planned Annual Rates of Increase in Labour Force and Non-agricultural Employment, and Planned Share of Non-agricultural Employment inLabour Forcea

65

Country

AfricaGhana .Morocco .Sudan .Tunisia .United Arab Republic .

AsiaBurma .Ceylon .China (Taiwan) .India .Malaysia .Pakistan .Philippines .Republic of Korea .

Central and South AmericaBolivia .Colombia .Jamaica .Trinidad and Tobago .Venezuela .

(Percentage)

A nnU<>1 rate Share of non-agriculturalemployment in labour force

Labour force Non-agricultural Base year Final yearemployment of plan of plan

2.8 6.8 40 472.8 4.9 33 363.22.62.2 3.4 36 38

2.8 2.9 38 383.4 5.9 39 503.0 5.4 44 481.83.0 4.4 41 441.83.2 9.0 39 512.3

3.1 4.2 53 573.8 5.6 53 602.02.7 2.9 76 773.2 4.8 56 59

Source: See table 2-1.a For Bolivia, data for non-agricultural employment refer to total urban population. For other

details, see foot-note a to table 2-1.

Table 3-19. Relation between Planned Annual Increases in Labour Force and Nonagricultural Employmenta

Cm,ntry

Philippines .Trinidad and Tobago .Venezuela .Ghana .China (Taiwan) .Colombia .Bolivia . .Morocco .Ceylon .India .Malaysia .United Arab Republic .Burma. . .

Planned lJ.1tnuaI increase in Increase innon-agric~tltural

Labour force N on-agricu,ltural Otherb employment asemployment percentage of

increase in(thousands) labo,ur force

306 329 -23 1088 7 2 88

83 70 13 8470 58 13 83

100 79 21 79178 140 38 7964 46 18 72

135 95 40 70125 86 39 69

3,400 2,106 1,294 6268 40 28 59

166 94 72 57253 98 155 39

Source: See table 2-1.a Countries are listed in descending order

of increase in non-agricultural employment as

percentage of increase in labour force. For otherdetails, see foot-note a to table 2-1.

b Refers to portion o·f labour force which iseither unemployed or engaged in agriculture.


ment, however, numerous countries have given considerable attention to possible alternative ways inwhich employment opportunities could be maximized.The main proposals which have been discussed inplans are described in the following paragraphs.

Choice of techniques

In many plans, stress on the enlargement of employment opportunities in the non-agricultural sectorhas led to a discussion of the scope for choice oflabour-intensive rather than capital-intensive techniques in industrial production. Guided by the desireto increase employment, several plans have, in fact,suggested that, in the selection of industrial projects,preference should be given to those which are relatively labour intensive. The plan for the United Republic of Tanzania, for example, observed that, inso far as an economically feasible choice existed, itwould be the policy of the Government to encouragethe adoption of inrlustries or methods of productionwhich would provide the most intensive use oflabour.

Other plans, however, have observed that thescope for choice of techniques within the modernindustrial sector is severely circumscribed. In themodern manufacturing processes required for theproduction of a given product, the existence of achoice between alternative techniques which areequally efficient but which differ to a significantdegree in their labour or capital intensity is morethe exception than the rule. The choice between moreand less labour-intensive techniques usually reduces,in practice, to a choice between products. But theprimary considerations determining the pattern ofdomestic output are necessarily the requirements ofthe domestic market and the efficiency· of domesticproduction in relation to imports; the labour orcapital intensity of the techniques utilized in production of a commodity can, at best, be only a subsidiary basis for the decision to undertake its production. The current plan of India, for example,noted that many industrial processes, particularlyin large-scale manufacturing, have to be based onhigh productivity techniques since it is essential toadopt the scale and methods of production whichwill yield the largest economies. Similarly, the planof Pakistan observed that provision has had to bemade for industries which are expected to become offuture importance to the economy even though theirimmediate contribution to income and employmentper unit of investment might not be large. The needto give priority to productivity over employment hasbeen even more explicitly recognized in the plan ofthe United Arab Republic ;it stated that "modernindustries depend by their very nature more oncapital equipment than on the human factor. Thismakes any expansion in employment due to large-

scale industrialization relatively small, and producesits effects on productivity. The increase in productivity is actually an important element in raising theaverage income per worker and consequently in theover~all average income of the population"."

Recognition of the limited impact of industrialization programmes on employment has intensified thesearch for employment-creating opportunities in otherareas of economic activity. The Indian plan, forexample, emphasized that the necessity of usingcapital-intensive techniques in large-scale industryshould bebalanced by an effort to employ techniquesin other fields which would be more labour intensiveand would save on capital resources. The areas whichhave been singled out for attention in most planshave been small-scale and cottage industries andconstruction activity, including rural works programmes.

Most plans have contained programmes or proposals for the enlargement of employment opportunities in these areas. Other social objectives besidesadditional employment, however, have been of importance in the framing of these programmes. Inparticular, these have often been seen as a way ofchecking the unduly large migration of the populationfrom the countryside to the large urban centres. Acommon problem in developing countries has beenthe great increase in the number of urban dwellers'the steady flow of people into the cities has fa;outpaced their capacity to expand housing facilities,urban water supplies, public health services andother facilities. In order to stem this flow, a numberof countries have emphasized the value of development, projects and programmes which lend themselves to geographical dispersion.

Small-scale and cottage industries

The plans of many developing countries haveproposed that steps be taken to promote the growthof small-scale and cottage industries. Besides theenlargement of employment opportunities, other advantages which have been seen to flow from thepromotion of these industries include their adaptability to the small size of local markets, the possibility of mobilizing local savings which would nototherwise be productively employed, the utilizationof traditional skills and the short gestation periodbetween the initiation and entry into operation of anenterprise. The plan of Ethiopia, for example, hasenvisaged a useful role for small-scale industry insupplying local markets with such products as footwear, agricultural tools, household utensils andcertain textile products.

"United Arab, Republic, National Plalming Committee,General Frame of the Five-Year Plan for Economic andSocial Developnlent (Cairo, 1960), page 13.

CHAPTER 3. PRODUCTION, AND MANPOWER PLANS

In discussing measures to promote small-scale industry, the plans of most countries have not drawnany sharp distinction between small-scale factoryproduction using modern techniques and other smallscale or cottage industry employing traditional techniques. In practice, the dividing line might often bedifficult to draw. Yet it is important to realize that,from the point of view of the impact of small-scaleindustry on employment, the distinction is frequentlysignificant. In many kinds of modern, small-scalefactory production, the capital and labour requirements per unit of output are much the same as inlarge-scale production.6 Small-scale industry, in fact,is by no means always an alternative to large-scaleproduction. Many small-scaJe industries are complementary to other industries where large-scale production prevails; they provide the latter with materialsand parts necessary for their productive activity.

It is primarily the small-scale or cottage industriesutilizing more traditional techniques that most countries appear to have had in mind as a means ofrelieving the employment problem. This, for instance,has beenclearly expressed in the current planof thePhilippines; it noted that', although cottage industrieshad long been carried on in the Philippines, theirincome and employment potentials were not beingfuily tapped owing to weaknesses in organization,marketing, financing and product standardization.The plan observed that action needed to be taken torevive the interest in cottage industry as an initialapproach to the solution ofunder-employment.

An important condition of survival and expansionof these small-scale industries has been realizationof improvements in their competitiveness. In thisconnexion, the experience of India is of particularinterest since it gave an important place to the development of these industries in its earlier plans.The third plan noted that "an important lesson ofthe past decade is that where individual small in~

dustries, including village industries, have failed toadopt improved techniques or to achieve economiesof scale and organization through co-operation,production costs have remained relatively high andproblems of unsold stocks and of decline in production and employment have arisen.7 The plan therefore proposed that positive forms of assistance beextended to small-scale and cottage industries inorder to improve the productivity of the worker andreduce production costs. This problem of the uncompetitiveness of traditional small-scale industry hasalso -been recognized in the plans of several othercountries, such as Ceylon, Ghana, Nigeria and thePhilippines. The plan of Ceylon, for instance, while

6 See International Labour Organisation, PreparatoryTechnical Conference on Employment: Employment Objectives and Policies,PTCEjI (1963) (Geneva), page 162:

7 Government of India, Planning Commission, ThirdFive-Year Plan, 1961-1966 (New Delhi, 1961), page 426.

67

favouring a rapid expansion of small-scale andcottage industries in order to increase employmentopportunities, emphasized at the same time that suchan expansion implied a new concept of small-scaleand cottage industries involving efficient methods ofproduction.

Construction and rural works programmes

In most plans which have discussed the problemof employment, heavy reliance has been placed on theexpansion of construction activity as a principalmeans of creating additional job opportunities. Whilecapital-intensive means of construction are available,a strong preference has usually been expressed forthe use of labour-intensive methods in this area ofeconomic 'activity.,

Particular emphasis has been'laid in a number ofplans on the organization of additional constructionactivities in the rural areas. Some countries haveviewed these activities as public works programmesdesigned to provide additional employment on atemporary basis. The third plan 6f Iran, for example,stated that such programmes would be introduced inthe event that part of the labour force wa.s not absorbed by the planned development activities. Sirnilarly, the plan of Trinidad and Tobago proposedspecial public works projects on tHe' grounds thatthese provided' temporary jobs for the unemployedwhile the slower and more capital-intensive task ofcreating permanent jobs took place.

In other countries, however, the approach to thecieation of additional jobs in the rura.l areas hasbeen derived not so much from the long-establishednotion of public works as from the newer conceptof community development. For example, the plansof some countries, such as those of Ghana, Moroccoand the United Republic of Tanzania, have envisagedthat, through the initiative and voluntary labour ofthe local population, rural under-employed labourshould be utilized to create and improve local capitalassets. Governments have proposed to provide theminimum amount of technical assistance and equipment necessary to make such construction workeffective and to ensure that the initial enthusiasmof the population would not be dissipated throughpoor organization and technical. errors. Such employment schemes have not proposed that regularwages be paid and the problem has therefore arisenof finding suitable projects to which people wouldbe willing to give their labour freely.

Quite a number of developing countries have, infact, initiated community development programmesat one time or another, though the individual programmes have differed considerably in scope, contentand methods of execution. Examples in Asia includethe national programme of community developmentin India, the village agricultural and industrial de-


Soztrce: See table 2-1.a Including outlay for goveI:nment baildings.b Excluding engineering and technological education.

tion of public development expenditure to the expansion of educational facilities. In the absence ofsome impression of the future manpower require-

ever, the oomprehensiveness of the studies undertakenhas varied considerably. Certain countries, mostnotably Ethiopia, Ghana, Iran, Nigeria and Tunisia,have explored their requirements in some detail andhave estimated their needs for a variety of differentkinds of trained manpower. These estimates have notbeen confined to different classes of high-level manpower but have included targets for various classesof medium-level and skilled manpower. This hasbeen in recognition of the fact that there is a neednot only for high-level manpower but also for theclerical and junior technical personnel who form thesUI:porting cadres. The plan of Ghana, for instance,estimated that for each person absorbed into a highlevel occupation five supporting technicians werenecessary to make his employment worth while.

While, for reasons of lack of information theestimates of manpower requirements by type 0/ skillhave no doubt been crude, they have served as ameaningful basis for the preparation of plans foreducation and training. They have helped to linkeducational and training plans more directly to thefuture economic requirements of the country. In amajority of developing countries, requirements fortrained manpower are on a scale which exceeds thecapacity of existing educational and training institutions. Most governments, as can be seen from table3-20, have planned to allocate a substantial propor-

Table 3-20. Planned Share of Education and OtherServices in Public Investment

(Percentage)

velopment programme and the basic democraciesprogramme in Pakistan, the rural developmentsocieties in Ceylon and the barrio (village) community development programme in the Philippines;in Africa, the supervised co-operatives and combined centres in the United Arab Republic, theProgramme d'animation rurale in Senegal, the community development programme in Uganda and themass education and Workers' Brigade programmesin Ghana; in the Latin American region, the community development schemes in Mexico, Jamaica andVenezuela.8

In countries with some experience in the implementation of these programmes, difficulties have beenencountered which current plans have sought tocorrect. Not the least of these has been the lack ofthe necessary knowledge and organizational skill atthe local level. In the third plan of Iran, for example,among the shortcomings noted in the communitydevelopment programme were the lack of adequatelocal g;overnment machinery and deficiencies in theadministration of the programme. On account ofsuch difficulties, some countries have chosen a moreselective approach towards community developmentprogrammes, concentrating their energies initiallyon a few pilot projects in order to gain experiencebefore broadening the programme.

Experience in some countries has also led to thevirtual abandonment of reliance on free and voluntarylabour. In India, for example, where communitydevelopment programmes were first introduced onthe assumption that such labour would be available,the new approach has called for the payment ofvillagers, with wages possibly being paid partly inthe form of food-grains. In certain other countries,the use of compulsory labour has been seen as analternative to the payment of wages.

EDUCATIONAL PLANS

Awareness of the need for planning to meet therequirements of a developing economy for trainedmanpower has been spreading rapidly in recent years.Perhaps owing to its recency, however, this has notbeen as widely reflected in current development plansas might have been expected. Many countries, especially in Latin America, appear to have initiatedextensive research into their manpower and educational requirements only within the past three orfour years.

Based on the evidence contained in plans, it isamong the countries of Africa that attention has mostcommonly been given to manpower and educationalplanning. This is undoubtedly indicative of theawareness in these countries of the acute scarcitiesof trained manpower from which they suffer. How-

8 International Labour Organisation, op. cit., page 170.

Country

Ghana .Tanzania .MalaY'sia .Republic of Korea .Senegal .

Morocco .Sudan .Ethiopia .Nigeria .Iran .

Jamaica .Kenya .Pakistan .India .Trinidad and Tobago .

Ceylon .Venezuela .

Services

Education Total

1414 38a

12 311212 36

11 4011 321010 298 26

8 4188 237b 107 32

5 235 40


ments of the economy, however, there is always thedanger that the past pattern of educational expenditure will tend to be repeated; and, as is well known,there has often been a bias at the higher educationallevels in developing countries, as well as in developed

69

countries, towards training in the liberal arts, law andother non-technical fields. This has not fully corresponded to the needs of the developing countries,and it has been a useful function of manpowerplanning to help correct this bias.

Chapter 4

PLANS FOR FOREIGN TRADE AND PAYMENTS

Because of the great importance of imports, exports and foreign capital to economic growth in thedeveloping countries, foreign trade and paymentshave necessarily assumed a central role in development plans. In many of these countries, export tradeaccounts for a substantial part of total output, andtrends in exports have accordingly exerted a considerable influence on over-all growth. Moreover,given the structural characteristics of their economies, these countries have depended very largelyon foreign sources of supply to meet their requirements for specific products, such as capital equipmentor raw materials, which are crucial to development.Finally, the level of domestic saving has frequentlybeen insufficient to ensure an adequate level of investment, and an inflow of foreign capital has beencounted upon to supplement domestic resources.Thus, the assumptions which have been made ~bout

foreign trade and payments have gone far to shapethe character of over-all plans.

In a few countries, the crucial importance assigned to the external sector has even been reflectedin the approach to plan formulation as a whole.Thus, in such countries as Colombia, Chile and thePhilippines, the first step in plan formulation appearsto have been to make independent estimates offoreign exchange earnings and other receipts. Fromthese, payments on account of services and otherfinancial commitments have been deducted, and thecapacity to import has thereby been derived. Thisestimated import capacity has then been used as abasis for projecting the feasible rate of growth ofthe economy as a whole, allowance being made forimport substitution and other elements of planstrategy. In other words, the rate of growth inimport capacity has been singled out as the key determinant of over-all growth. In most countries,however, the approach has been to work back fromthe targets set for domestic economic activity toestimates of import requirements; taken togetherwith the projections of export earnings, these haveprovided an estimate of the foreign exchange gap.This gap has, in the first instance, been a residualitem which has later had to be considered in thelight of the prospects for obtaining foreign aid orother foreign capital. In fact, whichever approachhas been used, the basic problem of meeting the

70

balance of payments constraint and of ensuringconsistency between the foreign trade sector and theover-all development plan has remained. Thus, ifthe implied gap has been too large relative to thelikely level of capital inflow, import requirementseither have had to be scaled down-by intensifyingimport substitution or lowering plan targets-orefforts have had to be made to raise export targets.Similarly, if the estimated import capacity has notpermitted an adequate rate of growth, targets forexports and capital inflow have had to be raised,and efforts made to achieve these higher targets.Thus, in order for plans to be realistic the samerequirements have had to be met in either case.

While the plans of most developing countries haveindicated awareness of the central importance of theexternal sector, it should not be supposed that theyhave all elaborated comprehensive and detailedforeign trade and payments programmes. Almostall plans have set forth targets for total merchandiseexports and imports, but in a number of cases theseover-all targets have not been spelled out in anygreater detail. As indicated in table 4-1, although amajority of countries have specified targets for atleast some of their major export commodities, severalhave included no such specific targets in their plans.Further, with very few exceptions, targets for exports have been stated in terms of volume only,export prices being simply assumed to remainconstant. On the side of merchandise imports, mostcountries have broken down their over-all targetsinto targets for major commodity groups. In a fewcountries, several commodity groups have been identified, but, typically, the breakdown of the over-aUtarget has been limited to the three major groupsof capital goods, consumer goods and raw materialsand semi-processed goods. Some countries, however,have not indicated any targets at all for imports bycommodity groups.

With regard to the service items in the balance ofpayments, while almost all countries have necessarilymade some estimate of net receipts or payments onservice account in order to form some impression ofthe possible magnitude of the deficit in the currentaccount balance, not many have made separate estimates of both receipts and payments. Direct estimates

CHAPTER 4. PLANS FOR FOREIGN TRADE AND PAYMENTS

of investment income payments, for instance, havegenerally been limited to those countries in whichthe magnitude of such payments has become considerable. Similarly, many countries have not madeexplicit provision for amortization payments in theirplans, the countries which have done so being mostlythose which have previously accumulated sizableforeign debts.

Table 4-1. Synopsis of Content of Plans for ForeignTrade and Payments

TargetEstimate of paY11tents

Main export ThreeCountry c01nmodities~ or more Invest- Amortiza~

explicitly groups ment tionspecified of income

impm'fs

Republic of Korea ... Yes Yes Yes YesTunisia ............ Yes Yes Yes YesChile . , ............. Yesa Yes Yes YesUnited Arab Republic Yes Yes Yesb YesPakistan ........... Yes Yes Yesb Yes

Sudan .............. Yes Yes Yesb YesBolivia Yes Yes No YesVenezuela .... ...... Yes Yes No YesGhana ............. . Yes Yes No YesEcuador . . . . . . . . . . . . Yes Yes No Yes

7I

Target

Main exportEstimate of payments

ThreeCount1·y commodities, or more Invest- Amortiza~

exPlicitly groups ment tionspecified of income

imports

Kenya Yes Yes Yes NoCeylon .......... Yes Yes No NoEthiopia . ........... Yes Yes No NoTrinidad and Tobago Yes Yes No NoIndia ............. ,- No Yes No Yes

Colombia ......... " Yes No Yes YesPhilippines . . . .. . . . . Yes No No NoBurma ............. Yes Noc No YesNigeria . .. . . . . . . . . . No Yes No YesChina (Taiwan) ... No No No Yes

Jamaica ............ No No Yes NoMorocco ..... " ...... No No Yes NoMalaysia . . . . . . . . . . . No No Yes NoIran .. - ........ , No No Yesb YesTanzania ........... No No No No

Senegal ...... - ...... No No No NoMali ...... - ...... ,- No No No No

Source: See table 2-l.a Targets indicated by export groups.b Interest only.c Target indicated for two groups of imports.

Export targets

The establishment of targets for the export sectoris a key element in the process of plan formulation.At the preliminary stages of plan formulation, someestimate of the trend in export earnings has had tobe made. When compared with the import requirements implicit in domestic production and expenditure plans, the estimated trend in export earningsmay have revealed a foreign exchange gap greaterthan could be financed by the inflow of foreigncapital. In this event, domestic production and expenditure plans have had to be modified in orderto reduce import requirements or to enlarge exportear1l1ngs.

It is quite obvious that the estimation of futureexport earnings is fraught with uncertainties. Estimates depend on factors which are difficult topredict, such as demand conditions abroad and thecompetitive position of foreign suppliers. The problemis especially acute for developing countries sincetheir exports are generally concentrated in a fewprimary commodities for which relatively smallchanges in demand or supply conditions can causelarge swings in prices. The targets specified forexport earnings in the end year of a plan, or in itsintervening years, are therefore highly uncertain.Nevertheless, the importance of estimating the trendin export earnings can hardly be overstated. Without

estimates of export earnings and import requirements, current decisions with regard to the utilizationof resources for development can hardly give appropriate weight to export-promoting and importsubstituting activities.

The actual procedure adopted by most developingcountries in projecting their export earnings hasbeen to assume that export prices would remainconstant and to concentrate attention on the establishment of targets for the volume of exports. Forcountries which are important suppliers of particularprimary commodities, the main consideration in establishing export targets for these products hasbeen the likely trend in world import demand. Forcountries which are minor suppliers of their exportproducts, targets have been derived mainly fromestimates of the possible increases in exportablesupplies.

A few countries, sometimes with the aid of international agencies, have undertaken more comprehensive studies of both demand and supply preparatoryto setting their export targets. In Chile, for example,a study of prospective world demand for, and supplyof, copper appears to have been undertaken, estimates of future copper prices being made on thebasis of these studies. Similar studies of their major

72 PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVEI"OPING COUNTRIES

export products were utilized by Colombia, Malaysiaand Nigeria in the preparation of their plans. Inthe latter two countries, export prices were consequently assumed to fall during the plan period.In Colombia, the plan was worked out on the basisof two alternative assumptions, namely, constantand falling coffee prices. In most countries, however,mainly by reason of lack of information, the possible increases in supplies from competing countrieshave been largely ignored and targets have been setin the light of expectations about trends in worlddemand and about domestic output.

For a considerable number of countries, plannedrates of growth in exports are clearly ambitious,being appreciably higher than in the recent past(see table 4-2). Yet, tlJere is about an equal number

Table 4-2. Planned and Past Annual Rates ofGrowth in Volume of Merchandise Exportsa

(Percentage)

Annual rate ApproximateGroup and country

Planned Pastdifference

Countries indicating plannedrate greater than past rateRepublic of Korea ....... 27 -3.1 30Bolivia 10 -6.2 16Ethiopia ..... . ......... 11 2.0 9United Arab Republic ... 6.5 2.2 4.5China (Taiwan) 11.5 7.4 4

Pakistan ............... 4 0.9 3Burma ................. 7.5 5.0 2.5Chile . . . . . . . . . . . . . . . . . . . 6.5 4.2 2.5Ghana 6 4.2 2India ......... 3.5 1.5 2

Ceylon ................. 2.5 0.9 1.5Morocco .............. ' . 5 3.6 1.5Nigeria .. . ............ 5.5 4.2 1.5

Countries indicating plannedrate smaller than past rateColombia ............... 5.5 6.3 -1Tunisia ..... - ...... 4 5.7 -1.5Ecuador ................ 5 6.9 -2Philippines ... . ...... - .. 3 5.4 -2.5Tanzania ............. " 6.5 8.8 -2.5

Venezuela ......... 4.5 7.3 -3Sudan . . . . . . . . . . . . . . . . . . 4.5 8.7 -4Jamaica ......... 3.5 8.1 -4.5Malaysia ....... -0.5 3.8 -4.5Kenya 5 12.4 -7.5Trinidad and Tobago. 2 10.6 -8.5

Source: Bureau of General Economic Research andPolicies of the United Nations Secretariat, based onStatistical Office of the United Nations, Yearbook of Internaltional Trade Statistics and Yearbook of NationalAccounts Statistics; United Nations, Eco'nomic Bulletin forLatin America, Statistical Supplement; International Monetary Fund, International Financial Statistics (Washington,D.C.).

a Planned rate of growth for Colombia, Malaysia andNigeria, whose plans assume declines in export prices, refers

of other countries for which the projected rates ofgrowth are lower than, or do not differ materiallyfrom, past rates. Since most developing countriesare dependent upon a few primary commodities forthe bulk of their export earnings, it might be expected that their export projections would be fairlyclosely related to the expected trends in worlddemand for their principal export commodities. Inorder to test this hypothesis, the past rates of growthin world trade of the main export commodities ofeach country have been calculated, and these havebeen compared with the planned rates of growth intotal exports of the same country (see table 4-3).In so far as the past rate of growth in world tradeof the main export commodities reasonably approximates the expected rate, some conclusions can bedrawn about the assumptions underlying the targetsplanned for total exports.

On the basis of this comparison, countries fallinto three major groups. In the first group of countries, projected rates of growth in the volume oftotal exports have conformed quite closely to pastrates of growth in world trade of their principalexport commodities; and in so far as past trends inworld trade fairly indicate prospective trends, theseprojected rates have appeared to be well within thebounds of possibility. For Ecuador and the Sudan,the projected rates of growth in total exports areabout the same as the past trends in world tradeof their principal exports and still less than thepast rates of growth in their total exports. For Chile,the planned rate of growth in total exports is decidedly higher than the past rate of increase in totalexports, but it is not out of line with past trends inworld trade in its major export products. The targetset by Chile has denoted a desire to prevent anyfurther contraction in its share of world marketsfor its principal exports.

