the impact of imf stabilisation

8/10/2019 The Impact of Imf Stabilisation

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WORKING P PER

Overseas

Development

Institute

10 1 1 P e r c y S t r e e t L o n d r 3 r . W 1 P O J B

T e i : 0 1 5 8 0 7 6 8 3


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OVc' srAS

OFVELOPWENT

INSTITUTE

10 11 PERCY

S l i m ,

l i m

WIP 0J3

Teh 01 o80 7G83

No. 7

THE IMPACT OF IMF ST ABILISAT ION

PROGRAMMES IN lE VE LO PIN G COUNTRIES

T o n y

K i l l i c k *

* R e 8 e a r c h O f f i c e r , O v e rs e a s D e ve lo p m en t I n s t i t u t e

ODI W o r k i ng P ap e r s p r e s en t i n p r e l i m i n a r y fo r m w o rk

r e s u l t i n g f r om r e s e a r c h u n d e r t a k e n u n d e r t he a u s p i c e s

o f t h e I n s t i t u t e . V i ew s ex p r e s s e d a r e t h o s e o f t h e

a u t h o r s a nd do n o t n e c e s s a r i l y r e f l e c t t h e v i ew s o f

ODI . Comments ar e welcom ed and sh ou ld be ad dre sse d

d i r e c t l y t o t h e au t h o r s .

0 85003 081 1 Ma rch 1982

S o ? 2..


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TH E E3?AC'I OF l i l F ST AB IL IS AT IO N PR(3GF- 'Ji2ES IN DiiVELOPIIJG COm-JTRlES

Contents

page

I n t r o d u c t i o n 1

I -

Tiffi

IMPACT ON IHE BALANCE OF PAYMENTS

Q ue st i on s of measurernent ^

E f f e c t on c u r r e n t a c c o u n t

B a s i c o r o v e r a l l b a l a n c e s ^

L i b e r a l i s a t i o n 10

I I - IIIPACT ON OTHER TAROET VARIABLES

Im pac t on e c on a a i c g rowth 13

T he i n f l a t i o n r a t e 15

T h e d i s t r i b u t i o n o f i n co m e 17

P r ob le m s o f i n t e r p r e t a t i o n 22

I II ~ IJHY IS THE ITIPACT SO SLIGH T?

The ex te n t o f prograi iKte im plera enta t ion 24

Im pac t on i n s t r u m e n t v a r i a b l e s 2 7

Th e c o r r e l a t i o n b et ^r ee n im p l e m e n t a t i on a nd r e su l t s 3 0

O t h e r e xp l a n a t i o n s 31

IV ~ SUiaiAIlY 37

laSFERENCES 39


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I n t r o d u c t i o n

T here oeems t o be agreement bet i7een th e Fu nd ' s c r i t i c s and de fenders

t h a t i t s p rog ra ra n es h a ve m a jo r e f f e c t s on t h e e co n on i e s c on c e r n e d . Th e

d isag reeme nt i s about whether the ne t sura o f thes e e f f e c t s i s ha rm fu l o r

b e n e f i c i a l . S uc h s y s t e m a t i c e v i d e n c e as e x i s t s on t h i s t o p i c th ro ws d o ub t

upon th i s prem is e , hovrever , and the task o f t h i s ch ap ta r i s to su rv ey the

ev id en c e^ ' ex p l or e the reasons vrhy Fund prograraines do no t always a c h i e v e

what they se t ou t to do.

T he t as k o f a ss e s s i n g the im pa c t of Fu nd pro


6/44

i t s

d ra w ba c k s , h ov re ve r. I t i n t r o d u c a s c o n s i d e r a b l e s u b j e c t i v i t y ,

w i t h th e p o s s i b i l i t y th a t r e s u l t s a r e a f f e c t e d by any. s y s t e s a t i c

t e n de n cy to? ;a r ds ove r - a m b i t i on o r con se i r v a t i sm i n p rogra mm e t a r g e t s ,

l l o re i i a p o r t a n t l y t o t h e i n d e p e n d e n t r e s e a r c h e r ^ i t r e q u i r e s a c c e s s t o

a

large

v ol um e o f c o n f i d e n t i a l i n f o r m a t i o n o n c o u n t r y p ro gr am n e s w h i c h

t h e F u n d i s r i g h t l y u n w i l l i n g t o r e l e a s e . I n a n y c a se , i f F u n d p rogr an an es

a d i i e v e d a g oo d s u c c e s s r a t e i n m e e t i n g t a r g e t s w h i c h , however, e n v i s a g e d

l i t t l e i m pr ov em e nt i n t he i m d e r l y i n ^ e c o no m i c s i t u a t i o n , t he welfare

s i g n i f i c f f i j i c e

o f su ch r e su l t s w ou l d b e q u e s t i o n a b l e a n d i t w ou l d b e a

r e a s o n a b l e i n f e r e n c e t h a t th a F u n d w as u n a b le t o o f f e r a n e f f e c t i v e s o l u t i o n -

t o p ay men ts d i s e q u i l i b r i a . A t h i r d a n d i n p r i n c i p l e t he m os t a t t r a c t i v e

t e s t , t h e r e f o r e , i s t o compar e p rogra mm e r e s u l t s w i t h what wou ld have

o c c u r r e d

i n th e a bs en c e o f th e p r o g r a n n e . T h e o v e r r i d i n g d i f f i c u l t y w i t h

t h i s t e s t i s i t s su b j e c t i v i s a s t h e m an y a s su m pt i on s an d j udg ei ti e nt s i t

w ou l d b e n e ce sG a r j ' t o m ak e i n o r de r t o s e t up t h e h y p o t h e t i c a l 'what wou ld

h a ve b e e n ' , i n c l u d i n g j ud ge m en t s a b ou t what p o l i c y ch an g e s t h a g ove r n m en t

m i g h t d e c i d e t o i n t r o d u c e . I f i t

were

p o s s i b l e t o c a r r y o u t s u c h a t e s t

a t a l l , i t w ou l d h a ve t o b e b a se d u pon a su ch an i n t i m a t e knowledge o f

i n d i v i d u a l c o u n t r y c i r c u r i s t a n c a c , p r e f e r a b l y e x p r e s s e d i n a c o m p r e h e n si v e

E i a c r o e c o no m i c

s i m u l a t i o n r no de l, a s t o p r e c l u d e t he p o s s i b i l i t y o f c o s s -

c o u n t r y t e s t s i n v o l v i n g large n um be rs o f o b s e r v a t i o n s .

I n p r a c t i c e ; t he t h i r d t e s t i s i m p o s s i b l e t o a p p l y w i t h o u t an u n a c c e p t a b l e

l o s s o f o b j e c t i v i t y a n d c o u n t r y c o v e r a g e , s o m o s t o f t h e e v i d e n c e p r e s e n t e d

below r e l a t e s t o t he o t h e r tizo c r i t e r i a . A f u r t h e r c o m p l i c a t i o n c o n c e r n s

t he d i f f i c u l t y o f r e d u c i n g b e l a n c e o f pa ym e nt s p e r fo r m a n c e - w h i c h i s

i n v a r i a b l y t h e p r im e t a r g e t o f IM F p r ogr a am e s - t o a s i n g l e o r s im p l e

s t a t i s t i c a l i n d i c a t e r ^ a p o i n t to be t ak e n f u r t h e r s h o r t l y .

T l . e ' - f o l l ow in g a c cou n t o f t h e im p a c t o f F u n d p ro sr am m e s draws upon

t hr ee p r i n c i p a l s o u r c e s . F i r s t , we m ak e e x t e n s i v e u se o f p i on e e r i n g

work by C onnors (1979), T h i s a p p l i e d n o n - p a r a m e t r i c ra ni -: i M t h o d s t o

3 1 u ppe r c r e d i t t r a n ch e H IF s t a i d - b y p rogr am m es a pp r ove d du r i n g 1 9 7 3 -7 7

to te s t the im pac t o f the programmes on fo u r va r i a b l e s : tha GDP g rowth

rate> t h e i n f l a t i o n r a t a ? t h e c u r r e n t a c c o u n t o f t he b a l a n c e o f p a y m en ts s

a nd t h e s i s e o f t h e f i s c a l d e f i c i t as a p e r c e n t a g e o f GD P. V a l u e s f o r

t h e s e v a r i a b l e s were ta lcen fo r one y ea r eacl i before an i a f t e r , app rov a l o f

the progra i ime and the sub -sanp les were d i v i d e d a c c o r d i n g t o w h e t he r o r n o t

t h e p o v em m e n t s n ad c o m p l i e d w i t h n ro gr ac sa e c r e d i t c e i l i n g s .


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S e c o n d , u e r e p o r t t he r e s u l t s o f a d d i t i o n a l t 7 o rk ( h e r ea f te r c a l l e d

' the ODI tes t s ' ) c a r r i e d o u t i n uhe c o u r s e o f t h e p r e s a i t p r o j e c t .

B r i e f m e t l i o d o l o g i c a l d e t a i l s a r e p r o v i d e d i n t h e a p p e n d i x t o t h i s c h a p t e r

a nd a r e r e p o r t e d m ore f u l l y i n K i l l i c k and Chapman (1982). T h i s t a k e s

C o n n o r s ' work a s i t s s t a r t i n g p o i n t b u t v a r i e s i t i n a n um ber o f ways.

I t i s ba sed upon 38 programmes agreed w i t h n o n - o i l d e v el o p i n g c o u n t r i e s

(only) i n t he p o s t o i l - c r i s i s y e a r s , 1 9 7 A -7 9 . V a r i a b l e s s t u d i e d i n c l u d e

th e f i r s t t h re e o f C o n n o r s ' p l u s th e b a s i c b a l f e ^ o f ^ a y l i S ^ S ^ f E f * S f t a S | I S

i n

d o m e s t i c c r e d i t an d money s u p p l y . S u b j e c t t o d a t a l i m i t a t i o n s , e f f e c t s

a re s t ud ie d fo r both one and two ye ars a f t e r progranu iie i n c e p t i o n and the

s u b - s am p l e s a r e b r o k e n d oi m b y c o u n t r y p e r c a p i t a i n c om e l e v e l .

T l i i s

work

i s

s u p p le m e n t ed b y t h e a p p l i c a t i o n o f r e g r e s s i o n t e c h n i q u e s t o a s m a l l e r

n um ber o f c a se s ( n e c e s s i t a t e d by da t a shortages) t o t e st tha ex te nt t o

w h i ch t h e e x i s t e n c e o f a F u n d p rogr am m e adds t o ou r a b i l i t y t o ' e x p l a i n '

t i ie b e h a v i ou r o f t h e b a l a n c e o f pa ym e n ts ( c u r r e n t a c cou n t a n d b a s i c

balance)

5

GDP grov7th a n d i n f l a t i o n . " ' I n t h i s c a se we t e s t e d r e su l t s i n

the programrae ye a r and each o f the fo l l o w in g two y e a rs .

T h i r d ,

we summar ise the resu l t s o f success ive in~houso IMF rev ievr s

o f u p p e r - t r a n c h e s t a n d - b y s E x c l u d i n g E F F ^ d u r i n g 1 9 6 3 - 7 9 . Tv/o o f t h e s e

have been pu b l i s he d (F, ei chmann S S t i l l s o n , 1978 ; Re ichmann j 1973) bu t

tiie o t h e r s re m a i n u n p u b l i s h e d a nd a r e r e g a r d e d as c l a s s i f i e d m a t e r i a l s

by t l ie I l i F ( bu t n o t n e c e s s a r i l y b y m e m be r - g ove r n m e n t s ). A s w i l l b e s e e n ,

t h es e d i f f e r f ro m t li e t e s t s a l re a d y d e s c r i b e d , p a r t i c u l a r l y i n t he

use o f co mp ar iso ns be tureen

IIIF

p rogranmes ta r ge t s and ac tu a l ou tcom es ,

v7hich

i t s s t a f f a r e u n i q u e l y

able

t o make . I t thus adds a va l ua b l e

d i m e n s i o n

t o t h e i n d e p e n d e n t t e s t s a l r e a d y d e s c r i b e d , b e s i d e s d r a i/ i n g

u pon a w e a l t h o f a d d i t i o n a l r e so u r c e s . F i n a l l y , xfe h a ve m ade som e

r e f e r e n c e t o t he f i n d i n g s o f o t i i e r i .n d ep e nd e nt r e s e a r c l i e r s , a l t h o u g h

t h es e t e nd t o b e raore c o u n t r y - s p e c i f i c a i d l e s s s y s t e m a t i c .

