Professional Documents
Culture Documents
This Report is the sixth in an annual series as- resources. The stress on efficiency in Part II of this
sessing development issues. Part I reviews recent Report should not be seen as signaling any change
trends in the international economy and their im- in the Bank's focus on poverty issues.
plications for the developing countries. As in pre- Governments everywhere must wrestle with
vious years, Part II is devoted to a special topic; difficult management problems as they seek to
this year the focus is on the management and fulfill their heavy and varied responsibilities. To
institutional aspects of development. ease this burden, many countries have found it
The early recovery in the world economy fore- advantageous to give managers within the public
seen in last year's World Development Report did not sector greater autonomy over operational deci-
materialize. The recession has lasted longer than sions, to involve local communities in the design
expected and has set back global development more and implementation of service delivery programs,
decisively than at any time since the Great Depres- and to use prices and market mechanisms more
sion. The indications of an upturn are now firmer, in place of administrative interventions. At the
but the international financial system remains se- same time, successful measures to overcome skill
verely strained and protectionism continues to be shortages and strengthen public services have in-
an ominous threat. cluded making training more job related, building
Part I examines how alternative policies may more effective career development systems, and
affect the future prospects for recovery. The Re- linking incentives more closely to performance.
port concludes that the present financial crisis is Good economic management depends, first and
manageable, provided concerted efforts are made foremost, on the adoption of policies that stimu-
both nationally and internationally. It is essential late enterprise and efficiency, but it depends also
for the industrial countries to maintain the mo- on the quality of the public sector institutions re-
mentum of their recovery, to promote freer trade, sponsible for executing these policies and for pro-
and to ensure growth in capital flows. Equally viding public services. Developing countries' gov-
important, developing countries must for their part ernments typically have had to work in very difficult
continue their efforts to adjust their economies to conditions, beset by shortages. It is all the more
the new external circumstances and thereby regain remarkable that so much should have been accom-
the confidence of their creditors. plished over the past thirty years in building up
The interdependence of the global economy has systems of government. The Report draws on this
become strikingly evident over the past three years. experience to identify common problems and pos-
Not only does recession in the industrialized coun- sible ways of addressing them.
tries lead to stagnant export markets and lower This Report tackles a difficult and important
capital flows for the Third World; retrenchment in subject not previously broached so directly by the
the developing countries also means less employ- Bank. It is a staff report and the judgments ex-
ment in the developed countries. The recession pressed in it do not necessarily reflect the views
has badly hurt all countries, though self-evidently of our Board of Directors or the governments they
the poor are less able to withstand the shock. But represent. As in previous years, the Report in-
the ability of different countries to cope with the cludes updated World Development Indicators,
current difficulties has varied greatly. This Report which set out selected social and economic data
seeks to learn from those significant differences in for more than a hundred countries.
country performance.
Even with optimistic assumptions about sus-
tained growth in the industrialized countries over
the next decade, limited capital flows and trade
growth are likely to be serious constraints to de-
veloping-country growth. Raising living standards
and combatting poverty in the developing coun-
tries will depend more than ever on achieving
greater efficiency in the use of human and material A. W. Clausen
111
This Report was prepared by a team led by Pierre Landell-Mills and comprising Ramgopal Agar-
wala, Richard Heaver, Dominique Lallement, Geoffrey Lamb, Selcuk Ozgediz, and Mary Shirley,
assisted in particular by Engin Civan, Rahul Khullar, Leonie Menezes, Manon Muller, Hossein
Partoazam, Joost Polak, and Paramjit Sachdeva. The Economic Analysis and Projections Department,
under the direction of Helen Hughes, prepared the material on which Part I is based and supplied
data for the whole Report. The work was carried out under the general direction of Anne 0.
Krueger, with Peter Wright as senior adviser and Rupert Pennant-Rea as principal editor.
With respect to Part II, the team would like to acknowledge the considerable assistance provided
by the staff of the Development Administration Division of the United Nations, International Center
for Public Enterprises, International Labour Organisation, International Monetary Fund, and Sec-
retariat of the Development Assistance Committee of the OECD. In addition to Bank staff and those
who prepared background papers (listed in the Bibliography), many others made helpful comments
or contributions. Among these were Jose Abueva, Pierre Amouyel, John Armstrong, Michael Bentil,
Rodrigo Botero, Peter Bowden, Robert Chambers, Kenneth Davey, Reginald Green, Metin Heper,
Leroy Jones, Christopher Joubert, Mahn Jae Kim, David Korten, Melody Mason, Gabriel Mignot,
Jon Morris, David Murray, Bernard Schaffer, Amartya Sen. Frank Sherwood, Arthur Turner, and
Peter Wilenski. However, none of the above is responsible for the views expressed in the Report.
The authors would also like to thank the many other contributors and reviewers and the production
and support staffespecially Rhoda Blade-Charest, Banjonglak Duangrat, Jaunianne Fawkes, Christine
Houle, Carlina Jones, and Gerry Quinn.
iv
Contents
Definitions ix
Glossary of acronyms and initials x
Overview 1
The 1980-82 recession 1
International collaboration 3
National development efforts 4
V
8 Managing state-owned enterprises 74
The growing fiscal burden 74
The nature of SOEs 75
Defining objectives 76
Control without interference 78
Institutional links between government and enterprise 78
Holding managers accountable for results 81
Liquidation 85
Divestiture 85
Agenda for reform 86
9 Project and program management 88
Managing physical development 88
Managing people-centered development 92
Managing multiagency programs 96
Some lessons learned: a summary 99
10 Managing the public service 101
Availability and distribution of skills 101
Public service training 106
Personnel policies and management 109
A concluding note: the cultural dimension 113
11 Reorienting government 115
The historical and political context 115
Managing administrative change 116
Economizing on management 117
Making bureaucracies responsive 123
Conclusions 124
12 Concluding themes 125
Technical appendix 128
Historical data 128
Projections 129
Bibliographical note 131
Text tables
1.1 Key indicators, 1973-82 1
vi
3.2 Commercial primary energy production and consumption by country group, 1970-95 30
3.3 Past and projected growth of export volumes, 1965-95 31
3.4 Exports of developing countries, 1980-95 31
3.5 Past and projected increases in trade prices, 1970-95 31
3.6 Workers' remittances to developing countries, 1980-95 32
3.7 The financing of current deficits for all developing countries, 1982-95 33
3.8 Past and projected indicators of domestic performance, 1960-95 38
5.1 Cost of public services as a share of GDP 48
5.2 Investment by SOEs as a percentage of gross fixed capital formation in selected countries 49
6.1 Indices of price distortions and various components of growth in the 1970s 60
Text figures
1.1 GDP growth rates, 1965-82 2
2.1 Two periods of recession in industrial countries, 1974-75 and 1980-82 8
2.2 Petroleum prices, 1972-83 8
2.3 Interest rates, real and nominal, 1970-82 9
2.4 Export earnings of developing countries, 1965 and 1980 10
2.5 Composite commodity price index, 1948-82 11
2.6 World prices for selected commodities, 1960-82 11
2.7 Balance of payments financing of all developing countries, 1970 and 1982 16
2.8 Capital flows to developing countries, 1982 16
2.9 Current account financing of all developing countries, 1970-82 20
2.10 Debt and debt service ratio of all developing countries, 1970-82 20
2.11 Growth of debt and exports, 1970-83 21
3.1 Global energy consumption, 1970-95 29
3.2 Real GDP growth of industrial countries and export volume growth
of developing countries, 1966-82 29
3.3 Price index of selected commodities, 1982-95 32
3.4 Debt and exports of all developing countries, 1970-95 35
4.1 Growth, investment, and return on investment, 1960-70 and 1970-80 43
5.1 Central government revenue, 1960-80 47
5.2 Government expenditure by category, 1980 48
5.3 Central government expenditure by sector 49
5.4 State-owned enterprises' share of GDP by sector 50
5.5 State-owned enterprises' share of value added in manufacturing 51
5.6 Nonfinancial state-owned enterprises' share of GDP 51
6.1 Price distortions and growth in the 1970s 62
8.1 Net claims on the budget of nonfinancial state-owned enterprises 75
8.2 Growth of nonfinancial state-owned enterprises 76
9.1 Number of cities with populations of more than one million, 1960-2000 97
Boxes
2.1 Insuring international investment 17
2.2 Restructuring developing countries' debts 22
3.1 The implications of a 15 percent across-the-board increase in protection in industrial countries 36
4.1 The concept of efficient pricing 42
4,2 Irrigation design and management 45
4.3 The costs of poor road maintenance 45
5.1 Bus services: the comparative advantage of private operators 52
5.2 Management contracts for water supply in the Ivory Coast 53
5.3 The search for efficiency in China: the rural production responsibility system 54
5.4 Reform of the Turkish fertilizer industry 55
6.1 Price distortions and growth: a statistical analysis 63
7.1 Liberalization in Sri Lanka 66
vii
7.2 Japan: thematic plans and guiding visions 67
7.3 The Republic of Korea: flexible policies and strong planning 68
7.4 Brazil: flexibility and pragmatism in managing industrialization 69
7.5 Government watchdogs: tracking bureaucratic effectiveness 72
7.6 The management information revolution 73
8.1 Conflicting objectives: the Ghana Cocoa Marketing Board 77
8.2 Autonomy, accountability, and incentives: KTDA 78
8.3 Contracts between the state and its enterprises: the experience of France and Senegal 79
8.4 The control of state-owned enterprises in Brazil 80
8.5 Ethiopian Telecommunications Authority 80
8.6 Performance evaluation in Pakistan 82
8.7 TANESCO: a study in institutionbuilding 85
9.1 PUSRI: a long-term strategy for management development 89
9.2 Contracting maintenance to the private sector 90
9.3 Backing decentralization with authority and resources 91
9.4 NIA: learning a participatory approach to irrigation development 93
9.5 The Training and Visit System of agricultural extension 94
9.6 Field staff incentives: private profit versus public service 95
9.7 Housing for the poor: tapping local initiative in San Salvador 96
9.8 Project management units: integration in isolation 98
9.9 Integrated rural development in Colombia 99
10.1 Trends in public service employment 102
10.2 Technical cooperation in development 104
10.3 Brain drain: who gains? 105
10.4 High returns to secondary education 106
10.5 Malaysia's INTAN: training that works 108
10.6 Improving the relevance of training 109
10.7 Personnel reform in Bangladesh: persistence pays 110
10.8 Volunteer executive services: a new form of technical cooperation 113
11.1 Institutional development in industrialized countries 116
11.2 Corruption 117
11.3 Experiences with comprehensive administrative reform 118
11.4 Thailand's approach to institutional reform 119
11.5 Tunisia's rural development program 121
11.6 Decentralization in a socialist economy: Hungary 122
Definitions
The principal country groups used in the text of East European nonmarket economies include the
this Report and in the World Development Indi- following countries: Albania, Bulgaria, Czechoslo-
cators are defined as follows: vakia, German Democratic Republic, Hungary,
Developing countries are divided into: low-in- Poland, Romania, and USSR. This group is some-
come economies, with 1981 gross national product times referred to as nonmarket economies.
(GNP) per person of less than $410; and middle-
income economies, with 1981 GNP per person of $410 Economic and demographic terms are defined in the
or more. Middle-income countries are also divided technical notes to the World Development Indi-
into oil exporters and oil importers, identified below. cators.
Middle-income oil exporters comprise Algeria, Official Development Assistance. The data on Of-
Angola, Congo, Ecuador, Egypt, Gabon, Indone- ficial Development Assistance in Table 18 of the
sia, Islamic Republic of Iran, Iraq, Malaysia, Mex- World Development Indicators, in Table 2.11, and
ico, Nigeria, Peru, Syria, Trinidad and Tobago, in Box 10.2 are not comparable with the ODA data
Tunisia, and Venezuela. in Table 2.12 and in Chapter 3. The former are
Middle-income oil importers comprise all other based on the OECD Development Assistance
middle-income developing countries not classified Committee (DAC) definitions which show dis-
as oil exporters. bursements of all types by donor countries. The
High-income oil exporters (not included in de- latter show grants and concessional loans received
veloping countries) comprise Bahrain, Brunei, Ku- by the developing countries as reflected in their
wait, Libya, Oman, Qatar, Saudi Arabia, and the balance of payments. The principal differences are
United Arab Emirates. that the DAC definitions cover technical assistance
Least developed countries include Afghanistan, and contributions to multilateral institutions, in-
Bangladesh, Benin, Bhutan, Botswana, Burundi, cluding paid-in capital. The data on ODA receipts
Cape Verde, Central African Republic, Chad, generally exclude these two, and in the case of
Comoros, Djibouti, Equatorial Guinea, Ethiopia, the multilateral institutions include only the dis-
the Gambia, Guinea, Guinea Bissau, Laos, Le- bursement of concessional loans.
sotho, Malawi, Maldives, Mali, Nepal, Niger, Billion is 1,000 million.
Rwanda, Samoa, Sao Tome and Principe, Sierra Tons are metric tons (t), equal to 1,000 kilograms
Leone, Somalia, Sudan, Tanzania, Togo, Uganda, (kg) or 2,204.6 pounds.
Upper Volta, Yemen Arab Republic, and the Peo- Growth rates are in real terms unless otherwise
ple's Democratic Republic of Yemen. stated.
Industrial market economies are the members of Dollars are US dollars unless otherwise speci-
the Organisation for Economic Co-operation and fied.
Development (OECD, identified in the Glossary) All tables and figures are based on World Bank
apart from Greece, Portugal, and Turkey, which data unless otherwise specified. Growth rates for
are included among the middle-income develop- spans of years in tables cover the period from the
ing economies. This group is commonly referred end of the base year to the end of the last year
to in the text as industrial economies or industrial given.
countries.
ix
Glossary of Acronyms and Initials
CMEA Council for Mutual Economic Assistance. OECD The Organisation for Economic Co-
DAC The Development Assistance Committee of operation and Development members are Australia,
the OECD (see below) comprises Australia, Austria, Austria, Belgium, Canada, Denmark, Finland,
Belgium, Canada, Denmark, Finland, France, France, Federal Republic of Germany, Greece,
Federal Republic of Germany, Italy, Japan, Iceland, Ireland, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway, Sweden, Netherlands, New Zealand, Norway, Portugal,
Switzerland, United Kingdom, United States, and Spain, Sweden, Switzerland, Turkey, United
Commission of the European Communities. Kingdom, and United States.
EEC The European Economic Community OPEC The Organization of Petroleum Exporting
comprises Belgium, Denmark, France, Federal Countries comprises Algeria, Ecuador, Gabon,
Republic of Germany, Greece, Ireland, Italy, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Luxembourg, Netherlands, and United Kingdom. Saudi Arabia, United Arab Emirates, and
GATT General Agreement on Tariffs and Trade. Venezuela.
IDA International Development Association. SOE State-owned enterprise.
ILO International Labour Organisation. UNCTAD United Nations Conference on Trade
IMF International Monetary Fund. and Development.
NGO Nongovernment organization. UNDP United Nations Development Programme.
ODA Official development assistance. USAID Agency for International Development,
US Department of State.
1 Overview
The recession that has afflicted the world economy their development efforts, and how these might
since 1980 seems at last to be easing. But the eco- be improved. Chapter 12 sets out concluding themes
nomic conditions of many developing countries which should be read in conjunction with this
have worsened since the last World Development overview.
Report was published. Many middle-income coun-
tries have faced a greater liquidity crisis than was The 1980-82 recession
expected, brought on by high interest rates and
reduced demand for exports. Low-income coun- The recession of the past three years was no sim-
tries dependent on the export of raw materials ple repetition of the mid-1970s (see Table 1.1).
have suffered from historically low commodity Following the jump in oil prices in 1973, GDP
prices in real terms. growth rates in the industrial economies fell sharply
The developing countries' present difficulties are for two years and then recovered rapidly in 1976,
the culmination of events dating back a decade or although in the three subsequent years growth
more. They are a consequence partly of conditions was still well below the average for the 1960s. In
in the industrial market economies and partly of contrast, growth rates were initially less depressed
their own policies. Part I of this Report underlines by the 1979 rise in oil prices, but subsequently
the increased interdependence of all countries failed to match the recovery seen after 1975. The
brought about by the increase in trade and capital second recession was shallower than the first, but
flows, and looks ahead to how the world economy it has lasted longer since industrialized countries
might evolve during the next decade. Part II dis- tightened monetary controls to bring down infla-
cusses how developing countries have managed tion. As a result, unemployment in the industrial
TABLE 1.1
Key indicators, 1973-82
(percent)
Indicator 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
Estimated.
IMF data for 1973 to 1981; GATT data for 1982.
Service on medium- and long-term debt as a percentage of exports of goods and services.
Excludes China.
1
countries, which stayed high at about 5 percent commercial debt, and so were not much affected
after the first recession, has since climbed to more by high interest rates. They have also made im-
than 8 percent. pressive progress in agriculture; India's low GDP
Developing countries are directly affected by growth in 1982 was largely due to the failure of
fluctuations in the industrial world (see Figure 1.1). the monsoon.
Overall their growth rates have been higher, but Low-income countries in Africa, being more de-
even those that have grown fastest have not been pendent on primary commodity exports, have suf-
able to avoid the cyclical influence of industrial fered badly from the world recession. Their per
countries. They have also been affected by high capita income has continued to fall, and there is
interest rates. Both effects were powerful in the now a real possibility that it will be lower by the
end of the 1980s than it was in 1960. To prevent
this happening will require policy reforms by many
African governments, a recovery of commodity
FIGURE 1.1
prices, and a large expansion of international aid
GDP growth rates, 1965-82
to the region.
Annual percentage change All developing countries will find the difficulties
S
of the past few years greatly eased by a recovery
in the world economy. Since January 1983 there
have been encouraging signs that recovery is under
way. In addition:
Nominal interest rates have fallen well below
their peak, reached in 1981. Taking account of the
foreign exchange holdings of developing coun-
tries, each percentage point off Eurodollar interest
rates saves them over $2 billion net in interest
payments in a full year. The ratio of debt service
to export earnings is expected to fall from a peak
of 20.7 percent in 1982 to below 17 in 1984.
-2
Oil prices have come down, partly in response
1965 70 75 80
to the recession, but also because of conservation
measures. For net oil-importing developing coun-
tries every dollar off the price of a barrel of oil
reduces their import bill by approximately $2 billion
early 1980smany developing countries have been in a full year. Some oil exporters have overborrowed
squeezed between stagnating foreign exchange and are now seriously strapped for foreign ex-
earnings and soaring interest payments on their change. However, they should benefit if, as seems
debt. likely, oil prices harden again in the medium term.
Developing countries have reacted to these pres- (This subject is discussed in Chapter 3.)
sures in different ways. Those middle-income It would be premature to assume that the in-
countries that had adopted outward-oriented trade dustrial countries will achieve sustained and steady
policiesmainly in East Asiahave managed to growth such as they experienced in the 1950s and
maintain the momentum of export expansion and 1960s. Continued rapid growth in the early 1970s
avoid serious new debt problems. But some coun- was checked by the recession of 1974-75, and the
tries, including several in Latin America that had subsequent recovery in 1976-79 was not sustained.
borrowed heavily and adjusted less (or inappro- For the present, inflation has been curbed, but
priately) during the 1970s, have been hit by the interest rates and exchange rates continue to fluc-
high interest rates and have had to deflate in re- tuate widely, reflecting (and often contributing to)
sponse to a liquidity crisis. In Latin America as a a pervading sense of uncertainty. Industry and
whole, according to preliminary estimates, GDP agriculture have been slow to adjust to new pat-
fell by 3.6 percent between 1980 and 1982. terns of comparative advantage. The objective of
The two largest low-income countriesChina the industrial countries must be continued recov-
and Indiahave come through the current reces- ery with restructuring, but as yet there are too few
sion with encouraging resilience. They were not signs that underlying structural problems are being
so heavily dependent on foreign trade, had little adequately tackled.
2
International collaboration Nevertheless, as Chapter 2 illustrates, protec-
tionism has not prevented a substantial growth in
Development is a long-term proposition; its im- trade. Developing countries increased the volume
petus is maintained by policies that must be both of their exports by an average 5.1 percent a year
directed at fundamental change and viable in the in 1970-80 (for manufactures alone, the growth
short term. In the 1960s developing countries as rate was 15.9 percent a year). Also, their market
a group made considerable progress in raising pro- share of manufactured goods consumed in indus-
ductivity and real incomes, and in improving so- trial economies has increased from 1.7 percent in
cial indicators such as literacy and life expectancy. 1970 to 3.4 percent in 1980. But the danger lies in
Progress continued into the 1970s, but more slowly the future. Although gains in price and efficiency
as countries encountered short-term economic dif- from freer international trade are still widely ap-
ficulties. Since 1980 short-term problems have been preciated, developing countries are often victims
on a larger scale and now threaten the develop- of short-sighted government action. The political
ment strategies of numerous countries. challenge is first to halt and then to reverse the
The requirements of a far-sighted recovery strat- drift toward protectionism. The ministerial meet-
egy come, in part only, from policy reforms intro- ing of GATT held in November 1982 set the stage
duced by the developing countries themselves. for liberalization. Greater participation by devel-
Others are the responsibility of the international oping countries in GATT would help strengthen
community, and particularly of the industrialized its role as the most appropriate forum for contin-
countries. ued negotiations to reduce trade barriers.
The crisis of the past few years has highlighted
the bonds that join the economies of the devel- Debt and capital flows
oped and developing countries. The most publi-
cized bondsthe financial links between banks in Capital markets have become highly integrated over
the industrialized countries and borrowers in de- the quarter century since currency convertibility
veloping countrieswere once the least visible. was established. While this integration has many
Yet they in turn are intertwined with international merits, a sharp rise in international interest rates
trade: borrowing countries can service their debts can turn an acceptable debt service burden for a
only if they earn enough foreign exchange from developing country into a debt crisis.
exporting. These truisms would hardly be worth Viewed globally, the world debt situation is
repeating were it not that government policies often manageable, though recent difficulties require close
seem to defy them. international cooperation to achieve a sustained
recovery in international trade and to assist those
borrowers facing acute debt servicing problems.
Trade and protectionism Such problems can have one of two causesshort-
age of liquidity or genuine insolvency. The first
Protectionist sentiments have been growing in the arises when a borrower is temporarily unable to
industrial countries. The main reasons have been earn or borrow enough foreign exchange to meet
an implacable rise in unemployment and the fi- its debt service payments, often because interest
nancial difficulties of companies that are no longer rates are themselves unexpectedly high. Insol-
internationally competitive. The temptation to seek vency has far more serious and permanent con-
relief by import controls has been considerable, at notations: a borrower simply does not have the
times irresistible. Among many measures to pro- resources to service its debt, even though it makes
tect ailing industries, governments have erected a maximum use of available resources.
formidable set of controls against the textile ex- The debt problems of most major developing
ports of developing countries. The Multifibre Ar- countries are caused by illiquidity, not by insol-
rangement, covering as much as 15 percent of de- vency. Sustained high interest rates alone may
veloping-country manufactured exports, is the most convert a liquidity problem into a solvency prob-
extreme example of trade restriction since govern- lem. A recovery in world demand, lower interest
ments started to undo the protectionism that con- rates, and determined restructuring of their own
tributed to the depression of the 1930s. In other economies will restore the ability of developing
industries, too, the exports of developing coun- countries to service their debts. In the meantime,
tries have faced new (particularly nontariff) trade they need continued inflows of capital to ease their
barriers. liquidity shortage.
3
That need has been recognized by several ini- role of the state, stresses the importance of ap-
tiatives taken over the past year. Central banks propriate incentives (especially prices) to foster de-
have cooperated to provide emergency loans to velopment, and discusses the institutional ar-
some countries, notably through the Bank for In- rangements needed to formulate a consistent
ternational Settlements. The International Mone- development strategy and carry it out. The Report
tary Fund's resources have been substantially ex- draws on country experience to identify ways of
panded. During 1982 the debts of twelve developing making state-owned enterprises and project man-
countries were rescheduled and thirteen others agement more efficient, and, more generally, im-
were under negotiation in the first quarter of 1983. proving the performance of the bureaucracy.
But the ad hoc debt rescheduling characteristic This stress on efficiency is compatible with ef-
of the past is no solution for countries with deep- forts to assist the poor, although in times of fi-
seated problems. Close collaboration by creditor nancial stringency governments often cut pro-
governments, commercial banks, and the inter- grams for the poor. Well-designed programs to
national financial institutions is needed to facil- improve management of public projects, reduce
itate long-term adjustments to restore financial inflationary budget deficits, make bureaucracies
viability. more responsive, limit nonessential activities, and
While steps are being taken to ease the debt share the management burden with the private
difficulties of the main middle-income borrowers, sector so that vital public services are performed
too little has been done to assist the low-income wellall these complement efforts to assist the
countries seriously affected by the 1980-82 reces- poor. Today's difficult economic situation requires
sion. They depend on official aid for 84 percent more than ever a critical appraisal of those well-
of their foreign capital inflows, so their capacity intentioned initiatives that have gone awrythe
to import and to invest is directly affected by the costly subsidy that mainly benefits the better off,
aid programs of the industrialized countries. Aid or the state enterprise that employs a bloated labor
as a proportion of the GNP of DAC members was force at relatively high wages. To raise the stand-
no higher in 1981-82 (0.37 percent) than in the ard of living of the very poor, scarce resources
late 1960s. In real terms official development as- must be carefully targeted as well as efficiently
sistance from all sources, including members of managed.
OPEC and the CMEA, rose by 5.7 percent a year
in the 1970s. Concessional aid for Africa would Role of the state
need to rise at about double this rate over the next
ten years if the per capita income of the low-in- The boundary between the state and the private
come African countries is to rise by 2 percent a sector is never clear-cut and varies widely from
yeara very modest target. country to country. For this reason, it is mislead-
ing to discuss efficiency in terms of ownership.
National development efforts What matters more is creating the conditions that
encourage efficiency in both private and public
The benefits of international cooperation can do sector activities. Such an environment is largely
no more than supplement the efforts of the de- determined by governments, not simply in the
veloping countries themselves. Earlier World De- way they affect the private sector through legis-
velopment Reports have reviewed cross-country ex- lative and fiscal measures but also by the way they
perience in selected sectors to identify policies that manage their own affairs.
promote development. This year Part II of the Re- State-owned enterprises are an obvious example
port takes a wider perspective, exploring manage- of how a government's approach to management
ment issues that cut across all sectors. The under- can influence the whole economy. Both developed
lying concern is the search for greater efficiency and developing countries are keen to find ways
in the pursuit of governments' social and eco- to make state enterprises more efficient. The more
nomic objectives. The current economic slowdown successful initiatives have been those which de-
makes the task more urgent, as well as more fined unambiguous and attainable objectives, gave
difficult. a wide measure of freedom to managers to meet
Too often development is discussed only in terms those objectives, and developed performance in-
of policies, without regard to the institutions and dicators that enabled government to monitor prog-
people who decide and execute them. This Report ress.
seeks to redress the imbalance. It examines the The state's role as employerin many devel-
4
oping countries, the largest employer in the mod- have the advantage of detailed knowledge not
ern sectoralso influences the whole economy. possessed by those at the center. Decentralizing
Most developing countries have abundant un- is a way to increase the responsiveness of govern-
skilled labor combined with a shortage of skilled ment to those it serves and can involve those out-
workers. The results are political pressure to over- side governmentcommunity organizations, for
staff the public sector at the lower grades, which examplewhose active support is often necessary
is inefficient and expensive, and fierce competition in promoting development. It can also take the
between the public and private sectors at the top. form of subcontracting, with some public services
Experience has shown that the public sector can provided by private operators.
keep competent staff only by offering pay and Decentralizing is not solely a matter of involving
other benefits that do not lag much behind the a wider range of people in discharging the re-
private sector and by offering a premium to key sponsibilities of the public sector. Governments,
specialists. including socialist governments, can also make
A third area in which governments can improve greater use of markets and prices, since they avoid
their own administrative arrangements is in the the heavy administrative requirements of central-
making of economic policy. Current structural ad- ized planning controls. While greater reliance on
justment problems underline the need for greater markets may appear to carry risks, many govern-
attention to policy analysis. Planning has been ex- ments have learned that their own interventions
cessively concerned with producing detailed, long- can easily misfire. The costs of market failure need
term blueprints for development, to the neglect of to be balanced against those of bureaucratic fail-
both policy analysis and the preparation of public ure. The practical advantage of relying more on
investment programs. The process of planning markets is that the public sector can then concen-
formulating a development strategy, analyzing trate on improvements in those activities for which
policy, and assessing investment optionsmatters market solutions are inappropriate.
more than the plans themselves. However, the willingness to use prices to allo-
Many countries still lack the close links among cate resources is on its own not enough. Govern-
policy analysis, investment analysis, and budget- ments also need to ensure that prices really do
ing needed to define and carry out a development reflect relative scarcities. Relative prices changed
strategy. They also need more timely and reliable rapidly during the 1970s, partly because of floating
feedback, which can be obtained by better moni- currencies and two sharp increases in the cost of
toring of the economy. Selective tracking of gov- oil. Many countries failed to adjust their domestic
ernment activities is the key, whether through data prices to these international changes, so price dis-
collection, auditing, or project evaluation. In par- tortions assumed serious proportions. Cross-coun-
ticular, more of the resources of central statistical try analysis for 1970-80 reveals that the best eco-
offices should be devoted to assembling essential nomic performances tend to be closely associated
data on national accounts and other information with the lowest price distortions (the details are
relevant for policy analysis. given in Chapter 6). However, countries that have
Even when governments have effective meth- tried to correct price distortions have seldom found
ods for managing state-owned enterprises, their it easy. To obtain good results, adjustment pro-
own employees, and the formulation of economic grams must be tailored to the circumstances of
policy, they can still find themselves overstretched individual countries and managed with close at-
by the range of responsibilities they have as- tention to timing, pace, and scope.
sumed. Administrative capacity is limited in every
country; in some developing countries it is the Political commitment
scarcest resource of all. Reducing the burden on
senior administrators is therefore a precondition The underlying assumption of this Report is that
for greater efficiency, and much can be achieved all governments of developing countries, what-
by decentralizingboth within the public sector ever their political complexion and their concern
and to groups outside it. for equity, do attach priority to economic and so-
cial development. Governments nevertheless vary
Burden-sharing
greatly in the commitment of their political lead-
ership to improving the condition of the people
Day-to-day decisions can be devolved to those who and encouraging their active participation in the
are responsible for carrying them out, and who development process. When political leaders are
5
recognized for their integrity, vision, and concern in pursuit of these objectives must depend on the
for the public welfare, these qualities can be re- nature of the political system, but the morale of
flected in the ethos and performance of the public the labor force will always be a critical factor.
service and will have a profound effect on all sec- The economic fluctuations of the 1970s, and their
lions of society. But if corruption is rife, public culmination in the recession of 1980-82, have
bureaucracy is likely to become demoralized and underscored the uncertainty of the economic en-
self-serving. vironment in which farmers, businesses, and gov-
Perhaps the most important task of national eco- ernments have to operate. Readiness to take risks
nomic management is to enlist the skills and ener- and show flexibility in responding to unforeseen
gies of the population at large in raising the pro- events are therefore essential ingredients of suc-
ductivity of capital and labor. The routes followed cessful management.
6
Part I World Economic Recession and Prospects for Recovery
2 The prolonged recession
The world economy had another difficult year in policies pursued in the 1970s by individual coun-
1982. Few countries managed to improve on their tries.
previous year's growth, and more than twenty The growth of developing countries depends on
experienced declines in output. The recession that steadily expanding trade and capital inflows, both
had started in 1980 thus continued for a third year, of which are closely related to the level of world
making it the longest since the depression of the economic activity. This chapter first highlights the
1930s. Even those developing countries with ex- dominant influence of the industrialized countries
cellent growth records had to struggle for modest on the length of the recession. It then examines
gains in the face of depressed export markets and how successful developing countries have been in
high debt servicing costs. expanding their market share in developed econo-
Some countries were less badly affected than mies and in increasing trade among themselves.
others (see Table 2.1). As a group, Asian coun- It also analyzes how movements in commodity
tries-which account for two-thirds of the popu- prices have changed the developing countries' terms
lation of the developing world-increased their of trade, and summarizes trends in workers' re-
per capita incomes in each of the three years of mittances. The chapter then describes how devel-
the 1980-82 recession. By contrast, Latin American oping countries have financed their deficits-with-
and low-income African countries suffered de- out serious strains until 1980, but with considerable
clines in per capita incomes, although some among difficulty since then. It looks in detail at the state
them were exceptions. These variations in per- of international indebtedness, and concludes by
formance can mostly be explained by the different reviewing variations in economic performance
TABLE 2.1
Growth of GDP, 1960-82
1980 CDP Average annual percentage growth
(billions of
Country group dollars) 1960-73 1973-79 1980 1981 1982a
7
among the developing countries. A discussion of FIGURE 2.2
the various sources of the historical data is to be Petroleum prices, 1972-83
found in the Technical appendix. Dollars per barrel
35
8
of 1977. If the export prices of developing coun- FIGURE 2.3
tries are used as a deflator, the fluctuations are Interest rates, real and nominal, 1970-82
even more marked and the recent increase has Average annual percentage rate
been dramatic (see Figure 2.3). The high level of 20
real interest rates was a major reason the recession
Nominal
of 1980-82 lasted longer than that of 1974-75. Cor- Eurodollar rate'
10
porate finances in the industrialized countries came
under considerable pressure, leading to heavy
\,/ A-I-
destocking and investment plans being delayed or 0
9
FIGURE 2.4 income oil importers, the share declined from 60
Export earnings of developing countries, 1965 and 1980 percent in 1965 to 36 percent in 1980. Developing
countries can no longer be caricatured as exporters
(percent)
.Nonfactor
services of primary products and importers of manufac-
Manufactures tures. Some have even become significant export-
ers of capital goods, accounting in all for about 6
I
. Agriculture
Fuels
Metals
and minerals'
percent of the world's total.
These changes should not obscure the fact that
for many developing countries-particularly the
poorest-primary products still dominate their ex-
ports. Many countries are highly dependent on
one export commodity: coffee still represents al-
most 90 percent of Burundi's recorded exports and
more than 50 percent of Colombia's. Other ex-
1965 1980
amples include cocoa in Ghana (70 percent), sugar
$44 billionr $498 billionb in Mauritius (more than 65 percent), and copper
Excluding gold. in Zambia (more than 70 percent).
Current prices.
Commodity prices
TABLE 2.2
Exports of developing countries, 1965-82
TABI.E 2.3
Trade prices in current dollars, 1965-82
(Iut',n,ct a,,nual percentage tIaPlgl')
10
FIGURE 2.5 FIGURE 2.6
Composite commodity price index, 1948-82 World prices for selected commodities, 1960-82
Index (1977-79 average = 100)
150 Dollars per ton
80
60 Iron ore
40
-..-.,.--- /-.- -.--. S.
20 -I
Bauxit
0
1960 62 64 66 68 70 72 74 76 78 80 82
70
1950 55 60 65 70 75 80
percent), and the fats and oils group, which de- 1960 62 64 66 68 70 72 74 76 78 80 82
- __ SS_
Tin
_I
/\/ #
bilateral agreements at prices unaffected by short-
term price movements in the free market. Second,
for developing countries heavily reliant on imports
5 ---------------Nicke1'
of food products (accounting for about 13 percent
of total nonfuel merchandise imports of develop-
ing countries), the low prices of grains and fats 1960 62 64 66 68 70 72 74 76 78 80 -82
11
in commodity prices in 1980-82 was devastating. stocks in producing countries which, given future
It had several causes. The prolonged recession in production and consumption prospects, will not
the industrial countries greatly reduced demand, be easily reduced.
while high interest rates made the holding of stocks The recession, in conjunction with the high level
costly. On the supply side, the past three harvests of energy prices and environmental issues, has
have generally been excellent. Record or near-re- forced industrial countries to limit their processing
cord crops have been harvested in North America of minerals. For example, high electricity prices
(wheat, coarse grains, soybeans, and cotton), South have forced the Japanese government to ration-
America (grains and soybeans), and Western Eu- alize its aluminum industry, while economic and
rope (particularly sugar). Grain supplies have been environmental factors may result in plant closures
so plentiful that the Soviet Union's four consec- in the lead and zinc industries. The European com-
utive poor grain harvests have had little impact munity is considering reducing its zinc-smelting
on prices. Supplies of tropical beverages, espe- capacity. Pollution problems have caused the clo-
cially coffee and cocoa, have also been abundant. sure of significant copper-smelting capacity in the
The 1976-77 price peaks for beverages led to con- United States. These changes may mean oppor-
siderable replanting and new planting, and these tunities for investment in processing minerals in
investments have started to increase output. A the developing countries when demand picks up.
severe frost in Brazil in 1981 stemmed the fall in
coffee prices, but its effect will be only temporary. Terms of trade
Since the price elasticities of tropical food prod-
The nonfuel primary producers among the devel-
ucts are low, the fall in prices has not led to much
oping countries suffered a decline in their terms
growth in demand; hence, with bountiful har-
of trade during the past decade. Except in the case
vests, stocks have accumulated. Even with an im-
of Africa, the deterioration after the 1979-80 oil
provement in economic activity, it will take several
price rise was greater than it had been after the
years of good income growth or, alternatively, a
1973-74 rise. Nonetheless, although some low-
succession of poor harvests, for the historically
income African countries benefited from the fall-
large stocks of sugar, cocoa, and coffee to clear.
ing prices of grain, as a group they suffered by
The acreage-reduction programs adopted by the
far the sharpest decline in terms of trade after 1979;
US government for the 1983-84 crop year will lower
this was also the case in the mid-1970s. And all
the world supplies of wheat, rice, coarse grains,
oil-importing countries benefited from the fall in
soybeans, and cotton. The payment-in-kind pro-
real oil prices in 1982.
gram for wheat and coarse grains is designed to
transfer US government-held stocks of grain to
When export prices fall in relation to import
prices, exporters obtain partial compensation if de-
farmers in exchange for leaving their cropland idle.
mand for their products expands significantly. This
If the implementation of such schemes coincides
effect is summarized in the purchasing power of
with both a recovery in economic activity and a
their exports (see Table 2.4). After both oil shocks,
poor harvest, stocks may be quickly run down and
foreign exchange earnings from trade continued
prices could rise sharply.
to improve for all but the low-income African
For industrial raw materialssuch as natural fi-
countries. For the low-income Asian countries
bers, rubber, and metals and mineralsincome considered as a group, the terms of trade gains
elasticities are larger than for foodstuffs. Conse-
from higher oil prices accruing to China more than
quently, reductions in consumption and trade dur-
offset the declines experienced by India.
ing this recession have been more severe. Some
mines have closed down. With reflation, the re-
Protectionism
covery in prices and consumption of these raw
materials is likely to be greater than for foodstuffs. Moves to liberalize trade continued during the
During the past two to three years international 1970s, with the implementation first of the Ken-
stabilization agreements have been in operation nedy and then of the Tokyo Round of the GATT
for five commodities coffee, cocoa, rubber, sugar, negotiations. The Tokyo Round agreement on codes
and tin. Of these, only the price of coffee has been of conduct to govern many nontariff barriers was
significantly affected, mainly because the export an important new approach to reducing protec-
quota scheme of the International Coffee Agree- tionism. The Generalized System of Preferences
ment is the most restrictive. However, support of also lowered barriers to trade in developing coun-
the coffee price has resulted in a large buildup in tries' products.
12
TABLE 2.4
Terms of trade of developing countries, 1973-82
(1978 100)
Low-income
Asia 12.1 -3.2 58.5 15.7
Africa -15.3 -13.8 -18.7 -3.5
Middle-income
Oil importers -9.5 -10.7 4.5 2.5
Oil exporters 59.9 31.8 71.0 11.5
Ratio of export unit value index over import unit value index.
Product of terms of trade and export quantum index.
Not all trade barriers were reduced, however. As for processed agricultural commodities, devel-
The desire to maintain farm incomes in the in- oping countries raised their market share from 3.5
dustrial countries continued to provide a reason percent in 1970 to 3.7 percent in 1980-an average
for protecting agriculture. Tariff and riontariff bar- annual growth of only 0.6 percent. This slow growth
riers against clothing and textile imports from de- was due in part to disincentives to production in
veloping countries also grew. Although some tar- the developing countries. Developing countries
iffs on processed primary products were reduced were also squeezed in third markets, as a result
in the Tokyo Round, others remained. And sub- of industrial countries' increasing the volume of
sidies continued to be used to promote exports of their subsidized agricultural exports such as sugar
capital goods. and beef.
Recession and sharply rising unemployment after In manufactures trade, the developing countries
1979 prompted an upsurge of protectionist pres- have made more progress. The rapid expansion
sure. Restrictions on trade among the industrial of exports of manufactured products from the mid-
countries-notably in automobiles, steel, and ag- 1960s would not have been possible without the
ricultural products-began to increase. While these increase in their share of industrial-country mar-
measures affected relatively few developing coun- kets. Table 2.6 shows that they doubled their share
tries, they made protectionism in general more between 1970 and 1980, though at 3.4 percent in
respectable. The industrial countries stepped up 1980, it was still only a trivial part of the total.
their restrictions against exports from developing Market penetration increased by more than 8 per-
countries, sometimes by increasing tariffs, more cent a year between 1970 and 1977, and still man-
often by import quotas or "voluntary" agreements aged to grow at 7.6 percent a year in 1977-80
to restrain exports. They also used other means despite the marked increase in barriers against
such as restrictive "quality" requirements and health
TABLE 2.5
regulations to achieve protectionist ends. Govern- Share of developing-country exports in the
ments increased subsidies on capital goods ex- consumption of selected agricultural products
ports, which benefited those developing countries in industrial countries, 1970-80
buying the goods, but harmed those who were
competing with industrial countries in the capital import penetration
goods market. Other kinds of subsidies were also Share in estimated (average annual
increased-to foster industries (such as shipbuild- consumption (percent) percentage change)
ing), to aid regions, and to encourage ill-defined Product 1970 1980 1970-80
activities such as research and development.
Sugar 7.8 3.9 -6.7
The overall impact of the increase in protection- Tobacco 21.1 30.2 3.6
ism is hard to gauge. Barriers imposed by the Beef and veal 2.3 0.9 -9.0
industrial countries were most effective in agri- Wheat 0.9 0.1 -19.3
culture, where the developing countries' share of Rice 1.4 1.9 3.1
the industrial countries' market for basic food- Maize 5.1 1.4 -12.1
Tomatoes 5.3 4.7 -1.2
stuffs declined during the 1970s (see Table 2.5).
13
TABLE 2.6 relative newcomers, such as Malta and Mauritius,
Share of developing-country exports also made good progress.
in the consumption of manufactured goods The growth of market penetration does not mean
in industrial countries, 1970-80 that protection was ineffective. Without trade re-
strictions, exports would undoubtedly have grown
Share in estimated
consumpf ion Average annual faster, even in manufactures. Moreover, the pro-
(percent) percentage change tectionist threat must have reduced investment in
Country or
trading group 1970 1980 1970-77 1977-80
export-oriented activities in many developing
countries, increasing supply constraints.
Australia 2.1 5.5 14.9 2.9 Protection is also very costly to the protectionist
Canada 1.3 2.1 5.5 4.2 countries themselves. They have to pay more for
EEC' 2.5 4.6 6.6 7.5
Japan 1.3 2.4 7.8 12.9
goods than they need to, so losing an opportunity
Sweden 2.8 3.8 4.0 4.2 to buttress their anti-inflationary efforts. Their
United States 1.3 2.9 10.6 5.1 poorest consumers are worst affected, since de-
Total 1.7 3.4 8.4 7.6 veloping countries generally specialize in the low-
a. European Economic Community. cost goods that take a large part of the spending
of the poor. Even minor protectionist measures
clothing, textiles, and footwear. The growth of can hamper the restructuring of industrial econo-
market penetration continued to rise in a variety mies, postponing the investment in new indus-
of other products (see Table 2.7), reflecting rapid tries and companies that is needed to revive growth.
diversification in some developing countries' ex- Finally, the more developing countries can in-
ports. crease their exports and growth, the bigger the
The number of developing countries exporting market they provide for exporters in the industrial
manufactures continued to increase throughout the countries. Between 1973 and 1980 the share of
1970s. While northeast Asian countries remained industrial-country exports of merchandise to de-
the most rapidly growing exporters of manufac- veloping countries increased from 23 percent to 28
tures, several southeast Asian and Latin American percent (see Table 2.8). The United States, for ex-
countries also expanded their manufactured ex- ample, now sells two-fifths of its exports to de-
ports considerably in the late 1970s. China's export veloping countries. Buoyant world trade is essen-
expansion was mainly in manufactures (at about tial for, as well as reflects, the well-being of the
18 percent a year in 1977-81). A wide range of global economy.
TABLE 2.7
Share of developing-country exports in the consumption of selected
manufactured goods in industrial countries, 1970-80
14
TABLE 2.8
Share of industrial-country exports to developing countries, 1973 and 1980
Trade among developing countries left as the newly industrializing countries moved
up market. Regional trade expanded because trade
Developing-country exports were increasingly policies stimulated responses to new market op-
drawn to industrial countries in the 1950s and 1960s portunities rather than as a result of formal trade
because the latter were growing rapidly and were agreements. Trade with the rest of the world also
liberalizing trade when others were not. But trade continued to grow fast. Thus, while regional trade
among developing countries ("south-south" trade) grew as rapidly in East Asia as it did in Latin
accelerated in the 1970s, increasing its share of America, its share of total trade stayed constant
their exports from 20 percent in 1973 to 24 percent in the former but rose in the latter.
in 1980; the rapid growth of markets in oil-ex-
porting countries provided part of the south-south Workers' remittances
impetus, as did expansion in the newly industrial-
izing countries. Workers' remittances continue to be a significant
South-south trade has built up in different forms. source of foreign exchange for labor-exporting
In Latin America regional trading arrangements countries. The remittances received by some coun-
encouraged trade diversion: relatively capital-in- tries have been more than half the value of their
tensive and high-cost goods were traded, rather exports; for a few countries, remittances have been
than those exports that reflected the comparative larger than their exports. Even when remittances
advantage of Latin American countries. In East have been small in relation to exports, they have
Asia, by contrast, regional trade helped to pro- provided a higher standard of living for some fam-
mote a more efficient division of production. The ilies. Although the working conditions of migrant
newly industrializing countries were expanding workers are sometimes poor, continuing emigra-
their demand for raw materials, while starting to tion suggests that the private returns far outweigh
export more sophisticated goods and services, some the physical and psychological costs of being away
to countries within the region. This created op- from home (see Box 10.3).
portunities for the region's primary producers- The middle-income oil importers have been the
and for those countries that produced cheap, low- largest recipients of remittances (see Table 2.9).
quality manufactures, since they could fill the gap This group includes the traditional labor exporters
TABLE 2.9
Flows of workers' remittances to developing countries, 1970-82
Average annual
Billions of current dollars percentage growth
Country group 1970 1973 1980 1981 1982' 1970-80 1980-82'
All developing countries 2.3 6.7 24.0 25.5 27.6 26.4 7.2
Low-income
Asia 0.1 0.3 3.0 2.8 3.2 40.5 3.3
Africa 0.1 0.1 0.3 0.4 0.5 na. 29.1
Middle-income
Oil importers 1.7 5.5 116.9 18.4 20.0 25.8 8.8
Oil exporters 0.4 0.7 3.8 3.9 3.9 25.3 1.3
na. Not applicable
a. Estimated.
15
FIGURE 2.7
grown much more slowly, largely reflecting a
Balance of payments financing of all slowdown in activity in labor-importing countries.
developing countries, 1970 and 1982
$628 billion
Capital flows
The growth of developing countries' exports dur-
ing the 1970s was slightly exceeded by the growth
Total $83 billion in their inflows of medium- and long-term capital.
Most significant was the increase in private lend-
Exports ing, which rose at an average rate of 22 percent a
23%
Other
receipts
year in 1970-80 and provided about half of total
7
medium- and long-term capital flows during the
(percent) ,, 1970 / / 1982 / period. Private direct investment contributed 14
100 /7 / percent of the total, and grew by 19 percent a year.
Workers' remittances Official development assistance (ODA) provided
80 Net private transfers 28 percent of the total and expanded by 18 percent
Official
development assistance a year. The relative importance of these various
60
Direct private investment sources of foreign exchange financing is shown in
Official
nonconcessional loans Figures 2.7 and 2.8.
40
Commercial medium-
and long-term debts
20
Commercial short-term loans
Private sources
Use of reserves The share of medium- and long-term debt owed
by the developing countries to private lenders has
doubled since the early 1970s to an estimated 60
The height of the pie charts indicates total receipts of foreign percent in 1982. The share is even higher (more
exchange of all developing countries in current dollars. The
financing of the resource gap is shown in the bar charts; the than 70 percent) when banks' short-term credit is
height of the blocks indicates the share of each component, included; at the end of 1982, short-term credit to-
and the numbers show the absolute amount in billions of taled more than $150 billion. The dramatic increase
current dollars,
in medium- and long-term borrowing reflects the
developing countries' progress in building up cred-
itworthiness, as well as market developments that
in southern Europe (such as Turkey, Yugoslavia, favored a rapid expansion of lending. Private loans
and Portugal) whose workers go to northern Eu-
rope, as well as some of the countries which ben-
efited from sending labor to the oil-surplus states: FIGURE 2.8
Jordan, Republic of Korea, Morocco, Philippines, Capital flows to developing countries, 1982
Sudan, and the Yemens. Remittances to the low-
income labor exporters of Asia also increased; al-
though the total was small in comparison with the
receipts of the middle-income group, it was an
important source of their foreign exchange earn-
ings. Some oil exporters (for example, Algeria, Middle-income
Egypt, Mexico, and Tunisia) also exported labor oil exporters
$28.3 billion
and their remittance receipts increased by 25 per-
cent a year in 1970-80. The traditional labor im-
porters in northern Europe hardly increased their Middle-income
oil importers
immigrant work forces in the 1970s, but the boom $46.3 billion
in the Middle East boosted remittances consider-
ably between 1973 and 1980. In 1980 remittances Low-income
emanating from the industrialized countries economies
amounted to about $19 billion, while the high- $10.7 billion
16
went almost exclusively to the middle-income The relatively low interest rates during most of the
countries. At the end of 1982, more than 70 per- 1970s encouraged this trend, as did restrictions
cent of their medium- and long-term debt was placed by a number of host countries on direct
owed to private sources, while more than 80 per- investment. Multinational firms could often sub-
cent of the debt of low-income countries was still stitute debt for equity flows. In an effort to en-
owed to official sources, mostly at concessional courage direct investment, some countries have
terms. Some of these countries, either because of set up insurance schemes for foreign investors (see
their strong reserve position or because they had Box 2.1).
progressed so little toward full creditworthiness,
held deposits with the international banking sys- Official sources
tem that were greater than their outstanding bor-
rowings from it (see Table 2.10). Aid is provided for a variety of reasonspolitical,
Some of the expansion of bank lending over the economic, and humanitarianwhich are reflected
past decade has substituted for direct investment. in its geographical distribution. About two-thirds
17
TABLE 2.10 overall average has remained at about half that
Net liabilities of selected developing countries, level since the early 1970s. Some DAC countries,
end-December 1982 notably the Netherlands, Norway, Sweden, and
(billions of dollars)
Denmark, have met and even exceeded the 0.7
Country Amount Country Amount percent target. Others-particularly the United
States-have slipped further below it. ODA flows
Brazil 51.77 Cameroon 0.60
Mexico 48.49 Sudan 0.20 from OPEC countries increased rapidly in the first
Argentina 16.43 Tanzania 0.06 half of the 1970s but have since stabilized. None-
Korea, Rep. of 15.12 Sri Lanka 0.05 theless, the share of ODA in their GNP remains
Chile 7.99 Bangladesh -0.10 far higher than in the case of the industrialized
Portugal 7.48 Ghana -0.14 countries. ODA in real terms from DAC countries
Yugoslavia 7.28 Uruguay -0.15
Nigeria 5.48 Kenya -0.23 declined by 5 percent in 1981, and recovered by
Philippines 5.37 Ethiopia -0.23 10 percent in 1982, due in part to deferred dis-
Algeria 4.05 Pakistan -0.46 bursements from the previous year. The 1982 fig-
Turkey 1.36 India -0.56 ure reflects the appreciation in the dollar which
Thailand 1.30 Egypt -1.80 raised both the purchasing power of dollar aid
Indonesia 0.97 China -6.64
receipts and the burden of debt denominated in
Note: A negative sign denotes a net asset position as reported to the dollars. ODA disbursements by source are set out
Bank for International Settlements (BIS).
Source: BIS. in Table 2.11.
Not all official lending to developing countries
qualifies as ODA. Official loans on terms close to
of bilateral ODA goes to middle-income countries, market rates-mostly export credits and loans from
while virtually all multilateral ODA goes to low- multilateral development banks-have been grow-
income countries. Because middle-income coun- ing more rapidly than ODA, rising from 19 to 29
tries have borrowed heavily from private markets, percent of official flows between 1970 and 1980.
ODA constitutes only a small fraction of their total While export credits are available to almost all
capital inflows-20 percent in 1980. By contrast, countries, loans at near market terms from mul-
even though low-income countries receive only 35 tilateral development banks often provide a bridge
to 40 percent of total ODA, it has provided more for countries not sufficiently creditworthy for purely
than 75 percent of their external capital during the private finance, but able to handle some debt on
1970s. Even among low-income countries, ODA's commercial terms.
financial contribution varies widely. In the pop-
ulous countries of South Asia, it was equivalent Financing deficits in the recession
to only 5 percent of gross domestic investment in
1980, and 15 percent of imports. By contrast, ODA In the early 1980s many countries ran into serious
was equivalent to more than 40 percent of invest- balance of payments problems. Recession in the
ment in low-income Africa and 20 percent of industrial countries reduced the export earnings
imports. of developing countries, while high real interest
Although most DAC countries have accepted a rates increased their debt service obligations. Some
target for ODA of 0.7 percent of their GNP, their lenders, concerned about the ability of individual
borrowers to surmount these difficulties and un-
TABLE 2.11 certain about world economic prospects, became
ODA flows from major donor groups, 1970-81 less willing than they had been to increase their
lending.
1970 1975 1981
The outcome (partly estimated) for all devel-
Billions of dollars oping countries in 1982 indicates the extent of the
Total ODA 20.0 31.6 37.6 deterioration (see Table 2.12).
Source Percent The current account deficit was $118 billion,
DAC 88.5 68.4 68.0 the same as in 1981 and more than twice that in
OPEC 4.8 27.9 25.9
Nonmarket economies 6.7 3.7 6.1
1980. It was equivalent to 5 percent of GNP and
25 percent of exports of goods and nonfactor serv-
Note: The figures reflect disbursements reported by donors and ices. By contrast, in 1975-the previous peak def-
therefore differ from net ODA flows given in Table 2.12. (See also
under Official Development Assistance in the Definitions.) icit year-deficits were 3.3 percent of GNP and
Sources: DAC and UNCTAD. 17.5 percent of exports.