The second group consists only of three countries,namely, Jamaica, Trinidad and Tobago and Venezue1a; in the plans of these countries, the projectedrate of increase of total exports has been set substantially below the past trend in world trade oftheir major export products. All of these countriesare in the special position of having production oftheir principal export commodities-petroleum andbauxite-in the hands of large companies with international interests. The rate of future expansion inexportable supplies has thus depended heavily on the

to value of exports. For India, planned rate is estimatedfrom annual average for plan period as a whole. As elsewhere in this report, past rate of growth generally pertainsto the period between 1953-1954 and 1959-1960; however,where abnormal factors were at work during these years,a somewhat different period has been used. For Kenya andTanzania, past period data exclude their trade with eachother and with Uganda. For other details, see foot-note ato table 2-1.


Table 4-3. Planned and Past Annual Rates of Growth in Total Exports and Past Rateof Growth in Wodd Trade of Major Export CommoditiesR

(Percentage)

73

Group and country Major export commodities

Past rate ofPlanned rate growth in worldof growth in trade oftotaJ e%jJorts major 8.%port

commodities

Past rate ofgrowth in

total exports

Countries indicating plannedrate of growth in total exports not appreciably different from past rate of growthin world trade of majorexport commodities

Sudan .

Ecuador .Colombia .Chile .

Countries indiwting plannedrate of growth in total exports appreciably less thanpast rate of growth in worldtrade of major export commodities

Trinidad and Tobago ..

Jamaica .

Venezuela .

Cotton, cotton seed, ground-nuts

Banana.s, coffee, cocoaCoffee, petroleumCopper

Petroleum, sugar

Aluminium, bauxite, sugar

Petroleum

4.555.5b

6.5

2

3.5

4.5

4.85.06.17.2

10.2

6.8

10.2

8.76.96.34.2

10.6

8.1

7.3

Countries indicating plannedrate of growth in to'tal expo·rts appreciably greaterthan past rate of growth in1vorld trade of major exportcommodities

Ceylon

Philippines

India .

Pakistan

Nigeria

Ghana

Tanzania

United Arab Republic .

Burma

Bolivia

Ethiopia

China (Taiwan) .

Tea, rubber, coconut prod-ucts 2.5 1.5 0.9

Sugar, coconuts and coconutproducts 3 1.4 5.4

Tea, jute and cotton manu-factures 3.5 1.5 1.5

Cotton and jute and manu-factures thereof 4 0.9 0.9

Ground-nuts, palm oil, cot-ton, cocoa 5.5b 2.3 4.2

Cocoa 6 2.4 4.2

Sisal, cotton, coffee, tea, oil-seeds, nuts 6.5 3.5 8.8

Cotton, rice 6.5 5.0 2.2

Rice, rubber 7.5 3.5e 5.0

Tin, lead, petroleum 10 -3.2 -6.2

Coffee 11 5.0 2.0

Sugar, cotton manufactures,tea, rice 11.5 4.0 7.4

Source: See table 4-2 and United Nations, Commodity Survey, 1962 (Sales No.: 63.II.D.3).

R See foot-note a to table 4-2.

b Value of merchandise exports.

e From 1950 to 1960.


plans of these companies. The plan for Trinidad andTobago, for example, noted that "in view of thedominant role of petroleum exports in the economy,planning in this area resolves itself largely into aquestion of co-operation between the Governmentand the oil companies in setting feasible targets".l

In Trinidad and Tobago, the major factor accounting for the setting of a projected rate of increasein exports substantially below past trends appearsto have been supply difficulties connected with thedepletion of known petroleum resources and uncertainty as to future prospects of finding new oil wells.In the case of Jamaica, the problem appears to havebeen quite different. No supply difficulties have beenenvisaged since the bauxite resources of Jamaica areconsidered to be quite extensive and depletion is notin sight. The plan, however, mentioned that forvarious reasons affecting world market conditionsthe past growth of bauxite exports could not beexpected to continue in the future, and a much lowerrate of expansion was deemed appropriate for planning purposes. Similarly, in Venezuela, the comparatively low export projections have apparently reflected views with regard to prospective developmentsnot only in world demand but also in supplies fromalternative sources.

Finally, there is the third and substantial groupof countries whose planned rates of growth in totalexports have been appreciably greater than pastrates of growth in world trade of their principalexport commodities. This divergence may have arisenbecause trends in world trade of their principalexports have been expected to be more favourablethan in the past, because countries have expected toincrease their share of world markets in their principal exports or because countries have planned todiversify their exports.

Few countries have indicated their expectationswith regard to future trends in world demand fortheir principal exports. Consequently, if the plannedrate of growth in principa,l exports has been abovepast trends in world trade, it is not easy to knowto what extent this has reflected more favourableexpectations regarding world demand or to whatextent it has meant that the country has hoped toincrease its share in world markets. The plans forGhana and Pakistan, however, were explicit on thisscore. The plan for Ghana assumed that world tradein cocoa would increase by 4 per cent per annumin the nineteen sixties compared with a rate of only2.7 per cent in the nineteen fifties; exports of cocoawere then projected on the assumption that Ghanawould maintain its share of world markets. The

1 Government of Trinidad and Tobago, National PlanningCommission, Draft Second Five-Year Plan, 1964-1968 (Port.of-Spain, 1963), page 17.

plan for Pakistan assumed that world demand forjute would increase by 2 per cent per annum andthat Pakistan would continue to be virtually thesole supplier of world markets.

A number of other countries in this group, however, have clearly set their export targets on theassumption that they would increase their share ofworld markets in their principal exports. This applies, for example, to such countries as China(Taiwan) and Ethiopia, which are not principalsuppliers of world markets. It is perhaps not toosurprising that, for such countries, the dominantconsideration in planning appears to have been therate at which exportable supplies could be expandedrather than the implications of export expansion onworld prices and market prospects. The plan forEthiopia, for example, stated that the export targetfor coffee could be considered feasible "since production may be easily extended to offset any adverseeffects of a further fall in price".2

Bolivia and Burma constitute rather exceptionalcases in this regard. The plans of both countrieshave projected relatively high rates of growth fortheir principal export commodities, although bothcountries are already important suppliers of thesecommodities. In the case of Bolivia, an annual rateof growth of 10 per cent has been projected for theplan period, although world trade in its principalexport declined during the nineteen fifties. However,it must be borne in mind that at the beginning ofthe plan period Bolivian exports were far belowthe level attained in the early nineteen fifties, andhence the relatively high rate of expansion projectedfor the plan period reflects in part the process ofregaining lost ground.

In Burma, the plan took note of the fact thatmany of the major importers of Burmese rice, particularly in Asia, were striving for self-sufficiencyand it observed that the market prospects seemedclouded. The plan none the less assumed thatBurma's exportable surpllls of rice-planned to increase by 40 per cen 'ler the four-year planperiod-would find adequate outlets.

For other countries in this group, notably India,Pakistan, the Philippines and the United ArabRepublic, which are also important suppliers of worldmarkets for their major export commodities, thediversification of exports appears to have been themain factor relied upon to achieve the targets fortotal exports. Pakistan, for example, has expectedto reduce its relative dependence on jute and rawcotton by increasing its exports of cotton manufac-

2 Ethiopia, Planmng Board, Second F~ve-Year Developmrnt Plan 1955-1959 E.C. (1963-1967 G.c.) (Addis Ababa,1962), page 246. Exports of coffee are expected to increaseby 35 per cent in value over the five-year period.


tures and a variety of other manufactures. Similarly,the plan of the United Arab Republic has expectedthat exports of raw cotton would diminish in relativeimportance and that cotton and other manufaotureswould assume greater importance; In India, a moreintensive effort to accelerate the growth in exports,particularly of other manufactures besides textiles,has underlain the higher projected rate of growthin exports.

In fact, the plans of most countries-whicheverof the above three groups they fall into-have contained targets for the diversification of exports.In consequence, the targets projected for total exports have frequently been higher than the targetsset for major export staples. Thi" is brought olitclearly in table 4-4 where the planned change inthe share of export staples in total exports is shownfor a number of countrie~.

75

Most countries have planned to expand, to someextent at least, the share of minor primary productsin exports or, alternatively, to introduce new pri~

mary products, and for a few countries these prodc

ucts have been expected to contribute significantlyto export diversification during the plan period. Inthe Nigerian plan, for example, an increasing rolehas been assumed for petroleum. In India, iron ore,which accounted for a minor fraction of exports inthe base period, has been expected to contributealmost one-third to the projected increase in exportsduring the plan period.3 In Colombia, minor agricultural products which represented less than ·10 percent of total exports in the base period have beenexpected t~ ac~ount for about one-third of the in-

3 See General Agreement on. Tariffs and Trade, SpecialReport of Committee III, Development Plans: Sttidy of theThird Five-year Plan of India (Geneva, 1962), page 37.

Table 4-4. Planned Share of Major Export Commodities in Total Exports

(Percentage) .

Country

Ceylon .

Chile

Colombia

Ecuador

Ethiopia .

Ghana . .

Pakistan

Sudan .....

Trinidad and Tobago .

United Arab Republic ',' ., , ..

Venezue1Ja .

Major e.;~port commoditiesBase year Final year

of ptan of plan

Tea, rubber and coconut produds 93 90Copper and other minerals 83 76Coffee, petroleum .79 68Bananas, coffee, cocoa. 85 75Coffee 55 57

.Cocoa, timber 76 t2Cotton and jute and manufactures

thereof 80 75Cotton, cotton seed, ground-nuts 72 72Petroleum, sugar 93 87Cotton, rice 69 53Petroleum 93 91


crease in exports. And in Burma, other productsbesides rice, such as cotton, jute, tea and oil-seeds,have. been expected to make a sizable contributionto the projected increase in export earnings.

In most countries, however, it appears that manufactures and semi-manufactures have been mostheavily relied upon to accomplish the diversificationof exports envisaged in plans. Among the less industrialized countries, the main emphasis has been onsemi-manufactures in the form of processed commodities. In Ethiopia, for example, the share intotal exports of processed food products, particularlysugar, oils and fats, canned meat and powderedcoffee, has been planned to increase from 5 to 15per cent over the plan period; in addition, other

processed materials in the fotm of leather andleather goods, building materials and chemicals havebeen expected to represent about 6 per cent of exports by the target year. Similarly in Ghana, processed cocoa and timber products and processedbauxite in the form of aluminium have been expectedto assume increasing importance during the planperiod.

For the more industrialized countries manufactures have generally been an important factor inexport diversification. Thus, the plans of India, Pakistan and the United Arab Republic have all calledfor manufactures to play a significant role in thedevelopment of exports during the plan period. Inthe United Arab Republic, for example, manufac-


tured goods-largely textiles and chemical products,but including also some metal products-have beenexpected to increase their share of total exportsfrom 21 to 31 per cent over the plan period. InPakistan, the share of cotton and jute manufactureshas been envisaged as increasing from 23 to 26 percent, and in addition several new products such asshoes, pulp and paper and metal products have beenexpected to become of increasing importance by theend of the plan period. The Indian plan has alsocalled for increasing reliance on manufactures, withchemicals and engineering goods supplementingtraditional textile products.

The policies proposed to promote and diversifyexports have, to a large extent, been concerned withthe provision of incentives to encourage the production of exportable products. As such, they havecovered the whole range of measures relating to production, including fiscal and monetary policies, directparticipation of government in productive enterprises, physical control of resources and the allocation of foreign exchange. These various policies havebeen touched upon earlier and mention need onlybriefly be made here of those concerned directlywith the export sector.

To facilitate export diversification, many countries have employed, or have proposed to employ,differential tax and exchange rate policies to encourage exports of new or specially favoured products as against the traditional commodities. InPakistan, for example, use has been made of anexport bonus scheme for a wide range of new orminor products, in conjunction with an export taxon raw cotton and raw jute. Many countries, especially in Latin America, have used differential exchange rates for similar purposes. Countries withofficial marketing boards for the main export commodities have often accomplished similar ends byadjusting the prices paid to local producers. In thePhilippines, under a differential incentive scheme,all exporters have been paid from the revenue of animport tax a proportion of the market price of theirexports, the proportion depending on the degreeof processing of the export commodity; lower rateshave applied to exports in raw form and higherrates to more highly processed exports.

Some countries, to be found mostly in Asia, havesought to encourage exports by the use of a linksystem between imports and exports of particularcommodities. For instance, Burma has introduceda system whereby exporters of certain commoditiesare given import licences to the value of a certain

percentage of their exports; these licences can beused for imports of "non-essentials" and other itemsnot otherwise available under the normal importprogramme. Similar schemes have been employedin Pakistan, the Philippines and the Republic ofKorea. In India, export promotion councils for major industries have been set up. The function ofthese councils is to devise measures for market research and the improvement of marketing techniquesand to adapt production to the requirements ofoverseas markets. The plans of several other countries have also mentioned an intention to establishsimilar export promotion councils or boards.

In summary, it may be said that the above comparison of export targets with past trends revealsquite substantial differences among countries in theextent to which they have expected to alter theirexport performance. Three countries, namely, Jamaica, Trinidad and Tobago and Venezuela, haveassumed lower rates of growth in their exportsthan would have been expected from prevailingtrends in world trade in their major export products;the main reason has apparently been the expectationthat there would be some shift to alternative sourcesof supply. For two other countries, namely, Ecuadorand the Sudan, the planned rates of growth in exports have been closely in line with prevailing trendsin world trade of their major exports and have not,moreover,exceeded their own past performance.Similarly for the Philippines and the United Republic of Tanzania, although planned rates of growthhave exceeded prevailing trends in their major export products, these have not been greater than therates of increase in total exports achieved in the past.

For most countries, the targets set for exportshave represented a substantial improvement overtheir own past ~'{port performance. For Chile, however, the planned rate has not exceeded prevailingtrends in its major exports: the main source of theimprovement would appear to be an expected recovery in the performance of its principal exports.The same conclusion also applies to Bolivia. Butfor most of the other countries, the planned increasein exports has denoted a sharp change in both thetrend and pattern of their export trade. In countriessuch as China (Taiwan), Ethiopia, India, Pakistanand the United Arab Republic, planned rates ofgrowth have substantially exceeded not only the prevailing trends in their principal exports but alsotheir own past rates of growth in exports; and itis clearly in countries such as these that by far themost intensive efforts to expand exports have beenimplied.

CHAPTER 4. PLANS FOR FOREIGN TRADE AND PAYMENTS 77

Import targets

S ouree: See table 4-2.a See foot-note a to table 4-2.

Tahle 4-5. Planned and Past Growth in Volumeof Merchandise Importsa

(Percentage)

in imports has been less than 5 per cent. Indeed,for such countries as Burma, Ceylon, the Sudanand Trinidad and Tobago, the assumed annual rateof growth in total imports has been between onlyone and 2 per cent; and in the United Arab Republic an absolute reduction in total imports hasactually been contemplated. These planned changesin total imports have been expected to be accom-

Countries indicating plannedrate greater than past rate

Pakistan ............ 14.5 0.6 14Ethiopia . . . . . . . . . . .. . . . . 12.5 2.4 10Morocco . , .... '" ..... , 7 -1.4 8.5Kenya ...... '" ., ...... 5 5Tanzania ............... 7.5 2.9 4.5Philippines 5.5 1.4 4Republic of Korea ....... I) 2.1 4Tunisia ............. 4.5 0.8 3.5Bolivia " . . . . . . . . . . . . . . 4.5 2.1 2.5Colombia . . . . . . . . . . . . . . . 2.5 2.4

-1-1-1.5-2-2.5-3-3-3-5-7-7.5-7.5-8

-10

4 5.04.5 5.52 3.51.5 3.4

1 3.35.5 8.54 6.92 4.93.5 8.63 10.13.5 11.14 11.6

-1 7.21 11.1

Planned Past

_ _ A_n_n_ua_l_ra_t_e__ ApproximatedifferenceGroup and country

Countries indicating plannedrate smaller than past rale

Chile .Ecuador .Sudan .Ceylon .Burma .Ghana .Malaysia .Venezuela .IndiaOhina (Taiwan) .Jamaica .Nigeria .United Arab Republic .Trinidad and Tobago .

made detailed estimates of import requirements ofinvestment goods and essential materials, however,projections for imports of consumer goods appearto have been residually determined as the differencebetween expected foreign exchange availabilities andestimated requirements of the more essential categories of imports.

The targets for total imports contained in theplans of most developing countries have been remarkably modest. For some two-thirds of the countriesshown in table 4-5, the planned annual rate of growth

At first sight, it might be expected that estimatesof future import requirements would be of a morecertain character than are projections of export earnings, since they do not depend on assumptions abolltexternal demand and supply conditions. In practice,however, the element of uncertainty in estimates ofimport requirements has hardly been less than thatin projections of export earnings. Estimates of futureimport requirements that are both thorough and comprehensive imply that detailed pJans both for domestic production and domestic expenditure havebeen elaborated not only at the level of final goodsand services but also at the level of intermediategoods and raw materials. But such detailed planningpresupposes a far more complex planning processthan has existed in most developing countries; theflows o£ information and the planning staff requiredto analyse the information are well beyond the capacity of most developing countries. Consequently,although estimates of total import requirements haveoften been at least partially based on detailed knowledge about production and expenditure plans formajor specific commodities, they have also dependedon broad assumptions about import coefficientsderived from general economic analysis.

While many plans do not indicate the procedureemployed in estimating import requirements, it wouldappear that some have relied very largely on theanalysis of past relations between imports and broadcategories of domestic expenditure. The targets inthe plans for the Sudan and Nigeria, for example,seem to have been based on past trends, thoughaccount appears to have been taken of the importreplacement possibilities implied in the plans. Bycontrast, the projections for Chile, India, Pakistanand the United Arab Republic appear to have beenbased on detailed studies of the import requirementsof the plan, at least as far as investment goods andraw materials are concerned. In the Indian plan, forexample, imports have been divided into "maintenance" imports and "development" imports, theformer being raw materials and components requiredfor the utilization of available capacity and the latterbeing imports required for investments included inthe plan. With the aid of commodity balances, estimates have then been made for imports under eachcategory, acoount being taken of import replacementpossibilities. In none of the plans, however, wereestimates made in detail for all classes of imports.A substantial· proportion of total imports was eitherestimated by means of some broad assumption orwas treated as a residual, balancing item. In theChilean plan, for example, imports of consumergoods other than food were simply assumed to growby 2 per cent per annum. In most countries which


panied by sharp changes in the composition of imports. In almost all countries, imports of capitalgoods have been expected to advance more stronglythan total imports. On the other hand, very modestrates of increase have been planned for imports ofconsumer goods and, in a few countries, these im-

ports have even been assumed to decline. The ratesof increase planned for raw materials and intermediate goods have been more mixed; in some countriesthese have been expected to rise as strongly as totalimports while, in others, the planned rates have beensmaller (see table 4-6).

Table 4-6. Planned Annual Rates of Growth in Merchandise Imports,Total and Componentsa

(Percentage)

Country Total Capital Intermediate Consumptiongoods goods goods

Pakistanb ..... . ................ 14.5 21 12 1Ethiopia .............................. 12.5 25 13.5 3.5Republic of Korea .... 6 22.5 1.5 0.5Ghana .... , ...... , . 5.5 10 6.5 3Kenya ...... 5 10 5.5 2

Bolivia ..... " 4.5 6.5 5 1.5Ecuador ., ......... 4.5 8 1.5 4.5Tunisia ..... - ....... 4.5 14.5 3.5 -1.5Chile ........ . ................ 4 6 2.5 3Nigeria .... ...... ....... ............. 4 7 3 3

Sudan .. - .... .......... , ..... ..... , ... 2 1 3 2Venezuela ..... 2 10.5 -3.5 -3Ceylon .................. 1.5 10 2.5 -2Burma .......... 1 1Trinidad and Tobago .... . ......... 1 0.5 1.5 1United Arab Republic .. -1 5 -11 -1.5

Source: See table 2-1.a Definitions of components may vary among

countries; plans do not provide relevant information in sufficient detail to permit rearrangement of data. For Pakistan and Vene-

The small size of the rates of growth in importsplanned in many countries becomes very readily apparent when they are compared with past rates.For most of the countries planning moderate or lowrates of increase in imports, a sharp decelerationin the rate of growth of imports has clearly beenintended. Among the more striking examples areChina (Taiwan), India and the United Arab Republic. In China (Taiwan) the past rate of increasein imports was over 10 per cent per annum whilethe planned rate has been only 3 per cent; in Indiaa past rate of increase exceeding 8 per cent hasbeen planned to decline to 3.5 per cent; and in theUnited Arab Republic a past rate of growth of7 per cent is to be compared with a planned absolutereduction.

The feasibility of these planned changes in imports can be better appreciated if they are consideredin relation to the planned increases in total incomeand output. In the past experience of almost all developing countries, imports have risen .strongly inresponse to domestic growth. The economic structure of these countries has' been such that their de-

zuela, time period for components differs fromthat for total.

b Including estimated value of developmentimports. Capital goods imports include someintermediate goods for developmental purposes.

pendence on imported supplies of capital goods hasbeen heavy, and expanding investment programmeshave exerted an upward pressure on total imports;but increased requirements for supplies of raw materials and consumer goods, most notably food, havealso enlarged demand for imports. Thus, in the greatmajority of countries, when the past rate of increasein imports is related to the corresponding growthin gross domestic product, this ratio has equalledor exceeded one. In other words, the rate of growthin imports has generally risen at least as stronglyas the rate of growth in gross domestic product.But this past experience has clearly not been reflectedin the import targets which many countries have setin their current plans. Only a minority of countrieshave assumed that the rate of increase in importsrelative to the rate of increase in gross domesticproduct, when expressed as a ratio, would equal orexceed one. In a majority of plans, a lower elasticityhas been implied by their import targets and in anumber, it has even been less than 0.5. These plannedelasticities, as may be seen from table 4-7, havefrequently been quite radically different from thoseprevailing in the past.


Table 4-7. Planned and Past Elasticities ofMerchandise Importsa


a For the plan period, elasticity has been oalculated onthe basis of percentage increase in volume of imports andpercentage increase in gross domestic product between thebase year and the final year of the plan. For the pastperiod, it has been estimated generally on the basis oftime series for the nineteen fifties.

The estimates for the paJst period are shown as a rangein view of the margin of error which attaches to coefficienJt:sbased on data that have often been subject to wide fluctuations over the short period involved. They should thus beinterpreted only as indicating a general order of magnitudefor purposes of comparison with the coefficients shown orimplied in the plans.

The question is how it has been planned to realizesuch radical changes in the relationship between imports and gross domestic product. Such changesmean that, in contrast to past experience, it hasbeen planned to satisfy an increasing proportion ofdomestic requirements from domestic output. Thisis a double-edged process in which planned changesin the composition both of domestic requirementsand domestic output must be taken into account.

With regard to the changes in the composition ofdomestic requirements which have been planned inmost countries, the direction of these changes hasgenerally been such as to accelerate the growth inimports. In almost all countries, plans have calledfor a substantial increase in the share of investmentin total expenditure and for an offsetting reductionin the share of consumption; and, since the importcontent of investment is generally much higher thanthat of consumption, the effect of the planned change

Country

PakistanEthiopiaMalaysiaTanzaniaMorocco

NigeriaRepublic of Korea.GhanaKenya .Philippines

TunisiaChileEcuadorJamaicaBolivi,a .. ,

India .Colombia .Sudan .China (Taliwan)Venezuela .

BurmaCeylonTrinidad and TobagoUnited Arab Republic.

Planned

3.73.41.41.31.2

1.11.11.00.90.8

0.80.70.70.70.6

0.60.40.40.30.3

0.20.20.2

-0.2

Past

1.5 or over1-1.41-1.41-1.41-1.4

1.5 or overUnder 0.5

1-1.41.5 or over

0.5-0.9

1-1.41-1.41-1.41-1.4

1.5 or over

1.5 or over1.5 or over

0.5-0.91.5 or over

1-1.4

0.5-0.91-1.41-1.41-1.4

in the pattern of expenditure-taken by itself-hasbeen to raise import requirements in relation to grossdomestic product. Only in Burma, China (Taiwan)and Trinidad and Tobago has the share of investmentat the end of the plan period been expected to besomewhat lower than at the beginning; and thiscontributes, in some degree, to an explanation ofthe very low relative increases in imports impliedin the plans of these countries. Of course, althoughthere has generally been a planned shift in the composition of total expenditure towards investment,this is not inconsistent with the possibility that,within the broad categories of investment and consumption, the pattern of expenditure has beenplanned to shift towards specific forms of investmentor consumption which are less dependent on imports.If, for example, the investment programme has calledfor greater construction activity and less emphasison investment in machinery and equipment, requirements for investment goods can be more readily metfrom domestic production. Similarly, it may havebeen planned-through the use of fiscal measuresor import controls-to reduce consumption expenditure on semi-luxury or luxury products which aremainly imported.

However, the main explanation of the relativelysmall increases in imports assumed in most planslies more in the expected changes in domestic outputthan in the expected changes in expenditure: astrong growth in import-substituting production, inother words, has been assumed. It is, of course, extremely difficult to distinguish the influence of theplanned growth in import-substituting production onimports from that of the planned change in thecomposition of expenditure. Some progress can bemade in this direction, however, by relating eachof the main categories of imports to the corresponding component of domestic expenditure. Thus, intable 4-8, the growth in imports of capital goodshas been related to the planned increase in domesticinvestment expenditure, imports of consumer goodsto consumption expenditure, and imports of rawmaterials and intermediate goods to gross domesticproduct. In this way, the effect of changes in thecomposition of expenditure between investment andconsumption has been eliminated although the resultsare still influenced by changes within these categories.