3 T h e r e g r e s s i o n a n a l y s i s u t i l i s e s d a t a (a ) f o r a ' l a r g e ' s am p le o f

13 c ou n t r i e s a n d ( b) f o r a ' s d u i I I ' s a m p le o f 7 c ou n t r i e s . Th e se

were

d i o s e n o n t h e b a s i s o f d a t a a v a i l a b i l i t y , w i t h o n l y t he s m a l l

s ar ap le o f f e r i n g t h e f u l l range o f r e q u i r e d d a t a . F u l l e r d e t a i l s

a r e p r ov id e d i n IC i l l i c k a n d G ia pr aa n^ 1 9 3 2 .

4

I n r e p o r t i n g t he r e s u l t s o f P e i c h n a n n ,

I 9 7 8 5

we have made use o f a

f u l l e r m im e og ra phe d v e r s i o n ( Joa a son a nd S f i i d i i a a n n , 1 9 7 3 ) . I n

d e fe r en c e t o t he F u n d ' s ' c o n f i d e n t i a l * c l a s s i f i c a t i o n s , we maJ.ce o n l y

r a t i i e r

sum mary r e f e r e n ce t o t h e i r u n pu b l i sh e d r e s u l t s a n d e x c l u de

a l l r e f e re n c e s t o i n d i v i d u a l c o u n t r i e s . Iliese documents were

o b t a i n e d f r o m nou-IIIF s o u r c e s .
http://maj.ce/http://maj.ce/


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A -

I n P a r t I , w h i ch

folIowSs

we exandne the imp ac t o f Fund programmes

on the ba l an c e o f payr ients and then i n Pa r t I I l oo k a t t h e i r in5 )act on

e c o n om i c g ro x^ th , i n f l a t i o n a nd t he d i s t r i b u t i o n o f i n c o m e . P a r t I I I

t r i e s t o e x p l a in t h e r e su l t s o b t a in e d a n d P a r t IV o f f e r s som e com iinents

on t he e f f e c t s o f a l t e r n a t i v e s t o t he 1 1 ^ a p p r o a c h . P a r t V s u m m ar is es

t h e c o n I c u s i o n s .

I - IMPACT ON IHE BALANCE OF PAYMENTS

Q ue st i on s o f m easurement

A s wv 3 e x p l a i n e d i n t h e p r e v i o u s c h a p t e r , i t i a towards i n 5 ) r ov in g

t h e b a l a n c e o f paym e nt s t h a t IJ IF p rogra mm es a r e p r i m a r i l y d i r e c t e d

s o i t i s a p p r o p r i a t e t o b e g i n b y e n q u i r i n g i n t o th e e f f e c t s t h e s e

h a ve on t h e pajnn en ts s i t u a t i o n . E xp r e s s e d g e n e r a l l y , i t w as sh ow n i n

t h e p r e v i o u s c h a p t e r t h a t

nwjadays

t he F u n d ' s o b j e c t i v e i s e x p r e s s e d

i n te rm s o f c r e a t i n g a " v i a b l e " p ay m en ts s i t u a t i o n w h i c h t y p i c a l l y means

'k

c u r r e n t a c c o u n t d e f i c i t t h a t c a n b e f i n a n c e d o n a s u s t a i n a b l e b a s i s

by n e t c a p i t a l i n f l ow s on t e rm s t h a t a r e com pa t i b l e w i t h t h e de ve lop i a e n t

a n d g ro ii rt h p r o sp e c t s o f t h e cou n t r j ' ' " . T h i s f o r m u l a t i o n im m e d i a t e l y

in t im a t e s t h a t a s se s s in g t h e su c ce s s o f a ny p r og r a u n e i s b y .n o m ean s a

s t r a i g h t f o r w a r d m a t t e r , u n l i k e some s i m p l e o b j e c t i v e s u c h a s ' e l i m i n a t i n g

a l l

c u r r e n t a c c ou nt d e f i c i t s ' .

On e o f t h e com p l i c a t i on s con ce r n s t h e e f f e c t o f pu t t i n g a F u n d p r og r am n e

i n

p l a c e u po n n e t c a p i t a l i n f l o w s f ro m o t h e r s o u r c e s . T h e F u nd h a s l o n g

argued d i a t one o f the be n e f i t s w h ic h a s ta nd -b y programme *..Tn b r i n g i s

t h a t i t h a s a c a t a l y t i c e f f e c t i n a t t r a c t i n g f un d s fr om a i d a g en c i e s

p r i v a t e ba n k s an d o t h e r s o u r c e s , s o t h a t c o n s i d e r a b l y m ore i s a t s t a k e

than

t h e a c t u a l s i z e o f t h e F u n d c r e d i t . A s one o f t h e F u n d r e v i e w s

p u ta i t t

I n s e ve r a l c a se s t h e p r og ra m s were e x p e c t e d t o r e s u l t i n

a r e s t o r a t i o n o f c o n f i d e n c e i n t h e m an ag em en t o f t h e

economy bot l i a t hoae and abro ad , so t l i a t o t he r soucas o f

b a l a n c e o f pa ym en t s a s s i s t a n c e w ou l d c on t r i b u t e t o a m ore

g r a d u a l a d j u st m e n t e f f o r t , t h us r e n d e r i n g i t l e s s s e v e r e .

T o th e e x t e n t t h a t F u nd p ro gra mi ae s a c t u a l l y h a ve s u c h c a t a l y t i c e f f e c t s ,

i t

i s c l e a r l y i n s u f f i c i e n t s i m p l y t o l o d e a t c h an ge s i n th e c u r r e n t a c c o u n t

b e c a u s e e n l a r g e d c a p i t a l i n f l o w s w i l l ( i f t h e t er m s a r e r i g h t ) i n c r e a s e t h e

s i a a o f ' v i a b l e ' c u r r e n t d e f i c i t s .


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Th e F u n d ' s own a s se s s i s e n ts h a ve th u s t r a d i t i o n a l l y t e n de d to f o cu s

upon the im pac t o f i t s progranmias on the o v e ra l l ba l a nc e ( i . e . the

ba lan c e on mon etary movements w it h o i^pos ite s ign ) , w h ic h i n c o r p o r a t e

a l l

n o n - m o n e ta r y c a p i t a l f l m r s . I n

v r h a t

f o l l o w s ,

u se i s a l so

made

o f

t he b a s i c b a la n c e ( c u r r e n t a c c o u n t p l u s n e t l o n g - t e r m c a p i t a l m o ve m en ts ),

w h i c h sh o u l d a l s o c a t c h i n f l o t ; s i n d u ce d by an y con f i de n ce g e n e r a t e d

by agreenffint wi th the F u n d . T h e c u r r e n t a c c o u n t s h o u l d n o t b e w r i t t e n

o f f e n t i r e l y s however, p a r t i c u l a r l y i n a w o r ld o f h i g h i n t e r e s t r a t e s .

I f a large p r o p o r t i o n o f i n d u c e d i n f l o w s i s o b t a i n e d o n l y w i t h h i g h

i n t e r e s t r a t e s a n d/o r i f sd iu m - ta r m m a t u r i t y t h e n t h e se may b e n e i t h e r

d e s i r a b l e n o r s u s t a i n i l e i n te rm s o f f u t u r e debt s e r v i c i n g c a p a c i t y .

T h i s

a p p l i e s m os t ob v i ou s l y t o bo r r c t o in g f r om t h e Eu r om a r k e t a n d o t h e r

c o m m er c i a l ban k s o u r c e s . T li e ' v i a b i l i t y * o f c u r r e n t d e f i c i t s i s d i r e c t l y

c o r r e l a t e d

u i t h .

t h e p r o p o r t i o n of I c f tg - te r m c o n c e s s i o n a l f i n a n c e i n t o t a l

inf lot i/s

a n d t h i s p r o p o r t i o n h a s d e c l i n e d i n r e c e n t y e a r s . ^ A nd i n t h e

e n d , o f c o u r s e , i t i s th e c u r r e n t a c c o u n t ~ p a r t i c u l a r l y e x p o r t

pe r f o rm a n ce - w l i i ch h a s t he m ost c r u c i a l b e a r i n g u pon t h e h e a l t h o f

tl ie

o v e r a l l p ay m en ts s i t u a t i o n . I n many c o u n t r y c i r c u m s t a n c e s a r e d u c t i o n

i n c u r r e n t d e f i c i t s i s a s i n e qu a n o n o f an y r e s t o r a t i o n o f p a ym en ts

e q u i l i b r i u m .

F o r r e a son s o f t h i s k i n d , t h e r e f o r e , t h e F un d i s p a y i n g i n c r e a s e d

a t t e n t i o n t o th e c u r r e n t a c c ou n t i n e v a l u a t i n g i t s otm p r og ra m m e s.

However, i t h a s r e c og n i s e d t h a t i n do in g so t h e r e i s a danger o f o v e r

s t a t i n g th e e f f i c a c y o f i t s p ro gram mes

because

t o a c o n s i d e r a b l e e x t e n t

governments have to t r i m th e c u r r e n t a c c o u n t l a r g e l y t h ro u gh a c t i o n

on

im po r t s ) t o whatever f i n a n c in g h a ppe n s t o b e a va i l a b l e , s o t h a t a

r e du ce d cu r r e n t d e f i c i t may b e t h a r e su l t o f a n u n fo r se e n im p or t

co mpres s ion ra t he r than a s i gn o f programme su c c es s ;

I n s e ve r a l o f th e /1 27 7 / p rog ra m m es , t h e r e l a t i v e l y

ra p id improvement in the ba l a nc e o f payments can be

a t t r i b u t e d to th e i m p le ra e n ta t io n o f c o r r e c t i v e p o l i c i e s .

I n o t h e r c a se s t l ie r e d u c t i o n i n tl ie e x t e r n a l im ba l a n ce

r e f l e c t e d l i m i t e d a v a i l a b i l i t y o f f i n a n c i n g and s c a r c i t y

o f

f o r e i g n e x c han ge r e s e r v e s r a t h e r th a n p o l i c y i m p l e m e n t a t i o n .

The i r ip rovement i n these cas es was more appare nt than r e a l

because

i t d i d n o t r e p r e s e n t t h a t b a l a n c e o f pa ym e n ts

v i a b i l i t y

w as r e s t o r e d .

5 Beti i reen 1973 and 1980 the shar e of tha e x te rn a l debt of n o n - o i l

d e v e l o p i n g c o u n t r i e s

owed

t o off> i a l c r e d i t o r s f e l l fr om 5 0.4 % to

42,1% and th e s h ar e o f p r i v a t e f i n a n c i a l i n s t i t u t i o n s

went

up fro m

35.5^1 to 4 8,9% ( c f J I W 1981 , T ab l e 29 ) ,


10/44

T h e r e a r e o t h e r c i r c u m s t a n c e s , however, i n w h i c h r e s u l t s o n c u r r e n t

a c c ou n t may l e a d t o a n u n de r - e s t i n i a t i on o f p rogra mm e su c c e s s . T h i s i s

p a r t i c u l a r l y l i k e l y w he n, a s i s q u i t e o f t e n th e c a s e , t h e l i b e r a l i s a t i o n

o f

t ra de and pa^riaents i s an im po rta nt component of the programm e.^

I n t he s h o r t - r u n , l i b e r a l i s a t i o n i s m ore l i k e l y t ha n n o t t o b e a s s o c i a t e d

w i t h an i n c r e a s e d c u r r e n t d e f i c i t b u t t h i s w o u ld b e c o n s i s t e n t w i t h

p ro g ra m n e s u c c e s s i f i t h a d a l o n g e r - t e r m s t r e n g t h e n i n g e f f e c t a n d i f

i t

r e d u c e d d i s t o r t i o n s an d i n e f f i c i e n c i e s c a us e d b y e xc li an ge c o n t r o l s .