18
TABLE 2.12
Developing countries' balance of payments, 1970-82
(billions of current dollars)
Current account
Resource balance -7.2 -28.8 -22.2 -42.3 -91.6 -85.7
Workers' remittances' 1.4 14.2 18.1 19.7 20.8 22.6
Interest payments' -2.7 -16.8 -24.3 -32.9 -41.8 -49.5
Other current transactions -3.5 -4.4 -2.9 -3.4 -6.0 -5.6
Current account balance -12.0 -35.9 -31.3 -58.9 -118.6 -118.2
Financed by net capital flows 12.7 65.1 81.1 81.6 96.6 85.2
Official development assistanced 4.7 16.1 19.6 24.4 23.2 23.9
Official nonconcessional loans 1.1 5.3 7.3 9.8 10.1 11.0
Private loans 4.7 35.1 42.6 35.3 47.7 35.0
Private direct investment 2.2 8.4 11.6 12.1 15.6 15.3
Use of reserves and other capitale -0.7 -29.3 -49.7 -22.8 22.0 33.0
Memorandum items
Debt outstanding 69.4 311.7 370.3 424.2 491.6 548.0
Official 34.0 120.4 136.1 157.2 177.6 199.0
Private 35.3 191.3 234.2 267.0 314.0 349.0
Resource gap as percentage of GNP 1.4 1.8 1.2 1.9 4.3 3.7
Current account deficit as percentage of GNP 2.3 2.2 1.6 2.7 5.5 5.0
Net capital flows as percentage of GNP 2.5 4.0 4.3 3.7 4.5 3.6
Debt service as percentage of GNP 1.8 3.2 3.5 3.4 4.1 4.7
Debt service as percentage of exports 13.5 15.4 15.0 13.6 16.3 20.7
Interest payments as percentage of GNP 0.5 5.0 5.5 5.9 2.0 2.1
Deflator 38.4 83.0 91.7 100.0 99.3 98.4
Estimated.
Net of remittance payments.
Interest payments on medium- and long-term loans.
Net official development assistance, defined as net disbursements of concessional official loans plus net official transfers.
Other capital includes net short-term borrowing, capital not elsewhere indicated, and errors and omissions.
US dollar GDP deflator for industrial countries.
TABLE 2.13
Developing countries' current account balance, excluding official transfers, 1970-82
(billions of current dollars)
Export earnings fell for the second consecu- The external deterioration affected different
tive year, to a level 7 percent below that of 1980- groups of developing countries in different ways
the result of declining dollar prices of exports and (see Table 2.13). For oil importers the high interest
stagnant volumes. rates and depressed export markets of 1980-82 came
Interest payments on medium- and long-term on top of the 1979-80 rise in oil prices, to which
debt rose to nearly $50 billion, 50 percent above most countries had barely started to adjust. Be-
their 1980 level. The London Interbank Offer Rate tween 1978 and 1980 their current account deficit
(LIBOR) for six-month dollar deposits, which de- rose from $26 billion to $72 billion, even though
termines interest payments on the bulk of private they reduced the rate of growth in the volume of
bank loans, averaged 16.6 percent in 1981 and 13.5 their imports from an average 7 percent a year in
percent in 1982. 1975-79 to only 4 percent in 1980. In 1981 they
19
held the volume of their imports constant, but this
FIGURE 2.10
did not stop the deficit from rising to a new peak Debt and debt service ratio of all
of almost $80 billion. Exports were falling rapidly developing countries, 1970-82
while interest payments still rose. In 1982 export Debt service ratio' Debt5
earnings fell again; since capital-importing coun- Percent Billions of current dollars
tries were unable to increase their borrowing, they 20 15 10 5 0 100 200 300 400 500
had to cut back their merchandise imports. 1970
The oil-exporting developing countries initially 71
20
rate of growth of debt halved to an estimated 11 TABLE 2.14
percent in 1982, the slowdown in export earnings Debt service ratios for all developing countries,
was sharper. As a result, the ratio of debt to ex- 1970-82
ports rose from 76 percent to 104 percent between Country group 1970 1980 1981 198t
1980 and 1982; if short-term debt is included, this
ratio exceeded 150 percent. For oil-importing de- All developing countries 13.5 13.6 16.3 20.7
veloping countries, the ratio was far higher than Low-income
Asia 13.3 7.9 8.4 10.1
at any time since 1970; for oil exporters, it was no Africa 6.5 8.8 11.6 28.3k
lower than it had been before the 1973-74 oil price Middle-income
rise (see Figure 2.11). Since a large part of devel- Oil importers 14.0 14.9 18.0 23.0
oping-country debt is denominated in dollars, the East Asia 6.7 7.0 7.6 8.6
appreciation of the dollar in foreign exchange mar- Latin America 13.0 33.3 39.6 53.2
Oil exporters 13.9 13.0 15.7 19.1
kets has added to their debt burden.
Boosted by higher interest rates, the ratio of debt Estimated.
The sharp rise in 1982 reflects the accumulation of arrears and
service obligations to exports rose sharply from does not allow for any reschedulings in 1982.
13.6 percent in 1980 to 20.7 percent in 1982 (see
Table 2.14). Although the incidence of lower ex-
port earnings, more debt, and higher interest rates have risen by less than three percentage points
varied widely among countries, the importance of instead of the seven points it actually did. Of that
lower export earnings is indicated by a hypothet- three-point increase, about half would have been
ical calculation: had export earnings risen at 10 due to higher debt levels and half to higher in-
percent a year in 1980-82 (about half the average terest rates.
increase in the 1970s), the debt service ratio would The way developing-country debt evolved dur-
ing the 1970s left most borrowers particularly vul-
nerable to the pressures of the early 1980s.
FIGURE 2.11
Debt was increasingly composed of loans at
Growth of debt and exports, 1970-83
variable rates, their share rising from less than 10
Billions of dollars percent in 1970 to more than 40 percent by 1980.
400 Variable rates were initially welcomed by many
bankers and borrowers. By eliminating the interest
Oil-importing countrie&'
300 rate risk for lenders, variable rates made banks
more willing to lend long-term during a period of
200
rising inflation. Variable rates also promised to
stabilize real interest rates on long-term debt, if
interest rates changed in line with inflation. How-
100
ever, the tightening of monetary policy in major
countries in recent years raised real as well as
0 nominal rates. Being more reliant on variable rate
1970 72 74 76 78 80 82 loans, developing countries found that market in-
terest rates affected their total interest obligations
Billions of dollars
200 (estimate)
more quickly than before. (By the same token,
they benefited promptly from the interest rate de-
Middle-income oil exporters clines in 1982 and early 1983.)
160
, The practice of syndicating loans also helped
12H to boost private financial flows to developing
Exports countries, by spreading the risks of such lending
80 among many banks. With heightened uncertainty
Debt' about economic prospects, however, banks have
40 had to devote more resources to risk assessment,
increasing their costs and discouraging some smaller
0
banks from further lending. Although the quantity
1970 72 74 76 78 80 82
and quality of information available to lenders have
Medium- and long-term debt disbursed and outstanding.
Includes low-income economies.
improved, many are still dissatisfied with it.
Facing difficulty in obtaining long-term loans
21
(official as well as private), countries looked in- whole regions or groups. The deteriorating aggre-
creasingly to short-term borrowing or to running gate ratios of the past few years understate the
down their reserves. These expedients are custom- predicament of a number of countries (including
arily adopted to smooth out short-term fluctua- some of the largest debtors), while exaggerating
tions in earnings. Their use through the prolonged the problems of others. Genuine difficulty can be
downturn of 1980-82 may have permitted a higher measured by the number of countries that have
level of imports than would otherwise have been sought formal rescheduling or major refinancing
possible, but it has left many countries vulnerable of their debts. Since 1980 more than twenty coun-
to further shocks. By increasing their net short- tries have negotiated to reschedule their debta
term debt, countries also became more exposed to far higher number than in any comparable period
rising interest rates and to sudden withdrawal of (see Box 2.2). Most have rescheduled through the
support by commercial banks. Paris Club, the traditional forum for renegotiating
While these three factors help explain how debt official debt. They have typically been small, pri-
difficulties worsened in the 1980s, those difficul- mary-producing countries that rely heavily on of-
ties have affected individual countries rather than ficial sources of finance and that have been hard
Two kinds of institutional arrangements idated portion of the debt may be paid portant role putting together viable debt
exist to restructure the two major types during the grace period rather than on restructuring packages with commercial
of debt, official and commercial. Debts the original due dates. Moratorium in- banks.
to governments and commercial credits terest charges on rescheduled commer- A number of problems, however, con-
covered by official guarantees are rene- cial credits are normally set at the rate at tinue to mar the smooth working of debt-
gotiated in the Paris Club or in aid con- which new credits are offered. relief procedures. Debt renegotiations
sortia; debts to commercial banks are re- Rescheduled commercial bank debt is essentially address liquidity problems.
negotiated with committees of bankers. repaid over five to ten years. Debt relief Countries with deep-seated economic
Debt restructuring generally takes two agreements with commercial banks nor- difficulties often require debt relief for
formseither a repayment of existing mally reschedule principal amounts due. several years in a row: without it, their
debt through refinancing arrangements Occasionally some interest arrears are solvency can be impaired. Delays in im-
or a rescheduling of existing loans. There consolidated but they are normally paid plementing bilateral agreements under
have been substantial refinancings of debt in about half the time allowed for con- the Paris Club are not unusual. This in
to commercial banks in the past: for ex- solidated principal. Currently both the turn delays the return of export credit
ample, Argentina (1976) and Jamaica Paris Club and commercial banks require insurance and the renewed flow of com-
(1979). But the bulk of the more recent the debtor country to have agreed on a mercial credits. Most important, debt re-
official and commercial bank debt rene- stabilization program with the IMF. negotiations have not succeeded in
gotiations have involved formal resched- A number of countries have recently maintaining the creditworthiness of many
ulings. sought and obtained debt relief without countries. In some measure this has been
The terms of reschedulings are usually any formal agreement with their banks. due to the overwhelming concern with
relatively short. In Paris Club agree- This somewhat confirms the view that liquidity problems to the exclusion of
ments, rescheduled debts, which cover mechanisms for debt renegotiations have long-run development issues. Both gov-
one to two years of original obligations, become adequately institutionalized. ernment and commercial bank creditors
are normally repaid in seven to ten years Furthermore, the most complicated debt need to recognize that, without additional
with three to four years' grace. But ex- renegotiationssuch as those with Po- capital to support real adjustment, debt
ceptions have been made. Between 80 land and Romaniahave been put in restructuring may not serve the ultimate
and 90 percent of eligible maturities are place. In recent negotiations, however, purpose of debt renegotiations, that is,
consolidated. Sometimes the nonconsol- the IMF has played an increasingly im- the restoration of creditworthiness.
22
hit by declines in commodity prices. though the productivity of investment has been
Several of the largest debtor countries, which relatively high, difficulties arose because of the
have relied chiefly on private sources of finance, sharp increase in interest rates and sudden decline
have also sought to reschedule their debt. These in short-term capital inflows. In others (such as
arrangements have generally been made through Argentina, Bolivia, Jamaica, Madagascar, Nicara-
ad hoc committees of creditors, in conjunction with gua, Senegal, and Zaire), the low return on in-
programs agreed with the International Monetary vestment has also contributed to debt servicing
Fund (IMF). The IMF has made a particular effort problems.
to ensure that these arrangements do not result
in debt merely being transferred from private to The impact of the recession on developing
official creditors, but that additional new private countries
loans are also committed.
In several major countries with debt servicing There is considerable variation in the impact of the
difficulties, such as Brazil and Mexico, the problem international recession on individual countries, but
is basically that of liquidity; in these cases, al- there are also broad similarities. Most countries
23
have experienced, in varying degrees: 1970s than in the 1960s, and GDP per capita de-
Import reductions because of stagnant or clined in many countries from 1973 to 1980. As
declining foreign exchange earnings, reduced the World Bank's report Accelerated Development in
inflows of external capital, and rising debt service Sub-Saharan Africa noted, inappropriate policies
requirements chronic fiscal deficits, farm prices and marketing
Falling government revenues due to declining arrangements that deterred production, and ov-
economic activity, the stagnation in trade, and the ervalued exchange ratescontributed to slow
difficulty of imposing new taxes during a recession growth in the 1970s. These long-standing prob-
Cutbacks in investment plans and the slow- lems have been greatly exacerbated by the 1980-
down of ongoing projects because of shortages of 82 recession, with falling demand for primary
domestic and external funds product exports. To make matters worse, a severe
Shortages of funds to finance the operation drought is afflicting not only the Sahel region, but
and maintenance of existing facilities. also southern Africa. Drought conditions in 1982
The severity of such problems depended not contributed to a decline in agricultural production.
only on economic structure but also on the choices
This was not offset by any growth in official de-
countries made among the various ways of ad- velopment assistance, which was virtually stag-
justing to external shocks: some adjustment paths nant in 1981 and 1982. To cope with their wors-
are efficient, others less so. Current account def- ening balance of payments, countries sharply
icits can be reduced by slower growth, which cuts curtailed economic activity to reduce imports.
the demand for imports, or by switching produc- Many African governments (for example, in Ma-
lion to additional exports and efficient import sub- lawi, Mali, and Sudan) have recognized the im-
stitutes. Countries with access to external capital portance of adjusting policies, and particularly of
could use this capital to help make these structural eliminating the bias against agriculture. Despite
adjustments or to help postpone making adjust- the world recession, policy changes have pro-
ments. Countries that choose to maintain con- duced encouraging results. For example, Sudan
devalued its exchange rate, raised producer prices,
sumption levels by reducing investment eventu-
ally pay the price of a more difficult adjustment and altered its tax regimeall geared to restoring
in later years, or must be willing to accept a longer the incentive for cotton cultivation. Concessionary
period of slower growth. Others, which restruc- aid helped finance critical imports for the irrigated
ture investment programs, increase domestic sav- cotton sector. The result was a 51 percent increase
ing, and give incentives to export may have to in cotton production in 1981-82 followed by a fur-
accept slower growth and consumption during the ther 27 percent last year.
transition period, but are likely to emerge as In contrast, the low-income countries of South
stronger economies in the long run. For the low- and East Asia, notably India and China, were able
income or least developed countries, however, the
to face the difficulties of the 1970s, and even of
choices were more difficult, since consumption the early 1980s, from a stronger position. In part
levels were already low and further cuts to main- this was because of the policies they pursued.
China, India, and Sri Lanka initiated liberalization
tain investment implied particularly severe social
and human costs. programs in the second half of the 1970s. Pakistan
and Bangladesh adopted structural adjustment
Although the world recession sharply curtailed
programs in the late 1970s and early 1980s. The
growth in most developing countriesin 1980-82
low-income Asian countries have mostly shown
their GDP growth rate was less than half the discipline in monetary and fiscal policy and have
1973-80 averagethe low-income economies of Asia
also made significant progress in correcting price
did much better than those of Africa. Among the
distortions and providing appropriate incentives
middle-income oil-importing countries, East Asia
to encourage efficiency and growth. India, for ex-
as a group markedly outperformed Latin America
ample, grew by an average of 6.5 percent a year
in 1981 and 1982 (see Table 2.1).
in 1980-81 and, although growth slowed to 2.8
percent in 1982 due to drought and the prolonged
Low-income countries world recession, this increase was still high com-
pared with earlier drought years. By adjusting prices
The position of the low-income sub-Saharan to reflect economic costs more closely, the gov-
African countries continued to deteriorate in ernment helped to promote a rise in public savings
1980-82. Most had fared significantly worse in the in 1981-82, while private savings also grew. Tm-
24
proved efficiency in power and railways allowed had to reduce their imports, and thus their growth,
higher capacity utilization in industry. And de- considerably.
spite the world recession, exports continued to Long-standing domestic problems added to the
grow rapidly in response to export incentives and vulnerability of these economies to recession. Neg-
the greater availability of essential imports. ative real interest rates and other financial policies
dampened savings and contributed to capital flight.
Middle-income oil importers High protection led to inefficient manufacturing
industries and limited exports, and fiscal and mon-
The recession also affected middle-income oil im- etary policies led to high rates of inflation. The
porters in diverse ways. The middle-income coun- immediate result of such policies was the over-
tries of Asia saw a deterioration in their terms of valuation of exchange rates and a tendency to im-
trade, yet they still performed remarkably well. port too much, export too little, ship capital abroad,
The Republic of Korea and the Philippines man- and borrow heavily. During this period many
aged to grow by an average of 2 and 4 percent a countries embarked on programs to adjust their
year respectively during 1980-82, and Thailand by policies by reducing protectionism, encouraging
6 percent a year. Although the reliance of the newly exports, eliminating price controls, and adjusting
industrialized countries of Asia on manufactured exchange rates. While important progress was made
exports makes them vulnerable to downturns in in some cases, in others the sequence of policies
trade and to protectionism, their manufactured ex- was unfortunate. For example, when the liberali-
ports did not decline. By emphasizing efficiency zation of foreign capital inflows preceded trade
and competitiveness, and by being relatively cau- liberalization, borrowed capital flowed into inef-
tious in their foreign debt and fiscal policies, they ficient activities with low social returns. At the
have created an economic resilience that can same time these policy reforms often had little
weather difficult conditions. Their relatively low impact on fiscal deficits and inflation.
level of price distortions was conducive to better Where policies have been changed, middle-in-
resource allocation and use, which permitted re- come oil importers, like the low-income countries,
spectable growth of exports and GDP during the have shown that they can reap substantial bene-
latest recession. It also meant that the returns on fits, notwithstanding the world recession. For ex-
foreign borrowing were higher. ample, Turkey, which initiated a major economic
In contrast, from 1980 to 1982 the GDP of mid- reform program in 1980, has made notable prog-
dle-income oil importers in Latin America fell by ress. Its GDP grew by more than 4 percent a year
almost 2 percent a year. The recent decline in oil in 1981 and 1982, inflation dropped from 107 per-
prices has alleviated their import burden, but fall- cent in 1980 to 25 percent in 1982, and an upsurge
ing world demand and prices of primary com- in exports, together with modest import demand,
modities reduced export earnings. Even more im- brought the current account deficit down from 4
portant, sharply rising interest payments percent of GDP in 1981 to 2 percent in 1982.
exacerbated their worsening balance of payments.
Their heavy indebtedness made the Latin Amer- Middle-income oil-exporting countries
ican economies especially vulnerable to rising in-
terest rates and any slowdown in their exports. Paradoxically, some of the countries now facing
The size of the external debt of the oil importers the greatest problems are oil exporters, despite the
in Latin America is not high in relation to the level marked improvement in their terms of trade over
of economic activity, but it is exceedingly high the past decade. Their problems have well estab-
compared with their export earnings. In 1981 their lished antecedents in the history of other resource-
ratio of debt to GDP was identical to that of other rich economies. A country that is well endowed
developing countries (24 percent), but the ratio of with natural resources reaps a rental income from
debt to exports was 158 percent compared with 95 their exploitation. Usually the government appro-
percent for other developing countries. Further- priates the bulk of the rents in the form of roy-
more, more than 50 percent of this debt was at alties, direct profits, or production-sharing fees,
variable interest rates compared with 21 percent and such revenues can be used for heavy public
for all other developing countries. By 1982 their spending.
debt service burden had risen to 53 percent of The oil exporters used their revenues to expand
exports compared with 8.6 percent for East Asian development expenditures, putting more funds into
oil importers. To service their debt, they therefore social and physical infrastructure than they could
25
otherwise have done. Sometimes, however, they Here, too, there were variations. Some oil ex-
overinvested in capital-intensive sectors that con- porters, such as Mexico and Nigeria, had difficulty
tributed little to employment, drawing resources servicing their debts when oil revenues fell. Others,
out of agriculture and small-scale enterprises. Malaysia and Indonesia, for instance, have main-
The erosion of the tax base has been a further tained creditor confidence and access to financial
problem for resource-rich countries. With windfall markets. In both countries the accumulated for-
gains from oil, it is difficult to persuade taxpayers eign exchange reserves from past oil revenues also
that their contributions are necessary for growth. provided a cushion against the decline in export
But if the tax base erodes, governments find them- earnings.
selves short of revenues when income from oil or Summing up the experience of all developing
other resources declines. countries, the past three years underline the im-
For all these reasons many middle-income oil portance of incentive-promoting policies. The most
exporters have found themselves in difficulty in successful countries have been outward oriented,
the 1980s. For example, in Egypt, the fall in rev- and have also emphasized the role of prices and
enues from petroleum exports, as well as dimin- markets for improving efficiency, as well as better
ished earnings from the Suez Canal, workers' re- management of the public sector. The ability of
mittances, and tourism, caused the current account some Latin American countries to withstand ex-
deficit to widen to nearly 14 percent of GDP in ternal strains after 1979particularly higher inter-
1982. The fiscal deficit rose to 22 percent of GDP est rates and lower commodity priceswas seri-
that same year. ously compromised by their earlier domestic
Sometimes capital-intensive investments were policies. For sub-Saharan Africa, the main new
further expanded by external borrowing on the factor has been the sharp decline in commodity
assumption that revenues would continue to grow. pricesagain, coming on top of continued weak-
At the beginning of the recession, as the demand nesses in economic policy and management.
for oil was falling, it was tempting to maintain What is needed for sustained world economic
public spending by borrowing even more. The Latin growth is concerted action by both the industrial
American oil exporters, for example, increased their and the developing countries. The former to help
debt by 23.3 percent a year between 1972 and 1981 provide a more stable and favorable external eco-
(compared with 19.4 percent for the region's oil nomic environment through steady but noninfla-
importers), and by 1981, 70 percent of the debt tionary expansion, a more open trading system,
was at variable interest rates (compared with 56 and continued steady growth in both commercial
percent for the rest of the region). As interest rates and concessionary capital flows. The latter, by
rose and oil revenues fell, these heavily borrowed adopting policies that increase efficiency. These
countries found themselves in difficulty. policies are discussed at length in Part II.
26
3 The outlook for developing countries
The previous chapter has placed the difficulties of methodology used in elaborating these scenarios
the past few years in their historical perspective. is given in the Technical appendix.
This chapter looks ahead to the middle of the next The purpose of assessing the outlook as far ahead
decade. It concludes that most developing coun- as 1995 is to abstract from cyclical fluctuations and
tries should be able to regain their growth mo- concentrate on underlying trends. However, the
mentum, but to do so will require a more favorable recession of 1980-82 was so severe that it is bound
world environment, coupled with significant ef- to affect statistical averages for several years. In
forts by the developing countries themselves to order to avoid distorting the picture, the years to
make better use of their resources. Even in those 1995 have been divided into two periods-1980-85
circumstances, the outlook for some of the poorest and 1985-95.
countries is somber. Before examining the domestic determinants of
In common with previous World Development Re- growth in developing countries, this chapter dis-
ports, no attempt has been made to predict the cusses the external factors that affect economic
future. This chapter instead provides a consistent performance. These include growth in industrial
framework for exploring the links between coun- countries, energy, trade, workers' remittances, and
tries and between economic variables, so as to capital flows. The analysis focuses mainly on the
illustrate the effects of different policies and events Central case, but indicates policies that would make
on the developing countries. To assist this analysis, the High and Low scenarios more likely.
three sets of projections-Low, Central, and High
growth scenarios-have been prepared through Growth in industrial countries
1995; the results are summarized in Table 3.1. The
Central case does not represent the most probable The Central case assumes that GDP in industrial
outcome; it is merely the middle set of the three countries will grow at about 3.8 percent a year
scenarios that serve to illustrate the likely impact during the recovery period and up to 1990, and
of different policies. All three have required judg- thereafter at about 3.5 percent a year. Though gov-
mental adjustments, particularly with respect to ernments are likely to proceed cautiously for fear
policy changes. A more detailed explanation of the of reigniting inflationary pressures, a rate of growth
TABLE 3.1
Past and projected growth of GOP, 1960-95
(average annual percentage change)
1985-95
Country group 1960-73 1973-80 1980-82 1982-85 Low Central High
All developing countries 6.0 4.7 1.9 4.4 4.7 5.5 6.2
Low-income
Asia 4.6 5.4 4.1 4.5 4.5 4.9 5.3
Africa 3.5 1.4 0.5 2.9 2.7 3.3 3.9
Middle-income
Oil importers 6.3 5.2 1.2 4.5 4.4 5.7 6.9
Oil exporters 7.0 3.7 1.7 4.0 5.3 5.7 5.8
Industrial countries 5.1 2.5 0.4 3.0 2.5 3.7 5.0
27
approaching 4 percent following a recession would The slowdown in economic activity is another
be modest compared with past industrial-country major cause of the slower rise in energy demand
recoveries. Nonetheless it would enable the waste since 1973. Nevertheless, the global demand for
and social costs represented by 30 million now energy can be expected to rise again rapidly to-
unemployed to be substantially reduced. ward the end of the 1980s. If GDP in the industrial
As unemployment declines, in time labor short- countries grows at nearly 4 percent a year and in
ages will appear and restrain industrial countries' the developing countries at about 5.5 percent a
growth. If present immigration policies remain un- year between 1985 and 1995, world commercial
changed, declining population growth rates and energy consumption is likely to rise by about 2.3
other demographic changes will reduce the growth percent a year in 1985-95, compared with 3 per-
of the labor force in industrial countries from about cent from 1970 to 1980. For developing countries
1.25 percent a year between 1960 and 1980 to about alone, the growth rate is likely to reach about 4.5
0.7 percent a year in 1985-95. Over the projection percent a year. This projection assumes not only
period technical progress is assumed to produce Central case GDP growth, but also further prog-
an annual growth in per capita output of about ress in conservation and the production of new
2.8 percent, a level comparable to that of the past energy supplies.
two decades. The GDP deflator (in dollars) for the Rising demand for energy would influence the
industrialized countries is assumed to average 6.4 course of energy prices. In the short run, energy
percent in 1982-95; real short-term interest rates prices could soften considerably in response to low
are assumed to average 3 percent over the same demand and the urgent needs of energy exporters
period. for revenue; the 1983 price is now forecast to be
some 20 percent lower than in 1982. A sustained
Energy period of depressed oil prices (and hence energy
prices) would almost certainly slow the pace of
The links between energy prices, energy demand, energy conservation and affect the production of
and economic growth have become complex. other forms of energy. As GDP growth recovers,
Progress made so far in conservation has only however, real oil prices will rise, and energy de-
scratched the surface of what is technologically mand may be expected to grow more quickly than
possible and likely to be economic at higher energy the availability of cheap, incremental supplies. By
prices. Conservation is more than the adjustment the mid-1990s the real price of oil is expected to
of thermostats, retrofitting, switching to smaller be about 20 percent above its 1981 peak. The Cen-
cars, and similar measures, which represent the tral scenario assumes that the oil-price rise in real
main efforts undertaken to date. It also implies terms averages 1.6 percent a year between 1982
innovation in design and hence new investment. and 1995.
Significant gains can still be made. Despite their conservation efforts, which led to
Those gains depend on policies that reduce the a decline in their consumption of oil, the long-
energy used per unit of output and induce a shift term dependence of industrial countries on im-
from dependence on imported oil at high prices ported oil will not diminish substantially, since
to greater use of cheaper alternatives, domestic or their own productionparticularly in the United
imported. Such policies include raising energy States and the North Seais also expected to de-
prices; taxation and other fiscal incentives; invest- cline gradually. The OPEC countries will therefore
ment in domestic supplies of energy; training; and remain the main exporters of petroleum, with OPEC
promotional and educational efforts. These meas- prices exerting a strong influence on international
ures encourage more energy-efficient processes in energy prices.
industry, transport (fuel savings, railway electri- With the price of oil rising over the medium
fication), households (improved woodstoves), and term, the future pattern of energy consumption is
electric power (loss reduction, use of waste heat, likely to differ markedly from that of the 1970s.
and improved load management). Some devel- Oil consumption is expected to grow by less than
oping countriesnotably Brazil, China, and the 1 percent a year in 1985-95, contributing only 11
Republic of Koreahave reduced their commercial percent of the increase in global energy consump-
energy intensity in recent years and shifted to tion between 1980 and 1995, compared with 43
cheaper substitutes. Other countries have yet to percent during the 1970s. Coal, primary electricity
correct their policy stance and develop well- (nuclear and hydroelectric power), and natural gas
defined programs for managing energy demand. are expected to compensate for the declining share
28
FIGURE 3.1 ing countries at prevailing (or even somewhat
Global energy consumption, 1970-95 lower) oil prices remains profitable, particularly if
Millions of barrels the high cost of interruptions in supply is taken
190.6
of oil equivalent into account. Short-term fluctuations in the price
28 5
Primary of oil should neither lead to complacency nor deter
electricity
countries from pursuing conservation and pro-
duction goals.
134.9 38.6 Solid fuels
Total Trade
100.7
Natural
6.6 56.0
gas Foreign trade enables developing countries to
specialize in production, exploit economies of scale,
and increase foreign exchange earnings needed to
pay for imports. A good export record also
Petroleum strengthens creditworthiness and permits greater
access to private loans. As Figure 3.2 shows, the
developing countries' exports are directly affected
by growth in the industrial countries. They are
1970 1980 1995
also influenced by the level of protectionism in the
industrial world. The Central case assumes that
industrial countries will institute no new protec-
tionist measures between now and 1995.
of oil in total energy consumption (see Figure 3.1). The sensitivity of developing-country exports to
The industrial countries, as well as some devel- activity in the industrial countries can be illus-
oping countries, will turn increasingly to coal to trated by a calculation based on some simplifying
meet their energy needs (see Table 3.2). Although assumptions. If GDP in the industrial countries
its use tends to be constrained by environmental were to rise by just 5 percent a year between 1982
concerns and high transport costs, the expected and 1984, the oil-importing developing countries
slower rise in the production costs of coal will give would increase the value of their exports by 20 to
it a competitive edge over other fuels. Of the pro- 30 percent and the volume by about 10 percent.
jected increase in global energy demand between
1980 and 1995, coal is expected to supply 35 per-
cent, primary electricity 29 percent, and natural
FIGURE 3.2
gas 25 percent. Rising project costs have resulted
Real GDP growth of industrial countries and export
in a sharp reduction of synthetic fuel projects. volume growth of developing countries, 1966-82
Hence nonconventional fuels will play only a mi-
nor role during the 1980s and early 1990s. Annual percentage change
15
The prospect of rising real oil prices underlines
the urgency of adopting appropriate national ,' Developing countries
energy policies. At their heart lie domestic energy / \ Export growth rate
prices. They have to signal the real long-run cost 10
of energy to all energy suppliers and users so that
the desired structural changes in supply and de-
mand, for particular fuels and for energy as a whole,
will take place. Further, since the risks and costs
of interruptions in supplies and sudden price
increases are high for oil-importing developing
/
Industrial countries
GDP growth rate
'I
I
29
TABLE 3.2
Commercial primary energy production and consumption by country group, 1970-95
(million barrels per day of oil equivalent)
Welcome though such an improvement would be, cent of their production of machinery, for exam-
it would still be muted by comparison with the ple. Increases in the trade of industrial countries
mid-1970s. In 1977, after two years of recovery in are therefore likely to be slower in relation to GDP
the industrial countries, the oil-importing devel- growth than they have been in the past.
oping countries raised the value of their exports Slower growth of industrial countries' trade will
42 percent above their 1975 level, and the volume undoubtedly restrain the growth of developing
by 24 percent. countries' exports. Nonetheless, the developing
Since the Central case assumes that economic countries are expected to increase their share of
growth in the industrial countries will be slower world trade. The low-income countries are pro-
in 1985-95 than it was in the 1950s and 1960s, it jected to maintain the same growth in their exports
is postulated that world trade will also grow more as they managed in 1973-80, although China's ini-
slowly. The 5 percent annual growth of world trade tial export drive is assumed to slow down. The
projected for 1985-95 is about the same as was middle-income oil importers would have the fast-
achieved in 1973-80, but greater than that pro- est growth of all, also about the same as that
jected for 1980-85 (see Table 3.3). Within this total, achieved between 1973 and 1980. By contrast, ex-
the industrial countries are expected to increase ports by oil-exporting developing countries would
their exports more slowly than in 1973-80. One rise the slowest, consistent with the slow growth
reason for this slowdown is that a large proportion in energy demand.
of their output of goods is already traded-30 per- Although the Central case assumes no new pro-
30
TABLE 3.3
Past and projected growth of export volumes, 1965-95
(average annual percentage Change)
Central case
Value 1980
projections
(billions of
Country group 1965-73 1973-80 dollars) 1980-85 1985-95
31
FIGURE 3.3 The resource gap
Price index of selected commodities, 1982-95
Capital inflows contribute to development by sup-
Index (1982 = 100)
plementing domestic savings and by financing
200 - Sugar
I
imports. Foreign borrowing also permits flexibility
I Wheat in managing the balance of payments, thereby
180
I -- Copper fostering a relatively stable environment and an
I
r
I efficient use of resources. Some forms of capital
I
I
can also promote transfers of technology, which
160 Rubber may have large payoffs. Such inflows have been
Logs
important to development throughout history
140
Rice
including, notably, that of North America and
Tin Australia in the 19th century. The demand for
Cotton
foreign capital by today's low-income developing
120 Phosphate
rock countries, whose average per capita income is only
Iron Ore 2.4 percent that of the industrial countries, is likely
100 - Coffee to be substantial in future.
Cocoa
The amount of foreign capital going to devel-
,.Bananas oping countries reflects many factors: savings and
80
investment patterns in the countries providing
1982 85 90 95
capital; the willingness of their governments to
Prices are in constant dollars. lend to the developing world, and of their busi-
nesses to invest there; the willingness of develop-
years and restrictive immigration policies might ing countries to spur growth through borrowing;
continue. Even in the long term, these countries and their capacity to absorb and service foreign
will probably require fewer foreign workers than capital on the terms offered. None of these factors
in the 1960s and early 1970s. In the high-income can be predicted with certainty, depending as they
oil-exporting countries, real oil revenues are pro- do on the prospects for interest rates, GDP, and
jected to increase at a much slower rate than dur- export growth, and on economic policy and man-
ing 1970-80, and the demand for foreign labor is agement in the developing countries. Overall, the
unlikely to grow substantially. projections in the Central scenario envisage an
The projections in Table 3.6 reflect broad trends annual real increase in net capital flows of just 3.6
only, being subject to several imponderables. The percent in 1982-95, compared with an average of
factors determining the pattern of migration dur- over 10 percent in 1970-80. The outlook varies for
ing the next decade and beyond will include the different types of capital (see Table 3.7). These are
changing structure of skills demanded in the labor- discussed below.
importing countries and the ability of labor-ex-
porting developing countries to provide those skills. Commercial borrowing
TABLE 3.6
By 1982 current account deficits and debt burdens
Workers' remittances to developing countries, had become major constraints for a large number
1980-95 of developing countries. Measures have since been
taken to ease the liquidity problems of major bor-
Annual rowers. However, the recent fall in oil prices has
Billions of
percentage
current dollars
growth
placed some oil-exporting countries in jeopardy,
Country group 1980 1995 (1980-95) where previously the prospect of stable export
revenues had given confidence to commercial
All developing countries 24.0 91.3 9.3 bankers.
Low-income
Asia 3.0 7.5 6.3
A period of transition to more viable external
Africa 0.3 1.8 12.7 financing is unavoidable; for some countries, it has
Middle-income been under way for some time. Following a period
Oil importers 16.9 68.9 9.8 of adjustment, during which foreign borrowing is
Oil exporters 3.8 13.1 8.6 expected to be sharply curtailed, capital flows are
Note: Projections are based on the Central growth scenario. projected to resume their growth, but at a far slower
32
TABLE 3.7
The financing of current deficits for all developing countries, 1982-95
Billions of
current dollars Annual percentage growth
1982a 1995 1970-80 1980-82 1982-95
rate than in the 1970s. Even when the projected deal with payment crises, providing at the same
adjustment is achieved, the developing countries time an opportunity for the more orderly rene-
will have repaired only some of the recent damage gotiation of debt. Thereafter, cofinancing with in-
to their external financial positions. Moreover, if ternational development agencies of projects with
uncertainty leads lenders and borrowers to dis- well-assured returns, can give lenders confidence
count more heavily their expectations of future in the willingness of other banks to lend. Such
export earnings, they may seek to reduce debt and financing facilitates adjustment; a vigorous adjust-
debt service in relation to exports to levels even ment program by developing countries to reduce
below those previously considered acceptable. their need for new loans is essential to retain or
Only about one-third of the total debt owed to reestablish creditworthiness.
private sources is guaranteed or insured by cred- That the international banking system will
itor governments. Commercial banks have become weather the present crisis is not in doubt, consid-
increasingly concerned about their debtors' liquid- ering the small fraction (about 6 percent) of banks'
ity being sufficient to cover repayments on all their assets represented by their claims on developing
loans. That can be achieved only if an adequate countries. For a few banks in a few countries it is
volume of new loans continues to be made by the nonetheless possible that losses may be sustained,
banking system as a whole. The risk is that indi- which could pose problems for the international
vidual banks will lose confidence in a particular banking system. Consequently, the margins de-
borrower and precipitate a general withdrawal. manded in future are likely to be higher than in
Unilateral reschedulings or moratoria are some- the past, and the growth of lending much slower.
times suggested as a response, but these do great Concern about the concentration of debt in the
harm to the functioning of the international finan- larger developing countries may limit or halt the
cial system. Short-term loans from the Bank for growth of lending to these countries in relation to
International Settlements, allowing time for agree- total loans. Similarly, concern about the adequacy
ments to be reached under the aegis of the Inter- of banks' capital may limit the growth of their total
national Monetary Fund, are a far better way to loans in relation to their capital. In the 1970s, by
33
contrast, both these ratios increased. Even if com- raise the share of their GDP to ODA; and the GDPs
mercial banks are willing to expand their lending themselves are not expected to rise fast. Some
more rapidly, they may be unable to do so if reg- countriesnotably the United States and mem-
ulatory action to limit international lending, as now bers of OPECmay even reduce their ODA ratios.
contemplated, is introduced. Deregulation of The Central case projection assumes that ODA
banking in the United States and revived domestic increases only in line with industrial-country
borrowing may also increase the relative attrac- growth, and that there is no further reallocation
tiveness of the home market. of aid from middle- to low-income countries. In
Reflecting these considerations, the Central sce- that case, ODA would be about 60 percent higher
nario assumes that medium- and long-term lend- in real terms by 1995 than it was in 1980. As a
ing to developing countries increases in real terms share of total gross capital flows, however, ODA
by an average of 3.5 percent a year in 1982-95-- would continue to fallto 28 percent, compared
or about in line with the GDP growth of industrial with 30 percent in 1980 and 37 percent in 1970
countries and one-third the real rate in the 1970s. even with the projected slowdown in commercial
Having grown faster than the developing coun- lending.
tries' production and trade over the past decade, The strong implication of this analysis is that
the relative importance of private loans may well ODA as currently planned falls far short of the
diminish in future. needs of the developing countries, especially of
the low-income countries, if world poverty is to
be seriously tackled. This is not a simple issue of
Private direct investment charity, but rather a complex one of world eco-
nomic interdependence. Over the past five years,
Some of the expansion in bank lending over the
past decade substituted for private direct invest- low-income countries received only 37 percent of
total ODA; there has been no clear long-term trend
ment. This trend was encouraged by the relatively
low interest rates through most of the 1970s and toward increasing this share, which was no higher
in 1981 than in 1971. Given the special problems
by the restrictions host countries placed on direct
investments. The restrictions were often a reaction
of the least developed nations, which even with
to past experiences of investments that were un- sound policies lack creditworthiness, there is a
strong argument for channeling a larger share of
necessarily subsidized or were seen as having been
bilateral aid to them.
inconsistent with development objectives. For
Overall, the projections summarized in Table 3.7
multinational firms, it was often easy to substitute
imply that by 1995 total capital inflows would de-
debt for equity.
The outlook for direct investment has become cline to 2.9 percent of developing-country GDP,
more attractive recently, since the cost of borrow-
about half the 1981 ratio and close to that of the
ing has risen and an understanding has been early 1970s. Netting out factor income and the
need for reserve accumulation, the net transfer of
reached between investors and some host govern-
foreign resources would be 1.6 percent of GDP by
ments. Moreover, the outflows related to direct
1995. Debt is projected to decline significantly in
investmentin the form of profit remittances
relation to exports (see Figure 3.4). While this would
are directly dependent on the success of the en-
ease debt servicing burdens, the slower growth of
terprise, and there is more flexibility as to timing.
financial flows would give countries less flexibility
With the prospects for bank lending more con-
than in the 1970s.
strained, direct investment may contribute a greater
share of the capital flows to developing countries.
However, the scope for substitution is limited to Implications of the Low case
the private sector; direct investment cannot be used
The assumption underlying the Central case is that
to finance most development infrastructure.
industrial countries will resume an average growth
rate higher than in the 1970s, though well short
Flows from official sources of their record in the 1950s and 1960s. It is, of
course, possible that the industrial countries will
Table 3.7 shows that developing countries will de- fail to tackle their structural problems. The Low
pend on ODA for a large part of their net resource case illustrates the consequences of their manag-
inflows. Yet the outlook for ODA is not encour- ing to grow by only 2.5 percent a year between
aging. Only a few countries seem determined to 1985 and 1995 (see Table 3.1).
34
FIGURE 3.4
numbers, already quite strong in host countries,
Debt and exports of all developing countries, 1970-95 would grow.
It is easy to envisage a downward global eco-
Billions of dollars nomic spiral emerging from the Low case, with
2500
catastrophic consequences for the developing
countries. Indeed, it would be difficult to forestall
2000 such a global crisis if the industrial countries' re-
Exports covery were to taper off into a decade of very slow
growth. If anything, the assumptions about the
1500 trends associated with the Low case are optimistic.
The aid effort of industrial countries and high-
1000
Debt income oil exporters is not projected to decrease
as a ratio of their total GDP. No allowance is made
-I. for migrants being expelled. No new curbs are
500 assumed to be imposed on international capital
movements, and commercial capital flows have
0
been reduced merely in line with the lower per-
formance of developing countries. The inroads of
1970 75 80 85 90 95
protectionism have been limited to the equivalent
of a 15 percentage point increase in the average
tariff of industrial countries (see Box 3.1).
Such slow growth would have several severe Despite these moderate assumptions, the im-
implications. Some of them bear on the industrial pact of the Low case on the developing countries
countries themselves. The Low case growth rate is alarming. The ten-year decline in the per capita
would barely match the industrial countries' per- incomes of low-income African countries would
formance in 1973-79--years of inflation and continue. In the case of the large and relatively
mounting unemployment in the industrial coun- closed economies of India and China which dom-
tries. With slow growth in the 1980s and 1990s, inate low-income Asia, their high saving rates and
unemployment would mount, reinforcing protec- lower reliance on foreign capital would afford them
tionist pressures. Restrictions would be directed some protection against the adverse impact of the
particularly at developing countries because their global economic deterioration. Yet their per capita
relatively labor-intensive exports compete with incomes would still probably not grow by much
vulnerable manufacturers in the industrial coun- more than 2.5 to 3.0 percent, substantially slower
tries. The negative impact of low growth in the than in the Central case. However, the outlook
industrialized countries on trade in general, and presented by the Low case for Bangladesh and
on the exports of developing countries in partic- some of the smaller Asian countries would be not
ular, would therefore be disproportionately high. much better than for the low-income African
With lower export prospects lowering their credit- countries.
worthiness, commercial capital flows to develop- The middle-income oil-importing countries,
ing countries would also be negatively affected. mostly highly dependent on trade and on commer-
The growth of aid would be curtailed, even if it cial capital, would also be badly affected. Their per
were to remain a fixed ratio of the industrial coun- capita income growth rate would fall by about one-
tries' GDP, as assumed in the Central scenario. In third, to about the same rate as in the industrial
the difficult international environment associated countries. With such a growth rate, unemploy-
with the Low case, more bilateral aid would tend ment, already a serious problem in most middle-
to be distributed following nondevelopmental cri- income developing countries, would become in-
teria; this could be particularly harmful to the tractable. It might in turn endanger social stability
low-income countries. At the same time, lower and governments' ability to devise and implement
demand for oil exports would also reduce the rev- rational economic policies, and hence even to
enues of the high-income oil exporters, and prob- maintain the Low case growth rates.
ably their aid. Labor remittances are likely to be With the projected slowdown in growth, pres-
affected more than proportionately; not only would sures would mount to increase the share of con-
the growth in migrants' wages be necessarily less sumption in income, and thus reduce domestic
under the Low case, but pressures to reduce their savings. The Low case assumes that these pres-
35
Box 3.1 The implications of a 15 percent across-the-board increase in protection
in industrial countries
If governments give ground before pro- protection were introduced gradually, the countries by such a development be-
tectionist pressures generated by higher GDP of both developing and developed cause they are more open and thus more
unemployment, thus eliminating most of countries would be significantly reduced vulnerable to protectionist measures taken
the gains achieved in the GAfF rounds by 1995 as follows: by their trading partners. In the large
of tariff negotiations, a serious deterio- low-income countries, traditional agri-
Reduction in GDP
ration in the world trading system would culture, which is less sensitive to exter-
result. To illustrate, the implications of Billions of nal disturbances, still accounts for a large
an increase in protection (import lic- Percent 1980 dollars share of total output.
ences, quotas, voluntary import re- Low-income It is striking that developed countries
straints) by an amount equivalent to a countries 0.8 9 would suffer a loss in GDP growth equal
rise in tariffs of 15 percentage points can Middle-income to that of the middle-income countries
be estimated. This assumption is not ex- oil importers 3.4 70 a loss of their own making, demonstrat-
treme: protection was much higher in Industrial ing that measures to protect declining
the 1930s. Quantifying the costs of pro- countries 3.3 390 industries backfire by harming other sec-
tection is difficult. However, using the tors, reducing efficiency, and probably
Brussels world model (see Technical ap- Middle-income oil-importing countries worsening income distribution.
pendix) it is estimated that even if such would he hit harder than low-income
sures would be resisted. Most important, how- income countries. And, under these much more
ever, it has been assumed that the developing favorable circumstances, more countries could rely
countries would be able to continue to benefit from exclusively on commercial borrowing, allowing a
a relatively open trading system. Otherwise, fall- greater concentration of aid on the poorest.
ing efficiency would become increasingly likely for This scenario is simulated in the High case sum-
many developing countries. marized in Table 3.1, which assumes that the in-
dustrialized countries would return to a growth
The possibilities for faster growth rate matching the achievements of the 1950s and
1960s. Aid and workers' remittances would rise in
Emerging from the second worst recession of this line with faster growing incomes. Trade would
century, with concerted policies to sustain eco- expand, not only in line with income growth, but
nomic recovery, limit wage increases to produc- even more rapidly. Under this High case, low-
tivity growth, liberalize trade, and adjust to chang- income Asian countries would double their per
ing comparative advantage, economic growth in capita incomes in twenty years. The middle-
the industrial countries could once again reach 5 income countries could grow even more quickly than
percent a year. Developing countries would share in the 1960s. In relative terms, the improvement
the benefits. They could expand their GDP by be- for low-income Africa could be greatestfrom
tween 6 and 7 percent a year; over the ten-year stagnation under the Central case to marked
period to 1995, their GDP would nearly double. growth, which by 1995 would reverse the decline
With rapid growth, labor shortages would in of the 1970s.
time emerge in the industrial countries, making With regard to energy, the High case assumes
them more open to labor-intensive manufactures worldwide progress in energy conservation such
imported from the developing countries. The that real oil prices would not rise any faster than
growth rate of exports of developing countries could in the Central case. Also, there is sufficient pro-
then match, and even exceed, the achievements duction capacity in the oil-exporting countries to
of the 1965-73 period. Given such fast growth, meet some increase in demand without acceler-
particularly in the manufactured exports of newly ating the rise in oil prices. Oil-importing devel-
industrializing countries, trade among developing oping countries could therefore expect to obtain
countries would also be stimulated. With higher considerable benefits from higher export earnings
export growth, developing countries would be- without having to pay higher oil prices.
come creditworthy for larger amounts of com- If prosperity in the developing countries is linked
mercial borrowing. Aid flows could more easily to growth in the industrial countries, the reverse
be increased, disproportionately benefiting the low- is also true. The severity of the 1980-82 recession
36
was in part due to the absence from the devel- Domestic savings
oping countries of the kind of buoyant demand
provided during the 1974-75 recession. Without During the past two decades developing countries
such demand, the recovery now getting under have had remarkable success in increasing their
way will also be slower and more arduous. It is savings. Markedly lower than in industrial coun-
therefore greatly to the advantage of industrial tries in 1960, savings rates in most developing
countries to stimulate growth in the developing countries are now generally higher. Although the
countries. shocks of the 1970s partly reversed earlier trends
The greatest immediate dangers are renascent in the industrial countries, they only slowed them
protectionism, unduly restrictive policies toward down in the developing countries. The exception
commercial bank lending, and parsimonious aid to this generally satisfactory performance has been
the consequences of slow growth in the industrial sub-Saharan Africa, where the savings rates of the
countries. All three are symptoms of introspection low-income countries have fallen well below those
in difficult times. All three would contribute to of twenty years ago. This decline is in part related
increasing those difficulties, and not only for the to the region's extreme vulnerability to terms of
developing countries. A determined effort to trade shocks, which have raised the amount of
resume the liberalization of trade, prudent but domestic production needed to pay for a given
dynamic international lending policies, and more quantity of imports, thus leaving less for domestic
generous aid need not await the resumption of savings. It is also related to the slow economic
fast global economic growth; on the contrary, they growth and high population growth of the region;
are necessary to help bring it about. with falling per capita incomes, it would have been
extremely difficult to maintain earlier savings rates.
Domestic determinants of developing-country In addition, the policies pursued by many African
growth countries were in part to blame, not only for the
This chapter has so far focused on the impact of slowdown in GDP growth but also for the fall in
trends in the industrial countries on the devel- savings. In particular, subsidies on consumer goods
oping countries. These external factors are indeed and the losses of state enterprises were a signifi-
important in an increasingly interdependent world. cant drain on public savings.
However, within the constraints imposed by the In the Central case, an increase in savings rates
global environment, it is domestic policies that over the present low level has been projected for
hold the key to developing-country performance. the low-income countries of sub-Saharan Africa,
For developing countries, GDP growth of only though still not attaining the rate achieved in the
2.5 percent a year in the industrial world would l960s. But for the oil-exporting countries, savings
greatly complicate economic management. Many rates are unlikely to be sustained now that the rate
of the policy changes needed would be much harder of increase in oil prices has tapered off.
to introduce under conditions of slow growth. To
redirect investment and production to those activ- Returns on investment
ities in which countries have a comparative ad-
vantage needs growth. Just as the Central scenario Better use of capital offers the greatest scope for
assumes a considerable improvement in the do- raising the growth rates of developing countries.
mestic performance of developing countries, so Return on investmentthe additional output per
also the Low case depends partly on their per- unit of investmentmeasures the result of the
formance. The three growth scenarios in Table 3.1 combined influence of many forces, some external,
assume the same policy improvements in devel- some purely related to domestic policies and ac-
oping countries. Without those improvements, their tions. Intercountry comparisons show that some
growth would be even lower. countries regularly obtained higher returns on
Growth depends partly on a country's ability to investment than did others. The Central case pos-
generate savings and then on how efficiently it tulates that the rate of return on investment, after
invests and manages the new capital. In addition, improving markedly from current levels, will sta-
growth is influenced by a country's ability to pro- bilize around the 20 percent level experienced dur-
mote exports and save imports. These four deter- ing the 1970s. Policies to improve the return on
minants of growthsavings, returns on invest- investment are discussed in Part II of this Report.
ment, export promotion, and import restraint While raising efficiency is by no means easy, there
are summarized by country group in Table 3.8. are clearly many areas for potential improvement.
37
TABLE 3.8
Past and projected indicators of domestic performance, 1960-95
Country group Indicator 1960-70 1970-80 1985-95
38
But the current recession has greatly reduced the Even with policy improvements, the outlook for
availability of foreign exchange and has limited many developing countries is somber. The Central
the inflow of imports. When world growth re- scenariowhich assumes some improvement in
sumes, the recent compression of imports will have policieshas per capita GDP in developing coun-
to be reversed, and it may therefore be expected tries rising less rapidly during 1980-95 than during
that initially the volume of imports of developing the 1970s. And low-income countries in sub-
countries will expand faster. However, the Central Saharan Africa manage hardly any increase. Even
scenario assumes that over the long run devel- in the High case, per capita income growth matches
oping-country imports will grow only a little faster only what was achieved in the 1970s; by 1995 low-
than GDP and more slowly than in the past. Such income sub-Saharan Africa still fails to regain its
an improvement is compatible with the 1970 per capita income.
pursuit of open trading policies that foster Earlier World Development Reports explored the
productive efficiency in line with comparative link between growth and poverty alleviation. It
advantage. has been estimated that even with an annual GDP
growth rate of 5 to 6 percent between 1975 and
Population growth 2000, more than 600 million people will remain
below the poverty line in developing countries in
Continued progress in reducing fertility and mor- the year 2000, unless the pattern of growth is mod-
tality is a prerequisite for population growth rates ified to put more emphasis on poverty alleviation.
to remain broadly stable up to 1995. Despite the The current prcjections clearly suggest more mod-
considerable gains achieved in most Asian and erate growth prospects and thus reinforce the need
many other middle-income countries in lowering for policies not only for stimulating growth but
fertility, the battle is far from won. If low-income also for curbing population growth and meeting
Africa could match the birth rate of low-income basic needs. They also underline the importance
Asia (which reflects the remarkable performance of bolstering improved domestic policies with ad-
of China and, to a lesser extent, India), its pop- equate inflows of capitalespecially concession-
ulation growth rate would decrease by 40 percent. ary aid directed to the low-income countries.
In addition to the direct impact on per capita in-
come (an eightfold acceleration if total income
growth is not affected), there would be an indirect
impact: reduced population growth allows re-
sources to be invested in improving productivity
and welfare, instead of being stretched out to cover
more people. Conversely, failure to match lower
mortality with lower fertility would reduce the
projected gains in per capita incomes. These issues
will be explored in depth in World Development
Report 1984.
Conclusions
Steady growth in the industrial world is vital for
developing countries. At the same time, domestic
policies are critical for their performance. And these
are within their control. The scenarios discussed
in this chapter convey one clear policy message:
while there is some scope for improving resource
mobilization, the principal area for improvement
is in the efficiency of resource use. One major
source of greater efficiency is tradeby better ex-
ploiting comparative advantage. To improve eco-
nomic performance requires both policy reforms
and strengthened institutions for management
the subject of Part II of this Report.