On the basis of these data, it can be seen thatan underlying assumption in almost all plans hasbeen that the rate of growth in imports of consumergoods would be lower than the rate of growth indomestic consumption expenditure. Of all the countries shown in table 4-8, the sole exception is Nigeriawhere imports and domestic expenditure have bothbeen expected to increase at more or less the samepace. In some countries, notably, Ceylon, Tunisia,the United Arab Republic and Venezuela, imports


Table 4-8. Planned and Past Elasticities of Merchandise Imports, Total and Componentsa

Consumption ,goods Raw mate1~ials and Capital goodsCountry Total, intermediate goods

planned Planned Past Planned PastPlanned Past

Pak>is1Jan .................. 3.7 0.3 0.5-0.9 3.1 1.5 or over 1.0 1.5 or overEthiopia ...... - ........... 3.4 0.9 3.7 1.5 or over 2.9 Under 0.5Nigeria .. . ........ - . 1.1 1.1 1.5 or over 0.8 1.5 or over 1.9 1-1.4Republic of Korea .......... 1.1 0.1 0.5-0.9 0.2 0.5-0.9 1.7 b

Ghana .................. 1.0 0.6 1.5 or over 1.2 1-1.4 1.7 1.5 or over

Kenya ........ . ........... 0.9 0.4 1.0 1.1Tunisia 0.8 -0.3 1.5 or over 0.6 1.5 or over 1.0 1-1.4Chile 0.7 0.6 1.5 or over 0.4 Under 0.5 0.6 1.5 or overEcuador ............. 0.7 0.8 1-1.4 0.2 1-1.4 0.7 Under 0.5Bolivia ................... 0.6 0.3 1.5 or over 0.7 1.5 or over 0.6 0.5-0.9

Sudan ................ 0.4 0.4 0.5-0.9 0.6 1.5 or over 0.3 0.5-0.9Venezuela ........... 0.3 -0.4 0.5-0.9 -0.5 0.5-0.9 1.3 1.5 or overBurma ............ 0.2 0.1 0.5-0.9 0.5-0.9 0.6c 1-1.4Ceylon .. . .............. .. 0.2 -0.3 1-1.4 0.4 1.5 or over 1.0 0.5-0.9Trinidad and Tobago ....... 0.2 0.2 1-1.4 0.2 1-1.4 0.3 0.5-0.9United Arab Republic. -0.2 -0.3 -1.1 1-1.4 0.4 1-1.4


a Calculations have been made by relating increases intotal imports and imports of raw materials and intermediategoods to increase in gross domestic product, and increasesin imports of consumption goods and capital goods toincreases in private consumption and gross fixed investment, respectively; for Kenya land Pakistan, however,increase in imports of consumption goods has been relatedto increase in total consumption. For Pakistan and Venezuela, the time period for components differs from that fortotal. For the past period, data on components of importshave been obtained on the basis of the Standard Inter-

have actually been assumed to decline absolutely. Itwill be recalled that most countries have aimed toaccelerate the growth in Dutput of food for domesticconsumption, partly in order to reduce their dependence on imports; and achievement of the targetsfDr food production is undoubtedly an importantcondition of realization of the low targets for consumer goods imports. It has also been necessary toassume, however, that the expansion of domesticindustry would heavily reduce dependence on imported manufactures.

Some impression of the intensification in growthof import-substituting production of consumer goodsimplied in plans can be obtained by comparison ofthe planned ratios with the ratios that have actuallyprevailed in the past. It will be seen that, in mostcountries, it has been assumed that these past ratioswould be very substantially changed in the courseof the current plans.

With regard to raw materials and intermediategoods, most plans have again assumed that importrequirements would expand more slowly than totaldomestic output of goods and services. Plans haveimplied that the capacity of the domestic economyto produce the raw materials and intermediate goods

national Trade Classification; these may not always conformto the definitions underlying plan period data.

The estimates for the past period are shown as a range,in view of the margin of error which attaches to coefficientsbased on data that have often been subject to wide fluctuations over the short period involved. They should thus beinterpreted only as indicating la general orde'f of magnitudefor purposes of comparison with the coefficients shown orimplied in the pLans.

b Imports of ca:pital goods declined while domestic capitalformation rose.

c Imports of raw materials and intermediate goodsincluded with those of capital goods.

needed as inputs for domestic agriculture and industry would expand relatively to domestic requirements. It must be borne in mind that this categoryof imports includes not only semi-manufactures butalso fuels and a wide range of agricultural andmineral products. While the requirements of rawmaterials for industry have been small in most developing countries owing to the limited scale ofindustry, they have none the less been growing quiterapidly. The demand for fuels, both for transportand to generate power for industry, has also shownstrong growth. These forces have been evident inthe high relative rates of increase in imports experienced by most countries in the past. In view ofthe limitations on import substitution imposed forthis category of imports by natural resource endowment, the much lower relative rates of increase in imports assumed in many plans thus appear surprising.

It is in the field of capital goods that the plannedrelationship between the growth of imports anddomestic expenditure has conformed most frequentlyto expectations. In a number of countries, the rateof increase in imports relative to domestic investment expenditure has yielded an elasticity of one ormore. Imports of capital equipment have been


expected to increase at least as rapidly as domesticinvestment. For several countries, however, this hasnot been the case. In Bolivia, Burma, Chile, Ecuador,the Sudan, Trinidad and Tobago and the UnitedArab Republic, the planned elasticity of imports hasbeen less than one. For most of these countries, thissuggests that planned investment programmes havebeen oriented more heavily towards constructionactivity than towards types of investment requiringmachinery and equipment. For the United ArabRepublic, however, it has probably been expectedthat the expansion in output of domestic heavy industry would reduce the import content of investment.

In summary, it may be said that while a fewcountries have planned for relatively high rates ofgrowth in total imports a much larger number haveprojected rates of growth that are decidedly low inrelation to the planned increases in gross domesticproduct as well as in relation to past trends inimports. These low targets for imports have beenestablished despite the fact that the planned increases in domestic investment would generally havebeen expected to intensify total demand for imports.In a few countries, the growth in demand forimported capital goods has been expected to bemoderated by a shift in the composition of investmenttowards domestic construction activity. But, ingeneral, the main factor underlying the low targetsfor imports has been the assumption that there wouldbe a sharp expansion in import-substituting produc-

81

tion of consumer goods as well as, in many cases,of raw materials and intermediate goods.

I t is clear that the import targets contained inlnost plans have implied very substantial changes independence on imported supplies. While the moreintensive use of measures to restrict import demand,such as fiscal policies and import controls, may contribute towards the realization of these targets, planshave assumed that ,the primary condition for theirachievement would be the growth in domestic production. Thus, the feasibility of the targets for importshas turned primarily on the question of the feasibilityof domestic production plans. It must be noted, however, that few countries appear to have explored theimplications of their import targets for the futurestructure of domestic production. Apart from theparticular attention given to a few commodities, suchas food, the reconciliation of targets for domesticexpenditure, production and imports has been carriedout only at a fairly aggregative level. As mentionedearlier, targets for imports other than capital goodsand, perhaps, a few other strategic commodities havefrequently been residually determined. Partly forthe very reason that the implications of domesticexpenditure and production plans for import requirements have not been worked out in detail, importtargets have tended to be treated flexibly as a meansof reconciling over-all growth targets with the estimates of foreign exchange receipts.

Balance of payments targets

It has been seen that the targets which havebeen set in the plans of most countries have calledfor an acceleration in the rate of growth of merchandiseexports and a deceleration in the rate ofgrowth of imports. While exports have generally notbeen planned to increase as rapidly as total domesticoutput, they have at least been expected to exceedthe pace of advance in imports. Consequently, whenexpressed as a percentage of the planned changein gross domestic product, some improvement inthe trade balances has usually been expected. Relativeto the planned change in gross domestic product,the deficit in the trade balance has been expectedto diminish over the plan period, or the surplushas been expected to increase (see table 4-9).The only exceptions are Ethiopia, India, Malaysia,Morocco, Pakistan, Philippines and the United Republic of Tanzania.

The changes which have been expected in tradebalances relative to gross domestic product haveusually been accompanied by broadly similar changes

in the balance of payments. Planned improvementsin trade balances have been reflected in similar improvements in external balances when the latter arealso expressed as percentages of planned changesin gross domestic product; and the converse haslikewise been true. More often than not, however,the relative improvement in the external balance hasnot been as large as that expected in the trade balance, or, where trade balances have been expectedto worsen, the relative deterioration has been greater.This has reflected the expectation that net paymentson service account would increase.

It is evident from the planned changes in externalbalances that, as has been discussed earlier, an appreciable number of countries have aimed to reducetheir relative dependence on external resources bythe end of their current plan periods. Only a minorityhave assumed that their relative dependence wouldbe greater. As also stressed earlier, however, thereductions in relative dependence do not necessarilymean that the supply of external resources would


Table 4-9. Planned Annual Change in TradeBalance and in Balance of Payments on CurrentAccount as Percentage of Gross DomesticProducta

Country

Whatever the balance of payments position proj ected for the final. year of the plan, almost allcountries have based their plans on the assumption,that there would be a net inflow of foreign capitalover the course of the plan period. This can be

Table 4·10. Planned External Financing of Importsof Goods and Services

Sourt;:e: See table 2-1.

a Private donations are generally treated as a serviceitem. For China (Taiwan), India, Malaysia., the Sudan,Tanzania and Venezuela, data refer to net capital inflow aspercentage of imports of goods and net services. For India,final year ref'ers to the annual average of the plan period asa whole. For Pakistan, imports of goods and services inthe base year are estimated from balance of paymentsstatements.

Minus sign indicates net inflow.

seen from the data in table 4-11 where the annualaverage deficit on current account assumed in planshas been expressed in dollars. Such data are notavailable for all the countries whose plans are reviewed here but it will be seen that, in all the plansfor which information is given, an annual deficit hasbeen assumed. This does not necessarily mean that,in all cases, plans have assumed a net inflow offoreign capital since deficits may also be financedby drawing down foreign exchange reserves. InMalaysia, for example, it appears that withdrawalsfrom reserves have been planned as an importantmeans of financing the deficit. In nearly all other

Net capital inflow aspercentage of imports of

goods and senn:cesn

426342

-2024

97

251615

6251

-110

1620

-13-1

6

-2111

Final yea,'of plan

6454393634

2522222018

1515141313

1111854

-1-10-26

Base yearof plan

Country

Republic of Korea .Pakistan .India .Bolivia .China (Taiwan) .

Ceylon .Philippines .Colombia .Chile .Trinidad and Tobago .

Ethiopia .Tanzania .United Arab Republic .Ecuador .Kenya .

Venezuela .Malaysia ..Morocco .

Sudan :Burma .Tunisia .Ghana .Jamaica .

BurmaChina (Taiwan)BoliviaUnited Arab RepublicRepublic of Korea

Trinidad and TobagoColombiaSudan ...Ceylon ..Chile ...

VenezuelaKenya .....IndiaPhilippinesTanzania

EthiopiaMorocco .....PakistanMalaysia .

cease to be of importance by the end of the planperiod..This is brought out from the data shownin table 4-10 on the external financing of importsof goods and services at the beginning and end ofthe plan periods.. While the proportion of importsof goods and services to be externally financed hasbeen expected to decline among the countries planning to reduce their relative dependence, in a number of these countries the level of such financingat the end of their plan period has still been expectedto be comparatively high. This is particularly trueof China (Taiwan) and the Republic of Korea. Onlyin a few countries, most notably, Bolivia and theUnited Arab Republic, has the relative improvementin external balances been expected to ensure that,by the end of the plan period, imports of goods andservices would be entirely financed by exports ofgoods and services.

TunisiaNigeria ....EcuadorGhana .Jamaica .

Source: See table 2-l.a Balance of payments on current account generally l'e

fers to balance of goods, services and private donations.Planned annual change is calculated from the base year tothe final year of the plan. For India, planned change is estimated from the annual average for the plan period as awhole. For the Philippines, the Sudan, Tunisia and Venezuela, owing to limitations of data, the time period differsfrom that stated in annex table II-2; hence data are notstrictly comparable with those shown elsewhere, For otherdetails, see foot-note a to table 2-1.

Minus sign indicates deteriorati01,1 in balance.


Table 4·11. Planned and Past Balance of Payments on Current Accounta

(Am~ual a.verages in millions of dollars)

Trade balance Services (net) Balance on Planned change

Cou1't~rybcurrent account in balance on

Past Planned Past current accountPlanned Planned Past over past pC1'iod

Pakistan . . . . . .. . . . . . . -550e -170 -71 Ie -698 -169 -529

India ......... -1,113 -916 211 -1,113 -705 -408Venezuela .......... 1,595 1,175 -1,640 -951 -45 224 -268Philippines -191 -35 13 -8 -178 -43 -135Tunisiad -42 48 -89 7 ~96

Colombia .. - ....... -93 -14 -79Nigeria -103 -46 -224 -149 -75Malaysia 39 -26 -127 10 -88 -16 -72

Ecuador 33 37 -96 -50 -63 -13 -50Sudan .. -20 10 -23 -12 --43 -3 --40

Ethiopia -37 3 -8 -18 --44 -15 -29

Ghana. -57 8 -34 -72 -91 -63 -28Burma .. -,...... --44 -17 -34 -60 -35 -26Trinidad and Tobago 6 -54 -73 -48 -26Republic of Korea -381 -293 117 39 -264 -254 -10

China (Taiwan) -85 -108 -18 -1, -102 -109 7Bolivia .. -13 -21 -17 -34 17

Chile ..... 89 -5 -121 -63 -32 -58 27

Source: Bureau of General Economic Research and Policies of the United Nations Secretar~at, based on Statistical Office of theUnited Nations, Yearbook of National AccountsStatistics; International Monetary Fund, Balance of Payments Yearbook (Washington,D.C.), and national develollment plans.

a Balance of .payments on current accountgenerally refers to balance of goods, servicesand private donations. Past period data referto averages of five years prior to the planperiod, except for Chile, Malaysia, Morocco

countries, however, plans have been predicated onthe assumption of a substantial inflow of foreigncapital.

In most countries, the annual deficit on currentaccount which has been expected to obtain over theplan period has represented a decided deteriorationin the balance of payments position compared withthat prevailing in the years immediately precedingthe plan. Thus, although most countries have plannedfor an acceleration in the growth of export earningsand a deceleration in the growth of import paymentsover their plan periods, at the higher levels of economic activity assumed in plans the excess of impQrts of goods and services over exports of goodsand services has been expected to be absolutelygreater. Of the countries shown in table 4-11 onlyBolivia, Chile and China (Taiwan) have expectedthat the deficit in the balance of payments on currentaccount for the plan period as a whole would besmaller than in the years immediately preceding the

and Pakistan, where they refer to averages offour years. For Colombia, past period data arein 1958 prices. For Malaysia, past period datapertain to the former Federation of Malayaand Singapore.

No sign indicates surplus; minus sign indicates deficit.

b Countries are listed in descending order ofincrease in deficit on current account.

e Government payments for services includedwdth imports and excluded from services.

d Excluding tourism and investment income.

plan. In most countries, the size of the annual deficitassumed over the plan period has represented anincrease over the actual deficit experienced in therecent past of 50 per cent or more.

In the main, the larger deficits on current account appear to derive primarily from expectedincreases in the absolute size of the deficits in merchandise trade. In a number of countries, however,an increase in net payments on service account hasalso been expected to contribute significantly to thedeterioration in the balance of payments; in fact,in Malaysia and Venezuela this has been the exclusive source of the expected annual deficit oncurrent account. Very few plans contain detailedestimates for the various items included in the serviceaccount but, as is suggested by the data given below,an increase in net investment income payments appears to have been an important factor affectingthe expected changes in this account in a numberof countries.


PLANNED AND PAST NET INVESTMENT INCOME'

(Annual averages in millions of dollars)

Source: See table 4-11.a No sign ~ndicates net receipts; minus sign indicates

net payments.b In 1958 prices.c Gov.ernment interest only.

In estimating the inflow of external finance required for the realization of plan targets, few countries have been able to confine their attention solelyto the question of financing import requirements.Amortization payments on external debt contractedin the past constitute a first claim on the supply of

Country

VenezuelaChile ....Colombia .Philippines .Ecuador ..Sudan .Republic of Korea .

Planned

-809-133-99-63-19-40

-2

Past

-560-71-46b

-48-23

14

foreign exchange receipts, and in estimating therequisite inflow of external finance, account has therefore had to be taken of the payments which have tobe made over the platt period. In general, the necessary inclusion of amortization payments has considerably altered the magnitude of the total foreignexchange requirements envisaged over the planperiod.

Since almost all developing countries have beenobliged, in varying degree, to borrow from abroadin order to assist in the financing of their domesticinvestment and imports, the level of external indebtedness and the consequent flow of amortizationpayments have generally been increasing over thepost-war years. Thus, among the countries whoseplans specify expected amortization payments overthe plan period, the amount of these paymentsgenerally is considerably greater than the paymentsactually made in the years immediately precedingthe plan (see table 4-12). This means that, when

Table 4-12. Planned and Past Balance of Payments on Current Account,Amortization Payments and Foreign Exchange Gapa

(Annual averages in millions of dollars)

Planned Past Plannedchange

Countryb Balance Amortiza· Foreign Balance Amortiza~ Foreign. in foreignon tion exchange on tion e:J:change exchange

current payments gap C1.wrent payments gap gap overaccount acco~tnt past period

Pakistan ............. -698 -61 -760 -169 -15 -184 -577India ..... -: ....... ' .... -1,113 -231 -1,344 -705 -72 -777 -567Venezuela ............ -45 -54 -99 224 -32 192 -291Philippines .......... -178 -30 -208 -43 -30 -73 -135E'cuador . . . . . . . . . . . . . . -63 -18 -81 -13 -8 -22 -59Ghana . . . . . . . . . . . . . . . . -91 -40 -131 -63 -14 -77 -54Sudan ................ -43 -16 -58 -3 -5 -7 -51Colombia . . . . . . . . . . . . . -93 -42 -134 ~14 -72 -86 -48Burma ............... -60 --8 -68 -35 -1 -36 -33Republic of Korea .... -264 -4 -268 -254 -254 -14Chile ......... -32 -157 -189 -58 -120 -178 -10China (Taiwan) ..... -102 -20 -122 -109 -6 -115 -7

Source: See table 4-11.a See foot-note a to table 4-11.b Countr~es are listed in descending order of planned increase III foreign exchange gap over

past period.

account is taken of the need to finance amortizationpayments, the increase over pre-plan years in totalexternal financial resources required by current plansis considerably greater than that suggested by thedeficits in the balance of payments on current accountalone. For example, in India, the planned annualdeficit in the balance of payments on current accounthas been some $408 million greater than the deficitrecorded in the five years preceding the current plan;the total foreign exchange gap, however, has beenabout $567 million greater. Again, in Chile, althoughthe planned annual deficit on current account has

been expected to be some $26 million less than inpre-plan years, the annual foreign exchange gap hasbeen expected to increase by some $10 million. Thus,in general, the size of the foreign exchange gap hasbeen appreciably greater than the deficit in thebalance of payments on current account; and it hasbeen this gap, rather than the deficit on currentaccount, which countries have had to consider inassessing the feasibility of their plans. The supplyof external financial resources has had to be sufficientto finance this gap; if the likely supply has seemedto be less than the initially estimated gap, the planned


deficit in the balance of payments has had to bereduced, in all probability by lowering import targets.

In summary, it appears that although plans havefrequently made very conservative estimates ofimport requirements and have sought to acceleratethe growth in export earnings, a very substantial

85

increase in the net inflow of foreign capital hasnevertheless generally had to be assumed. Estimatesof the requisite net inflow, moreover, understatethe total requirements for foreign aid since a growingburden of amortization payments has also had to befaced.

Chapter 5

TARGETS AND POLICIES FOR THE FINANCING OF DEVELOPMENT PLANS

Most development plans, as already indicated, havesought to increase the share of investment in grossdomestic product in order to accelerate the rate ofeconomic growth. A major preoccupation of planshas therefore been the formulation of targets andpolicies which would ensure an adequate rate ofincrease in the supply of resources available for investment. The aim of raising the level of investmenthas had to be balanced against a realistic evaluationof the possibilities for increasing the supply of saving.In undertaking this assessment of the level at whichthe balance between investment and saving shouldbe struck, most plans have stressed that the targetset for investment should not be such as to endangerthe stability of prices; it has generally been explicitly stated that the financing of higher levels ofinvestment by inflationary means was not an acceptable policy.

For almost all countries, evaluation of the possibleincrease in the supply of resources which mightbecome available for investment has been basedupon separate estimates of the potential supply ofexternal resources, of domestic public saving andof domestic private saving. The means by whichestimates have been made of external resources-which, for the great majority of developing countries, are identical with the net inflow of foreigncapital-have been described in the precedingchapter. It was noted that the assumed increase inthe net inflow of foreign capital has, in part, reflectedexpectations about the feasible increase in supplies,as suggested by the past inflow, the current commitments of donor countries and institutions andother similar considerations; in part also, it hasreflected views about the increase needed in orderto support the development plan and realize anadequate rate of growth. In some countries, theestimation of requirements has been based primarilyon an assessment of the extent to which domesticsaving would have to be supplemented by externalresources in order to achieve an adequate increasein the level of investment. In others, the main consideration in estimating requirements has been theneed to bridge the gap between import requirementsand foreign exchange earnings. In both cases, however, the assumed inflow of foreign capital has served

86

to augment the supply of resources available forinvestment.

As regards domestic saving, it has invariablyproved much easier to form estimates of publicsaving than of private saving. Most plans, as canbe seen from table 5-1, have established targets forpublic saving after making projections of the currentrevenue and expenditure of government. The planshave usually calculated current ,revenue on the basisof projected inoome and output and of certain assumptions-often not explicitly stated-regarding therevision of tax rates and the broadening of the taxbase. In broad terms, nevertheless, such plans haveprovided some idea of the range of governmentalmeasures expected to be adopted for increasingcurrent revenue; these measures, as described later,have been envisaged to yield substantial increases inboth tax and non-tax revenue. The estimated levelof current expenditure has usually been arrived aton the basis of the expected level of national incomeand the increase in population. Only in a few countries, for example, India and Pakistan, have moredetailed studies of public finance been conducted informulating targets for current expenditure.

The estimates of private saving, by contrast, havebeen much more conjectural. In most developingcountries, information on the levels and past behaviour of corporate and household saving is scanty,if not completely absent. There is frequently littleor no knowledge about the distribution of incomeor about household budgets on which some impression of the trend in household saving could be based;and while there is usually more information availableabout the corporate sector, little is known aboutunincorporated enterprises which often form themain part of the enterprise sector. Only a very fewplans, notably those of Tunisia and the United ArabRepublic, have in fact attempted estimation of business and household saving separately.

It has further to be remembered that the dissociation between those who save and those who investwhich prevails in developed economies is by no meansso great in many developing countries. Particularlyin the agricultural sector, the decision to save moreout of current income is frequently taken by the samepersons as those who decide to undertake more in-

CHAPTER 5. TARGETS AND POLICIES FOR THE FINANCING OF DEVELOPMENT PLANS 87

Table 5·1. Synopsis of Targets for Financing of Plans

Ta1'gets f01' components

CountryTarget for domesttc saving of public saving

Total P1-ivate Public Currel1J C'urrentrevenue expenditure

Burma Yes Yes Yes Yes YesCeylon ..... , ..... Yes Yes Yes Yes YesChile Yes Yes Yes Yes YesColombia Yes Yes Yes Yes YesEcuador .... " .... Yes Yes Yes Yes Yes

Ethiopia Yes Yes Yes Yes YesGhana ............ . Yes Yes Yes Yes YesIran .. Yes Yes Yes Yes YesJamaica ... " ... , . Yes Yes Yes Yes YesMalaysia .... .......... .. Yes Yes Yes Yes Yes

Nigeria Yes Yes Yes Yes YesPhilippines Yes Yes Yes Yes YesRepublic of Korea Yes Yes Yes Yes YesSudan ... Yes Yes Yes Yes YesTanzania Yes Yes Yes Yes Yes

Tunisia .... Yes Yes Yes Yes YesUnited Arab Republic Yes Yes Yes Yes YesVenezuela Yes Yes Yes Yes YesIndia ............. Yes Yes Yes a a

Pakistan Yes Yes Yes a a

Trinidad and Tobago .... Yes Yes Yes No Yesb

Bolivia , .............. Yes No No No Yesb

Morocco ................. Yes No No No Yesb

Senegal Yes No No No Yesb

China (Taiwan) Yes No No No NoKenya .. Yes No No No No

SOU1'ce: See table 2-1.a Target for public saving is provided, but

not for total current revenue or total currentexpenditure. However, the plan does containtargets for "balance from current revenue"

vestment; and, while still dependent on income,saving can also, to a significant degree, be regardedas a function of the incentive to invest. To someextent, therefore, expectations about the possible increase in private saving are related to expectations

and "additional taxation". India's plan alsoshows the target of tax revenue as a percentageof national income.

b Government consumption expenditure.

about the possible increase in private investment.This, however, does not lessen the conjectural character of estimates for private saving. It only meansthat estimates for private investment and privatesaving have both been in the nature of desired goals.