A l a s t c o m p l i c a t i o n t o m e n t i o n c o n c e r n s t h e t im e sp a n o v e r w h i c h

a p rogra mm e sh ou l d b e e v a l u a t e d . A l m os t a l l t h e e v i d e n c e p r e se n t e d below

examines

t h e

i mp ac t o f the programmes

v / i t h i n

a ye a r o r tw o o f t h e i r

i n c e p t i o n . T h i s i s c o n s i s t e n t \ j i t i i t he g e n e r a l l y r a t h e r s h o r t - t e r m

na tu re o f most Fund progranmies and has the fu r t h e r advantage o f m i n i m i s i n g

t h e i n f l u e n c e o f f a c t o r s e x t e r n a l t o t h e se p r ogr a m m e s. On t h e o t h e r h a n d ,

i t

p r e ve n t s u s f r om a n sw e r in g t li e im po r t a n t q u e s t i on o f l i d i et h e r t h e y

l e d on t o a n y su s t a i n e d im provem e n t i n t h e pa ym en t s s i t u a t i o n ~ a s t h e

n o t i o n

o f a v i a b l e p ay m en ts b a l a n c e o f r e q u i r e s - o r w h e t h er t h e i r e f f e c t s

were l a r g e l y e ph e r m e r a l . H a /e ve r , we a r e

able

t o r e y o r t som e e v id e n c e

on

t h i s .

T o

sum u p on t h i s q u e s t i on o f ra e asu re iue n t, t h r e e c r i t e r i a o f p rogr am m e

s u c c e s s a r e s u g g e s t e d ^

(a ) IJe ex pe c t sosae g e n e r a l t en d en c y f o r c u r r e n t a c c o u n t d e f i c i t s

t o d i m i n i s h b u t s u b j e c t t o t he q u a l i f i c a t i o n s t h a t n o t a l l

p rogrammies w i l l be exp ec ted to ac h ie ve th i s and th a t , i n any case^

r e d u c e d d e f i c i t s may h o t b e th e r e s u l t o f p ro gra mm e p o l i c i e s .

(b) We ca n more ccifidently e xpe c t a n im pr ove m e n t i n t h e b a s i c

o r o v e r a l l b a l a n c e s p p a r t l y as a r e f l e c t i o n o f ( a) an d

p a r t l y a s a r e s u l t o f t h e i n d u c em e n t e f f e c t s o f IIIF progranmies

on

o t h e r c a p i t a l i n f l o w s .

( c ) We sh ou l d l ook f o r a m ore t h a n t r a n s i t o r y e f f e c t , x Th i le

r e c o g n i s i n g t h a t th e r e ar e many f a c t o r s e x t e r n a l t o th e

Fund's programmes

XiThich

c o u l d c a u se a d f e t e r i o r a t i n g pa ym en t s

s i t u a t i o n i n t h e y e a r s a f t e r t he e x p i r y o f a p a r t i c u l a r

prograraae.

We n ow sur dc ia ri se t h e a v a i l a b l e a v i d e n ce .

(i S ee K r u e g e r , 19 78 p a s s i m , f o r a n e x t e n s i v e d i s c u s s i o n o f t h i s .
http://jitii/http://jitii/http://jitii/


11/44

E f f e c t o n c u r r e n t a c c o u n t

F i r s t ,

we have re s u l t s f rom the Connors and ODI t e s t s . The f o m e r

foun d fo r the cas es he exami ned tha t ther e was some tende nc y for the

c u r r e n t a c c ou n t t o ia ^ j rove OLn a l m os t a l l c a se s m e a n in g a r e du c e d d e f i c i t )

b u t t ha t t h i s te nd en c y was n o t s t a t i s t i c a l l y s i g n i f i c a n t a t th e 95

l e v e l .

T he ODI r a a k t e s t r.x i r e s u l t s were s i m i l a r : no s t a t i s t i c a l l y

s i g n i f i c a n t c ha ng e i n t he d e f i c i t e ve n w i t h a 90% c u t - o f f l e v e l . I n t he

f i r s t 12 m ont hs a f t e r t h e i n c e p t i o n o f t h e p rogra mm e t h e s i g n w a s

' w r o n g ' , i . e . t h e r e x/as a t e nd e n c y f o r t h e d e f i c i t t o i n c r e a s e , b u t t h i s

was c o r r e c t e d b y th e s e c o n d y e a r . T h e ODI r e g r e s s i o n t e s t s c o n f i r m e d

t he a b se n c e o f a s i g n i f i c a n t i m p a c t , a lt h o u g h t he s i g n s tirere ' r i g h t ' .

T h e i n - h o u s e IIIF r e v i e w s h a ve l a r g e l y c o n c e n t r a t e d m e x a m in in g t h e

o v e r a l l b a l a n c e a nd h a v e o n l y s t u d i e d t li e i m p a c t on c u r r e n t a c c o u n t

f rom the 1977 programmes onward . In these c as es , and m l i k e the

Co imors/ODI work, t l i e c om pa r i son i s w i t h t h e IIIF p rogramme ta rg e t s .

In 1977 the c u r re nt acc oun t ou tcome was eq ua l to o r b e t t e r than expe ct ed

i n

9 o u t o f 1 1 p ro g ra m ia es , a l t h o u g h t h e i n t e r p r e t a t i o n o f t h i s r e s u l t

was q u a l i f i e d b y t he passage a l r e a dy q u o t e d on page 3 . Th e r e su l t s

for the 1973-79 programmes were more m ix ed . Tne outcom e was x^orse tha n

prograr ime ta rg et i n 11 out o f 21 programmes, a l t ho ug h i t was

worse

than

the payments ou tcome i n the p e r io d imm edi a te ly p r i o r to the programme

i n o n l y 8 o f t h e 2 1 c a se s , w i t h p rogr am m e t a r g e t s e n v i s a g i n g a w o r se n in g

on c u r r e n t a c coxm t i n 6 c a se s . I n 1 7 c a se s t h e c u r r e n t a c c ou n t m oved

i n

th e i n te n d ed d i r e c t i o n . No t e s ts o f s t a t i s t i c a l s i g n i f i c a n c e

were

xm de r t a k e n .

T a k i n g

a l l t h e se r e s u l t s t og e t h e r , t h e roos t t h a t c a n b e c l a im e d i s

some modest s h o r t - r u n tend enc y fo r the progra rac ies to move i n t l i e de s i r e d

d i r e c t i o n b u t a te n d e n c y x /a ic h h a s o n l y l o^ ^ c l a i m s t o s t a t i s t i c a l

s i g n i f i c a n c e . T h i s i s p e rh a p s a s u r p r i s i n g l y x/eak r e s u l t b u t , g i v e n

t he a m b i v al en c e o f c r i t e r i o n ( a) above, i t x/ou ld be a m i stak e to p l a c e

much weight u po n i t . C o n s i d e r a b l y g r e a t e r i n ^ o r t s n c e a t t a c i i e s t o

t he r e s u l t s f o r t li e b a s i c o r o v e r a l l b a l a n c e s .

Tlie

b a s i c o r o v e r a l l b a l a n c e s

Un fo r t u n a t e l y , Con n o rs d i d n o t e xam in e an y pajro ien ts i n d i c a t o r s o t h e r

than

the c u r re n t ac co unt so the on ly ind epen dent t e s t i s ou r ox/n . l l i e

7 I n t h i s c a se t h e c u r r e n t a c c ou n t d e f i c i t x/as e xp r e s se d a s a % o f

GZt?

r a t h e r t h a n i n a b so l u t e t e rr a s .


12/44

ODI work u se d a r a n k t e s t f o r ch a ng es i n th e b a s i c b a l a n c e a nd d i d

n o t f i n d an y s i g n i f i c a n t c ha n ge , e v en

vîth

a 90% co n f i de n ce

l i m i t .

In y ea r 1 the re was no meas urab l e change a t a l l bu t t her e was a

( n o n - s i g n i f i c a n t ) t en d en c y towards improvement i n ye a r 2 . Rank tes t s

f o r . c h an g es i n i n t e r n a t i o n a l r e s e r v e s sho vred 'w r o n g ' s i g n s

(reserves

went

dotm)

b u t t he r e s u l t s

were

a g ai n n o t s i g n i f i c a n t . O ur r e g r e s s i o n

t e s t s p r o v i d e d a so mew hat d i f f e r e n t p i c t u r e as regards t h e b a s i c b a l a n c e ,

however. F o r t h e l a r g e r s a m p le o f 1 3 c ou n t r i e s t h e r e w as a g a in n o

s i g n i f i c a n t iE 5 >a ct, a lt h o u g h th e s i g n s were ' c o r r e c t ' i n tv7o o f t h e

t h r e e y e a r s , bu t f o r t l i e sm a l l e r sa m p l e o f t h e 7 c ou n t r i e s w i t h t h e

m o st C OT op lete d a t a t h e r e w as a p o s i t i v e a nd s i g n i f i c a n t e f f e c t b o t h

o v e r a l l a nd f o r a l l t h r e e y e a r s . I t i s n o t c l e a r why t he r e s u l t s s h o u l d

d i f f e r a s b e C/e e n t h e ti ô s a a p l e s a n d . i d e * t h e d i s c r e p a n c y c ou l d b e

e x p l a i n e d i n t er m s o f s am p le b i a s e s .

T u r n i n g t o the D IF ' s a m . a s se ssm e n t ^ t h e r e i s a r a t h e r com p l e t e

s e t o f r e s u l t s f o r a l l u p p e r - t r a n c h e s t a n d H s y s d u r i n g 1 9 63 - 79 b r o k e n

down i n t o t he f o l l o w i n g s u b - p e r i o d s :

1 9 63 -7 2 ( r e p o r t e d i n S e i ch m an n L S t i l l s o n , 1 9 7 3 ) ; An im pr o ve -

ove r t h e p r e- p rbg ra n n n e s i t u a t i o n w as r e c o r d e d i n 64% o f

t he 75 c a se s e xa mi ne d b u t t h i s was s t a t i s t i c a l l y s i g n i f i

c a n t

(even

at the

90 Z

c o n f i d e n c e

leve l )

i n on ly 24% o f

8

th e c a s e s . I n te rm s o f s t a t i s t i c a l l y s i g n i f i c a n t r e s u l t s ,

t h e r e w as n o ch a ng e i n 71% a n d a d e t e r i o r a t i o n i n 5% o f t h e

p r og r a n E s .

1 97 3- 75 ( r e p o r t e d i n R e id x m an n , 1 9 7 8 ) : T h e t e s t a p p l i e d i n t h i s

( and subsequent) s tu d i es was by com par i son w i t h programme

t a r g e t s a n d t h e r e s u l t s x r e r e ve ry m i xed . Seven outcomes

XTere

b e t t e r t h a n e x p e c t e d , s e v e n were x/orse a nd se ven târe

a p p r o x i m a t e l y o n t a r g e t . C o m p a ri s o n s were ^ i t made w i th

t h e p re -p ro gr am m e s i t u a t i o n an d n o s i g n i f i c a n c e t e s t s

were en5>loyed.

1975 "Hiare

were

on l y 5 p rogr ai ia ii es i n t h i s y e a r . O f t h e se ,

r e s u l t s were b e t t e r t h a n e xpe c t e d i n t h r e e c a se s a n d below

t a r g e t i n t h e o t h e r t x J o .

1977 A good y e a r . O f t l i e t en ca ses i n wh ic h ta rg e t s

were

s e t f o r

t h e o v e r a l l b a l a n c e o f pa y i ti e n t s, C p rogr an sne s a c h i e v e d r e s u l t s

e q u a l t o o r b e t t e r t h a n e xpe c t e d an d on l y 2

were below

e x p e c t a t i o n s .