39
Part II Management in Development
4 The search for efficiency
Part I of this Report has highlighted the economic economic policies, Part II of this Report is chiefly
difficulties facing most developing countries, lend- concerned with management for long-term devel-
ing urgency to efforts to improve their perform- opment.
ance. Part II concentrates on the measures needed Faced with widespread poverty and slow eco-
to produce such an improvement. nomic growth, governments are naturally keener
Over the past two decades, governments in most than ever to promote development. But their prog-
developing countries have played an activist role ress is constrained by weak institutions and man-
in development, building infrastructure and often agement. These constraints vary greatly among
engaging directly in productive activities. Their countries, and their capacity to deal with them
policies have also been critical in determining the reflects differences in population, incomes, natural
environment in which the private sector operates. resources, and political systems. In many coun-
Much of this activism has produced encouraging tries, however, managerial weaknesses are ex-
progress: over twenty years, developing countries plained in part by the shortage of experienced and
have on average achieved growth rates that had well-trained people. While this bottleneck will ease
not been managed before, either by the develop- as education spending yields dividends, the im-
ing countries or by today's developed market mediate need is to use existing resources, includ-
economies at a similar stage of their development. ing managerial skills, more effectively and eco-
In relation to expectations and potential, however, nomically.
progress in many countries has been unsatisfac- Although managerial capacity places an overall
tory. limit on a country's development, it is far from
To bring performance into line with potential, homogeneous. The skills needed to frame ma-
governments must play a central role in ensuring: croeconomic policy differ from those needed to
A stable macroeconomic environment, by run a productive enterprise; and large organiza-
adopting sustainable monetary, fiscal, and foreign tions place greater demands on management than
exchange policies do small ones. Governments tend to be involved
A system of incentives that encourages re- in the management of big organizations, such as
sources to be allocated efficiently and used opti- running state farms and marketing boards, rather
mally than relying on peasant farmers, small traders,
A pattern of growth whereby benefits are and individual truckers. And the mistakes that big
widely shared. organizations make have more serious conse-
Since the world is beset with uncertainty, govern- quences.
ments need the flexibility to respond to unforeseen The main criterion for judging economic man-
events and to resolve the inevitable conflicts be- agement is "efficiency"a concept that has mean-
tween competing interest groups. ing only in the context of an agreed set of objec-
After the experience of the past ten years, the tives. This chapter first clarifies the concept, then
importance of macroeconomic management needs illustrates the potential long-term gains from in-
no underlining. In a hostile world environment of creasing efficiency, and provides an analytical
modest growth, high interest rates, and fluctuat- framework for Part II of this Report.
ing exchange rates, the macroeconomic policies of
developing countries will continue to be critical in The analysis of efficiency
ensuring price stability, balance of payments equi-
librium, and conditions conducive to growth. While The search for efficiency is not merely a matter of
recognizing the importance of shorter-term macro- finding technically optimal solutions; it is also a
41
political process. Governments seeking change have (discussed in Chapters 6 and 7); and operational
to start with existing institutions that have their efficiencyto maximize the use of labor and cap-
own historical inertia and underlying political in- ital through the sound management of enter-
terests. The process of reform therefore involves prises, projects, and programs in both the public
negotiation and compromise, accepting "second- and private sectors (discussed in Chapters 8, 9,
best solutions" that are politically feasible. This and 10).
Report recognizes that individual countries attach These in turn contain both static and dynamic
different weights to particular political and eco- dimensions. In static terms, efficiency may be de-
nomic objectives, and so draws from the experi- fined as maximizing the present value of output
ence of countries with a wide range of political from a given level of inputs. Alternatively, when
and economic systems. the goal is to achieve a particular social objective
In every country efficiency has two distinct but (such as malaria eradication) or to provide a spe-
related aspects that are critical to economic per- cific service (for example, a telephone link), effi-
formance: efficient resource allocationthrough ciency may be defined as cost minimization. Either
prices, markets, and administrative interventions way, a key factor determining efficiency is the
42
pricing of inputs and outputs to reflect relative FIGURE 4.1
scarcities. Prices of goods that deviate significantly Growth, investment, and return on investment,
from their scarcity value (or "opportunity cost") 1960-70 and 1970-80
may be regarded as "distorted" (see Box 4.1). deal GDP Investment Return on
Efficiency must also be viewed in a dynamic growth rate rate investment
(percent)'
(percent a year) (percentage of GOP)
context. The process of capital accumulation al-
26.8
lows new technology to be incorporated into the 25.8
economy, which implies both discarding obsolete 22.8
plant and retraining staff. Efficiency therefore re- 20.5
quires capital and labor to be priced according to
their marginal productivities at international prices.
In other words, labor costs per unit of output must
be kept internationally competitive and interest
10
rates should reflect the cost of foreign borrowing.
If this is done, countries will invest and expand
in ways that reflect the relative scarcity of capital 5.1 45.3
and laboravoiding, for example, capital-inten- 3.2
sive production methods if they have abundant 0 1960-70 1970-80 1960-70 1970-80
ciency and distribution conflict and will have to had many causes: the recession in world trade, oil
be traded off. There is, however, usually more price shocks, strains in the financial system, lower
than one way to achieve distributional objectives. returns on capital locked in aging industry, inef-
The effect of different options on both efficiency fective macroeconomic policies that postponed
and distribution should be carefully evaluated so rather than promoted adjustments, and more cap-
that the desired objectives can be achieved at the ital-intensive investment--all have played a part.
lowest possible cost. The declining returns to investment, combined
with rising real interest rates, were an important
The potential for greater efficiency factor behind increasing debt servicing difficulties
in 1980-83. In sixteen countries of twenty-two re-
During the past two decades, developing coun- quiring debt rescheduling during 1982-83 (see Box
tries have invested heavily to expand their agri- 2.2), the rate of return on investment had declined
culture and industry, build their infrastructure, below 20 percent in the late 1970s and early 1980s.
and provide essential services. Their investment The decline in the return on investment has been
rate rose from about 20 percent of GDP in 1960 to evei more marked in the industrialized countries,
about 26 percent in 1980, compared with the 23 and many of the efficiency issues discussed in this
43
Report are relevant in developed as well as de- 80 was approximately 40 percent lower than in
veloping countries. 1970-75. This deteriorationwhich was partly due
The implications of this lower productivity are to heavy investment in six large sugar complexes,
profound, given the conclusion reached in Chap- with production costs that were three times the
ter 3 that foreign lending to developing countries world market priceled the government to greatly
is likely to slow down in the 1980s. For developing strengthen its project appraisal procedures. In-
countries even to maintain the growth rates of the dustrial economies have also made costly mis-
1970s, they will either have to boost their own takeswitness the Anglo-French Concorde, where
savingat great sacrifice to consumptionor they the only two airlines that bought the aircraft have
will have to maintain the present investment rate difficulty covering even their operating costs, and
but make better use of resources. Certainly, a re- none of the development costs (several billion dol-
covery in the world economy alone will improve lars) will be recouped.
productivity; but with good management the gains
can be much greater, particularly in the following Investment delays
areas.
Since governments are under constant pressure to
start new projects, they frequently adopt an in-
Macroeconomic policies
vestment program that exceeds their financial and
In many developing countries, ineffective ex- managerial capacity. They then stretch projects out
change rate and monetary and fiscal policies and over longer periods than initially intended, with
excessive borrowing during the 1970s resulted in a consequent loss of output. For a sample of coun-
inflation and unsustainable balance of payments tries, the World Bank has estimated that, assum-
positions. This led unavoidably to significant re- ing an opportunity cost of capital of 10 percent,
trenchment, with adverse effects on both the rate the cost of a two-year delay in the implementation
of investment and its productivity. Abrupt policy of a projecta common occurrencewould amount
changes introduce uncertainty, which dampens to 20 percent of the cost of investment. In practice,
overall investment rates, while controls on interest some delays are due to overoptimistic scheduling
rates have resulted in savings being channeled to and unforeseeable contingencies and some to jus-
less productive uses. tified postponement owing to changed circum-
stances. But there is undoubtedly considerable
scope for shortening the costly gestation period
Distorted incentives for investments through better project planning
Several studies have shown that output losses due and execution. Embarking on fewer projects would
to inappropriate trade policies alone could have also help.
reduced GDP in some developing countries by up
to 10 percent. As reported in Chapter 6, Bank Low capacity utilization
cross-country analysis for the 1970s confirms the
findings of the 1960s that price distortions slowed In industrial market economies, fluctuating de-
GDP growth in developing countries. During the mand and technical obsolescence are the main
1970s the growth rate of countries with highly causes of excess capacity. In developing countries,
distorted prices was as much as 2 percent less than unreliable infrastructure and market distortions-- -
the average for developing countries. especially underpricing of capital and shortages of
materials and skilled staffoften figure more
prominently. Underused capacity is costly, in terms
Low-yielding investments of forgone output and the ripple effect on the rest
of the economy. For example, if in 1981 the Indian
Losses from the misallocation of resources as a fertilizer industry had operated at 85 percent of
consequence of poor investment analysis can also rated capacity instead of 67 percent, India would
be enormous. In the mid-1970s a series of unviable have saved some $400 million of foreign exchange
investments by Indonesia's national oil company, spent on importing fertilizers. Irrigation also pro-
Pertamina, costing over $10 billion, cast a shadow vides a good illustration of the potential for effi-
over the country's creditworthiness later in the ciency gains (see Box 4.2), as does transport. The
decade. In the Ivory Coast the rate of return on Republic of Korea, for example, increased the ef-
58 billion of public investment undertaken in 1976- ficiency of its rail freight (as measured by the ton-
44
Box 4.2 Irrigation design and management
Public and private investments in irri- is lost in distribution. Although losses of distribution system traditionally con-
gation in developing countries have in- 25 percent are regarded as acceptable, sisted of unlined canals serving forty-
creased dramatically over the past twenty they are often much higher due to man- hectare blocks. Where these have been
years, reaching about S15 billion in 1980. agement weaknesses in the operation of replaced by lined tertiary canals serving
But the returns are much below their po- the system. For instance in Pakistan 50 eight-hectare blocks, water available at
tential: one recent estimate for South and percent of the water distributed over 13 the field has increased by 40 percent, and
Southeast Asia suggested that an addi- million hectares is lost. If this ratio could net returns on the investment by some
tional 20 million tons of rice, enough to be cut to 30 percent, the volume of water 160 percent. In Madhya Pradesh, com-
provide the minimum food requirements saved would equal the capacity of three bining underground water supplies with
of 90 million people, could be produced Tarbela dams (equal to a $9 billion in- dams and canals has raised the rate of
every year with inexpensive improve- vestment). return on investment from 10 to 29 per-
ments in water distribution. Losses can often be reduced by rela- cent.
A simple measure of the efficiency of tively cheap improvements in irrigation
an irrigation system is how much water design. In Maharashtra, India, the public
nage carried per wagon per kilometer per day) by and 90 percent in Asia, but only 30 to 70 percent
almost 60 percent between 1970 and 1980, and in Latin America and Africa.
Mexico managed a 47 percent improvement. Sav-
ings affect capital as well as running costs: a 2,000- Poor maintenance
kilometer railway in Africa with an operational
fleet of 90 locomotives would need to invest $35 Because of inadequate maintenance budgets, pub-
million less if it could manage a 90 percent avail- lic sector assets are often run down much faster
ability rate of locomotives instead of 60 percent. than they would be if routine maintenance were
Actual availability rates vary widelybetween 75 correctly carried out (see Box 4.3). For example,
45
in Brazil it is estimated that a significant propor- administrative burden on the public sector. When
tion of the federal highway network built in the governments have tried to control too much eco-
past ten years already needs major rehabilitation, nomic activity, efficiency has been impairedusu-
while in Nigeria most of the roads built in the ally because key prices (such as exchange rates,
1970s had to be rebuilt three to five years later. interest rates, and energy prices) have been dis-
The poor state of the US interstate highway system torted. Chapter 6 details the potential gains to be
is partly attributable to underfunding of mainte- derived from reducing price distortions.
nance work. The virtues of microeconomic efficiency can be
magnified or undermined by the choice of macro-
The framework for improving efficiency economic policies. Successful macromanagement
requires a strong capacity for policy analysis, backed
Although both policy and institutional aspects of by mechanisms to translate policies into actions
efficiency are interwoven, for the purposes of and a reliable monitoring and evaluation system.
analysis it is useful to distinguish between them. These important linkages are frequently lacking in
In both, however, the state plays a pivotal role: it developing countriesissues which are taken up
is government that determines the policy environ- in Chapter. 7.
ment in which enterprises and farmers must op- The state's role as a producer is considered in
erate; government that provides the social and Chapters 8 and 9, the former focusing on state-
physical infrastructure that underpins productive owned enterprises and the latter on the design
activities; and government that frequently contrib- and execution of government projects and pro-
utes to production through state-owned enter- grams. These chapters pinpoint the important
prises. causes of inefficiency that project and enterprise
In many countries the expansion of the public managers cannot themselves resolve, even within
sector has stretched its managerial capacity to the a framework of sound economic and budgetary
point where serious inefficiencies result. Chapter policies. Country-wide skill shortages, poor per-
5 examines the role of the state, indicating a need sonnel management, and weak administrative
to reassess priorities, prune what has become un- structures and procedures all constrain the initi-
manageable, and strengthen the effectiveness of atives that can be taken by the individual agency
the state's core responsibilities. Less reliance on or enterprise. Chapters 10 and 11 consider these
controls and more on incentives to achieve social systemic issues associated with managing public
and economic objectives would also reduce the bureaucracies.
46
5 The role of the state
Some economic activities are universally recog- and fiscal difficulties arose. Many coffee- and cop-
nized as the sole responsibility of the state; others, per-exporting countries were caught in this way
it is widely agreed, are best left to private initia- during the 1970s; more recently, some oil export-
tive. Between these extremes, governments have ers have also been affected. A few, such as Papua
tended to expand their sphere of activity for a New Guinea, have prudently set aside windfall
variety of reasons. They face demands from many gains in a special development or revenue equal-
competing constituencies. They often come under ization fund.
strong popular pressure to intervene more, not
only to protect the public but also to regulate eco- Components
nomic activities and actively to promote economic
growth and social welfare. In response, the gov- Since the public sector is such a hybrid of central
ernment may engage in production directly or may departments, state and local authorities, semi-au-
act indirectly through controls. This chapter de- tonomous agencies, and state-owned enterprises
scribes how the public sector has grown world- (SOEs), it is hard to compare the composition of
wide, then discusses the division of labor between its spending. Some activities performed by central
public and private sectors, and concludes with a government in one country may, in another, be
review of how state intervention may be designed the responsibility of SOEs or local governments.
to promote efficiency. Comparisons are further complicated by the va-
riety of intrastate transactions (subsidies, trans-
Public spending fers, and loans). Moreover, consolidated data are
rarely available for the government as a whole.
For as long as records have been kept, the ratio Although the level of public activity can be mea-
of public revenue and expenditure to GDP has sured by its contribution to value added or by its
tended to grow in most countries (see Figure 5.1). current spending plus investment, neither mea-
In industrial countries, public spending has risen sure captures the state's other rolesas a redis-
from less than 10 percent of GDP in 1900 to about
40 percent in 1980; in Sweden, the ratio has reached
65 percent. However, public administration alone FIGURE 5.1
is generally less than one-tenth of total public Central government revenue, 1960-80
expenditure. Percentage of GDP
35 Industrial
market
Growth economies
30
at times of exceptionally high prices; when prices Sources IMF, Gocerninent Finance Statistics Yearbook, 1982, and International
Financial Statistics, 1982.
collapsed, expenditure could not easily be reduced
47
FIGURE 5.2 1980 ranged from 10 percent of GDP for Japan to
Government expenditure by category, 1980 29 percent for Sweden. For some developing coun-
tries, substantial mineral revenues have enabled
the share to rise even higher: 39 percent in Maur-
itania, for example. Growth in the share of public
services in GDP, too, has varied widely over the
past two decadeshardly any increase in the United
Low-income States, but a doubling in some countries (Den-
economies
mark, Mexico, and Togo).
Subsidies and transfers. These items include wel-
Middle-income
fare payments to individuals and subsidies to
oil importers parastatals. In developed countries a large and
growing part of this spending has gone for social
security, medical care, and unemployment com-
Middle-income pensation. In developing countries welfare pay-
oil exporters
ments are much smaller, and the main items are
subsidies.
High-income Investment. Investment takes two forms: (a) cap-
oil exporters
II ital spending by the government itself (on roads,
schools, and hospitals, for example), which av-
Industrial erages about a quarter of total capital formation in
market
economies
developing countries, but in 1977 went as high as
107
69 percent in the Sudan and 77 percent in Ghana;
and (b) investment by SOEs. The latter also con-
The bars represent total central government expenditures; tribute to GDP through their current spending;
colored divisions within the bars show percentage of spend-
ing by category. their role is discussed in more detail below.
Source: IMF, Government Finance Stat,stics Yearbook, 1982. Interest payments. In many developing countries
interest payments are growing rapidly, reflecting
higher interest rates and increasing indebtedness.
Net lending. A relatively minor item, net lending
tributor of income through subsidies and transfer is normally associated with the financing of in-
payments and as a borrower and lender. vestment by SOEs.
Bearing these difficulties in mind, several dif- By summing these components, one finds that
ferent categories of public spending need to be the public sector in most developing countries ac-
distinguished: services, subsidies and transfers, counts for 15 to 25 percent of value added in GDP
investment, interest payments, and net lending. and some 50 to 60 percent of total investment. For
Figure 5.2 shows how these vary in importance in industrial countries as a group, the public sector's
different country groups. Data for selected coun- contribution to value added is a little higher but
tries are set out in Figure 5.3, which shows that its share in investment is lower.
no simple correlation exists between the com-
position of government expenditure and per capita The state as producer
income.
Public services. Also known as "public consump- In most developing countries the bulk of produc-
tion," public services comprise all current govern- tion is in private hands. Agriculture, commerce,
ment spending on wages and salaries and goods personal services, and small-scale manufacturing
and services (including military outlays). Expendi-
ture on wages and salaries to provide public serv- TABLE 5.1
ices is defined as central and local governments' Cost of public services as a share of GDP
contribution to GDP. For industrial market econo-
Countri group 1960 1980
mies, the share of public services in GDP has grown
only slowly in recent years. The comparable shares Low-income economies 8 11
for low- and middle-income countries are lower, Middle-income economies 11 14
but have grown faster (see Table 5.1). Among in- Industrial market economies 15 17
dustrial countries, spending on public services in Note: Shares are GDP weighted.
48
FIGURE 5.3
Central government expenditure by sector
Percentage of GOP
0 10 20 30 40 50
Burma
(5170) I IL RDefense
Malawi Administrative
($230) J services
Kenya
($420) Education
Liberia Health, social security,
($530) and welfare
Egypt Economic services
(0580)
Thailand Other
($670) I I
Paraguay
($1,300)
Tunisia
LI
($1,310)
Costa Rica
($1,730)
Italy
($6,480)
France
($11,730)
Belgium
(512,180)
Countries are listed in ascending order of 1980 GNP per capita. fore an approximate indication of total government expenditure
In all cases, more than 90 percent of total government revenue as a percentage of GDP.
accrues to central government. The length of the bars is there-
Sources: IMF, Government Finance Statistics Yearbook, 1982, and International
Financial Statistics, 1982; World Development Report, 1981 and 1982.
are typically dominated by the informal private available, SOEs account for at least a quarter of
sector, while large-scale manufacturing, mining, total capital formation, and in a few cases signif-
and finance are usually the preserve of SOEs, icantly more (see Table 5.2). Even these figures
transnationals, and a few large, domestically owned understate the weight of SOEs in modern sectors
enterprises. Electricity, gas, and water are pro- of the economy. SOEs may be responsible for pro-
vided mainly by state-owned utilities, and SOEs ducing and marketing major exports of foodstuffs.
also play a significant role in transport and com-
munications. In contrast, the pattern of ownership
TABLE 5.2
varies considerably in mining and manufacturing
Investment by SOEs as a percentage of gross
(see Figures 5.4 and 5.5). fixed capital formation in selected countries
In industrial market economies the contribution
of SOEs to GDP averaged about 10 percent in 1980, Country Years Percent
up from 9 percent in 1970. For developing coun-
Algeria 1978-81 68
tries for which data are available, the average has Burma 1978-80 61
risen from 7 percent at the beginning of the 1970s Zambia 1979-80 61
to about 10 percent by the end of the decade. Most Pakistan 1978-81 45
countries are grouped in the 7-15 percent range, Ivory Coast 1979 40
but there are variations from as low as 2 to 3 Ethiopia 1978-80 37
Venezuela 1978-80 36
percent in the Philippines and Nepal to as high India 1978 33
as 38 percent in Ghana and Zambia and 64 percent Bangladesh 1974 31
in Hungary, excluding cooperatives which pro- Brazil 1980 23
duce another 17 percent (see Figure 5.6). SOEs Korea, Rep. of 1978-80 23
also contribute substantially to investment; in most Peru 1978-79 15
of the developing countries for which data are Source: Peter Short (1983).
49
FIGURE 5.4 They may dominate domestic credit markets, par-
State-owned enterprises' share of GDP by sector ticularly in small economies, because of their bor-
Share of sectoral
rowing privileges; in the late 1970s, SOEs were
value added responsible for 40 percent or more of domestic
(percent)
credit outstanding in Benin, Guinea, Mali, Sene-
gal, and Bangladesh.
The size of the SOE sector needs to be consid-
ered alongside the state's role in providing basic
services. Many developing countries are plagued
by frequent power cuts, overcrowded ports, de-
0
0
teriorating roads, water shortages, unreliable tele-
U phone service, and poor schools and health facil-
Austria
ities. The task of improving such services is
(1970-75) hampered if the state is also involved in less es-
France sential activities. This argues for tailoring a gov-
(1981)
Italy
ernment's responsibilities to match its financial and
(1975)' managerial capacity.
United Kingdom Governments cite a wide variety of reasons for
(1975)
Congo creating SOEs. Whereas some have an ideological
(1980)° preference for public control, others have traveled
Ivory Coast the same route for more pragmatic reasons. They
(1979)
Kenya may have wanted to wrest control of key enter-
(1980)
prises from foreign owners (Egypt in 1956 and
Senegal
(1980) Madagascar in 1974) or from minority ethnic groups
Sierra Leone (Uganda in the 1970s); in other instances, enter-
(1979)
Tanzania
prises were inherited by the state after indepen-
(1980-81) dence (Bangladesh in 1972) or a revolution (Por-
Bangladesh
(1980)
tugal in 1974), or as a result of private sector
Burma
bankruptcies. Governments have used nationali-
(1980) zation to capture the rents from the exploitation
India of minerals and, where national security is in-
(1978)
Korea, Rep. of volved (as in arms manufacture), to exercise direct
(1974-77)
military control. In other instances, governments
Nepal
(1978- 79) have decided to take the lead in starting a major
Pakistan new industry in the absence of private investors,
(1980)
or have rescued a bankrupt private firm.
Sri Lanka
(1974) The key factor determining the efficiency of an
Greece enterprise is not whether it is publicly or privately
(1979)
Portugal
owned, but how it is managed. In theory it is
(1976) possible to create the kind of incentives that will
Tunisia
(1976)
maximize efficiency under any type of ownership.
Argentina But there is a great difference between what is
(1980) theoretically feasible and what typically happens.
Mexico As a commercial entity, an SOE must sell in the
(1980)
Nicaragua marketplace. As a public organization, it is given
(1980)
other objectives and is exposed to pressure from
Uruguay
(1979) politically powerful sectional interests. SOEs are
often operated as public bureaucracies, with more
The blocks indicate the range of sectoral value added attrib- attention to procedures than to results; and ready
uted to SOEs. The color and height of the blocks indicate access to subsidies can erode the incentive for
percentage shares. Developed countries are shown first, fol- managers to minimize costs.
lowed by developing countries grouped by region.
In some cases, SOEs are not necessarily the only
Enterprises with more than twenty employees.
Gross output. or the best vehicle for achieving the goals of gov-
Sources: UNIDO; World Bank; Peter Short (1983). ernment. Other alternatives have sometimes proved
50
more efficient. On occasion, public monopolies have state marketing boards; measures to stimulate the
been replaced by competing private firms (see Box capital market can promote industrialization with-
5.1), and in other instances governments have ex- out the state being directly involved. And govern-
ercised control indirectly by taxing and subsidizing ments have used management contracts to tap pri-
private companies or by controlling their prices. vate managerial and technical skills to provide better
Public stabilization funds may be an alternative to services (see Box 5.2).
Though private management has much to con-
tribute, it would be misleading to portray it as
FIGURE 5.5
universally efficient. In poor countries, managerial
State-owned enterprises' share of value added capacity is weak in both the public and private
in manufacturing sectors. However, the greater potential for com-
Percent petition and the ever-present possibility of bank-
0 20 40 60 80 100 ruptcy exercises a discipline over private busi-
Greece (1979)
nesses that is lacking in the public sector. When
services can be provided efficiently by small busi-
Argentina (1975) nesses, such as individual truckers, reliance on the
Portugal (1976) private sector economizes on management. Rec-
ognizing that, some governments have decided to
Romania (1978)
reduce the size of the public sector, while others
Mexico (1975) are actively considering doing so. This choice has
nothing to do with political ideology: Hungary
Hungary (1978)
legislated in 1982 to allow the formation of private
Panama (1977) companies employing up to 150 people. In Bel-
Korea, Rep. of (1977)
grade street cleaning is contracted to a private
company, while in New York the same task is
Turkey (1980) undertaken directly by the city government.
Syria (1977)
Tunisia (1978-81)
FIGURE 5.6
Ivory Coast (1979)'
Nonfinancial state-owned enterprises' share of GDP
Nicaragua (1980) GNP per capita (1980 dollars)
Thailand (1979) Germany, Fed. Rep.
10,000 France.
Egypt (1979) Australia Austria
Italy United Kingdom
Bolivia (1973-75) Spain
Venezuela
Senegal (1974) F-i
Argentina s Portugal
Pakistan (1975) Ghile
Korea, Rep. of
Sierra Leone (1979) Tunisia
1,000 Paraguay .Ivory Coast
Tanzania (1974-77)
. Philippines
Liberia Bolivia Zambia S
India (1978) Senegal Ghana S
Kenya. Togo
Burma (1980) Pakistan. Benin
Tanzania S Guinea
India
Ethiopia (1979-80) Mali
Nepal
Bangladesh
Bangladesh (1978) 100
0 10 20 30 40
The twenty-four developing countries shown above are listed Percentage of GDP at faclor cost
in descending order of 1980 GNP per capita. The length of
the bars indicates the percentage of the countries' manufac- This figure shows that, for many countries with different
turing value added attributed to nonfinancial SOEs. levels of GNP per capita, SOEs' share of GDP is close to
a. Includes mining. 10 percent.
Sources; UNIDO; World Bank; Peter Short (1983). Sources; UNIDO; World Bank; Peter Short (1983).
51
Box 5.1 Bus services: the comparative advantage of private operators
In many cities bus services are domi- In Calcutta the State Transport Cor- buses normally charge twice as much as
nated by large, publicly owned or highly poration (CSTC) was given a monopoly regular buses, yet account for more than
regulated companies operating full-size in the early 1960s. In response to public 90 percent of all trips. The passengers
buses (forty to sixty seats). Most require demand, private buses were permitted clearly prefer the convenience of the
government subsidies to cover their def- in 1966. The private buses charged the minibuses. The main bus company loses
icits. The experience of cities that have same fares and earned a profit, while money; the minibuses make modest
allowed competition shows that smaller, CSTC lost money. Today, private buses profits.
private companies running smaller buses operating without subsidies account for Some of the doubts about private bus
(twenty-five Seats or fewer) offer more two-thirds of all bus trips. On similar operators are not borne Out in practice.
frequent and convenient service and are routes at the same fares, CSTC still re- For example, city authorities may fear
profitable. quires subsidies of $1 million a month. that bus companies pursuing profits
Public transport in Buenos Aires, for The success of the private companies has would not serve poorer communities or
example, is provided by about fifty pri- been attributed to quicker repairs (only work off-peak hours. Yet in such cities
vate companies operating 23-25 seaters. half of CSTC's buses are running at any as Istanbul, Calcutta, Bangkok, Hong
The government sets their routes, but one time), better fare collection (CSTC Kong, and Nairobi, minibuses are the
most have to compete on each route. As loses an estimated 25 percent of its fares only transport serving many low-income
a result, the buses are well maintained through evasion), and higher labor pro- communities, especially illegal squatter
and run frequently; 94 percent of the ductivity (CSTC employed thirty staff per areas or centers with narrow streets. Pri-
routes enjoy service for eighteen hours bus in 1980, one of the highest staffing vate bus companies are also criticized for
or more a day. An earlier experiment levels in the world). keeping down the incomes of their driv-
with full-size buses run by a large (ini- Chiengmai, a city of about 100,000 ers. But the limited empirical evidence
tially private, later public) company failed: people in northern Thailand, allows vir- shows that drivers in Istanbul and Cal-
the company's service deteriorated rap- tually free competition between large cutta earn more than the average house-
idly and by 1959 its annual losses totaled buses following fixed routes and mini- hold income.
about $44 million; in 1962 it was dis- buses which adapt their routes according
solved. to the demands of the passengers. Mini-
52
but in other cases clandestine activities are linked market mechanisms have been effective without
to crops that governments have overtaxed or Un- changes in ownership. China, for example, has
derpriced. Coffee and cocoa in West Africa are reformed its commune system to allocate land to
examples of how black markets can undermine individual farmers (see Box 5.3). It has also intro-
controls, at great cost in lost revenues and often duced a pricing system for medical services that
in output as well. allows patients to choose.
Prices set low to benefit consumersespe- The difficulty lies in ensuring that prices reflect
cially for foodhave frequently discouraged pro- costs. In any economy a vast amount of rapidly
ducers, creating scarcities and greater dependence changing information on the supply and demand
on imports. for goods and services must be handled promptly
To overcome these weaknesses, almost all the and accurately. Competitive markets permit the
economic reforms attempted by market and cen- necessary flexibility and responsiveness and, be-
trally planned economies have placed greater re- cause they decentralize the task of handling in-
liance on prices to decentralize decisionmaking. formation, also economize on scarce administra-
Where administrative skills are generally at a pre- tive resources.
mium, the theoretically optimal solution to a pub- Changes in government policy can lead to dra-
lic management problemsuch as a value added matic improvements in enterprise efficiency (see
tax to fund government operations without intro- Box 5.4). In addition to ensuring that firms operate
ducing fiscal distortionsmay prove impractical, within a pricing framework that reflects scarcities,
and a second-best solution must be sought. The governments can help to improve the efficiency of
option of using price incentives in place of ad- enterprises in several ways.
ministrative solutions always merits serious con-
sideration. Not only do price incentives lighten Fostering corn petition
the administrative burden but they also reduce
costly distortions. The use of market mechanisms Japan has demonstrated the importance of com-
does not require or assume private ownership. petition to promote efficiency. The Japanese mar-
Both in socialist countries and within the public ket was large enough to provide healthy compe-
sector in "mixed" economies, reforms based on tition even in industries producing for the domestic
Box 5.2 Management contracts for water supply in the Ivory Coast
The water and sewerage service in the fore makes a reasonable profit, whereas fully, the Ivory Coast can finance its
Ivory Coast is provided on a manage- other (usually public) water supply com- high standard of service. Water rates are
ment contract by a private company, So- panies in West Africa mostly operate at among the highest in Africa, which means
ciete de Distribution d'Eau de Ia Cote a loss. SODECI's fee is only part of the that consumers, rather than taxpayers,
d'lvoire (SODECI). It was started by a water tariff, which is set to cover not pay for the service they receive. Rates
French water supply company; today 52 only operation and maintenance costs but for smaller users are low, so the poor
percent of its shareholders are Ivorians. also debt service. can afford the service.
Although the company still depends Despite rapid expansion, water supply During periodic traffic reviews, the
partly on expatriates, the general man- in the Ivory Coast offers one of the high- government can carefully scrutinize
ager and most of the other managers are est standards in West Africa. The sys- SODECI's costs; between reviews,
Ivorians. tems are well designed, equipped, main- SODECI has a strong incentive to keep
A unit in the Ministry of Public Works tained, and operated. Water quality and down its costs.
is responsible for planning and building pressure are uniformally good. Con- As a private company, SODECI is
all large new investments in water. This sumption is metered and water losses free (within the contracted limits) to hire,
unit is also responsible for supervising are low. Several factors contribute to these fire, and compensate its staff. This free-
SODECI. Under its contracts, SODECI is good results: dom, plus a strong emphasis on training
paid a fee related to the volume of water The institutional separation of in- (SODECI is the only water supply com-
sold. The fee is calculated on the basis vestments from operations makes it eas- pany in West Africa with its own training
of agreed standards for staff, equipment, ier to evaluate SODECI's performance and center), enables the company to attract,
energy, and other inputs, plus a margin assures government control over the ex- train, and keep qualified people.
based on agreed overheads and profits, pansion of the system.
indexed against inflation. SODECI there- By setting water tariffs to reflect costs
53
Box 5.3 The search for efficiency in China: the rural production
responsibility system
Since 1979 China has embarked on a far- and implements are assigned to individ- lower prices, thereby levying a form of
reaching program of economic reform to ual households for several years (usually taxation. Beyond these quotas, however,
increase efficiency within a system of five). Households may farm the land as farmers can sell in markets governed
public and collective ownership and cen- they wish, but must undertake to pro- purely by supply and demand. As an
tral planning. The basic components of vide an agreed amount of their output incentive, the government has recently
this program are: at fixed prices to the government and to reduced the size of the fixed quota. The
Greater decentralization of produc- their village production team. Beyond government is also encouraging the es-
tion and investment decisions to enter- these obligations, which account on av- tablishment of collective and private
prises and farms erage for one-third of a household's total commercial ventures to market con-
Stronger incentives, with more di- production, farmers can keep whatever sumer goods and agricultural inputs in
rect links between material rewards and they produce. rural areas. And it is providing credit for
the work of households and individuals The method of allocating land varies private and collective activities in raising
Greater use of market mechanisms in different parts of the country. In most livestock and for handicrafts, for
in allocating resources. areas allocation depends on household example.
Although the reforms extend to all as- size or the number of laborers in a house- Since these reforms are at an early
pects of China's economy, the most hold. In some places, however, those stage, many questions remain. In partic-
striking changes so far have been in the households that agree to deliver most to ular, it is unclear whether the new sys-
rural areas. Until recently, farmers had the village get the largest farms. Where tem can retain the advantages of the old
little autonomy: they were told what to the main activities are growing vegeta- system in financing social services for the
growhow much, where, and with what bles or raising livestock, instead of as- poor and in organizing large-scale in-
inputs. The bulk of their output had to signing land to households, production vestment. Nonetheless, the reforms have
be delivered to the government or their contracts are negotiated between village already produced impressive results.
collective, and their incomes were only leaders and groups of households or During 1978-82, gross agricultural out-
partly determined by the amount and workers to deliver a fixed amount of out- put rose at 7 percent a year, more than
quality of their crops. put. The groups receive an agreed pay- double the average rate in the preceding
While still retaining collective owner- ment when they deliver, with bonuses twenty years. Because of higher pro-
ship of land and most agricultural equip- for surpluses and penalties for shortfalls. curement prices, farmers' real incomes
ment, the government has introduced Crops subject to compulsory delivery (which barely increased in 1957-77) have
significant changes in the organization have been reduced in number and lim- risen even fasterat about 10 percent a
of production and marketing and in the ited mainly to staples such as grains and year during 1978-82. The quantity, qual-
distribution of income. Under the new cotton. For these crops, a multi-tier price ity, and variety of agricultural produce
"production responsibility system," system has been introduced. Within fixed available in urban areas have also im-
farmland and sometimes draft animals quotas, the government buys crops at proved substantially.
market and protected from international compe- that exporting also stimulates productivity gains,
tition. The gradual liberalization of imports ac- as manufacturers strive to penetrate competitive
cording to a fixed timetable was an added pressure markets. A case study of a successful public com-
for efficiency (discussed in Box 6.3 in the next pany in India, Hindustan Machine Tools, suggests
chapter). Brazil is another example of a country that even modest export sales can have this effect.
where, despite import protection, domestic com-
petition has helped increase efficiency.
In smaller countries, however, attempts to pro- Reducing uncertainty
mote internal competition by restricting the size
of companies have usually resulted in uneconom- The level of business uncertainty in developing
ically small producers. A better approach is to re- countries is often much higher than in developed
duce tariffs and achieve the right mix of incentives economies. Uncertainty encourages companies to
between exporting and import-competing indus- build up inventories and cash balances, while dis-
tries. The partial liberalization of imports in the couraging innovation and investment. For exam-
Republic of Korea and Brazil during the 1960s in- ple, a policy of short leases (no more than five
creased the competitive pressure on industry. The years) in the Turkish marble industry fostered
experience of several East Asian countries shows mining methods that accelerated the destruction
54
of the ore body and discouraged investments that ized lists. In Tanzania, applications for import
would have added value to the rock. licenses must be submitted three months in
While a certain amount of uncertainty is una- advance for six months' worth of imports; then
voidable, governments can reduce it by providing applicants are typically granted only a fraction of
information on their own intentions and the econ- their requests. In 1980 an Indonesian cement man-
omy in general, by making regulations less arbi- ufacturer and its distributors were found to need
trary, and by providing guarantees and insurance. twenty-four different licenses (health, environ-
Consultation between business and government mental, transport, and so on) to operate, while an
can be encouraged by creating a forum for public importer had to produce between 25 and 100 pages
and private participants to meet and air their views. of documentation to obtain one piece of equip-
A good example comes from Japan, which estab- ment. A study of industrial licensing in India in
lished several liaison agencies in the Ministry of 1973 found the process took two to three years
International Trade and Industry (the Commerce and sometimes only the first phase of a project
and Industry Deliberation Council in 1927, the In- would be approved; subsequent reforms have
dustrial Rationalization Council in 1949, and the helped to alleviate this bottleneck.
Industrial Structure Council in 1961). These bodies
allowed industrial leaders, academic specialists, and Simplifying procedures
officials to discuss and modify government policy.
The Republic of Korea also brings government and Several countries are trying to speed up govern-
business together through monthly meetings, ment procedures. Brazil, for example, created a
chaired by the country's president, which focus Ministry of Debureaucratization to cut down on
on the export targets set by firms. Participation in regulations and licensing. Since 1979 Brazil has
this open forum provides an incentive for both eliminated some of the millions of documents pre-
sides to do well. Mauritius has a national economic viously required from private firmssaving them,
council to bring together government, labor, and to date, an estimated $1 billion. In the Philippines,
business representatives. the approval time for export incentives was short-
Government controls can also breed uncer- ened from ninety to sixty days in 1979; exporters
tainty. This is particularly the case when licenses were granted advance tax credits or duty rebates
for investment and imports are issued on an ad on imported inputs only seven days after export-
hoc basis, and when there is a danger of delays ing the finished product. In the Republic of Korea
or changes in procedures. Some countries (such export and import procedures are being comput-
as India and Turkey) have frequently changed the erized.
quantities of imports permitted and have shifted "One-stop" agencies help to centralize and sim-
items back and forth between quota and liberal- plify industry's contacts with government. Indo-
55
nesia converted its industrial coordination board signs, quality control, and technical services to
into a one-stop agency in 1979. Businessmen can their contractors. In some countries, such as Sri
now get licenses that previously involved several Lanka and Bangladesh, governments have pro-
different ministries, although bureaucratic delays moted special agencies to inform large firms of the
are still a problem. Turkey has centralized export capabilities of smaller companies and to assist sub-
promotion incentives in the Office of Incentives contractors in meeting quality control and delivery
and Implementation. The Singapore Economic De- standards. Removing cascading sales taxeswhich
velopment Board acts as the official liaison with tax transactions between firms but not within a
foreign investors and assigns people specially to single firmcan also encourage subcontracting.
help cut through red tape.
Conclusions
Encouraging technological development
The role of the state changes as the economy does.
Promoting technology in developing countries In least developed countries, the indigeneous pri-
generally requires removing barriers to innovation vate sector consists largely of subsistence farmers
and increasing access to information. A study of and small'family traders, while the modern sector
sub-Saharan Africa found that low crop prices dis- is dominated by expatriate or minority-owned firms
couraged the transfer of agricultural innovation. concentrated in a few export crops or mining. Under
High taxes, licensing procedures, and measures such circumstances, governments generally feel that
that reduce competition can have the same effect. only they have the resources and the purpose to
The most important source of new technology promote development. In more advanced econo-
for developing countries is foreign firms. Since mies, with the potential for greater private sector
their presence can raise delicate political issues, activity, the state may play more of a regulatory
some countries have tried to emulate the Japanese role, concentrating on rectifying market failures.
in separating foreign investment from the import This chapter has suggested that government in-
of technology. With increasing competition to at- terventions can result in large losses of efficiency
tract foreign investment, however, few countries and should therefore be selective. In the face of
can close their doors to the companies and import compelling political and social pressures, govern-
only their technology. Other attempts to restrict ments will always be tempted to do more than
transnationalsby requiring them to purchase lo- can be accomplished efficiently. Yet today's wide-
cal inputs or work with domestic partners, for spread reexamination of the role of the state is
examplecan discourage them completely from evidence of a new realism. In the search for greater
locating in the market. cost-effectiveness in the provision of services, gov-
One way to increase access to foreign technol- ernments are exploring ways of tapping private
ogy is through exporting. A study of industry in initiative and simulating competitive conditions.
the Republic of Korea found that it enjoyed vir- The most common approach is to use private con-
tually free access to technological and managerial tractors in a variety of fields, from road mainte-
information through foreign buyers, who were the nance to garbage collection. This serves to mobi-
most important single source of ideas on product lize new managerial resources and, if well
innovation. Buyers' suggestions also improved the supervised, can greatly improve the quality and
organization of production and upgraded man- reduce the cost of services. Where reliance is placed
agement techniques. on markets, however, governments are finding
Governments can help spread information to that price distortions can exact a heavy toll. This
small and medium-size companies by encouraging is the subject of the next chapter.
subcontracting. Large firms typically provide de-
56
6 Pricing for efficiency
57
As background research for this Report, the in Chapter 8, Box 8.1.) While the problem was
available facts on price distortions have been col- generally less severe for other regions, in several
lated for thirty-one developing countries, repre- countries an overvalued exchange rate harmed not
senting more than 75 percent of the population of only the balance of payments but also their growth.
the developing world excluding China. The analy- Even in such countries as Argentina, Chile, Sri
sis concentrates on distortions in the prices of for- Lanka, and Uruguay, which initiated programs of
eign exchange, capital, labor, and infrastructure economic reform during the 1970s, the real ex-
services (particularly power). Distortions are not change rate was subsequently allowed to appre-
measured against some theoretical ideal, but are ciate and thus weakened their reform programs.
practical approximations commonly used in policy
analysis. For example, to measure distortions in Trade restrictions
the pricing of foreign exchange, one should ideally
measure the effective exchange rates for imports Trade restrictions have often led to high and var-
and exports as they deviate from the "equilib- iable rates of protection between different manu-
rium" rate. In practice, it is difficult to calculate facturing industries. By contributing to an over-
equilibrium exchange rates; policy discussions valued exchange rate, such restrictions have
generally focus on changes in real effective ex- inadvertently discriminated against both exports
change rates from a base period, together with the and agriculture. In several countries (such as Cam-
effective protection or taxation of traded goods. eroon, Ghana, Senegal, Tanzania, and Turkey),
Similarly, distortions in interest rates are judged this bias against exports has been supplemented
by how far interest rates were negative in real by export taxes or even outright restrictions, some-
terms; in wages, by movements in real wages rel- times leading to increased agricultural imports at
ative to productivity adjusted for changes in the the expense of domestic production.
terms of trade; in the value of money, by high When import controls are intended to protect
and accelerating inflation; and in infrastructure infant industries, they are rarely geared to pro-
prices, by the rates of return in utilities. The es- mote an industry's long-run growth potential; nor
timated price distortions are found to be inversely are they reduced even after the industry has reached
related to growth and efficiency, but there is no adolescence. The loss of efficiency resulting from
strong evidence of such distortions leading to any such policies can be considerable. In extreme
gain in equity. casessteel in Bangladesh, tin cans in Kenya, and
cars in Thailandthe foreign exchange cost of im-
Exchange rates porting raw materials and capital significantly ex-
ceeds the foreign exchange cost of importing the
Changing the real exchange rate can be a powerful finished products. Apart from these losses, the
tool for balancing trade without burdening the ad- system of protection in many developing countries
ministrative system and without distorting do- has become a serious administrative burden and,
mestic incentives. Yet in the 1970s in many coun- by giving windfall gains to those who obtain im-
tries with a large balance of payments deficit, the port licenses, often makes the distribution of in-
exchange rate was allowed to become overvalued come more unequal as well.
in relation to the purchasing power of the cur-
rency. This lack of competitiveness became par- Interest rates
ticularly serious in sub-Saharan Africa, where the
average real effective exchange rate appreciated by Overvalued exchange rates and low tariffs on im-
44 percent between 1973 and 1981. (The real ef- ported capital goods encourage capital-intensive
fective exchange rate is here defined as the import- techniques at the expense of creating jobs. These
weighted exchange rate adjusted by the ratio of tendencies are strengthened when interest rates
the domestic consumer price index to the import- charged to borrowers (and paid to savers) fall short
weighted combination of consumer price indices of the inflation rate. At various times in the 1970s,
in the trading partners.) Several African countries negative real interest rates were almost a world-
now find that producers of traditional export crops wide phenomenon. But they were particularly se-
cannot be paid enough to cover their costs of pro- vere and persistent in countries such as Argentina,
duction, even though these are the crops for which Brazil, Ghana, Jamaica, Nigeria, Peru, and Turkey,
they have a strong comparative advantage. (Cocoa frequently reaching double figures. Such negative
in Ghana is an obvious example and is discussed real interest rates not only penalize savers and
58
stimulate capital outflows but also encourage ex- double-digit rates. Nearly all the countries that
cess demand for creditwhich is then suppressed had high-15 percent a year or moreinflation in
by rationing loans, causing more administrative the 1960s (such as Brazil, Chile, Republic of Korea,
burdens. and Uruguay) continued in that category in the
1970s, and many others joined their ranks. In sev-
Costs of labor eral countries (such as Argentina, Bolivia, Chile,
Ghana, Mexico, Nigeria, and Turkey), the rate of
Capital-intensive investment has also been en- inflation in the 1970s was high, and several times
couraged where the price of labor has been in- that in the 1960s. Rapid and accelerating inflation
creased by unrealistic minimum wage laws and undermines allocative efficiency because it in-
social security taxes. In many mineral-based creases uncertainty and induces savers to invest
economies, especially in Africa and Latin America, in unproductive "inflation hedges" such as real
the drive for higher mining wages has spread to estate, consumer durables, gems, and foreign cur-
other sectors. This has pushed labor costs far above rency deposits. Some countries have developed
those of competitors, and encouraged rural people complex systems for indexing wages and prices to
to leave the land in pursuit of the high wages paid compensate for inflation, though this is adminis-
to those lucky enough to find jobs in the urban tratively costly and tends to penalize those (mostly
sector. In some Latin American countries in the poor) people outside the indexation system. Where
1970s, social security contributions have added up indexation does not exist, the "inflation tax" con-
to 20 percent to the cost of labor. In the 1970s tributes to a growing sense of social and economic
wage negotiations in several countries (such as injustice.
Ivory Coast and Sri Lanka) failed to allow for de-
terioration in the country's terms of trade. As a Linkages among distortions
result, real wages grew significantly faster than
productivity adjusted for changes in terms of trade. Most price distortions are connected: some coun-
teract each other, others are reinforcing. For ex-
Infrastructural services ample, an overvalued exchange rate tends to offset
the degree of protection given by tariffs, but it
The rapid increases in international costs of energy increases the bias against exports caused by export
and capital in the 1970s required correspondingly taxes. Consumer subsidies may moderate the
higher prices for infrastructural services, which are pressures for raising wages but exacerbate infla-
generally both energy and capital intensive. With tionary pressures through increasing budgetary
the exception of some oil-exporting countries and deficits. Low interest rates and transport prices for
some energy products, most developing countries farmers, along with subsidized inputs, may coun-
have adjusted domestic energy prices to interna- terbalance the losses they suffer from an overval-
tional levels. However, infrastructure prices have ued exchange rate. Similarly, agricultural protec-
been raised too slowly to judge by the low rate of tion works not only through its effects on agriculture
return on capital achieved by power utilities. A but also through its effects on wages and industrial
review of sixty countries conducted by the World efficiency.
Bank in 1980 showed that about half had low (less It is therefore not enough to judge the efficiency
than 4 percent) rates of return, while several in- of allocation on the basis of individual distor-
curred losses. In transport and water supply, rates tionsas is done, for example, when growth is
of return are not available for any sizable sample related just to inflation or just to interest rates.
of countries, but the indications are that most Some composite measure of price distortions is
countries fail to recover the full costs of these needed. Nor is it enough to analyze only static
services. Such underpricing not only increases efficiency. Price distortions that produce a loss of
demand for these capital- and energy-intensive static efficiency might nevertheless increase dy-
services but also undermines the financial viability namic efficiency, or they might produce cumula-
of the agencies supplying them. tive dynamic losses. Finally, it is hard to know at
what point investment encouraged by protection
Inflation or subsidized interest rates becomes profligate. The
answers to these questions must be sought from
The 1970s was a decade of rising inflation the world empirical evidence.
over, with most developing countries experiencing That evidence is set out in Figure 6.1. For each
59
TABLE 6.1
Indices of price distortions and various components of growth in the 1970s
Domestic
Simple Annual GDP Simple savings Simple
Distortion group growth rate group income ratio group
Country index average (percent) average (percent) average
of the major prices, distortions are classified as the "high" category. It is interesting to note that
high, medium, or low on the basis of available these groups contain a mixture of countries, un-
figures and the qualitative judgments of Bank staff. connected by geography, natural resources, or de-
For a particular country the degree of distortion gree of government activism.
may be widely different for different prices. A
composite index was therefore obtained by cal- Price distortions and growth
culating an average of price distortions (see Box
6.1). Figure 6.1 ranks countries in order of increas- A large body of theoretical literature has demon-
ing distortion in the 1970s: Malawi, Thailand, strated how price distortions result in a loss of
Cameroon, the Republic of Korea, and Malaysia efficiency. At an empirical level, studies of Brazil,
have the lowest distortion, while Argentina, Chile, Chile, Pakistan, Philippines, and Turkey relating
Tanzania, Bangladesh, Nigeria, and Ghana are in to the 1960s estimated that the costs of distorted
60
Additional output Annual growth Annual growth Annual growth
per unit of Simple rate of Simple rate of Simple rate of Simple
investment group agriculture group industry group export volume group
(percent) average (percent) average (percent) average (percent) average
prices due to trade restrictions alone could have Statistical analysis of the relationship between
amounted to 4 to 10 percent of their GNP. Those the price distortion index and growth in the 1970s
countries that embarked on programs of correcting confirms these earlier findings. The average growth
prices in the 1960s (for example, Brazil, Colombia, rate of those developing countries with low dis-
and the Republic of Korea) also showed significant tortions in the 1970s was about 7 percent a year-
gains in output (and employment) resulting from 2 percentage points higher than the overall aver-
these liberalization efforts. More recently, as re- age. Countries with high distortions averaged
counted in the 1981 World Development Report, it growth of about 3 percent a year, 2 percentage
has been found that countries which avoided dis- points lower than the overall average.
torting trade policies were typically more success- The relation between price distortions and the
ful in adjusting to external shocks in the 1970s various components of growth is presented in Table,
than those with distorted prices. 6.1. High distortions are associated with low do-
61
FIGURE 6.1
I
Price distortions and growth in the 1970s
High
distortion
Foreign
exchange
pricing
Factor
pricing
Product
pricing
Composite distortion index Growth of GDP, 1970-80
0
distortion
aMedium >5
Incre>rsing distortion Estimated
Low
be
0
Low High
.- Actual
be a
distortion 0
0 (annual percentage change)
on be
a
be U U 1 2 3 0 2 4 6 5
Malawi
Thailand
Cameroon
Korea, Rep.
Malaysia
Philippines
Tunisia
Kenya
Yugoslavia
Colombia
Ethiopia
Indonesia
India
Sri Lanka
Brazil
Mexico
Ivory Coast
Egypt
Turkey
Senegal
Pakistan
Jamaica
Uruguay
Bolivia I.
Peru
Argentina ..
Chile
Tanzania II
Bangladesh
Nigeria
Ghana
I.
In this figure countries are l'sted in order of increasing degree increases, the color of the circle changes from yellow to red. In
of distortion in prices. In the first section, the color of the the right hand section, the blue circles show the actual annual
squares indicates the degree of distortion in the principal cat- rate of growth of GDP; the green circles are estimates of GDP
egories of prices. The middle section is a composite index of growth obtained by a regression relating growth to the distor-
price distortion for each country: as a country's distortion index tion index.