Targets for domestic savmg and external resources

Most countries, as discussed earlier, have proposedto realize substantial increases in levels of domesticinvestment over the course of their plan periods.The planned increase has been outstandingly largein Morocco and Pakistan where the share of investment in gross domestic product has been projectedto rise by as much as 2 per cent per annum, It hasalso been very large in Malaysia, the Republic ofKorea and the United Republic of Tanzania wherethe annual increase has been expected to exceed oneper cent. Only in Burma, China (Taiwan) andTrinidad and Tobago has the level of investment atthe end of the plan period been expected to be some-

what lower than at the beginning; but it should berecalled that these number among the few developingcountries where the level of investment in the recentpast has equalled or exceeded 20 per cent of the grossdomestic product.

For some countries, the planned increase in theshare of investment has rested heavily on the assumption that the inflow of external resources wouldalso rise in relation to gross domestic product. This,as can be seen from table 5-2, has not necessarilymeant that a less vigorous effort to raise the level ofdomestic saving has been proposed. The projected

88 PART I. DEVELOPMENT PLANS: APPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

Tahle 5·2. Planned Annual Increase in Share ofSaving in Gross Domestic Producta

(Percentage)

Source: See table 2-1.a Total supply of saving equals gross domestic capital

formation. Exceptions are: Ghana, lean, Jamaica and theSudan, gross domestic fixed capital formation; India, netdomestic capital formation.

External resources equal the deficit in balance of payments on goods, services and private donations account.Exceptions are: Colombia, Ecuador, Ghana, Iran, Kenya,Morocco, Tanzania, Trinidad and Tobago and the UnitedArab Republic, goods and services account; Bolivia, Nigeria,Senegal, the Sudan and Tunisia, goods and services otherthan factor income account; Ceylon, Ethiopia and Jamaica,goods, services and all donations account.

The concept of external resources differs from that ofexternal balance used in table 2-5 by the inclusion of netfactor payments and private donations.

Gross domestic saving is obtained as a residual bysubtracting external resources from total supply of saving.For India, data refer to net domestic saving.

Because of the adjustments made in order to render plandata internationally comparable, the figures shown in thisand subsequent tables are not necessarily the same as thoseshown in the plans.

For other details, see foot-note a to table 2-1.

Gross E."rternal TotalGroup and country d01nestic resources supply of

saving saving

Countries where share ofexternal reSOtwces zsplanned to decline orremain ttnchanged

Republic of Korea 2.4 -0.9 1.5Tunisia 1.9 -1.0 0.9United Arab Republic 1.5 -0.8 0.7Bolivia ......... 1.4 -1.0 0.4Senegal 1.3 -0.4 1.0

Ceylon 1.1 -0.4 0.7China (Taiwan) 0.9 -1.0 -0.2Chile 0.7 -0.2 O.SEcuador 0.7 -0.1 0.6Colombia 0.6 0.6

Iran 0.6 -0.4 0.2Burma O.S -1.4 -0.8India 0.5 0.5Ghana 0.4 -0.2 0.3Sudan

NigeriaTrinidad and Tobago -0.2 -O.S -0.7

Countries where share ofextenwl 1'esources tSplanned toinc1'ease

MoroccoPakistanTanzaniaEthiopiaKenya ...

PhilippinesVenezuelaJamaicaMalaY'sia

0.90.90.9O.S0.5

0.40.2

-0.3-0.7

1.21.20.40.30.10.40.20.31.8

2.02.01.30.80.60.80.4

1.2

increases in the level of domestic saving in the plansof Morocco, Pakistan and the United Republic ofTanzania, for example, have been substantial; combined with the assumed increases in dependence onexternal resources, these have accounted for the verysharp advances in levels of investment proposed inthese plans. But in the majority of countries, it hasbeen expected that the planned increase in the shareof investment in gross domestic product would atleast be matched by an equivalent increase in theshare of domestic saving, and in a number of theseoountries the change in the latter has been planned toexceed that in the former. Thus, the relative contribution of external resources to the financing ofdomestic investment has been planned to remainconstant or to decline (see table 5-3). In general,this marks a decided reversal of the trend in thenineteen fifties when, in the majority of developingcountries, the relative importance of external resources tended to increase.1

While aims with regard to the change in dependence on external resources have differed, acommon feature of plans has thus been the intention to realize a substantial increase in the level ofdomestic saving. In only a few countries, namely,Jamaica, Malaysia, Nigeria, the Sudan and Trinidadand Tobago, has it been expected that no increaseor a decline in the share of domestic saving in grossdomestic product would occur over the current planperiod. These exceptions, however, are of particularinterest since their projections for domestic savinghave most clearly taken account of the influence ofprospective trends in the export sector. Malaysiaand Nigeria, it will be recalled, are the only twocountries examined in this report whose plans havebeen entirely constructed on the assumption of fallingexport prices; and Jamaica, the Sudan and Trinidadand Tobago, though assuming constant export prices,have all expected a substantial deceleration in therate of growth in their exports. The export trade inall these countries, moreover, is channelled throughcorporate enterprises or marketing boards whosesaving behaviour is highly responsive to changes inincome. Thus, expectations regarding the trend intotal domestic saving have been dominated by assumptions about export prospects. Among all theother plans in which an increase in the level ofdomestic saving has been assumed, it is less evidentthat account has been taken of the influence of theexport sector. Of course, the export sector as asource of saving is relatively unimportant in some ofthese countries, while in others a stronger upwardtrend in export earnings has been expected. Buteven where the export sector is relatively large andprospective trends in exports have not been op-

1 See United Nations, World Economic Survey, 1960 (SalesNo.: 61.II.C.l). chapter 2.

CHAPTER 5. TARGETS AND POLICIES FOR THE FINANCING OF DEVELOPMENT PLANS

Table 5·3. Planned Distribution of Total Supply of Savinga

(Percentage)

89

Grossdomestic

saving

Base year Final yearof plan of plan

Countries where share 01 externalresources is planned to decline orremain unchanged

E.r;ternalresources

Base j1ea1' Finalj1earof pIan of plan

Republic of Korea ... , ........ -6 60 106 40Tunisia .......... , 30 80 70 20United Arab Republic 89 112 11 -12Bolivia ................ 37 120 63 -20Senegal .............. 42 73 58 27

Ceylon ................. 54 92 46 8China (Taiwan) 56 76 44 24Chile 86 100 14Ecuador 69 81 31 19Colombia ......... 115 109 -15 -9

Iran ......... , ......... 73 91 27 9Burma 74 92 26 8India ............. 75 80 25 20Ghana ............. 72 81 28 19Sudan .. .., ........... 81 84 19 16

Nigeria ................ 63 63 37 37Trinidad and Tobago .......... 66 72 34 28

COllJ1tries where share 01 externalresources is planned to increase

Morocco ......... 170 99 -70 1Paki,stan .......... 45 44 55 56Tanzania ..................... 73 72 27 28Ethiopia ....... " .. 85 79 15 21Kenya .. . ........ 85 86 15 14

Philippines 101 85 -1 15Venezuela ................... 102 98 -2 2Jamaica 76 71 24 29Malaysia .... , ................ 137 71 -37 29

Source: See table 2-1.a See foot-note a to table 5-2.b Countries are listed in the order followed in table 5-2.

timistic, there is little evidence that this has depressedexpectations about the growth in domestic saving.

The increase in the level of domestic saving which,except for the countries just noted, has been calledfor in development plans, has of course not impliedthat any absolute reduction in the level of totalconsumption has been planned. What it has denotedis an intention to set aside a substantial proportionof the planned increase in total income as saving; inother words, plans have aimed to achieve a marginalrate of domestic saving significantly above the pastaverage rate. Save in the countries noted above, theprojected marginal rate of domestic saving has exceeded 20 per cent almost everywhere and, in anumber of plans, a rate greater than 30 per cent haseven been assumed (see table 5-4). In the recentpast, comparatively few developing countries have

achieved such relatively high rates; and in most ofthe countries which have, exceptional circumstanceshave prevailed. These, for example, include Jamaica,the Sudan and Trinidad and Tobago, all of whichare countries where, as just noted, the export sectorsare dominated by large corporate enterprises ormarketing boards and where past trends in exportswere buoyant; and the same holds for most of theother countries, such as Burma, Ghana and Iran,which also recorded relatively high marginal ratesof saving. Among the remaining countries, pastmarginal rates of saving were generally substantiallybelow 20 per cent, and the planned rates, if realized,would signify a very decided change in savingbehaviour.

By far the greatest change in saving behaviourhas been postulated in the Republic of Korea where


Table 5-4. Planned and Past Marginal Rates ofGross Domestic Savinga

(Percentage)

Country Planned Pastb

Tunisia ....... ,- 50Republic of Korea 49 Under 10United Arab Republic 39 10-14Bolivia 37Colombia 35 20 or over

Morocco 34 Under 10Ceylon .. 33 10-14Tanzania 30Chile 29 Under 10Pakistan 27 Under 10

Burma 26 20 or overEcuador 25 10-14Ghana 25 20 or overSenegal 25China (Taiwan) 24 10-14

Ethiopia 23Iran 23 20 or over

Kenya 23Venezuela 23 15-19Philippines 21 10-14

India ..... 19 15-19Trinidad and Tobago 13 200[" over

Jamaica 10 20 or overNigeria 10 15-19Sudan 9 20 or overMalaysia -12

Source: See table 2-3.a Marginal rate of gross domestic saving refers to the

increase in gross domestic saving as a percentage of theincrease in gross domestic product. For other details, seefoot-note a to table 2-1 and foot-note a to table 5-2.

b The estimates for the past period are shown as a rangein view of the margin of error which attaches to coefficientsbased on data that have often been subject to wide fluctuations over the short period involved. They should thus beinterpreted only as indicating a general order of magnitudefor purposes of comparison with the coefficients shown orimplied in the plans.

it has been proposed that a past marginal rate ofless than 10 per cent would be transformed into aplanned rate of almost 50 per cent. Though data onpast trends are not available, a similarly large changeappears to have been proposed in Tunisia. Marginalrates above 30 per cent have also been planned inCeylon, Colombia, Morocco and the United ArabRepublic, though only in Colombia did the past rateexceed 20 per cent. Among other countries, the improvement over past performance assumed in plans

has also been particularly great in Chile and Pakistan,while very large changes have been proposed inChina (Taiwan), Ecuador and the Philippines.

It might have been expected that the differencesamong countries in the proportion of the plannedincrease in income which they have hoped to setaside as saving would have reflected differences inthe policies they have proposed to pursue with regardto consumption. But, in fact, the differences amongcountries in the targets set for the growth of totalconsumption have been comparatively modest (seetable 5-5). One or two countries, such as China(Taivyan) and Senegal, have planned for relativelyhigh rates of growth in total consumption becausethey have allowed for high rates of increase in percapita consumption. And a few others, notablyEthiopia, Pakistan, Tunisia and the Republic ofKorea, have assumed that the pace of advance intotal consumption would be relatively slow, eitherbecause they have not allowed for much increase inper capita consumption or because the expectedgrowth in population has been comparatively small.But in most countries, the targeted annual rate ofincrease in total consumption has been within therange of 4.5 to 5.5 per cent.

Targets for the rate of growth in total consumption have been more striking in their similaritythan in their dissimilarity. In other words, there hasbeen no noticeable tendency for countries planningrelatively high marginal rates of domestic saving topropose more rigorous policies of constraint on thegrowth of total consumption. They have been enabledto plan for relatively high marginal rates, not because of their consumption policies, but simply because the rates of growth in total income assumedin plans have also been relatively high.

Of course, this none the less has significant implications for policy. Even if the rates of growth intotal income and output can be achieved, there isno automatic assurance that a rising proportion ofincome will be saved. The saving habits of the community as a whole have to change, and to changein the right degree, in order to bring about theplanned increase. In this sense, the relatively highmarginal rate of domestic saving which has beenpostulated in a considerable number of plans, eventhough predicated on the assumption of a higherrate of growth in total income and output, hasoonstituted a greater challenge to domestic savingpolicies. In order to assess the feasibility of thesetargets, it is therefore necessary to consider thesources from which the planned increases in domesticsaving have been expected to come and the policiesproposed for realizing these increases.


Table 5-5. Planned Increases in Gross Domestic Saving, Gross Domestic Product, Consumption andPopulationa

(Percentage)

Country

IVlarginalrate ofgross

domesticsavingb

TotalconS1111tp~

tion

Annual rate of increase

PaplIla- Per ca,pita consu1nptic-ntion

Total Public Pri"ate

MoroccoCeylon .TanzaniaChilePakistan

Tunisia .Republic of Korea.United Arab Republic ..Bolivia ..Colombia

BurmaEcuadorGhana .SenegalChina (Taiwan)

EthiopiaIranKenya .VenezuelaPhilippines

IndiaTrinidad andJamaicaNigeria ....SudanMalaysiaC

Tobago ..

5049393735

3433302927

2625252524

2323232321

191310109

-12

66775.5

6665.54.5

66.55.5.88

4.55.5566

5.555452.5

3.53555

4.54.54.54.53.5

5.55.556.57

3.554.565.5

555453.5

1.5322.53

2322.52

2.532.523

1.52.5333.5

2.532

2-2.533.5

20.52.52.52

2.51.52.521.5

3224.54

22.5132

2.523

1.5-220.5

236.53.5

51.53

1.5257

5.5

-0.52

3

8-8.53.52

2.521.5

31.52.52

3.52.51.54.5

1.5

3.52

1.5

0.5-12

Source: See table 2-1.asee foot-note a to table 5-2.b See foot-note a to table 5-4.

c Data on gros'S domes6c product and its componentsare in current prices; the plan assumes that export priceswill decline.

Targets and policies for private savmg

While only some plans have indicated the sourcesfrom which the increases in total domestic savinghave been expected to come, it is quite apparent thatthe dominant role has generally been assigned toprivate, rather than to public, saving. This is evidentenough from the data presented in table 5-6. Owingto differences among countries in the inclusion orexclusion of depreciation in their estimates of saving,countries have had to be divided into three groups.Within each of these groups, however, the data areroughly comparable, and it will be seen that, whetheror not the data are gross of depreciation, the expected contribution of private saving to the plannedincrease in total saving has generally exceeded theexpected contribution of public saving. In only threecountries, namely, Chile, Jamaica and the Sudan,has the opposite been true; and at kast in Chile

and the Sudan it is possible that, if the data onprivate and public saving could be expressed as grossof depreciation, the relative importance of thesesources of saving might be the same as in othercountries.

This is not to say that the expected role of thepublic sector in contributing to the increase in totalsaving has generally been expected to be insignificant,but it does emphasize that the main burden has beenplaced on private saving. This fact is of particularimportance in considering the feasibility of over-alltargets for total domestic saving since, as has beendiscussed in chapter 1, trends in private saving areonly partially influenced by governmental policies.The marginal rate of private saving actually attainedin individual countries has also been influenced bysuch factors as the relative size of the corporate

92 PART T. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

Table 5-6. Planned Distribution of Gross Domestic Savinga

(Percen~age)

Base year of plan Increase f1'o1n base yearto final year of plan

Group and CO'lf,ntry Privatesa'ving

P"blicsaving

Provisionfor

depreciationPrivatesaving

P"blicsaving

Provisionfor

depreciation

Group AMalaysia .TanzaniaEcuadorVenezuelaChile .Sudan

Group BBurmaGhanaPhilippinesCeylon ...Colombia

Gr01lp' CUnited Arab Republic ..Republic of Korea.Jamaica

718364714660

477042

-1025

109-10

91

291736295440

2110146124

-9110

9

136 -23686 1472 2872 2841 5939 61

32 124 -26 221 57 32 1044 52 18 3049 48 35 1751 47 30 23

77 2371 2941 59


a Group A: Data refer to gross private andgross public saving. Group' B: Data refer tonet private and net public saving. Group C:Provision for depreciation for the economy asa whole is included wiJth private saving; publicsaving is net of depreciation. vVithin eachgroup countries are lirsted in descending order

sector, the level of household incomes and changesin the distribution of income. And these economicand institutional characteristics of countries havegenerally been of more fundamental importance thangovernmental policies in accounting for differencesamong countries in the marginal rates of privatesaving actually attained.

In view of the circumscribed role of governmentalpolicies in determining the behaviour of privatesaving, it might have been expected that the changesin private saving assumed in plans would have beenmainly based on projections of past trends in privatesaving, perhaps with some upward revision beingmade to allow for the positive impact of proposedgovernmental measures. But, in fact, ,the marginalrates of private saving assumed in plans appear tohave often deviated substantially from the ratesactually attained in the past (see table 5-7). Forexample, in the Republic of Korea, the proportionof the increase in total income expected to be savedby the private sector has been 35 per cent; but inthe recent past, the same proportion amounted toless than 10 per cent. Again, in Ceylon, the plannedfigure for the increase in private saving has been21 per cent while the past figure was under 10 percent. Similarly wide disparities are evident in Burma,Chile, Colombia, Ecuador and the United Republic

of share of p,rivate saving in the increase ingross domestic saving from the base year tothe final year of the plan. Except for Colombia,Jamaica, the Republic of Korea and Tanzania,public saving includes saVling of public corpOofations; for these four countries, saving of publiccorporations are included with private saving.

Private saving irs derived as a residual; forBurma it includes what the plan calls a "gap".

of Tanzania. In Ghana, the Philippines and Venezuela, however, the planned and past rates have beenroughly similar, while in Jamaica and the Sudan thepast rate was higher.

It is, of course, true that some of the generaleconomic developments which have been assumedto occur over current plans periods could be expected to work in favour of an improvement in theperformance of private saving. Among these havebeen the higher rates of growth in income and theexpanding size of the corporate sector-whetherprivately or publicly owned-which is necessarilyassociated with progress in industrialization. Further,plans have generally proposed that governmentsadopt or reinforce measures designed to stimulateprivate saving. Liberal depreciation allowances andtax concessions on undistributed profits, for example,have been generally recommended as means of stimulating corporate saving and investment. Improvements in banking facilities have been suggested asnecessary to encourage saving habits. Many planshave also emphasized the need to foster loan andsaving associations, post office saving banks, ruralthrift societies and other institutions to facilitatesaving. Several plans, including those of Ceylon,China (Taiwan), Ecuador, Pakistan, the Republicof Korea and the Sudan have dwelt upon the need


Table 5·7. Planned and Past Marginal Rates ofPrivate Savinga

(Percentage)

to create or expand stock exchange facilities in orderto provide an outlet for the more venturesome investors. The encouragement of contractual savings,most notably through provident and pension funds,and the more extensive use of government bond


a Marg,inal rate of private saving refers to the increasein private saving as a percentage of the increase in grossdomestic product. For definitions of country groups, seefoot-note a to Itable 5-6. For comparability with past data,plan data for Ceylon :and Ghana have been adjusted toconform with the definition of saving for Group C insteadof Group B as in table 5-6.

b See foot-note b to table 5-4.

Group and countJ'y

Grmtp A

TanzaniaEcuadorMalaysiaChileVenezuelaSudan

Group B

BurmaColombiaPhilippines

Grmtp CRepublic of Korea ...United Arab Republic.Ceylon . .GhanaJamaica

Planned Pastb

2618 Under 101612 Under 109 Under 104 15-19

33 Under 1017 Under 107 Under 10

35 Under 103021 Under 1020 20 or over10 15-19

issues have also received specific mention in a number of plans. Finally, the plans of Ceylon, Ghana,India, Pakistan, the Philippines, the Republic ofKorea and the Sudan have suggested revisions ininterest rates to strengthen the incentive to save.

It has not been possible to assume, however, thatgovernmental policies would always work in favourof higher rates of private saving. The plan of Ceylon,for instance, noted thSlt the proposed redistributionof income in favour of the poorer classes mightoffset the increase in saving expected from thegrowth in income. In view of the widespread importance attached to the social objective of a moreequitable distribution of income, this may often proveto be a major factor circumscribing the growth inprivate saving. In addition, as will be seen below, ageneral aim of governmental policy has been an increase in tax revenue, and fiscal policy to raise publicsaving may sometimes adversely affect private saving.

Even if ,the governmental policies proposed in planswere to have an exclusively favourable impact onprivate saving, it would still have to be acceptedthat their influence is severely circumscribed. Thebehaviour of private saving cannot be expected toalter sharply as a consequence of those governmental measures which have been specifically designed to encourage "Such saving. In conditions ofstable prices-which is the assumption made inplans-the growth in private saving responds mainlyto changes in the economy that are both of a general and of a long-run nature; and the assumptionof a radical change over the relatively short periodof a medium-term plan has therefore seemedoptimistic.

Targets and policies for public savmg

While main reliance has been placed on privatesaving, plans have none the less generally assumedthat public saving would contribute appreciably tothe increase in total domestic saving. For most developing countries, this is in contrast to the experience in the nineteen fifties when the contributionof the public sector to the growth in total domesticsaving was negligible or even negative. 2 Of thecountries whose plans pmvide information aboutthe expected trend in public saving, only Burma andMalaysia have assumed that there would be a declinein public saving in their current plan periods (seetable 5-6).

The general aim of achieving a substantial Improvement in the performance of public saving has

2 See World Economic Survey, 1960, chapter 2.

been most often sought through restraints on thegrowth of current expenditure. When the plannedincrease in current expenditure is related to theplanned increase in gross domestic product, it isfound that, in a number of countries, such expenditure has been assumed to expand more slowly thantotal domestic output (see table 5-8). This is instrong contrast to past trends when the gmwth incurrent expenditure generally exceeded that in grossdomestic product. For some countries, most notablyCeylon and the United Arab Republic, the plannedreduction in the relative rate of increase in currentexpenditure has been particularly large. Colombia,Ghana, Jal11aica and Malaysia are the only four ofthe thirteen countries shown in table 5-8 where therelative ra,te of increase in current expenditure hasbeen expected to be higher in the current plan period


Tahle 5-8. Planned and Past Elasticities of Current Revenue and Expenditure ofGovernmentU

Cu.rren-t c.rpenditureGranp and country

Cmmtries where current l'eVenlle is planned toincrease substantially more than current expendiftwe

Republic of Korea.GhanaCeylon (B)PhilippinesChileUnited Arab Republic.Ceylon (A)

Planned

2.51.31.21.21.01.00.9

Past

2.20.11.01.51.41.3b

1.0

Planned

1.40.80.90.90.60.50.5

Past

1.60.63.21.51.21.1b

3.2

Countries where current revenue IS planned toincrease somewhat more than ClWl-ent ex-pendittwe

Colombia 1.7 1.0 1.5 0.9Ecuador 1.1 1.5 1.0 1.1Tanzania 0.9 0.7Venezuela 0.8 0.1 0.6 1.3

Countries where cunent revenue M planned toIncrease less than Clwrcnt e:rpenditure

Jamaica 1.7 1.3 1.8 1.1Sudanc 0.9 2.3 1.5 2.3Malaysia 0.3 1.4 2.1 1.0Burma ......... 0.2 1.5 0.6 1.5

Sozwce: See table 2!3.

a Elasticity refers to the ratio of percentageincrease in current revenue or in current expenditure to percentage increase in grossdomestic product. Ceylon's plan conta,ins targetson two different assumptions: (A) that subsidies for "food and business operations" willbe eliminated by the terminal year, and (B)that such subsidies will amount to Cey Rs

than it was in the past; and it will be noted that, inthese countries, the past ratio was quite moderate.s

Compared with the planned changes in current expenditure, most plans have assumed much lessradical changes in the trend of current revenue. Anumber of plans, in fact, have expected that thegrowth in current revenue relative to the increasein gross domestic product would be somewhat lessbuoyant than it was in the recent past. One importantreason has probably been the assumption that therelative importance of exports and imports in grossdomestic product would decline in the course of thecurrent plan period; since taxation from foreigntrade turnover is a major source of revenue, thisassumption must have adversely affected the expected trend in revenue. An extreme example in

S It should be borne in mind, however, thM the es{imatesof planned increases in current expenditure have frequentlyexcluded certain items of recurrent expenditure on thegrounds that they are more properly classified as development expenditure; to this extent, the increases in currentexpenditure may be understated in comparison with pasttrends.

310 million in the terminal year and an equivalent amount of additional revenue will be raisedthrough appropriate tax measures. Past perioddata. generally refer to the period between 19531954 and 1959-1960. For other details, see footnote a to table 2-1.

b Refers to the ordinary budget of Government.

e Data refer to central government budget.

this regard is Malaysia, where an exceptionally lowrelative rate of growth in current revenue has beenprojected; this appears to have been related to theassumption that export prices would decline in thecourse of the plan period, thereby both adverselyaffecting yields from corporate income taxes andrequiring reductions in export duties. Burma isanother country whose plan projected an extremelysmall growth in revenue, but in this case the explanation is less evident; the plan stated that thetarget for revenue was based on the assumption ofunchanging tax rates, but it also appears to havebeen expected that tax yields would be highly unresponsive to increases in income.