3 Th e b a l a n ce o f pajrm en ts i n d i c a t o r u se d i n t i i i s s tud y was c hanges i n

t h e n e t f o r e i g n a s s e t s o f t h e b a n k i n g s y s t e m , w h i c i i i s c o n c e p t u a l l y


13/44

1 9 7 8 -7 9 : O f t h e 21 p rogr am m e s i n t h i s pe r i od t a r g e t s were s e t

f o r t h e o v e r a l l b a l a n c e i n 19 c a s e s . O f t h e s e , 9 a c h i e v e d

r e s u l t s e q u a l t o o r b e t t e r t l i an t a r g e t , b u t t h e o t h e r t e n

were worse 'H n t a rg e t . However ,, when co mp ar i son was made

w i t h t h e a c t u a l p r e- p ro g ra m m e s i t u a t i o n t h e r e s u l t b ec am e

a g oo d d e a l m ore p o s i t i v e , w i t h p o s t- p ro g ra m m e r e s u l t s

e q u a l t o o r b e t t e r t h a n t h e p r e v i o u s s i t u a t i o n i n 15 o f

t h e 19 c a s e s . I n o t h e r w o r d s t h e r e w as a n a p p a r en t t e n d

e n cy f o r t a r g e t s t o b e t oo a m b i t i o u s , s o t h a t c c a n pa ri son s

o f

r e s v i l t s w i t h t a r g e t s t e n d t o u n d e r - s t a t e pro gra mm e a c h

i e v em e n t s. No s i g n i f i c a n t t e s t s were u n d e r t a k e n .

I t i s e x t r a o r d i n a r i l y d i f f i c u l t t o d e r i v e a ny c l e a r c o n c l u s i o n s

fr om t h i s m i xe d b ag o f r e s u l t s , b u t t h e f o l l o w i n g g e n e r a l i s a t i o n s a re

t e n t a t i v e l y

su g g e s t e d :

(a) P a r t i c u l a r l y i f i t i s t r u e f o r a l l y e a r s fr om 1973 t h a t

Fund t a r g e t s t e n d towards o v e r - a m b i t i o n , i t c a n b e i n

f e r r e d t h a t t h e r e i s a g e n e r a l t e n de n cy f o r p roera mima s

t o r e d uc e b a s i c o r o v e r a l l a c co vm t d e f i c i t s .

(h ) T he s t a t i s t i c a l s i g n i f i c a n c e o f t h i s t en d en c y i s n o t

large , hov/ever .

(c ) T h e r e i s n o e v i d e n t t r e n d i n t h e r e s u l t s o v e r t i m e ,

e v e n t h o u gh t h e p e r i o d s t u d i e d c o v e r s b o t h p r e - a n d

p o s t - o i l

c r i s i s y e a r s .

T he r e s u l t s j u s t g i v e n f o r th e b a s i c o r o v e r a l l b a l a n c e s a r e a

l i t t l e s t r o n g e r t h a n t h o s e r e p o r t e d e a r l i e r o n t h e c u r r e n t a c c o u n t ,

an d t h i s i s c o n s i s t e n t

tirith

c l a i m s t h a t ag r ee m e n t on a s t a n d - by o r

E FF program me a t t r a c t s c a p i t a l i n f l o w s fr om o t h e r s o u r c e s . B u t

s u c h

c o m p a ri s on s d o n o t i n d i c a t e a ny s t r o n g c a t a l y t i c e f f e c t . I n

t he l i g h t o f t he r e s u l t s r e p o r t e d i n c h a p t e r s (pp . . . ) , we v/ould not

a n t i c i p a t e

s t r o n g r e s u l t s . C o m m e r c i a l b a n k s , a i d a g e n c i e s a n d o t h e r

l e n d e r s h av e t h e i r

o \ m

d e c i s i o n c r i t e r i a an d t h es e a r e l i a b l e t o d i f

f e r between g over n r: i en t s - Some (B r a z i l , J a m a i c a ,

Zaire)

have i n the

i j a s t u se d a c ce s s t o t h e E u r o -m a r k e t t o a vo id g o in g t o t h e F u n d . O t h e r s

( B a n g l a d e s h , S i e r r a Leone) c o n t i n u e t o b a g i v e n a lo w c r e d i t r a t i n g

by th e ban ks ever, v/hen a Fund p rogra mra e i s i n p l a c e . Th e c on t in u e d

a v a i l a b i l i t y o f f i in d s f ro m t h e b an li s i s a l s o l i k e l y t o b e s e n s i t i v e t o

t h e e x t e n t t o w h i c h a p rogr am m e i s b e in g im p l e m e n t e d a n d a c h i e v in g

d e s i r e d r e s u l t s , n o t s i m p l y o n w h et he r o r n o t a s t a n d - b y i s i n e x i s t e n c e .


14/44

A i d d o n o r s a r e p e r ha p s m ore l i k e l y t o b e i n f l u e n c e d , e s p e c i a l l y

g i v e n t h e g r o w i n g c o l l a b o r a t i o n b etv/e en t h e I F a n d W or l d Ba n k . O n

t h e o t h e r h a n d , s j cp e c t a t i o n s o f t h e am ovint o f a d d i t i o n a l f i n a n c e t h a t

vriLll be t r i g g e r e d a g r eemen t w i t h t h e F un d a r e o f t e n d i s a p p o i n t e d .

O u r c a se s t u d y o f J a m a i c a ( c h a p t e r C4 ) p r o v i d e s a s p e c i f i c c e x a i i 5 ) l e

a n d TO rk by Be v e r i d g e a n d K e l l y (1980) p r o v i d e s a m ore g e n e r a l i l l

u s t r a t i o n . T he y fo\-ind

(Table

3) t h a t f o r e i g n l e n d i n g t o t h e g o v e r n

ment f e l l s ho r t o f th e amounts p ro je c te d i n 61% o f 105 IMF programmes

i n 1 9 6 9 -7 3 , a l t h ou g h t h e r e w as a m a rk e d t e n de n cy f o r t h e s h o r t f a l l s

t o d i m i n i s h o v e r t i m e . T h ey n e v e r t l i e l e s s c o n c l u d e d (p.243) t h a t

" s h o r t f a l l s i n f o r e i g n f i n a n c i n g c o n t r i b u t e d i m p o r t a n t l y t o t h e n o n -

o b se rv a nc e o f t h e f i s c a l s u b c e i l i n g /_ o n d e f i c i t f i n a n c i n g / i n a

n um ber o f p r o g r a m s " . On b o t h a p r i o r i a n d e v i d e n t i a l g r o u n d s , t h e r e

f o r e , v/e w o u l d n o t e x p e c t t h e c a t a l y t i c e f f e c t t o b e g e n e r a l l y v e r y ..

l a r g e , a l t h o ug h i t c o u l d b e s o i n s p e c i f i c c i r c u m s t a n c e s , a s i n C h i l e

i n 1974 5 (see c ha pt e r C2 ) H igh govern men ta l and Fund ex pe c ta t i on s

a r e m ore l i k e l v t h a n n o t t o b e d i s a p p o i n t e d ; t h i s i s p e r h a p s o n e o f

t h e r e as o n s why t h e s t a t i s t i c a l r e s u l t s f o r t h e b a s i c a n d o v e r a l l

b a l a n c e s a r e n o t s t r o n g . I t i s a l so a r e a son f o r i-^ rogran me f a i l u r e

a n d f o r t he h i g h p e r c e i v e d c o s t s o f s t a b i l i s a t i o n p ro gra mm es , f o r t h e

c h a n c e s o f s u c c e s s a nd c o s t s a r e a d i r e c t f u n c t i o n o f b e i n g able t o

m a i n t a i n i m p o r t s u p p l i e s (lirueger.. 1S73,

p.224)

a n d h a v in g a r e a s t o a b l e

pe r i od o f t im e ove r v r hi ch t o im p l em e n t t h e progranaae,

L i b e r a l i s a t i o n

A s n o t e d i n c h a p t e r s , t h e F un d i s r e q u i r e d b y i t s A r t i c l e s t o

a s s i s t t h e e l i m i n a t i o n o f fo r e i g n e x c h a n g e r e s t r i c t i o n s . T h e r e v i a ,

a s t a n da r d c l a u s e i n a l l p rogr am m e s t h a t t h e bo r rov/ in g g ove rn m e n t

v i l l

n o t i n t r o d u c e n^iw r e s t r i c t i o n s > n o r I n t e n s i f y e x i s t i n g o n e s , d u r i n g t h e

p e r i o d o f f a s p rogramme? some programmes go fv i r t her and i n c lu d e an ac tu a l

l i b e r a l i s a t i o n

a mo ng st t h e i r o b j e c t i v e s . A

degree

o f l i b e r a l i s a t i o n w as,

f o r e xa m p l e , s ou g h t i n a t l e a s t 8 o f t h e 23 s t a n d - by s i n 1 9 7 8 -7 9 .

T h e r e i s , u n f o r t u n a t e l y , l i t t l e d i r e c t e v i d en c e o n t h e s u c c e s s i n

a c h i e v i n g v

t l i i s

o b j e c t i v e , a l t h o u g h t h e F u n d ' s 1 9 78 - 79 r e v i e v ; r e c o r d e d

o n l y

' l i m i t e d ' im p l e m e n ta t i on u nd er t h i s h ea d i n g .

V . e

c a n ,

however,

u t i l i s e

t h e r e s u l t s o f a n i m i o r t a n t s t u d y c o n d u c t e d b y B h a g wa t l (1973), K r u e g e r

(1978) a n d o t h e r s o f f o r e i g n t r a d e r e g im e s a n d e con om ic de ve l opm e n t t o

g a i n f u r t h e r i n s i g h t s i n t o t h i s . T h ey a nd t h e i r c o l l a b o r a t o r s s t u d i e d a

t o t a l

o f 22 a t t e m p t s i n 10 c o u n t r i e s t o move fr om a h i g h l y r e s t r i c t i v e t o


15/44

a l i b e r a l i s e d re gi me of t r a de andpayments du r i ng 1950-72 and t h e i r

r e s u l t s

ere

summarised

i n

F i g u r e

1. In

t h e i r s ch e m a, ' P h a se

I '

r e p r e s e n t s

th e m ost r e s t r i c t i v e and ' Phase V' a f u l l y l i b e r a l i s e d re g i m e, w i t h v a r i o u s

i n t e r m e d i a t e stages

of

l i b e r a l i s a t i o n .

An

e x c e e d i n g l y v a r i e d p i c t u r e e m e rg e s,

w i t h on l y

a few

examples

of

s u st a i n e d l i b e r a l i s a t i o n .

In

f a c t ,

ou t of 22

at tempts to move fr om h i g h l y r e s t r i c t i v e to l i b e r a l i s e d r e g i m e s , th ey r e g a r d

on l y

4 as

h a v i n g r e s u l t e d

i n

s us ta i ne d l i b e r a l i s a t i o n (Krueger, p p . 2 0 6 - 7 ) .

T h e i r

s t u d y

di d not

s p e c i f i c a l l y c on ce rn i t s e l f w i t h

the

i m p a c t

o f

Fun d programmes

so at the f o o t of e a c h c o u n t r y ' s e n t r y i n F i g u r e 1 we h av e i n s e r t e d a s t a r

t o i n d i c a t e y e a r s

i n

w h i c h

a

sta nd -by programme

was

a g r e e d . T h i s pe r m i t s

a v i s u a l t e s t of the

degree

o f a s s o c i a t i o n between programmes and l i b e r a l i s a t i o n .