62
Box 6.1 Price distortions and growth: a statistical analysis
In Figure 6.1 the distortion indices in ma- these circumstances the composite dis- sidered in a more complete explanation
jor prices are classified as low, medium, tortion index in Figure 6.1 is obtained as to account fully for the variation in growth
and high. For statistical analysis, these a simple unweighted average of the in- rates. Thus as shown in Figure 6.1, Bra-
categories were replaced by numbers 1, dividual distortions. zil, Egypt, Indonesia, Nigeria, Republic
2, and 3 respectively. For the panel of The figures on growth rates and dis- of Korea, and Ivory Coast did much bet-
thirty-one countries, the degree of dis- tortion indices show that the relatively ter than would have been predicted by
tortion in each price, thus defined, was high (top one-third) distortion countries the regression equation, and Ethiopia,
found to be negatively correlated with had growth rates about 2 percentage Ghana, and Jamaica considerably worse.
the GDP growth rates during the 1970s, points lower than the average (which is While the degree of distortions in prices
with the exchange rate distortion being about 5 percent a year) and the low (bot- has a significant association with growth,
the most significant. tom one-third) distortion countries, were the analysis indicated virtually no cor-
These distortions are interrelated about 2 percentage points higher than relation with the distribution of income.
among themselves and each distortion average. For twenty-seven countries for which
affects growth through a complicated set The regression equation relating growth figures are available on income distri-
of interactions on various elements of the to the composite distortion index shows bution, the analysis shows that the dis-
economy. There are therefore major con- that price distortions can explain about tortion index explains hardly 3 percent
ceptual and statistical problems in any one-third of the variation in growth per- of the variation in equity, when the latter
attempt to identify simultaneously the formance. Many other elements, not least is measured by the proportion of income
effects of individual distortions on over- natural resource endowment as well as going to the bottom 40 percent of the
all growths or the relative importance of other economic, social, political, and in- population.
different distortions in the total mix. In stitutional factors, would need to be con-
mestic savings in relation to GDP and with low the rest is the result of other economic, social,
value added per unit of investment (this latter political, and institutional factors. So a country
association being statistically stronger). Distor- well endowed with natural resources (such as
tions also affect growth rates in agriculture and Nigeria) or with an active and mobilized labor force
industry, with a marked influence on exports. In (such as China) could still grow relatively fast even
short, the statistical analysis clearly suggests that if its price structure is distorted. With fewer price
prices do matter for growth. distortions, however, its growth would be signif-
However, price distortions alone can explain less icantly faster.
than half the variation in growth among countries;
63
7 National economic management
Every government has a fundamental responsi- tries, the institutional arrangements do not exist
bility to establish a sound macroeconomic policy to coordinate short-term financial management with
framework within which economic agents can longer-term policy analysis and investment plan-
function efficiently. It is important that this frame- ning, or to respond quickly to changing circum-
work be flexible enough to permit the economy to stances.
adjust to external disburbances, that it provide This chapter reviews the experience of macro-
adequate incentives for longer-term growth, and economic management and draws lessons for the
that it permit the attainment of the objectives of future. It underlines the importance of:
equity and social advance. Policy flexibility to permit adjustment to
The macroeconomic policy framework is com- changing circumstances
posed of a series of interlocking policies that affect Stabilization efforts that also permit price ad-
all aspects of economic behavior. The key elements justments that increase efficiency
are fiscal, monetary, exchange rate, wage, and trade Managing the system of incentives rather than
policies. They combine in determining the rate of formulating comprehensive long-term targets for
domestic inflation, the rate and pattern of capital investment, production, and consumption
accumulation and resource utilization, and the Improving the capacity of public sector enti-
amount of foreign exchange earnings, the main- ties to formulate sound investment programs, with
tenance of balance of payments equilibrium and particular emphasis on appraising major public
foreign borrowing, and ultimately, the pace of eco- sector projects
nomic activity and growth. There are no simple Consulting and coordinating both within gov-
generalizations about a single set of appropriate ernment and with the public
policies that will apply to all countries in all cir- Concentrating on a few selected policy issues
cumstances. Similarly, there are no institutional and programs in place of elaborate blueprints
arrangements for managing economic policy that Improving the provision of information to keep
are uniformly suitable. The appropriateness of pol- better track of the key economic developments.
icies and institutions varies with a country's level
of development, size, and natural endowment. Macroeconomic policies and adjustment
The establishment of planning agencies for for-
mulating comprehensive development strategy The challenge of macroeconomic management is
represented an important institutional departure to adjust established policies in light of changing
in many developing countries. In some countries domestic and international economic circumstan-
finance ministries continued to oversee economic ces. This often requires overcoming vested inter-
policy, primarily through their control of the bud- ests the given policies have created.
get and supervision of the central bank. Both In the past few decades developing countries
arrangements have their weaknesses. Finance have accumulated considerable experience in ma-
ministries tend to be preoccupied with short-run croeconomic policy adjustment. Brazil, Colombia,
questions of financial management and pay in- and the Republic of Korea are among the best-
adequate attention to long-term development documented examples of countries that undertook
issues. Planning agencies have generally failed to sustained programs of stabilization and price ad-
fulfill the high hopes placed in them in the 1950s justment in the 1960s. In all three, realistic and
and 1960s, and have often been limited to assem- flexible exchange rates were adopted, trade re-
bling public investment programs with only weak gimes liberalized, exports modified, and interest
links to budgets and policymaking. In most coun- rates allowed to increase in response to market
64
conditions. In all three, there were significant im- Some of these adjustment programs are of rel-
provements in export performance, industrial atively recent origin and it is too early to judge
growth, and domestic savings, leading to faster their overall effectiveness. In others the reforms
growth in GDP and jobs. have had an uneasy course. Chile started with
These long-term benefits were not obtained widespread distortions and made major changes
without some short-term costs in a temporary re- over a remarkably short period; adjustment was
duction of output and incomes. Experience sug- followed by rapid growth in GNP and consider-
gests that the best policy is to avoid as much as able success in controlling inflation. However, dis-
possible internal imbalances that require subse- tortions have subsequently reemerged in certain
quent adjustment. Economies with consistently key areas and there has been a rise in unemploy-
good growth records in recent years, such as Cam- ment and a weakening in the financial position of
croon and Colombia, have maintained this balance many enterprises. In Sri Lanka, GNP, investment,
by avoiding large fiscal deficits and rapid mone- and employment have grown faster since 1977,
tary expansion. But when imbalances do arise, the although the balance of payments and inflation
sooner they are corrected, the smaller the ultimate have worsened (see Box 7.1). Turkey's case is par-
costs of adjustment tend to be. ticularly interesting; it has achieved rapid growth
The existence of short-term costs suggests that in exports and has brought inflation down sharply,
reforms may need to be gradual, as long as grad- but has managed only modest growth in private
ualism does not imply timidity or policy reversal investment and employment. On average, those
on the part of the government. Experience sug- countries where adjustment led to low price dis-
gests that the costs of stabilization are reduced and tortions have managed a significantly better growth
the benefits of import liberalization enhanced if performance in 1979-82 than have those with high
external assistance is provided in a timely manner distortions.
in support of stabilization and liberalization Many other countries are now showing interest
packages. in adjusting their price structure. For them, the
In the 1970s the developing countries' capacity question is not whether to adjust but how. Ex-
to manage their economy was tested to the limit. perience suggests that the process of adjustment
Energy prices surged twice, inflation rose to new has to be managed carefully with regard to timing,
peaks and then came down sharply, exchange rates pace, and scope. For example, countries have found
fluctuated widely, and international interest rates difficulty in liberalizing trade and financial mar-
were higher for longer than at any time in history. kets while simultaneously trying to moderate in-
Growth rates in the industrial countries slumped flation through restrictive monetary and fiscal pol-
as they faced the most protracted recession in fifty icies. The benefits of liberalization operate through
years. The problems of managing in a hostile en- changes in relative prices, which require new in-
vironment were thus superimposed on the "nor- vestment and are easier to bring about when eco-
mal" problems of macroeconomic management. nomic growth is rapid. The pace of adjustment
Policy reform has not proved easy to manage. has also to be tailored to the circumstances of each
In the 1970s major changes were initiated in the countryits political resilience, the degree of dis-
Southern Cone of Latin America, starting in 1974 tortions in its pricing system, and the resources
in Uruguay, 1975-76 in Chile, and 1976 in Argen- (especially foreign exchange) it has available dur-
tina. In the second half of the 1970s, Sri Lanka ing adjustment. The Republic of Korea's successful
embarked on a program of adjustment. More re- reforms in the early 1960s were bold and were
cently, Ivory Coast, Jamaica, Kenya, Peru, Phil- greatly helped by a favorable external environ-
ippines, and Turkey have also attempted varying ment. Turkey's reformsless comprehensive and
degrees of adjustment. The elements in these pro- more gradual, though nonetheless radicalwere
grams usually include a lower exchange rate, more initiated in much more difficult circumstances, yet
export incentives, less industrial protection, tight- were largely successful.
er monetary policy, higher real interest rates, less The most important lessons from experience are
direction of credit, higher energy prices, and smaller that the transitional problems of adjustment pro-
consumer subsidies. In addition, programs usually grams can be considerable and that there is no
try to restrain public sector spending and increase universal prescription for the right path of ad-
the scope for the private sector and market forces. justment. What is required is "pragmatism" and
Similar reform programs in socialist economies are "flexibility"; these terms cannot be defined a priori,
described in Boxes 5.3 and 11.6. but they can be illustrated by the successes of, for
65
Box 7.1 Liberalization in Sri Lanka
During the three decades after inde- removed subsidies on rice, wheat, and unleashed pent-up demand for imports
pendence in 1947, government interven- most petroleum products; abolished most in an economy starved of both producer
tion in Sri Lanka's economy increased state trading monopolies and encour- and consumer goods. Some local com-
significantly. After twelve years of ad hoc aged competition from the private sector; panies failed to compete with cheap im-
policymaking, a ten-year plan was intro- raised interest rates to foster private sav- ports (often backed by export subsidies
duced in 1959 which placed emphasis on ings and more active financial markets; or as part of a dumping strategy), so
import-substituting industrialization. The and gave new incentives to exports and some jobs were lost and output reduced.
early 1970s saw a further significant move foreign investment. Externally, Sri Lanka started to run large
toward autarky. The authorities estab- The liberalization program initially co- current account deficits after 1979. Its
lished strict controls on trade and pay- incided with unusually high commodity terms of trade deteriorated by more than
ments to maintain an overvalued cur- prices for Sri Lanka's traditional exports, 30 percent between 1977 and 1981. More
rency, controlled many domestic prices, which helped pay for extra imports. liberal imports of motor vehicles and other
and set up several monopolies in the Paddy production also increased at 7 energy-intensive consumer goods in-
public sector through nationalization and percent a year, so the volume of food- creased the oil import bill. Export per-
takeovers. grain imports fell by 40 percent between formance suffered owing to a 30 percent
Between 1971 and 1977 almost all parts 1977-78 and 1981. The economy grew appreciation in the real effective ex-
of the economy either stagnated or grew rapidly, with GDP growth doubling from change rate between the end of 1978 and
only slowly. The rate of saving and in- 3.4 percent a year in 1970-77 to 6.6 per- the end of 1981. However, the most se-
vestment fell significantly, and unem- cent a year in 1978-81. The rate of in- rious problem was the government's huge
ployment rose. Recent government es- vestment rose from 14 percent of GDP investment program coupled with a de-
timates suggest that policy distortions in in 1977 to 34 percent in 1980. With mi- clining ratio of taxes to GDP. By 1980
1971-77 reduced the GDP growth rate by gration of labor to the Middle East, eco- budgetary deficits had increased sharply
about two percentage points a year. nomic growth reduced the unemploy- to 23 percent of GDP, and the balance
In 1977, with the election of a new ment rate from 24 percent in 1977 to 15 of payments gap widened to unsustain-
government, economic strategy was percent in 1981. able levels. In 1981 the government in-
transformed. The government disman- These achievements have not been troduced measures to reduce the budget
tled most trade and payment controls, costless, however. Devaluation and the and balance of payments deficits. The
relied on tariffs to protect domestic in- reduction of consumer subsidies inevit- sheer size of these deficits means that
dustry, and devalued the exchange rate ably raised the inflation rate, as mea- adjustment will take several years to
by 44 percent. In 1979 the authorities sured by the Colombo cost of living in- complete.
ended food rationing and introduced a dex, from 12 percent in 1978 to 26 percent
food stamp scheme for the poor. They in 1980. The ending of import controls
example, Brazil, Japan, and the Republic of Korea cupations of finance ministries. They are now
(see Boxes 7.2-7.4). To be effective, such a prag- commonplace in developing countries. A recent
matic and flexible approach in turn requires insti- World Bank survey of some eighty countries in-
tutions capable of designing, evaluating, and ad- dicated that four out of five have multiyear de-
justing key economic policies. Such institutions velopment plans; over the past ten years, approx-
are generally weak in developing countries; imately 200 plan documents have been prepared.
strengthening them should be a high priority in In most countries, however, planning agencies
the 1980s. have not lived up to expectations. By the late 1960s
there was widespread talk of a "crisis" in plan-
Economic management and planning ning. Even India, which pioneered the introduc-
tion of planning in mixed economies, allowed its
Through their control of the purse strings, finance plan to lapse between 1966 and 1969 and relied
ministries have traditionally played a preeminent solely on annual budgets. In Yugoslavia two suc-
role in economic management. After 1945, how- cessive plans were abandoned in the early 1960s.
ever, the establishment of planning agencies rep- In Latin America there was wide agreement by the
resented a major institutional departure in devel- late 1960s that medium-term planning had little
oping countries. These agencies were intended to influence either on public sector investments or
provide medium- and long-term perspectives on on economic policy; indeed, Mexico, which had
development, supplementing the short-run preoc- the most impressive development record in the
66
1950s and 1960s, had no medium-term plan. Af- Several factors underlie the limited success of
rican planners were also mostly ineffective since plans. At root, there is an inherent weakness in
they were often excluded from decisionmaking. the "blueprint" approach of planning agencies:
In the 1970s the relevance of formal plans was available analytical techniques are just not able to
further reduced by dislocations in the world econ- cope with the complexity of economic change and
omy. Some countries (thirteen out of thirty-four to produce plans that are up-to-date, relevant, and
surveyed recently) managed to achieve or exceed comprehensive. Even the less ambitious forms of
their targets in the first half of the 1970s. None- planning have their weaknesses. For example, in-
theless, developing countries grew increasingly vestment planning based on input-output models
disillusioned about the performance of their cen- has fallen foul of changing technical coefficients
tral planning agencies and the usefulness of and demand patterns. Similarly, manpower fore-
medium-term plans. casting has been highly inaccurate because of the
67
Box 7.3 The Republic of Korea: flexible policies and strong planning
Between the early 1960s and the late Deliberation Committee chaired by the fling so that the budget for a single year
l970s, the Republic of Korea made re- prime minister. The Korea Development may be formulated on realistic assump-
markable economic progress. GNP grew Institute, which works in close collabo- tions about the availability of resources
by 10 percent a year, per capita income ration with EPB, was also a channel in future years.
more than tripled in real terms, and the through which outsiders contributed ad- Monitoring and evaluation. Each re-
number of people with incomes below the vice; it became the research arm of the sponsible government agency is required
poverty line fell from about 40 percent of government for economic policies. to monitor the progress of all projects
the population to about 10 percent. Among Despite such thorough preparation, the included in the annual plan. The EPB
the key factors that contributed to this suc- plans were not remarkable for their tech- conducts a quarterly evaluation of how
cess were a strong and stable government, nical sophistication. Nor were they re- the plan is implemented and provides a
single-minded attention to economic garded as sacrosanct: each of the four summary of the results to the president.
growth, a disciplined and socially mobile plans produced since the early 1960s was The EPB is also responsible for consoli-
population, a favorable world environ- drastically revised soon after its incep- dating the results of the performance
ment, and flexible and pragmatic eco- tion. Individual policies were also evaluations, including recommended
nomic policies orchestrated by a central changed as circumstances changed. For changes in problem projects, and sub-
economic authority. instance, in 1982 almost 1,000 laws or mits a report to the cabinet twice a year.
The Economic Planning Board (EPB) regulations were either enacted or Central to the Republic of Korea's suc-
was established in 1961, incorporating the amended, and about 10 percent of them cess was its export promotion policy. Ex-
Bureau of Budget (transferred from the were revised more than twice in the same ports were encouraged mainly by incen-
Ministry of Finance) and the Bureau of year. tives, but the way those incentives were
Statistics. The EPB was later made re- The distinguishing characteristic of the determined and then made available was
sponsible for price policy, fair trade Republic of Korea's planning has been far from automatic. Two institutional
administration, project appraisal, and the the strong emphasis on implementing mechanisms that were important in the
monitoring and evaluation of project investment decisions by means of: country's export drive were the system
performance. It thus became a "super Annual plans. The annual Economic of setting export targets and the practice
ministry" overseen by the deputy prime Management Plan is intended to review of holding monthly national trade-pro-
minister, its status indicating the seri- and evaluate performance in the preced- motion meetings. These two mecha-
ousness of the planning effort in the Re- ing year and, if necessary, revise policy nisms helped translate political resolve
public of Korea. The EI'B was able to directions and the list of projects to be into bureaucratic and corporate resolve.
coordinate policies and control conflicts implemented. It also reassesses macro- They also provided up-to-date informa-
between different economic ministries. economic forecasts in the light of chang- tion on export performance by firm,
Its work was supported by units in each ing conditions. It provides guidelines for product, and market and enabled the
operating ministry that were responsible the government's annual budget and is government to analyze the reasons for
for both development planning and bud- expected to indicate the stance of gov- any discrepancies between targets and
geting. ernment policy toward the private sec- performance. The government then ad-
The government of the Republic of Korea tor. justed its export incentives and targets
also drew on the views of experts from The integration of plans into bud- accordingly. Firms, meanwhile, were kept
bodies outside the government, such as gets. Responsibility for drawing up the informed of the government's shifting
industrial associations, financial institu- budget rests with the EPB, especially its priorities and policies. More recently ex-
tions, research institutes, and universities. Bureau of the Budget. In view of grow- port targets are treated more as forecasts
They belonged to a number of working ing economic uncertainty and fiscal strin- than as policy objectives, and the gov-
groups contributing to the countly's eco- gency, the government has recently ernment is emphasizing the liberaliza-
nomic plan, which in turn reported to the started some medium-term fiscal plan- tion of trade and finance.
difficulties of specifying particular skills and of the process of planning has been useful. It has
projecting demand over a long period. Moreover, provided a forum for bringing together different
by the nature of their job, many planners have government agencies and different sections of so-
tended to favor big public sector projects and am- ciety to think about national development, and it
bitious targets. This bias, sometimes encouraged has helped politicians to mobilize public support
by foreign aid agencies, has seldom produced the for development programs. These are considerable
most efficient use of resources. virtues. It is now necessary to build on them, so
While the products of planning agenciesthe that in the uncertain economic environment of the
plans themselveshave frequently been ignored, 1980s the agencies involved in national economic
68
management can work together in a more coor- ing many aspects of policy, from medium-term
dinated and systematic way. investment planning to the incentive systemis
already taking place in several countries. In the
Managing in uncertain times Republic of Korea, for example, the latest plan
puts most weight on changing incentives and treats
Given the current uncertainties, comprehensive projections for investment and output more as
planning intent on managing quantities (of pro- background scenarios to aid decisionmaking than
duction and investment) over the medium to long as targets. In both India and Pakistan recent plans
term will be increasingly inappropriate. Instead, give much greater attention than before to prices
emphasis should be put on rationalizing the cur- and incentives.
rent policy framework. First and foremost, gov- While attempts to plan overall national invest-
ernments must ensure macroeconomic stability ment have generally proved futile, governments
through sound monetary, fiscal, and exchange rate clearly need a strong capacity for appraising public
policies. investment programs. In many countries the ef-
Within such a framework of macroeconomic sta- ficiency of public investment would increase sig-
bility, it is necessary to correct price distortions in nificantly if, as a minimum, large projects were
order to provide an environment for the best pos- carefully vetted. In addition, it is important to ag-
sible use of resources. Such reorientationaffect- gregate all public sector projects to discover their
69
implications for financial management over sev- to be selective in the goals and key instruments
eral years. Together, public sector projects can they emphasize. In Japan both the national plans
change some basic parameters in the economy and and "visions" of the Ministry of International Trade
affect the implementation and viability of other- and Industry concentrated on selected themes. In
wise sound projects. the Republic of Korea export promotion became a
Experience during the 1970s has shown that even focal point for the development effort. In Ban-
the most carefully designed policies and invest- gladesh planning was improved when it was di-
ment programs can be confounded by changes in rected at such important issues as increasing food
the world economy. In addition, limited knowl- production. In Malaysia improvement in the dis-
edge about how quickly economies adjust to policy tribution of income and wealth between Malays
changes means that rigid adherence to policy pre- and non-Malays has been the central theme for
scriptions can be hazardous: Chile has provided the past ten years. In mineral-based economies
an example of this danger. The failure to adjust such as Botswana, planning has focused on con-
investment programs to reduced resources has also verting mineral wealth into human and physical
been costly in countries such as Turkey, Mexico, capital, while minimizing the adverse side effects
Yugoslavia, and Venezuela. Governments there- on the rest of the economy.
fore need to be much more flexible in their policies One way to combine flexibility with consultation
and programs. To be both flexible and successful, is to assign responsibility for coordination to a
they require better facilities for obtaining and ana- central authority. In the Republic of Korea plan-
lyzing information on the effect of their policies ning, budgeting, and policy functions have been
and programs. integrated under a deputy prime minister, who is
To design adjustment policies and programs, also the chairman of a policy committee consisting
consultation and coordination between policy- of various economic ministries. In Brazil and Japan
makers and interest groups is essential. The ex- the finance and industry ministries have played
amples of Brazil, Japan, and the Republic of Korea an active part in coordinating policies. In Hungary
show that consultation and coordination among that role has been assumed by an economic policy
different agencies within government and be- committee. In both India and Pakistan policy re-
tween government and the private sector can pro- view capacity has recently been strengthened in
vide practically sounder, if analytically less artic- the planning agencies and in the offices of the
ulate, policies and programs. prime minister and the president. Although the
For the purposes of sectoral coordination, cen- specific arrangements depend on the circumstan-
tral ministriessuch as finance and planning or ces of each country, an authoritative coordinating
any other central coordinating bodyneed to agree agency is clearly desirable. Particular attention must
on clear guidelines for such ministries as agricul- always be given to establishing arrangements that
ture, industry, and energy, and then act as a clear- successfully integrate planning, budgeting, and
inghouse for contacts between them. Similarly, performance evaluation.
while proposals for policy issues such as agricul-
tural prices, or exchange rates, or interest rates Improving links between planning,
originate in the responsible ministries, some cen- budgeting, and evaluation
tral agency should analyze the links and present
political leaders with well-evaluated options on In discussions of development planning methods
which to base decisions. Governments have found over the past thirty years, the need to strengthen
considerable merit in involving academics and links between budgets and plans has been a con-
businessmen in policy discussions. Their partici- stant themeto little avail. Only one developing
pation, usually through committees, working country in ten has any system of multiyear bud-
groups, and conferences, improves official aware- geting, which is essential if multiyear plans are to
ness and helps build a consensus on the means be integrated with budgets.
and ends of national development. Development
research institutes (such as the Korea Develop- Financial planning and budgeting
ment Institute) can provide forums for govern-
ment and outsiders to exchange ideas. While planning agencies have often been preoc-
Combining flexibility with consultation and co- cupied with the allocation of national resources,
ordination is not easy: consultation is time-con- they tend to pay too little attention to the availa-
suming, flexibility implies a quick response. To bility of these resources and the financing needs
reconcile these requirements, governments need of different tiers of government and of state-owned
70
enterprises. Examples abound of public expendi- countries have tried to employ concepts and pro-
ture being out of control because the central cedures for evaluating the results of public spend-
authorities have not been aware of the spending ing. Only slow and intermittent progress has been
programs of different public agencies. Several made. The output of many government services
countries, particularly large federal states such as is not clearly definable, let alone measurable. Nor
India and Brazil, are now increasing their efforts is it easy to evaluate the performance of an indi-
to obtain a complete picture of the public sector's vidual agency in programs which involve several
financial position. agencies. And comprehensive evaluation gener-
Planning agencies have also tended to concen- ally takes so long that governments cannot wait
trate on new projects rather than on completing for results before deciding whether more money
half-finished projects and financing the mainte- should be spent in the same way. A more prom-
nance needs of completed ones. In six out of ten ising procedure, adopted in several countries, is
of the World Bank's borrowers in the early 1980s, selectively to track and evaluate outputs of pro-
this bias has assumed serious proportions. In sev- grams that have a significant influence on the bud-
eral countries many projects are not being com- get (see Box 7.5). In place of annual pro forma
pleted because of insufficient funds. This problem "checking," evaluators undertake a thorough in-
can be minimized if, after budgeting for the legit- vestigation of a service or program. The results
imate needs of existing and completed projects, are then made the basis for efforts to improve
the amount of "free resources" is calculated sys- performance.
tematically before new projects are approved.
Botswana's National Development Plan contains Improving management information
projections of the recurrent budget costs arising
from each project in the public investment pro- A good information system is essential for all as-
gram. These are consolidated into revenue and pects of economic management. Systematic ad-
spending projections for the next three years, which justments in policies and programs, necessary in
are periodically updated and rolled forward. a fast-changing world, are not possible without
To cope with budgetary shortages and uncer- reliable monitoring of current developments. As a
tainties, finance ministries in many countries have rule, better informationespecially about key per-
tended to release money only on a monthly or formance indicatorsbrings bigger dividends for
quarterly basis. This has made it difficult for min- economic management than do sophisticated tech-
istries and project managers to plan their opera- niques of long-term forecasting. Although senior
tions even a year ahead. Finance ministries have officials may readily agree on the need to improve
also resorted to across-the-board cuts, which hit statistics, genuine commitment (as evidenced by
high-priority projects as hard as any others. To the provision of adequate resources) and sustained
minimize this damage, some countries have found efforts are often lacking.
it useful to identify a "core investment program"
that has priority for funding in case of cuts. Even Costs of poor data
with such provision, however, countries in both
the developed and developing world need to re- The problems of planning without facts have been
vise their investment programs regularly. For most, well documented in Africa, but they are serious
a three-year horizon is the longest that is practi- in many other countries as well. Lacking sectoral
cable, with programs being rolled over each year. statistics, governments have not been able to ad-
With the advent of minicomputers, data process- dress sectoral issues. This proved particularly
ing has opened up new possibilities for consoli- damaging when oil prices rose sharply in the 1970s,
dating and revising budgetary programs. because few developing countries had the data
they needed to reassess their energy requirements
Evaluating expenditure and to develop conservation programs. For years
the lack of good agricultural statistics has seriously
In the past, governments have put too little em- handicapped the analysis of agricultural devel-
phasis on getting value for money from public opment programs and the formulation of policies.
expenditure. Traditional audits have largely been And the whole world has now learned of the dan-
confined to examining whether the money was gers of ignorance about a country's financial po-
spent as authorized. Since the mid-1960s, how- sition. In several countriesnotably Indonesia,
ever, following the program budgeting approach Mexico, and Turkeythe external debt crisis was
pioneered in the United States, several developing compounded by the lack of comprehensive data,
71
Box 7.5 Government watchdogs: tracking bureaucratic effectiveness
From Russia's inspectors general to the Personnel Office helps set the ground one of the world's largest evaluation or-
United States' Government Accounting rules for individual scrutinies, then turns ganizations, with more than 200 profes-
Office, watchdogs have long been ap- over the task of carrying them out to the sional staff and a network of thirty-four
pointed to help keep governments hon- examining officers. Each scrutiny is ex- field offices. Local evaluation offices have
est. Many countries are now emphasiz- pected to lead to an action document also been established in India's twenty-
ing efficiency as well. Since 1977 Canada within three months; these show the ex- two states.
has required that federal agencies and amining officers' recommendations, the PEO is an independent branch of the
departments undertake periodic apprais- minister's response, the legislative and Planning Commission. It reports to Par-
als of their own efficiency in administer- administrative actions needed for imple- liament and provides the Planning Com-
ing programs and their effectiveness in mentation, target dates, and expected mission with information for forward
meeting objectives. In 1978 Malaysia savings in money and manpower. They planning and mid-course revisions to
added a unit charged with improving also name the officials responsible for programs. Most PEO reports are made
management systems and civil service carrying out the recommended reforms. public; their findings are debated in the
operations to the already strong project The government has been impressed media and in Parliament. The atmos-
monitoring team in its prime minister's enough with the 135 scrutinies so.far to phere of accountability that PEO has cre-
office. extend the system throughout the gov- ated has encouraged the government to
Two other examples, in more detail, ernment. Every department is now re- take quick corrective action on program
are: quired to draw up a financial manage- shortcomings. At the project level, the
Value-for-money audits in the United ment plan to aid it in answering the feedback provided by PEO has come to
Kingdom. A 1982 government report question "Where is the money going and be appreciated rather than feared.
noted that, over a period of three years, what are we getting for it?" Each must PEO's working methods have changed
the audits had saved $850 million in also develop a management information considerably since the days it limited it-
wages, boosted tax collections by more system to track its costs. To involve civil self to evaluating completed agriculture
than $40 million, and reduced social se- servants in the spirit of reform and "guard and rural development projects. Now it
curity operating costs by 6 percent. The against a failure of morale," staff are to combines sophisticated data gathering
audits involve rigorous three- to six- be more involved in decisionmaking. Part and analysis with surveys of intended
month scrutinies carried out by exam- of the anticipated savings is to be used beneficiaries, particularly those from mi-
ining officers drawn from the manage- to "enhance the working environment," nority groups. It has developed a train-
ment of the office being investigated. and staff-management communications ing program including courses in cost-
"Ministers and their officials are better are to be improved, all with the goal of benefit analysis, performance budgeting,
equipped than anyone else to examine helping the civil service to "sustain its and statistical sampling and interviewing
the use of resources for which they are sense of pride in a job worth doing well." techniques. Regular regional workshops
responsible," said a 1981 note on the Program evaluation in India. The for senior and supervisory staff have be-
program. "The scrutinies, therefore, rely Programme Evaluation Organization come an important forum for teaching
heavily on self-examination; on applying (PEO) was created to oversee India's techniques and sharing experiences. PEO
a fresh mind to the policy or activity under Community Development Programme. programs have also been used to train
scrutiny, unfettered by committee or Its success led to its investigating pro- evaluators from Egypt, Philippines, Ni-
hierarchy." grams of education, health, rural devel- geria, Malaysia, and Nepal.
A staff of nine in the Management and opment, and social welfare. PEO became
especially on private debt (which had been grow- prehensive and up-to-date statistics on foreign
ing rapidly). Finally, at the project level, the ab- trade. Kenya, through its rural household surveys,
sence of effective monitoring and evaluation pro- gathered estimates of food production and pre-
cedures has hampered mid-course correction, and pared crop forecasts that proved invaluable in the
made it difficult to feed back information helpful drought of the late 1970s. The authorities were
in the design of future projects. able to act quickly in organizing transport and
distribution of supplies to the drought-stricken
Benefits of good data
areas. By contrast, the countries of the Sahel re-
The rewards of a better information system are gion had poor or nonexistent information on food
illustrated by the experience of several countries production, which made it difficult to organize
such as Kenya, Bangladesh, India, and the Re- effective drought-relief operations in the 1970s.
public of Korea. The export-oriented strategy of Improved data on food supplies helped Bangla-
the Republic of Korea was greatly aided by corn- desh tackle food shortages in 1979 much better
72
than it had done in 1974. And in India the recent as current statistics for short-term policymaking,
centralization of information on movements of particularly dealing with food and agriculture.
railway wagons has helped improve the railways' The administrative records of government agen-
efficiency, with spin-off benefits for such indus- cies can also provide valuable information. Al-
tries as coal and fertilizers. though they have weaknesses, administrative rec-
ords are an inexpensive source of data. The records
Statistical priorities
of different agencies can often be linked in useful
Since it is expensive to collect information, gov- ways: in Malaysia, for example, information on
ernments must set themselves clear priorities. This family planning acceptors has been combined with
task can be assisted by a medium-term plan for records on births to indicate the impact of the
statistical development, as the Malaysian experi- family planning program. The usefulness of ad-
ence has shown. Such plans identify not only what ministrative records can be enhanced if statistical
figures are required, but also what is needed to agencies are consulted in the design of adminis-
collect themequipment, manpower, office ac- trative forms and the development of appropriate
commodation, and so on. In many countries, classifications and codes.
priorities include financial statistics, covering both All three themes developed in this chapter
external debt and government receipts and spend- coordination of planning efforts, reforms of budg-
ing. In several countries, however, even the basic etary systems, and monitoring of projectsentail
components of the national income accounts and the processing of large quantities of data. They are
balance of payments are absent or unreliable; as a therfore all greatly helped by recent advances in
rule, these should receive priority. microcomputers and associated software (see Box
To assist flexible policymaking, governments 7.6). Being relatively cheap, portable, resifient, and
need to make more use of sample surveys and easy to operate, microcomputers are suitable for
administrative records. Well-planned and well- work in rural areas and for middle and junior
designed sample surveys are relatively cheap in managers who have no special programming skills.
comparison to censuses, impose a smaller burden However, their full exploitation does depend on
on the statistical office, and can produce thorough accounting systems being rationalized and on the
and up-to-date information. Kenya has made wide development of appropriate indicators for pro-
use of such surveys; its Central Bureau of Statistics gram monitoring. Both of these changes initially
is now able to provide better historical data as well require a substantial investment of skills and time.
73
8 Managing state-owned enterprises
In all countriesdeveloping and developed, mar- a team of managers with appropriate skills. These
ket and socialistgovernments are showing in- are the main topics of this chapter, which ends
creasing concern over the performance of their with a review of the issues involved in liquidating
state-owned enterprises (SOEs). One reason is that and privatizing SOEs.
SOEs make large and growing claims on the bud-
get. In a sample of twenty-seven developing coun- The growing fiscal burden
tries in 1976-79, the net budgetary payment to
nonfinancial SOEs averaged more than 3 percent Accounting deficiencies and different ways of clas-
of GDP. Current spending alonesubsidies and sifying SOEs make it difficult to generalize about
other transfersrepresented 1.4 percent of GDP. their financial performance or to assess the return
State enterprises are also important foreign bor- to capital. Available data for SOEs in twenty-four
rowers; nonfinancial SOEs accounted for 28 per- developing countries showed a small operating
cent of all Eurocurrency borrowing by developing surplus before depreciation in 1977. However, no
countries in 1980. account was taken of interest payments, subsi-
Governments, intent on curbing SOE borrowing dized input prices, taxes, or accumulated arrears.
and getting value for the money they spend, are Proper provision for these items and depreciation
searching for ways to improve SOE efficiency. In would show SOEs in many of these countries to
theory, efficiency is highest when an enterprise be in deficit,
strives to maximize profits in a competitive mar- Since SOEs often control some of the largest
ket, under managers with the autonomy, moti- revenue-earning activities (petroleum and mining,
vation, and capability to respond to the challenge for example), their poor aggregate performance is
of competition. Inefficient enterprises would not especially disturbing. Evidence from individual
be able to compete and would go bankrupt. But countries indicates low and declining profitability.
SOEs seldom face such conditions. Governments For example, Turkish public enterprises, which
may have established SOEs for reasons quite dif- were breaking even in the early 1970s, averaged
ferent fromand often incompatible withprofit net losses equivalent to 3.9 percent of GDP during
maximization. SOEs often operate in noncompe- 1977-79. Subsequent policy measures resulted in
titive markets; the absence of competition is one a profit of 0.1 percent of GDP in 1981 and an
reason for creating them. Their autonomy is often estimated 0.5 percent in 1982. Mexican SOEs (ex-
compromised by government intervention in their cluding the state petroleum company), which
operating decisions. Managers may not be held earned profits equivalent to 0.3 percent of GDP in
accountable for results or given incentives to im- 1970, showed a net loss of 1.2 percent of GDP in
prove performance. The way they are selected and 1980. Senegal's SOEs, which had been in surplus
rewarded often encourages qualities more appro- in the mid-1970s, recorded a deficit in 1977-78 and
priate to a central bureaucracy than to a compet- again in 1979-80, and the number of money-losing
itive enterprise. Even nonviable SOEs are seldom companies reached forty-two (out of sixty-eight in
liquidated. 1980). The picture is not entirely black; in India,
These special constraints on SOEs need not be- for example, the gross pretax return on capital
come an excuse for poor performance. Efficiency employed grew from 7.8 percent (before interest
can be greatly enhanced by setting clear and at- payments) in 1980-81 to 12.2 percent in 1981-82.
tainable objectives, reducing undue interference, Low profitability limits the ability of SOEs to self-
holding management accountable for results, de- finance their investments, increasing their de-
signing a framework of incentives, and developing pendence on central government resources. Figure
74
FIGURE 8.1
Net claims on the budget of nonfinancial state-owned enterprises
Percentage of GDP at market prices
0 2 4 6 8 10
1°78-80
Argentina'
1970-73
Dominican
Republic 1978-79
- 1972-73
198 1-82
India
1966-69
Korea,
Rep. of 1972-73 1iJ 1978-80
Malawi 1978
1967-69
Panama 1978-79
1970-73
Sri Lanka
1966-6 1978-80
Tanzania 1977
1966-69
Tunisia 1978-81
1968-69
Turkey 1978-79
1966-69
Zambia 1978-80
1966-69
The length of the bars indicates government subsidies, transfers, int6rest payments to government, as a percentage of GDP at
and net lending to nonfinancial SOEs, less SOE dividends and market prices.
a. Major enterprises only.
Sources: World Bank; Peter Short (1983).
8.1 shows how the net claims on the budget have As much as 2.2 percent of GDP in Mali
grown for a sample of twelve developing coun- roughly two-thirds of expenditure on education or
tries. These figures include legitimate and desir- twice that on health
able equity investments by government, of course, Some 1.4 percent of GDP in Bolivia-14 per-
but they also reflect the limited ability of SOEs to cent of tax revenue or one and a half times the
generate internal resources. spending on health.
In an aggregate analysis it is impossible to de-
termine the extent to which these results reflect The nature of SOEs
general economic conditions or price controls and
how much they are caused by a failure to minimize The term "state-owned enterprise" covers all state-
costs or maximize productivity. Evidence from in- owned industrial and commercial firms, mines,
dividual enterprises indicates substantial room for utilities, and transport companies, as well as fi-
efficiency gains. A modest improvement in effi- nancial intermediaries. The number of SOEs has
ciency could have significant effect. For example, been on the rise in most countries. Figure 8.2 shows
a percent increase in SOE revenues plus a 5
5 the increase in a sample of eight countries. SOEs
percent drop in costs would generate resources are distinguished from the rest of the government
amounting to: because their revenue comes from the sale of goods
Almost 2 percent of GDP in Turkey, or 10 and services and because they are self-accounting
percent of tax revenues and have a separate legal identity. Beyond that,
Some 1.5 percent of GDP in Tanzania, enough their circumstances and characteristics may appear
to finance all its spending on health to vary widely. A state enterprise might be op-
75
FIGURE 8.2 lems of SOEs and suggest ways of tackling them.
Growth of nonfinancial state-owned enterprises Of course, suggestions have to be tailored to the
number characteristics of individual firms and countries.
0 100 200 300 400 500 A government's approach toward a manufacturing
SOE selling in competitive export markets will dif-
Brazil
I 8,1)
80 fer from its treatment of a large, natural monopoly.
The former might be required to maximize profits;
India
H
80 the latter's prices might be set according to its
marginal cost or it might be required to minimize
Mexico
1U
80 costs. Similarly, the options of countries will vary.
In some countries it might be possible to fire poor
Pakistan 74
SOE managers and replace them with better ones.
A country with less managerial talent might have
Peru 80
no alternative but to try and improve the skills of
its less capable managers.
Sri Lanka
76
Box 8.1 Conflicting objectives: the Ghana Cocoa Marketing Board
Agricultural marketing boards are often tive finally prevailed over the other goals. percent in 1959-60, and by 34 percent in
subject to conflicting economic and social Producer prices were initially set to cover 1965-66.
objectives. Those principally concerned the board's development and operating As cocoa has become less profitable,
with the domestic market for basic food- costs and to allow it to accumulate re- Ghana's production has plummeted
stuffs are expected to shield consumers serves. However, the need for govern- from a peak of about 540,000 tons in 1965
(mostly urban) from scarcities and high ment revenues soon predominated: after to about 250,000 tons in 1979. The vol-
food prices while simultaneously pro- 1965, the board was no longer permitted ume of exports has fallen by almost 80
tecting farmers' incomes. Boards that deal to hold reserves. The government's share percent over the same period. An esti-
mainly with export crops are expected of sales revenues increased from 3 per- mated 45,000 tons a year has been smug-
both to raise fiscal revenues and to in- cent in 1947-48 to almost 30 percent after gled to neighboring countries, a foreign
sulate farmers from fluctuations in world 1953-54 and reached 60 percent in 1978- exchange loss equivalent to about 15 per-
prices. Experience in Ghana illustrates 79. CMB's share of revenues was set to cent of the average value of Ghana's ex-
what can happen when one conflicting cover operating costs and rarely ex- ports in 1974-78. By 1979 Ghana had lost
objective becomes dominant. ceeded 20 percent; farmers' earnings be- its rank as first world producer and ex-
The Ghana Cocoa Marketing Board came a residual. porter of cocoa, which it had held since
(CMB) was established in 1947, following As a result of this policy and of the the early 1960s. Many farmers have
pressures from farmers to eliminate mid- overvalued exchange rate, the price re- switched to other crops, such as maize
dlemen and traders. Initially CMB's stated ceived by Ghanaian cocoa farmers has and rice, which in Ghana yield a net re-
objective was to market and export cocoa been declining in real terms since the turn per hectare about twice that of co-
and to stimulate the activities of small- early 1960s. By 1979 producer prices av- coa. But this switching still involves heavy
holders. After ten years of operation, eraged about half their 1963 level, even losses for the countly. If farmers were to
however, CMB's governing legislation after taking account of subsidies on seeds receive even half the world price for co-
had been amended by two other objec- and other inputs. Furthermore, the CMB coa and no input subsidies, their net re-
tives: to protect farmers from extreme was unable to protect farmers from sharp turn per hectare (at 1979 prices) would
fluctuations in world cocoa prices and to price fluctuations. The prices they were be more than seven times that of rice and
tax export earnings. The revenue objec- paid fell by 30 percent in 1949-50, by 17 more than fifty times that of maize.
renegotiate if the contracts are threatened by un- Institutional links between government
foreseen economic developments. and enterprise
To try and reduce arbitrary intervention by gov-
Control without interference ernment, countries have devised institutional ar-
rangements that place government at arms' length
SOE autonomy needs to be counterbalanced by from SOEs. Boards of directors or holding com-
some central control. Unless governments monitor panies have been widely used to create a buffer
the performance of their SOEs and make the main between SOE management and the central bu-
decisions on investment and debt, their macro- reaucracy, to provide policy direction, and to re-
economic management will be undermined, as port on results. Special bureaus, commissions, and
Brazil's experience has demonstrated (see Box 8.4). ministries have become a popular way of central-
Yet central control can itself be poorly organized. izing information and control of SOEs.
All too often, different official agencies intervene These arrangements have a mixed record, show-
in SOE decisions that should be the prerogative ing that institutional changes alone rarely achieve
of management, and yet government fails to co- a satisfactory balance between independence and
ordinate their action. Too much interference can control. Furthermore, arrangements that work well
be combined with too little control. In addition, for one country or enterprise may not do so else-
policy that swings between autonomy and central where. For example, the successful Ethiopian Tele-
control can prevent coherent direction of SOEs. communications Authority has a politically ori-
The challenge is to design a system that holds ented board of directors dominated by a minister
management accountable for results while giving (see Box 8.5)an arrangement that has proved
it the power to achieve them. disastrous in other countries.
78
To avoid such direct political control, many On the positive side, the Istituto per la Ricos-
countries rely on holding companies. Some have truzione Industriale (IRI) in Italy has been credited
proved a useful way of achieving government aims with cooperating with government to achieve its
while giving SOEs greater discretion in day-to-day social goals while freeing the individual enter-
operational matters; others have become counter- prises to pursue profits. Nevertheless, IRI has been
productive, substituting one form of ex-ante bu- caught between conflicting government aimssuch
reaucratic intervention for another. An added as the directive to make profits and yet support
drawback of introducing an extra layer of bureau- failing subsidiaries to bolster employment. Hold-
cracy is that it also uses scarce managerial re- ing companies can also provide technical assis-
sources. tance and managerial talent. Portugal's holding
79
Box 8.4 The control of state-owned enterprises in Brazil
Until 1979 the Brazilian government had tary funds, control over the economic and is responsible for approving and moni-
no consolidated information on earn- financial operations of SUEs was grad- toring the budgets for 382 SOEs and au-
ings, spending, or debt of its SOEs. It ually eroded. Projects were started with- tonomous institutions. These are sum-
therefore had no way of comparing con- out adequate provision for their financ- marized in an annual SEST budget
solidated public investment with finan- ing, and supplementary transfers were authorized by the president. All foreign
cial resources, so public investment often often required to prevent large-scale lay- and domestic credit operations by these
exceeded the amount of money actually offs and defaults to suppliers, contrac- SOEs require prior SEST approval, as do
available, thus increasing inflation and tors, and creditors. any proposals to create, expand, or liq-
the country's foreign debt. Faied with growing inflationary pres- uidate any state enterprise. So far the
In addition to their own revenues sures and a deteriorating balance of pay- Planning Ministry and SEST have been
earned on the sale of goods and services, ments, in 1979 the government intro- primarily concerned with setting and en-
the SOEs received substantial transfers duced a series of significant reforms. It forcing firm-by-firm ceilings. They have
from the government. These included phased out most of the SUEs' earmarked not become seriously involved in eval-
earmarked tax revenues, credits from of- taxes, and centralized authority over SUE uating SUE investment plans, but this
ficial financial institutions, inter-enter- finances in a new agency in the Planning may change as a result of the first multi-
prise transfers, and loan guarantees. With Ministry, the Special Secretariat for Con- year consolidation of government in-
the multiplication of these extrabudge- trol of the State Enterprises (SEST). SEST vestment programs in 1982.
company, Instituto dos Participacoes do Estado experiences elsewhere. Pakistan, for example, cre-
(IPE), for instance, helps subsidiaries negotiate ated a Board of Industrial Management (BIM) in
credits if they also agree to undertake reforms. IPE 1973 to direct twelve corporations (with about fifty
also recruits experts to assist its subsidiaries in production units) on the model of Italy's IRI. The
improving corporate planning or management in- reports of two government commissions found that
formation systems. It also provides training and BIM had drastically reduced the production units'
finances outside studies. operating autonomy and weakened managerial
Such merits need to be set against less favorable authority. It was therefore abolished in 1978.
80
A different approach to decentralizing has been for four reasons: many SUEs are monopolies; the
tried in several Eastern European countries (East profit relevant for society is different from private
Germany, Bulgaria, Poland, and Romania), where profits; many SOE objectives conflict with profit
a new administrative level has been put between maximization; and market prices may be distorted.
the ministry and the enterprise. Here again, ex- These qualifications need not negate the use of
perience shows that structural changes by them- profits as a guide to performance.
selves are not enough to alter the underlying bal- Monopoly. The best way to end monopoly
ance of power. The centrale in Romania, for example, power is to introduce competition. Where that is
were created in 1968 and given certain minor pow- not possible, the prices of a monopoly SUE can
ers over enterprise investments, borrowing, input be set according to its marginal costs (see discus-
supply, and marketing. But the ministries contin- sion in Chapter 6); the SOE can then be instructed
ued to intervene directly both in the enterprises to maximize profits. If that produces unacceptably
and in the day-to-day operations of the centrale. high prices, the enterprise can still be required to
Some countries have centralized control in gov- minimize costs. Although adjusting administered
ernment bureaus or specialized ministries. India, prices typically involves practical and political
for example, created the Bureau of Public Enter- problems, the long-run benefits can be substantial.
prises (BPE) as part of the Ministry of Finance in Accounting for public profits. Some items (such
1965. In 1979 Brazil set up the Secretariat for the as interest payments) can be excluded from public
Control of State Enterprises, and in Pakistan the profits so as not to encourage SUE managers to
Ministry of Production controls all state-owned waste time on, for example, interest arbitrage, which
manufacturing enterprises. These bodies are re- may be deemed irrelevant to their tasks. Targets
sponsible for setting performance standards (or can also be set for activities such as investment,
expenditure limits in the case of Brazil), evaluating maintenance, and research, which might not be
results, and approving debt and investments. The compatible with short-run profit maximization or
BPE collects and analyzes data on India's SOEs cost minimization.
and in 1982 set performance targets with the en- Conflicting goals. If the SUE is required to
terprise managers. It also gives technical assist- perform noncommercial roles that reduce its prof-
ance and training, does special studies, and pro- its (such as hiring extra staff to increase employ-
vides guidelines in such areas as wage settlements. ment or setting up a plant in a particular area to
Central bodies thus obtain valuable information promote regional development), the government
on SOEs, a prerequisite for effectively assessing can reimburse it for the extra costs or reduce its
and controlling performance. However, some- profit target accordingly. Careful calculation is
times they become involved in unnecessary detail; needed of the cost of noncommercial goals: if the
one such body has set standards for factory pe- subsidy is too high, the incentive for the company
rimeter fencing. Central bodies can play a vital to improve its efficiency is reduced.
role in monitoring performance or they can be- Distorted prices. These can be rectified by us-
come an annoying bottleneck obsessed with trivia. ing shadow prices for assessing SUE results.
Their role depends largely on whether a govern- Shadow prices are calculated to reflect the oppor-
ment is concerned with short-term goals, such as tunity costs of an enterprise's inputs and outputs.
implementing austerity programs or curbing SOE For example, the price of imported fuel may be
abuses, or with the long-run process of changing held down by a government subsidy, but SUE
relations between SOEs and government. accounting should value it according to its world
price to ensure it is used efficiently.
Holding managers accountable for results The results derived from shadow-price account-
ing can differ widely from conventional profits and
There are strong arguments for creating conditions losses, as one study of SUEs in Egypt demon-
in which SOEs can be instructed to maximize prof- strated. In almost all twenty-seven industries sam-
its and then be judged by that standard. Profit is pled, the financial rate of return calculated on the
a composite indicator that applies positive weights basis of extensively controlled market prices pointed
(prices) to benefits (outputs) and negative weights in opposite directions from the economic rates of
to costs (inputs). If the weights are correct, a profit- return based on shadow prices. Industries pro-
maximizing firm strives to achieve maximum ben- ducing oils, soaps, and detergents showed a 14.4
efits for minimum coststhe definition of effi- percent economic rate of return, yet financial prof-
ciency. For SOEs, this criterion needs modifying itability was negative; nonferrous metals earned a
81
Box 8.6 Performance evaluation in Pakistan
Pakistan's performance evaluation sys- mate the divergence between market efits (such as planning, maintenance,
tem, launched in 1981, uses "public prof- prices and real economic costs. Where training, or innovation). Government and
itability" as an indicator of performance. that is not feasible, a second-best remedy SOEs will therefore negotiate extra tar-
"Public profits" are private profits ad- is to use shadow prices that reflect true gets for these areas, assigning them
justed for those elements not deemed economic costs. Shadow prices, how- weights that vary over time and from
relevant to an SOE. For example, taxes ever, are complex and controversial to one company to another. A finn will first
and interest, which are private costs but administer. Pakistan is therefore judging have to show that it can use existing re-
public benefits, are excluded so as not to its SOE managers, for control purposes sources efficiently; hence, 90 percent of
encourage SOF managers to devote time only, by trends in public profit at con- its initial target may be assigned to public
to minimizing taxes or to interest arbi- stant prices; that is, constructing a quan- profitability.
trage. Rather, public profitability aims to tum index of profits based on quantum At the end of the year the performance
encourage managers to maximize net indices of inputs and outputs. This is an of each SOE will then be rated according
economic benefits, judged from a na- acceptable approximation of efficiency in to how close it came to meeting its com-
tional perspective. Costs of noncommer- performance evaluation (though not in posite target. The monitoring and eval-
cial objectives (such as the extra cost of project evaluation), since it is concerned uation will be done by the Experts Ad-
purchasing from local suppliers to en- with the trend rather than the level of visory Cell, a semi-autonomous agency
courage domestic industry) are deducted performance. All enterprises will be responsible to the Ministry of Production
before profits are calculated and treated judged on the basis of their return to but financed by a levy on the SOEs them-
as an "in-kind" dividend to the govern- fixed operating assets, or public profit- selves. The Cell has been able to main-
ment. ability in constant terms. The perfor- tain a remarkable degree of indepen-
Since many prices are administered and mance of any individual firm will be dence and, because it is outside the civil
there are problems of monopoly pricing, compared with its record over the past service system, to attract a specialist staff.
market prices may not reflect true eco- five years, to make allowance for the fact At a review meeting with the Cell, man-
nomic scarcity. Since SOE managers gen- that some enterprises operate under agers will be able to present an expla-
erally cannot affect prices, it would be greater handicaps than others. nation of their results. The government
unfair to reward or penalize them for the Used in isolation, public profitability proposes to reward good performance
effects of changing prices on profitabil- would encourage managers to ignore ac- with a salary bonus.
ity. The ideal solution would be to elim- tivities with current costs but future ben-
15.5 percent financial rate of return, but the eco- countries the internal management information
nomic return was negative. Not only would it be systems of SOEs are deficient or nonexistent. SOEs
misleading to judge an SOE on the basis of its (as well as private companies) are not audited ac-
financial performance, but a manager reacting to cording to uniform standards; more than seventy
financial signals under these circumstances would developing countries have no accounting stan-
make the wrong economic decision. Shadow prices dards. Trained accountants are scarce, because in
can be complex to calculate and administer, so the many developing countries (outside Latin Amer-
best solution is to move market prices closer to ica) accounting became part of the university cur-
them by removing distortions wherever feasible. ricula only after 1960. Even now there are often
While these four refinements have been exten- no uniform standards of training.
sively analyzed in theoretical work, their appli- These weaknesses are gradually being rectified.
cation has proven practically and politically diffi- Many francophone West African countries have
cult. Some countries are moving to overcome these tried to adapt France's accounting model to their
problems. One system for judging the perfor- needs. This programthe OCAM plan comptable,
mance of manufacturing SOEs in Pakistan is de- started almost twenty years agohas met with
scribed in Box 8.6. The Republic of Korea and mixed success. But its application has been too
Venezuela have also initiated similar projects that inflexible, with too much reliance on expatriate
will tackle the more complex problem of evaluat- experts and too little attention paid to local ac-
ing enterprises responsible to different ministries. counting capabilities. In Senegal the accountancy
profession has proposed a two-tiered system, with
Information on performance annual external audits conforming to internation-
Assessing SOE performance requires a regular flow ally accepted procedures required for all compa-
of reliable information. But in many developing nies above a certain size and "limited review au-
82
dits" for all other companies. The latter would. be another domestic producer. Where it is possible
stricter than the current standard but less com- to do so, however, exposing SOEs to competition
prehensive (and cheaper) than full-scale audits. can be a simple and effective way to promote their
The development of uniform and credible, ac- efficiency. And if managers are required to pursue
counting requires a trained body of practitioners noncommercial goals for political or social reasons,
as well as a system to set and review standards competition will help to quantify the costs of those
and to qualify accountants. This foundation can goals. Thus Peru recently reduced tariffs and elim-
be built up by designating responsibility within inated import quotas to force industries to com-
the government for the development of account- pete with imports.
ing; establishing accounting standards backed by Another possibility is to split large public mon-
an appropriate legal framework; assessing staff opolies into smaller competing units, especially if
needs and designing training for bookkeepers and the monopoly did not benefit from economies of
accountants; and fostering a professional associa- scale. In Hungary, for example, at least 130 new
tion that could assume responsibility for enforcing enterprises were established by breaking up hor-
standards. izontal trusts and large state firms. For competi-
Formal accountancy procedures are not the only tion to be fully effective in promoting efficiency,
way managers can improve the information on these measures must be accompanied by pricing
which they base their actions. Improvements can freedom. Privileged access to subsidized credit and
also be obtained through a management audit, inputs would have to end. Also, managers must
which requires the firm to establish and adhere to be given discretion to respond to competitive pres-
a basic information system and routine control sures, which may mean reducing staff or ending
procedures. As with a financial audit, an outside unprofitable services. The enterprise might also
auditor would check that these procedures func- have to be reimbursed for the extra costs of meet-
tion properly and generate reliable data that man- ing social goals.
agement and government can compare with tar- Organized public pressure is another way of
gets. Many large accounting firms can now assist encouraging SOE efficiency. Britain, for example,
enterprises in setting up and using management- has consumer councils. Although they have no
auditing systems. executive powers, they monitor the service pro-
A somewhat similar management tool is the ac- vided by public monopolies and act as a proxy for
tion plan, designed to focus efforts on improving market forces. The Electricity Consumer Council
efficiency and monitoring results. The experience examines not just tariffs but also power cuts, de-
of the Bolivian railways illustrates how action plans lays in connections or repairs, and responsiveness
work in practice. The railway had three action of staff to customer inquiries and complaints.
plans between 1973 and 1979, with objectives that Clients can also induce efficiency; accountability
ranged from reorganizing workshops and repair- to growers was an important factor in the success
ing rolling stock to rehabilitating and maintaining of the Kenya Tea Development Authority. SOEs
track. Monitored targets included the average per- can be required to publish timely annual reports
centage of total cars and locomotives in operating and accounts, to be tabled in Parliament or made
condition during the year, the number of staff, the publicly available. Chile, for example, recently re-
turnaround time for maintenance, and the amount quired state companies to publish their financial
of track to be rehabilitated. Action plans specify balances in the newspapers.
the measures to be used to achieve the targets
(such as training or allocation of foreign exchange Appropriate managerial incentives and skills
for the purchase of spare parts) and the timing.