For the various reasons which were discussed inchapter 1, the tax structures prevailing in developingcountries have generally been such that tax revenuehas not been strongly responsive to the growth oftotal income and output. There has certainly beengeneral awareness of this fact. As is brought out below, among the countries whose plans discuss theproblem of raising revenue in any detail, recommen-


Table 5·9. Planned and Past Elasticities of TotalCurrent Revenue and Tax Revenuea

Source; See table 2-3.asee foot-notes to table 5-8.b Including certain current transfers from households

and private non-profit institutions.

dations have generally been in the direction of improving the elasticity of the tax structure. Still,even when allowance has been made for the effectof proposed changes in taxes on the growth ofrevenue, the expected responsiveness of revenue tothe planned growth in total income and output hasgenerally not been high. It is only in Colombia,India and the Republic of Korea that the expectedelasticity of tax revenue has been substantiallygreater than one (see table 5-9). In most of the

countries for which such data are available, thegrowth of tax revenue has not been expected tobe significantly higher than that of gross domesticproduct. For some countries such as Ghana, this hasdenoted a significant improvement over past performance, but for others, such as Ecuador and theSudan, it has represented a deterioration.

Although plans have generally sought to increasepublic saving mainly through setting modest targetsfor current expenditure, they have not suggested specific lines of action for restraining the growth insuch expenditure. As noted earlier, very few countries appear to have undertaken detailed studies offuture trends in current expenditure, and the implications of the over-all expenditure targets for thevarious aspects of governmental activity have therefore not been made explicit. The means by whichsuch targets are to be realized have thus been kftto later decision. In contrast, plans have generallyaccorded much greater attention to the problem ofexpanding current revenue; they have containedrecommendations intended to bring about improvements in fiscal policy as well as to increase revenuefrom non-tax sources.

94777270646338

Final yearof plan

97777369647441

Base year orfirst year of plan


Cout>try

Sudan .Republic of Korea .Burma .United Arab Republic .Philippines .Ecuador .Iran .

As between the various indirect taxes, plans haveenvisaged a number of important shifts. Traditionallycustoms duties have bulked large in the total taxrevenue collected by developing economies. But planshave suggested that the tax structure would be progressively shifted from foreign trade to domesticproduction, although they have also indicated that thetransform.ation would likely be slow. The plans ofGhana, Malaysia and Pakistan, among others, haveindicated the need for lowering or removing export

INDIRECT TAX RECEIPTS AS PERCENTAGE OF TOTAL TAX REVENUE

Plans have commonly emphasized that revenuefrom both direct and indirect taxes should be increased. However, the possibility of enlarging revenue from the customary forms of direct taxation,such as income or profits tax, has usually been expected to be limited. While some plans, such as thatof Ghana, have recommended steeper and more progressive rates of direct taxation, it has generallybeen recognized ,that the effect of such changes wouldbecome evident only over a long period. A number of plans have, therefore, looked to certain newdirect taxes as a means of increasing tax revenue.The plan of India, for example, listed in this categorysuch recently adopted measures as the wealth tax,the capital gains tax, the expenditure tax and theestate duty, though it also implied that the yieldfrom. these taxes would be likely to remain relativelysmall. Use of the expenditure tax has also beensuggested in Ceylon's plan and the estate duty inEthiopia's plan. The plan of Pakistan suggested thatthe desirability of a capital gains tax should be considered. In the Tunisian plan, taxes on patents andcertain professions have been favoured.

It is indirect taxes, however, which have beenexpected to remain the mainstay of tax revenue inthe foreseeable future. The few plans that have indicated targets for direct and indirect taxes separately clearly reflect this belief. As the followingdata show, only in Iran has the planned share ofindirect taxes in the ,total tax revenue been comparatively small, and this is largely because of theinclusion of royalties from petroleum-a substantialpart of total tax revenue~in receipts from directtaxes.

0.11.01.8

2.21.0

-0.31.01.6b

1.30.71.02.7

Ta% revenue

2.01.61.21.11.21.00.80.80.80.90.20.22.2

Planned Past

Totalcurrentrevenue~

planned

Country

Republic of Korea......... 2.5Colombia 1.7Ghana.................... 1.3Ceylon (B) 1.2Philippmes 1.2Ecuador 1.1United Arab Republic...... 1.0Ceylon (A) 0.9Sudan.................... 0.9Tanzan1a 0.9Venezuela 0.8Burma 0.2India .


duties in order to encourage their exports, especiallyin times of weak external demand for their products.On the import side, some sacrifice of revenue hasalso been expected in order to encourage, throughreduction or removal of duties, imports of machineryand essential intermediate goods. The plan of Pakistan, however, has emphasized the importance ofimposing surcharges even on imports of such strategic items as machinery and heavy equipment; ithas been argued that the surcharges would bringthe market price of these goods nearer to theirscarcity value and would thus promote a betterallocation of resources. In general, given the greatimportance attached to the process of import substitution, a far more pervasive theme running throughthe plans has been that the relative importance ofimport duties would diminish as the planned increases in domestic output displaced imports.

The plans have, therefore, looked for extensiveincreases in internal commodity taxation. The plansof Ceylon and Ghana, for instance, have observedthat the industries which have received the benefitsof protection from foreign competition should contribute to state revenue through new excise duties.The plans of such countries as Colombia and Ecuador have also emphasized the need for a sales tax.It has commonly been argued that commodity taxesare easier to impose and collect, and that, moreover,they help to restrain consumption. Although it hasbeen .recognized that commodity taxation often imposes a greater burden on the poor, so large arethe requirements for addi.tional revenue that theplans have been prepared to tolerate a certain degreeof inequity at the present stage of development.Moreover, as the plans of India, Pakistan and Trinidad and Tobago have pointed out, not all commodity taxes are necessarily regressive; in fact, aprogressive element can be introduced by applyinghigher rates on luxury items which are consumedmainly by the rich. In order to create resiliency inthe tax system so that tax yields increase if pricesrise, the plan of Pakistan has recommended thatcommodi.ty taxes should be levied on an ad valorembasis rather than as specific duties, as has often beenthe case in the past.

Some plans have also emphasized that steps shouldbe taken to expand revenue from the agriculturalsector. In a number of countries yields from landtaxes have remained unchanged over the years sinceassessed values have not been subject to any revision.

The need for reforming the agricultural tax structure has, therefore, been stressed. The plans ofIndia and Pakistan, moreover, have suggested that"betterment levies" should be charged whereverirrigation and other major agricultural schemes havebrought substantial gains to the peasants. The plansof Colombia, Ecuador and Venezuela have alsocalled for the imposition of a tax on unused land,though the main objective in this case is not revenuebut rather the extension of agricultural cultivation.

Several plans have also attached great importanceto improving the administrative machinery for taxcollection. This has been especially stressed in theplans of Bolivia, Burma, Chile, Ecuador, Ethiopia,Ghana, India, the Philippines and Venezuela. Simplification and rationalization of the tax system, removal of loop-holes, prevention of tax evasion andgeneral improvement in the efficiency of tax collection are among the measures most frequently cited.

Simultaneously with the measures for broadeningthe tax base, the plans have called for steps to enlarge non-tax revenue. Particularly striking in thisconnexion is the change in views regarding thecontribution of public enterprises. The plan of India,for example, has expressed the belief that the enlargement and ploughing back of profits of publicenterprises had an important contribution to maketo the financing of economic development; in decidingthe price policy for their products public enterpriseshad therefore to bear in mind the need for maximizing their surpluses. The plan of Trinidad andTobago has also envisaged a significant contributionfrom the operating surpluses of public enterprises.Ghana's plan has expressed the hope that publicenterprises would contribute to government revenuein a reasonable time. The plans of Ceylon. andChina (Taiwan) have indicated the need for revisionof rates charged by government services.

In general, it is clear that plans have given considerable attention to measures designed to acceleratethe growth in revenue. It is none the less apparentthat, in most countries, these measures have notbeen expected to effect radical changes in the ·taxstructure. Within the course of the current plans,the responsiveness of tax revenue to the growth ofincome has accordingly not been expected to improve substantially. Thus, the feasibility of thetargets for increased public saving has dependedmainly on .the ability to exercise the proposedrestraints on the growth of current expenditure.

Measures for channelling financial resources

Besides the task of increasing the supply of realresources for investment, plans have also recognizedthat investment may be impeded because the financial

resources which are saved are not made availableto the potential investors; and measures to facilitatethis transfer have generally been proposed. It is


true that, in developing countries, investment andsaving are often undertaken by the same persons;this, for example, is particularly the case in agriculture, though it also applies to many of the smalland unincorporated enterprises. And, most planshave expressed the hope that there would be significant increases in such self-financed investment. Butin other activities individual savings do not usuallyarise at points where they can be utilized for productive investment. This is a problem that is encountered in any country; but it is much more acutein the under-developed countries where proper lend-

ing institutions either are lacking or are inadequatelyequipped to cope with the financial requirementsof various units of production. In order to meet thisproblem, the plans have emphasized the need forsetting up appropriate institutions or channels forfacilitating flows of finance into produotive uses.

In the past the public sector in developing countries has generally invested more than it has saved.In most of ,the countries for which comparable dataare provided by the plans, stich a pattern has beenexpected to continue to prevail during the planperiod (see table 5-10). Indeed, in such countries as

Table 5-10. Planned Shares of Sectoral Investment and Saving in GrossDomestic ProductR

(Percentage)

Gross investment Gross saving Excess of gross savingExternalCountry· over gross investment

Public Private Public Private resourcesPublic Private

Tanzania ........... 9 15 3 15 -7 7Tunisia .............. 18 14 11 15 -7 6Burma ........ - -, ... 9 11 4 13 -5 3 4India '7 5 2 7 -5 2 3F

Malaysia 7 y 2 10 -5 1 4Ceylon 11 7 9 8 -3 1 2Ecuador 8 10 5 9 -3 -1 4Sudan 7 5 4 4 -2 -1 3Trinidad and Tobago. 4 22 2 16 -2 -6 8Philippines 4 12 3 11 -1 2Chile 8 8 8 7 1 -1 IVenezuela 7 14 7 12 1 -1

Source: See table 2-l.

R Data refer to the plan period as a whole,except for Tanzania and Tunislia, where theyrefer to the final year of the plan. Investmentdata for Burma, the Philippines and the Sudan

Burma, India, Malaysia, Tunisia and the UnitedRepublic of Tanzania the planned shortfall of publicsaving over public investment has been substantial,amounting to 5 per oent or more of gross domesticproduct. In the main, the excess of public investmentover saving has been expected to be covered by aninflow of external resources, though in some countries it has also been proposed to draw upon domesticprivate saving. There are cases, of course, wheTethe pTivate sectOT's saving has also been envisagedto be less than its investment. This is a prominentfeatUTe of Trinidad and Tobago's plan, which hasaimed to cover the shOT.tfalls in both the public andprivate sectoTs through a large inflow of externalresources. But among the countries listed in table5-10, it is only in Chile and Venezuela that the publicsector has been expected to make a net contributionto the financing of private investment.

exclude changes in stocks. For other details,see foot-note a to table 5-2 and foot-note a totable 5-6.

b Countries are listed in ascending order ofthe excess of public saving over public investment.

To finance the excess of the public sector's investment over its saving, plans have expected thatgovernments would be obliged to undertake extensive programmes of borrowing from private institutions and individuals. It has frequently been emphasized that banks and insurance companies shouldbe called upon to invest increasingly in governmentsecurities. The plans of such countries as China(Taiwan), Ethiopia, Kenya and Trinidad andTobago have expressed the hope that the establishment of a central bank would contribute, inter alia,to a better control over the asset portfolios of commercial banks. Most plans have stated that suchmeasures as sales of savings bonds, establishmentof provident funds and expansion of post office banking facilities would enable governments to tap smallsavings. A number of plans, as for example that ofEthiopia, have also favoured sales of some shares


of public corporations to private persons. The plansof China (Taiwan) and Nigeria have suggested thatsome of the public enterprises which had becomegoing concerns should be sold outright to the privatesector; this approach has been favoured partly toserve as an inducement to the private sector andpartly to initiate new activities with the help offinance secured through the sale of existing publicenterprises. A few plans have also mentioned theuse of an expansion in the money supply as a component in the financing of public investment; it hasbeen assumed, however, that the planned increase inthe money supply would be roughly in line with thegrowing cash requirements of the economy associatedboth with increasing output and with the monetiza-tion of the subsistence sectors. '

Although most plans have expected that the privatesector, unlike the public sector, would be able tofinance its own investment, it has been emphasizedthat specialized financial institutions would be neededin order to fill certain gaps in the financial structure.For example, commercial banks in the developingcountries do not generally provide long-term financeto industries. And although the development ofstock exchanges, by providing a market for sharesand debentures, has been expected to contributematerially in some countries to the process of industrialization, this has not obviated the need foradditional institutional finance for industry. To fillthis need for long-term industrial finance, plans have

proposed the establishment or expansion of specialized public or semi-public institutions to serveas industrial banks. The plans of Chile, Colombia,India and Pakistan, where these institutions havealready been in operation for some time, have lookedforward to the further strengthening and expansionof this activity. In several other countries-for example, Burma, China (Taiwan), Ethiopia, the Philippines and Trinidad and Tobago-plans have stressedthe need for establishing similar institutions.

In some cases, such financial institutions havebeen expected to promote the supply of finance tonon-industrial enterprises as well. More commonly,however, the plans have, proposed separate institutions for this purpose, especially in order to channelfunds to the agricultural sector.' In a number ofcases where such specialized institutions are lacking,the plans-for example, those of Ethiopia andGhana-have called for the establishment of anagricultural bank or a rural development agency toprovide financial assistance to cultivators. In somecountries, however, especially in Latin Americaand southern Asia, where institutions for the provision of credit to the agricultural sector have been inexistence for several years, the plans have stressedthe need for expanding and strengthening theseinstitutions through larger government subventionsor by forging closer links between these institutionsand the central bank.

Chapter 6

RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS

Many of the plans reviewed in the precedingchapter have not been implemented for more thanone or two years, and it is not yet possible to comment extensively on their progress. Discussion inthis chapter has therefore had to be confined to aminority of countries whose current plans wereinitiated in the first two or three years of the presentdecade. Since the sample is small and since dataon the most recent developments are often not available, generalizations based on available informationare necessarily of limited significance. Nevertheless,the analysis does serve to reveal some of the problems which have been commonly experienced in theprocess of implementation.1

There is naturally great interest in. the extent ofthe progress which has been made towards therealization of plan targets; and, in so far as information allows, such progress is reviewed in this chapter.It is fair to comment, however, that progress inplan implementation should not be judged simplyby whether or not plan targets are in prospect ofbeing achieved. Success or failure in the realizationof plan targets may be influenced by factors quitebeyond the control of any government. In appraisingthe effectiveness of planning, the real issue iswhether, through the adoption of a plan, the management of governmental policies has been improved.If a plan contributes towards the more effectivemobilization and utilization of resources for theachievement of national economic and social objectives, it serves its purpose even though the specified targets may not be realized.

This draws attention to a paradox of planningamong those developing countries which have recently initiated their first comprehensive plans. Itis that a principal task in the implementation ofplans has been the creation of governmental machinery for planning itself. It has been the experiencealmost everywhere that formulation of a first comprehensive plan has preceded the creation of adequategovernmental machinery for plan implementation.In fact, if the experience of developing countries

1 For a broader discussion of the problems and methodsof implementation, see United Nations, Planning for Economic Development (Sales No.: 64.II.B.3), especiallychapters 2 and 3.

99

now engaged in their second or third plan IS anyguide, it was the elaboration of a first plan whichstimulated efforts to develop the machinery for implementation. These efforts have necessarily extendedover time, contributing gradually to improvementsin both the formulation and the implementation ofsubsequent plans.

The features of governmental organization thatconstitute obstacles to effective plan implementationand the nature of the requisite changes are familiarand need not be dwelt upon at length here. Theorganizational structure of the public services wasfashioned originally for such limited purposes asthe maintenance of law and order; and it has notgenerally been attuned to the more dynamic needsof plan implementation. Governmental departmentshave often lacked the staff to undertake the detailedadvance planning of projects; delays in implementation have consequently ensued because projects havebeen insufficiently prepared or not prepared at all.Though individual departments may have been ableto initiate their own projects, adequate machineryfor the co-ordination of departmental programmeshas often· been absent; the initiation and completionof related projects have not been appropriatelyphased and newly constructed capacity has lain idlefor lack of the requisite supplies. More generally,plans have not impinged upon the traditional procedures .for budget preparation. For the annualbudget to serve as a principal instrument of planimplementation, it is necessary to have effectivemachinery for co-ordination of the activities of theministry of finance and the planning agency. Thestaff, organization and authority for the integratedpreparation of annual plans and annual budgets have,however, often been lacking.

While creation of adequate organizational arrangements has been a condition of effective plan implementation, it has obviously had to be accompanied bya readiness to utilize the machinery for the executionof new measures. It is, in fact, the extent to whichthe processes of governmental decision making aremodified to permit decisions to be made in the lightof plan objectives which is central to the assessment of plan implementation. The evaluation ofsuch a change necessarily requires detailed, directknowledge of events in individual countries; and it

100 PART I. DEVE:LOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

has therefore not been possible to undertake thisin the present report. But it need hardly be emphasized that countries have differed widely in thevigour with which they have sought to developadequate machinery and to execute new measures.

It is certainly true that some of the plans reviewedin this report have had small, or negligible, influenceon the conduct of governmental policies. Politicalchanges have sometimes led to the virtual abandonment of plans; or major changes in economic circumstances have called for the reformulation ofpolicies. Plans may none the less have remainednominally in force although superseded in practiceby new policies or priorities.2 Further, plan implementation has sometimes been neglected becauseof weakness or inertia at the political centre or because the balance of political forces has made itdifficult to institute certain necessary measures. In

2 In general, unless plans have been explicitly replacedby others it is difficult to know for certain that they havebeen d~scarded. .

this document, because of the lack of specific information about the situation in individual countries,plans have necessarily been taken at their face value.But this should be understood not to imply anyjudgement about their actual status.

It should also be borne in mind that the recentexperience of the countries reviewed in this chapteris not necessarily typical of the developing countriesas a whole. Moreover, even for the countries reviewed here, the time periods over which plan implementation can be measured are very short anddo not extend beyond 1963; the record of progressin plan implementation may therefore appear quitedifferent when current plans have been completedand data are available for the full period. In fact,preliminary evidence suggests that, in a number ofinstances, developments in 1964 were more favourable than in preceding years and might suggest somemodification of the conclusions about recent planningexperience.

Recent trends in output

Among a majority of the countries for which datacovering two or more years of the current planperiod are available, rates of growth in total outputhave so far fallen perceptibly short of plan targets(see table 6-1). Ceylon, Chile, India and Tunisiaare among the countries whose progress towardsthe achievement of plan targets has been leastfavourable; preliminary estimates of trends in 1964

are, however, available for the first three of thesecountries, and they indicate an appreciable improvement over past performance. Although the actualrates of growth in certain other countries, such asBurma, the Republic of Korea and the United ArabRepublic, have also been somewhat less than projected, the pace of expansion has none the less beenrelatively high; but for Burma, preliminary esti-

Table 6-1. Planned and Actual Annual Rates of Growth in Gross Domestic ProductR

(Percentage)

Actual during plan yearsb

Coulttry Planned 1960 1961 1962 1963 Average foryears indicated

China (Taiwan) 8 8.0 6.3 6.6 7.0United Arab Republic. 7 6.1 3.5 8.6 6.1Burma 6 4.3 7.4 5.9Ceylon ......... 6 5.4 3.1 3.2 2.3 3.5Morocco 6 6.7 -4.1 10.6 4.4

Republic of Korea. 6 3.5 6.8 5.2Tunisia. .......... 6 1.5 6.2 3.9Chile ......... 5.5 3.5 6.5 1.7 3.9Colombia 5.5 4.9 5.0 4.0 4.6India 5.5 2.7 2.4 4.5 3.2

Sudan ........... 5 13.5 1.5 7.5Pakistan ......... 4.5 4.4 5.5 3.7 7.5 5.3Malaysia ........... 4 5.1 6.7 5.9

Source: See table 2-3.a See foot-note a to table 2-1.b Data have been conformed as far as possible to plan figures. For Burma, data refer to the

fiscal year ending in the year indicated; for India, Pakistan, the Sudan and the United Arab Republic, they refer to the fiscal year beginning in the year indicated.

CHAPTER 6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS 101

mates of developments in 1964 indicate a markeddeceleration.

A significant minority of countries have been recording rates of growth which have exceeded plannedrates. The most notable instances in this regard areChina (Taiwan) and Pakistan. China (Taiwan)has now completed its third four-year plan andpreliminary data for 1964 indicate that the targetfor the increase in output over the whole plan periodwas easily exceeded. Data for Pakistan are availablefor most of its current plan period and these likewisereveal that the rate of growth in total output hasbeen well above the planned rate. In certain othercountries, recent rates of growth have also been inexcess of planned rates but since the data coverfewer years, less significance can be attached to theseresults.

As might have been expected, when rates ofgrowth in total output are translated into per capitaterms, very few countries appear to have recordedprogress that bears out the plan proj ections (seetable 6-2). Rates of growth in population appear, ifanything, to have been higher than expected.

The importance of the agricultural sector in influencing the pace of over-all growth has beenclearly illustrated by recent experience (see table6-3). In Pakistan, for example, the growth in agricultural output over a number of years has exceededexpectations; and in China (Taiwan), although theincrease in output appears to have fallen short ofthe target, the pace of expansion has none the lessbeen relatively high. On the other hand, the poorperformance of agriculture in such countries as Chileand India has retarded over-all growth. A majorityof countries have, in fact, not succeeded in achievingthe rates of increase in agricultural output which

Table 6-2. Planned and Actual Annual Rates ofGrowth in Per Capita Gross Domestic Producta

(Percentage)

Country Planned Actualb

China (Taiwan) 5 3.5Tunisia 4.5 1.7United Arab Republic. 4.5 3.5Burma 4 3.7Morocco 4 1.7

Ceylon 3 0.8Chile 3 1.6Colombia 3 2.3India 3 1.1Republic of Korea. 3 2.3Pakistan 2.5 3.1Sudan 2 4.4Malaysia I 2.5

Sou;rce: See table 2-3.a See foot-nQte a to table 2-1.b Refers to plan years for which data are available as in

dicated in table 6-1.

they had planned. It should be noted, however, thatharvests during the latest full crop year were generally better than those in preceding years; werethese included in the data shown in table 6-3, amore favourable trend in output over current planperiods would be recorded by most countries.

As was pointed out earlier, increased productionof food-grains to keep pace with population growthand to reduce reliance on imports has been givenmuch emphasis in most development plans. Recentexperience in food-grain production is summarizedand compared with planned rates of expansion intable 6-4. Of the countries shown in the table onlyCeylon, Morocco and Pakistan appear to haveaveraged rates of growth of food-grain productionmore or less in line with the planned rates. For theother countries, actual performance has so far fallenwell .below plan targets. For Colombia, India, theSudan and the United Arab Republic the shortfallshave been especially marked.

In contrast to agricultural production, it appearsgenerally to have proved easier to realize plannedrates of growth in industrial production. In a fewcountries, such as the Republic of Korea and theUnited Arab Republic, industrial production hasactually been expanding at a faster rate than planned.Again, however, there have been exceptions andsome countries have been recording substantiallylower rates of expansion. Thus, in Chile, India andthe Sudan, the output of manufacturing industryhas been increasing at a rate appreciably below theprojected rate.

SOME RECENT AGRICULTURAL POLICIES

Since the data on agricultural production whichhave just been described cover very short periods,it is obvious that they may provide a very inexactmeasure of progress in the implementation of agricultural plans. But the temptation to ascribe poorperformance in agriculture exclusively to unfavourable weather conditions should also be resisted. Thatweather conditions have sometimes been fairly important is true. In the recent past, wide year-toyear changes have been recorded by such countriesas Chile, China (Taiwan), Morocco, the Republicof Korea and the United Arab Republic. But onepurpose of agricultural policy has been to reducethe random influences of weather on agriculturalproduction through irrigation, soil conservationschemes, increased use of fertilizers and similarmeasures. At any rate, it is difficult to avoid theconclusion that the implementation of agriculturaldevelopment plans has so far generally not beenvery successful in raising output and reducing yearto-year fluctuations.

Table 6·3. Planned and Actual Annual Rates of Growth in Agricultural and Industrial ProductionlJ.

(Percentage)

AgricultttreTotal Constntctian

e

18.56 6.3

Planned Actlwfb

5.915.0

Actualb

BaS'/:c facilities

4.54 d

5 e

PlannedAct'Ualb

11.1e

9.09.3

Industry

J.11anufaeturing

7.5e8.5

21

Planned

Mining

e

625 8.3

Planned ActualbAct"alb

79.5

7.5 11.8

PlannedAct"alb

323.75.8

32.54

PlannedGroup and c(mntry

Countries where targets for both agriculture and industry have been metor exceeded

MalaysiaPakistanSudan

Source: See table 2-3.a See foot-note a to table 2-1.b Refers to plan years for which data are available. Years are as indicated

,n table 6c1, except for Colombia where data pertain to 19ffcl-1962.e Mining and construcHon included in manufacturing.d Transport and communications only.e Commerce included in basic facilities.

f Based on index of manufacturing production.g Mining included in manufacturing.h Based on gross value of production.1 Mining and construction included in basic fadlities.j Electricity only.

Countries where target for industryhas been met or over-fulfilled butwhere there has been a shortfall inagricttltttre

China (Taiwan) .Republic of Korea. . . . . .United Arab Republic .

Countries where there has been a shortfall In targets for both agricultureand industry

Chile .. ,Colombia .India . .Morocco .