F i g u r e

1 ;

L i b e r a l i s a t i o n

and th e IMF; 9

c ou n t r i e s . 1 95 0-72

Phases

Brazil

10

V p

III r

I b

V p

III I

II

I

V

p

III :

I E

V

III

I

V p

III I

IE

V p

III ;

I

E

V

p

III I

I b

V p

III

:

x r m k r s l

9 f f f r r p

m x r

1 1 1 }

/> >'/j"

cnr C?i::c.ic:ii.iEatiC3ii;niii?ir

1 1 1 1 1 1 u i 1 1 1 i i " i i i r ' f 4 i ' i I'

in ,,

1 1 1 1 1 1

1 1 1 1 1 1

Chile

Colombia

Ghana

India

Israel

South

Korea

1950

52 54 56 58 60 62 64 66 68 70 72

-by CK/^r.i

S o u r c e ; K r u e g e r ,

1978, p.38

I II III IV V

( p to

for

f o o t n o t e

10)


16/44

Only a few suc ce sse s a r e app aren t - f o r Co l o r i a i a i n 196G-72 ( but

n o t i n e a r l i e r p e r i o d s ) , f o r

A r z i l

i n 1964 -72 ( a l th oug i i the p ro ce ss

was a pp are nt l y coi craenced p r i o r t o the Fu nd ' s invo l vem en t i n 1965 ) and

i n S o u t h K o r ea ( a l t h o u gh i n t h i s c a s e t h e p r o c e s s w as begun x ; e l l before

F un d

i n v o l v e m e n t ) . F o r t h e p e r i o d i n q u e s t i o n C h i l e , I n d i a , t he

P h i l i p p i n e s an d T u r k e y p r o v i d e

exaaples

o f Fund p rogrammes wh ich f a i l e d

t o a c h i e v e any l a s t i n g l i b e r a l i s a t i o n o r

were

a p p a r e n t l y a s s o c i a t e d

X7ith a r e t r e a t i n t o m ore r e s t r i c t i v e r e g i m e s , l/ ere a s i g n i f i c a n c e t e s t

p o s s i b l e w i t h su c h i n f o r m a t i o n f o r t h e n i n e c o u n t r i e s t ak e n t o g e t h e r i t

w o ul d s u r e l y f a i l t o r e c o r d an y s i g n i f i c a n t p o s i t i v e a s s o c i a t i o n . G i v e n

th e

large

d i s e q u i l i b r i a t h a t h av e m a rk e d m o s t y e a r s s i n c e 1 9 7 2 , i t seem s

i m p r o b ab l e t h a t a m ore u p - t o - d a t e t e s t v/ ou ld

s h o v r

a s t r o n g e r a s s o c i a t i o n .

I t does n o t seem th at the means av a i l a b l e t o , o r emp loyed by , th e Fund

a r e s t r o n g en ou gh t o s e c u r e i t s l i b e r a l i s a t i o n o b j e c t i v e i n m ore th a n

r a r e c a s e s .

10 The case o f Eg yp t has been om i t t e d f r om F ig ur e 1

because

o f i n c o i n p l e t e

i n f o r a a t i o n . T h e B h a g ^ j a t i -K r u e g e r d e f i n i t i o n o f t li e 5 p h a se s c a n b e

s u m a a r i s ed a s f o l l o w s s - -

I - A p e r i o d i n w h i ch q u a n t i t a t i v e r e s t r i c t i o n s

( P^s)

are

f i r s t i mp os ed an d th en i n t e n s i f i e d .

I I - A l t ho ug h QP3 are

s t i l l

i n t e n s e , s o m e . p r i c e m eas u re s a r e tak en

t o o f f s e t

soae

o f t h e u n d e s i r e d r e s u l t s , e . g . i m p o r t s u r c h a r ge s . :

e x p o r t s u b s i d i e s .

I I I An a t t em pt i s made t o sy s t e m at i se the changes begun i n

I I , T h i s i s l i k e l y t o i n c l u d e a c u r r e n c y d e v a l u a t i o n a nd

r e d u c e d r e l i a n c e o n Q R s .

IV - A s a r e s u l t o f I I I r e s u l t s a r e a c h i e v e d , e . g . i n r a i s i n g

e x p o r t e a r n i n g s , to p e n d t f u r t h e r t c Jtr.Lion o f QPJS.

V - T h e s y s te m be com es f u l l y l i b e r a l i s e d , i n c l u d i n g c u r r e n c y

c o n v e r t i b i l i t y a a d e l i n d n a t i o n o f u se o f

Q ?

J

5

f o r b a l a n c e

o f

payments p urp os es ,

c . f . K r u e g e r , 1 97 8 , p p . 3 0 2 - 3 .


17/44


18/44

ye a r 1 ( sm a l l sample). F o r t h e o t h e r y e a r s t h e r e l a t i o n s h i p v/as a l s o

p o s i t i v e b ut f a i l e d th e s i g n i f i c a n c e t e s t .

tluch

o f t l i e i n - h o u s e IMP i n f o r m a t i o n o n t h i s t o p i c i s h a r d t o

i n t e r p r e t because i t i s about s u c c e s s r e l a t i v e t o p ro gram m e t a r g e t s ,

w h i c h t a r g e t s ? a s w e h a ve a l r e a dy s a i d , a r e o f t e n m ore i n t h e n a t u r e o f

fo re c as ta . .. We t f i l l t l i us b e s e l e c t i v e i n t h e u se o f t h e i r r e s u l t s .

F o r 1963-72 programmes, hov/ever, Re i chm ann and

F t i l l s o n (1978)

do

malce a co mp ar i so n w i th gTovr th i n th e pr ev io us p e r i o d and the y come t o

r e s u l t s s i m i l a r t o t h o s e o f t h e r a nk t e s t s a l r e a d y r e p o r t e d ;

a p o s i t i v e b u t n o n - s i g n i f i c a n t a s s o c i a t i o n . I n m ost o f t he s ub se qu en t

y e a r s I f F e v a l u a t i o n s r e p o r t f a i r s u c c e s s i n a c h i e v i n g o r o v e r - a c h i e v i n g

t a r g e t s w i t h o u t t e l l i n g u s m uc h about a c t u a l g r ov ; th r a t e s a c h i e v e d . I n

1 9 7 7 r e s u l t s v;ere l e s s s a t i s f a c t o r y t h a n u s u a l , v,rith 5 ( ou t o f 11 ) c o un t

r i e s a c h i e v i n g a g r c f t h r a t e o f 5% o r m or e, 2 o f between 0% an d 5%, an d

4 c o u n t r i e s e x p e r i e n c i n g n e g a t i v e g ro w t h . I n 6 c a s e s t h e p ro gra mm e g r o w th

r a t e w as e q u a l t o o r b e t t e r t h a n t h e p r e v i ou s p e r i o d an d i n 5 t h e r e wa s a

d e c e l e r a t i o n . I n f a c t , t h e e v a l u a t i o n f o r t h i s y e a r c cxn men ted r a t h e r

g l o o m i l y t h a t t h e a p p a r e n t t r a d e - o f f b etv/ een p a y m en t s e q u i l i b r i u m a n d

economic g r o w t h a ppe a r e d t o h a ve vo r se n e d a n d t h a t t h e F u n d sh o u l d h e n c e

f o r t h t a k e t h i s m ore f u l l y i n t o a c c o u n t . T h e r e v i e i / o f 1 9 78 -7 9 a l s o y i e l d s

i n t e r e s t i n g i n f o r m a t i o n . I t shov/s t h a t 1 3 o f t h e 2 1 p r og ra m m es e xpe c t e d

slower gro v/ th t h a n i n t h e i m m e d i a t e l y p r e c e d i n g p e r i o d . I n t h e e v e n t ,

g ro w th was sloweri n 12 c a s e s , w i t h 4 c o u n t r i e s a c h i e v i n g g ro ii rt h o f

above

5% i n the f i r s t prog ramme yea r , 13 o f between 0% and 5%, and 4 su f f e r i n g

f ro m a d e c l i n e i n o u t p u t . I n n e i t h e r o f t h e reviews j u s t r e p o r t e d were

s i g n i f i c a n c e t e s t s a p p l i e d .

' I i i l e t h e e v i d e n c e j u s t s u r ve y e d i s m i x e d , p r o v i d e s l i t t l e s u p p o r t

f o r t h e p r o p o s i t i o n t h a t Fu nd p r o gr a rm e s g e n e r a l l y h av e s h o r t - r u n d e f l a t i o n

a r y con se q u e n ce s , e v e n t h ou g h - t h e r e r ^ a r e .- dou b t i e s s e xa m p le sv id f su c h r e s M t s .

I n t h e g e n e r a l c a s e , t h e r e i s r a t h e r m ore e v i de n ce o f a p o s i t i v e groT>?th

e f f e c t t h a n o f a n e g a t i v e o n e . P o s s i b l e e x p l a n a t i o n s f o r t h i s r a t h e r p e r

p l e x i n g r e s i i l t a r e t a i : e n v?) i n P a r t I I I J ju t v/e c a n m e n t i on h e r e on e f a c t o r

w hi ch w i l l

tend

t o p r od u c e a p o s i t i v e a s s o c i a t i o n . T o t he ex t e n t t o

v/hich

prograBimes

s u c c e e d i n r e d u c i n g t h e s i z e o f t h e c u r r e n t a c c o u n t p ay m e n ts

d e f i c i t ; , r e l a t i v e t o GD ? , i t w i l l h av e a p o s i t i v e e f f e c t o n t h e GDP g ro irti h

r a t e , f o r s u c h a d e f i c i t i s , o f c o u r s e , a n e g a t i v e n um ber i n t h e n a t i o n a l

a c c o u n t s . I t i s p o s s i b l e t h a t t h i s c o n s i d e r a t i o n h e l p s t o e x p l a i n t h e


19/44

re po r t ed r esu l t s , a l t ho ugh x/e x/ould be nore c co i v inc ed o f t h i s i f the re

vjere s t ro n ge r ev i den ce th at programmes do reduc e c u r re n t . .'j c count

d e f i c i t s .

T he

i n f l a t i o n r a t e

I t i a a common m i s c o n c e p t i o n t h a t r e d u c i n g i n f l a t i o n i s a p ri m e

ob j e c t i v e o f F u n d p r og ra m m e s. I Jh i l e i t i s t r u e t h a t many prograicanes

do i n c l u d e a t a r g e t w h i c h e n v i s a g e s a m o d e r a t i o n o f t h e p a c e o f i n f l a t i o n ,

s u c h t a r g e t s , l i k e th o s e f o r GDP g r o w t h , a r e f i r r i l y s u b o r d i n a t e t o th e

ba lan c e o f paynaants o b j e c t i v e . Indeed,,, i n r e c en t ye a r s the Fxind app ears

t o h a ve t a k e n a d i i c i n i s h e d i n t e r e s t i n t ie p r i c e v a r i a b l e , p e r h a p s b e c a u s e

o f the sptead o f more f l e x i b l e exchange r a t e p o l i c i e s x/h ich x/eaken the l i n k

betxTee n dom e s t i c i n f l a t i o n a nd t h e b a l a n ce o f pa y t a en t s .

Th e r e m u st n e ve r t h e l e s s b e som e p r e su m pt i on t h a t F un d p r ogr a m n e s w i l l

t en d t o m o de ra te i n f l a t i o n , f o r e s s e n t i a l l y t ii e s a m r easo ns th at we

wou ld exp ec t them to have a dampen ing im pac t upon econ omic g ron/th . I t

was sug ges ted i n c ha pt e r 2 th at moneta ry exp an s io n i s an i jxqportant exp lana - r

t i o n

o f i n f l a t i o n i n many I d c s ; t he t i g h t e r l i o n et a ry c o n t r o l a s s o c i a t e d

\ d t h F u n d p rogr am m es sh o u l d t h e r e f o r e x :e ak e n i n f l a t i o n a r y im pu l se s . Two

i m p o r t a n t q u a l i f i c a t i o n s a r e n e c e s s a r y , ho x/ ev er. F i r s t , the programmes

o p e r a t e e s s e n t i a l l y u po n t h e d o m e s t i c c r e d i t c o m po ne nt o f t he m oney s u p p l y .