Institutional success is often attributed to the pres-
Pressure from corn petition, the public, and clients ence of "a good manager." Competent staff are
no doubt essential for any efficient enterprise. They
Governments cannot always arrange for their SOEs do not operate in a vacuum. They need incentives
to be exposed to competition. Many state firms to attract and motivate them, and the power to be
are monopolies producing goods and services that effective.
are not traded internationally or that the govern- Incentives linked to results. Some of the most ef-
ment prefers to produce domestically for reasons fective rewards are nonpecuniaryrecognition,
of national security or public interest. In other greater responsibility, promotion, and national
cases, the economy may be too small to support honors. Autonomy can also be a strong incentive
83
for SOE managers. For example, the threat of los- vacant or are filled by unqualified staff. For ex-
ing its independence motivated the management ample, in Tanzania half of the ten large agricul-
of the Kenya Tea Development Authority. By the tural SOEs had no financial manager in 1980. In
same token, managers need to know that they face the Nigerian Electric Power Authority, thirty-five
penalties for poor performance, such as losing their of eighty-seven higher management posts were
jobs. vacant in 1981. The lack of competent middle man-
As for pecuniary incentives, few countries have agers often leads general managers to take over
used performance bonuses or profit sharing to mo- lower supervisory functions. In a centralized sys-
tivate top management. An exception is Mexico, tem they may also be the only point of contact
which distributes 7 percent of SOE profits to all with outsiders. The organization thus becomes too
employees in proportion to their salaries. In Hun- dependent on its chief executive.
gary, ministries judge the size of bonuses to senior The shortage of managers also contributes to a
SOE managers by reference to such factors as prof- high rate of turnover, as competent people are
itability, exports, development of new products, shifted around to head troubled SOEs. A study of
and punctuality of deliveries. Many more coun- nine countries in sub-Saharan Africa found that
tries award performance bonuses to workers, and the average tenure of SOE general managers in
their experience reveals some of the difficulties the 1970s was less than two years. Even countries
involved. Bonuses run the risk of becoming so without a managerial shortage change SOE man-
automatic and large that they are treated as part agers with damaging frequency if selection of top
of everybody's salary; they are not easily related managers is based on nepotism or political pa-
to the actions and decisions of individual man- tronage. To counteract this, some countries (such
agers. To be effective, profit-sharing schemes re- as India and Brazil) have set up management se-
quire that managers affect profits and that profits lection boards to nominate candidates on merit
be a fair guide to performance. Otherwise man- alone. Continuity of top management is especially
agers of SOEs in which profits are inherent in their important in a company's formative years. Fur-
operating conditionssuch as many petroleum or thermore, continuity allows a good chief executive
electricity companieswould be enriched, while time to attract and retain talented middle man-
a manager who stems chronic losses might go agers. For example, the Hindustan Machine Tool
unrewarded. Company, one of the most successful Indian SOEs,
Appropriate managerial skills. The skills of a public was also one of the few public corporations in
enterprise manager need to be closer to those of India to have the same chief executive for almost
his private sector counterpart than to those of a fifteen years.
government bureaucrat. Nevertheless, in some In certain specialized areas (mining in Zaire, for
countries managers are part of the civil service, or example), management contracts with expatriate
at least subject to its pay scale. Even where this firms have helped alleviate the shortage of man-
is not the case, their pay seldom matches private agers. Another step is to give priority to mana-
salaries. Although the prestige and challenge of gerial development in SOEs. In the past, more
running what are often the largest corporations in attention has been paid to technical expertise for
the country may sometimes compensate for lower SOEs than to their managerial requirements. Al-
pay, low salaries tend to deter skilled managers though SOE management training does not lend
and increase staff turnover. To give one of many itself to centralized direction, governments can en-
examples, salaries in a Turkish public utility av- courage SOEs to earmark funds for training. Some
eraged one-third those of the private sector in 1981 of the largest have their own management training
and the company has had seven general managers centers but most rely on business schools, man-
in the past ten years. In addition, good SOE man- agement consultants, expatriate advisers, and for-
agers who face frequent unjustified interventions, eign suppliers or collaborators.
or whose achievements go unnoticed for want of "Twinning" an SOE with its counterpart in an-
a system to evaluate them, tend to become dis- other country has proved an effective way of trans-
gruntled and leave. ferring know-how and training staff. Companies
The growing number of SOEs has contributed offering technical assistance as twins are not ex-
to a chronic shortage of managers in many sub- clusively from North America and Europe. Among
Saharan African and South Asian countries, a many examples from developing countries are the
shortage sometimes exacerbated by programs for Port of Singapore, the National Irrigation Agency
rapid indigenization. Many senior posts are left of the Philippines, and the Tunisian Water Au-
84
Box 8.7 TANESCO: a study in institution building
The Tanzania Electric Supply Company risen from 20 percent in 1964 to 85 per- opment.
Limited (TANESCO) was founded as a cent in 1980. In 1968, TANESCO estab- The "twinning" of TANESCO and the
private company in 1931 and acquired by lished its own technical training insti- Electricity Supply Board of Ireland (ESB)
the government of Tanzania in 1964. It tute, which was developed with in 1977 had a decisive influence on the
now operates as an SOE under the spon- assistance from the Swedish Interna- development of the company's man-
sorship of the Ministry of Water and En- tional Development Agency. European agers. During the first year of the scheme,
ergy. TANESCO has more than 6,000 and Indian expatriate staff provided on- about twenty TANESCO staff members
employees and produces about 98 per- the-job training. By 1974, after the first were given from three to twelve months'
cent of the country's electricity con- stage of the company's literacy program, training in Dublin followed by a brief
sumption. all employees were able to read and write. period of on-the-job training with ESB or
Management continuity and a firm Between 1976 and 1981 TANESCO sent in similar utilities in the United Kingdom
commitment to staff training have been fifty staff overseas to obtain engineering and the United States. Both "twins" took
critical to TANESCO's development. Over degrees. The first Tanzanian general great care to design a training program
the past twenty-eight years, it has had manager, who was appointed in 1973 and that fitted TANESCO's needs. When the
only four general managers, and many retired in 1981, used foreign manage- trainees returned to Tanzania, their
of its senior staff have been with the ment consultants to reorganize the utility shared experience in Ireland helped them
company for at least ten years. The pro- on functional lines and expanded the to work better as a team.
portion of Tanzanians in senior posts has programs for training and staff devel-
thority. The more-developed SOE may temporar- eral occasions. Finally, in 1980 and after fifteen
ily provide its twin with some of its own staff as years of losses, it was liquidated.
advisors and trainers, may make periodic visits to This case also illustrates the need for a proper
give technical assistance, or may employ the staff legal framework to allow speedy liquidation.
of its twin at its own facility for on-the-job training Peruvian law makes it almost impossible to dis-
(see Box 8.7). miss workers (in both the public and private sec-
The administrative burden placed on SOE man- tors). Although the company offered its staff a
agers may be partly caused by their diversion to bonus over and above required severance pay to
extraneous activities. For example, in Peru the leave, for more than six months after the plant
management of a public fishing plant also runs a was shut down a small group of workers contin-
hotel. While diversification can be profitable and ued to report for work each day to receive their
logical, it is often done for the wrong reasons and, wages. Until all the staff had left, the assets could
by straining resources, damages the SOE's main- not be sold.
stream activities. Liquidation and other forms of divestment give
the government the flexibility to put resources to
Liquidation more productive use. Since these gains have to be
weighed against short-term costs, vested interests
By saving the economy the burden of nonviable often deny the state the possibility of even con-
enterprises, liquidations act as a major force for sidering the optionto the long-run detriment of
efficiency. Because of the financial and social con- the economy.
sequences, however, governments are reluctant to
let big firms close, whether they are in the public Divestiture
or the private sector. Even among small firms,
SOEs are seldom liquidated. But the costs of keep- Selling state-owned enterprises is another way of
ing nonviable companies alive are considerable easing their administrative and financial burden
fiscal drain, administrative demands, and waste on the state. A number of governments, including
of potentially productive resources. To take an ex- Bangladesh, Brazil, Chile, Italy, Jamaica, Republic
treme case, in Peru a freeze-drying plant owned of Korea, Pakistan, Peru, Philippines, United
by the state was built without adequate study of Kingdom, and Zaire, have divested or are plan-
the market or its suppliers of raw materials. From ning to divest SOEs. Generally, however, the
the start, the firm's production costs exceeded its number and importance of the enterprises sold is
revenues. It was shut down and reopened on sev- not large.
85
After an initial attempt to promote industriali- privatization; it may even reduce the attendant
zation through state ownership, the Japanese gov- political controversy. Leasing can also be a prom-
ernment in the 1880s sold many state firms, in- ising route to divestiture: a private manager might
cluding fifty-two factories, ten mines, and three be brought in to run a potentially profitable en-
shipyards. Between 1974 and 1980, Chile sold some terprise for a share of the profits and an option to
130 state enterprises, with a value 6f more than buy.
$500 million. (In addition, more than 250 enter-
prises nationalized between 1971 and 1973 were Agenda for reform
returned to their former owners.) Despite these
measures, in 1979 the eight largest Chilean com- This chapter has suggested ways of improving SOE
panies (in terms of net worth) were still publicly efficiency, concentrating on the problems that are
owned. common to most SOEs in most countries. Judging
Other privatizing programs have been far more from what is known about the ideal conditions for
limited. Brazil created a commission for divestiture operating efficiently, it has examined how the real-
in 1981: by mid-1982 it had sold ten enterprises ity of SOEs differs from the theoretical ideal. By
and was in the process of selling another thirty- recognizing the SOEs' special circumstances and
six, while ten other SOEs have been legally dis- constraints, it is possible to develop an agenda for
solved. Jamaica has set up a divestiture committee reform that would correct some of their main
which has sold three enterprises and leased four weaknesses:
hotels. Pakistan denationalized some 2,000 rice, Setting clear-cut and attainable objectives is
flour, and cotton mills, while Bangladesh returned the inescapable first step toward improved SOE
35 jute and 23 textile mills to the private sector. performance. The costs of noncommercial con-
Although divestiture can produce important net straints placed on SOEs should be calculated and
gains to society when the costs of public operation weighed against the benefits to society.
outweigh the benefits, it has been hard to imple- Once constraints have been identified and
ment. It is politically sensitive and prompts charges costed, governments can instruct many SOEs to
of corruption. In addition, governments often try maximize their profits, taking into account other
to sell only their money losers, for which there objectives that reduce profits by reimbursing the
are few buyers. Even profitable nationalized com- companies or lowering their profit targets.
panies may be hard to sell. An informal survey of Where there are price distortions, shadow
the potential market for Peruvian SOEs found that pricing offers a way to assess SOE performance
likely buyers were reluctant to purchase even fairly consistent with economic efficiency. The better al-
small companies. The reasons given included fear ternative is to move to market pricing (or marginal
of renationalization and concern about extensive cost pricing where market pricing is not feasible).
government regulation of formerly public firms. This would encourage greater efficiency by giving
These perceptions may mean governments have the correct market signals to managers and con-
to accept a lower price than the market value for sumers. Although market pricing typically entails
a similar private firm. Both Chile and Japan sold short-run political problems and costs, the long-
most of their state firms on attractive terms. run benefits are substantial.
Another reason divestiture is so difficult in de- Negotiated agreements, such as contracts or
veloping countries is the absence of a strong cap- corporate plans, can help put relations between
ital market. Public companies are often large and SOEs and government on a more constructive
domestic investors may not be able to raise enough plane. In particular, two-way contracts can help
capital to buy them. And selling large SOEs to win SOE management over to the idea of reform
oligopolists who already dominate the private sec- by laying out benefits as well as responsibilities.
tor might reduce competition. It could also result Once government has laid down objectives,
in unhealthy ties between financial institutions and managers can be made responsible for choosing
industry, further reducing the flexibilty of capital the methods of achieving them.
markets. Systems for monitoring and evaluating per-
Efforts to develop the stock market, and schemes formance are needed to transform good intentions
that appeal to small savers through their pension into results. By promoting domestic and interna-
funds, could make it easier for governments to tional competition and encouraging consumers and
divest. Spreading ownership more widely and di- other customers to make their views known, gov-
vesting only gradually can improve the chances of ernments can add to the pressures for good SOE
86
performance. Some of the most powerful incen- fearing an end to subsidized outputs, suppliers
tives are nonpecuniary (recognition, prestige, fearing reduced SOE spending, or even from SOE
awards). competitors (some private companies profit nicely
Managerial ability is a key to the success of when prices or incentives for a sector are geared
SOE reform. Managerial incentives linked to per- to allow an inefficient SOE to survive).
formance are important in motivating top man- Since these elements are interrelated, a piece-
agers. Compensation and training should be geared meal approach is unlikely to achieve the desired
to create a corps of competent SOE managers with results. Without clear objectives there can be no
appropriate skills. Efforts should also be directed standards by which to judge performance; without
at encouraging continuity of senior staff. accountability few governments would increase
The managerial and fiscal burden of SOEs can SOE autonomy; autonomy becomes license with-
be reduced by liquidating nonviable enterprises as out performance evaluation; incentives can be linked
well as by selective sales. These should not be to performance only if there is a meaningful way
treated as instant solutions, but rather as integral to measure results; performance evaluation makes
parts of the process of replacing the burden of sense only if managers have the autonomy to in-
central administration by decentralized market fluence outcomes; without performance evalua-
forces. tion there is no way to distinguish good managers
With strong political backing, this agenda is fea- from bad. Developing a framework to guide SOEs
sible. In any administrative system there are strong toward efficiency is thus a lengthy, complex pro-
vested interests opposed to change. Opposition to cess that requires commitment, persistence, and
reform may come from managers of powerful SOEs flexibility on the part of state authorities and en-
or senior government bureaucrats fearing loss of terprise management.
power, labor unions fearing job cuts, SOE clients
87
9 Project and program management
The growing number of development projects and the management approaches needed in physical
programs has strained the managerial capacity of and in people-centered development. The final
governments in all developing countries. This trend section reviews the management problems that
is likely to continue in the 1980s as population arise when projects and programs involve several
increases and expectations rise. While lhere is no implementing agencies. Again, there is a contrast
general formula for avoiding management strains, between physical projects, which can rely on con-
experience has revealed ways of easing them. tracts between agencies, and people-centered pro-
The requirements of project management vary grams, which need continuous informal contacts
widely according to the nature of the project and among field staff.
the number of objectives and agencies involved.
In particular, management techniques appropriate Managing physical development
for physical projects (building and maintaining in-
frastructure, operating industrial plants and utili- Construction projects enjoy a big advantagethe
ties) differ significantly from those needed in peo- availability of technical solutions; and suffer from
ple-centered development (small farmer agriculture, two common weaknessesthe easiest solutions
education, family planning, health and nutrition; are not always the most economically efficient,
and infrastructure and housing projects where and financial constraints can delay projects and
beneficiaries participate in design, construction, or starve them of resources for maintenance.
maintenance). In general, methods in physical Well-defined technology. Fertilizer plants, refi-
projects are well understood: constructing and op- neries, dams, highways, and other projects are
erating an oil refinery may not be simple, but the broadly alike in that they are built according to
technology is well specified and can be applied in well-defined methods, Technical problems can still
different countries and cultures. The main man- arise, of course, but the techniques for solving
agerial requirements are to train and motivate staff them are generally available to management. Where
and to strengthen operational control. Because skills are lacking domestically, they are universal
performance can be measured in terms of physical enough to be imported. For example, a scheme in
output, there is much scope for reinforcing gov- southern Sudan to build the large Roseires dam
ernment efforts by using private contractors. used designs by French and British consultants,
In contrast, less is known about how to change and was managed by an Italian contractor. Despite
patterns of behavior so that people adopt new its remote location and consequent transport dif-
farming methods or birth control, because cultural ficulties, the dam was built in five years instead
influences predominate. These uncertainties about of six, and for 97 percent of the estimated cost.
people-centered development are combined with Economic efficiency. The fastest and easiest op-
less managerial control, since success depends on erational solutions are not necessarily ideal in eco-
stimulating peoples' voluntary participation. Man- nomic terms, however. Developing countries with
agement therefore requires experimentation, flex- abundant labor ought in theory to avoid capital-
ibility, and a willingness to work closely with pro- intensive construction techniques, yet they often
gram beneficiaries to learn about, and respond to, lack the capacity to manage large labor forces. Nor
local needs. Governments often find programs in- do some countries do much to encourage the de-
volving the poorest are the most difficult to make velopment of such a capacity. For example, a key
effective. The answer to this dilemma is not to criterion for promotion of government engineers
give up, but to build steadily on experience. is often their experience in managing machinery.
The first two sections of this chapter contrast Such biases can be reduced by the creation of labor-
88
based construction departments offering security and cost overruns, is an example. Problems arise
and prospects of promotion, as Honduras did for partly because commitment to operating efficiency
highway construction in 1976. is harder to sustain than commitment to the short-
Financial constraints. New construction is often term goal of completing a building. But it is also
smoothly implemented because it is politically at- because, unlike one-time construction projects that
tractive and therefore given financial priority. can be managed with foreign technical assistance
Nonetheless, delays are still common, and not where necessary, continuous production or serv-
simply because of bureaucratic procurement pro- ice operations must depend on local managers.
cedures or supply problems. Budgetary shortfalls Their expertise can be developed only over long
also occur, and are made more damaging because periods.
many construction projectsdams, roads, facto- Skilled top management is often seen as the key
riesare indivisible. They cannot be scaled down to operating success, yet outstanding senior man-
or modified in response to financial constraints. It agers are scarce and cannot run large institutions
is therefore particularly important that govern- single-handed. The case of PUSRI in Indonesia
ments make realistic provision for construction (see Box 9.1) illustrates the importance of a long-
projects in their budgets (discussed in Chapter 7). term development' strategy for training middle
management and workers, and for building phys-
ical and financial control systems to monitor per-
Operating physical projects formance. The managerial task also varies from
Chapter 8 explored in detail the problems raised project to project. Sometextiles, cement, power
when managers of physical projects are set several and chemical plants, for examplehave relatively
(often conflicting) goals by government. Yet even simple technologies, needing relatively few skilled
when managers have clear goals and real auton- staff. Otherssuch as steel productionare harder
omy, physical projects generally cause more trou- to manage because they involve many processes
ble during their operating, than during their con- in which human skills are critical and error costly.
struction, phase: the troubled history of Togo's Managing large work forces is difficult in any
CIMAO clinker plant, built with only trivial time country, but developing countries face special
89
problems. They often need to train many people tenance operations are typically less efficient than
from scratchfor example, more than 3,000 in the either. This is partly because successful mainte-
Vinh Phu pulp and paper project in Viet Nam, nance provides no visible result, and so can seem
which was constructed with assistance from Swe- dispensable. Maintenance and rehabilitation pro-
den. And managers may need to overcome cul- grams depend on continuing budgetary support,
tural barriers in getting workers to adapt to the but are often neglected in favor of new projects
discipline demanded by productioi% lines. (discussed in Chapter 7)a "capital bias" that is
Operating performance is also affected by the shared by foreign development agencies.
number of links joining the individual enterprise Large, dispersed maintenance programs are par-
to the rest of the economy. To operate efficiently, ticularly hard to supervise and control from the
the Vinh Phu paper plant depends on forest plan- center. Experience with highway maintenance
tations, water treatment and power plants, local illustrates three ways of responding to these
schools and health centers, and road, rail, and difficulties:
river transport. Many of these services are outside Force account operations (whereby govern-
the control of the project's managers. ment departments carry out maintenance them-
Having few customers or suppliers greatly sim- selves) can counter the lack of a profit motive with
plifies project operation. PUSRI's performance, for improved training and personal reward systems.
example, is helped by the fact that it depends for Training programs in Kenya, Zaire, Brazil, Ethio-
resources on only one key supplier (the national pia, Nigeria, and the Dominican Republic have
oil company), and for revenues on output prices introduced "training production units." In place
set by the Indonesian government. By contrast, of classroom instruction, one or more stretches of
organizations that depend on charges levied on road are given to each training unit which then
many users, such as Sao Paulo's successful water has sole responsibility for their maintenance.
supply and sewage company, need to place high Trainees therefore learn their skills in the field,
priority on the development of financial and ac- and their performance is judged by the results
counting systems to charge and collect from thou- they achieve.
sands of consumers. Although large programs are bound by low civil
service pay norms, trained staff can often be mo-
Managing large maintenance programs
tivated through prompter payment linked more
While production and service operations tend to closely to performance. For example, wages paid
be less efficient than project construction, main- ten days late have been associated with a 25 per-
90
Box 9.3 Backing decentralization with authority and resources
Two examples of how projects can be pie copies of forty-page bid documents payment process was much faster and
delayed: only through laborious retyping and a thereby resulted in some cost savings:
In a West African country, local series of fourteen-hour bus journeys to contractors were often willing to lower
managers do not have the authority to the capital city. prices when they were not obliged to
buy even small supplies of materials for Such stories are common, and result wait months to be paid.
their project. Authority rests with a trav- in delays costing hundreds of times the In Morocco the Ministry of Agriculture
eling paymaster who makes short and value of the missing local good or serv- has decentralized its procurement pro-
unannounced visits, and will release ice. The solution lies in matching dis- cess in line with a shift in responsibility
funds only to the purchasing field officer bursement authority and resources with for agricultural development programs
in person. As a result, field staff spend responsibility for implementation. For to its regional and provincial offices. Lo-
up to a third of their time waiting for the example, Mexico's rural development cal management has been strengthened
paymaster rather than carrying out their program (PIDER) shifted disbursement by staff engineers from the center, who
duties, and supplies are held up for as authority from Mexico City to state gov- have received in-service procurement
long as six months. ernments in 1977. Each state set up PIDER training. Field staff familiar with local
One East African agricultural project accounts, and payments to contractors problems now have the capacity to sup-
was hampered by an unreliable postal were authorized locally after checking port and supervise local contractors.
and telephone service; lacking a telex or field supervision reports against a con-
a photocopier, it could distribute multi- tractor's or agency's invoice. The new
cent drop in productivity in Lesotho. Cumbersome the system is established. However, as with all
payment procedures as well as budgetary prob- labor-intensive methods, the demands on man-
lems are often at fault. In Honduras, for example, agement are heavy while the system is being set
before the system was simplified, several depart- up, and technical assistance is often required.
ments and two different ministries were involved These three strategies are not mutually exclu-
in paying highway construction workers, who each sive. Colombia, for example, is experimenting with
had to collect five different stamps and signatures all three. Argentina maintains contract and force
before being paid each month. Cutting this kind account operations side by side. Use of both public
of red tape can greatly improve force account and private sectors can encourage efficiency through
performance. competition; and it makes price-fixing and other
Contracting to private companies. This can forms of corruption more difficult. Contracting
reduce the management load on highway depart- maintenance automatically involves decentralized
ments and increase cost-effectiveness (see Box 9.2). management, which can simplify dispersed op-
Experience in countries as diverse as Brazil, erations by dividing them into smallertasks. Col-
Yugoslavia, Argentina, and Kenya suggests that ombia's force account operation has used the same
the prospects for subcontracting are promising. strategy for its feeder-road program. Since 1980
While much depends on the capacity of the private the organization's twenty-four regional offices have
sector in each country, the availabffity of such work increased their responsibility for programming,
spurs the growth and skills of private contractors. evaluation, and execution of works; the central
Using local communities to maintain local agency's role is now limited to logistic support and
roads. An important example is the "lengthman" overall planning, technical, financial, and admin-
system for rural road maintenance, successfully istrative control.
used in Kenya, Colombia, and elsewhere. Under Delegation by contract to the private sector guar-
this system, maintenance workers are hired as part- antees financial resources and reduces bureau-
time contractors responsible for from one-half to cratic controls. Within the government, however,
two kilometers of road in their area. Roads are decentralization of responsibility is often not ac-
inspected once a month, and contractors paid only companied by a complementary grant of resources
if maintenance is adequate. Community concern and authority. Successful decentralization neces-
the contractor is known to many who use the road sarily involves limited but genuine local auton-
he maintainsreinforces formal supervision. De- omy, as in the Mexican rural development pro-
pendence on machines and transport is reduced gram and the Moroccan irrigation program (see
to an absolute minimum, as is administration once Box 9.3). But if decentralization is to be control-
91
lableand, equally important, if it is to be polit- erate is often turned into usable information too
ically acceptable to central governmentits essen- late for practical planning. Even when they are
tial complement is the strengthening of central timely, large-scale surveys are better suited to
monitoring systems. This is a priority for both quantitative analysis of people's assets and pro-
physical and people-centered development pro- duction, for example, than to the qualitative as-
grams. sessment of social relations and attitudes required
for program design.
Managing people-centered development Pilot projectslearning by doing, but on an ini-
tially small scaleanticipate implementation prob-
Programs to improve the productivity and welfare lems in a way surveys cannot. Provided they are
of the poorwho in many countries do not share done by the agencies that will later be responsible
even a common language with government ad- for operations, and use procedures that are rep-
ministratorshave always posed special prob- licable on a large scale, they can greatly increase
lems. In the 1980s increasing concern about the responsiveness to local needs and bureaucratic
cost and replicability of programs is leading to realities. Pilot projects make sense particularly for
greater involvement of beneficiaries in the con- agencies (including donors) required to justify fu-
struction, maintenance, and financing of local ture spending with firm and tested proposals.
projects that hitherto either were provided and They do not solve all the problems of running
run by government or were simply unavailable. big programs, however. These programs need to
People-centered programs are particularly hard be adjusted over time in response to varying local
to manage because of the degree of uncertainty needs and environmental conditions. More recent
involved. First, goals can be abstract ("community planning methods have therefore moved toward
self-reliance," for example) and performance not a continuous learning and design process during
quantifiable in terms of construction time and costs implementation. Rather than design one initial
or profits and losses. Second, there is little knowl- replicable plan, the aim is to develop a flexible
edge of how to design suitable programs, because system for producing local plans in conjunction
they involve changing human behavior patterns with local people. Managing the link between bu-
that vary among cultures and localities. Third, the reaucracy and people therefore becomes centrally
success of a project depends on whether people important.
want the services it offers: project managers there- For foreign development agencies, as for recip-
fore often have to create demand. The task of ient bureaucracies, the need to shift away from
management is thus more one of experimenting blueprint planning is challenging and not entirely
and learning than of implementing known pro- welcome. Pressures to "move money" encourage
cedures, as is the case with physical development. focusing on the appraisal, commitment, and con-
struction phases of projects rather than on their
Responding to local needs
operation. This focus is reinforced by donors' strong
preferences for financing capital and foreign ex-
Learning about local communities requires social change rather than recurrent and local costs. These
skills not needed in physical developmentskills pressures, coupled with an interest in quick, vis-
still neglected by governments in developing ible, and preferably measurable results, have en-
countries and by foreign aid agencies. Relative lack couraged donors to take a short-term view of the
of success in people-centered programs, coupled development process. They have often paid in-
with a growing sociological awareness, has led to sufficient attention to institutional factors. They
greater recognition of their complexity and uncer- have also badly underestimated the persistence
tainty. This has encouraged a gradual move away needed to mobilize the rural poor, to make full
from traditional "blueprint planning," in which an use of local skills and experience, to sort out com-
initial learning and design phase is separated from peting interests and objectives, and to try alter-
implementation and operation. native ways of expanding income and employ-
In blueprint planning, learning is accomplished ment. While some external agencies have acquired
largely through surveys and pilot projects. The a longer-term perspective through multiple proj-
former have important drawbacks. Although ects with individual institutions, others must be
microcomputers promise speedier data process- more prepared to look at their relations with
ing, surveys remain complex and time-consuming developing countries in a time frame of decades
to organize. The large amount of data they gen- rather than of two or three years.
92
For governments, greater participation of local munities, of course. In the Philippines, a new ap-
communities has both drawbacks and advantages. proach being tested by the National Irrigation
On the one hand, it adds to the management bur- Administration treats local organization and au-
den of government at the project design stage. tonomy as a major goal of development, desirable
Also, where communities are highly stratified, par- in its own right (see Box 9.4). In contrast, the
ticipation may bring to the surface tensions between Training and Visit (T&V) System of agricultural
local interest groups: local elites, which dominate extension pays less attention to community or-
"community" organizations, may oppose the in- ganization, though it stresses responsiveness to
volvement of disadvantaged groups and take over the needs of beneficiaries (see Box 9.5). T&V's
programs to serve their own ends. In addition, field framework of routine procedures, tight supervi-
staff may not be enthusiastic if working for local sion, and lack of emphasis on community mobi-
communities is thought to incur loss of authority lization have eased its adoption in traditional de-
and status, as well as inconvenience. velopment bureaucracies. Suitably adapted, T&V's
On the other hand, some form of partnership management principles have great potential for
with local communities in the design of programs increasing access to basic services (for example, in
is essential, if plans are to meet beneficiaries' needs primary health care and certain types of educa-
and encourage contributions of money and labor. tion). In these areas, the morale of field staff is
Without such contributions, programs may never often low because they have unclear goals and are
be viable or, once started, may not be sustained. poorly supervised, supported, and trained.
The widespread success of "sites and services" While the financial burden of T&V and similar
schemes during the 1970s indicates that commu- systems falls entirely on government, the costs can
nities are prepared to shoulder much of the finan- be minimized by using part-time paraprofessionals
cial and managerial burden of development if design recruited from the communities they are to serve
technologies and levels of service are appropriate and trained in basic skills. In eastern Senegal, for
and affordable. example, herdsmen from traditional communities
There are different ways of involving local corn- have been trained as "barefoot vets" responsible
93
Box 9.5 The Training and Visit System of agricultural extension
Training and Visit &V) has been adopted usually based on a two-week cycle. VLWs links between researchers, extension staff,
as the extension method in more than forty spend eight days a fortnight visiting eight and farmers. Face-to-face meetings, held
agricultural projects in about twenty separate farmers' groups, returning fort- as far as possible in farmers' fields, re-
countries, and has influenced many nightly to each group on the same day place the common emphasis on time-
others. It has four broad principles: of the week, This means that farmers consuming and unproductive written re-
Concentration. Village-level workers know when and where to find extension porting. This allows quick and effective
(VLWs) spend their time learning from advice, and can hold the VLW account- feedback and adjustments where nec-
and advising farmers; they are not ex- able if he does not keep to his schedule. essary. VLWs do no more than keep a
pected to deliver supplies, to organize The regular schedule also means that ex- simple diary of key messages and farm-
credit, or to make reports. In India, where tension supervisors know where all staff ers' reactions for their own reference.
T&V has been adopted by thirteen states, will be on any given day. Each super- Meetings with farmers, in which super-
moving to a single line of command and vising extension officer has no more than visors participate, are the main means
responsibility required extensive reform eight people under him, so that he can not only of monitoring field staff per-
of a system that previously gave VLWs visit each of them not less than once a formance but also of defining priorities
a multipurpose role in community fortnight. Group training for VLWs, also for agricultural research.
development. rigidly scheduled, is carried out fort- None of the individual management
Simplicity. VLWs are trained every nightly in the field by specialists and ag- principles of T&V is new. What distin-
two weeks, with emphasis on what is ricultural extension officers. In addition, guishes T&V is that it has combined mu-
important for farmers to know about the monthly training workshops are held, tually reinforcing management princi-
current stage of cultivating their most which are attended by extension spe- ples into a clearly defined system for
important crops. This ensures the rele- cialists, researchers, and supervisors. At managing activities which are geograph-
vance of VLW work and does not over- these workshops, forthcoming advice is ically scattered and constantly changing.
burden them with more information than refined and disseminated and farmers' Consistent commitment from senior offi-
they can handle. reactions are reviewed. cials has been critical to sustained success.
Regularity. There are rigid schedules Communication. T&V recognizes the
for farm visits, training, and supervision, importance of effective communication
for vaccinations and simple medical treatment, advantage. The T&V scheme is one example: ex-
leaving fully trained (and scarce) veterinarians to tension workers have nothing to do with the pro-
handle more complex cases. vision of agricultural inputs such as seed and fer-
tilizertheir service emphasizes professionalism
and pride in performance. By contrast, in irriga-
Political backing tion management, which is responsible for repair
works and rationing a valuable commodity (water),
Commitment to the mass provision of services in other approaches must be considered. Morocco
rural areas is difficult to sustain against the vested and India have experimented with burying irri-
interests that favor urban elites. This is true even gation pipes to reduce the chances of their being
where the dominant political doctrine stresses the tampered with: the extra capital cost can be more
importance of local communities: in 1965, Mao than justified by higheragricultural production.
Zedong summed up China's struggle to achieve Corruption can also bechecked by community
responsive primary health care with his exclama- participation in the design, operation, and financ-
tion that "the Ministry of Public Health is not a ing of programs, since this increases the account-
Ministry of Public Health for the people, so why ability of field staff to local people. In some irri-
not change its name to the Ministry of Urban gation schemes in Asia, for example, farmers can
Health, the Ministry of Gentlemen's Health, or give part of their water charges to managers as a
even to the Ministry of Urban Gentlemen's Health?" performance bonus. Information can also be a
Governments find it particularly hard to redirect powerful weapon for increasing accountability. This
their bureaucratic efforts to serve local communi- was shown by Kenya's decision in 1978 to publish
ties when corruption affects the attitudes of field high school examination results comparing the
staff (see Box 9.6). For that reason, programs that performance of schools and districts. Political and
do not involve money changing hands have a great official interest was thereby awakened and resulted
94
in awards for successful schools; in 1980 and 1981, tion of private tubewells for lumpy government
schools markedly improved their performance. investments in dams.
The work of NGOs is sometimes hard to coor-
Alternatives to government action dinate with big government programs. Yet the
Physically and psychologically remote from the contribution of both foreign and indigenous NGOs
poor, bureaucracies are often unable to respond is often underestimated by official bodies. NGOs
to popular needs, even when money and man- in the industrial countries of the OECD alone
power are not a constraint. Their work can become transferred some $2 billion to developing countries
more effective by making greater use of the skills in 1981. NGOs have developed technologies from
of nongovernment organizations (NGOs) and the windmills and water handpumps to beekeeping,
commercial private sector. In many countries, small and services from primary health care to farm credit.
private traders, moneylenders, and truckers al- An NGO which began a self-help housing project
ready provide farmers with convenient and flexi- in El Salvador in 1968 (see Box 9.7) has now helped
ble support services. Their potential disadvan- to build more than 4,300 houses with about 7,000
tagesmonopoly pricing and diseconomies of small more under construction. In Bangladesh, the com-
scale, for exampleare not always assessed against bined efforts of NGOs in promoting nonfarm rural
the often greater inefficiencies of government serv- employment are greater than those of govern-
ices, especially when the latter are given a mo- ment. The effectiveness of NGOs is the result of
nopoly. One alternative to state services is the many factors: commitment to poverty relief; free-
"pump-priming" of private sector activityand of dom from bureaucratic procedures and attitudes;
increased competitionthrough the provision of scarce funds, which force concentration on prior-
credit. Other examples include the provision of ities and replicable technologies; and their small
extension advice by private traders in agriculture size, which makes it easier to understand and re-
and village midwives in health; and the substitu- spond to the needs of local communities.
Box 9.6 Field staff incentives: private profit versus public service
The perverse incentives that can deter- cent of each maintenance contract. They vide the construction and maintenance
mine field staff behavior have been thor- expect 5 percent of each irrigation area's they are intended to. Staff have an in-
oughly documented in the case of an total works budget (including the amount centive to disrupt water supplies in order
irrigation program. The program man- spent on field staff salaries). Since junior to increase farmers' uncertainty and hence
agers have two main sources of illicit in- engineers generally cannot find this their willingness to pay bribes. As for
comethe annual maintenance budget money from their works budget alone, farmers, villages which can afford the
and the farmers. By long-established they raise some of it from farmers. In biggest bribes get the most water, to the
convention, 8.5 percent of the price of a return for an assurance of water for the detriment both of equity and of farm pro-
maintenance contract is shared among whole season, villages whose water sup- duction over the irrigation system as a
irrigation staff-2.5 percent to the senior ply is uncertain make a flat-rate pay- whole.
engineer (in charge of an area of 80,000 ment. They may also make one-time Safeguards against corruption are
to 400,000 acres), 1 percent to the clerical payments for more active intervention needed at every level. Politically, the ac-
staff and draughtsmen, 5 percent to be by irrigation staff depending on weather countability of officials to ministers, and
split between the works supervisor and conditions and the immediate need for ministers to the general public, is a well-
the junior engineer (in charge of 30,000 water. In relation to incomes, the scale tried way to minimize abuse. For pro-
to 100,000 acres). This minimum kick- of such corruption is large: for junior en- grams. pressure on corrupt managers can
back is supplemented by "savings"_the gineers, it is often more than three times also be increased by making clients (es-
contractor uses less material or carries their annual salary, and for senior en- pecially the poor) more aware of their
Out less work than specified, and the gineers more than eight times. Since ap- rights. One Asian irrigation scheme has
money saved is split between irrigation pointments to these posts are valuable, worked out detailed individual rights
officers and the contractor. The size of they are bought rather than decided on how much water will be supplied and
these savings is negotiable, but is nor- merit. Senior engineer posts cost from when. Rights are displayed on large
mally at least 15 percent of the value of three to well over ten times annual sal- boards at the canals or pumps, and water-
the contract, sometimes as much as 40 ary, depending on productivity and hence measuring devices that all farmers can
percent. on the farmers' ability to pay. understand are provided. Organizing
By custom, senior engineers receive Systematic corruption means that bud- beneficiaries to act collectively can also
further payments on top of the 2.5 per- gets, already short of money, do not pro- increase farmers' leverage.
95
Box 9.7 Housing for the poor: tapping local initiative in San Salvador
In 1968 a small group of people orga- basic house cost $2,800 in 1982, including gram. As civil unrest grew, community
nized by a priest and a Peace Corps vol- land and administrative overhead, with workgroups became more difficult to or-
unteer helped to rehouse thirty families credit repayment for families over twenty ganize, and some basic construction was
who were victims of flooding in San Sal- years. In addition, FSDVM allowed peo- taken over by small contractors; never-
vador. Two years later, with the backing ple to work on their houses in place of theless, homeowners continued to help
of local businessmen, La Fundacion Sal- down payments, so that about three- each other with finishing work.
vadorena de Desarrollo y Vivienda Min- quarters of all urban families could afford Before external factors intervened,
ima (FSDVM) was registered as a non- FSDVM housing. FSDVM's repayment record was excel-
profit foundation. Expanding with FSDVM emphasized appropriate tech- lent: in July 1980, arrears on loans were
external financial support, by 1980 nology, close contact with participating only 2.3 percent of the total outstanding.
FSDVM had become a major producer of communities, and learning by doing. The Foundation's low reserves made re-
low-income, institutionally financed Houses were built in affordable stages, payments essential for the program to
dwellings in El Salvador. Since then the with top priority given to secure land continue, so all those involved were mo-
deteriorating political and economic sit- tenure and services. Potential homeown- tivated to build economically and to col-
uation in the country has reduced ers helped reduce costs through mutual lect debts. More important, FSDVM saw
FSDVM's effectiveness. help with construction at weekends, and its work not just as an end in itself, but
FSDVM's approach to housing was a so laid the foundation for community as a means of organizing and increasing
radical departure from government pro- groups capable of self-management. Par- the self-reliance of the urban poor. The
grams, which traditionally had concen- ticipation in decisionmaking involved sense of community created during con-
trated on building houses that most of beneficiaries in defining and solving their struction encouraged social responsibil-
the population could not afford. FSDVM's own problems at every stage of the pro- ity and a willingness to pay.
Mass urban and rural services and the results are immediately made available in
clinics, districts, and provinces. Each administra-
The sheer scale of many people-centered programs tive center receives a report ranking all subordi-
makes heavy demands on management. Urbani- nate units by performance, which then influences
zation in particular will pose formidable challenges the allocation of finance the following year.
for the developing countries, since they will con- Monitoring systems, essential if field managers
tain most of the world's large cities by the end of are granted greater autonomy, serve two pur-
the century (see Figure 9.1). The more successful posesto maintain central control and to motivate
metropolitan development agencies, such as Cal- local managers. Applied intelligently, they can
cutta's (established in 1971), have recognized the produce big improvements in performanceeven
weaknesses of central control over detailed plan- in their first year of operation, to judge by a new
fling and operations and have helped to strengthen monitoring system for rural health care in the In-
a local government tier in closer touch with local dian state of Maharashtra. If monitoring is to be
needs. For the metropolitan authorities, this has effective, the right balance must be struck between
meant politically difficult decisions to relinquish sufficiency and simplicity, so that monitoring does
executive control and operating budgets. They have not divert managers from implementing pro-
correspondingly strengthened their work in capi- grams. Often more could be done to develop sim-
tal budgeting, long-range planning, coordination, ple indicators that relate inputs to outputs, and to
and fiscal management. widen the use of monitoring systems as manage-
The Indonesian government's successful family ment incentives.
planning program has also decentralized day-to-
day managerial authority, involved local politi- Managing multiagency programs
cians, and strengthened central monitoring. Re-
gional managers are largely free to set spending As governments have grown more aware of the
and performance targets, but officials in Jakarta interdependence of development efforts, their
insist on a realistic relationship between planned projects and programs have become increasingly
and past spending, and strict adherence to budget integrated. They often involve many institutions
ceilings. Performance is monitored monthly on one- and functions, posing challenging and sometimes
page forms that are collated rapidly at the center, overwhelming problems of interagency coordina-
96
tion. These problems have been widespread in the management with responsibility for education, vil-
complex "new-style" projects favored by the for- lage electricity, health care, and roadsmuch
eign development agencies from the early 1970s. needed though all of these are. Instead, it con-
In some cases, it is a mistake to attempt an centrated on farming and fuelwood development,
ambitious integration of programs. Coordinating which are critical both to local living standards and
the work of agencies with different interests and to the success of measures for soil conservation
power takes time and scarce managerial skills, and and reforestation. Similarly, Ethiopia's Minimum
can founder in bureaucratic politics. Between Agricultural Package Project concentrated on a few
agencies, coordination poses the same managerial key tasks replicable on a large scale with limited
problem as people-centered development: how to managerial resources.
involve those outside a manager's direct control.
Where effective coordination cannot be assured, Coordinating action
complex programs can often be simplified by de-
linking them, or reducing the number of compo- For some projects and programs, integration is
nents. Many of the world's most successful peo- essential. Mines and factories, for example, often
ple-centered programs were developed with a single cannot operate without parallel transport invest-
purpose: population planning in Indonesia, T&V ments. In agriculture, new seeds will produce high
in India, tea development in Kenya, and rural ed- yields only if they have enough water and fertil-
ucation in Mexico, for example. The Kenyan gov- izer. Even where integration is not critical, it may
ernment plans to divide its ambitious integrated offer significant benefits. Farmers will be more
agricultural development program into a series of willing to adopt new agricultural methods if they
administratively separate projectsin extension, have access to credit, ready markets, and trans-
smallholder credit, livestock, and so on. Such de- port. Innovation is also stimulated by education,
cisions recognize that it may often be important while better health means less working time lost.
for services to be available simultaneously, but not Similarly, in urban areas, health services are of
always essential that they be integrated adminis- limited use without complementary water and
tratively. waste services.
The need for coordination can also be minimized Establishing cooperation. Where managerial re-
by reducing the number of program components. sources can handle the complexities of integrated
A recent scheme to rehabilitate watersheds in the development, three strategies for coordination have
Indian Himalayas intentionally avoided burdening been commonly adopted:
Special management units with their own
budgets and resources set up parallel to, and ad-
FIGURE 9.1 ministratively isolated from, existing agencies.
Number of cities with populations of more than While convenient for foreign development agen-
one million, 1960-2000 cies interested in short-term results, these are often
Industrial Developing
not in the interests of long-term institutional de-
countries countries 295 velopment (see Box 9.8). They may also lead to
over 4 million
bureaucratic proliferation that complicates the tasks
250
of managing budgets and planning investment.
1 to 4 million
205
Contracts and written understandings be-
tween agencies. In the case of power supplies, for
200
Total 125 example, some companies in India have required
62
82
69 102
guarantees of continuous electricity before they
150 will build new factories. In general, however, con-
tracts are hard to enforce unless tasks are clear
00 and performance quantifiablerarely the case in
1960 people-centered development. Written under-
197 50
standings are more flexible than formal contracts.
Several Latin American countries have a tradition
of convenios between public agencies for the pro-
vision of services. For example, the Brazilian State
2000
of Minas Gerais has successfully coordinated a rural
development program involving thirty-nine agen-
97
Box 9.8 Project management units: integration in isolation
Parallel project units can increase the of Agriculture because of salary differ- tual merger with a "parent" institution
speed at which projects are imple- entials. When the project unit was finally is carefully planned from the outset. One
mentedby avoiding bureaucratic pro- dissolved, few if any institutional bene- example is the introduction of the "Sites
cedures and the need to negotiate the fits were left. and services" concept in urban housing.
cooperation of independent line agen- A more extreme version of this weak- Although the special management unit
cies. But they may also have long-term ness can be seen in Sierra Leone, where of a pilot project in Zambia was dis-
disadvantages. Such was the experience a series of integrated agricultural proj- banded after the project was completed,
with the Thaba Bosiu Rural Develop- ects, each with a separate management the cheapness (and hence replicability)
ment Project in Lesotho. The project's unit, has proliferated to cover 80 percent of its approach had been so well dem-
management unit was created in 1973 to of the country. The result has been a onstrated that it was taken up by con-
integrate road development and soil con- weakened Ministry of Agriculture with ventional housing institutions. A similar
servation, with supplies, credit, advice, a field staff demoralized by competition unit in Kenya was successfully merged
and marketing services to about 12,000 from the project management units; no with the Housing Department of the
farmers. The unit was set up to com- clear lines of authority from headquar- Nairobi City Council. Only when project
pensate for administrative weakness in ters to the field; and an inability to plan unit staff are motivated by the prospect
the Ministry of Agriculture, and proved rational development in agriculture. The of a long-term career, will they be pre-
effective while the project was being im- government is now planning a gradual pared to work for salaries compatible
plemented. But its success was partly due reintegration of ministry and units. enough with the parent institution for
to above-average local staff attracted by Project units have however proved eventual merging of the unit to be pos-
salaries higher than civil service norms. useful vehicles for developing and dem- sible.
When the project was completed, the staff onstrating new technologies, and can be
could not be integrated into the Ministry effective in the long-term if their even-
cies within a convenio framework. In practice, schemes in Mexico and Liberia, agencies took part
convenios tend to be renegotiable arrangements. in one- or two-day "project launch workshops" to
Their value lies less in the enforceability of the which politicians and press were invited, and in
contract than in the joint planning and negotiating which project goals and agency responsibilities were
process before signature. set out. Public visibility provided recognitionand
Informal cooperation. Most projects require the pressure of increased accountability to com-
voluntary cooperation from agencies over which munities.
project managers have influence but no direct con- Project plans often emphasize formal coordi-
trol. Integration then becomes a matter of nego- nating structures in organograms, rather than the
tiation between those who have certain rewards composition of coordinating committees and the
and sanctions at their disposal, and agencies with power of their members. A common problem as-
varying commitment to program goals. Three broad sociated with liaison committees is the nomination
lessons emerge from the many failures and few of senior officials who are too busy to attend reg-
successes. Where integration has worked well, co- ular meetings, and who therefore delegate this
ordination has been planned at the project design task to junior staff lacking the authority to deal
stage, rather than left to emerge during imple- with problems. Getting things done depends on
mentation; attention has been given to the people compromise between the power, knowledge, and
and processes involved in building and maintain- regular availability of committee members. Coor-
ing consensus, rather than simply to organograms dinating committees can be made more effective
and structures; and coordinating mechanisms have by balancing agency staff with representatives of
been designed at the appropriate hierarchical levels. the beneficiaries and other political groups. This
The importance of early involvement is dem- can improve bureaucratic accountability as well as
onstrated in all successful integrated programs. involve interest groups with the power to support
Agencies will have more incentive to identify with or subvert program goals.
a project and contribute to it if they have helped The appropriate level for effective coordination
to formulate goals, cooperated in design, and agreed depends on the activity involved. Production of
on their implementation tasks. Their roles can then standardized services, for example, needs liaison
usefully be publicized: in two urban development at the top of the hierarchy. Electric power in Col-
98
ombia is coordinated by one central company which and budgeting system to transform the attitudes
operates the national grid; when a joint effort is of agencies which had jealously guarded their in-
needed, it pools the financial resources of regional dependence. Budgets are now jointly agreed, and
companies to develop hydroelectric schemes. Peo- later adjusted on the basis of performance; this
ple-centered programs, by contrast, require coor- encourages each agency to make its promised con-
dinating links further down the hierarchy. Since tributions. Budgeting units such as those in Col-
such programs focus on local needs, strong local ombia differ from the special management units
liaison is particularly important. described in Box 9.8 in that they do not have an
Maintaining cooperation. To be effective, coordi- independent implementing capacity.
nation needs to be maintained when a program is
in operation. Cooperation can be encouraged by Some lessons learned: a summary
sharing information and by joint budgeting, both
geared to performance criteria. The effectiveness This chapter has illustrated how management can
of coordinating committees depends as much on adapt to the demands of different tasks. While
the quality of information available to them, as on approaches vary according to the activity in-
the power and abilities of their members. Dia- volved, many successful projects and programs
grams (known as critical path charts) showing the share certain qualities:
links and lead times of all projects have been used S The development of management skills
to monitor slum improvement and sites and serv- through on-the-job training and incentives. On-
ices programs in Madras and have helped reduce the-job trainingemphasized by PUSRI in fertil-
construction time by a third. All project partici- izer production, TANESCO in the case of a utility,
pants know immediately if any of them are falling training production units in road maintenance, and
short of their commitment, and this knowledge in the Training and Visit system of extensionis
prompts corrective action. relevant and avoids diverting staff from produc-
Budgeting can also help to maintain coopera- tive work. Different incentives have been used to
tion. Colombia's integrated rural development retain and motivate staff: apart from financial re-
program (see Box 9.9) has used its programming wards, they include promotion prospects and sta-
99
bility of tenure (PUSRI); collegial management styles roles, and dividing big programs into smaller tasks
(NIA in the Philippines and T&V); and public and management teams. Clarity and concentration
ranking and recognition of performance (Indone- count, whether in choosing a single program goal
sia's population program and Kenya's examina- or limiting extension advice to a few key messages
lion system). Management development policies (T&V); agreeing on a set of goals and roles in
often have their main payoff in the longer term, multiagency programs (the Minas Gerais inte-
so a continuous commitment to them is a precon- grated program); or developing relevant skills (on-
dition of success. the-job training). Successful schemes have also de-
The use of external resourcesthe private sec- veloped those management functions that are crit-
tor, nongovernment organizations, and program ical to particular tasksfor example, PUSRI's em-
beneficiaries. This involves corresponding changes phasis on financial management systems and, in
in managementsuch as the ability to supervise people-centered programs, the focus on learning,
contractors (road maintenance in Argentina and adapting to local conditions, and managing the
Yugoslavia), and to enlist the help of beneficiaries link between bureaucracy and beneficiary.
(NIA and FSDVM). It also means changing tech- This chapter has been concerned with initiatives
nical designs to meet the needs of clients and en- that are within the discretion of agency managers.
sure wider replicability. However, such initiatives often require support in
Managerial autonomy coupled with the de- areas beyond the control of individual managers.
velopment of management information systems. First and foremost, political commitment deter-
Successful organizations have made individual mines the adequacy of money and the competence
management groups the basic unit for measuring and security of senior staffthe preconditions of
performance (PUSRT's cost centers and the Indo- a sustained management-development effort. Sec-
nesian population program's field units). Timely ond, project-level efforts to improve personnel
reporting of results has given managers the en- management cannot compensate for a sectoral or
couragement of recognition and the pressure of national shortage of skills, or for national person-
possible sanctions (Colombia's monitoring and nel practices that need reform; these issues are
budgeting system for rural development). Report- discussed in Chapter 10. Third, some structural
ing results to beneficiaries and the general public and procedural improvementsdecentralization
is also an important and much-neglected perfor- and coordination, for examplemay also be pos-
mance incentive. sible only in the context of national measures; these
A simplified management task, through iso- issues are taken up in Chapter 11.
lating priorities, defining individual and agency
100
10 Managing the public service
Earlier chapters have proposed various measures out policy reforms. Other policy measures include
for improving the performance of the public sec- establishing career schemes for occupational groups,
tor. Success in implementing these measures is instituting an effective system of performance
largely determined by a government's ability to evaluation, and avoiding big salary differentials
staff and manage its public service. That in turn between the private sector and the civil service.
depends partly on attractive salaries and career
prospects in the public service and partly on po- Availability and distribution of skills
litical leaders' being committed to high standards
of performance and integrity. Even then, public The labor force in developing countries is expected
servants often have to work through and with to grow by 588 million people between now and
institutions that have been established only re- the year 2000. Finding productive work for them,
centlyand in conditions that may not be con- and for the millions who are already unemployed
ducive to efficiency. In many developing coun- or underemployed, is a fundamental challenge of
tries, public servants have a more challenging task development. Although developing countries have
than their counterparts in developed countries. made remarkable progress in education and train-
This chapter is divided into three sections. The ing, most still have large reserves of unskilled la-
first traces the growth of public employment and bor alongside severe shortages of skilled people.
the skill shortages faced by the public service; the This imbalance is most acute in the public sector,
second, the role of training in overcoming them; which provides a high percentage of modern sec-
and the third identifies improvements needed in tor employment. Governments are under strong
personnel management. A concluding note stresses political and social pressure to employ more peo-
the importance of cultural and political factors in ple, while facing strong competition from the pri-
reforming a country's management practices. The vate sector for technical and professional staff.
chapter has three main findings:
Public employment in developing countries Growth in public employment
has grown rapidly in recent years in response to
the demand for improved public services. But often Recent data for about seventy-five countries show
there is overstaffing at lower levels, accompanied that as countries grow richer public employment
by shortages of professional and technical staff. increases on a per capita basis but declines as a
These shortages are exacerbated by the "brain share of nonagricultural employment. The indus-
drain." trial market economies have about twice as many
Public service training needs to be made more public employees per 1,000 people as the devel-
relevant to the demands of the job. This requires oping countries, but public employment in devel-
forging closer links between trainers and trainees oping countries has grown three to four times faster
and between training and career development, as in recent years (see Box 10.1). This often makes
well as developing local training materials and the state the dominant employer, particularly of
programs. professional and technical personnel. In Kenya,
A strong civil service requires a personnel of- for example, a 1976 study revealed that roughly
fice that actively manages rather than passively 70 percent of these people were employed by the
administers personnel policies. Strengthening per- government.
sonnel management demands, above all, improv- This rapid growth partly reflects the demand for
ing the management capabilities of personnel of- more public services. For example, the number of
fices and giving them the status they need to carry primary school pupils in developing countries in-
101
Box 10.1 Trends in public service employment
According to recent ILO data from a This disparity is largely explained by ag- as high as 54 percent; followed by Lib-
sample of countries, public service em- riculture's high share of the labor force eria, 53 percent; Benin, 50 percent; and
ployment in some developing countries in developing countries (more than 70 Tanzania, 46 percent. In developed
increased three to four times faster than percent in low-income economies and 40 countries the ratio ranged from a low of
in developed countries in the mid- and to 45 percent in middle-income econo- 9 percent in Japan to a high of 30 percent
late 1970s and two to three times faster mies, compared with barely 5 percent in in Sweden.
than the population at large. In most cases industrial market economies); and agri- Grouped by different levels of govern-
this was to be expected, given the small culture is almost entirely in the private ment, the figures show that state and
public service with which many devel- sector. A different picture emerges when local government account for 60 percent
oping countries started at independence. agriculture is excluded. In a sample of of total government employment in in-
While public employment fell in some twenty-eight developing countries, an dustrial countries compared with 14 per-
developed countries (such as Canada and average of 27 percent of salaried jobs in cent in developing countries. In the Af-
the United Kingdom) between 1976 and the nonagricultural sectors were in gov- rican countries surveyed, less than 7
1980, it increased in all the developing ernment, compared with 20 percent in percent of government employment is at
countries surveyed. industrial countries. In India the rate was the local level.