5.555

5.54.54.55.5

3.8-3.3

0.3

-2.33.80.22.4

11.5

11

7 5.8

5.5g

27.5

6

4.5

g

1.1

1.3

12.5l1.5g13.5

6.58.5

11 f

9

12.5f15.0g15.3h

3.66.37.zr4.7

9.5

5

6 1

7 j

5.01

7.~

-0.5

7

7

19.8

8.3

CHAPTER 6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS 103-----------------------------------Table 6-4. Planned and Actual Annual Rates of

Growth in Food-grain Production in Food DeficitCountriesa

S mwce: See table 3-4.a Data generally refer to quantum of major food-grains.

See also foot-note a to table 2-1.b Refers to plan years for which data are available; see

foot-note b to table 6-3.

Almost all countries have given high priority topromoting ,the increased utilization of such inputsas irrigation, fertilizers and improved seeds sincethese may generally be expected to yield fairly quickresults. However, in many cases implementation ofthese programmes has met with various difficulties,such as shortages of physical inputs, inadequate coordination or advance planning and scarcities oftrained personnel to administer the programmes.With such shortages and inadequacies, limited resources have sometimes been spread too thin to shownoticeable results. To overcome this type of problemsome countries have introduced pilot area schemeswith the aim of concentrating efforts in a smallnumber of selected areas. Thus, under the intensiveagricultural district programme adopted by India

result, the use of fertilizers increased sharply from31,000 tons in 1959/60 to 55,000 tons in 1960/6r.aAnother recent measure has been the establishmentof an Agricultural Development Corporation in eachProvince. These Corporations have been chargedwith the responsibility of distributing supplies ofagricultural inputs, providing credits and disseminating knowledge about improved agricultural practices, soil conservation and land reclamation.

Not all the measures taken ta stimulate agricultural production can be expected to yield resultswithin the relatively short period of current mediumterm plans. Measures for land reform or irrigationprogrammes entailing major construction worksrequire considerable time for their implementation,and their benefits are likely to be reaped only insubsequent plan periods. The steady growth inagricultural output which has been recorded inChina (Taiwan) over a number of years, for instance, owes much to measures taken in the nineteen fifties. In the first two four-year plans, investment-financed substantially by foreign aid-wasconcentrated heavily in agriculture; and the largescale investment programme was accompanied byother measures, such as land reform and the development of extension services, designed to strengthenthe agricultural sector. It was only in the third fouryear plan, completed in 1964, that the emphasis wasshifted from agriculture and agriculture-based industries to industry in general. In recent years, however,the provision of current inputs into agriculture hascontinued to expand rapidly and substantial improvements in yields have been achieved. Withextensive irrigation, heavy application of fertilizersand improved methods of cultivation, two crops ayear have been raised from most of the cultivatedland.

3 In the next two years, however, the increase of fertilizerconsumption decelerated owing to a cut in the subsidy offertilizer prices; this induced the Government to restore thesubsidy in the beginning of 1964.

Per capitaTotal

(Percen,fa:ge)

CountryPlanned Actualb Planned Actualb

Ceylon 8.5 7.8 5.5 5.0

Sudan 8.5 3.8 5.5 0.8

United Arab Republic ..... 6 2.5 3.5 -0.1

India 5.5 0.6 3.3 -1.5

Colombia 4.5 1.7 1.5 -0.5

Pakistan 4 3.6 2 1.5Morocco 2.5 3.8 0.5 1.1

In some of the countries which have recentlyenjoyed considerable progress in agricultural production, an important reason has been the successful exploitation of under-utilized natural resources.Thus, in Ceylon, the favourable experience in meetingthe targets for production of food-grains has beenclosely related to the colonization schemes for opening up new land for rice production; a large part ofthe increased output of rice has been due to increasedacreage. Also, in Malaysia, colonization schemeshave 'played a large role in the growing productionof oil-palm and thus in furthering the announcedpolicy of diversifying agriculture. For some countries, the adoption of such schemes has been precludedby the unavailability of suitable virgin land; but thereremain numerous countries where land resources havestill not been fully exploited. It is true that the costsof land clearing and of housing and other amenitiesfar settlers may make such schemes initially expensive; but, at the same time, the obstacles to theintroduction of improved agricultural methods whicharise from the traditional social and institutionalstructure of rural society are absent.

Pakistan offers another instance where an increasein the area effectively under cultivation has contributed substantially to recent progress. Large tractsof land have been reclaimed or improved through thesinking of many thousands of tube wells to reducesalinity or waterlogging. These improvements inirrigation, however, have been accompanied by othermeasures also yielding quick results. There has beena decided upward trend in the use of such key inputs as fertilizers, improved seeds and implements.To stimulate the use of fertilizers the Governmentdecided to fix the prices of fertilizers at about 50 percent of the cost and to keep these reduced pricesconstant throughout the second plan period. As a


in recent years, a district has been chosen in eachstate on the basis of its potentialities for development and receptivity to the programme, and intensive efforts have then been made in these areasto strengthen extension and community developmentservices, provide larger supplies of fertilizers, pesticides and improved seeds and increase irrigationfacilities. This programme was initiated in 1961 andfirst results in many areas have been favourable.By 1964, the use of fertilizers in ,these districtsdoubled, institutional credit utilized increased by50 per cent and in most cases the yield per acreshowed considerable gains.4 Schemes of this kindare not only intended to enhance pToduotivity in thefew selected areas; as the progress in these villagesbecomes evident it is also expected that other villageswill be stimulated to emulate the advanced techniques and practices of the pilot areas.

PEJ<.FORMANCE IN INDUSTRY

Plans for industrial growth have generally yieldedmore favourable results than have agricultural plans.In large measure, whenever planned rates of growthin industrial output have not been achieved, thereasons have lain in causes external ,to the industrial sector. In some countries, poor results in agriculture have adversely influenced industrial production, particularly in those branches of industriesdependent upon indigenous raw materials. Also thechronic scarcity of foreign exchange observed inmany developing countries has sometimes limitedthe availability of imported supplies of spare parts,semi-manufactures and raw materials; this has ledto the periodic under-utilization of available productive capacity.

It is perhaps inevitable that implementation ofindustrial development plans should present fewerproblems and show consistently more favourableresults than is true of agricultural plans. For one

4 See India, Planning Commission, First Report of theExpert Committee on the Assessment and Evaluation ofthe Intenstve Agricu1tural District Progmmme (New Delhi,1964).

thing, the bulk of manufacturing production iscarried on in relatively large-scale units, whereasagriculture is characterized by a mass of small cultivators difficult to reach and influence. Also, uncontrollable external forces such as the weather do notplayas important a role in influencing industrialproduction and therefore measures to stimulate output will more consistently show appropriate results.None the less, many countries have still faced considerable difficulties in attempts to implement industrial plans.

In some countries inadequacies in basic overheadfacilities have created bottle-necks which hamper thepace of industrial expansion. Thus, in India, transport and power shortages became acute during theearly years of the third plan; these adversely affectedmovement of coal and cement, thereby holding backthe expansion in production of various commodities.The Indian experience illustrates the close links between different sectors in over-all development planning, and the need for the interdependent sectorsto expand at appropriate rates if the whole planningeffont is not to be impeded by a host of bottle-necksand shortages.

Shortages of industrial materials and parts havealso created bottle-necks to industrial expansion inseveral countries. In some cases these shortages havebeen related to inadequate expansion in other partsof the economy. In Ceylon, for example, plans forexpansion of the sugar industry were frustrated bythe inadequate growth of sugar-cane production.Insufficiency of foreign exchange and resulting shortages of imported materials and parts have also heldback industrial growth in several countries. Further,in several cases inadequate co-ordination and advanceplanning appear to have been responsible for shortfalls in the industrial sector. In India, for example,lack of adequate preparatory planning appears tohave contributed significantly to shortfalls in attaining the targets for steel production. And in Ceylon,the planned expansion of fertilizer production hasbeen held up by administrative delays in the recruitment of technical staff to operate the new plants.

Implementation of investment programmes

Progress in the implementation of investmentprogrammes has been mixed. In some countries,the volume of fixed investment appears to have beenincreasing in recent years at a rate faster thanplanned, while in others it has been advancing moreslowly (see table 6-5). Data are too scanty to allowof any generalization about the relative contributionof the public and private sectors to recent trends ininvestment; and such evidence as exists merely sug-

gests that experience has been varied. A source ofwidespread comment in the developing countries,however, has been the difficulties experienced in theimplementation of public investment programmes;and some discussion of these difficulties may beuseful.

Problems of implementing the public investmentprogramme fall broadly under ,two headings, namely,shortages of financial resources-including the re-


quisite foreign exchange-and administrative andtechnical difficulties. While all countries are affectedin some degree by the latter, in some countries theformer has not been a serious problem. In severalcases, in faot, it was found that budgeted funds couldnot be spent because of various administrative difficulties. And even where total funds have not beenplentiful, it has often been found that allocationsto particular sectors could not be spent owing todifficulties in implementation.

One problem often cited in connexion with implementation of public investment programmes concernsinadequacies in advance proj ect preparation. In manycases, in fact, the projects to be undertaken havenot even been known when the plans were originally

drawn up, or, if known, enough studies had notbeen carried out for work to begin. Thus, in Pakistanthe failure of sponsoring departments and agenciesto come forward with enough projects by the timethe second plan was approved was said to have beena cause of delay in implementing the plan.5 Similarly,in Nigeria there was a shortage of adequately prepared proj ects in the first year of the plan; in consequence, the first year was largely devoted to projectpreparation.6 Other countries, including Ceylon andMalaysia, have also referred to such shortages asfaotorsretarding implementation.

Inadequate project preparation has resuIted bothfrom the lack of skilled personnel and from deficiencies in the administrative machinery. Many coun-

Table 6-5. Planned and Actual Annual Rates of Increase in Gross Investmenta

(Percentage)

Country

Morocco .Pakistan .Republic of Korea .Malaysia ; .~~ .

Tunisia .Chile .Colombia .China (Taiwan) .Sudan .Burma... . .

Planned Actua/b

21 7.520.5 17.015.5 20.311.5 20.310.5 0.7

9.5 13.79 11.88.5 4.47 12.15 23.42 11.1

Source: See table 2-3.n See foot-note a to table 2-1 and foot-note a to table 2-4.bRefers to plan years for which data are available. Years are as indicated in table 6-1,

except for Colombia (1960-1962) and Pakistan (1960/61 and 1961/62).

tries have taken specific measures to try to remedyshortcomings arising from these sources. As far asskilled personnel is concerned, the solution in theshort run has usually been to import foreign technicians and experts; government agencies have engaged foreign engineering firms and consultants tosupervise the preparation and execution of projects.

Several countries have sought to strengthen theirplanning machinery so as to reduce delays in initiating and completing projects. Units have usuallybeen designated within each ministry with responsibility for the preparation of realistic programmes.Attempts have also been made to keep up to datechecks on progress in programme implementation.Periodic reviews of actual performance have servedto identify sources of difficulty or delay in implementation and to emphasize the importance of improving performance; they have also provided the

occasion for the redirection to other projects ofsurplus funds arising from likely under-spending.It is clear that systematic efforts along these linesare needed if plan implementation is to be effective.Among countries with a number of years of planning experience, this problem has been well recognized and solutions have been sought. It still appears,however, that many countries lack effeotive machinery for project studies and for effective progresscontrol, and are not yet sufficiently aware of theirimportance for effective plan implementation.

Inadequacies in existing budgetary procedures areanother problem that has often adversely affectedprogress in plan implementation. There has been a

5 See A. Waterston, Planning in Pakistan (Washington,D.C., 1963).

6 See Federal Government of Nigeria, Fint ProgressReport on the Development Plan, 1962-1968 (Apapa, March1964), page 3.

106 PART I. DEVELOPMENT PLANS: APPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

need to link fiscal budgets to development plans, toco-ordinate ,the planning and budgetary processesat the technical level and to co-ordinate the activitiesof executive departments. In Nigeria, for example,it was noted in the First Progress Report that traditional budgetary procedures were inadequ<lJte for theeffective implementation of the development plan.It was pointed out that the old system of annualcapital budgeting was inadequate for the new disbursements and selective controls envisaged in thesix-year plan, and that new procedures were required. Many countries have, in fact, attemptedto meet problems of this kind by changes in theirbudgeting procedures. Some, for example, have triedto arrange for greater participation of planningauthorities in the preparation of budgets. Some haveeven allowed planning authorities to participate inthe supervision and control of budget implementation.In many countries, however, there is still a great dealof hesitancy about curtailing the authority of thefinance ministry in the control and release of funds,and problems of effective budgetary procedure inthe planning context still remain.7

Difficulties in adequately relating budgetary allocations to physical targets have also impaired effectiveimplementation of plans in many countries. Forbudgetary purposes, financial targets are naturallyemployed but for planning, physical accomplishmentsare the relevant considerations, and the link betweenthese has often not been sufficiently established. Theabsence of an adequate technical organization toestablish physical performance targets and ensuretheir implementation has often been an importantfactor contributing to these difficulties. Inadequatecost estimates and insufficient attention ,to prospective price increases, both internal and external, areother factors which have given rise to difficultiesin plan implementation. In Pakistan, for example,the tendency for actual costs to exceed original estimates has often been commented on. This was foundto be due in part to the tendency of sponsoringagencies to show a favourable cost-benefit ratio whentheir projects were originally presented, in part tobad forecasting of price trends and in part to inefficient execution.8 In Burma it has been stated thatthe chief problem encountered in capital budgetingwas a lack of realism on ,the part of agencies con-

7 For further discussion of these problems, see UnitedNations, "Relationship between Planning and GovernmentBudgeting in Developing Countries" (IBRW.1/L.5) andReport of the Inter-regional Workshop on Problems ofBudget Classification and Management in Developing Countries (ST/TAOjSER.Cj70).

8 See Mahbub ul Haq, The Strategy of E,conomic Planning(Karaohi, 1963), page 187.

cerned in estimating public expenditure.9 When unrealistically low estimates are presented, projectsmay be started which would not be undertaken iftheir true costs were known before commencement.In addition, faulty cost estimates of this sort canalso result in wide disparities between financial andphysical targets which make appraisal of performancemore difficult.

The difficulty of assessing performance is aggravated by distortions resulting from price increaseswhich cannot be foreseen at the time plans are beingformulated. Since annual development budgets needto make allowance for such price increases in orderthat plan targets, established in constant prices, maybe attained, it is necessary to keep price developments under constant review and, whenever possible,to adjust financial targets accordingly.

For a few countries, some statistical informationrelating to the recent performance of public investment is presented in table 6-6. It should be notedthat these data refer to investment in current pricesand, since prices have everywhere been rising, theyoverstate progress towards the fulfilment of physicaltargets. This fact only serves to emphasize thatdifficulties in implementation have generally beenexperienced since, even when measured in currentprices, actual investment expenditure has been fallingshort of planned expenditure.

For the few countries listed in table 6-6, thereappears to have been a considerable amount ofunevenness in the relative rates of implementationin the different sectors. For all of these countriesthe rates of implementation of targets for transport and communications have been relativelyhigh in relation to those for public investmentas a whole; and in most cases relatively highrates of implementation have been recorded in thesocial services sector. On the other hand, implementation of the targets for mining, manufacturing andpower has usually been well below the average forpublic investment as a whole. For agriculture, ratesof implementation of public investment programmeshave been more mixed, with those for Pakistan andMalaysia being relatively low and those for Burma,Ceylon and India being more favourable. It shouldbe noted, however, that the data refer only to theinitial years of current plans and that performancemay often have improved in more recent years.

Various factors appear to have accounted for theunevenness recorded in the initial years of currentplans in the rates of implementation among the different sectors. In some countries, differences in the

9 See E. E. Hagen, Planning Economic Development(Homewood, Ill., 1963), page 42.

CHAPTER 6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS

Table 6·6. Planned and Actual Public Investment, by Major Sectors

(Percentage)

Mining TransportCountry and item" Total Agriculture and m,anu· Power and Services

facturing communi·cations

BurmaPlanned al1ocation for four years 100 100 100 100 100 100Cumulative implementation:

1961/62 ....................... 16 15 7 15 20 181962/63 . . . . . . . . . . . . . . . . . . . . ., 37 43 25 32 44 351963/64 (BE) ................ " (70) (71) (93) (52) (73) (64)

107

CeylonPlanned allocation for initial four

years 100Cumulative implementation:

1958/59 131959/60 281960/61 (BE) (47)1961/62 (BE) (73)

IndiaPlanned allocation for five years. . . 100Cumulative implementation:

1961/62 151962/63 341963/64 (BE) (56)

Malaysiac

Planned allocation for five years. . . 100Cumulative implementation:

1961 ' , . . . . . . 141962 371963 (BE) (64)

PakistanPlanned allocation for five years.. 100Cumulative implementation:

1960/61 141961/62 301962/63 (BE) (54)

Source: See table 2-3.a BE: Budget estimate.b Housing, education, health and social wel

fare only.

-administrative capacity of various departments andagencies seem to have been an important factorgiving rise to these imbalances. In other cases,shortages of foreign exchange needed for specificprojects have retarded progress in specific sectors.

It should also be noted that in some countries thedivergent rates of implementation among sectorswere due to an explicit reassignment of priorities.Thus, in India investments in transport and communications and power were carried out ahead of:schedule because of the strains on these facilitiesduring the first year of the plan. It became evidentthat inadequate transport facilities were obstructingthe smooth movement of materials within the counfry, thereby adversely affecting production in various:industries. The decision was therefore ,taken to ac-

100 100 100 100 100b

16 4 4 16 17b33 15 12 36 31b

(54) (32) (36) (51) (53)b(78) (53) (79) (74) (79)b

100 100 100 100 100

15 13 14 20 1433 29 32 45 32

(53) (52) (56) (71) (49)

100 100 100 100 100

9 21 14 18 1029 41 41 46 39

(54) (71) (79) (75) (49)

100 100 100 100 100

11 12 15 15 1221 24 36 35 28

(42) (43) (62) (62) (52)

c Refers to investment by the Federal Gov-ernment only; excludes defence expenditure.

celerate the railway and road programme.lO Similarly, a power shortage developed and became abottle-neck to industrial expansion, and it was therefore decided to step up the power programme.11

In Malaysia, as well, the decision was taken earlyin the plan period to give priority to the transportand communications and power sectors, and allocations to these sectors were increased to levels abovethe original plan targets.

10 The onset of military emergencies also affected theissue. See Government of India, The Third Plan Mid-termAppraisal (New Delhi, 1963), page 17.

11 In India an additional factor has been the inability ofsome states to raise resources on the scale envisaged intheir plans. There has consequently been some tendency toshift funds as between different heads of development contrary to the scheme of allocations agreed to in the plan.Ibid., page 3.


Domestic saving and fiscal policies

Table 6-7. Planned and Actual Changes in GrossDomestic Saving in Relation to Gross DomesticProducta

S aurce: See table 2-3.a See foot-note a to table 2-1, foot-note a to table 5-2

and foot-note a to table 5-4.b Refers to plan years for which data are available; see

foot-note b to table 6-3.

as Burma, Chile, China (Taiwan) and the Sudan,recent increases have exceeded the planned targets;in the other countries listed in the table, they havefallen short of them. For the reasons just noted,however, it is difficult to attach significance tothese divergences between recent performance andplan targets.

Republic of Korea .... 2.4 0.9 49 11

Ceylon ............. . 1.1 33 12China (Taiwan) ..... 0.9 1.7 24 33Morocco ....... 0.9 -1.2 34 -5Chile ........... 0.7 1.6 29 14

Colombia ............ 0.6 -1.5 35 4Sudan ........ , ..... 1.4 9 29Malaysia ........... -0.7 -2.0 -12 -54

Achtalb

0.8

0.4

-0.1-1.4

2.3-0.3-1.0-0.5

0.2

-0.5-0.7

0.70.50.50.30.2

0.1-0.6

PlannedCountry

Republic of Korea .Chile .United Arab Republic .Ceylon . .Colombia " .

Sudan .Burma .Malaysia .India .Pakistan .

China (Taiwan)Morocco ...


a For definitions underlying pl:an data, see foot-note ato table 5-6. In some cases, data for actual changes arenot strictly comparable with those for plan data.

b Refers to plan years for which data are available. Yearsare as indicated in table 6-1, except for Colombia (19601962), India (1960/61-1962/63) and Pakistan (1960/61-1962/63).

c Refers to ordinary bndget of Government.

Table 6-8. Planned and Actual Annual Changes inPublic Saving as Percentage of Gross DomesticProducta

12 Ibid., page 33.

Perhaps recent changes in the public componentof total domestic saving can be commented uponwith somewhat greater assurance. Recent actualchanges in public saving expressed as a percentageof gross domestic product are shown in table 6-8 and

are compared, wherever possible, with plannedchanges. It will be seen that in a few countries suchas Burma, the Republic of Korea and the Sudan,recent changes in public saving have been roughlyin line with, or have exceeded, planned changes.In most countries, however, this does not appearto have been so; in fact, contrary to the assumptionsgenerally made in plans, public saving has tendedto decline in a number of countries.

The tendency for changes in public saving to fallshort of the planned changes has generally beenoccasioned by the fact that current expenditure hasadvanced much more sharply than was assumed inplans. In most of the countries for which the relevantdata are available, this has clearly been true; thus,in Burma, Ceylon, Chile, Colombia and the UnitedArab Republic, the ratio of current expenditure togross domestic product has been increasing duringthe initial years of their plans at a considerablyhigher rate than planned (see table 6-9). The sameis also known to have been true in India.12

Marginal rate ofgross domestic

saving(percentage)

Planned Actual"Actual"

Annual change ingross domesticsaving as per

centage of 01'08S

domestic product

Planned

Country

In reviewing progress in plan implementation, apoint of considerable interest is whether the performance of domestic saving has measured up toexpectation. However, the brevity of the time periodcovered by the data available for most countriesmakes any generalization about recent performancevery hazardous. Such data as exist reflect shortterm changes and cannot be taken as indicative oftrends during current plan periods. Moreover,changes in the level of domestic saving are inextricably bound up with the whole question of inflation. An increase in the level of domestic savingmay be associated with inflationary pressure arisingfrom increased investment; but since plans generallyset targets for domestic saving on the assumptionthat domestic prices will remain stable, such anincrease cannot be unequivocally interpreted as progress towards achievement of the target. To assessthe significance of recent changes in domestic saving,detailed studies of recent developments in each country would have to be undertaken, and these arebeyond the scope of the present report.

Recent changes in domestic saving are shown fora number of countries in table 6-7. In such countries


Table 6-9. Planned and Actual Elasticities ofCurrent Revenue and Expenditurea

recent trends in tax revenue have frequently beenquite favourable (see table 6-10).

Act"alb

Country Planned fortotal taxes Total Indirect Direct

taxes taxes taxes

India 2.2 2.9 3.1 2.6Republic of Korea .. 2.0 1.0 1.0 0.9Colombia 1.6 0.3 0.2 0.4Ceylon (B) .. , 1.11 1.5 0.9 4.0Ceylon (A) .......... 0.8fUnited Arab Republic 0.8 2.8c 3.5e 1.4e

Burma ...... 0.2 1.0 -0.4 5.2Chile 1.0 0.9 1.0China (Taiwan) 0.9 0.8 1.6Malaysia -0.3 -2.4 6.4Pakistan ..... 0.7

Table 6-10. Planned and Actual Elasticities ofTax Revenuea

As discussed later, a number of countries haveexperienced quite favourable trends in export earnings during recent years while imports have generally risen strongly. These trends in the foreign tradesector have undoubtedly contributed significantly tothe buoyancy of tax receipts, since tax yields generally depend quite heavily on export and importduties as well as on the direct taxation of exportprofits. In some countries, however, the growth intax revenue also owes something to the introductionof new taxes and the revision of existing tax rates.Both India and Pakistan, for example, made explicitprovision in their plans for new taxes to help financedevelopment expenditure, and new measures wereintroduced in the first two or three years of theircurrent plans. In India, the introduction of newfiscal measures received added impetus from thedecision to increase defence expenditure. The additional taxes have so far been yielding revenue in

The increase in tax revenue in relation to grossdomestic product has been particularly high inCeylon, India and the United Arab Republic. Andit is interesting to note that, in these countries, thishas been accompanied by high rates of increase inyields from indirect taxes relative to gross domesticproduct. In most countries the responsiveness ofyields from direct taxation to increases in gross domestic product has also been quite high, but sincethe bulk of tax revenue is derived from indirecttaxes, it is the performance of receipts from thelatter which has largely determined trends in totalrevenue.

Source: See table 2-3.a For definitions and differences in concepts, see foot-note

a to table 2-1 and foot-note a to table 5-8.b Refers to plan years for which data are available; see

foot-note b to table 6-8.e See foot-note c to table 6-8.

C()Untry

13 Ibid.

C~trrent revenue Current o;penditure

Source: See taNe 2-3.a For definitions and differences in concepts, see foot-note

a to table 2-1 and foot-note a to table 5-8.b Refers to plan years far which data are available; see

foot-note b to table 6-8.e See foot-note c to table 6-8.