T o the ex te n t th at the programmes are

able

to i -a p r o v e t h e b a l a n c e o f

pa ym en t s a n d pe r m i t a n i n c r e a se i n th e f o r e i g n a s se t s o f t h e b a n k i n g sy s t e m

t h i s ' i - r i l l be a sou rc e o f moneta ry exp an s i on tend ing ', t o o f f se t whate ver

c o n t r a c t i o n may e ma nate fr om s t r i c t e r c o n t r o l o v e r d o m e s t i c c r e d i t . S e c o n d ,

Ftjoid

p ro gra ic K i es q u i t e o f t e n i n c l u d e d e v a l u a t i o n s a n d /o r r e d u c t i o n s i n s i i b -

s i d i e S i

h i o j i e r i ^ r i c e s f o r t l i e o u t p u t s o f p a r a - s t a t a l b o d i e s , p e r h a p s h i g l i e r

a g r i c u l t u r a l p r od u c e r p r i c e s ,

a v ^ d

s o . i ou . i l e a su r e s o f t h i s k i n d w i l l , o f

c o u r s e , r a i s e t l i e d o s j e st i c p r i c e l e v e l , e v e n t h ou g h t h e i r e f f e c t s may b e

e s s e n t i a l l y o n c e - f o r ~ a l l r a t h e r t ha n c o n t i n u i n g .

V)e a r e t i i u s l e f t x /i t h a g e n e r a l bu t q u a l i f i e d p r e su m pt i on t h a t

p r o g ra o n e s w i l l r e du c e i n f l a t i o n . I s t h i s b o r n e o u t b y t he e v i d e n c e ?

T he

i n f l a t i o n r a t e w as amon;]: t h e v a r i a b l e s s t u d i e d h y Co nn ors . He found

som e t e n de n cy f o r t h e i n f l a t i o n r a t e t o g o u p bu t t h e r e s u l t x as n o t

s t a t i s t i c a l l y

s i g n i f i c a n t . I n t h i s c a s e , h ox /e ve r. t he G DI r an k -

t e s t y i e l d e d a d i f f e r e n t c o n c l u si o n s x e fo un d a s t a t i s t i c a l l y s i g n i f i c a n t

r e d u c t i o n i n ye a r 1 bu t n o t i n ye a r 2 , w i t h t h e p r o b a b i l i t y t h a t t h e r e x^as


20/44

renewed p r i c e a c c e l e r a t i o n i n t h e s e c o n d y e a r . T h e ODI r e g r e s s i o n t e s t s

d i d n o t y i e l d any s i g n i f i c a n t c o r r e l a t i o n .

T h e r e s u l t s r e p o r t e d i n t he

IIIF

reviews r a t h e r c o n s i s t e n t l y s t r e s s

t he d i f f i c u l t i e s e n c o un t er ed i n t r y i n g t o b r i n g down t he i n f l a t i o n r a t e

a nd a c h i e v in g p rogra mm e t a r g e t s . I n 1 96 3 -7 2 , f o r i n s t a n c e , i n t h e 29

c o u n t r i e s w h i c h h a d s i g n i f i c a n t i n f l a t i o n a t t he ti m e o f t h e i ro gr am m e

i n c e p t i o n i t was o n ly p o s s i b l e to a c h i ev e a s t a t i s t i c a l l y s i g n i f i c a n t

r e d u c t i o n i n 7 c a s e s . T h e r e was a s i g n i f i c a n t i n c r e a s e i n a f u r t h e r 6

ca se s a nd t h e r e w as i j s i g n i f i c a n t ch a n ge i n th e r e m a i n in g 1 6 .

I n t e r e s t i n g l y , o f t h e 9 p ro gram mes c a l l i n g f o r a d e v a l u a t i o n , 5

were

a s s o c i a t e d w i t h a c c e l e r a t e d i n f l a t i o n , o u t o f th e t o t a l o f 6 s u c h

r e s u l t s ( Re ic h m an n & S t i l l s o n , 1 97 8 , T a b l e 5 ) .

Tlie r e su l t s f o r 19 7 3-7 5

were,

i f a n y t h i n g , m ore d i s a p p o i n t i n g .

S i x t e e n out o f 20 p rogr am m es t a r g e t e d a r e du ce d r a t e o f p r i c e i n c r e a s e bu t

i n f a c t t h i s w as a ch i e ve d i n on l y 9 c a s e s j w i t h i n c r e a s e s i n t he r e m a i n i n g

11 , a l though these changes c/ere n o t s u b m i t te d t o s i g n i f i c a n c e t e s t s .

A c t u a l l y a c c e l e r a t e d i n f l a t i o n was r e c o r d e d i n h a l f o f th e p r og ra om e s

w h i ch aim e d f o r t h e op po s i t e . However, i t i s i m p o r t a n t t o bear in m ind

t h a t

t l i i s

p e r i o d was o ne o f r a p i d l y r i s i n g i m p o r t p r i c e s a nd o f a c c e l e r a t i n g

w o r l d i n f l a t i o n s o i t i s n o t s u r p r i s i n g t l i at t he r e s u l t s t u rn e d o u t as

they d i d . In 1976 , 1977 and 1978 -79 a f a i r l y common p i c tu re emerges o f

many outcomes f a i l i n g to meet t a r ge t s and o f m ixed re su l t s by com par i son

w i t h t h e p r e - p r o g r a m a e s i t u a t i o n . I n t he l a t t e r s u b - p e r i o d , f o r e x a n p l e ,

i n the m aj or it y (12 out of 21 ) of progra iames the i n f l a t i o n rat e v/as

above

t a r g e t a n d , b y com pa r i son w i t h pr e ~p r ogr a m m e, t h e r e w as a n a c c e l e r a t i o n

o f

i n f l a t i o n i n 13 c a s e s .

I/ i th the ex c ep t i on o f the ODI r ank te s t , th e r e f or e , the bu lk o f the

e v i d e n c e p o i n t s t o a f r e q u e n t i n a b i l i t y b y t h e F un d t o b r i n gdovnx

i n f l a t i o n b o t h , a s i t i n t e n d e d t o a nd by com pa r i son w i t h t h e p r e c e d i n g

p e r i o d . I n t h e g e n e r a l c a se , i t c a n n o t b e c l a im e d a s an advantage

o f

F u n d su pp o r t t h a t i t s progra msze s l e a d t o d i m i n i sh e d i n f l a t i o n . ? t h e r e

may even be a ne t t endency f o r the programmes to l e ad to h i gh er p r i c e s ,

a l b e i t o f a ' K c e - f o r - a l l c h a r a c t e r . T h i s i s , o f c o u r s e , a s p e c i f i c

i l l u s t r a t i o n o f t he g e n e r a l i n t r a c t a b i l i t y o f i n f l a t i o n an d IC ru en er

( 1 9 7 3 ,

p,229) s i r i i l a t l y r e p o rt e d l i t t l e s u c c es s i n th e s t a b i l i s a t i o n

pac i ka ge e s t u d i e d i n h e r p r o j e c t .


21/44

T he d i s t r i b u t i o n o f i n c o ae

T h e r e m u st b e a s t r o n g p r a s u n p t i o n t l i a t s t a b i l i s a t i o n p ro gra mm es

w i l l a f f e c t t h e d i s t r i b u t i o n o f i n c o io e . T h e y s t a r t fr om a n u n s u s t a i n a b l e

l e v e l o f a b s o r p t i o n i n th e n a t i o n a l ec on oi ay an d a r e h e n c e p r e d i c a t e d o n

a r e d u c t i o n i n c o n s u c qj ti o n a n d /o r i n v e s t t i e n t r e l a t i v e t o i n c o m e , T a e y

a re o f t e n a l s o p r e d i c a t e d on t he d e s i r a b i l i t y o f i n c r e a s i n g th e p r o d u c t i o n

o f t r a d e a b l e s v i s a v i s n o n - t r a d e a b l e s ? a nd on t he d e s i r a b i l i t y o f b r i n g i n g

down i n f l a t i o n . I t i s m o st u n l i k e l y t h a t t h e a c h i e v e m e n t o f an y o f t h e se

r e s u l t s c a n b e d i s t r i b u t i o n a l l y n e u t r a l . T h e b u rd e n o f re d uc e d a b s o r p t i o n

w i l l

i n e v i t a b l y a f f e c t some g r o ups tore t h a t o t h e r s . S t r u c t u r a l a d j u s t m e n t ,

a nd t h e d i a n g e s i n r e l a t i v e p r i c e s w h i c h a cc oi ap an y i t , w i l l f a v o u r some

i n d u s t r i e s a nd d i s f a v o u r o t h e r s . A t te m p ts t o c u rb

aggregate

d em an d w i l l

h av e i r t p l i c a t i o n s b o t li f o r p r o f i t s a nd f o r t h os e

whose

i n c o c i e i s d e r i v e d

f r om t h e i r own l a b ou r .

T l i e r e i s n e v e r t h e l e s s v i r t u a l l y n o s y s t e m a t i c e v i d e n c e on t h e

d i s t r i b u t i o n a l i m p a c t o f IIIF p o l i c i e s o r o f s t a b i l i s a t i o n i n g e n e ra l a nd

one rea son fo r t h i s i s tha t the Fund has always d e c l i n e d t o b ec om e i n v o l v e d

i n

t h i s a sp e c t o f i t s p r og ra m m e s . I t argues t h a t i t i s f o r n a t i o n a l

g ov er nm e nt s t o d e c i d e up on d i s t r i b u t i o n a l o b j e c t i v e s an d t o d e s i g n t h e i r

p o l i c i e s so a s t o a ch i e ve t h e se a n d t h a t gove rn m e n ts w ou l d b e s t r o n g l y

r e s i s t a n t t o an y a t t e n p t s t o i n v o l v e i t s e l f i n t l i c s e m a t t e r s . T l ie

stand-~by reviews t h a t h a ve b e e n r e p o r t e d

above

thus do n ot c on ce rn thetase lves

w i t h th e d i s t r i b u t i o n a l i s s u e , n o r \ J S i t f ound f e a s i b l e t o i n c l u d e

d i s t r i b u t i o n a l i n d i c a t o r s i n t h e C o n no rs a nd ODI t e s t s . T h e r e i s a

c e r t a i n am oun t o f c o u n t i r y - s p e c i f i c m a t e r i a l b u t i t f a l l s s h o r t o f p r o v i d i n g

an a u t h o r i t a t i v e b o d y o f e v i d e n c e . We m u st t h e r e f o r e a p p r o a c h t h i s t o p i c

i n a m ore a b s t r a c t m arm er t h a n h a s b e e n a dop t ed f o r t h e v a r i a b l e s a l r e a dy

c o n s i d e r e d .

From t h e p r e su m pt i on t h a t F u n d - t y pe p rogra tm ae s w i l l i n f l u e n c e i n com e

d i s t r i b u t i o n

i n soiae d i r e c t i o n , t he

l i i F ' s

c r i t i c s argue, o f c o u r s e , t h a t

t h e i n f l u e n c e i s i n t he d i r e c t i o n o f i n c r e a s i n g c o n c e n t r a t i o n . T h r e e

12

s t r a n d s r e c u r f r e q u e n t l y i n t h e s e a l l e g a t i o n s ; t h a t F u n d - t y p e pr og ra mm es

l e a d d i r e c t l y t o c u t s i n th e r e a l v a l u e o f

wages:

they a l s o l ea d to

11 An a r t i c l e b y Joh n son a nd S a l op (1980) r e v i ew i n g th e d i s t r i b u t i o n a l

r e p e r c u s s i o n s o f 4 F un d progransaes i s t h e on l y p u b l i c docum e n t we a r e

aware o f on t h i s su b j e c t b y F u n d s t a f f m e m ber s.

12 In w i ia t fo l l ov/s v/e re fe r a nuc ibe r o f t imes to "F un d - t y p e " prog ran mes .

T h i s i s because a n u c b e r o f t he e n ^ i i r i c a l s t u d i e s c i t e d a re n o t

n e c e s s a r i l y c o n f i n e d t o p ro gra mm es s u p p o r t e d b y t h e Fund .