In industrial countries the share of
public employment in total employment
has risen gradually, from 12 percent in Share of government
in nonagricultural employment Developing countries
1960 to 18 percent in 1979. On a per cap-
ita basis, these countries now have more Latin
Africa Asia America
than twice the number of government
employees as the developing countries. Central
government 30.8 13.9 15.8
Local
government 2.1 8.0 4.2
Growth in government employment Total
Average annual growth rate government 32.9 21.9 20.0
(percent)
Central Local
15 government government
Industrial
countries
Mexico
Burundi The pie chart compares unweighted aver- figure and the one below are based on the
ages for sixteen industrial countries with findings of a survey conducted in 1982 by
Nigeria
10 those for twenty-eight developing coun- the IMF; they cover the period between the
Ecuador tries. The developing countries are grouped late 1970s and the early 1980s.
Cameroon by region in the table. The data for this
Egypt
Thailand Number of government employees Developing countries
per 1,000 inhabitants
Kenya
Sweden Latin
Bolivia 77 Africa Asia America
Australia
Philippines Denmark
Z India Jl Central
Belgium government 18 26 30
Turkey France
Fed. Rep.
'Germany,
United States Local
0 Argentina Japan government 2 4 8
United Kingdom
Canada 29 Total
46 government 20 30 38
Points on the graph indicate average
annual growth rates for developing
countries on the left and for industrial Central Local
4 government government
countries on the right. For most coun-
tries listed, the period covered is 1976- Industrial Developing
80 and government employment in- countries countries
cludes only central and local govern-
ment employees. The bars compare unweighted averages for veloping countries are grouped by region
sixteen industrial countries with those for in the table.
Sos rces: ILO; World Bank, thirty-one developing countries. The de-
102
creased from about 117 million in 1960 to more university graduates were held by expatriates. Since
than 236 million in 1975, requiring a proportional then this ratio has been steadily reduced.
growth in the number of teachers. Another prin- While skill shortages are hard to quantify, the
cipal reason for the rapid growth in public em- World Bank finds that two-thirds of its borrowing
ployment is the understandable desire of govern- countries face serious difficulties in filling certain
ments to improve tribal, ethnic, or regional posts in the public sector, particularly for engi-
representation, or to use public payrolls as a means neers, managers, accountants, economists, and
for combating unemployment. The governments doctors. These difficulties are compounded by a
of such countries as Egypt, Ivory Coast, Mali, tendency for the more experienced staff to quit the
Mauritius, and Sri Lanka have at various times public service in search of better jobs. In about
explicitly acted as "employer of last resort," par- half the countries, the outflow from government
ticularly of university graduates. In Egypt, accord- is mostly toward employment abroad; in the other
ing to an ILO estimate, overstaffing was almost half, mostly toward the domestic private sector.
42 percent of total civil service employment in 1976. Vacancy rates derived from manpower surveys also
A consultant's recent study of two ministries in a provide partial evidence of shortages. A 1977 sur-
West African country classified as redundant 6,000 vey in Nigeria, for example, found a 22 percent
out of 6,800 headquarters' staff. In some oil- vacancy rate for modern sector occupations; rates
producing countries, governments have hired extra for scientists, secondary school teachers, and other
staff as a way of distributing oil revenues. professionals all exceeded 40 percent.
A clear distinction must be drawn between man- Shortages are most severe in local government.
fling the public service with competent staff and In Nigeria a third of the primary school teachers
using it to tackle unemployment. For the latter, possessed no qualifications beyond a primary school
temporary public works (or food-for-work) pro- leaving certificate and most worked in rural areas.
grams are cheaper and more effective than indis- This bias extends to technical assistance person-
criminate increases in public employment. Over- nel. For understandable reasons, rural institutions
staffing imposes a financial burden on the state, everywhere find it hard to lure staff away from
undermines morale, and obstructs efficient man- the attractions of urban life.
agement. Several countries have therefore started In many developing countries, skill shortages in
to reduce the number of staff members, in part the public service are as much qualitative as quan-
prompted by recession and fiscal stringency. titative. This stems from the uneven quality of
Among industrial countries, the Federal Republic secondary and higher education in most devel-
of Germany, United States, Japan, United King- oping countries, the strong demand from the pri-
dom, and Canada have recently trimmed or cur- vate sector for good graduates, and the fact that
tailed the growth of their public service. Among government salaries are too low to attract or retain
developing countries, Turkey's government enough capable individuals. All these problems
stopped hiring in 1980 and has since maintained are made worse by emigration.
strict control over staff. In Yugoslavia the govern-
ment is encouraging older federal officials to retire The brain drain
early, and Egypt is trying to limit the growth of
staff at lower levels. For many developing countries the export of labor
and skills makes an important contribution to their
Skill shortages balance of payments. But, given the shortage of
professional and technical people in many devel-
In most developing countries, overstaffing at lower oping countries, their emigration often has serious
grades coexists with severe shortages of senior consequences for development management. The
professional and technical peopleshortages that brain drain has some harmful effects even in the
can often be made good only by employing ex- few instances in which there appears to be a rel-
patriates. More than half the technical assistance ative abundance of skilled people (such as doctors
received by developing countries is used to finance and engineers in urban India), since emigrants are
expatriates, while much of the rest goes for the then replaced by people who might otherwise have
overseas training of developing country nationals worked in rural areas. Some countries undoubt-
(see Box 10.2). This imbalance of skills is partic- edly benefit substantially from their emigrants,
ularly severe in African countries: at indepen- whose remittances more than offset the cost of
dence, more than three quarters of the jobs for their education. For most developing countries,
103
Box 10.2 Technical cooperation in development
Between one-fifth and one-quarter of of- alone), and developing-country govern- UNDP; OECD countries provide roughly
ficial aid flows goes to financing tech- ments contributed heavily to meeting lo- 110,000 fellowships a year and the UNDP,
nical cooperation for the purpose of cal costs. 10,000. Technical cooperation aid is also
transferring knowledge and skills to de- The biggest recipient of technical as- used to provide equipment (particularly
veloping countries. Although the figures sistance was sub-Saharan Africa, ac- in fields of high technology), design and
are not complete, they suggest that total counting for 30 percent of the UNDP's feasibility studies, economic and social
disbursements of technical assistance in field expenditures in 1981 and 40 to 50 surveys, and research.
1981 were some $7-8 billion, mostly in percent of the disbursements of OECD In recent years there has been a steady
the form of grants. More than half ($4.6 countries. Other big recipients were growth of technical cooperation between
billion) was provided by OECD countries Bangladesh, Brazil, Egypt, India, Indo- developing countries (TCDC). Of the
on a bilateral basis, most of the rest by nesia, Morocco, Peru, Philippines, and 10,000 experts serving in the field in 1981
the UNDP, $730 million; other UN agen- Thailand. Saudi Arabia and other Middle under programs financed by the UNDP,
cies, $540 million; and the World Bank, Eastern oil exporters obtain considerable 37 percent came from developing coun-
$510 million. The International Monetary amounts of (reimbursable) technical as- tries compared with fewer than 25 per-
Fund (IMF) and the regional banks were sistance from a variety of sources, in- cent in the early 1970s. The UNDP can
also important sources of official tech- cluding the World Bank. now use up to 10 percent of its funds for
nical assistance, as were the countries of More than half the recorded spending TCDC. Bilateral technical assistance is still
Eastern Europe and some of the devel- on technical cooperation is used to fi- mostly tied-provided by people or or-
oping countries, such as China and In- nance expatriate staff. Overseas training ganizations in the donor country-but
dia. Private voluntary agencies too had of developing-country nationals ac- some donors such as Sweden are fi-
technical assistance programs (more than counts for about one-tenth of the total nancing training and other technical as-
$40 million for the Ford Foundation outlays of both OECD countries and the sistance from third countries.
104
however, emigration faces them with the difficult tion is political, a change in the political climate
(and usually urgent) task of finding replacements may encourage migrants to return. If the brain
(see Box 10.3). drain is caused by the pull of higher salaries, how-
Small countries tend to be hardest hit by short- ever, reversing it is costly and should only be
ages of trained manpower, but the impact can be attempted on a selective basis. The Sri Lankan
serious even for relatively large countries. A recent government, for example, launched a program in
study of the Philippines estimates that, with pre- 1979 to encourage professionals to stay or return
sent enrollment rates and no emigration, it will home by revising its pension system, easing ex-
take the country about sixteen years to produce change controls so that people could finance the
the physicians it needs. But if the present emigra- education of their children abroad, and making it
tion rate among physicians continues, twenty-six possible for senior staff to return at appropriate
years will be needed. A World Bank study of mi- levels in the public service. Guaranteeing jobs for
gration in the Middle East reached similar conclu- those who might return and recruiting abroad for
sions: in 1975 the number of trained people leaving important public service positions have also been
nine Arab countries to work in neighboring oil- effective measures. In the 1970s, with a similar
producing countries constituted 13 percent of the approach, the Republic of Korea was successful in
home countries' professional and technical man- attracting back Korean scientists trained abroad.
power. If present trends continue to 1985, more Other steps can also be taken to slow the brain
than two-thirds of Sudanese professional and drain, though some may compromise basic human
technical workers are likely to be employed else- rights. A survey of developing country students
where in the Middle East. in Canada, France, and the United States showed
The nature of the brain drain varies from coun- that they were much more likely to return home
try to country. When emigration of skilled people if they signed a pledge or deposited a money bond
is balanced by a flow of more experienced return- before their departure. Some countries have im-
ing migrants and trained expatriates, no serious posed heavy emigration taxes and passport fees
problems arise. If the underlying cause of emigra- on trained people to discourage them from leav-
105
Box 10.4 High returns to secondary education
The 1980 World Development leport de- percent of the skills tests earned an av- plications for Kenya and Tanzania. Two
scribed how even limited education can erage of 1,109 Kenyan shillings a month decades ago both countries had similar
raise the productivity and incomes of poor compared with 864 shillings for the bot- secondary school enrollments and total
people. A new World Bank study of 4,000 tom 10 percent of secondary graduates. population. By 1978 secondary enroll-
primary and secondary school graduates In Tanzania the most skilled primary ment was 350,000 in Kenya but only
in Kenya and Tanzania compared work- graduates averaged 747 Tanzanian shill- 60,000 in Tanzania. Because of this dif-
ers' wages with the number of years they ings a month; the lowest scoring sec- ference in enrollments, Kenya's labor
had spent in school (their credentials) ondary graduates, 681 shillings. force is more skilled than Tanzania's. The
and their literacy and numeracy skills. The findings applied equally to blue- difference in skill, in turn, contributed to
The study concluded that skills ac- and white-collar occupations, since the differences in the growth of wages, labor
counted for almost 50 percent more of returns to skills achievement were just productivity, and output. Average wages,
increased earnings than did credentials. as high in nonmanual occupations. For which fifteen years ago were roughly
Although, on average, secondary ed- technicians, machinists, and fork-lift equal in both countries, are now nearly
ucation equipped students with better drivers, as much as for accountants, twice as high in Kenya. Tanzania's policy
skills and, as a result, they earned more clerks, and secretaries, basic literacy and of moderating wage differentials ac-
than those with only primary education, numeracy skills apparently increased their counts for some of the difference in earn-
the study showed that, in both coun- productivity enough for employers to pay ings between the two countries; but Ken-
tries, primary school graduates with more for their services. In sum, second- ya's greater abundance of skills acquired
strong literacy and numeracy skills earned ary education paid in both countries, in school accounts for as much as a third
appreciably more than secondary grad- particularly for students who learned their of that difference.
uates with weak skills. Thus, Kenyan lessons well.
primary graduates scoring in the top 10 The study has important economic im-
ing. Developed countries can aid these efforts by sociation between education and economic growth
enforcing visa rules for certain categories of tem- noted in World Development Report 1980 (see Box
porary immigrants (for example, "exchange visi- 10.4). But the immediate shortages remain and can
tors" to the United States) that require visitors to be met partly through job-related training and more
leave on completion of their studies. imaginative personnel policies.
While a slowing of the brain drain can make it
easier for the public service to retain its staff, it Public service training
will still face competition from the domestic pri-
vate sector. In some Asian countries, where life- Training is widely advocated but often poorly ex-
time employment in one organization is the norm, ecuted. Before 1950 most developing countries had
labor mobility is low. But in several Middle Eastern only limited training facilities. Over the next thirty
countries, many university graduates start their years, aid donors directed large quantities of aid
careers in the public sector and later move to the to training public officials in developing countries
private sector. In such countries as Kenya and and to building training institutions inside and
Nigeria, where graduates are scarce and private outside governments:
businesses have grown rapidly, the public sector Five regional and intergovernmental training
is continually faced with the danger of losing its institutions have been established in Africa, Asia,
senior staff. and Latin Americathree under UN auspicesto
Governments are in constant competition with support public service training.
the private sector for competent staff. Care must The United Nations, the United States gov-
be taken to balance the needs of the public and ernment, and the Ford Foundation are estimated
private sectors. Highly successful government re- to have spent roughly $250 million in support of
cruitment may risk choking off the supply of skills institutions for training in public administration
to the private sector. The long-run solution to this alone during 1951-62.
problem lies in producing more skills of all kinds The industrial market economies are currently
which means increasing the responsiveness of the granting $500-600 million a year for training of
formal educational system to trends in the labor developing country nationals, including the award
market. Recent research confirms the strong as- of roughly 110,000 overseas fellowships.
106
Training schemes financed by the UN Devel- on pre-entry and immediate post-entry courses for
opment Programme in 1981 amounted to more administrative elites, to the neglect of in-service
than $70 million, including the award of 11,500 training and the needs of lower-level staff. In In-
overseas fellowships to developing-country na- dia, Malaysia, Pakistan, and the Philippines, among
tionals. others, new entrants to the senior administrative
World Bank spending on project-related train- ranks go on courses lasting from nine months to
ing increased from $38 million in 1976 to $187 two years. Several francophone countries in Africa
million in 1981. have followed the French national administration
According to a survey by the International As- schools in offering two-year pre-entry training
sociation of Schools and Institutes of Administra- courses for top civil servants.
tion, there were 276 government institutions, uni- The few reliable studies of training in develop-
versity departments, and independent institutes ing countries show that the quality of most public
providing public administration and management service training is low. This is primarily because
training in 91 developing countries in 1980. This it isusually treated as a discrete event, rather than
is four times the number listed in a United Nations as one element in a comprehensive program of
report for 1960. In Malaysia the number of people organizational improvement. Too often, little ef-
attending courses at such institutes increased from fort has been made to adapt training programs
1,000 in 1960 to 9,000 in 1980. For the Indian cen- borrowed from abroad or to generate indigenous
tral government, the corresponding expansion has ones. As a result, most programs are classroom-
been from 1,500 to 7,000. In the Philippines nearly based and tend to teach the skills that trainers
20,000 officials participated in a special program know rather than building upon the knowledge
for middle-ranking administrators in the five years that trainees already possess. Many programs rely
after it was inaugurated in 1972. These are examples on stylized examples rather than on trying to solve
of a general trend in all developing countries. real problems. And few offer rotational assign-
ments that are tied to a training and career de-
Coverage and gaps velopment plan, and that attempt to broaden civil
servants' outlooks and help them develop their
Despite its growth, training still receives less em- skills in different jobs and organizations.
phasis in developing countries than in public sec-
tor organizations in industrialized countries, or Policy improvements
private enterprises, or multinational corporations.
The US and Japanese governments, for instance, The weaknesses of training can be tackled in four
offer training opportunities to nearly a quarter of interrelated ways:
their employees every year. All IBM managers get The use of training policies and plans. A re-
at least forty hours of mandatory training a year, cent review of training in developing countries
and Siemens and Unilever annually spend the shows that most have no policies and plans for
equivalent of 5 percent of their payrolls on train- public service training, although some (such as
ing. By contrast, most developing countries spend India, Kenya, Malaysia, Philippines, and Zim-
much less (the Indian central government spent babwe) have made notable attempts to fill this
roughly 0.5 percent in 1968). In Malaysia, which vacuum. Plans should specify the nature and pur-
puts greater emphasis on training than do most pose of training for different categories of person-
developing countries, only 4 percent of federal and nel, and should be based on a systematic assess-
state employees received some form of training in ment of training needs and the effectiveness of
1978. In India only one senior civil servant in five past programs. The experience of the World Bank's
is likely to have some in-service training during Economic Development Institute in Niger, Tuni-
his entire career; in Turkey only one in seven has sia, and other countries shows how important it
received any instruction in public administration. is to judge training by its relevance to the actual
Local government officials typically fare even worse. problems facing the public service. Field-testing
Though they account for 20 to 30 percent of all can therefore be valuable: one such test, con-
government employees, only 10 to 15 percent of ducted in Zambia in 1974 by the African Center
total government budget for training is allocated for Administrative Training and Research for De-
to them. velopment, showed that the training curriculum
A dominant characteristic of public service train- designed by the headquarters staff dealt with less
ing in most developing countries is its concentration than 30 percent of the subjects in which rural proj-
107
ect managers felt they needed instruction. To en- leadership. Many of these qualities are embodied
sure a more accurate assessment of training needs, in INTAN in Malaysia (see Box 10.5).
it can be helpful to put training budgets under the Stronger links between training and career de-
control of line managers. velopment. If training improves the skills required
Better use of existing training facilities. Some for career advancement, trainees will be encour-
coursespre-entry programs for top civil ser- aged to take it seriously. But if promotion policies
vants, for example can be shortened to make room and staff reports make no reference to training,
for training staff in other grades and to give high public servants will know that it is dispensable.
fliers better in-service instruction. More use could Governments also need to pay attention to the
also be made of institutions such as universities career prospects of the trainers themselves. In most
and management training centers. The latter have countries, civil service training bodies (unlike their
themselves some lessons to offer in getting the military counterparts) lack status, and instructors
most out of their facilities. The best of themsuch have few opportunities for career development.
as the Indian Institute of Management, Ahmeda- There are several ways of correcting this bias. A
bad (JIMA), the Asian Institute of Management in senior civil servant of recognized merit can be
the Philippines (AIM), Malaysia's National Insti- brought in to head the training organization.
tute of Public Administration (INTAN), and the Overseas assignments and consultancy opportu-
Central American Institute of Business Adminis- nities can be given to successful instructors. After
tration (INCAE) in Nicaraguahave several fea- a period in training institutions, staff can be given
tures in common. They enjoy autonomy in plan- regular civil service jobs, which would bring them
ning and implementing their own strategies; they more closely in touch with operational work and
have integrated their training with research and stimulate new ideas for training.
consultancy, so helping to forge close links with More international cooperation on training.
their clients; and they have benefited from stable Regional institutes and international agencies can
108
Box 10.6 Improving the relevance of training
In their efforts to improve the relevance programs in Niger and Tunisia have en- munications corporation far exceeded its
of training, instructors are making increas- couraged participants to assess their own targets for new telephone connections.
ing use of four promising approaches: training needs, trained instructors, and Modular training, also used by the
Action learning, pioneered by the made selective use of outside consultants ILO, has been effective in upgrading su-
National Coal Board in the United King- to provide technical knowledge. pervisoly skills and knowledge quickly.
dom and then used in many public and Performance Improvement Planning The training program consists of thirty-
private organizations throughout the (PIP), favored by the ILO and the UN, four modules covering various aspects of
world. Managers work individually or in has been applied to public enterprises in management such as finance and cost
teams to solve a practical problem. They Bangladesh, Dominican Republic, Ecua- control, maintenance, purchasing, and
may spend time in a lecture room with dor, Nigeria, Somalia, Sri Lanka, Syria salary and wage administration. Spe-
a tutor or consultant, but there is no (where public enterprises and their su- cialized packages have also been devel-
"trainer" who is teaching "trainees." Ex- pervising ministries participated in the oped for public works and cooperative
periments with action learning have been same exercise), and Zambia. Typically, management. Some of these modules are
made with OECD assistance in Egypt, the program begins with diagnostic now available in fourteen languages. The
with British assistance in India, with the workshops in which senior managers modules allow the users to choose topics
Ford Foundation's support in the Phil- identify problems faced in their organi- that are relevant to their organizations
ippines and Bangladesh, and with USAID zations and devise solutions. Consult- and to incorporate local cases and prob-
involvement in a number of countries ants and management specialists play lems into the prepackaged materials. The
including Ghana, Jamaica, and Tanza- only a catalytic role, Instead of passively effectiveness of modular training can be
nia. Initial results have been most en- attending lectures, participants collec- enhanced if trainees, after trying to im-
couraging. tively set targets and prepare plans for plement what they have learned, are
Integrated Training Programs, de- pursuing them. Follow-up action is spe- brought back to the training institution
veloped by the Economic Development cific and immediate, sometimes leading to discuss their results and to work out
Institute of the World Bank. This method to dramatic improvements. One airline their own strategies for further action.
combines short courses with project-re- turned a large loss into a substantial profit
lated technical assistance. Experimental within a year, and a postal and telecom-
help satisfy the need for specialized kinds of train- Improving public sector pay and conditions
ing. The UN Development Administration Divi- Linking incentives more closely to performance
sion and the ILO have concentrated on doing this. Better management of expatriates.
Assistance in training instructors can be valuable, To institute such a program, the status of the per-
especially for small developing countries that may sonnel function in government should be raised and
not be able to afford their own schemes. Aid do- the managerial capacity of the personnel offices
nors can also involve local training institutions with should be strengthened. This requires a sustained
project-related training activities; and they can do effort, as Bangladesh's experience has demonstrated
more in support of research and development in (see Box 10.7).
public management training, especially if it is In a number of countries responsibility for per-
adapted to the needs of particular countries (see sonnel matters is widely diffused. In such cases it
Box 10.6). is difficult to talk of a single civil service; almost
every ministry has its own personnel department
Personnel policies and management and policies for staff recruitment, promotion, and
training. Although some governments have created
In most governments, personnel departments play centralized personnel agencies, much more can be
a relatively passive (sometimes even negative) role, done to streamline their operations and give them
administering an ingrained system of rules rather the status, resources, and authority they need to be
than developing policies for improving public sec- effective. At the local government level, improve-
tor management. In addition to planning and ments in personnel management often require either
overseeing public service training, a more positive horizontal integration of personnel systems with other
approach would include: local authorities or vertical integration with the na-
Building effective career-development systems tional government structure.
109
Box 10.7 Personnel reform in Bangladesh: persistence pays
On gaining independence in 1971, Ban- their service during the war of liberation. The government has introduced other
gladesh faced the task of creating a na- The recommendations of a National Pay reforms over the past five years. It has
tional administration out of parts of the commission were also largely over- taken several steps to slow the growth
Civil Service of Pakistan (CSP) and the looked. Of the nearly 2,000 pay scales in of the public service by a freeze on hiring
former provincial East Pakistan Civil existence, only those of the lower grades for certain jobs, delaying appointments,
Service (EPCS). In March 1972 an Ad- were rationalized. and reducing the number of reserved po-
ministrative and Services Reorganization In 1976 a new government set up the sitions. A National Training Council
Committee was appointed, with broad Pay and Services Commission (PSC). Its (NTC) is now responsible for formulat-
terms of reference. After a year's work recommendations, though mostly ac- ing training policies and plans and for
the Committee proposed the establish- cepted by the government, were disliked monitoring overall progress. A Training
ment of a unified grading structure, with by public employees: frequent strikes and and Career Planning unit has been set
a number of pay scales matching differ- demonstrations nearly paralyzed the up in the Establishment Division, to serve
ent levels of qualifications, skills, and re- administration. This time, however, the as the secretariat to the NTC and to en-
sponsibilities. The Committee also rec- government persisted. After protracted sure close links between training and ap-
ommended developing a personnel discussions the PSC's main proposals pointments. Almost 40 percent of Class
management system based on merit, long- were gradually put into effect. The pay I officers and about 20 percent of super-
term career planning, a general training structure was transformed into twenty- visory and support staff are expected to
policy, and coordination of institution- one grades and scales of pay, and re- be trained over the next five years. A
alized training. mains in place today. The government Management Services Wing is expected
For political reasons, the report was also set up a Senior Policy Pool to try to to provide guidance on organizational and
largely ignored. During 1971-76 the gov- equalize the status of former CSP and procedural reforms and a Personnel
ernment recruited heavily. People were EPCS officers. A unified career service Management Information System is being
put in jobs with scant regard to their called the Bangladesh Civil Service was established to help ensure promotion
aptitude or skills, often as a reward for created in 1980. based on merit.
Strengthening of management and policy analysis up systems for analyzing personnel-related data, and
capabilities of personnel offices requires competent for making comparisons across departments and or-
specialists. Although training of existing staff can ganizations. Such systems are essential for carrying
help, improving the status and career prospects of out manpower planning for the public sector and
personnel specialists is needed. In addition, admin- for assessing staffing and training needs more ac-
istrators of line agencies can usefully be seconded curately.
to personnel offices to expand their awareness and
commitment to personnel policies, as well as to keep Career development
the personnel office in close touch with client de-
partments. Such exchanges are likely to generate an Motivation and training will both be helped if public
increased demand for better personnel management servants have a clear idea of their career paths and
from the line managers responsible for implement- of how promotion depends on achievement. For
ing personnel policies. general administration, many developing countries
The installation of efficient information systems have adopted the British or French models of a
is also badly needed. In many countries personnel career civil service recruited by competitive exami-
records are maintained manually, are updated in- nation, divided horizontally into classes, and gen-
frequently, and are too cumbersome for the aggre- erally closed to experienced outsiders. More open
gate analysis needed for formulating policies, de- and diversified systems based on American practice
termining staffing and training requirements, and are usually to be found in Latin America. About
monitoring policy implementation. As discussed in half the developing countries have established sep-
Chapter 7, recent advances in microcomputers pro- arate career paths for specialists, most commonly
vide new and relatively cheap opportunities for in- for accountants and tax administrators. A system
stalling systems for quick and accurate information that allows staff to move between the public and
storage, retrieval, and processing. Most developed private sectors has obvious advantages, since it en-
countries have computerized personnel information courages new ideas and firsthand experience of
systems and several developing countries are setting managerial techniques.
110
Frequent shuffling of civil servants can be harm- civil service once they have reached a certain grade.
ful, however. In more than a third of the developing Countries such as Jordan have experienced a flight
countries, principal economic decisionmakersthe of skilled civil servants to the local private sector
secretary of finance, national planning director, and and to nearby oil-producing states. The same thing
central bank govemorhave each been changed three has happened in Turkey, where salaries for new
or more times during the past five years. This prob- university graduates are about two and a half times
lem is not limited to senior staff: in one developing higher in the private sector, and even higher for
country, the commercial, technical, financial, and many experienced professional and technical staff.
administrative managers of the national railways were By contrast, qualified public servants in some large
changed four to six times each during a three-year Latin American countries, such as Brazil and Mex-
period. In another country, the top staff in a pop- ico, are relatively well paid, as evidenced by the
ulation field project were changed at least three times difficulties faced by international organizations in
in five years. recruiting staff from these countries.
Rapid and unplanned promotions are also a major Apart from pay, individuals value government
problem. Some governments have promoted young service for its other benefitssuch as status, inter-
and inexperienced civil servants into the upper est, and security of tenure. For this reason, complete
grades, primarily to fill new posts arising from the equality between public and private sector pay is
growth of the public service, or to take over from generally neither necessary nor desirable. Singapore
expatriates. Changes of government can also cause and Malaysia, where public sector salaries are reg-
disruptive growth: in Turkey, for example, the num- ularly adjusted for changes in the cost of living, are
ber of senior civil servants increased by 146 percent two of the few developing countries that appear to
between 1976 and 1978, a period of frequent political have maintained parity. In Nigeria, the restructuring
changes, compared with an increase of 23 percent of public sector salaries by the Udoji Commission
for lower grades. in 1975 resulted in virtual parity, but the private
Japan and France have dealt with promotion bot- sector quickly restored its competitive pull for skills
tlenecks by moving some civil servants in their fifties in short supply. For most governments it would be
out of administrative jobs to staff or advisory posts. prohibitively expensive to match private sector sal-
Last year China decided to ease bottlenecks by in- aries across the board. To do so would simply push
troducing a standard retirement agesixty for de- up private sector wages and would also widen the
partment directors and vice-ministers, sixty-five for gap between public officials and the mass of the
ministers. Such measures are particularly relevant population. Average government pay in many de-
when there are no serious shortages of skilled peo- veloping countries ranges from four to ten times per
ple, and young professionals need to feel that their capita income; for OECD countries, the correspond-
paths are not blocked for years on end. ing ratio is 1.8.
Nor are public servants short of nonsalary "perks."
Salaries and conditions Most governments provide their senior staff with
substantial benefits such as housing, cars, director-
To join the public service and stay there, staff need ship fees, medical care, and education. This en-
salary and nonsalary benefits that compete with al- courages civil servants to seek new benefits while
ternative job opportunities. This is particularly im- protecting those they already have, often with dam-
portant for those with unusual skills: public service aging results. In one African country, for example,
compensation, though adequateand sometimes the daily travel allowance is so generous that mid-
excessivefor junior staff, too often fails to attract dle- and high-ranking officials spend a third or more
and retain senior professionals. of each year traveling abroad, leaving the business
The reward of any job goes far beyond the of running the government to their subordinates.
straightforward question of salaries. They are rel- In an Asian country an overnight allowance was
atively easy to compare, however, and the scat- given to agricultural extension agents if their work
tered evidence from developing countries indi- took them more than twenty-five kilometers from
cates that, for senior staff, government pay is their duty station: consequently, the agents were
usually lower than in the private modern sector. rarely seen by farmers living within the twenty-five-
Moreover, many governments, for political and kilometer radius.
equity reasons, have raised salaries of junior staff Some governments also try to retain important
more quickly than those of top civil servants, thus officials by giving them discretionary allowances and
reducing the incentive for people to stay in the benefits. In theory, this gives added flexibility for
111
rewarding high performers; in practice, it creates lenge. Finally, productivity and job satisfaction can
tensions between superiors and subordinates and often be improved if employees are involved in de-
can easily degenerate into corruption. Discretionary signing the organization of their workas demon-
benefits are best given to whole groups whose skills strated by recent field experiments in India, Nor-
are in short supplystatisticians or computer spe- way, and Tanzania.
cialists, for example. To ensure that an imbalance
does not arise between public and private sector Better management of expatriates
salaries, regular (and preferably internal) reviews of
public servants' pay should be conducted. Such re- According to a recent World Bank study, there are
views should take into account nonpecuniary ben- at least 80,000 expatriates (including teachers) work-
efits resulting from public employment and should ing for public agencies under official aid programs
eliminate or modify perks that produce perverse in sub-Saharan Africa alone. More than half the
results. estimated $7 biffion to $8 billion spent annually by
donors on technical assistance goes to finance ex-
Linking incentives with performance patriate personnel, with costs being shared with
host governments. At one extreme, volunteers
While greater rewards do not automatically produce who constitute about one in ten of the technical
better performance, it is helpful to establish some assistance staff financed under Development As-
link between the two. This is seldom easy to do sistance Committee (DAC) bilateral aidcost about
because public bureaucracies are expected to serve $10,000 a year, perhaps less. At the other extreme,
social and political objectives that are inherently hard the cost of management assistance supplied by North
to quantify. In addition, informal social relations American or European consulting firms can run as
between managers and their subordinates are often high as $15,000 to $16,000 per man-month.
so strong that, even where "output" can be meas- Donors and recipients tend to approach tech-
ured, supervisors are reluctant to jeopardize loyal- nical assistance from different standpoints. Do-
ties and friendships. nors are naturally inclined to push such assistance
These considerations notwithstanding, several as a ready solution to what they see as adminis-
developing countries (including India, Kenya, and trative shortcomings in the institutions to which
the Philippines) are starting to devise appraisal sys- they are lending. Recipient governments may be
tems that link promotion and pay increases to in- less convinced of the need for outside help; in-
dividual performance. This requires, first, strength- deed, local officials often see the recruitment of
ening the capacity of personnel offices to work out expatriates as a threat to their own positions and
such systems. Second, red tape can often be re- promotion prospects. The proferred assistance may
duced. To take an extreme example, a single pro- nevertheless be grudgingly accepted for fear that
motion decision in one developing country was found rejection may lead to the aid program being
to require fifty-four operations, twenty reviews or reduced.
inspections, and seventy-three movements of doc- This conflict of interest can then be com-
uments from one place to another. For an employee pounded. Local staff may not be consulted on ex-
in a provincial office, an additional forty-one steps actly what kind of assistance they need. Salary
were required. Third and most important, promo- differentials and differences in lifestyle can cause
tion on merit requires the backing of political and frictions. Personal qualities highly prized in the
bureaucratic leaders and the public at large. donor country may be unsuitable in a different
Even with such advantages, performance ap- culture. Experts chosen for their technical skills
praisal systems are difficult to implement objec- are often inept at training, and recipient govern-
tively. In view of this, developing countries should ments anyhow usually prefer to use them as doers
install them only gradually, while laying stress on rather than as instructors.
nonmaterial rewards for good performance. In some For all these reasons, better management of ex-
countries where there is strong loyalty among em- patriates should be a priority both for donor agen-
ployers and employees, staff may require fewer pe- cies and for recipient governments. Recipients need
cuniary incentives. Research shows that rewarding to establish clear priorities, specify the objectives
performance with enhanced prestige or considerate to be met by expatriates, and adopt a more de-
supervisory behavior is often an effective way of termined approach to managing and coordinating
motivating staff. The same is true of job enlarge- technical assistance staff. Donors need to accept a
mentgiving people greater responsibility and chal- more equal partnership with recipients, which
112
Box 10.8 Volunteer executive services: a new form of technical cooperation
The British Executive Service Overseas unteers on its roster. It accepts 500 to 600 client writes a report on their perfor-
(BESO) has more than 1,000 volunteers assignments a year at an all-inclusive cost mance. If IESC thinks the volunteer's
on its register, and has completed more of about $6,000 per man-month. work was unsatisfactory, he is replaced
than 600 assignments in more than sixty Volunteers are not paid salaries. Travel at no additional cost to the client.
countries since it was set up in 1972. costs are usually paid by the donor To judge by the continued demand for
Average cost per assignment, exclusive agency, and living expenses by the client, their services, the three organizations
of local costs borne by the host country, who also accepts responsibility for office meet a real need and are a valuable com-
was around $4,000 in 1982. The Cana- facilities and translation services. As- plement to the more orthodox forms of
dian Executive Service Overseas has nine signments, limited to a maximum of six technical assistance. An evaluation of
regional offices in Canada and thirty- months (three months for the IESC), are BESO's activities carried out in 1979
seven representatives overseas. It can call wide-ranging, with a particular empha- showed that clients particularly appre-
on 750 volunteers, and was involved in sis on management, marketing, and the ciated the depth of experience and tech-
330 projects in sixty-three countries in transfer of technology. The client speci- nical competence that mature executives
1981-82 at an average cost of $6,000 per fies the job to be done, and thereafter could provide. Since they are neither
project, again excluding certain local costs. much depends on the personal relation- being paid salaries nor occupying any
The United States International Execu- ships between volunteer and client. IESC position in a hierarchy, it is easier for
tive Service Corps (IESC) has twenty-four volunteers write a report to their client them to establish mutual trust with their
offices around the world and 8,000 vol- at the end of their assignment, and the local counterparts.
means working through a country's institutions developing countries can already offer consider-
and procedures rather than bypassing them. The able consulting expertise. A recent study of man-
Bank's experience indicates that when the "psy- agement consulting in India, for example, lists eight
chological distance" between expatriates and their large private consultancies that have been set up
local counterparts is minimized, the value of tech- by industrial firms and chartered accountants, be-
nical assistance is much enhanced. tween them employing more than 750 profession-
The selection of technical staff is also of great als. In addition, India has numerous small firms
importance. For donors, the poor quality of some and individual consultants, four publicly financed
of their staff can often be attributed to their not management institutes, the business faculties of
having tenure. Development agencies tend to re- various universities, and numerous public sector
cruit the majority of their field staff on fixed-term industrial and technical consulting bodies that pro-
contracts, and dispense with them first if budgets vide advisory services to small businesses.
have to be cut. Attempts to establish a permanent
corps of specialists for service in developing coun- A concluding note: the cultural dimension
tries have rarely been successful, because staff are
not offered promising career prospects. France and It is easy to prescribe what is needed for successful
Sweden have instead encouraged the secondment management of the public service. It is much less
of staff from regular public and private employ- easy to adapt these requirements to the cultural
ment for service overseas. Canada, the United and political environment of individual countries.
Kingdom, and the United States have formed pri- Unless management techniques are designed to
vate organizations of retired executives to carry take explicit account of these cultural influences,
out short-term consultancy work in developing however, they will fall far short of their potential.
countries (see Box 10.8). A similar scheme has Although practices evolved in developed countries
recently been launched in the Federal Republic of can be used in many developing countries, they
Germany. need to be tailored to local realities. And it is just
While expatriates often have much to contrib- as important to identify and develop indigenous
ute, local consultants should not be neglected. Some management principles.
donor agencies, such as the UNDP and the World Whenever an institution is considering changes
Bank, have declared their preference for national in its management practices, its internal balance
rather than expatriate consultants when both are of power is inevitably threatened. Those who are
equally competent. Some of the more advanced least likely to benefit from a change may agree to
113
it in principle, but then offer covert resistance dur- search) that ran counter to local values or political
ing implementation. Opposition is usually greater interests, were either rejected outright or failed
the more alien an idea seems and the more it eventually. Similarly, in Nigeria, the Udoji Com-
appears to have been imported indiscriminately. mission's recommendation to install management-
Once installed, however, success or failure in im- by-objectives throughout the government has never
plementing the practice largely depends on its been realized.
suitability to the local cultural environment. Such experiences have reinforced the view that
Some new techniques (for example, quantitative "qualitative" management practices are harder to
information-based scheduling, accounting, bud- transfer than those that are more "quantitative,"
geting, and inventory control) have been intro- though the latter also need to be adapted to local
duced and implemented successfully in many de- conditions. Japan's success in using American-based
veloping countries. But those that rest heavily on quantitative techniques, while developing its own
assumptions about the behavior of individuals (for qualitative management approach, is the best ex-
example, management-by-objectives, organization ample of how discrimination can bring consider-
development, and "matrix" management) have able rewards. Such a course calls for initiating or
either failed or been implemented only after con- expanding programs to adapt foreign techniques
siderable adaptation. A study of administrative and to identify and develop promising indigenous
change in one Asian country concluded that at- practices, which can be undertaken by univer-
tempts to introduce Western management prac- sities, management training institutes, and special
tices (such as position classification, performance units within government.
budgeting, participatory learning, and team re-
114
11 Reorienting government
Many of the management problems identified in educational levels are low, poverty severe, and
this Report can be corrected only by changing the institutional experience limited, the task will also
way that central bureaucracies are organized and need sustained external assistance, although the
managed. Recognizing this, developing countries main contribution will always be a national one.
have made numerous attempts to reform their bu- Current institutional problems should not ob-
reaucracies in recent years. Few have succeeded scure the notable progress made by developing
in improving public sector efficiency, partly be- countries. African countries have within a gener-
cause of the unfavorable political climate and partly ation established the entire framework of national
because of the institutions that many countries institutions and staffed those institutions with their
inherited at independence. This chapter reviews own citizens. Some Latin American countries,
the lessons from their experience and emphasizes whose institutional structures long served pre-
the need for reforms to change both official pro- dominantly rural oligarchies, have expanded their
cedures and administrative structures. It also sug- administrations to cope with the demands of rapid
gests that governments should target administra- urban and industrial growth. East Asia has de-
tive reforms selectively, as well as keep up the veloped sophisticated economies along with a more
pressure for general improvements. It is usually modest, but still impressive, growth in govern-
more fruitful to concentrate political and admin- ment capabilities.
istrative effort on radical change in a few critical Nevertheless, many countries have equated in-
areas than to spread it ineffectually by attempting stitutional development with a proliferation of bu-
comprehensive reforms. reaucracy, particularly in the public sector. How-
ever understandable this process was in historical
The historical and political context circumstances, it now needs reexamining. The cost
of developing the public sector has been consid-
Developing strong and efficient public institutions erable; the results often disappointing. Inside and
requires considerable investment in human skills, outside governments, people are increasingly aware
and a readiness to experiment with organizational that recent strategies of institutional moderniza-
structures to find those that best fit the societies tion have not delivered on their promises.
they are intended to serve. It took today's indus- The alternatives are not simple, however. Many
trialized countries more than a century to develop countries brought some of their key industries into
reasonably effective institutions (see Box 11.1). public ownership to assert national control; change
Many developing countries are attempting to com- in their status or their mode of operation is often
press that process into a few decades. It is not politically sensitive. Economic efficiency therefore
surprising that disappointments and political strains has to be balanced against considerations of prac-
have often occurred. tical politics, national sovereignty, and social poi-
Developing countries also have to contend with icy. Similarly, appointment-by-merit in the public
unprecedentedly rapid population growth and service is a principle that might have to be mod-
technical change, a more integrated and compet- ified to take account of a country's ethnic or reli-
itive world economy (which multiplies the con- gious tensions. In many cases, therefore, "ineffi-
sequences of mistakes as well as of success), and ciency" is less the fault of bureaucrats than the
high political and economic expectations among consequence of demandslegitimate or other-
their peoples. Creating the managerial skills and wisethat the political system places on the bu-
institutions to cope with these demands is an ex- reaucracy's limited capacities.
ceptional challenge. In countries where general That said, there are powerful groups that favor
115
Box 11.1 Institutional development in industrialized countries
In the industrialized world, little more across the countryand did so, in part tury onward, it was also active in edu-
than a century separates the tolerably ef- by creating state enterprises that for a cating the labor force and in influencing
fective bureaucracies of today from time dominated such industries as ship- working conditions through child labor
administrations in which corruption and building, railroads, mining, and arma- laws and safety standards. The other side
incompetence were the rule rather than ments. In the United States the basis of of the coin, of course, was the way the
the exception. No country made prog- modern administration was laid in the state used its power, especially in the
ress in the same way, but certain features nineteenth century and then expanded early stages of industrialization, to sup-
stand out. First, most of the large leaps during the 1930s as part of the New Deal press trade unions.
in administrative reform (which were political response to the Depression. The growth of the public sector has
often followed by periods of consolida- Second, administrative development produced its own problems: unequal ac-
tion) enjoyed strong political sponsor- also had immediately practical concerns. cess to services provided by the state,
ship. In Britain the Northcote-Trevelyan It was prompted by the growth of na- rising administrative costs (and often di-
reforms, which established the essence tional economies and the rapid devel- minishing effectiveness), and the growth
of a merit-based, nonpolitical bureau- opment of markets, just as it was in de- of self-serving bureaucracies allied to po-
cracy, were part of the wide-ranging po- veloping countries. The state undertook litical elites. These weaknesses are par-
litical changes between 1832 and 1884 that the essential tasks for economic devel- alleled in some respects in the private
consolidated middle-class ascendancy opmentorganizing infrastructure; sector, as large corporations are seen by
over the aristocracy. In Japan the leaders standardizing currencies, weights, and many to be less adaptable in the face of
of the Meiji Restoration after 1868 wished measures; strengthening commercial laws; changing technological and competitive
to build a modernizing administration and so on. From the late nineteenth cen- conditions.
bureaucratic growth and oppose changes that would goalsa commitment that is difficult to sustain,
improve efficiency. Where the public sector pro- particularly since it must contend with bureau-
vides a large proportion of modern employment cratic inertia and resistance. But in many countries
(as it does in many developing countries), change this combination of selective radicalism and incre-
may be opposed whenever it seems to threaten mental change will achieve more than plunging
employees' livelihoods. Overstaffed bureaucracies into wholesale reform of the entire administration,
and cumbersome procedures often have even more and can gradually build support for change by
powerful beneficiariesthose who control the flow showing results.
of patronage or who profit from the corruption Persistence is fundamental to bureaucratic re-
that comes from administrative restrictions (see form. This requires a permanent capacitythough
Box 11.2). Where institutional development out- not necessarily a single agencyto provide analy-
side the state is limited, as in much of Africa, or sis and operational support for reforms. If that
where political organizations that could oppose capacity exists, governments will be better placed
and expose inefficiencies are suppressed (as they to seize the occasional opportunity to make fun-
often are), it is harder than ever to improve gov- damental reforms because the preparatory and
ernment performance. technical work will have been done. The experi-
ence of developing countries indicates that public
Managing administrative change service commissions, central personnel agencies,
and the like are inappropriate overseers of admin-
Previous attempts at bureaucratic reform have istrative reform, being too limited in scope and
sometimes succeeded in establishing new admin- preoccupied with detail. Institutes of public
istrative structures but have often failed ta im- administration tend to be too remote from power,
prove efficiency or change bureaucratic behavior though they can help to diagnose the kind of re-
(see Box 11.3). This suggests that governments form that is needed. In several smaller developing
need to choose their candidates for reform care- countries, technical offices concerned with orga-
fully and then concentrate their efforts on them. nization and methods or management services have
Far from being mere tinkering, such an approach been useful instruments of reform, but are rarely
should be seen as the best way of achieving a long- able to deal with the larger structural and per-
term strategy for institutional development. It re- formance issues.
quires a political commitment to those strategic Experience has also shown how persistence
116
can pay off. Japan's Administrative Management already overextended bureaucracy; second, insti-
Agency has a formidable reputation for keeping tuting reforms that make the bureaucracy more
government staff numbers firmly under control, responsive, both to political authority and to the
and for requiring ministries to carry through their public at large.
own reorganizations. In Brazil the Ministry of De-
bureaucratization has simplified and reduced Economizing on management
paperwork and red tape, by starting at the point
where the bureaucracy encounters the public, and Countries have tried to reduce the burden on pub-
then working back to make administrative struc- lic sector managers in three main ways: rational-
tures suit the requirements of their job. Thailand izing economic management, improving central
has a systematic and effective program of reforms coordination, and decentralizing government
(see Box 11.4). None of these countries tries to activities.
deal with all administrative problems and none of
them would claim complete success. Instead, they Rationalizing economic management
concentrate on a limited range of objectives and
persist with them. It is probably wise, as the Thai Chapter 5 suggested that many countries could
experience illustrates, to link reforms to the budg- improve their economic performance if govern-
etary process so that leaders can impose their ments intervened less in markets. The managerial
priorities on the administration and redirect its benefits would also be considerable, since officials
activities. would have fewer economic instruments to ad-
In many developing countries it makes sense to minister, and less occasion to devise corrective
base reforms on two broad principles: first, re- bureaucratic mechanisms necessitated by inappro-
ducing the management intensity of development, priate controls. By simplifying agricultural pro-
rather than adding new managerial burdens to an ducer prices, for example, governments would re-
117
Box 11.3 Experiences with comprehensive administrative reform
Most developing countries that have at- Ghana, Indonesia, Republic of Korea, ence and the end of the 1960s, twenty-
tempted comprehensive administrative Mali, Pakistan, Peru, Philippines, and eight major reports running to 3,621 pages
reform have done so primarily in re- Thailand. were produced by administrative reform
sponse to political demands rather than Most of the major reform effortsin committees with a collective member-
on the initiative of the bureaucracy itself. both developed and developing coun- ship of 146. None achieved the main ob-
At independence, governments were trieshave had only limited impact. jectives of reform. For some African
concerned with replacing expatriate pub- Sometimes the political commitment countriesKenya and Nigeria, for ex-
lic employees. They also wanted to gear withered as governments fell or achieved amplethe most important practical
the public service to promoting their am- their political goals in other ways. Par- Outcome of reform initiatives was a sub-
bitious programs of economic develop- ticularly in Latin America, reforms that stantial increase in the pay and perquis-
ment. The Indian reform exercises in the were linked to planning ambitions lan- ites of the bureaucracy. The pay propos-
1950s and 1960s, for example, were guished as planning itself became largely als of Nigeria's Udoji Commission (1974)
prompted by the view that a more re- irrelevant to government decisionmak- were so radical as to have immediate in-
sponsive and decentralized administra- ing. In the numerous instances where flationary and political effects on society
tion was needed to spearhead planning. bureaucrats were responsible for imple- at large, while its other recommenda-
Kenya's Ndegwa Commission in the late menting proposed reforms, they chose tions were largely ignored.