The most general reason why current expenditurehas increased more rapidly than assumed in planshas been the failure to make detailed studies of thelikely trend in the components of expenditure at thetime of plan formulation. Very broad assumptionsabout current expenditure have been made and thesehave almost invariably erred on the conservativeside. The additional current expenditure that inevitably results from public investment programmeshas often not been taken into account when planshave been drawn up. Further, there has often beena tendency for progress in the implementation ofpublic investment programmes to be greater in ,thesocial and administrative sectors than in the economic sectors; and investment in the former tendsto generate greater increases in recurrent expenditure ,than does investment in the latter. It is, ofcourse, also possible that unexpected events mayhave caused some rearrangement of priorities, givingrise to higher levels of current expenditure. Thus,in India unexpected increases in defence expenditurewere largely responsible for the rise in current expenditure.13 Finally, in some countries, unexpectedincreases in prices have necessitated the upwardrevision of planned levels of current expenditure.

Recent trends in revenue have generally revealeda more favourable picture. Data on both plannedand actual changes in total revenue are available foronly five countries but in at least three of these,recent increases in revenue in relation to gross domestic product have roughly equalled or exceededthe planned increases (see table 6-9). Data on recentchanges in tax revenue are available for a largernumber of countries and these again indicate that

Planned Actualb Planned Actua/b

Republic of Korea .... 2.5 0.9 1.4 0.7Colombia ... 1.7 0.4 1.5 1.8Ceylon (B) ... 1.2 1.5 0.9 1.8Chile 1.0 0.9 0.6 0.8United Arab Republic 1.0 2.7e 0.5 2.8c

Ceylon (A) ... 0.9 1.5 0.5 1.8Sudan ... 0.9 0.7 1.5 0.8Burma 0.2 1.0 0.6 1.3China (Taiwan) 0.9 0.8India ......... - ... 2.5 3.9


excess of the amounts originally planned, and taxrevenue is consequently expected to represent some13 per cent of national income by the end of thethird plan as compared with the original plan targetof 11.4 per cent.14 In Pakistan, on the other hand,the programme of additional taxation seems to havefallen behind the original target, but it appears thatthis was largely compensated for by the unexpectedbuoyancy of receipts from existing taxes.15

Several other countries have also devised newtaxes or have revised tax rates in attempts to implement the planned targets for tax revenue. In theUnited Arab Republic, for example, customs dutieswere raised several times in the first two or ,threeyears of the plan period. And in Colombia extensivetax increases were introduced in 1963, including anincome surtax of 20 per cent for the years 1962 and1963, a sales tax of 3 to 10 per cent on all itemsexcept food, drugs and exportproduct.s, and aforced bond subscription by banks equal to 5 per centof their deposits. It appears, however, that thesewere largely emergency measures in response tobudgetary difficulties and the general lag in taxrevenue. It will be recalled that for Colombia taxrevenue fell well behind plan targets during the firstfew years of the plan period.

In some countries, including Chile and Morocco,a general reform or rationalization of the tax systemhas been attempted in order to make it more responsive to the needs of development. Thus, during1961 and 1962, a series of bills were introduced inChile designed to modify the land, income, inheritance and gift taxes and to simplify various tax lawswith a view to ensuring better administration and

14 Additional taxes are expected to yield 24 billion rupeesor about 7 billion more th:an the original target. Ibid.,p"1S"es 33 and 34.

15 During the first three years of the plan, additionaltaxes yielded only 580 million rupees as against the targetof 1,750 million rupees for the five yeans of the plan. SeeGovernment of Pakistan, Mid-Plan Review of Progress in1960/61-1961/62 under the Second Five- Year PZan (Karachi1962). '

the closing of various loop-holes in' existing laws.Some of these have! become law. In Morocco, taxreforms during 1962 included the replacement ofthe land tax by an agricultural tax assessed on thepotential revenue of the land,16 simplification oftrade and professional taxes and an increase inbusiness taxes. Also, the transactions tax of 3 percent has been superseded by an 8 per cent tax onproducts.

It is well known that among developing countriesindirect taxes have provided the main sources ofpublic revenue. In many cases, there appears to·have been a tendency to emphasize indirect taxesstill further in recent attempts to raise additionaltax revenue. This is evident, for example, in Burma,_India, Pakistan, the United Arab Republic andVenezuela. Several factors seem to account for thistendency to rely on indirect taxes. Among these areadministrative convenience and the desire to grantincome-tax incentives to promote investments. Insome countries, as for example India and Pakistan,indirect taxes have also been relied upon to restraindomestic consumption and divert commodities tothe export market.

One aspect of taxation which still seems to requirea great deal of attention in many countries is theadministration of the tax machinery. In many casestax laws are outmoded and archaic, and do not meetthe needs of current requirements; as was notedpreviously, some countries have been trying toremedy this by rationalization of their tax systems.In addition, however, weak and ineffective tax administration has sometimes undermined the effectiveness of relatively well-conceived tax laws and,.as a consequence, tax evasion has often considerablyreduced the tax intake. Several countries have madeattempts to deal with this problem. Thus, in Indiaan intensive drive was recently initiated to checktax evasion, and it has been expected that thenumber of tax assessees would consequently increase:by nearly one-third.

16 This applies only to the larger farms.

Foreign trade

RECENT CHANGES IN THE BALANCE OF PAYMENTS

It is through the external sector that progress inthe implementation of targets is most likely to beaffected by events beyond the control of governments. Both the trend in export earnings and theinflow of foreign capital are, in large part, dependenton events elsewhere. These, moreover, influenceprogress towards targets within the domestic economy both directly and through their determinationof the volume of imports that can be financed.

Performance of exports

For the developing countries as a whole, as hasbeen noted in chapter 1, trends in exports during thepresent decade have so far .been comparativelyfavourable. The annual rate of growth in the volumeof their exports has been greater than that recordedduring the nineteen fifties, while the trend in theirexport unit values has, on the whole, been relativelymore stable. This has reflected the recent buoyancyin world demand for a wide range of primarycommodities.

CHAPTER 6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS HI

Table 6-11. Planned and Actual Annual Rates ofGrowth in Merchandise Exports'"

(Percentage)


a See foot-note a to table 4-2.b Refers to plan years for which data are available. Years

are as indicated in table 6-1 except for Malaysia (19601963), the Sudan (1960/61-1963/64) and the United ArabRepublic (1959/60-1963/64). Growth rates of value of tradeare computed from data iiI dollars.

e See foot-note b to table 4-2.

with plan targets. It will be seen that, for somecountries during the years up to 1963, the annualrate of growth in the value of exports was exceedingthe rate assumed in plans; these countries includeChina (Taiwan), India, the Republic of Korea, theSudan and Tunisia. But in a greater number ofcountries, the annual rate of growth was less thanplanned. However, reflecting the timing of recentincreases in world demand for particular primarycommodities, a number of these countries experienceda considerable improvement in the performance oftheir exports during 1964; this, for example, appliesto Chile, Colombia, Morocco and the United ArabRepublic.

However, the magnitude and the timing of therise in world demand have varied considerablyamong commodities. For some commodities, such assugar, world demand and prices rose strongly in1963 and subsequently declined in 1964. Other commodities, such as non-ferrous metals and coffee,benefited little from the growth in world demanduntil 1964.

Accordingly, among the countries reviewed in thischapter, there has been considerable diversity in theperformance of exports during. the first few yearsof their current plans. For these countries, annualchanges in the volume and value of merchandiseexports between the first year of their plans and theend of 1963 are shown in table 6-11 and compared

Though external conditions have probably heendominant in determining recent developments inexports, this is not to say that policies for exportpromotion have been without influence. A numberof countries have recently taken vigorous measures·to encourage the expansion of exports. For example,in India the institutional framework for exportpromotion was strengthened by the establishment in1962 of a new Department of International Trade,followed by the creation of a Board of Trade to,review and advise in all aspects of trade. A QualityControl and Pre-shipment Council was also constituted to raise the standards of export products. Atthe same time, a number of fiscal measures have'been taken, including a reduction of the exportduty on tea, and increases in excise duties on several'commodities in order to restrict internal consumption. Moreover, while the tax rate on companieshas been increased from 45 to 50 per cent, earnings.from exports have been excluded from the increase.Further measures for export promotion have included a substantial budget allocation for the development of new markets abroad. It appears that someof these measures must have had a favourableimpact on recent export performance although it is.prohable that their full effect remains to be felt.The plan called for a considerable expansion inexports of new lines of manufactures and while, inthe early years of the plan, performance was disappointing, a strong upward trend appears to havedeveloped in the past two years.17 It should be borne'in mind, however, that traditional exports haveplayed a major role in the recent expansion.

In Pakistan, the export bonus schemes appear tohave had some success in stimulating exports ofnon-traditional products and manufactured goods.Thus, during the first four years of the plan, exportsof these products increased by over 100 per cent, contributing up to 50 per cent of the increase in total'export earnings.1S To strengthen the competitive'position of these commodities a high level body was·recently set up by the Government to suggestmeasures for reducing their costs of production; thecommittee is to study manufacturing processes and'compare Pakistan prices with those of other countries.

For several other countries special export promotion measures also seem to have met with somesuccess. In the Republic of Korea the increase inexports has no doubt been related to the policy ofindirectly subsidizing exporters by allocating ex-

17 Between 1960/61 and 1962/63 exports of "new manu-factures" actually declined considerably in value, from 253·million rupees to 171 million rupees. This downward trend,.however, was later reversed and, during the first eight.months of 1964/65, these exports amounted to 318 millionrupees. See India, Ministry of Finance, Economic Survey._1964-65 (New Delhi, 1965).

18 See State Bank of Pakistan, Bulletin (Karachi), August.1964, page 59.

Value

46.227.66.33.41.9

-1.22.09.20.46.7

7.3-0.2-2.5

Actualb

3.8

7.93.05.9

1.71.5

50.99.0

Quantum

2711.57.56.56.5

5.554.544

3.5e

2.5-0.5

PlannedCountry

Republic of Korea .China (Taiwan) .Burma .Chile .United Arab Republic .

Colombia .Morocco .Sudan .Pakistan .Tunisia .

India .Ceylon .Malaysia .


Table 6-13. Planned and Actual Elasticities ofMerchandise Importsa

Table 6-12. Planned and Actual Annual Rates ofGrowth in Merchandise Importsa

(Percentage)


a to table 2-1 and foot-note c to table 4-5.bRefers to plan years for which data are available. Years

are as indicated in table 6-1.

Source: See table 4-2.a See foot-note a to table 4-2.b Refers to plan years for which data are available. See

foot-note b to table 6-11.e See foot-note d to table 4-5.

Actualb

3.41.61.86.83.5

1.0-0.6

1.2-1.6

3.71.41.21.10.7

0.60.40.30.2

Planned

ActualbCountry Planned

Quantum Value

Pakistan 14.5 15.7 16.5Morocoo 7 7.6 9.7RepUblic of Korea. 6 31.1 33.1Tunisia 4.5 2.6Chile 4 13.3 9.7Malaysia 4 5.8 5.7India ........... 3.5e 3.1 1.1China (Taiwan) .......... 3 8.2 7.3Colombia ................ 2.5 ~3.0 -0.6Sudan ...... ' ............ 2 17.7Ceylon .......... - ....... 1.5 -6.7 -6.9Burma ................. - . 1 0.9United Arab Republic ..... -1 9.6

for instance, the increase in imports relative to grossdomestic product has been about four times as greatas planned, while in the Republic of Korea it hasbeen still larger. In the United Arab Republic, theplan had assumed a reduction in the volume of imports but, although information is available onlyabout the value of imports, this expectation hasclearly not been realized.

The general tendency for imports to rise morestrongly than projected has arisen mainly fromunplanned increases in imports of consumer goods.It will be recalled that plans generally assumedvery low, or even negative, rates of change in imports of consumer goods. Targets for imports ofconsumer goods have often been derived residuallyas the balancing item between estimated require-

Country

Pakistan .Malaysia .Morocco .Republic of Korea .Chile . . .. " .India .Colombia .China (Taiwan) .Ceylon ..

Performance of imports

In almost all countries, merchandise imports havebeen increasing at a substantially faster pace thanenvisaged in plans. This is true whether imports aremeasured in terms of volume or value (see table6-12). Thus, while the planned rate of growth indomestic income and output has generally not sofar been attained, the planned increase in importshas been exceeded.

Recent trends in imports bear out the conclusionreached in chapter 4 that plans had generally madevery optimistic assumptions about the likely increasein import requirements. It will be recalled that alarge number of countries assumed that the plannedincrease in imports relative to the planned increasein gross domestic product, when expressed as aratio, would be less than one. But in most countriesactual developments in recent years have causedimports to advance more strongly than domesticincome and output, belying the assumptions madein plans (see table 6-13). For several countries, thecontrast between plan targets and actual outcomehas been partiCUlarly striking. In China (Taiwan),

change proceeds to them whereby losses could bemore than recouped by profits from sales of imports.The establishment of an export encouragement subsidy fund to grant subsidies to selected products,the highest rate being paid to new products, seemsalso to have contributed to this development; andthe same can be said of the policy of reducing bySO per cent income-taxes payable by specified businesses earning foreign exchange. And in China(Taiwan), where industries which export SO percent or more of output are exempt-or entitled toreductions-from business taxes, similar encouragement to export seems to have produced favourableresults.

No less important than specific export promotionmeasures, however, have been general policies affecting trends in domestic production. Indeed, in thelong run these are the essential means of ensuringan adequate expansion of export earnings. Thus,even among countries where specific export promotion policies seem to have borne fruit, the expansionwould not have materialized if domestic productionhad not responded adequately. Specific promotionpolicies can therefore only serve as adjuncts tobroader policies designed to stimulate production andoutput in the economy, and this is well recognizedby most countries which have used these exportpromotion measures. As might be expected, amongcountries where export performance has been lessfavourable than planned, problems affecting theproduction of export commodities have frequentlybeen important.


ments of imported capital goods and raw materialson the one hand and estimated foreign exchangereceipts on the other. It has been assumed that thesetargets would be rendered feasible through the accelerated growth of import-substituting productionin the field of consumer goods, including food. Theseassumptions, however, have not been realized andimports of consumer goods have frequently risenstrongly.

These trends are roughly indicated by the datashown in table 6-14. The data are subject to the

Table 6·14. Actual Annual Rate of Growth inValue of Merchandise Imports, by Major Commodity Groupsa

(Percentage)

Country Total Capital Intermediate Cansu-mergoods goods goods

Republic of Korea. 33.1 71.6 21.7 33.8Pakistan ......... 29.7 36.5 25.3 29.2Sudan ............ 16.3 12.0 14.9 19.3Morocco .......... 13.2 16.2 3.0 11.1China (Taiwan) ... 10.9 2.5 13.2 23.5

Chile . , .. - ........ 9.7 15.8 8.5 4.7Malaysia .... 5.7 16.4 -0.8 5.2Tunisia ..... ' ..... 2.9 11.7 15.4 -7.1India . . . . . . . . . . . . . 0.7 3.5 0.6 ~4.0

Colombia ........ . -0.6 -1.2 3.5 -3.1Ceylon ........... -6.9 -4.9 -2.4 -8.7

Source: See table 4-2.a Refers to plan years for which data are available. Years

are as indicated in table 6-1 except for India (1961-1963),MaLaysia (1960-1963), Morocco (1959-1963), Pakistan (19591963) and the Sudan (1960-1963). Data are generally groupedaccording to the Standard International Trade Classificationas follows: consumer goods, groups 0, 1, 6 except 67-69,732.01 and 8; intermediate goods, groups 2-5; capital goods,67-69 and 7 except 732.01.

Growth rates are calculated from data in national currencies; because they are derived elsewhere from data expressedin dollars or because of differences in time period, theydiffer in some cases from similar computations shown inother tables.

usual qualification that the time periods covered arevery brief; within these time periods imports havefluctuated sharply from year to year. Further, thedata measure imports in current prices whereas planshave set targets for imports in constant prices. Itappears, however, that, with certain eX'ceptions, import prices have changed only slightly in recent years.

In several countries, increased imports of foodhave contributed strongly to the unplanned advancesin imports of consumer goods. In the United ArabRepublic, for example, it had been proposed toreduce imports of food over the course of the currentplan period, but in the first four years imports actually doubled. Similarly, in India, large increasesin food imports resulted from the poor performanceof domestic ag6culture; these, however, were largely

covered by commodity aid from the United Statesunder Public Law 480. But other classes of importshave also contributed to the unexpectedly stronggrowth in total imports. In some countries, forexample, increases in imports of intermediate goodsneeded to sustain domestic production have risenstrongly, probably exceeding plan targets.

Not every country, it will be noticed, has experienced an upward trend in imports during recentyears. In particular, imports into Ceylon-whethermeasured in volume or value-have declined almostcontinuously since 1960. An important contributoryfactor was the fact that receipts from foreign aidturned out to be less than estimated because of theoutflow of foreign private capital and the withdrawalof financial assistance by some donor countries following the nationalization measures undertaken bythe Ceylon Government. As a result, a critical scarcityof foreign exchange reserves developed. The fall inforeign exchange reserves was further acceleratedby the rise in import prices of food. In 1960 and1961, the Government imposed severe restrictionson imports and the use of foreign exchange, andlater on, in 1962 and 1963, these measures weresupplemented by a comprehensive system of importcontrols. Since 1963, all imports, with the exception of food-stuffs and drugs, have been subject tostrict individual licensing.

Other countries have, of course, also been obligedto take measures to restrict imports in view of theirstrong upward trend. These have usually taken theform of more stringent import controls, or restraintson domestic expenditure. In the United Arab Republic, however, imports have been handled by a statemonopoly since 1961 and have thus been fully controlled by official policy. Pakistan stands as an exception to this trend since an import liberalizationpolicy was adopted at the beginning of the currentplan period as part of a general policy of decontrolthroughout the economy. The unusually rapid growthin imports into Pakistan over recent years hasprobably been an outcome of this policy.

The recent balance of payments situation

For a number of countries, the deficits in thebalance of payments recorded in the first few yearsof their current plans have been less than assumed.While the volume of imports has generally risenstrongly, import prices have been relatively stableor have even declined slightly. At the same time,appreciable increases in export earnings have beenexperienced as a result of higher export prices, increases in export volume, or both. In other words,some improvement in export volume or the termsof trade has helped to moderate the influence of anincreasing volume of imports on the balance ofpayments deficit.


The actual deficits in the balance of paymentswhich have been recorded by individual countries inrecent years are shown in table 6-15; and these

Table 6-15. Planned and Actual Deficit in Balanceof Payments on Current Accounta

(Annual arverage in millions of dol/01's)

Source: See table 4-11.a Balance of payments on current account refers to bal

ance of goods, services and private donations. Minus signindicates surplus.

b Countries are listed in the order indicated in table 6-16.C For Bolivia, Chile, Colombia, the Republic of Korea

and the Sudan, data refer to annual averages for a shorterperiod than that underlying the figures given in table 4-11;in the latter table, the data are annual averages of the wholeplan period. For further explanation, see text.

d Excluding private donations.e Including official donations.

have been compared with the deficits projected inplans. A word of caution is necessary regardinginterpretation of these data. In a number of plans,the projected deficits have been estimated for eachyear of the plan and it has therefore been possibleto achieve a high degree of comparability betweenthe planned and the actual data. But for other countries, the projected data refer to the plan periodas a whole. Comparison of the planned annual average deficit with the actual deficit experienced overno more than part of the plan period may thereforebe subject to some qualification, since it may havebeen assumed that capital inflows would be greaterin some years than in others. The initiation in particular years of some very large projects to befinanced by foreign capital, for example, could giverise to this situation.

Some insight into the factors accounting for thedeficits shown in table 6-15 can be obtained if accountis taken of the means by which such deficits havebeen financed. Such information is presented in table6-16 where, for the purpose of comparison with theassumptions made in plans, the actual changes oncapital account have been expressed as percentagesof the planned annual deficits.

It is significant that among all the countries wherethe actual deficit was greater than planned in recentyears, movements of official short-term capital playeda substantial part in financing the deficit. In otherwords, .resort had to be made to drawings on foreignexchange reserves, compensatory financing and otheremergency arrangements in order to meet currentaccount deficits. This was particularly true of Chileand Colombia.19 And it is notable that in Chile thisoccurred even though the net inflow of both official and private long-term capital exceeded planexpectations.

Among some of the countries where current account deficits were less than assumed in plans, recentexperience has been quite the opposite. Thus, inBurma, China (Taiwan), Ethiopia and Malaysia,there was some increase in net official short-termassets. Although the net inflow of long-term capitaldid not measure up to expectations in all these countries, it appears that export earnings were nonethe less sufficient to contribute to some easing of thebalance of payments situation. Thus, in China(Taiwan) the unexpectedly high export earnings in1963 were clearly an important factor in reducingthe need for capital inflow. And Burma's high exportearnings in 1962 and 1963 had a similar effect.

Whatever the experience relating to the over-allbalance of payments situation, it is apparent thatthe net inflow of long-term capital has. generallyfallen short of expectations. For some countries, thenet inflow of private long-term capital has beenexceptional in this regard; in Chile, Colombia,Malaysia and the Sudan, recent inflows of privatecapital have been greater than assumed in plans.There have, however, been fewer exceptions whenrecent trends in the net inflow of official capital areconsidered. In Chile, Ethiopia and the Republic ofKorea, the inflow of official capital has either exceeded or has not fallen far short of expectations.But in all the other countries shown in table 6-16 thenet inflow of official capital has been considerablyless than assumed in plans.

19 In Chile an exchange crisis in late 1961 resulted inthe temporary suspension of all "luxury" imports, emergencyborrowing and eventual devaluation of the escudo. And inColombia an exchange crisis in 1962 occasioned severerestrictions on imports, emergency borrowing and eventualdevaluation.

5272

77430

13845

278-944

105205

211125

65298

Period Amm,nt

Actual

1962-19631961-19631961-19631962-19631962-19631961-19631960-19621961-19631959-19631962-19631960-1962

1961-19631961-19631961-19631962-1963

75114

58293

62102

1,11344

22488

69860

PlannedamountcG1'OUP and countryb

Countries where actual deficit has been greater thanplannedChile .Colombiad .

Sudan .Republic of Korea .

Countries where actual deficit has been smaller thanplannedBolivia .China (Taiwan)India .Ethiopiae .Nigeria .Malaysia .Pakistan .Burma .Ceylon , .Tunisia .United Arab Republic .

CHAPTER 6. RECENT PROGRESS IN THE IMPLEMENTATION OF PLANS

Table 6-16. Planned and Actual Financing of Deficit in Balance of Payments on Current Accounta

(Percentage)

115

Planned· Actuald

Long-term Short-term

OfficialPrivate Official Official Private Official Privategrants andGroup and countryb Total

long-term capital short..term Total grants and capital capital capital"caPital

capital caPital

Countries where deficit hasbeen greater than plannedChile . . . . . . . . . . . . . . . . . . . 100 55 45 280 148 67 71 -7Colombia ............ 100 74 26 131 10 49 81 -9Sudan ............... 100 81 10 10 112 66 16 31 -1Republic of Korea. 100 83 14 3 103 77 8 17 1

Countries where deficit hG'sbeen smaller than plannedBolivia ................. 100 75 46 35 -1 -6China (Taiwan) 100 94 22 -16 70 80 11 -28 7India 100 f 70 67 5 -3...........Ethiopia ................ 100 68 32 '67 70 18 -11 -10Nigeria ............ 100 62 38 62 26 2~ 11 g

Malaysia ................ 100 45 36 19 51 17 61h -18 -10Pakistan .... , ........... 100 40 35 4 1Burma ................. 100 57 8 -15 32 -9 -32 -5

So·urce: See table 4-11.a Data reduced to annual averages and shown as per

centage of total planned deficit. See a,lso foot-note a totable 6-15.

b Within each group countries are listed in descendingorder of actual deficit as percentage of planned deficit.

c See foot-note c to table 6-15.

For many countries the inability to obtain a sufficient volume of foreign aid has undoubtedly beenthe reason underlying the shortfall in official capitalinflows. However, an additional, though closelyrelated, reason has been the frequent inability ofborrowers to meet the conditions on which such aidis extended. The larger part of foreign aid takes theform of project loans and, although such aid hasbeen offered, many countries have found themselvesunable to prepare a sufficient volume of projects tothe specifications required by donor countries orinstitutions. In Nigeria, for example, the plan assumed that 50 per cent of public investment wouldbe financed by foreign loans whereas, during the first

d Data refer to period indicated in table 6-15.e Including errors and omissions.

f Official grants and loans are expected to predominate.

g Privoa.te short-term capital included with private longterm capital.

h For 1963, including errors and omissions.

year of the plan, only 14 percent of a greatly reducedprogramme was so financed. The main reason layin the inability to elaborate project plans in sufficient detail to meet the requirements of lenders.In India and Pakistan, this was similarly the principal reason accounting for the shortfall in the netinflow of official capital during the first years oftheir current plans. Although there appears to havebeen considerable improvement in the very recentpast, in the first years aid disbursements consistently tended to lag behind commitments. In India,for example, less than 65 per cent of the officialloans authorized during the first three years of theplan were utilized.

Summary and conclusion

Recent progress in the implementation of nationaldevelopment plans has been rather mixed, but gainshave been made and useful experience has been accumulated from which future performance shouldbenefit. For a majority of countries the rate of expansion of gross national product has been lowerthan planned; and expressed in terms of per capitaincome this lag has been especially marked. It is tobe recalled, however, that the periods of plan im-

plementation have generally been quite short andthat complete information about experience since1963 has not been generally available. Preliminaryindications are that the year 1964 in many respectsshowed a distinct improvement over the record for1960-1963.