22/44

i n c r e a s e s i n u ne mp lo ym en t t hr ou gf i t h e i r a l l e g e d d e f l a t i o n a r y i m p a c t i

a nd t h e y i n c l u d e cu t s i n g ove rn m e nt spe n d i n g ( a n d pe r h a ps i n c r e a s e s i n

t a xa t i o n ) t he i n c i d e n c e o f v rh ich

bears

d i s p r o p o r t i o n a t e l y u p o n t h e

p o o r , e . g . t h ro u gh r e d u c t i o n i n s o c i a l s e r v i c e s . P a r t i c u l a r e mp ha si s

i s p l a c e d on t h e r e a l wage e f f e c t . T h u s F r e n k e l an d O ' D o n n e l l ( 1 97 9 ,

13

p. 177) suggest t h a t t h e

IIIF's

progravitnes,

show

a rem ark able asymrsietry i n the way th ey t re at com mod it ies

a nd l a bo u r m a r k e t s . W h en ever p r i c e c on t r o l s a nd r e g u l a t i o n s

a r e i n f o r c e , t h e p r og ra m te n ds t o dem an d t h e i r e l i m in a t i o n 5

c on ve rs e l y , when i the 112? c on s i de r s t l i a t the government has

s u f f i c i e n t

power

t o e s t a b l i s h c e i l i n g s on s a l a r y i n c r e a s e s ,

they are imp osed by the prog ra ia .

A number o f co xmtry examples have been documented i n su pp or t of th i s

l i n e

o f c r i t i c i s m , some o f wh ic h a re d i sc us se d i n ch apt e r ' s

d i s c u s s i o n o f L a t i n A m e ri c a n e x p e r i e n c e s . F o x l e y

(1981)

talces the

'n ew o r tl i o d o x ' s t a b i l i s a t i o n program mes i n t r o d u c e d i n A r g e n t i n a , B r a z i l ,

C h i l e

and Uruguay and shows i n a l l c a se s t h a t r e a l

wages

d e c l i n e d s h a r p l y .

Unemplo jrment rose s ha rp ly i n tt/o o f the c ou nt r i e s and the a va i l a b l e da ta

on

i nc om e d i s t r i b u t i o n i n d i c a t e s i n c r e a s e d c o n c e n t r a t i o n . H ov/ ever, a l l

f o u r g o v e m r e n t s i n q u e s t i o n were o f th e r i g j t - v m g , a u t h o r i t a r i a n v a r i e t y

and the qu es t i on rema ins open v jhe ther the se re s u l t s

were

i n t r i n s i c to

s t a b i l i s a t i o n a s s u c h o r t ^h et he r t h e y u e r e r a t h e r a r e f l e c t i o n o f tl ie

s o c i a l

p r i o r i t i e s o f t h e s e p a r t i c u l a r r e gi r ae s . W h i l e i t d oe s seem

p o s s i b l e t h a t r i g h t - ^ / i n g a u t h o r i t a r i a n r e g i n e s a r e t he aore l i k e l y t o p us h

rJirough

s t r i n g e n t s t a b i l i s a t i o n p ro gr am m e s, w h i c h w o u ld t en d t o a s s o c i a t e

Fund prograxan es w i t h r e g r e s s i v e d i s t r i b u t i o n a l p o l i c i e s , t he e v i d e n c e on

t h i s

s u r v e y ed i n c h a p t e r 6 i s i n c b n c l u s i v e .

In th e absence o f more c on c lu s i ve ev id enc e i , the r e a re good reaso ns

f o r d o u b t i n g v /h eth er s t a b i l i s a t i o n p e r s e h a s a s y s t e m a t i c t e nd e n c y t o

i n c r e a s e i n e q u a l i t i e s b e c au s e o f t he great v a r i e t y o f c i r c u m s t a n c e s a c r o s s

c ou n tr ie s and prograr iraes. T l ie fo l l o w i n g a ppe ar to be among the more

i m p o r t a n t - d e t e r m i n i n g c o u n tr y v a r i a b l e s :

~ t he c o n p o s i t i o n , f a c t o r p r o p o r t i o n s e nd c v n e r s h i p o f C K p o rt

a nd i m p o r t - s u b s t i t u t i n g i n d u s t r i e s , v i s a v i s t he p ro d u c e r s

o f

n o n - t r a d e d goods an d s e r v i c e s ;

1 3 U n f o r t u n a t e l y J F r en k e l and O ' ]5onne l l f a i l t o make the imp or t an t

d i s t i n c t i o n , e x p l a i n e d i n c h a p t e r 5 , betv/ een p r e - c o n d i t i o n s ,

pe r f o r m a n ce c r i t l r i a and oth er

(non-binding)

programme co mp on ent s. By

the use o f v/ords l i k e ' demand ' and ' i r . p os e ' they seem to i o p ly tha t the

l i b e r a l i s a t i o n o f p r i c e c o n t r o l s an d t he i n i p o s i t i o n o f s a l a r y c e i l i n g s

a r e i n c l u d e d a s p r e c o n d i t i o n s o r ^ .^ ^.torm an ce c r i t e r i a , \/aereas c l i a p t e r

6 ha s shov/n t h a t t l i i s i s n o t u s u a l l y t h e . c a s e .


23/44

" f a c t o r m o b i l i t i e s a nd o t l i e r d e t e rm i n a n t s o f wage a nd p r o f i t

r e s p o n s e s t o c ha ng in r;, m a r k et c o n d i t i o n s ; a nd e l a s t i c i t i e s o f

s u b s t i t u t i o n

bett^êan fa c to r s -

the poxêr o f soc io -econtsn i - c

g r o ups

t o p r o t e c t t h e m s el v es a g a i n s t

a d v e r s e c on se q u e n ce s , f o r exa m p le t h r ou g h t r a de u n ion s a a d o t h e r

s p e c i a l - i n t e r e s t o r g a n is a t i o n s

- t h e s h c r e c f 2 2 t d e m - s e c t o r wsges i n (a ) t o t a l r e t u r n s t o l a b o u r

and (b) GDP;

- t he i n c i d e n c e a c r o ss s o c i o - e c m c t i i c g r o ups o f m a r g i n a l r e d u c t i o n s

i u g ove rn m e n t spe n d in g a nd m a r g i n a l i n c r e a se s i n ta x r e ve n u e s .

I t i s a l s o i m f o r t a n t t o c o n s i d e r th e p e r i o d o f t im e a o v e r w h i c h d i s t r i b u t i o n a l

c o n s e q ue n c e s a re t o b e j u d g e d . I n p a r t i c u l a r , t h e r e may w e l l b e a s h o r t -

m n t e n de n cy f o r a b so l u t e po ve r t y t o i n c r e a s e , a s a con se q u e n ce o f r e du ce d

con3ut??)tion and employment , bu t t h i s nay be nore than compensated fo r i n

t he l o n g e r - t e r m i f s t a b i l i s a t i o n p r o v i d e s a s p r i n g - b o a r d f o r s u s t a i n e d

e con om ic g r ow t h .

I t i s a u r e l y i m p o s s i b l e t o g e n e r a l i s e about t h e n a t u r e o f t h e v a r i a b l e s

j u s t d e s c r i b e d i n t he

ways

w h i c h l e a d t o u n am b igu ous a p r i o 14 c on c l u s i o n s

about th e d i s t r i b u t i o n a l c o ns eq ue nc es o f s t a b i l i s a t i o n p ro gram m es, e s p e c i a l l y

g i v e n t h a t t h e p rogr am m es t h e m se l v e s d i f f e r c on s i de r a b l y ( s e e ch a p t e r 6

p p . ) , 'T e s h o u l d b e p a r t i c u l a r l y f o f t he a rg um e nt s u s e d about r e a l

wages, f o r t h e s e h a ve b e en u n d u l y i n f l u e n c e d b y t he r a t h e r a t y p i c a l s t r u c t u r e s

o f sone of the more adv anc ed L a t i n A m e r i c a n e c o n o m i e s , i n

t ^h i ch

m o d e m - s e c t o r

wages form a large p a r t o f l a b o u r i n c o m e s . I t

does

n o t n e c e s s a r i l y

follow

t h a t f a l l i n g m o d e m - s e c t o r r e a l wages w i l l i n c r e a s e i nc om e c o n c e n t r a t i o n .

Itany o f th e po or er

Idcs

a re d i a r a c t e r i s c d

h y

a

large

a m o m t o f

ntsx-xâge

l a bou r - engaged i n s m a l l h o l d e r f a r m i n g , t he ' i n f o r m a l s e c t o r ' a nd s e r v i c e

a c t i v i t i e s

- and mucii l a r g e r r e t u r n s t o l a bo u r i n t h e u r ba n as a g a i n s t t h e

r u r a l

s ec t o r s ( L i p t o n , 1 9 7 7 ) . T a ke t he u n e x c e p t i o n a l

e x a s ^ l e

o f a

prograr i re wh ic h impo ses a f r e e z e on m o d e m - s e c t o r wages a nd i n c r e a s e s

a g r i c u l t u r a l p r o d u c e r - p r i c e s . D ep e nd i ng o n t he r e l a t i v e ia i p or t an c e o f

t i ie xâge-labour f o r c e , o f s m a l l h o l d e r p r o d u c t i o n i n t o t a l a g r i c u l t u r e ,

and so o n , suc h a programrae c o u l d e a s i l y r e s u l t i n r ed u c e d in c om e

c o n c e n t r a t i o n .

B o l i v i a p r o v i d e s an a n t i l l u s t r a t i o n o f t h e i m p o r ta n c e o f l o o k i n g .

-1

,4

b e y o n d r e a l

wape

t r e n d s - i n t h e m o d em s e c t o r . :

' 4 From p .25 o f a m imeographed ve r s i o n o f John son and Sa lo p (1930).


24/44

Of t li e t o t a l l a b o r f o r c e , 1 8 . 4 pe r c e n t a r e e n p l oy e e s a nd

draw

some 55 .2 pe r ce nt o f l ab or iu cotae . In co n t r as t 81 .6 pe r ce nt

a r e s e l f - e m p l o ye d a n d e a r n on l y 44 . S pe r c e n t o f l a b o r i n com e .

H e n c e , th e m o st i m p o r t a n t d i s t r i b u t i o n a l q u e s t i o n i s t he e f f e c t

o f the program on the r e l a t i v e income sha res o f these t i/o g ro up s .

M o r e o v e r , t he o v e r a l l

degree

o f i n e q u a l i t y i n B o l i v i a c a nn o t be

i m p ro v ed g r e a t l y b y s e c u r i n g a m ore e q u i t a b l e d i s t r i b u t i o n of

i n c om e i n t h e m o d e m s e c t o r , b e c a u s e o f t h e m uc h w i d e r d i s p a r i t y

bett-reen th e n i od e m s e c t o r a nd t h e t r a d i t i o n a l s e c t o r . H e n c e , a

k ey d i s t r i b u t i o n a l i n d i c a t o r i s what h a ppen e d t o t h e r u r a l - u r b a n

te rms o f t r a d e .

I t o r e ove r ,

v^ages

a r e n o t n e c e s s a r i l y t o b e r e g a r d e d a s s a c r o n s a n c t ,

e ve n on d i s t r i b u t i o n a l g r o un d s . T h e re i s , a f t e r a l l , some t r a d e - o f f

between t h e l e v e l o f t;ageB and the volume of employment (unless one

m ak es p e c u l i a r a s s u m p ti o n s z e r o r e s p o n s e s t o c h an g es i n r e l a t i v e p r i c e s )

e nd t h e r e i s e v i d e n c e t h a t l i b e r a l i s a t i o n p rogram sues t e n d t o b e a s s o c i a t e d

w i t h i n c r e a s e d l a b o u r i n t e n s i t y a nd e m p lo y n i en t .^ ^ M o r e o v e r , i t s u r e l y

i s

p o s s i b l e fo r wages t o r i s e t oo f a s t t o b e com pa t i b l e n o t on l y w i t h

p ay m en ts e q u i l i b r i u m an d r e d uc e d i n f l a t i o n b a t a l s o w i t h an a c c e l e r a t e d

l on g e r - t e r m g row t h o f ou t p u t an d e m p l oym e n t . l a su ch c a se s i t i s im po r t a n t

t o i n c l u d e wage r e s t r a i n t i n any e f f e c t i v e p ac k ag e o f s t a b i l i s a t i o n

m e a su r e s .