1960s focused particularly on Africaniz- those that enhanced their status and ig- To overcome these obstacles, reform
ing the civil service and its role vis-a-vis nored or emasculated the rest. Examples requires the sustained support of politi-
the burgeoning private economy. In Latin from developed countries of limited fol- cal leaders. Without that, reforms will be
America some postwar reforms have been low-through after official enquiries in- undermined by those most directly af-
closely tied to changes in economic man- cluded the Fulton Committee (United fectedcivil servants themselvesor be
agement. Bolivia, Brazil, and Honduras, Kingdom), the Glassco Commission ensnared by the legal and constitutional
for example, linked their administrative (Canada), and the Coombs Commission framework of public service laws (a par-
reform programs in the 1960s and 1970s (Australia). India's experience has been ticular problem in Latin America and the
to national economic plans and planning similiar. Over thirty years, a succession Middle East). Political leaders intent on
agencies. The political impetus for radi- of committees, reports, and recommen- reform should therefore concentrate on
cal change was sometimes given added dations have tended to produce changes a few priorities at a time, pursuing these
thrust by new (and often military) gov- in detail while leaving broad structures to completion before attempting other
ernments in such countries as Chile, intact. In Pakistan between independ- changes.
duce the need for managing subsidy programs for Facing a crisis in 1979, the Turkish government
credit and fertilizer. The feasibility of such ad- set up four coordinating committees in the prime
justments depends not only on economic and po- minister's office to implement the country's ad-
litical choices but also on effective institutions to justment program. One committee dealt with trade
design and evaluate policies. regimes and economic aid; a second, with mon-
etary and credit policiesespecially pricing and
Improving coordination exchange rate policies; a third reviewed foreign
investment applications; and the fourth handled
All governments need to coordinate the activities investment policies and export incentives. In the
of their different departments to avoid duplication Ivory Coast an interministerial committee was set
and confusion. But to save rather than waste man- up in 1981 to monitor the economic recovery pro-
agerial resources, coordination needs to take place gram supported by a World Bank structural ad-
at the right levelto provide incentives for offi- justment loan and to oversee the budget. Jamaica
cials and agencies to cooperate and to ensure that has given high priority to concerting action among
it generates useful information for decisionmak- the ministries and public agencies responsible for
ing. This much has become clear as a result of energy policy. In other developing countries (for
current stabilization and adjustment programs in example, Sudan, Thailand, and Uganda), senior
many countries. Governments found that they committees have concentrated on establishing
lacked the means of monitoring foreign debt and priorities for the public investment program to take
of controlling budgets. Although they have re- account of new financial stringencies.
sponded in different ways, all have been con- Although such coordinating committees have
cerned with coordinating their policy changes. been valuable in emergencies, they are rarely a
118
long-term solution to management problems. All ordination can degenerate into mere "bureau-
too often, top-level "coordination" is merely part shuffling": the recent tendency in some Middle
of the pathology of overcentralization. Decisions Eastern countries to put groups of ministries under
are routinely referred up the hierarchy, and min- a number of vice-prime ministries has not notice-
isters are absurdly overstretched "coordinating" ably improved their performance, and has some-
everything in their portfolios or negotiating over times produced further conflicts and coordination
details with their cabinet colleagues. Ecuador, for difficulties. The failure of planning (discussed in
instance, was recently estimated to have almost Chapter 7) is partly a consequence of expecting
200 coordinating boards, committees, and com- planning agencies to act as coordinating "over-
missions. The minister of finance was a member lords" of economic policy even though crucial in-
of forty-five of these bodies and was required per- formation, political influence, and operational re-
sonally to attend meetings of twelve of them. Co- sponsibilities remained with ministries that had
119
nothing to gain and much to lose from coopera- executing development projects might be given
lion. Such a coordinating role is possible only if to provincial officers of central government (de-
planning agencies influence budget allocations. concentration) to work with local government (de-
In the field, the lessons from coordination ef- volution) and with community groups (delegation).
forts reviewed in Chapter 9 are clear and widely The most common form of decentralization in
applicable. Where effective coordination cannot be developing countries has been deconcentration. In
assured, the need for it may be reduced by sim- Indonesia, for example, the centrally funded pro-
plifying development programs and shedding or vincial and village development programs enable
postponing their least manageable components. provincial and district planning units to plan and
Otherwise, collaboration may be improved by joint execute schemes for increasing rural productivity
project planning and the negotiation of contracts and incomes. In Thailand funds are now provided
between agencies, and by strengthening financial to tambon councils to identify and manage small
control so that funds are released only when agen- projects. Pakistan has created markaz councils
cies deliver on previous commitments. In some under the supervision of project managerswhich
countriesfor example, India, Kenya, and Malay- coordinate the credit, marketing, and other de-
siasenior district officials, such as district com- velopment' activities of central government with
missioners and collectors, have proved effective those of local agricultural cooperatives and private
coordinators. They enjoy considerable authority businesses. Bangladesh is stregthening its thana-
within the government and the local community, level administrators to undertake local develop-
yet do not threaten each ministry's control of its ment activities. In Tunisia each of the country's
plans and budgets. provincial governments receives a block grant for
If government feels a strong need to coordinate, spending on locally generated projects under the
it could well be a sign that other things in its national rural development program (see Box 11.5).
structure and activities have gone wrong. Perhaps Few countries "deconcentrated" as radically as
it is trying to do too much. Its decisions may have Tanzania didwith mixed resultsin the 1970s,
been inefficiently overcentralized. Departments may when many ministries' functions and staff were
be jealously guarding their "territory." Or officials transferred from Dar es Salaam to provincial centers.
may not be responding to the requirements of Delegation has also been used extensively in
policy and of their clients. Whatever the reason, developing countriesespecially by creating state-
governments have to decide whether elaborate owned enterprises (SOEs). And governments have
coordination will improve their effectiveness or resorted to special agencies to tackle specific prob-
simply postpone other kinds of improvements in, lems, though this may do little more than en-
for example, cabinet decisionmaking, policy analy- courage bureaucratic proliferation. Mexico is a
sis, and budgetary control. striking example: apart from having more than 600
SOEs, it has approximately 100 "decentralized or-
Decentralizing government activities ganizations." Governed by federal administrative
laws, they provide social services such as pen-
The need for coordination is reduced when gov- sions, health, education, and research. Mexico also
ernment managers transfer those functions they has some 800 independent councils and commis-
cannot manage efficiently to other levels of gov- sions dealing with issues from the development
ernment, public enterprises, local communities, or of arid areas to electricity rate-setting to the pro-
the private sector. Decentralization is convention- motion of tourism. Another characteristic form of
ally defined as one of three things: (a) "deconcen- delegation is the regional development authority.
tration"transferring resources and decisionmak- It is often established to supervise irrigation de-
ing from headquarters to other branches of central velopment, as in much of Asia, or to open up
government; (b) "devolution"to autonomous underdeveloped regionsfor example, the Ama-
units of government such as municipalities and zon basin in Brazil.
local governments; and (c) "delegation"to or- Recent trends have not favored devolution as a
ganizations outside the regular bureaucratic struc- decentralization technique. After independence,
ture, such as public corporations and regional de- Africa's political leaders tended to see local gov-
velopment authorities, or even to nongovernmental ernment as incompetent, profligate, and politically
bodies such as farmer cooperatives, credit asso- divisive, so its functions and revenues were whit-
ciations, and trade unions. In practice, the three tled away. In countries of the francophone ad-
forms are often combined: responsibilities for ministrative tradition, local government was in any
120
Box 11.5 Tunisia's rural development program
Tunisia's Rural Development Program has ule required by the central Ministry of opportunities and local crises. The gen-
been run for almost a decade with mod- Planning, and money can be spent only erally excessive demands on the pro-
est success. It works as follows: each of if it has been approved by the central gram's limited funds have their positive
the twenty gouvernorats (provinces of government. The vetting is not simply a side: gouvernorat officials have been
limited autonomy) receive a block grant, formality: some proposals have been forced to learn how to justify projects on
presently about $1.75 million a year. fhe turned down. the basis of their quality. Through this
generally poorer inland gouvernorats re- Representatives of the technical min- successful pilot program, more money
ceive 53.5 million. The money must be istries in the gouvernorats identify proj- has been made available and experience
spent on locally generated and super- ects, study their feasibility and potential gained for the far-reaching proposals for
vised projects, with those that promote payoff, harmonize them with central decentralization and regional planning
community development and employ- government projects in the region, and which the government is now consid-
ment being favored. All project propos- supervise their implementation. Officials ering.
als must be backed by a detailed sched- can respond quickly and flexibly to local
case part of an administrative hierarchy, with rel- groups has effectively become national policy. In
atively little autonomy. This bias against devolu- China, for example, the Production Responsibility
tion may now be changing. In countries as diverse System combines moves toward private produc-
as Chile, Nigeria, Papua New Guinea, and Sudan, tion with the transfer of authority downward from
governments have started to devolve responsibil- state and commune levels (see Box 5.3). In India
ities to reformed local government institutions. The the dairy cooperatives formed under the national
change may reflect two developments: first, the Operation Flood program are the local agents of
growing desire to find new ways of mobilizing the National Dairy Development Board, but are
local resources; and second, the recognition that elected by, and responsible to, their village mem-
local government employees could be used more bership. In Kenya the self-help movement has used
efficiently than they have been. informal taxation, community development groups,
By itself, however, devolution can do little to and the women's movement to play a significant
compensate for a general shortage of technical and role in secondary and technical education and ru-
administrative skills. If other tiers of government ral health care.
have difficulty obtaining qualified staff, local gov- Despite difficulties in evaluating the evidence
ernment will find it even harder: in developing on decentralization, some lessons can be drawn.
countries, its salaries are typically only half those First, decentralizing has been most common where
paid by central government. Nor can local gov- governments felt reasonably secure. Weak gov-
ernment enjoy genuine autonomy when, as usu- ernments cannot afford to decentralizeexcept in
ally happens, it depends on central grants for the desperation, which rarely worksand weakening
bulk of its budget. The revival of local government governments try to pull control into the center
therefore depends on vigorous action to raise more rather than spread it outward. Second, decentral-
local revenues. Evidence from such countries as ization is probably best seen as an incremental
the Yemen Arab Republic and the Republic of Ko- process of building up the capacity of organiza-
rea suggests that, where local government is tions to assume greater responsibilities. In most
strongly established, it can tap revenue sources countries that have decentralized on any scale,
that escaped the net of the central authorities. access to services has improved for people in pre-
However, property taxeson which local govern- viously neglected communities, the capacity of lo-
ments tend to depend for a large part of their cal administrative and political leadership has in-
revenuesare inherently difficult to administer. creased, and new perspectives and interests have
The central government may be able to help in been introduced into the policymaking process.
this task, as it has done in Thailand, for example. Third, the most successful decentralizing efforts
Decentralizing has also taken the form either of have been carefully designed and uncomplicated
privatization (discussed in Chapter 8) or of in- to administer, have specified clearly the respon-
volving communities in the execution of projects. sibilities of different participants, and have started
In some countries delegation to users and interest on a small scale. Fourth, for decentralization to
121
Box 11.6 Decentralization in a socialist economy: Hungary
Like other socialist states of Asia and Eu- nomic strategy (about 45 percent of in- central bodies, special favors were often
rope, Hungary initially adopted, largely vestment over the past decade was de- bargained for, reducing competitive
unmodified, the system of centralized cided by the central authorities), they pressures.
physical planning practiced in the Soviet were to be implemented chiefly through Between the end of 1972 and 1978, links
Union. By squeezing consumption and the use of economic regulators, such as between domestic and international prices
extracting substantial surpluses from ag- taxes, subsidies, interest rates, and the weakened and the role of prices in eco-
riculture, Hungary quickly raised its rate exchange rate. Prices of industrial and nomic decisions declined. This was partly
of industrial investment. It also made im- (to a lesser extent) agricultural goods in response to urban workers' discontent
pressive social progress, reducing infant were partially liberalized. Enterprises with increasing income differentials, and
mortality and improving educational were given more freedom to decide on partly to try and insulate the Hungarian
standards. wages and investment. Workers were free economy from unfavorable international
The shortcomings of central planning to seek the employment of their choice, changes. As a result, efficiency suffered
became increasingly apparent as indus- and firms to hire the most promising ap- and Hungary did not improve its inter-
trialization advanced and consumers' ex- plicants. Profitability became a more im- national competitiveness. It maintained
pectations rose. Lacking omniscience, the portant performance indicator than GDP growth at an average of almost 6
planners found that their targets for out- physical output, while central allocation percent a year, but largely by relying
put, employment, and investment con- of credit became a key mechanism for heavily on foreign borrowing.
flicted with the availability of resources ensuring that firms' decisions were con- In 1978, faced with the prospect of more
and the need to improve technology and sistent with macroeconomic objectives. expensive petroleum and other raw ma-
the quality of finished products. Prices For big investments, firms generally had terials from its socialist trading partners,
did not reflect scarcities, so Hungary was to compete for loans to supplement their and the impossibility of indefinite reli-
being denied the chance to maximize its retained profits, plus part of depreciation ance on foreign loans to maintain growth,
output and exports by specializing. allowances (normally 60 percent) that they Hungary decided to accelerate its eco-
Responding to these problems, Hun- also retained. However, companies have nomic reforms. The government took
gary began to experiment with economic still often invested more than the au- measures to link domestic and interna-
decentralization in agriculture in 1957. thorities had anticipated, forcing them to tional prices more closely and to unify
Farmers were allowed to choose how change the regulators in an effort to con- the exchange rate. Central intervention
much produce they would sell to state trol aggregate demand. in enterprises has been reduced, and the
buying organizations, and were given an By 1973 the New Economic Mecha- government has divided large state firms
incentive to join collectives because they nism had achieved several of its objec- into several smaller units to promote
would then be paid higher prices. Over tives, particularly by making prices the competition. Wages are to be linked more
the next ten years, Hungary became self- main instrument for decentralizing de- closely to productivity and profits, and
sufficient in foodstuffs and managed a cisions. But the reforms had not changed unprofitable enterprises are supposed to
net export surplus. This success helped the industrial structurewhich had be- be closed down. It is still early to judge
persuade the political leadership to rely come highly concentrated during the the impact on economic efficiency of this
more on market mechanisms in other 1960s, thereby limiting domestic com- new phase, especially in bleaker inter-
sectors. After long debate and prepara- petition. Furthermore, even when com- national trading conditions. But it is re-
tion, in 1968 Hungary initiated its New pany managers had considerable auton- markable that pressure for economic de-
Economic Mechanism, which changed the omy in principle, ministries and state centralization has recurred in Hungary
fundamentals of its economic planning. agencies retained informal control over as the only means seen to be available
Although the national plans remained their decisions. Since managers of large to promote economic efficiency.
important for determining broad eco- enterprises could also exert pressures on
work, there has to be a real political willingness that they cannot manage, the transfer of owner-
to relinquish some central financial powers. Local ship itself confers the autonomy that is needed to
organizations need money and, in the long term, make decentralization work. A change of owner-
revenue-raising powers as well. The responsibility ship may not be the real objective, however. Gov-
of raising and spending money can galvanize local ernments may be decentralizing as a way of ob-
people; without it, they feel dependent and taining the greater efficiency that is possible with
frustrated. market mechanisms. In socialist countries, for ex-
This last point raises broader questions about ample, the main thrust of decentralization has been
the purpose of decentralization. Where govern- to increase the autonomy of enterprises and to
ments are simply divesting themselves of activities expand market and quasi-market relationships
122
rather than to privatize ownership (although the In many countries it needs strengthening by, for
latter has also occurred to a small extentsee Box example, prompter publication of accounts and
11.6). In many developing countries, managerial increased power and staff for auditing agencies.
economies in the public sector may be realized by However, there is little point in establishing the
simplifying objectives and increasing the auton- principle of accountability if political leaders do
omy of managers to carry them out. This is par- not enforce it. Enforcement is clearly much less
ticularly important in SOEs, as Chapter 8 showed; likely in countries where the political process does
managers spend much of their time coping with not extend far beyond the state apparatus itself.
problems created by central government, and Elsewhere, a clear political commitment, even if
sponsoring ministries get involved in details in- mainly symbolic, can have salutary effects. In Ma-
stead of concentrating on strategic policy issues. laysia, for example, all public servants (including
Decentralization should therefore be seen as part the prime minister) have to punch a time clock
of a broader market-surrogate strategy, designed when they arrive at, and leave, work.
to make public enterprises and bureaucracies more One way to strengthen accountabilityand also
responsive to their ministers and to their clientele, to give managers a dispassionate view of particular
and to achieve a closer connection between inputs agencies' competence and problemsis to de-
and outputs. But a balance clearly has to be struck. velop performance (or "value for money") audit-
Governments often need greater central control ing of government bodies. Since monitoring is
over some activitiesas they do today over bud- costly, it needs to be done selectively and in col-
gets and foreign debt, for example. And some laboration with the bodies concerned (while taking
functions will always be subject to close central care to avoid being "captured" by them). There
supervision for political and other reasons. How- may also be opportunities to improve performance
ever, improving some kinds of central control can by making the bureaucracy accountable to its
lay the groundwork for decentralizing other kinds "users." The Brazilian debureaucratization proc-
of government activityparticularly the delivery ess has something of this approach in its concen-
of rural and social services and routine mainte- tration on the everyday encounters between state
nance and administration. Since good senior man- and citizen. Where agencies are operating with
agers and administrators are scarce almost every- organized community or user groups, they may
where, it is always worth examining the scope for become answerable to themespecially if the
dividing up development tasks to make greater clienteles can be given some market power. Chap-
use of junior managers. They may be less sophis- ter 8 gave the example of Kenya's Tea Develop-
ticated but they are also more abundant. ment Authority, where small tea growers can switch
to other crops if they are dissatisfied with the Au-
Making bureaucracies responsive thority' s performance.
External pressures must be complemented by
All these avenues for management-saving re- internal accountabilityofficials being individ-
formrationalizing the policy framework, im- ually accountable to their superiors. This can sel-
proving coordination, and decentralizationneed dom be done, however, without managerial re-
to be supported by corresponding changes in the sponsibilities being decentralized to the appropriate
way public employees regard their work. In many operational level. Most large private companies
countries, that means improving the accountabil- give managers specific responsibilities and the
ity of individual employees and of the bureaucracy budgets and staff to go with themand then judge
at large. them on their results. Public bureaucracies, by
contrast, have been slow to give their managers
Improving accountability similar freedomjust as governments have been
reluctant to increase the autonomy of public en-
As criticism of bureaucracy has mounted in both terprises.
developed and developing countries, administra- The connection between autonomy and ac-
tive reform has increasingly been seen as an issue countability matters most in SOEs. As Chapter 8
of accountability. This has both external and in- made clear, before SOE managers can be held ac-
ternal dimensions. countable for performance, their goals have to be
Political responsibility for the conduct of public established, preferably by negotiation; they must
businessespecially the spending of public have reasonable control over the means of achiev-
moneyis at the heart of external accountability. ing them; and government must be capable of
123
monitoring their achievements. Performance much depends on what governments are trying
agreementscontracts specifying conditions that to achieve, and on what reforms will best fit the
can then be monitoredare among the most administrative system of individual countries.
promising mechanisms, although they are not Nonetheless, it is worth repeating that all coun-
without problems. tries need specific capacity to plan and execute
Budgetary reform can also help improve internal organizational reforms in the public sectorfor
accountability in the bureaucracy itself, as Chapter better policy analysis, to improve the management
7 indicated. The example of Kenya's Ministry of of public enterprises and the design of develop-
Agriculture, for instance, showed how budgetary ment projects, and to improve accountability and
procedures and allocations can be brought closer incentives. That capacity is probably best located
to the way programs are managed. These changes close to particular targets of reform rather than
are always difficult to implementbut the alter- combined in a single grand "reform agency."
native can often be worse. In Liberia, for example, Whatever the precise arrangements, experience
it can still take a senior official in a rural area three suggests some guidelines for effectiveness:
or four months to buy a few bags of cement from Administrative reforms should concentrate on
a local merchant. He also needs eleven signatures a few strategic institutions or functions, rather than
on the purchase order and at least one trip to the be dispersed (and ineffective) across the board.
capital, Monroviafor expenditure that is already Governments can simultaneously keep up
approved in the budget. In such circumstances, pressures for gradual system-wide improvements,
nobody is really accountable; the system tends to particularly by incremental changes which in-
breed irresponsibility and corruption. crease official accountability and which reduce ex-
Individual accountability can sometimes be en- cessive coordination requirements or unproduc-
couraged by organizing the internal workings of tive centralization.
agencies so that units can offer market-like serv- Reform needs careful administrative planning
ices to each other. Yugoslavia, for example, has and continuity in implementationclose attention
decentralized management accountability in its to detailed procedures as well as the overall policy
railway system, so that separate units for traffic, thrust.
traction, workshops, track, and so on buy and sell Nonbureaucratic interests must be included in
services between each other. Similar structural the reform process to keep up pressure for
pressures are part of the Training and Visit Sys- accountability, to ensure that external criteria of
tem, with extension workers being encouraged to efficiency and service are observed, and to see that
put pressure on agricultural specialists to come up the viewpoint of ordinary people is taken into
with more relevant advice, because that is what account.
farmers are asking of them. There should be incentives for officials and
Finally, this Report has emphasized that better agencies to help devise and execute reforms:
management is at root a question of people: in- otherwise their suspicion or hostility can quickly
dividual incentives in both private and public sec- undermine results.
tors are therefore a vital part of any strategy of Any realistic agenda of reform requires a balance
reform. Accountability needs to be buttressed by between society's objectives and the limitations
careful changes in the material and nonmaterial and interests of the bureaucracy. Progress is more
rewards which public organizations extend to their likely if reforms take account of that realityby
employeesas discussed in Chapter 10. assessing the administrative impact of policy
changes, by reducing the more unproductive and
Conclusions burdensome bureaucratic interventions, and by
providing officials with incentives to adopt im-
The approach to reform discussed in this Report provements rather than resist them.
has emphasized that ends should influence means:
124
12 Concluding themes
For three years worldwide development has been problems of some major borrowers have shaken
stunted by recession. While population continues confidence in international lending with the perv-
to grow inexorably, production and trade have erse effect of reducing the availability of commer-
lagged, unemployment has risen, much industrial cial capital even to some developing countries that
capacity has remained idle, and the standard of have managed to perform well through the current
living in Africa and Latin America has declined. crisis; this has resulted in postponed investment,
In some industrial countries there are now signs curtailed inputs, and slowed development.
of recovery. But business confidence has been badly In this context the role of international financial
shaken, investment is sluggish, and large debts institutions is extremely important. The IMF's re-
overhang many countries. Global recovery cannot, cently expanded capacity will help ensure that re-
by itself, produce accelerated, equitable growth in sources are available to meet urgent short-term
low-income countries, and there is a danger that balance of payments crises. But the restoration of
continued recession in developing countries will growth requires that flows from multilateral de-
undermine the pace of economic recovery in the velopment banks be expanded as well. They have
industrial countries. proven to be effective intermediaries between pri-
The World Bank's assessment suggests that a 4 vate markets and developing-country borrowers,
to 5 percent GDP growth rate annually over the and yet their current lending levels fall far short
next decade is feasible for the developing countries of what can be done. Substantially increased lend-
as a group. What is needed to achieve this result ing in support of sound development programs is
is a concerted national and international effort to essential to regain and sustain the development
ensure that recovery from the current recession is momentum in middle-income borrowers.
strong and lasting, and that individual economies The poorest developing countriesespecially
are restructured to meet the changed economic those in sub-Saharan Africahave been hardest
conditions. hit by the current prolonged recession. They are
Policy reforms are needed so all economies can particularly dependent on flows of concessional
conform better to their comparative advantage, keep resources (ODA). Yet only 35 to 40 percent of ODA
wages in line with productivity, and remove price is channeled to the low-income countries; meas-
distortions. These will be much easier to accom- ures should be taken to raise this share. IDA loans
plish if pressures toward increased protectionism are the most important component of ODA and
are resisted and existing barriers to trade begin to are focused entirely on the poorest countries. An
be rolled back, permitting the return to a rapidly essential international action to ameliorate the cri-
expanding world trade, including increasing trade sis and restore some forward movement for these
among developing countries. countries would be completion of the currently
But if the developing countries are to return to delayed IDA VI replenishment and early agree-
the growth rates of the 1960s and 1970s, net capital ment on a substantially increased IDA VII.
flows of all kinds must continue to increase, not The present debt difficulties of the developing
as rapidly as in the 1970s, but by 10 percent or countries are the culmination of trends over sev-
more in nominal terms (see Table 3.7). Interna- eral yearsespecially the effect of higher energy
tional private capital is essential to the develop- prices and expanding commercial bank lending
ment process, in the form of both direct invest- combined with inappropriate domestic policies.
ment and commercial lending. The liquidity These difficulties were exacerbated to the point of
125
crisis by the prolonged recession that has caused as producer and owner, its role as regulator is
export earnings to fall and by unprecedently high everywhere of prime importance in establishing
real interest rates. All arrangements to help indi- incentives for efficiency.
vidual countries to avoid default depend in the Good management of the economy depends on
first instance on the sustained recovery of the in- well-functioning public institutions as well as on
dustrialized countries, and ultimately on the bor- the correct choice of policies, which has been the
rowing countries putting in place successful ad- main theme of Part II. The role of the public sector
justment programs. With ample underutilized has to be tailored to the human and financial re-
capacity, economic recovery will produce many sources available, and these are almost every-
benefitscutting unemployment, reducing the where overstretched. Hence the importance of re-
pressure for protection, easing the debt problem, lying on markets to do what experience has shown
and facilitating structural adjustments. that markets generally do best. That still leaves
The restructuring strategy in developing coun- the government responsible for macroeconomic
tries should aim at correcting price distortions and policy, for managing public revenues and expendi-
at overcoming institutional weaknesses that have tures, and for running public enterprises and pub-
contributed to the low productivity of investment lic services. Equipping the public service to carry
in recent years. These and other measures dis- out these tasks well is challenge enough.
cussed in Part II would assist countries to exploit Though diverse, the experience of developing
more effectively their comparative advantage. For countries in managing development has revealed
them to bear full fruit, however, the world econ- four broad conclusions:
omy must regain the momentum it achieved in Policy and institutional reform are comple-
1976-78. Without that, the developing countries' mentary. Policies are relevant only if there is the
prospects are bleak indeed. institutional capacity to carry them out, while strong
Over the longer term the challenge for devel- institutions are ineffectiveeven counterproduc-
oping countries is to use their limited resources tiveif the policy framework discourages effi-
more efficiently and more equitably. Every gov- ciency.
ernment faces this challenge: whatever the polit- The implied rejection of "blueprints" in tack-
ical objectives, the goal is to find the most cost- ling the complexities of development is not a coun-
effective means of achieving them. Evidence sel of despair. The chief lesson to be drawn from
abounds of how much can be gained from greater experience is the importance of building into every
efficiency. Price distortions alone may slow down strategy and program an effective learning proc-
GDP growth by as much as two percentage points ess. This is as true for programs of structural ad-
a year. Other substantial losses result from poor justment and administrative reform as it is for new
investment decisions, project delays, inadequate initiatives in rural development.
maintenance of plant and machinery, and failure Public bureaucracies would be more effective
to make full use of human skills and energy. And if they paid less attention to form and more to
in most countries, the consequences of these inef- substance. This means agencies' preparing fewer
ficiencies are felt most by those who have least grand plans and instead undertaking more ana-
the poor. lyses of the actions needed to achieve govern-
In an effort to accelerate development, govern- ment's central goals. It means restructuring tra-
ments have become increasingly active. In the ditional budgeting to identify the costs of specific
process many have often been badly overextended programs. It means transforming auditing into a
and hence have contributed to inefficiency. This system of selective performance evaluation that
Report has suggested ways to strengthen public relates the cost of inputs to the value of outputs.
management and, more generally, the incentives And, at the field level, it means officials' looking
for all enterprises to operate more efficiently. Gov- outward to serve their clients rather than inward
ernments could also share more of the burden of to satisfy predetermined bureaucratic procedures.
promoting development with other organiza- All these changes imply more vigorous attention
lionsprivate firms, community associations, and to issues of accountability, cost-effectiveness, and
the like. incentives.
This Report has stressed the importance of gov- On administrative reform, governments can
ernment policy in the adjustment processpartic- achieve more through persistent but selective ef-
ularly in correcting price distortions and exploiting forts at change, step by step, rather than through
comparative advantage. Whatever the state's role major reforms that threaten many entrenched in-
126
terests simultaneously and are therefore often seek quick solutions. Too often a program has
neutralized by them. The correct time horizon for hardly started before fashions change, support is
institutional development is decades rather than withdrawn, the approach changed, and a new
years. program started. Institutional reform will be suc-
Yet the very pressures that push governments cessful only if it is pursued with vision, tenacity,
into an activist role are those that drive them to and strong political leadership.
127
Technical appendix
This technical appendix discusses the sources of the world market price. The Bank's country group-
data in Chapter 2 and the main reasons for dis- ings differ from those of the Fund because, for its
parities between sources and across years between analytical work, the Bank needs to make different
this World Development Report and previous Re- distinctions among groups of developing countries
ports. It also outlines the procedure used for mak- with different economic structures.
ing projections in Chapter 3 and notes some of Historical data are revised from one Report to
the major changes in these projections compared the next for several reasons:
with those presented in the 1982 Report. This ap- Country authorities constantly revise data
pendix should be read in conjunction with the Country authorities re-base their country sta-
Introduction to the World Development Indicators tistics to different years, often changing measured
and Technical notes. rates of growth
The membership of country groupings is ad-
Historical data justed to reflect changes in income levels which
are largely the basis for country classification.
The World Bank assembles its data from a variety Historical data may be subject to substantial re-
of national sources, and the information reported vision even for periods far into the past. The growth
by other international organizations, including the rate for China during 1960-73, for example, in-
International Monetary Fund (IMF), the United creased from 4.7 percent reported in the 1982 Re-
Nations agencies, the Organisation for Economic port to 5.5 percent reported in the 1983 Report;
Co-operation and Development (OECD), the Gen- this change was based on additional benchmark
eral Agreement on Tariffs and Trade Secretariat, data for different years supplied by the Chinese
and the Bank for International Settlements. Staff government. For high-income oil-exporting coun-
estimates are used to fill data gaps. tries between 1960 and 1973 GNP growth was
Comparisons of Report data with those of other changed from 8.6 percent to 10.7 percent because
international organizations, such as the IMF, is of changes in the oil prices used by country au-
complicated by differences in country groupings thorities to value national output, and because of
and in underlying statistical conceptsin each case their revisions of estimates of investment income.
owing to different analytical requirements and As countries improve their statistical collection
varying access to source material. Continuous ef- techniques and the scope of data coverage, such
forts are made to reduce these differences. revisions are made by statistical agencies in all
For balance of payments data the Bank mainly countries. Historical data for the industrial coun-
relies on the IMF. For countries included in the tries for the period 1960-73 have been revised every
Bank's country groupings, but not reporting to the year as at least one country in that group has
Fund, the Bank staff obtains estimates from the revised data for that period. The United States,
country authorities. For a few other countries, IMF for example, from time to time revises components
data are adjusted on the basis of information de- of its national accounts as far back as 1929. In
rived from the Bank's country economic work. Also, addition to such revisions, the periodic changing
the statistical conventions used by the Bank oc- of the base year changes the weights used in com-
casionally differ from those of the Fund. For ex- puting indices and, therefore, measured GNP
ample, while the Bank values all gold holdings at growth.
the London Clearing House price, the Fund values Membership in country groupings is varied to
gold holdings for some countries according to that reflect changes in relative levels of economic de-
country's convention and for other countries at velopment. Declines in income, for example, led
128
to shifting Ghana from the middle-income to low- of 0.7 percent a year with the three rates of growth
income developing-country category. A rise in in- of per capita output associated with the different
come and continued growth of industry, on the technical progress and capital formation assump-
other hand, moved Spain from the middle-income tions-1.8 percent, 2.8 percent, and 3.6 percent
developing-country group to the industrial-coun- forms the "cone" of Low, Central, and High in-
try group. dustrial-country potential output growth rates of
2.5 percent, 3.5 percent, and 4.3 percent for ca-
Projections pacity GDP that lie behind the projections of actual
output shown in Table 3.1.
Table 3.1 was derived by first projecting potential Actual industrial-country output presently lies
industrial-country output growth, industrial-coun- far below its potential. While the potential output
try demand for developing-country exports, and projection does set a ceiling for industrial-country
potential industrial-country lending to developing output, it does not provide any information on the
countries. These are then used to arrive at indi- rate (or direction) of growth of actual OECD out-
vidual developing-country and regional projec- put when below the ceiling. In projecting actual
tions consistent within a global framework. output for 1983 and 1984, the Bank follows the
forecast of the OECD published in mid-1983. As
Projecting industrial-country growth an institution specializing in long-term develop-
ment and adjustment and making longer-term
To obtain the projections of potential industrial- loans, the Bank concentrates on longer-term pro-
country output at full employment, assumptions jections. Therefore, the time horizon is shifted pe-
are made about industrial-country labor force riodically to cover eight to twelve years into the
growth and technical progress. The industrial- future. For this Report, it was shifted from 1990
country labor force is assumed to grow 0.7 percent to 1995. The Bank makes no independent projec-
a year between 1980 and 2000, based on existing tion of short-term industrial-country develop-
population size and age structure, with some rise ments, but reviews the upside and downside risks
in the female labor force participation rate, and no surrounding the short-term forecasts of the OECD
change in migration regulations. Technical prog- and the Fund, and assesses their implications for
ress for all industrial countries is assumed to ad- developing countries.
vance at the historical rate experienced in the United When, as is now the case, all short-term fore-
States, so that potential per capita income growth casts envisage a level of output well below poten-
for the industrial countries as a whole falls to 2.8 tial, the Bank projects a rate of growth over the
percent over the forecast period from 3.6 percent longer term (3.8 percent from 1984 to 1990) which
experienced between 1960 and 1980. Domestic brings the industrial countries gradually back to
capital formation is projected to be lower than in full employment and capacity output; after that,
the past in view of diminished projected profit growth is assumed to fall to the Central case ca-
opportunities arising from reduced labor force pacity rate of growth of 3.6 percent. That projected
growth and technical progress. The High case as- rate of recovery is about the average based on
sumes a continuation of past trends in reducing postwar cyclical experience; recoveries from rela-
differences in technologies, so that less prosperous tively deep recessions tend to be somewhat faster.
industrial countries experience more rapid rates of The rate of recovery was assumed to be faster in
per capita GDP growth than the average industrial the High case and slower in the Low case projec-
country. Under the High case, more rapid tech- tions.
nical progress would permit repeating the 3.6 per- Since potential output depends on technical
cent annual rate of per capita GDP growth wit- progress and labor force growth, not demonstra-
nessed between 1960 and 1980; capital formation bly sensitive to recession over the longer term, the
would, accordingly, be higher. The Low case as- projection of potential industrial-country income
sumes that all industrial countries experience the levels for 1990 to 1995 is unchanged from the pre-
rate of technical progress experienced by those vious Report. The more severe the recession,
industrial countries with the lowest rate of per therefore, the larger the gap between potential and
capita growth, thereby lowering rates of capital actual output and the greater the possible recovery
formation and reducing industrial-country per of output growth after the recession. The increase
capita growth to 1.8 percent a year. in projected growth rates for the industrial coun-
Combining the projected labor force growth rate triesthis year's Central case is 3.7 percent whereas
129
last year's High case was 3.6 percentreflects the within historical experience, the lending path is
severity of the present recession rather than a re- considered feasible.
vision of expectations about long-term potential The composition of net capital flows by type of
growth. investment is projected with a variety of tech-
niques. It is sensitive to data revisions, which can
Projecting developing-country growth be quite large for some time series. Direct foreign
investment, for example, showed a growth rate in
Given the projected industrial-country growth and the 1981 Report of 13.6 percent over the period
the projected rate of inflation, the Bank projects 1970-80; but subsequent revisions in estimates of
real and nominal developing-country exports of the 1980 level of direct foreign investment raised
primary products in detail by individual commod- that growth rate to 18.5 percent. In view of this
ities. It constructs aggregate projections of trade upward revision in historical growth rates, the
in manufactured goods. These projections show projected growth rates were raised in this Report
the exports of developing countries to the indus- to 11 percent, up from the range of 5 percent to
trial countries both in aggregate and by develop- 7.5 percent shown in the 1982 Report.
ing-country region of origin. Given the above global framework, the Bank's
The Bank computes a notional "potential lend- regional economists prepare projections of re-
ing" by industrial countries; this is partly based gional economic growth based on detailed country
on past shares of net foreign lending in total in- economic analysis. These regional projections are
dustrial-country GNP and shares of foreign assets then reconciled with the Bank's aggregate projec-
in total industrial-country assets. A separate pro- tions of net capital flows, trade, and debt service
cedure projects high-income oil-exporting country payments. The end result is the Central case
lending, combining the previous projection of oil scenario. The High and Low cases are obtained
exports with a projection of imports. Given the by projecting high and low OECD growth paths
assumed underlying long-term real interest rate of and simulating the effects of these changes on
3 percent (plus a 150 basis point spread to devel- developing countries by using a general equilib-
oping countries), trial debt service ratios are com- rium system developed, in cooperation with the
puted based on the projected exports and trial Bank, by the Centre d'Economie Mathematique et
growth rates in developing countries. If the en- d'Econometrie of l'Universite Libre de Bruxelles.
suing lending path produces debt service ratios
130
Bibliographical note
This Report has drawn on a wide range of World economy can be found in Balassa; Bhagwati; Choksi;
Bank work as well as on external research. Se- and Krueger. Rhee, Pursell, and Ross-Larson, as
lected sources used in each chapter are briefly noted well as Shinohara, Yanagihara, and Kim's work
below, and then listed alphabetically by author. They for the World Bank, provided insights into the role
are divided into two groups. The first consists of a of the state in the Republic of Korea and Japan.
set of background papers commissioned for this
Report; their primary purpose is to synthesize the
relevant literature and Bank work. (Thus not all Chapters 6 and 7
the sources cited in these papers are listed sepa-
rately.) Those issued as World Bank Staff Working The discussion of price distortions and their im-
Papers are available from the Bank's Publications pact on growth draws on the extensive literature
Sales Unit. The views they express are not, how- that has developed on the subject over the past
ever, necessarily those of the World Bank or of two decades. In addition to the earlier World De-
this Report. The second group consists of external velopment Reports, key soulces were the writings
publications and World Bank sources, which in- of Balassa; Bhagwati; Krueger; Fry; Little; and
clude sector policy papers, ongoing economic McKinnon.
analysis and research, and project sector and eco- On planning, the key references are Waterston
nomic work on individual countries. and Lewis. A review of the crisis in planning in
the late 1960s is provided by Faber and Seers.
Issues on budgetary policy are examined in Caiden
Selected sources, by chapter and Wildavsky, and the experience of budgetary
reforms reviewed in Baudrillart and Poinsard.
Chapters 2 and 3 Boxes on Japan and the Republic of Korea draw
These chapters draw heavily on the Bank's data on the background papers by Shinohara and Kim
files and on published statistics from other official respectively. Other boxes draw on material pre-
agencies including the IMF, OECD, GATT, and pared mostly by Bank staff but also by some out-
United Nations organizations. The basic projec- side experts.
tions are the product of the World Bank's Global
Framework as explained by Cheetham, Gupta, and Chapter 8
Schwartz. The sensitivity analysis is the result of
simulations undertaken with the Brussels global The analysis of SOE problems is based primarily
development model described in Waelbroeck and on the Bank's extensive operational experience,
Associates. The trade discussion draws on Hughes supplemented by materials published by UNIDO,
and Krueger's study of protectionism and the re- APDAC, and individual governments. Works by
port of the group of experts commissioned by the Choksi and materials edited by Baumol; Jones;
Commonwealth Secretariat. Shepherd; and Vernon provide a useful overview
of SOE problems. The chapter also draws on Jones'
Chapters 4 and 5 work on the cost of noneconomic objectives and
Bank-sponsored research on performance evalua-
Public finance data were derived from IMF sources. lion systems in Pakistan. The statistics on SOEs,
Short's study and World Bank files are the main like those in Chapter 5, are predominantly from
sources of information on SOEs. General discus- Short's research for the IMF, as well as UNIDO
sions of the impact of state regulations on the publications and World Bank data.
131
Chapter 9 the UN, ILO, USAID, Ford Foundation, Com-
monwealth Secretariat, and the World Bank's Eco-
This chapter is based much more on Bank oper- nomic Development Institute. The treatment of
ational experience than on published research. career development and salaries and incentives is
While the Bank's evaluations of individual projects based predominantly on World Bank materials and
are unpublished, they are summarized in a series UN reports. The section on management of ex-
entitled Annual Review of Project Performance Audit patriates is based on information gathered from
Reports, which is available from the Bank's Publi- the major donor agencies and on Lethem and
cations Sales Unit. Box 9.4 outlines a learning proc- Cooper. Finally, the note on the cultural dimen-
ess approach to development more fully described sion relies, among others, on Kubr and Wallace;
in Korten, and Box 9.5 on the Training and Visit and Stifel, Coleman, and Black. A full set of ref-
System of extension is amplified in Benor and erences for the chapter is listed in Ozgediz.
Harrison.
Relevant Bank Staff Working Papers include
Esman; Heaver; and Smith, Lethem, and Thoolen. Chapter Ii
Other publications include Chambers; Honadle and There is a great deal of published material on the
Klauss; Paul; and Tendler. evolution of institutions in industrialized coun-
tries: Heady; Pempel; and Wiffiamson discuss much
Chapter 10 of the relevant literature for the public and private
sectors. The discussion of administrative reform
The analysis of growth in public employment is draws on a number of reports by government com-
based on World Bank country studies and data missions in developing countries, on World Bank
compiled by ILO. Figures on the composition of country studies, on Caiden and Siedentopf; on the
public service employment reported in Box 10.1 UN Development Administration Division stud-
are derived from Heller and Tait. Material on skill ies; and on others. Material on coordination is
shortages stems primarily from World Bank re- drawn primarily from World Bank sources, as is
ports and the discussion of brain-drain issues from the discussion of experiences in Thailand and
UNCTAD studies and World Bank reports. Fig- Hungary. Background papers on decentralization
ures on technical cooperation were compiled from (Rondinelli, Nellis, and Cheema), on local govern-
data provided by DAC Secretariat and other donor ment (Cochrane), and on corruption (Gould and
agencies. Amaro-Reyes) provided material on these themes
The discussion of public service training is based for this chapter. The section on accountability is
primarily on Paul and secondarily on reports by based on World Bank sources.
Background papers
Agarwala, Ramgopal. Price Distortions and Growth in Developing Countries. World Bank Staff Working Paper no. 575.
Washington, D.C., 1983.
Planning in Developing Countries: Lessons of Experience. World Bank Staff Working Paper no. 576. Washington,
D.C., 1983.
Cochrane, Glynn. Policies for Strengthening Local Government in Developing Countries. World Bank Staff Working Paper
no. 582. Washington, D.C., 1983.
Gordon, David. Development Finance Companies, State and Privately Owned: A Review. World Bank Staff Working Paper
no. 578. Washington, D.C., 1983.
Gould, David I., and Jose A. Amaro-Reyes. Corruption and Administrative Performance: Examples from Developing Countries.
World Bank Staff Working Paper no. 580. Washington, D.C., 1983.
Knight, Peter T. Economic Reform in Socialist Countries: The Experiences of China, Hungary, Romania, and Yugoslavia. World
Bank Staff Working Paper no. 579. Washington, D.C., 1983.
Kubr, Milan, and John Wallace. Successes and Failures in Meeting the Management Challenge: Strategies and Their Imple-
mentation. World Bank Staff Working Paper no. 585. Washington, D.C., 1983.
Lethem, Francis J., and Lauren Cooper. Managing Project-Related Technical Assistance: The Lessons of Success. World Bank
Staff Working Paper no. 586. Washington, D.C., 1983.
Ozgediz, Selcuk. Managing the Public Service in Developing Countries: Issues and Prospects. World Bank Staff Working
Paper no. 583. Washington, D.C., 1983.
Paul, Samuel. Training for Public Administration and Management in Developing Countries: A Review. World Bank Staff
Working Paper no. 584. Washington, D.C., 1983.
132
Rondinelli, Dennis A., John R. Nellis, and G. Shabbir Cheema. Decentralization in Developing Countries: A Review of
Recent Experience. World Bank Staff Working Paper no. 581. Washington, D.C., 1983.
Shinohara, Miyohei, Toru Yanagihara, and Kwang Suk Kim. The Japanese and Korean Experiences in Managing Development.
Ed. Ramgopal Agarwala. World Bank Staff Working Paper no. 574. Washington, D.C., 1983.
Shirley, Mary M. Managing State-Owned Enterprises. World Bank Staff Working Paper no. 577. Washington, D.C., 1983.
Other sources
Balassa, Bela, and Associates. Development Strategies in Semi-industrial Economies. Baltimore, Md.: Johns Hopkins Uni-
versity Press, 1982.
Balassa, Bela. "Disequilibrium Analysis in Developing Economies: An Overview." World Development (December 1982),
pp. 1027-38.
Policy Reform in Developing Countries. London: Oxford University Press, 1977.
Baudrillart, Wenceslas, and Robert Poinsard. 20 Years of Budgetary Reform: a tentative international stocktaking. General
Report of the Working Group on Integrated Budgeting Systems, International Congress of Administrative Sciences.
Brussels, 1982.
Basu, Prahlad Kumar, and Alec Nove. Public Enterprise Policy on Investment, Pricing, Returns. Kuala Lumpur: Asian and
Pacific Development Administration Center, 1979.
Baumol, William J., ed. Public and Private Enterprise in a Mixed Economy. New York: St. Martin's, 1980.
Benor, Daniel, and James Q. Harrison. Agricultural Extension: The Training and Visit System. Washington, D.C., World
Bank, 1977.
Bhagwati, Jagdish. Anatomy and Consequences of Trade Control Regimes. New York: National Bureau of Economic Research,
1978.
"The Brain Drain." Tripartite World Conference on Employment, Income Distribution, and Social Progress
and the International Division of Labour. Background Papers, volume 2. Geneva: International Labour Office, 1976.
Caiden, Gerald E., and Heinrich Siedentopf, eds. Strategies for Administrative Reform. Lexington, Mass.: Lexington
Books, 1982.
Caiden, Naomi, and Aaron Wildavsky. Planning and Budgeting in Poor Countries. New York: Wiley, 1974.
Cairncross, Alec, and Associates. Protectionism: Threat to International Order. London: Commonwealth Secretariat, 1982.
Chambers, Robert. Managing Rural Development. Uppsala: Scandinavian Institute of African Studies, 1974.
Cheetham, Russell J., Syamaprasad Gupta, and Antoine Schwartz. The Global Framework. World Bank Staff Working
Paper no. 355. Washington, D.C., 1979.
Choksi, Armeane M. State Intervention in the Industrialization of Developing Countries: Selected Issues. World Bank Staff
Working Paper no. 341. Washington D.C., 1974.
Duncan, Ronald, and Ernst Lutz. "Penetration of Industrial Country Markets by Agricultural Products from Developing
Countries." World Development. Forthcoming.
Esman, Milton J. Para professionals in Rural Development: Issues in Field-level Staffing for Agricultural Projects. World Bank
Staff Working Paper no. 573. Washington, D.C., 1983.
Faber, Mike, and Dudley Seers, eds. The Crisis in Planning. Two volumes. London: Chatto and Windus for Sussex
University Press, 1972.
Fry, Maxwell J. "Savings, Investment, Growth and the Cost of Financial Repression." World Development, vol. 8, no. 4
(April 1982), pp. 317-27.
Galbis, V. "Financial Intermediation and Economic Growth in Less-Developed Countries: A Theoretical Approach."
Journal of Development Studies, January 1977.
General Agreement on Tariffs and Trade (GATT). International Trade in 1982 and Current Prospects. Press release. March 4,
1983.
Heady, Ferrel. Public Administration: A Comparative Perspective. New York: Dekker, 1979.
Heaver, Richard A. Bureaucratic Politics and Incentives in the Management of Rural Development. World Bank Staff Working
Paper no. 537. Washington, D.C., 1982.
Heller, Peter S., and Alan A. Tait. Government Employment and Pay: Some International Comparisons. Washington, D.C.:
International Monetary Fund. Forthcoming.
Honadle, George, and Rudi Klauss. International Development Administration: Implementation Analysis for Development
Projects. New York: Praeger, 1979.
Hughes, Helen. "External Debt Problems of Developing Countries." Paper presented at the 13th Pacific Trade and
Development Conference on Energy and Structural Change in the Asia and Pacific Region, Manila, Philippines,
January 24-28, 1983. Washington, D.C.: World Bank.
Hughes, Helen, and Anne 0. Krueger. "Effects of Protection in Developed Countries on Developing Countries'
Exports of Manufactures." Washington, D.C.: World Bank, 1983.
International Labour Office. General Report. Third Session of the Joint Committee on the Public Service. Geneva, 1983.
133
Jones, Leroy P. "Public Enterprise for Whom? Perverse Distributional Consequences of Public Operational Decisions."
Paper presented at the Conference on Problems and Policies of Industrialization in an Open Economy, Bogazici
University, Istanbul, Turkey, August 20-24, 1981.
Jones, Leroy P., ed. Public Enterprise in Less Developed Countries. New York: Cambridge University Press, 1982.
Korten, David C. "Community Organization and Rural Development: A Learning Process Approach." Public Admin-
istration Review, September-October, 1980.
Krueger, Anne 0. "Liberalization Attempts and Consequences." Washington, D.C.: National Bureau for Economic
Research, 1978.
Trade and Employment in Developing Countries. Chicago: University of Chicago Press, 1982.
Lewis, William Arthur. Development Planning: The Essentials of Economic Policy. London: Allen and Unwin, 1966.
Lindauer, David. Public Sector Wages and Employment in Africa: Facts and Concepts. World Bank Studies in Employment
and Rural Development no. 68. Washington, D.C., 1981.
Little, Ian Malcolm David. Economic Development: Theory, Policy, and International Relations. New York: Basic Books,
1982.
Magee, Stephen P. "Factor Market Distortions, Production, and Trade: A Survey." Oxford Economic Papers, vol. 25,
no. 1 (March 1973), pp. 1-43.
McKinnon, Ronald Ian. Money and Capital in Economic Development. Washington, D.C.: Brookings Institution, 1973.
Paul, Samuel. Managing Development Programs: The Lessons of Success. Boulder, Col.: Westview, 1982.
Pempel, T. J. Policy and Politics in Japan. Philadelphia: Temple University Press, 1982.
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Rhee, Yung Whee, Gary Pursell, and Bruce Ross-Larson. "Promoting Exports: Institutions, Technology, and Marketing
in Korea." Washington, DC: The World Bank, Development Research Department, January 1983.
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in the Middle East and North Africa. New York: Oxford University Press, 1983.
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1978.
Short, Peter. Appraising the Role of Public Enterprises: An International Comparison. IMF Occasional Paper Series. Wash-
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Smith, William E., Francis J. Lethem, and Ben A. Thoolen. The Design of Organizations for Rural Development Projects-
A Progress Report. World Bank Staff Working Paper no. 375. Washington, D.C., 1980.
Stifel, Lawrence D., James S. Coleman, and Joseph E. Black, eds. Education and Training for Public Sector Management
in Developing Countries. New York: The Rockefeller Foundation, 1977.
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Evaluation Discussion Paper no. 12. Washington, D.C.: US Agency for International Development, 1982.
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United Nations Conference on Trade and Development. The Feasibility of Measuring International Flows of Human Resources.
UNCTAD Secretariat Study no. TDIBIc.6IAC.812. Geneva, 1982.
United Nations Industrial Development Organization. Papers presented at the Expert Group Meeting on the Changing
Role and Function of the Public Industrial Sector in Development in Vienna, Austria, October 5-9, 1981.
Vernon, Raymond, and Yair Aharoni, eds. State-Owned Enterprise in the Western Economies. New York: St. Martin's,
1981
Waelbroeck, Jean, J. M. Burniaux, G. Carrin, and Jan Gunning. "General Equilibrium Modeling of Global Adjustment."
World Bank Staff Working Paper. Forthcoming.
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no. 4 (December 1981).
134
Annex
World
Development
Indicators
Contents
Key 140
Introduction 141
Maps 142
merchandise exports
137
Table 10. Structure of merchandise exports 166
Fuels, minerals, and metals Other primary commodities u Textiles
and clothing n Machinery and transport equipment D Other
manufactures
Table 15. Flow of public and publicly guaranteed external capital 176
Gross inflow of public and publicly guaranteed medium- and long-
term loans 0 Repayment of principal o Net inflow of public and
publicly guaranteed medium- and long-term loans
Table 16. External public debt and debt service ratios 178
External public debt outstanding and disbursed 0 as percentage of
GNP 0 Interest payments on external public and publicly
guaranteed debt 0 Debt service as percentage of GNP
Table 18. Official development assistance from OECD and OPEC members 182
Amount in dollars 0 as percentage of donor GNP 0 in national
currencies 0 Net bilateral flow to low-income countries
Table 19. Population growth, past and projected, and hypothetical stationary population 184
Past growth of population 0 Projected population 0 Hypothetical
size of stationary population 0 Assumed year of reaching net
reproduction rate of 1 0 Year of reaching stationary population
138
Table 21. Labor force 188
Population of working age 0 Labor force in agriculture 0 in industry
0 in services o Growth of labor force, past and projected
139
Key
140
Introduction
The World Development Indicators, produced as Most of the information used in computing the
a by-product of the World Bank's statistical and indicators was drawn from the data files and pub-
analytical work, provide information on the main lications of the World Bank, the International
features of social and economic development. Over Monetary Fund, and the United Nations and spe-
time, the World Bank has developed standard data cialized agencies.
formats for operational use, and its data bank has For ease of reference, ratios and rates of growth
become increasingly geared to the provision of are shown; absolute values are reported only in a
statistical inputs for internal information and de- few instances. Most growth rates were calculated
cision papers. The broad range of internationally for two periods: 1960-70 and 1970-81, or 1970-80
comparable statistical information is intended to if data for 1981 were not available. All growth rates
be suitable for cross-economy analysis. are in real terms and were computed, unless noted
Most of the data collected by the World Bank otherwise, by using the least-squares method. Be-
are on its developing member countries. Because cause this method takes all observations in a pe-
comparable data for developed market economies riod into account, the resulting growth rates reflect
are readily available, these are also included in the general trends that are not unduly influenced by
indicators. Data for nonmarket economies, a few exceptional values. Table entries in italics indicate
of which are members of the World Bank, are that they are for years or periods other than those
included if available in a comparable form. specified. All dollar figures are US dollars.
Every effort has been made to standardize con- Some of the differences between figures shown
cepts, definitions, coverage, timing, and the eval- this year and last year reflect not only updating
uation of the basic data to ensure the greatest but also revisions to historical series. They also
possible degree of comparability. Since the pub- reflect revisions to the estimates of population on
lication of the first World Development Indicators the basis of new information from surveys and the
in 1978, considerable progress has been made, 1980 round of censuses.
through the use of more uniform definitions and The economies included in the World Devel-
concepts, toward making the data more interna- opment Indicators are classified by GNP per cap-
tionally comparable. Although the number of in- ita. This classification is useful in distinguishing
dicators included in this edition is greater than in economies at different stages of development. Many
the first edition, it is believed that the quality of of the economies included are also classified by
the data has been substantially improved. dominant characteristicsto distinguish oil im-
The indicators in Table 1 give a summary profile porters and exporters and to distinguish market
of economies. The data in other tables fall into the and nonmarket industrial economies. The groups
following broad areas: national accounts, agricul- used in the tables are 34 low-income developing
ture, industry, energy, external trade, external debt, economies with a GNP per capita of less than $410
aid flows, other external transactions, demogra- in 1981, 60 middle-income developing economies
phy, labor force, urbanization, social indicators, with a GNP per capita of $410 or more, 4 high-
defense and social expenditure, and income dis- income oil exporters, 19 industrial market econo-
tribution. Two of these tables appear for the first mies, and 8 East European nonmarket economies.
time this year, one on agriculture and food, the Note that because of the paucity of data and the
other on terms of public borrowing. The first is differences in the method for computing national
now included because of the importance of the income, estimates of GNP per capita are available
agricultural sector and food aid in developing only for nonmarket economies that are members
economies; the second, because of growing atten- of the World Bank.
tion to the external obligations of developing coun- The format of this edition generally follows that
tries. used in previous years, but some of the economies
141
have been reclassified to reflect changes in their low-income economies. And because trade in oil
income levels. affects the economic characteristics and perform-
In each group, economies are listed in ascending ance of middle-income economies; summary
order of income per capita, and that order is used measures are also shown for oil importers and for
in all tables. The alphabetical list in the key shows oil exporters. In this year's edition, the large group
the reference number of each economy. Countries of middle-income economies is also divided into
with populations of less than a million are not lower and upper categories to give greater mean-
reported in the tables, largely for lack of compre- ing to the summary measures.
hensive data. The technical notes for Table 1 show The weights used in computing the summary
some basic indicators for 34 small countries that measures are described in the technical notes. The
are members of the United Nations, the World letter w after a summary measure indicates that it
Bank, or both. is a weighted average; the letter in, that it is a
Summary measurestotals, median values, or median value; the letter t, that it is a total. The
weighted averageswere calculated for the econ- median is the middle value of a data set arranged
omy groups only if data were adequate and mean- in order of magnitude. Because the coverage of
ingful statistics could be obtained. Because China economies is not uniform for all indicators and
and India heavily bias the summary measures for because the variation around central tendencies
all low-income economies, summary measures are can be large, readers should exercise caution in
separately shown for China and India and for other comparing the summary measures for different
Groups of economies
The colors on the map show what
group a country has been placed in on
the basis of its GNP per capita and,
in some instances, its distinguishing
economic characteristics. For example,
all low-income countries, those with a
GNP per capita of less than $410, are
colored yellow. The groups are the
same as those used in the 27 tables
that follow, and they include only the
125 countries with a population of more
than 1 million.
Low-income economies
Middle-income oil importers ((Fals IraS H
-
. LL St KiSs-Nesis (UK)
\___ _
and Tobago
Venezuela
142
indicators, groups, and years or periods. This year's edition again includes five world
Readers should also exercise caution in com- maps. The first map shows country names and
paring indicators across economies. Although the the groups in which economies have been placed.
statistics are drawn from sources generally con- The maps on the following pages show popula-
sidered the most authoritative and reliable, some tion, adult literacy, life expectancy at birth, and
of them, particularly those describing social fea- the share of agriculture in gross domestic product
tures and income distribution, are subject to con- (GDP). The Eckert IV projection has been used for
siderable margins of error. In addition, variations these maps because it maintains correct'areas for
in national statistical practices mean that the data all countries, though at the cost of some distor-
in certain instances are not strictly comparable. tions in shape, distance, and direction. The maps
The data should thus be construed only as indi- have been prepared exclusively for the conven-
cating trends and characterizing major differences ience of the readers of this book; the denomina-
between economies. tions used, and the boundaries shown, do not
The technical notes should be referred to in any imply on the part of the World Bank and its af-
use of the data. These notes outline the methods, filiates any judgment on the legal status of any
concepts, definitions, and data sources. The bib- territory or any endorsement or acceptance of such
liography gives details of the data sources, which boundaries.
contain comprehensive definitions and descrip- The World Development Indicators are pre-
tions of concepts used. pared under the supervision of Ramesh Chander.
reenland
(Den)
Pakistan
Foe
ab
ongKofl9(UK(
Cape
Verde Lao Peoples
pfjyDem Rep
Ot Yemen em Rep (Philippines
Sen Guam (US)
Arab Rep nt Nam
TIre Gannbia Upper
Volta ea
Guinea- Brssau Guinea Trust Territory of the
Lanka Pacitrc Islands
Sierra Leone Ivory (US)
çSri
Liberia
a So rha Maldives
Ghana - Uganda
Togo I, -,Kenya
Rwarrda Papua
Equatorial Guinea
Zaire
Li New GUinea
Sao Tome and Principe Burundi
Peoples Rep V the Congo Swychebes
Tanzania . SVonnon
-. '. 5lslands Tuoafv *
Comoros
Pal
Zambia
Sanvatu Fip
Moza
a Zimbabwe, Mauritius
adag
Sotswana Revntn New CaleSenia
(Fr) (Fr)
,pwazand
South
Africa
New
Zealand
143
Population and GNP per capita
0-15 million
million
The colors on the map show the gen- ulation for each of 124 countries; the
I15-50 50-100 million eral size of a country's population. For technical note to that table gives data
100 + million example, countries with a population for 34 more countries with a popula-
of less than 15 million are colored yel- tion of less than 1 million.