Over the years, it has become increasingly apparent that two of the key hindrances to growth


confronting a great many developing countries arethe inflexibility of domestic agricultural productionand the scarcity of foreign exchange. The inflexibilityof domestic agriculture, it should be noted, has notbeen a problem affecting production of agriculturalcommodities for export; on the contrary, the trendin production for export has generally been morethan adequate to keep pace with the slow growthin world import demand for such commodities. Ithas been in production of food for the domesticmarket-which generally is concentrated in the subsistence sectors of the rural economy-that the inflexibility in supplies has been encountered. Thecurrent plans of almost all developing countriescontain ample evidence that the importance foreconomic growth of overcoming this problem hasbeen widely recognized. Yet it remains true that thegrowth in output recorded over recent years hasgenerally been disappointingly small.

It need hardly be repeated that the acceleratedexpansion of food production is one of the mostcomplex and intractable of the problems facing developing countries. It is not merely a question ofgreater investment in agriculture or of enlarging thesupply of current inputs, such as fertilizers andimproved seeds; it is at least as much a question ofcreating the social and institutional conditions withinwhich the peasant will have an adequate incentiveto raise output and improve the productivity of hisland. For many countries, land reform must be aprincipal element in the creation of these conditions;but progress in land reform has often been exceedingly slow.

It is true, however, that there is no single measurethat can solve the problem of agricultural production. The problem is compounded of human, socialand technical aspects; and the solution must lie ina combination of measures to strengthen incentives,disseminate knowledge about modern techniques andprovide the means for their utilization. Recent agricultural policies in some countries have been experimenting with the co-ordinated execution of acombination of measures in selected areas; and experience S0 far would suggest that, wherever resources are very scarce, this approach may be moreeffective than either the concentration of policy onselected measures, such as agricultural extensionservices, or the diffusion of combined measures oververy wide areas.

The persistent foreign exchange scarcity whichconfronts most developing countries also has itsorigins in the structural rigidities characteristic ofthese countries. Given these rigidities, efforts toaccelerate economic growth tend to generate sharplyincreasing requirements for imported supplies ofsttategiccommodities. But since the actual andprospective expansion in foreign exchange earnings

is limited, planners in most countries have beenfaced with a dilemma: either a modest target fordomestic economic growth has had to be set or veryoptimistic assumptions have had to be made aboutthe likely increase in import requirements or aboutthe future level of foreign aid. Perhaps understandably, most plans have been based on the latter twochoices. It will not be surprising, however, thatrecent experience has generally belied the assumptions made about both import requirements and thelevel of foreign aid. For some countries adverseshort-term movements in export earnings or capitalitems have, in this general situation, precipitatedbalance of payments crises, necessitating emergencyborrowing, intensified import controls and the deceleration of domestic growth. Thanks to the recentfirmness of world markets for their major primarycommodity exports, other countries have been betterable to avoid a sharp deterioration in their balanceof payments situation. But it is to be borne in mindthat, at the same time, the pace of domestic growthhas generally fallen short of expectation. The dilemmaof reconciling adequate domestic growth with theconstraint imposed by the balance of paymentspersists.

In view of the strategic role of imported suppliesof key commodities in economic growth, it is incumbent upon developing countries to utilize available supplies of foreign exchange as efficiently aspossible; but by no means all developing countrieshave applied adequate restraints on less essentialimports. However, it remains generally true thatthe underlying cause of foreign exchange scarcityoriginates in the structural imbalance between exportcapacity and import requirements. Cur,rent planshave explored the prospects for expanding exportsin some detail; and, at least for some countries, measures recently adopted ito promote exports appear tohave been yielding encouraging results. Even withthe most intensive efforts, however, the gap betweenexpod earnings and import requirements cannot butbe large; and, as has been pointed out in chapter 1,the total foreign aid requirements of developingcountries are still far from having been met.

For most countries, domestic agriculture and theexternal balance have been the dominant constraintson recent growth; and these have necessarily affectedperformance elsewhere in the domestic economy.Thus, while recent increases in the volume of fixedinvestment have sometimes compared quite favourably with planned rates of expansion, the growthin investment has in many cases been impeded bythe shortfalls in foreign aid and by scarcities in imported supplies of capital equipment. At the sametime, there is little evidence to suggest that domesticsaving behaviour has been changing sufficiently toallow the planned increases in investment to take


place without an intensification of inflationary pressure. Recent experience in this regard would requiremore detailed analysis than could be undertakenin this chapter. But in so far as recent trends inpublic saving are any guide to the realization ofplanned changes in saving behaviour, they do notsuggest that the implementation of plans to raisedomestic saving has generally met with success.

The divergence between planned and actualchanges in public saving has generally arisen morefrom underestimation of the likely growth in recurrent expenditure than from over-optimistic assumptions about revenue. There are invariably strongpolitical pressures to expand recurrent expenditureand, when public revenue appears to be growingappreciably, these pressures may become more difficult to resist. But it is also frequently true that,in the process of plan formulation, there has beenlittle attempt to make detailed studies of futureneeds for recurrent expenditure; and plans havetherefore underestimated the likely growth in thoseexpenditures even though increases are generallynecessary for the execution of development programmes. Moreover, were these studies undertaken,they might lead-as they have in some countriesattempting this exercise-to reconsideration of therelative emphasis placed in public investment programmes on projects which may generate a futureneed for recurrent expenditure as against proj ectswhich may generate revenue.

Recent increases in revenue have compared morefavourably with plan expectations. The unexpectedlylarge increases in imports together with the expansion of exports have undoubtedly contributed tothe buoyancy of revenue. In the few countries experiencing a strong growth in revenue, however, themain reason lies in the vigour with which new taxmeasures have been introduced and existing ,taxrates have been raised; new indirect taxes, particularly consumption taxes, have been a principal instrument for ,raising revenue in these countries. But itstill remains true that, in general, tax reforms havenot been pressed sufficiently to ensure that thegrowth of revenue will cover requirements forboth recurrent expenditure and public investmentprogrammes.

The implementation of investment programmes hasfrequently not been impeded solely by the lack ofresources. Quite often, it has not been possible toutilize all the amounts budgeted for public investment expenditure or to draw on the loans obtainablefrom donor countries or institutions because of a lackof well-prepared plans for the initiation of newprojects. This has been one of the greatest weaknesses of first attempts in comprehensive economicplanning; the translation of plans into specific proj-

eats which could be implemented has been largelyleft aside at the stage of plan formulation; and itis only after plans have been introduced that theirlack of operational content has been fully appreciated. The difficulties that confront many developingcountries in remedying this defect need hardly bestressed. The preliminary surveys that often haveto precede project seleotion, and the design andplanning of projects are slow and painstaking tasksthat make heavy demands on technical skills; andthe integration of proj ects into comprehensive plansrequires a machinery for the co-ordination of governmental departments which, in the first experiments with planning, most countries lack. Still, theneed for such work is inescapable if comprehensiveplans are to assume operational significance andpublic investment programmes are to be realized.

This comes close to the heart of the whole questionof the contribution that planning can make to economic development. Many of the measures whichdeveloping countries have to take in order to accelerate their economic growth are evident fromgeneral observation, and no plan is required to spellthem out. It needs no plan to determine, for example,that more extensive fiscal measures are required toaccelerate the growth in revenue, that every effortshould be made to conserve scarce foreign exchangefor essential uses or that a combination of landreform and other measures is required to raise agricultural productivity. True, the formulation of acomprehensive plan can quantify the requisite increases in such economic aggregates as investment,tax revenue or foreign exchange requirements; and,in so doing, it can clarify the extent of the requisitechanges in policies. An important stimulus to theformulation of many recent plans, for example, wasthe desire on the part of cer,tain donor countriesand institutions to have some assessment made offoreign aid requirements. The formulation and publication of a comprehensive plan, moreover, mayserve an important educational function; in presenting a coherent programme of objectives andpolicies, it may help to concentrate national energiesmore effectively on the tasks of economic and socialdevelopment.

But the unique contribution which planning canmake to economic development lies in the coordination of policies rather than in their seleotionor adoption. By sketching in the main changesrequisite for future growth, a comprehensive planshould reveal the actions which need to be takennow if future growth is not to be unnecessarily impeded by the emergence of imbalances between requirements and supplies. Some imbalances inevitablyarise in the course of development because of occurrences which could not be anticipated; these are

lIS PART I. DEVELOPMENT PLANS: ApPRAISAL OF TARGETS AND PROGRESS IN DEVELOPING COUNTRIES

inescapable and necessitate flexibility in planning andpolicies. But it is the imbalances which are foreseeable that planning can help to avoid; and in thecourse of development, such possible imbalances aremanifold. Steel mills completed without coal supplies,new school buildings without teachers, major irrigation works without the minor works, investmentprogrammes delayed or distorted because of inadequate supplies of imported equipment, industrialcapacity under-utilized because of power or transportshortages-these are only some of the imbalancesthat recur time and again in the process of growthof virtually every country. But for developing coun-

tries, they represent costly inefficiency in the use ofscarce resources which lessens the effectiveness ofthe development effort.

In summary, while plans may delineate the policiesthat need to be pursued in order to accelerate growth,they are in no sense a substitute for policies. Planning is a means of co-ordinating policies to ensurethat resources are continuously utilized more efficiently. In most developing countries, the use ofplanning to serve this purpose has only recentlybeen initiated and its benefits still largely lie inthe future.

ANNEXES

Annex I

TITLES OF DEVELOPMENT PLANS

Africaa

CONGO (BRAZZAVILLE):

Projet du premier plan quinquennal de developpementeconomique et social, 1964-1968. Paris, 1963.

ETHIOPIA:

Planning Board. Second Five Year Development Plan,1955-1959 E.C. (1963-1967 G.c.). Addis Ababa, 1962.

GHANA:

Planning Commission. Seven Year Plan for NationalReconstruction and Development, Fina,ncial Years, 1963/64-1969/70. Accra, 1964.

KENYA:

Development Plan, 1964-1970. Nairobi, 1964.

MALI:

Ministere du Plan et de l'Economie rurale. Rapport surIe plan qu~nquennal de developpement economiqu,e etsocial de la Ripublique du Mali, 1961-1965. Bamako,1960.

MAURITANIA:

Plan quadriennal de diveloppement iconomique et social,1963-1966. Nouakchott, 1964.

MOROCCO:

Division de la Coordination economique et du Plan. Planquinquennal, 1960-1964. Rabat, 1960.

NIGERIA:

Federal Ministry of Economic Development. NationalDevelopment Plan, 1962-1968. Lagos, 1962.

SENEGAL:

Economie et plan de developpement. Paris, 1962.

SUDAN:

Economic Planning Secretariat. The Ten Year Plan ofEconomic and Social Development, 1961/62-1970/71.Khartoum, 1962.

TUNISIA:

Secretariat d'Etat au Plan et aux Finances. Persp'ectivesdecennales de developpement, 1962-1971. Tunis, 1962.

UGANDA:

The First Five-Year Development Plan, 1961/62-1965/66.Entebbe, 1963.

UNITED ARAB REPUBLIC:

National Planning Committee. General Frame of the5-Year Plan for Econo11tic and Social Development,Julj! 1960-June 1965. Cairo, 1960.

a Data for Cameroon, Congo (Democratic Republic of)and Ivory Coast have been taken from United Nations,"Outlines and Selected Indicators of African DevelopmentPlans" (E/CN.14/336).

121

UNITED REpUBLIC OF TANZANIA:

Tanganyika Five-Year Plan for Economic and SocialDevelopment, 1st July 1964-30th June 1969. Volume I:General Analysis. Dar Es Salaam, 1964.

Tanganyika Five-Year Plan for Economic and SocialDevelopment, 1st July 1964-30th June 1969. Volume II:The Programmes. Dar Es Salaam, 1964.

UPPER VOLTA:

Economie et Plan de developp'ement. Paris, 1963.

AsiaBURMA:

Ministry of National Planning. Second Fou1'-Year Planfor the Union of Burma, (1961/62 to 1964/65). Rangoon,1961.

CAMBODIA;

Ministere du Plan. Le Plan quinquennal, 1960-1964.Phnom-Penh, 1960.

CEYLON:

National Planning Council. The Ten-Year Plan. Colombo,1959.

CHINA (TAIWAN):

Ministry of Economic Affairs. Taiwan's Third Four-YearE,conomic Development Plan. hbridged edition. Taipei,1961.

INDIA:

Planning Commission. Third Five-Year Plan, 1961-1966.New Delhi, 1961.

IRAN:

Plan Organization. Division of Economic Affairs. Outlineof the Third Plan. Tehran, 1961.

JORDAN:

Development Board. Five-Year Programme for EconomicDeveloplnent, 1962-1967. Amman, 1961.

MALAYSIA (FEDERATION OF MALAYA) :

Second Five-Yea'r Plan, 1961-1965. Kuala Lumpur, 1961.

PAKISTAN:

Planning Commission. The Second Five-Year Plan (19601965). Revised Estimates, Karachi, 1961.

PHILIPPINES:

Office of the President. Five-Year Integrated SocioEcon01nic Programme for the Philippines. Manila, 1962.

REPUBLIC OF KOREA:

Economic Planning Board. Summary of the First FiveYear Economic Plan, 1962-1966. Seoul, 1962.

SYRIA:

Ministry of Planning. The Syrian Five-Year Plan forEconomic and Social Development, 1960/61-1964/65.Damascus, 1961.

122

THAILAND:

National Economic Development Board. The NationalEconomic Development Plam, 1961-1966. Bangkok, 1964.

Central and South AmericaBOLIVIA:

Junta Nacional de Planeamiento. Plan Nacional de Desarrollo Economico y Social, 1962-1971. La Paz, 1961.

CHILE:

Corporaci6n de Fomento de la Producci6n. ProgramaNacional de Desarrollo Economico, 1961-1970. Santiago,1961.

COLOMBIA:

Consejo Naeional de Politica Econ6mica y Planeaci6n.Departamento Administrativo de Planeaei6n y ServieiosTecnicos. Plan General de Desarrollo Econ6mico y

ANNEXES-

Social: Primera Parte-EI Programa General. Bogota,1962.

ECUADOR:

Junta Nacional de Planificaci6n y Coordinaci6n Econ6mica.Pla1~ General de Desarrollo Economico y Social, VersionPreliminar. Quito, 1963.

JAMAICA:

Ministry of Development and Welfare. Five-Year Independence Plan, 1963-1968. Kingston, 1963.

TRINIDAD AND TOBAGO:

National Planning Commission. Draft Second Five-YearPlan, 1964-1968. Port-of-Spain, 1963.

VENEZUELA:

Oficina Central de Coordinaci6n y Planificaci6n. Plamde la Nacion, 1963-1966. Caracas, 1963.

Annex II

STATISTICAL TABLESTable II-I. Planned Annual Rates of Increase in Components of Expenditurea

(Percentage)

Gross Consumption Gross Exports of Imports ofRegion and country domestic investment goods. and goods. and

product Total Public Private services serVices i

Africa

Ethiopia · . . . . . . . . . . . . .. . 4.5 3.5 7.5 3.5 11.5Ghana · . . . . . . . . . . . . . . . 5.5 5 7.5 4.5 6.5 5.5 5Kenya

•••• •••••• ·.' •• 0_ 5 4.5 9Mali ..... ............. . 8.5 4.5Morocco ............... 6 4.5 8 5 21 3.5 7Nigeria 3.5 3.5 10.5 3 4Senegal · . . . . . . . . . . . . . . . 8 6.5 9 6.5 16.5Sudan ......... , .... - ... 5 5 6.5 4.5 5Tanzania ............... 6 4.5 5 4.5 14.5 5 6.5TtliI1isia .. - .............. 6 3.5 9.5United Arab Republic .... 7 5 5 5 11.5 5 0.5

Asia

Burma . . . . . . . . . . . . . . . . . 6 5.5 4 6 2 7 1Ceylon ................. 6 4.5 4.5 4.5 10.5 2.5 1.5China (Taiwan) ........ 8 7 7India , . . . . . . . . . . . . . . . . . 5.5 5 10Iran ................... 5.5 5 7.5

Malaysia ............... 2.5 3.5 5.5 3 11.5Pakistan ............... 4.5 3.5 20.5Philippines ...... -, ..... 6 5.5 5.5 5.5 12 2 5.5Republic of Korea ....... 6 3 4.5 3 15.5 16.5 6

Central and South America

Bolivia ........ ,. ,.,. , .. 7 5 9 4.5 9.5 10 4.5Chile ................... 5.5 4.5 2.5 4.5 9 6.5 3.5Colombia ............... 5.5 5 6.5 4.5 8.5 4.5 4Ecuador · - .............. 6.5 5.5 5 5.5 10.5 5 4Jamaica ................ 5 5 5

Trinidad and Tobago ..... 5 5 6 4.5 2Venezuela ......... , .... 6 6 2.5 6.5 8.5

S owce: See table 2-1.a For definitions and differences in concepts, see foot-note a to table 2-1 and foot-note a to

table 2-4.

Region and country

Africa

Ethiopia

Ghana .

Table 1I-2. Planned Distribution of Expenditurea

(Percentage)

Base and Gross Consumption Gross in- ExternaJfinal years domestic vestment balance

of plan product Total Public Private

1961/62 100 91 11 -21966/67 100 88 15 -3

1960-1962 100 85 11 74 21 -61969/70 100 81 13 68 23 -5

123

124 ANNEXES

Table 11-2. Planned Distribution of Expenditure" (continued)

Base and Gross Consumption Gross in~ E:rternaJRegion and country final years dom·estic vestment balance

of plan product Total Public Private

Africa (oontinued)

Kenya . . . . . . . . . . . . . 1962 100 85 14 11970 100 81 • '1 18 1

Mali . . . . . . . . . . . . . . . 1959 100 991965 100 79

Morocco ... , ....... 1959 100 85 3 82 10 51965 100 79 3 75 29

Nigeria , ........... 1960/61 100 91 8 83 15 -61967/68 100 90 12 78 15 -6

Senegal .. ' ......... 1959 100 96 8 88 10 -61964 100 89 8 81 15 -4

Su<1an . . . . .. . . . . . . . 1960/61 100 92 9 83 10 -21970/71 100 91 10 81 10 -2

Tanzania .......... 1960-1962 100 88 11 78 121970 100 80 10 70 24 -4

Tunisia ....... , .. ,- 1961 100 93 24 -171971 100 74 32 -6

United Arab Republic 1959/60 100 87 14 72 15 -21964/65 100 79 13 66 19 2

Asia

Burma '" ....... 1961/62 100 84 16 67 22 -61964/65 100 82 15 67 20 -2

Ceylon ............. 1957 100 91 11 80 13 -41968 100 79 9 70 21

China (Taiwan) .... 1960 100 89 20 -91964 100 85 19 -5

India ... - .......... 1960/61 100 92 11 -31965/66 100 89 14 -3

Iran ....... -, ...... March 1955-March 1962 100 90 14 -4

September 1962-March 1968 100 86 16 -2

Malaysia . . . . . . . . . . . 1960 100 81 15 66 12 81965 100 85 17 68 17 -2

Pakistan . . . . . . . . . . . 1959/60 100 96 10 -51964/65 100 91 20 -11

Philippines ......... 1959/60 100 87 9 79 121966/67 100 84 8 76 18 -2

Republic of Korea ... 1960 100 102 16 86 14 -151966 100 87 15 72 23 -10

Central and SouthAmerica

Bolivia .......... 1958 100 95 9 85 15 -91971 100 76 12 64 20 4

Chile .......... 1961 100 87 9 78 131970 100 79 7 72 18 3

Colombia 1959 100 77 6 71 19 41970 100 70 6 64 25 5

Ecuador .......... 1964 100 86 16 70 15 -11973 100 79 14 65 20

Jamaica ............ 1963 100 83 20 -31967 100 83 20 -3

Trinidad and Tobago 1962 100 70 12 59 28 11968 100 70 12 58 24 6

Venezuela ....... '" 1960 100 70 12 58 19 111963-1966 100 69 11 59 20 10

Source: See table 2-1.a For definitions and differences in concepts, see foot-note a to table 2-1 and foot-note a to

table 2-4.

ANNEX II

Table 11.3. Planned Share of Gross Investment in Gross Domestic Product and Planned Incremental Capital.output Ratioa

125

Region and country

Share of grossinvestment ingross domesticprodt(ct overplan periodas a whole

(percentage)

Plannedincremental

capital-outpntratio

R egian and Cou·n try

Share of grossinvestment in

gross domesticprod-uet overplan periodas a whole

(percentage)

Plannedincremental

capital-outpntratio

Africa Asia (continued)

Ethiopia ........... , 14 3.3 India 12 2.2Ghana 22 4.1 Iran 16 2.8Kenya 16b 3.1 Jordan 17 2.4Mali

...........18 2.1 Malaysia 16e 4.0

Morocco...........

16 2.7 Pakistan 16 3.7Nigeria 15 4.2 Philippines 16 2.6Senegal 15 1.8 Republic of Korea 23 3.8Sudan 11 2.2Tanzania ............ 18b 3.1 Central and South AmericaTunisia 31 5.2 Bolivia 21 3.1United Arab Republic 17b 2.4 Chile 16 2.9

Colombia 25 4.5Asia Ecuador 18 2.8

Burma 21 3.4 Jamaica 20b 4.0

Ceylon ............ 19 3.1 Trinidad and Tobago 26 5.1China (Taiwan) 20 2.5 Venezuela 20 3.1


a to table 2-1 and foot-note a to table 2-4.

b Average of share in base and final years of plan.e Computed from data in current prices.

Table 11·4. Planned Distribution of Gross Domestic Producta

(Percentage)

IndustryRegion, country and base

and final years of plan>Agricul

tureTatal Mining

Manufacturing

Transport . Construc-P tnlJer and cO?1Zmun~- tion

cat~ons

Total

Services

Govern·ment Other

7 208 23

Africa

Ethiopia

1961/62 ................. 69 13 51966/67 ............ - .... 63 18 8

Ghana

1960-1962 . . . . . . . . . . . . . . . . 49 5 24e

1969/70 ................. 48 5 28c

Kenya

1%2 · . . . . . . . . . . . . . . . . . . . 42 23 91970 · . . . . . . . . . . . . . . . . . . . 41 24 10

Sudan

1960/61 ................. 57 24" 21970/71 ................. 51 30e 7

Tanzania

1960-1962 ................ 57 16 3 41970 .................... 48 22 2 8

Tunisia

1957 · . . . . . . . . . . . . . . . . . . . 29 26 4 111971 .................... 25 31 2 16

United Arab Republic

1959/60 ................. 29 31 1 171964/65 . . . . . . . . . . . . . . . . . 27 37 3 24

1

il

d

12

1

22

12

5 2 186 3 19

d c 22d

d c 20d

9 3 3510 3 34

15 7e 2014 8e 19

5 3 275 6 31

7 3 444 7 44

7 4 406 3 36

45

1211

75

1110

1315

2323

3839

2926

126 ANNEXES

Table II4. Planned Distribution of Gross Domestic Producta (continued)

Industry ServicesRegion, country and base Agricul-

Transport. Co"struc-and final years of planb tureTotal Mining

Manufac- Total Gover". Otherturing Power and co~mun't- tion ment

catwns

Asia

Ceylon1957 · . . . . . . . . . . . . . . . . . . . 54 18t 8 5 4 28 8 201968 ... , .... , ............ 48 28t 14 1 5 9 24 7 18

China (Taiwan)1960 . . . . . . . . . . . . . . . . . . . . . 29 30g 2 21 2 6 g 41g1964 .. - ................ - 26 34g 2 25 2 6 g 39g

Jordan1959 ... - .............. ,. 14 29 11 13 5 57 22 351967 .................... 20 30 15 9 6 49 14 36

Malaysia1960 ..................... 38 22 -14- -5- 3 39 7 321965 .................. , ... 36 26 -16- -5- 5 38 7 31

Pakistan1959/60 ..-............... 55 13 28 28 6 231964/65 .................. 51 16 28 30 6 24

Philippines1959/60 ................. 34 19 d d 3 44il

1966/67 ....... -. '" ..... 28 25 d d 4 43d

Republic of Korea1960 .. - ................. 36 --13--1966 · ................... 35 --18---

Central ami South America

Bolivia1958 ........... '" ...... 35 36 13 11 1 9 1 30 8 221971 · ......... , .. , ...... 32 41 16 13 1 7 4 27 10 17

Ohile1961 .................... 12 5 27 d d 3 54d 7 471970 .................... 12 5 29 d d 3 51d 6 45

Colombia1959 .................... 32 27 h 14 1411.--- 401970 · .... , .............. 28 32 h 18 14h--- 40

Ecuador1964 ·................... 39 21 3 14 1 3 391973 ................... , 34 26 3 17 1 5 40

Jamaica1963 ·................... 14 42 10 13 1 6 11 44 8 371967 .................... 13 42 9 14 1 6 11 45 8 37

Trinidad and Tobago1962 .................... 8 56 291 131 4 4 6 36 10 261968 ........ , ........... 8 56 261 151 5 4 6 37 10 27

Venezuela1962 .................... 7 50 23 16 2 4 5 43 9 341966 .................... 7 53 20 20 2 4 7 40 8 32

Source: See table 2-1. e Including commerce.a For the Philippines, data refer to net national product. f Excluding mining.bYears in some cases differ from those stated in table g Construction ino1uded with services.II-2.c Construction included with manufacturing. h Mining included with power, transport and communica-d Power and transport and communications included with tions and construction.

:services. 1 Petroleum refining included with mining,

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