T h e r e i s a n o t h e r c o n s i d e r a t i o n . I n o r d e r t o a r r i v e a t a r e a s o n a b l y

r ou n de d j ud fr em en t on s t a b i l i s a t i o n p rogr am m es i t i s a l so im po r t a n t t o

c o n s i d e r t h e probable d i s t r i b u t i o n a l c o ns eq ue nc e s o f n o t i n t r o d u c i n g a

p ro gra mm e. E c o n o m i c d i a e q u i l i b r i a iaay a l s o i n c r e a s e i n c c m e c o n c e n t r a t i o n j

as i s s u g g e st e d i n c h a p t e r 2 ' 3 d i s c u s s i o n o f th e c m s e q u e n c e s o f i n f l a t i o n .

Ex ch a n g e a n d p r i c e co n t r o l s may e q u a l l y a c t t o t h e d i s a d va n t a g e o f t h e po o r ,

n o m a t t e r

what

the in ten de d re s u l t s m i ght be . (Siana i s one o f the

c o u n t r i e s e x e m p l i f y i n g t h i s s i t u a t i o n ( K i l l i c k , 1 97 8 ). T h e s u rv e y o f

L a t i n M e r i c a n e x p en e n c e s i n c h a p t e r C2 a l s o i /a m s u s a g a i n s t a s su m i n g t h a t

t l ie s t r u c t u r a l i s t / p o p u l i s t p o l i c i e s w h i c h ar e mo st o f t e n c o n t r a s t e d w i t h

t h ose o f t he E IF a r e b e n e f i c i a l t o t h e po o r . Th e r e m ay b e som e

i n i t i a l

g a i n s b u t t he i n c r e a s i n g e c on o mi c d i f f i c u l t i e s a re l i a b l e t o r e v e r s e

t he ^ e w e l l p r i o r t o t he i n t r o d u c t i o n o f an y s t a b i l i s a t i o n p a c k a ge ,

i i a n l e y ' s

J a m a i c a , s t u d i e d i n c h a p t er 0 4 , y i e l d s a s i n i l a r e xa m p le ,

where

o s t e n s i b l y e g a l i t a r i a n m e as ur es n ay w e l l h av e h a d a d ve rs e d i s t r i b u t i o n a l

c o n s e q u en c e s , b y v / id e ni n g u r b a n - r u r a l d i s p a r i t i e s a nd b y r e t a r d i n g t he

15 S ee K r u e g e r , 19 7 8, pp , 2 5 2 -5 9 ,


25/44

grotrth o f the economy, I-exico o f fer*? a fu rt h e r exansple

(I^eintraub,,

1981 p . 290)I

Much

nore than

wage

a nd s a l a r y e a r n e r s , t h e d i s a d v a n t a g e d

groups i n H ex ic o are the unemployed and underenq>loyed.

A l t h ou g j i r e a l wages d e c l i n e d d u r i n g th e f i r s t tw o y e a r s o f

t h e s t a b i l i z a t i o n p r og r am , t he y h a d i n c r e a s e d d u r i n g t h e

p r e v i ou s ye a r s o f g r ow in g i n f l a t i o n . Th ose x rho p r e su m a b l y

s u f f e r e d i so st f r o a t h e i n f l a t i o n were th ose vTho had no re g u la r

wages o r i n c a a e s . T h e s t a b i l i z a t i o n p r og r am may h a ve h u r t t h i s

g roup bu t t h e y u e r e p r oba b l y h u r t m uch m or e f rom t l ie i n f l a t i o n a r y

de ve lopm e n t s a n d t h e e c m o m i c s t a g n a t i on p r i o r t o t h e

s t a b i l i z a t i o n pr og ra m.

Among ot he r c oun t ry examp les , ou r Ind on es i an s tud y ( c l i ap te r C3 ) pr ov id es

a n e xa m pl e o f a n e f f e c t i v e s t a b i l i s a t i o n p rogram rae a s s o c i a t e d w i t h s ome

a p p ar en t r e d u c t i o n s i n i n e q u a l i t y .

F i n a l l y t l ia a rg um en t a b ou t d i s t r i b u t i o n a l e f f e c t s s h o u l d b e s e en

i n t h e co n t e x t o f ou r e a r l i e r d i s c u s s i on o f p rogra mm e im pa c t s on o t h e r

v a r i a b l e s . By a n d l a r g e , ou r r e su l t s h a ve shown p r og r am n e s t o h a ve

g e n e r a l l y l i m i t e d i r r p a c t . I f t h i s r e s u l t i s a c c e p t e d , i t seeias u n l i k e l y

t h a t t ii e d i s t r i b u t i o n a l e f f e c t s c an h av e b ee n v e r y p o t e n t e i t l i a r ,

e s p e c i a l l y becau se the programmes to no t o f te n appear to b r i n g about the

d e f l a t i o n t h a t i s w i d e l y e x p e c t e d o f th em .

S o d e s p i t e t h e s h o r t a g e o f s y s t e m a t i c e v i d e n c e i t i s p o s s i b l e t o

a r r i v e a t a f a i r l y f i r m c o n c l u s i o n a bo ut th e i m p a c t o f s t a b i l i s a t i o n on

i n e q u a l i t y . I n t h e g e n e r a l c a s e , p rogram me e f f e c t s a r e l i k e l y t o b e

q u i t e coa i p l e x . D e pe n d in g u pon t h e c h a r a c t e r i s t i c s o f t i ie econ on r/^ t h e

program me i n q u e s t i o n an d t he p o l i t i c a l p r i o r i t i e s o f tl i e r e s p o n s i b l e

g o v er n m e nt , t he n e t e f f e c t c o u l d b e to i n c r e a s e o r r e d uc e c o n c e n t r a t i o n ;

t h er e i s n o t h i n g i n t r i n s i c t o t he l o g i c o f s t a b i l i s a t i o n t h a t re c tu ir es

i n e q u a l i t i e s t o i n c r e a s e . G i v e n o ur f i n d i n g s on o t h e r v a r i a b l e s , h ov re ve r,

i t i s mo re l i k e l y t ha n n o t t h a t m os t p ro g ra m ae s h a v e n o s t a t i s t i c a l l y

s i g n i f i c a n t e f f e c t s on e x^ay o r t h e o t h e r , a l t h o ug t i t h i s g e n e r a l c o n c l u s i o n

i S ; o f c o ur se ^ c o n s i s t e n t w i t h s p e c i f i c e x c e p t i o n s i n e i t h e r d i r e c t i o n .

J o h ns o n a nd S a l o p ' s ( 19 80 r ev i ex j o f t he d i s t r i b u t i o n a l e f f e c t s o f IIIF

p ro gram m es i n B o l i v i a , G h a n a, I n d o n e s i a a n d t he P h i l i p p i n e s p r o v i d e s

a X'/e 11 - roun ded c on c lu s i o n (p . 23 ) ;

.1 . : . '. .. . T h i s an a l y s i s sup po r t s the viex ; t i i a t

s t a b i l i z a t i o n program s n e c e s s a r i l y hav e d i s t r i b u t i o n a l

r e p e r c u s s i o n s . T l i a t an ec on om y i s i n a c h r o n i c s t a t e o f

e x t e r n a l i m b al a n c e i m p l i e s t l i a t t ii e l e v e l an d s t r u c t u r e

o f

do c t e s t i c dem an d a s x r e l l a s t h e a s so c i a t e d s e t o f p r i c e s


26/44

a n d f a c t o r r ev?a rds a r e u n su s t a in a b l e . D om e s t i c

p o l i t i c a l c o n s i d e r a t i o n s w i l l l a r g e l y d e t e rm i n e who

bears t h e b u r d e n o f r e d u c i n g a nd r e s t r u c t u r i n g

aggregate

dem an d i n a m a nn er c on s i s t e n t x / i th ti i e su s t a in e d a ch i e ve

m en t o f e x t e r n a l b a l a n c e . M o r e o v e r , t iae a s s o c i a t e d

r e a l l o c a t i o n o f f a c t o r s o f p r o d u c t i o n a c r o ss s e c t o r s

e n t a i l s ch a n g e s i n t h e s e t o f p r i c e s a nd f a c t o r paym e n ts

t h a t ,

f ro m a s h o r t ~ n m e g a l i t a r i a n p e r s p e c t i v e , may b e

( m d c i i r a b i e a nd y e t a re n e c e s s a r y f o r t h e a t t a i n m e n t o f

d ie ec ono my 's ba la n c e of pa jrments and g rowth o b j e c t i v e s .

T h u s , r e a l wage r a t e s m ay h a ve t o f a l l a n d r e a l p r o f i t

r a t e s i n c r e a s e s o a s t o e n c o u ra g e i n c r e a s e d f o r e i g n c a p i t a l

i n f l o w an d p r i v a t e dom estic c a p i t a l f o r m a t i o n . S i m i l a r l y ,

because

th e m o b i l i t y o f l a b o r an d c a p i t a l i s l i m i t e d , f a c t o r

rewards i n e x p o r t i n d u s t r i e s w i l l t e n d t o r i s e a t th e

expense

o f

t h e i r c o u n t e r p a r t s i n m ore d o m e s t i c a l l y o r i e n t e d i n d u s t r i e s

i n tha pro ce ss o f mov ing toward a s u s t a i n a b l e s i t u a t i o n .

D e pe n d in g on t h e s t r u c t u r e o f t h e e co n on ^ , t ti e se ch a n g es

may co n st i tu te a movement t o w ard o r away fr om e q u a l i t y .

F i n a l l y , p e r h a ps t l ia mo st i m p o r t a n t e f f e c t o f a s u c c e s s f u l

program on bo th the s t r u c tu re o f the econoriy and the d i s t r i

bu t i on o f in com e ope r a t e s on l y ove r t im e t h r ou g h t he i n c r e a s e d

i n f l o w o f c a p i t a l a nd t h e c o r r e s p a v d i n g l y i n c r e a s e d r a t e s o f

i n v e s t n e n t . F u t u r e r e s e a r c h m i g h t p r o f i t a b l y b e d i r e c t e d to

t h i s t o p i c .

B u t g i v e n t h i s e x p l i c i t r e c o g n i t i o n b y members o f i t s s t a f f t h a t e f f e c t i v e l y

i n p l e m e n t e d program ntes a r e u n l i k e l y t o b e d i s t r i b u t i o n a l l y n e u t r a l i s i t

n o t

un w i s e

fo r the Fund management t o

r e f u s e

as a m a t t e r o f p r i n c i p l e

t o c o n s i d e r s u c h r e p e r c u s s i o n s when d e s i g n i n g an d e v a l u a t i n g t l i e i r

p r o g r a m m e s p a r t i c u l a r l y because a c o m b i n a t i o n o f d e v a l u a t i o n , p r i c e d e c o n t r o l ,

wage c e i l i n g s a nd g ov er nm e n t e x p e n d i t u r e c u t s c a n r e i n f o r c e e ac h o t h e r

i n ways

t h a t c o n s i d e r a b l y i n c r e a s e i n e q u a l i t i e s ? N o d o ub t t h i s i

p r i m a r i l y

a ma t te r fo r govern iaents bu t t ha t i s t r ue o f a l l a sp ec t s o f

n a t i o n a l

p o l i c y . F un d m i s s i o n s p r o v i d e p o l i c y a d v i c e o n how t o s ec u r e

the impact of imf stabilisation

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