Data not available low. Note that Table 1 gives the pop-
In the chart below, the world's pop- The chart at right shows the propor- Population
ulation has been arranged by the GNP tions of population and production ac-
per capita of the countries that people counted for by each country group,
live in. The chart shows, for example, except East European nonmarket
that more than 2 billion people live in economies. (The country
countries with a GNP per capita of less groups are those shown in
than $410. the map on the preceding
page and in the 27 tables that
follow.) The chart shows, for
example, that low-income
East Europé countries, those with an av-
nonmarket
erage GNP per capita of $270,
account for more than half
the people but less than a
Industrial market
tenth of the GNP.
GNP
Middle-income
Low-income
0 2
Billions of people
144
0-24 percent
25-49 percent
The adult literacy rate is the percent- 25. For example, the countries colored
50-74 percent age of people over 15 who can read yellow had an adult literacy rate of
75-100 percent and write. The map classes countries less than 25 percent in 1980.
by the rates given for individual coun-
Data not available tries in Table 1 and repeated in Table
S
world's illiterate adults live_mostly
in low-income countries, which ac- Literate
count for half the world's people.
Illiterate
The chart at right shows how the pro-
portion of illiterate and literate adults
changed in developing countries be-
tween 1960 and 1980. The height of
the cylinders reflects the total number
of adults in developing countries in
each of the two years. So, while the
proportion of literate adults has in-
creasedfrom 39 percent to 56 per-
centthe number of literate adults has
Low-income increased even morefrom 480 mil-
Middle-income lion to 1.2 billion.
High-income oil exporters 1960 1980
Industrial market 1.2 billion adults 2.1 billion adults
East European nonmarket
145
Life expectancy
0-49 years
The map classifies countries by life ex-
50-59 years
pectancy at birththat is, by the num-
60-69 years ber of years a baby born in 1981 can
70+ years expect to live. For example, life ex-
pectancy at birth is less than 50 years
Data not available in countries colored yellow.
50
The chart above shows that the pro-
portion of infants surviving the first
year of life has increased from 84 per-
cent in low-income countries in 1960
1960
to 90 percent in 1981.
40
a)
a) C
a)
a) C
a) a)
S S
a) a) C
F
a) a) a)
-C a)
C
146
Share of agriculture in GDP
F
0-9 percent
10-19 percent
The value added by a country's agri- example, countries whose shares of
20-39 percent cultural sector divided by the gross agriculture in GDP range from 0 to 9
40 + percent domestic product gives the share of percent are colored dark green. The
agriculture in GDP. In the map coun- shares say nothing about absolute val-
Data not available tries are classified by those shares. For ues of production.
Industrial market
3%
147
Table 1. Basic indicators
GNP per capita
Average Life
Area annual Average annual Adult expectancy
Population (thousands growth rate of Inflationo literacy at birth
(millions) of square Dollars (percent) (percent) (percent) (years)
Mid-1981 kilometers) 1981 1960_81b 1960_70c 1970_81d 19800 1981
Low-income economies 2,210.5 31,020 270 w 2.9w 3.5w 11,2w 52 w 58 w
China and India 1,681.5 12,849 280w 3.5 w 56 u' 61 w
Other low-income 529.0 18,171 240 w 0.8w 3.3w 11.6m 40 w 50 a'
1 Kampuchea, Dem. 181 . . 3.8
2 Bhutan 13 47 80 0.1 45
3 Lao, PDR 35 237 80 . 44 43
4 Chad 45 1,284 110 -22 46 74 15 43
5 Bangladesh 907 144 140 0.3 3.7 15.7 26 48
6 Ethiopia 320 1,222 140 1.4 2.1 4.1 15 46
7 Nepal 15.0 141 150 0.0 7.7 93 19 45
8 Burma 34 1 677 190 1.4 2.7 10.7 66 54
9 Afghanistan 16.3 648 . . .
11.9 5.0 20 37
10 Mali 69 1,240 190 1.3 50 9.7 10 45
11 Malawi 6.2 118 200 2.7 2.4 103 25 44
12 Zaire 29.8 2,345 210 -0 1 299 35.3 55 50
13 Uganda 13.0 236 220 -06 32 412 52 48
14 Burundi 42 28 230 24 28 11.6 25 45
15 Upper Volta 63 274 240 11 1.3 95 5 44
16 Rwanda 5.3 26 250 17 13.1 13.4 50 46
17 India 6902 3.288 260 14 71 81 36 52
18 Somalia 44 638 280 -02 4.5 12.6 60 39
19 Tanzania 19.1 945 280 1.9 1.8 11.9 79 52
20 Viet Nam 55 7 330 87 63
21 China 991.3 9,561 300 50 . . . . 69 67
22 Guinea 56 246 300 02 1.5 46 20 43
23 Haiti 5.1 28 300 05 40 10.0 23 54
24 Sri Lanka 150 66 300 2.5 18 131 85 69
25 Benin 3.6 113 320 0.6 1.9 9.4 28 50
26 Central African Rep. 2.4 623 320 0.4 41 126 33 43
27 Sierra Leone 3.6 72 320 0.4 122 15 47
28 Madagascar 9.0 587 330 -0.5 3.2 10.6 50 48
29 Niger 5.7 1.267 330 -1.6 2.1 122 10 45
30 Pakstan 84.5 804 350 2.8 33 13 1 24 50
31 Mozambique 125 802 .
, . . 33
32 Sudan 192 2.506 380 -03 37 159 32 47
33 Togo 27 57 380 25 1.3 8.9 18 48
34 Ghana 11 8 239 400 -11 7.6 36.4 54
148
GNP per capita
Average Life
Area annual Average annual Adult expectancy
Population (thousands growth rate of Inflatlona literacy at birth
(millions) of square Dollars (percent) (percent) (percent) (years)
Mid-1981 kilometers) 1981
1960_81b 1960_70c 197081d 19800 1981
65 Mongolia 17 1,565 . . 64
66 Colombia 264 1.139 1,380 32 11.9 22 4 81 63
67 Tunisia 65 164 1,420 4.8 3.6 8.2 62 61
68 Costa Rica 2.3 51 1,430 3.0 1.9 15.9 90 73
69 Korea, Dem. Rep 187 121 . . 66
70 Turkey 45.5 781 1,540 35 56 32.7 60 62
71 Syrian Arab Rep. 9.3 185 1,570 3.8 26 120 58 65
72 Jordan 34 98 1,620 . . . 70 62
73 Paraguay 31 407 1,630 35 31 12.4 84 65
High-income
oil exporters 15.01 4,012 1 13,460 , 6.2 18.2w 32 w 57 W
95 L'bya 3.1 1,760 8,450 4.7 5.2 17.3 57
96 Saudi Arabia 9.3 2.150 12.600 78 . 24.3 25 55
97 Kuwait 15 18 20,900 -0.4 182 60 70
98 united Arab Emirates 11 84 24,660 . . 56 63
Industrial market
economies 71951 309351 11120w 34w 43w 99w 99w 75w
99 Ireland 34 70 5,230 3.1 52 14.2 98 73
100 Spain 38.0 505 5.640 4.2 82 160 . 74
101 Italy 56.2 301 6.960 3.6 44 157 98 74
102 New Zealano 33 269 7.700 1.5 36 129 99 74
103 Unted Kingdom 56.0 245 9,110 21 41 144 99 74
104 Japan 117.6 372 10.080 6.3 51 74 99 77
105 Austria 7.6 84 10.210 4.0 37 6.1 99 73
106 Finland 4.8 337 10,680 3.6 6.0 12.0 100 75
107 Austaiia 14 7,687 11.080 2.5 31 11 100 74
108 Canada 24.2 9.976 11.400 33 3.1 9.3 99 75
109 Netherlands 14.2 41 11.790 31 54 7.6 99 76
110 Beglum 99 31 11,920 38 3.6 7.3 99 73
111 Fance 540 547 12,190 38 4.2 9.9 99 76
112 United States 229.8 . 9.363 12.820 23 2.9 7.2 99 75
113 Denmark 5.1 43 13.120 2.6 6.4 10.0 99 75
114 Germany, Fec. Rep. 61 7 249 13,450 32 3.2 50 99 73
115 Norway 41 324 14.060 35 4,4 8.8 99 76
116 Sweden 8.3 450 14.870 2.6 4.3 10.0 99 77
11 7 Switzerland 64 41 17.430 1.9 44 48 99 76
East European
nonmarket economies 380.8 I 23,422 9w 72w
118 Albania 28 29 . . .
. . 70
119 Hungary 10.7 93 2.100 50 . 2.9 99 71
120 Romania 22.5 238 2.540 8.2 -02 . . 98 71
121 Bulgaria 8.9 111 . .
. 73
122 Poland 35.9 313 . . . . . 98 73
123 USSR 2680 22,402 . . .
. 100 72
124 Czechoslovakia 153 128 . .
72
125 German Dem Rep. 167 108 73
a. See the technical notes. b Because data for the early 1960s are not available. figures in italics are for periods other than that specified
c. Figures in italics are for 1961-70, not 1960-70 d. Figures in italics are for 1970-80. not 1970-81. e Figures in italics are for years other than
those specified. See the technicai notes.
149
Table 2. Growth of production
Average annual growth rate (percent)
GDP Agriculture Industry Manufacturing Services
1960_70a1970_81b 196O7O197O81) 196O-70 1970-8V' 1960_70a 1970_81b 1960-7O 197O81'
Low-income economies 4.6 w 4.5w 2.2 in 2.3 in 6.6 in 3,6m 5,4w 2.9 in 4.2 in 4.6 in
China and India 4.5 w 4.8w 1.8 in 2.4 in 8.3 in 6.4w 5.2 in 4.8 in
Other low-income 4.7 ii' 3.6w 2.7 in 2.3 in 6.6 in 3.2m 5.9w 2.8 in 4.2 in 4.6 in
1 Kampuchea, Dem. 31
2 Bhutan
3 Lao. PDR
4 Chad 05
5 Bangladesh 37 42 27 2.4 80 90 66 112 42 5.3
6 Ethiopia 4.4 22 2.2 0.9 7.4 1.8 8.0 2.8 7.8 4.2
7 Nepal 25 21
8 Burma 26 48 4.1 4.7 28 5.6 3.4 46 1.5 4.7
9 Afghanistan 20 3.9 32 3.2 2.8 53
10 Mali 3.3 46 4.0 2.4 59
11 Malawi 4.9 56 . . . . , , , , . . . ,
26 Central African Rep. 1.9 1.6 08 23 5.4 4.0 54 -4.3 1.8 (.)
27 Sierra Leone 4.3 19 . . 24 . . -3.6 . . 3.7 . 45
28 Madagascar 2.9 0.3 . 0.3 . . 0.3 . . . . . 0.4
29 Niger 2.9 3.1 3.3 -30 13.9 114 . .
, (.) 69
30 Pakistan 6.7 4.8 4.9 2.6 10.0 55 94 44 7.0 61
31 Mozambique . . . . . , . . . .
Middle-income economies 6.0 w 5.6w 3.4w 3,0w 7.4 in 6.8 in 6.7 in 5.9 ni 5,5 in 6.1 in
Oil exporters 6.3 w 6.2 w 3.3 in 3.4 in 7.4 in 7.6 in 7.4 in 8.7 in 4.8 in 7.2 m
Oil importers 5.8 w 5.4 w 3.5 in 2.9 in 7.0 in 5.9 in 6.5 in 5.6 iii 5.7 in 5.7 in
Lower middle-income 5.0 or 5.6w 3.0 in 3.2 in 6.8 in 7.4 in 7.1 in 5.8 iii 5.3 in 6.0 in
35 Kenya 59 58 4.2 . 85 9,5 60
36 Senegal 25 20 2.9 26 4.4 4.1 6.2 20 1.7 0.9
37 Mauritania 6.7 17 1.4 3.1 14.1 -40 92 4.6 74 52
38 Yemen Arab Rep. 8.7 . . 36 13.9 12.1 117
39 Yemen, PDR
40 Liberia 5.1 1.3 40 -07 5.6 14
41 Indonesia 3.9 78 27 38 52 11.2 33 13.9 4.8 9,5
42 Lesotho 52 8.4 43 12.9 9.6 92
43 Bolivia 52 44 3.0 29 62 37 54 53 54 5.2
44 Honduras 53 3.8 5.7 1.9 54 49 4.5 47 48 4.6
45 Zambia 50 04 1.8 -04 03 1.2
46 Egypt 43 81 29 2.9 5.4 76 48 87 47 11.8
47 El Salvador 59 31 30 23 85 33 88 24 65 3.3
48 Thailand 84 72 56 45 119 99 11.4 103 9.1 7.5
49 Philippines 51 62 43 49 60 84 67 69 52 53
50 Angola
51 Papua New Guinea 67 t9
52 Morocco 44 5.2 47 () 4.2 5.8 42 54 4,4 64
53 Nicaragua 73 0.8 78 2.7 104 21 11.4 28 58 -0.8
54 Nigeria 3.1 4.5 -04 -04 14.7 60 9.1 124 2.3 7.4
55 Zimbabwe 43 18
56 Cameroon 3.7 6.3 3.9 9.4 . 53 . 68
57 Cuba
58 Congo, Peoples Rep 2.3 5.1 1.8 2.1 7.4 13.6 74 -1.8 1.1 22
59 Guatemala 56 55 43 4.3 78 73 82 59 55 5.4
60 Peru 49 30 37 03 50 34 57 2.9 53 35
61 Ecuador 86 . 29 . 125 . . 108 . 8.7
62 Jamaica 44 -12 15 0.5 48 -36 57 -26 46 ()
63 Ivory Coast 80 62 42 47 115 93 116 58 9.7 5.8
64 Dominican Rep 45 63 21 3.2 60 76 5.0 61 50 6.7
150
Average annual growth rate (percent)
GOP Agriculture Industry Manufacturing Services
1960_70197O81b 1g6Q701g71b 196O-7O 197Q1b 196O-7O 197081l 196O-70 197O81t
65 Mongolia
66 Colombia 51 5.7 35 4.7 6.0 4.7 5.7 5.7 5.7 68
67 Tunisia 4,7 7.3 2.0 4.1 8.2 9.3 7.8 11.7 4.5 75
68 Costa Rica 6.5 52 57 2.2 94 74 106 7.1 57 52
69 Korea, Dem Rep.
70 Turkey 60 5.4 25 32 9.6 6.1 10.9 5.5 69 62
71 Syrian Arab Rep. 46 100 . . 8.2 98 . 8.2 10.8
72 Jordan
73 Paraquay 42 88 .. 7.0 , 110 . 8.1 91
Upper middle-income 6.4 w 5.6 w 4.0 in 2.6 in 8.8 in 4.5 in 7.8 in 6.3 in 7.1 in 6.5 in
74 Koea. Rep. of 86 91 4.4 3.0 17.2 14.4 176 156 89 8.2
75 Iran. Islamic Rep of 113 44 . 13.4 12.0 100
76 Iraq 61 57 . 47 5.9 . 8.3
77 Malaysia 6.5 78 . 5.2 9.3 11.1 .
. 8.5
78 Panama 7.8 46 57 20 104 41 105 27 7.6 53
79 Lebanon 4.9 -5.4 63 . 4.5 5.0 . 48
80 Algeria 43 69 0.1 39 11.6 7.6 7.8 11.6 -11 64
81 Brazil 5.4 8.4 5.2 . . 9.1 8.7 8.3
82 Mexico 76 6.5 4,5 3.4 9.4 74 101 7.1 7,3 66
83 Portugal 6.2 4.4 13 -08 88 44 8.9 4.5 59 6.0
84 Argentina 4,3 1.9 18 25 5.8 1.4 5.6 07 38 2.2
85 Chile 44 2.1 3.1 30 44 07 5,5 () 46 29
86 South AIca 63 37
87 Yugoslavia 58 5.7 33 26 62 68 5.7 71 69 5.6
88 Uruguay 12 3.1 19 12 11 35 15 43 1.0 29
89 Venezuela 60 45 58 3.4 46 27 6.4 53 7.3 5.9
90 Greece 69 4.4 35 1.7 94 45 102 55 71 5.2
91 Hong Kong 10.0 99 -30 10 1
92 Israel 81 4.0
93 Singapore 88 85 5.0 17 12.5 9.0 13.0 9.7 7.7 85
94 T"n'oad and Tobago 4.0 5.5 -18 4.0 . 13 . 69
High-income
oil exporters 5.3w . . 7.1 m . . 3.1 in 9.2 iii . . 12.2 in
95 Libya 24 4 2.3 105 31 14.7 17.1
96 Saudi Arabia 10.6 53 10.2 6.5 122
97 Kuwa:t 5,7 2.3 7.1 -2.2 9.2 96
98 United Arab Emirates
Industrial market
economies 5.1 zv 3.0 w 1.4 in 1.6 in 5.7 in 2.9 in 5.9 iii 3.1 in 4.6 in 3.6 in
99 Ireland 42 40 09 . . 6.1 . 43
100 Span 7.1 32 .
. 2.1 . 3.9 . . 6.0 4.5
101 Italy 55 29 2.6 1.3 6.6 29 80 37 51 3.2
102 New Zealana 3.6 20 . . . . . . . . .
121 Bugar'a . . . . . . . . .
122 Polano .. .. . .. .. .. .. ..
123 USSR
124 Czechoslovakia
125 Geman Dem. Rep.
a Figures in italics are for 1961-70. not 1960-70. b. Figures in italics are for 1970-80, not 1970-81. c. Services include the unallocated share of
GDP. d. Based on net material product
151
Table 3. Structure of production
GOP Distribution of gross domestic product (percent)
(millions of dollars) Agriculture Industry (Manufacturing)a Services
1960' 1981' 1960b 1981c 1960' 1981c 1960b 1981' 1960b 1981c
1 Kampuchea, Dern
2Bhutan . .. .
3 Lao.PDR ..
4 Chad 180 52 12 4 36
5 Bangladesh 3.170 11.910 58 54 7 14 5 8 35 32
6 Ethiopia 900 3870 65 50 12 16 6 11 23 34
7 Nepal 410 2,420 . . .
152
GDP Distribution of gross domestic product (percent)
(millions of dollars) Agriculture Industry (Manufacturing)e Services
1960b 1981c 1gb 1981' 1gb 1981c 1960b 1981c 1960b 1981c
65 Mongolia . . .
Highincome
oil exporters 1w .. 76w .. 23w
95 Libya 310 27,400 2 71 3 27
96 Saudi Arabia 115,430 78 4 20
97 Kuwait 24,260 (.) 71 . 4 29
98 United Arab Emirates 30,070 77 4 22
Industrial market
economies 0 FL 3w 40w 36w 30w 25w 54w 61w
99 Ireland 1.770 16,590 22 . . 26 52
100 Spain 11,430 185,080 7 36 29 57
101 Italy 37,190 350,220 13 6 41 42 31 29 46 53
102 New Zealand 3,940 25010 11 . . 31 23 58
103 United Kingdom 71,440 496,580 3 2 43 33 32 20 54 65
104 Japan 44,000 1,129,500 13 4 45 43 34 30 42 53
105 Austria 6,270 66,240 11 4 46 39 35 37 43 57
106 Finland 5,010 48,940 17 7 34 36 23 25 49 57
107 Australia 16,370 171,070 12 5 40 28 . 48
108 Canada 39,930 282,500 5 4 34 32 23 19 61 64
109 Netherlands 11,580 140,490 9 4 46 33 34 24 45 63
110 Belgium 11,280 96,940 7 2 41 37 30 25 52 62
111 France 60,060 568,560 10 4 39 35 29 25 51 61
112 United States 505,300 2,893.300 4 3 38 34 29 23 58 63
113 Denmark 5,960 58,260 11 4 31 32 21 19 58 64
114 Germany, Fed Rep 72,100 708,540 6 2 53 46 41 41 49
115 Norway 4,630 57.140 9 5 33 41 21 15 58 54
116 Sweden 13,950 112,420 7 3 40 31 27 21 53 66
11 7 Switzerland 8,550 94.260
East European
nonmarket economies
118 Albania
119 Hungarye 22,560 28 18 39 48 33 34
120 Romania 48,412 . . 13 . 60 27
121 Bulgaria
122 Poland
123 USSR
124 Czechoslovakia
125 German Dem Rep.
a. Manufacturing is a part ot the industrial sector, but its share ot GDP is shown separately because it typically is the most dynamic part of the industrial
sector. b. Figures in italics are tor 1961, not 1960. c. Figures in italics are for 1980, not 1981 d. Based on net material product
e. Based on constant price series. Services include the unallocated share of GDP.
153
Table 4. Growth of consumption and investment
Average annual growth rate (percent)
Public Private Gross
consumption consumption domestic investment
1960-70° 1970-81' 1960-70 1970-81' 196070e 1970-81k
Low-income economies 4.5 m 3.3 in 3.2 m 3.5 in 4.6 in 4.3 in
China and India 3.1 in 4.2 in 7.6 in 5.5 in
Other low-income 4.6 m 3.1 in 3.2 in 3.5 lfl 4.3 in 3.7 in
1 Kampuchea, Oem 2.6 3.2 0.3
2 Bhutan
3 Lao, PDR
4 Chad 44 -07 23
5 Bangladesh C c 3.4 4.2 111 29
6 Ethiopia 4,7 3.4 4.7 3.4 57 -03
7 Nepal
8 Burma c 2.8 4.2 36 89
9 Afghanistan C 20 -1.0
10 Mali 6.2 73 2.8 48 4.9 35
11 Malawi 46 2.2 41 55 15.4 2.8
12 Zaire 8.5 -0.2 3.5 -3.4 9.6 7.3
13 Uganda C c 5.6 -0.9 7,5 -164
14 Burundi 192 31 32 33 4,3 16.7
15 Upper Volta 7.1 3,5 37
16 Rwanda 11 118 43 3.2 35 149
17 India -0.2 42 37 3.2 53 4.9
18 Somalia 37 0.4 43
19 Tanzania C c 67 6.5 98 37
20 Viet Nam
21 China c C 25 52 9.8 60
22 Guinea
23 Haiti c c -10 5.0 17 91
24 Sri Lanka c c 21 2.7 66 94
25 Benin 17 24 49 3.3 42 11.0
26 Central African Rep 2.2 -29 3.0 2.4 1.3 -7.5
27 Sierra Leone -19 35 -12
28 Madagascar 3.0 1.3 1.9 -06 5.4 -1.1
29 Niger 20 26 3.9 28 30 73
30 Pakistan 73 47 7.1 53 69 3.2
31 Mozambique
32 Sudan 12 1 C -1.6 6.9 -1.3 52
33 Togo 67 99 76 4.1 111 91
34 Ghana 71 47 1.7 -0.8 -31 -14
Middle-income economies 6.2 in 6.6 in 5.2 in 5.5 in 7.7 in 7.9 in
Oil exporters 6.3 in 10.6 in 4.8 in 7.4 in 4.2 in 10.5 in
Oil importers 6.0 in 6.4 in 5.4 in 4.6 in 8.8 in 6.6 in
154
Average annual growth rate (percent)
Public Private Gross
consumption consumption domestic investment
1960_.70e 1970-1b 196O-70 1970-81' 1960_70a 1970_81b
65 Mongolia
66 Colombia 5.5 5.2 5.5 66 45 66
67 Tunisia 5.2 90 3.2 8.2 4.2 10.8
68 Costa Rica 80 5.9 60 42 71 67
69 Korea, Oem. Rep.
70 Turkey 67 64 51 37 8.8 81
71 Syrian Arab Rep. 16.0 12.1 16.7
72 Jordan
73 Paraguay 69 6.6 53 7.8 68 198
Upper middle-income 6.8 or 6.5 or 5.4 m 5.8 m 7.5 ni 7.2 oi
74 Korea, Rep. of 55 7.8 7.0 7.1 236 122
75 Iran, Islamic Rep. of 160 100 12.2
76 Iraq 81 49 30
77 Malaysia 7.5 10.2 4.2 73 75 104
78 Panama 78 52 67 46 124 10
79 Lebanon 59 44 62
80 Algeria 15 11.4 23 9.2 -0 2 11 8
81 Brazil 3.7 6.9 5.4 8.7 6.1 79
82 Mexico 8.8 8.3 70 6.0 99 90
83 Portugal 7.7 83 5.5 38 77 23
84 Argentina 11 4.8 45 1.1 4.0 2.5
85 Chile 5.1 2.2 37 08 99 3.0
86 South Atrica 70 49 62 0.6 94 32
87 Yugoslavia 06 43 95 58 47 59
88 Uruguay 44 39 0.7 1.3 -18 106
89 Venezuela 63 5.0 . 7.6
90 Greece 66 6.6 71 4. 104 13
91 Hong Kong 8.6 9.9 8.6 9.9 6.9 14.1
92 Israel 138 3.0 7.4 5.3 5.7 -04
93 Singapore 12.6 63 54 68 205 7.2
94 Trinidad and Tobago C C 48 8.7 -23 106
High-income
oil exporters . . 13.2 ri 18.5 in , , 17.5 ni
95 Libya , . 156 . 18.5 . 10.7
96 Saudi Arabia . . c , 18.8 . . 426
97 Kuwait 10.8 13 1 17.5
98 United Arab Emirates
Industrial market
economies 4.2 in 3.5 or 4.3 iii 3.0 in 5.8 in 0.9 m
99 Ireland 39 5.6 38 2.8 90 4.6
100 Spain 38 5.2 70 36 11.3 1.2
101 Italy 41 2.8 61 2.8 37 09
102 New Zealand 3.6 33 3.3 19 32 -0.6
103 United Kingdom 22 23 24 1.6 51
104 Japan 62 45 9.0 4.2 14.6 31
105 Austria 33 39 43 36 59 26
106 Finland 50 5.1 4.0 27 41
107 Australia 71 52 5.0 3.0 67 18
108 Canada 62 2.5 49 45 58 41
109 Netherlands 2.8 2.7 5.9 3.3 74 ' 09
110 Belgium 57 48 38 36 60 08
111 France 40 3.2 53 4.1 7.7 1.4
112 United States 42 2.0 44 3.2 50 1.9
113 Denmark 5.9 4.0 41 1.9 59 - 1.8
114 Germany. Fed Rep 41 35 46 2.8 41 13
115 Norway 62 41 37 50 50 - 0.3
116 Sweden 54 3.3 35 1.9 53 -0.6
117 Switzerland 4.8 1.8 43 14 39 -1.0
East European
nonmarket economies
118 Albania . .
122 Poland , . .
123 USSR
124 Czechosiovakia
125 German Dem. Rep.
a. Figures in italics are for 1961-70. not 1960-70 b Figues in italics are for 1970-80. not 1970 81. c. Separate figures are not avaiabie for public
consumption, which is therefore included in private consumption.
155
Table 5. Structure of demand
Distribution of gross domestic product (percent)
Exports
of goods
Public Private Gross domestic Gross domestic and nonfactor Resource
consumption consumption investment saving services balance
1960 1981b 1960° 1981b 1960 1981b 1960° 1981b 1960 1981b 1960° 1981b
Low-income economies 8w 11w 78w 74w 19w 24w 18w 21w 7w 9w -1w -3w
China and India 77w 74w 21w 26w 20w 25w 4w 8w -1w -2w
Other low-income lOw 11w 81w 84w 12w 14w lOw 7w 15w 12w -2w -7w
1 Kampuchea, Oem
2 Bhutan
3 Lao, PDR
4 Chad 13 82 11 5 23 -6
5 Bangladesh 6 8 86 90 7 17 8 2 10 7 1 -15
6 Ethiopia 8 15 81 81 12 10 11 4 9 13 -1 -6
7 Nepal C 92 14 8 -6
8 Burma c c 89 83 12 24 11 17 20 9 -1 -7
9 Afghanistan c 87 16 13 4 -3
10 Mali 12 26 79 80 14 16 9 -6 12 18 -5 -22
11 Malawi 16 10 88 80 10 22 -4 10 21 22 -14 -12
12 Zaire 18 16 61 59 12 33 21 25 55 36 9 -8
13 Uganda 9 c 75 97 11 3 16 3 26 1 5 (.)
14 Burundi 3 16 92 79 6 19 5 5 13 9 -1 -14
15 Upper Volta 10 15 94 96 10 16 -4 -11 9 13 -14 -27
16 Rwanda 10 17 82 75 6 23 8 8 12 12 2 -15
17 India 7 10 79 70 17 23 14 20 5 7 -3 -3
18 Somalia 8 86 10 6 13 -4
19 Tanzania 9 14 72 78 14 22 19 8 31 14 5 -14
20 Viet Nam
21 Ch'na c c 76 72 23 28 24 28 4 9 1 (.)
22 Guinea 19 67 11 14 34 3
23 Haiti C C 93 99 9 13 7 1 20 14 -2 -12
24 Sri Lanka 13 7 78 81 14 28 9 12 44 31 -5 -16
25 Benin 16 13 75 89 15 35 9 -2 12 31 -6 -37
26 Central African Rep 19 13 72 90 20 9 9 -3 23 26 -11 - 12
27 Sierra Leone . 11 . 91 . 13 -2 17 . -15
28 Madagascar 20 16 75 77 11 15 5 7 12 13 -6 -8
29 Niger 9 9 79 76 13 27 12 15 9 22 -1 -12
30 Pakistan 11 11 84 82 12 17 5 7 8 12 -7 -10
31 Mozambique . . . .
-12
.
. . .
40 Liberia 7 21 58 62 28 18 35 17 39 51 7 -1
41 Indonesia t2 11 80 66 8 21 8 23 13 28 () 2
42 Lesotho 17 26 108 163 2 21 -25 -89 12 13 -27 -110
43 Bolivia 7 10 86 77 14 13 7 13 13 13 -7 ()
44 Honduras 11 14 77 68 14 24 12 18 22 32 -2 -6
45 Zambia 11 28 48 57 25 23 41 15 56 36 16 -8
46 Egypt 17 19 71 64 13 30 12 17 20 34 -1 -13
47 El Salvador 10 15 79 75 16 12 11 10 20 31 -5 -2
48 Thailand 10 12 76 65 16 28 14 23 17 25 -2 -5
49 Philippines 8 8 76 67 16 30 16 25 11 19 () -5
50 Angola
51 Papua New Gunea 28 26 71 63 13 28 1 11 16 38 -12 -17
52 Morocco 12 c 77 92 10 23 11 8 24 21 1 -15
53 Nicaragua 9 21 79 73 15 24 12 6 24 21 -3 -18
54 Nigeria 6 12 87 65 13 29 7 23 15 25 -6 -6
55 Zimbabwe 11 18 67 67 23 22 22 15 . -1 -7
56 Cameroon 7 . 71 21 . . 22 . . 32 1
57Cuba .
..
-21 -66
.
156
Distribution of gross domestic product (percent)
Exports
of goods
Public Private Gross domestic Gross domestic and nonfactor Resource
consumption consumption investment saving services balance
1960a 1981' 1960a 1981' 196O 1981b 1960 1981i 196O 1981b 1960 1981'
65 Mongolia
66 Colombia 73 68 28 24 16 12 ()4
67 Tunisia
68 Costa Rica
6
17
10
8
15
15
76
77
62
60
21
17
18
31
28
21
13
7 23
25
20
21
42
44
10 8
5 3
69 Korea. Dem Rep.
70 Turkey
71 Syrlan Arab Rep.
11 11
22
76 70
69
16 25
24
13 19
9
3 11
18
3 15
6
72 Jordan 30 86 41 16 54 57
1
.
73 Paraguay 8 7 76 74 17 29 16 19 18 7 10
Upper middle-income 12 w 15 u' 67 w 65 w 22 u' 25 w 21 u' 24w 18 w 23 w 1 u' 1w
74 Korea, Rep of 15 12 84 66 11 26 1 22 3 39 10 4
75 Iran. Islamic Rep. of 10 69 17 21 19 4
76 Iraq 48 20 34 42 14
77 Malaysia
78 Panama
18
11
11
21
21
62
78
53
56
t4
16
32
29
27
11
26
23
54
31
53
40 513 6
6
79 Lebanon 10 85 16 5 27 11
80 Algeria 15 16 60 45 42 37 25 39 31 34 17 2
81 Brazil 12 c 67 81 22 20 19 5 9 1 1
82 Mexico 6 15
16
76
76
62
77
20 25
27
21
18
12
23 10 13
27
2
7 2
19
83 Portugal 11 19 8 17
1
84 Argentina
85 Chile
86 South Africa
9
9
15
13
70
79
62
75
50
22
14
22
26
22
29
21
12
27
23
12
37
14
30
9
18
36
7
2 10 3
87 Yugoslavia
88 Uruguay
9
19
9
13
15
13
64
49
79
56
75
37
18
32
15
32
12
29
12
14
14
23
15
5
6 3
5
3
8
89 Venezuela 14 14 53 56 21 25 33 30 32 30 12 5
90 Greece 12 18 77
87
66 19 25
30
11 14
24 82
9 20 8 11
12 6
91 Hong Kong 7 8 68 18 6 111
92 Israel 18 36 68 59 27 20 14 5 14 43 13 15
93 Singapore
94 Trinidad and Tobago
8
9
10
C
95
61
57
60
11
28
42
30
330 33
40
163
37
212
45
14 9 2 10
High-income
oil exporters 21w . 22w 26 w . . 58 w 69w . 32w
95 Lbya 26 26 34 48 60 14
96 Sauc: Arabia 23 . 18 26 . 59 . 68 33
97 Kuwait 15 39 17 46 71 29
98 United Arab Emirates 11 17 28 . 72 78 44
Industrial market
economies 15 w 17 w 63 w 61 w 21 w 22 w 22 w 21 w 12 w 20 w 1w1w
99 Ire,anu 12 22 77
72
62
70
16 30
20
11 16
18
32
10
63 5 14
2
100 Spain 12 18 17
101 Italy
7
13 18 62 63
60
25 21
21
25 19 14 27
2(.)
3
22
102 New Zealand 17 68 23 25 23 22 29
103 United Kingdom
11
17 22 66 58 19 17
21
17 20 21 28 2 3
104 Japan 8 10 59 58 33 31 33 32 11 15 () 1
c 10 74 61 28 30 26 29 39 . 1
120 Romania . 33 . 28 ()
121 Bulgaria
122 Poland . . . . . .
123 USSR
124 Czechoslovakia
125 German Dem. Rep
a Figures in italics are for 1961, not 1960 b Figures in italics are for 1980. not 1981 c. Separate figures are not available for public consumption.
which is therefore included in private consumption.
157
Table 6. Agriculture and food
Value added Volume of Food aid Fertilizer Average index of
in agriculture cereal imports in cereals consumption food production
(millions of (thousands (thousands ot (per hectare of per capita
1975 dollars) of metric tons) metric tons) arable land) (1969-71 = 100)
1970 1974 1981 1974b 1981b 1970" 1980 1979-81
1981
Low-income economies 22,884 t 27,052 5,659 3,827 180 w 560 w 111 w
China and India 14,4371 18,9341 1,582t 4721 230 u' 766 w 111 zt'
Other low-income 8,447f 8,1181 4,077 1 3,355 78 w 166w 111 zv
1 Kampuchea. Dem. . 223 150 226 133 13 27 45
2 Bhutan 23 30 0 1 0 11 107
3 Lao. PDR 53 50 13 2 4 78 110
4 Chad 246 211 50 14 13 14 7 3 96
5 Bangladesh 9.475 11100 1.719 1.079 2.130 737 142 463 94
6 Ethiopia 1,128 1.300 118 207 59 228 4 40 85
7 Nepal 1.012 1.068 19 12 0 45 30 97 84
8 Burma 1.479 2.528 26 14 14 0 34 100 102
9 Afghanistan 5 965 10 75 24 63 97
10 Mali 260 352 281 102 114 50 29 60 88
11 Malawi 221 . 17 113 (.) 17 52 141 96
12 Zaire 397 497 343 538 (,) 77 8 13 87
13 Uganda 1.926 1,543 37 37 16 57 13 1 86
14 Burundi 239 310 7 19 6 12 5 8 100
15 Upper Volta 217 262 99 71 0 51 3 40 94
16 Rwanda 394 3 16 19 15 3 1 104
17 India 29.097 35,407 5.261 1.523 1.582 435 114 309 103
18 Somalia 357 42 432 110 330 31 23 65
19 Tanzania 842 1.352 431 265 148 237 30 69 91
20 Viet Nam 1.854 1.150 6 142 512 407 112
21 China 42.900 59.400 9.176 17.411 37 418 1.546 116
22 Guinea 520 63 134 49 34 18 2 87
23 Haiti 83 233 25 84 4 4 89
24 Sri Lanka 841 1,148 951 669 271 226 496 770 148
25 Benin . 217 8 93 9 11 33 17 96
26 Central African Rep 120 152 7 14 1 3 11 5 102
27 Sierra Leone 192 231 72 58 10 12 13 10 81
28 Madagascar 691 722 114 268 7 26 56 29 94
29 Niger 440 322 155 89 75 11 1 8 93
30 Pakistan 3.258 4.273 1 274 305 619 277 168 495 105
31 Mozambique 62 368 34 155 27 90 73
32 Sudan 1.435 1,778 125 305 50 195 31 65 102
33 Togo 145 178 6 62 0 4 3 30 90
34 Ghana 2.281 2.500 177 256 43 94 9 43 74
158
Value added Volume of Food aid Fertilizer Average index of
in agriculture cereal imports in cereals consumption food production
(millions of (thousands (thousands of (per hectare of per capita
1975 dollars) of metric tons) metric tons) arable land) (1969-71 = 100)
1970 1981 1974 1981 1974b 1981b 1970c 1980 1979-81
65 Mongolia . . . 28 173 . . .
. 18 86 92
66 Colombia 2,848 4,630 503 694 28 5 310 537 122
67 Tunisia 480 899 307 960 1 99 82 135 124
68 Costa Rica 338 461 110 177 1 1 1.086 1.500 110
69 Korea. Oem. Rep 1,108 720 1.484 3.255 134
70 Turkey 7,691 10.777 1,276 299 70 9 166 412 112
71 Syrian Arab Rep. 595 1484 339 971 47 39 67 220 163
72 Jordan 97 171 619 63 84 20 104 74
73 Paraguay 419 899 71 68 10 11 58 33 111
Upper middle-income 24,361 t 44.124 t 760 t 1,044 t 252 o' 555w 113
74 Korea, Rep of 3.995 5,610 2.679 7.687 234 678 2,466 3,757 126
75 Iran, Islamic Rep. of 3,739 . . 2.076 3,236 . . . . 76 359 112
76 Iraq 1.172 . 870 2.275 1 0 35 169 89
77 Malaysia 2.049 3,554 1,017 1.244 1 0 436 1.051 139
78 Panama 290 345 63 89 3 2 391 533 102
79 Lebanon . . 354 692 21 39 1279 764 109
80 Algeria 952 1,464 1,816 3,261 54 29 174 320 81
81 Brazil 8.737 14,932 2.485 5.571 31 3 169 678 125
82 Mexico 8.501 12.649 2.881 6.602 . 0 246 517 106
83 Portugal 2,242 2,025 1,860 3.942 0 255 411 730 74
84 Argentina 3.523 4,313 0 10 24 32 116
85 Chile 440 557 1,737 1,392 331 28 317 210 97
86 South Africa 127 476 425 779 104
87 Yugoslavia 3.655 4.840 992 454 766 1.045 117
88 Uruguay 385 404 70 44 31 0 392 424 104
89 Venezuela 1.362 1,918 1,270 2.378 165 642 104
90 Greece 2.851 3.521 1.341 685 858 1.342 123
91 Hong Kong 183 155 657 801 , . . . 71
92 Israel . . .
. 1,176 1,700 53 10 1.394 1.987 103
93 Singapore 100 123 682 1.258 (.) 0 2.667 5.500 148
94 Trinidad and Tobago 80 65 208 327 . 640 506 69
High-income
oil exporters 1,327 5,715 59 zi' 378 w
95 Libya 126 388 612 942 64 374 141
96 Saudi Arabia 331 551 482 4.100 44 352
97 Kuwait 20 37 101 386 0 4.400
98 United Arab Emirates 132 287 0 2.692
Industrial market
economies 65,494 t 65,420 985 1,258 u' 112w
99 Ireland 631 598 3.573 6.182 115
100 Spain 7.945 9,762 4.675 6.012 595 810 125
101 Italy 14.093 15.820 8.100 7.088 962 1.701 112
102 New Zealand . . . . 92 62 8.875 10,177 107
103 United Kingdom 5.386 6,744 7.541 4.366 2.521 2.936 122
104 Japan 24.218 24,825 19.557 24.420 3.849 3.721 91
105 Austria 1.806 2,018 165 99 2,517 2,491 112
106 Finland 3.188 3.009 222 524 1.931 2.039 103
107 Australia 4.351 5.916 2 8 246 277 117
108 Canada 6,743 8,371 1.513 1.393 192 432 109
109 Netherlands 3.173 4,721 7.199 5.228 7.165 7.888 116
110 Belgium 1,929 2,204 4.585 6.083 5.686 4.990 109
111 France 17.077 17,957 654 1,746 2,424 3.008 117
112 United Stales 46.300 59.800 460 188 800 1.116 116
113 Denmark 1,641 2,365 462 509 2.254 2,364 111
114 Germany. Fed. Rep. 11.567 13,870 7.164 4.995 4.208 4.714 110
115 Norway 1.409 1.859 713 686 2.471 3.010 117
116 Sweden 3.133 3.080 301 216 1,639 1,624 117
117 Switzerland . . . 1.458 1.199 3.842 4,576 119
East European
nonmarket economies 18,543t 58,774t 635w 1.050 107
118 Albania .
. 48 4 745 1.249 106
119 Hungary 1.619 2,240 408 180 1,485 2.624 132
120 Romania . . 1.381 2.590 0 559 1.165 147
121 Bulgaria . . 649 1,016 1.446 1.984 116
122 Poland 4,185 7.218 0 1.715 2.356 96
123 USSR 7.755 43.713 437 809 102
124 Czechoslovakia 1.296 1.128 2.402 3.347 114
125 German Dem. Rep. 2.821 2.925 3.202 3,252 129
a Figures in italics are for 1980 not 1981 b Figures are for the crop years 1974.75 and 1980;81. c. Average for 1969-71. d. lnciuoes Luxem-
bourg.
159
Table 7. Industry
Distribution of manufacturing value added (percent; 1975 prices)
Machinery Value added
Textiles and in manufacturing
Food and and transport Other (millions of
agriculture clothing equipment Chemicals manufacturing 1975 dollars)
1980e 1980a 1980 1980e 1980 1970 1980
Low-income economies
China and India
Other low-income
1 Kampuchea. Dem . . .
2Bhutan
3 Lao. PDR
4Chad .. . . 37 27
5 Bangladesh 26 40 4 16 14 647 1197
6 Ethiopia 236 335
7Nepal .
. .. .
8 Burma . .
. .
. 287 429
9 Afghanistan
lOMali . .. .. .
. 44 55
11 Malawi 50 11 . . 39 56
12 Zaire 44 20 10 26 186 162
13 Uganda 222 90
14 Burundi 23 43
15 Upper Volta 67 94
16 Rwanda 58 42 100
17 India 13 19 20 13 35 10.202 15909
18 Somalia 42
19 Tanzania 190 237
20 Viet Nam
21 China
22 Guinea .
. 44
23 Haiti 38 12 . 1 49
24 SriLanka . 556 679
25 Benin . 43
26 Central African Rep 54 39
27 Sierra Leone 25 34
28 Madagascar 27 41 11 19 295 353
29 Niger 54 165
30 Pakistan 1.492 2.270
31 Mozambique
32 Sudan 266 284
33 Togo 30 14
34 Ghana 31 69 601 490
Middle-income economies
Oil exporters
Oil importers
Lower middle-income
35 Kenya 30 11 12 8 39 165 501
36 Senegal 52 14 7 27 276 348
37 Mauritania 21 30
38 Yemen Arab Rep 25 83
39 Yemen. PDR
40 Liberia 27 . .
. 73 25 41
41 Indonesia 29 8 7 11 45 1.517 5.546
42 Lesotho 5 12
43 Bolivia . . . . 237 389
44 Honduras 46 13 1 7 33 137 213
45 Zambia 14 20 12 13 41 319 381
46 Egypt . 1.835 4.204
47 El Salvador . . . . . . 252 321
48 Thailand . . 1.675 4.355
49 Phnippines 39 11 10 8 32 2.816 5.519
5oAngoia . . ,, .
160
Distribution of manufacturing value added (percent; 1975 prices)
Machinery Value added
Textiles and in manufacturing
Food and and transport Other (millions of
agriculture clothing equipment Chemicals manufacturing 1975 dollars)
1980k 1980 1980 1980 1980 1970 1980
65 Mongolia 22 31 5 42
66 Colombia 32 15 12 12 29 1,800 3,293
67 Tunisia 23 15 9 16 37 222 727
68 Costa Rica . . . . .
. 261 540
69 Korea, Oem Rep. . . . . .
High-income
oil exporters
95 Libya . . . . 154 632
96 Saudi Arabia 3 . .
. 97 1,726 3,378
97 Kuwait 8 . . . 17 75 369 915
98 United Arab Emirates
Industrial market
economies
99 Ireland 22 10 12 12 44
100 Spain 12 15 17 10 46 18,331 33,396
101 Italy 10 15 26 9 40
102 New Zealand 26 11 15 5 43
103 United Kingdom 13 8 34 10 35 58,677 56,530
104 Japan 8 6 33 8 45 118,403 234,036
105 Austria 14 9 23 7 47 9,112 13,532
106 Finland 12 8 22 8 50 5,636 8,635
107 Australia 17 8 22 8 45 20,207
108 Canada 14 7 21 8 50 25,748 36,232
109 Netherlands 18 4 26 15 37 18,684 24,245
110 Belgium 17 8 28 13 34 14,386 19,650
111 France 16 8 32 9 35 75,800 107,805
112 United States 11 6 32 12 39 382,200 436,900
113 Denmark 23 6 26 7 38 5,858 8,095
114 Germany, Fed Rep. 9 6 35 11 39 149,113 184,741
115 Norway 15 4 27 7 47 5,322 6,373
116 Sweden 10 3 34 6 47 16,743 18,817
117 Switzerland 15 9 21 16 39
East European
nonmarket economies
118 Albania , , . . , . . . ,
122 Poland 5 19 32 8 36 .
123 USSR 12 11 28 6 43
124 Czechoslovakia 8 9 35 9 39
125 German Dem. Rep 18 10 32 9 31
161
Table 8. Commercial energy
Energy imports
Average annual energy Energy consumption as a percentage
growth rate (percent) per capita (kilograms of merchandise
Energy production Energy consumption of coal equivalent) exports
1960_74a 1974-80 1960-74k 1974-80 1960b 1980 1960 1980c
Low-income economies 5,0w 5,6w 4,9w 5,0w 218w 368 w 11w 43w
China and India 4.6 w 5.6w 4,6w 5,2w 252 w 450 w
Other low-income 14.7w 6.5w 9.0w 2.0w 58 w 107w ic
1 Kampuchea. Dem. -51 44 0 19 128 9
2 Bhulan
3 Lao, PDR 93 138 16.2 16 127
4 Chad 8 22 23
5 Bangladesh 11.8 69 49 27
6 Ethiopia 141 2.5 22 7 -16 5 25 11 42
7 Nepal 26 8 0.7 152 21 3 13 43
8 Burma 5.6 119 43 5.8 60 87 4
9 Afghanistan 38.8 -31 10.4 5.1 23 83 12
10 Mali 40.4 70 10.2 4.7 10 31 13
11 Malawi 27 2.9 59 24
12 Zaire 3.0 13.2 6.5 0.1 82 107 3
13 Uganda 52 -83 89 -84 39 34 5
14 Burundi 35.2 1.8 68 11 16 14
15 Upper Volta 78 12.7 5 33 38 52
16 Rwanda 4.6 82 96 15 28
17 India 49 45 55 46 210 11 43
18 Somalia 97 128 16 85 4 12
19 Tanzania 106 124 136 -13 17 69 47
20 Viet Nam 00 66 113 -13 95 148
21 China 45 58 44 53 340 618
22 Guinea 16.0 05 178 16 17 83
23 Haiti 129 101 127 16 88 47
24 Sri Lanka 101 69 4,9 22 177 201 8 47
25 Benin 10.1 17 38 70 16
26 Central African Rep 14 1 40 77 7.7 30 46 12 26
27 Sierra Leone 0.8 0.4 212 166 11
28 Madagascar 6.7 -63 110 -0.2 40 74 9
29 Niger 149 14.1 5 54 6 55
30 Pakistan 94 69 51 46 143 224 17
31 Mozambique 32 4T9 64 -29 111 103 11
32 Sudan 29 6 128 125 -42 58 101 8 32
33 Togo Ti 66.9 125 20 7 22 203 10 43
34 Ghana 36 9 2.9 125 19 104 268 7
162
Energy imports
Average annual energy Energy consumption as a percentage
growth rate (percent) per capita (kilograms of merchandise
Energy production Energy consumption of coal equivalent) exports
1960_74a 1974-80 1960-74 1974-80 1960b 1980 1960 1980
65 Mongolia 10.4 122 7.4 10.2 529 1,452
66 Colombia 3.5 13 6.3 4.8 519 970 3 14
67 Tunisia 71.9 6.0 10.2 9.2 173 652 15 33
68 Costa Rica 9.5 6.7 104 7.0 311 829 7 24
69 Korea, Gem. Rep. 94 3.2 9.6 3.5 1179 2,864
70 Turkey 7.5 3.1 9.8 5.0 258 779 16 126
71 Syrian Arab Rep 860 40 114 11.9 233 964 16 50
72 Jordan ,
69 126 185 ' 627 79 73
73 Paraguay 10.4 8.9 9.6 80 300 .
. 41
Industrial market
economies 4.0w 1.8w 5.4w 0.8w 4,540w 7,495w 12w 29w
99 Ireland -01 47 50 46 1,868 3.770 17 19
100 Spain 30 61 94 33 900 2,944 22 63
101 Italy 2.3 -04 81 0.6 1,452 3,725 18 35
102 New Zealand 5.7 30 6.2 0.8 2.759 4,816 7 23
103 United Kingdom -1.0 114 2.0 -0.2 4.750 5.363 14 14
104 Japan -1.4 37 10.9 2.2 1,354 4,649 18 54
105 Austria 14 0.7 53 2.5 2,482 5.102 12 22
106 Finland 3.3 4.5 99 1.6 1.501 6.351 11 32
107 Australia 11.0 3.0 5.8 2.8 4.020 7.214 12 13
108 Canada 8.7 11 5.9 24 7.560 13.153 9 11
109 Netherlands 16 1 0.3 91 10 3,078 8,068 15 25
110 Belgium -72 45 54 17 3.853 7,431 11 19
111 France -1.3 2.8 5.7 18 2.858 5.368 16 32
112 United States 35 09 42 16 8,408 11,626 8 38
113 Denmark -198 253 60 26 2.748 5.746 15 26
114 Germany. Fed. Rep. -0 6 00 44 09 3,859 6.053 7 22
115 Norway 68 21.3 58 44 5,058 11,928 15 16
116 Sweden 36 49 49 10 4.623 7.971 16 26
117 Switzerland 4.2 2.6 6.0 1.3 2,718 5.223 10 14
East European
nonmarket economies 6.6w 4.1 n' 5.3 a 4.1 2,884w 6,217
118 Albania 97 24 125 38 528 1.800
119 Hungary 27 27 4.9 4.4 1,710 4.094 13 17
120 Romania 59 0.2 79 5.5 1,537 4,775
121 Bulgaria 33 34 97 5.0 1,362 5,957 7
122 Poland 40 2.8 43 4.3 3.108 5.799 20
123 USSR 76 4.7 56 42 2,896 6.422 4
124 Czechoslovakia 12 1.6 34 31 3,862 6,847 . 19
125 German Dem. Rep 06 2.0 22 20 4.609 7.412
a. Figures in italics are for 1961-74. not 1960-74 b. Figures in italics are for 1961, not 1960 c. Figures in italics are for 1979. not 1980
163
Table 9. Growth of merchandise trade
Merchandise trade Average annual growth rates
(millions of dollars) (percent) Terms of trade
Exports Imports Exports Imports (1975=100)
1981' 1981b 1960-70 1970_81c 1960-70 1970-81' 1978 1981"
Low-income economIes 42,444 60,117 4.9m -0.7m 5.3 fl; 2.4 m 109m 87m
China and India 29,624 36,567
Other low-income 12,820 23,550 5Dm -0,8w 5Am 1.9m 11Dm 88m
1 Kampuchea, Dem. .
S . .
2 Bhutan . . . . .
3 Lao,PDR 9 85 .. .. ..
4 Chad 141 137 59 -7.2 5.1 -38 111 101
5 Bangladesh 791 2,594 6.5 -0.7 7.1 51 99 79
6 Ethiopia 374 738 3.6 -0.8 6.2 (.) 158 69
7 Nepal 63 195 . . . . S
Lower middle-income 98,497 t 122,588 5.2w 3.0w 6.5w 4,lm 98rn 77w
35 Kenya 1,144 1,946 72 -1.9 6.5 -1.8 144 99
36 Senegal 416 1,035 1.2 -1 4 2.3 2.5 97 68
37 Mauritania 259 265 50.6 -0.3 46 3.2 81 72
38 Yemen Arab Rep. 39 1,699 . . . . . . . . .
164
Merchandise trade Average annual growth ratea
(millions of dollars) (percent) Terms of trade
Exports Imports Exports Imports (1975= 100)
1981b 1981 1960-70 197081c 1960-70 1970_81c 1978 1981"
65 Mongolia
66 Colombia 3,190 5,181 2.2 1.6 2.5 6.5 145 127
67 Tunisia 2,209 3924 4.2 40 2.3 9.2 81 104
68 Costa Rica 968 1,198 95 4.0 10.0 22 125 87
69 Korea, Dem. Rep. , . . , , , . , , ,
Upper middle-income 238,675 t 283,141 5.4 iii 7.0 in 5.9 in 4.7 iii 97 in 89 in
74 Korea, Rep. of 21 .254 26,131 334 22.0 20.6 10.9 105 67
75 Iran, Islamic Rep. of 10,169 12.634 12.5 -13.4 11 6 10.5 94 217
76 Iraq 9,372 18,907 5.4 -2.1 1.4 23.6 94 209
77 Malaysia 12,884 13,132 5.8 6.8 2.3 7.1 109 101
78 Panama 315 1,540 10.2 -1.9 10.5 -43 93 93
79 Lebanon 1,107 3,946 14.4 1.9 5.1 3.3 101 88
80 Algeria 14,056 11505 3.5 10 -1.1 120 96 196
81 Brazil 23,172 24007 5.0 8.7 49 29 108 56
82 Mexico 20,033 24.168 2.8 15.3 64 9.5 92 89
83 Portugal 4,147 9,799 9.6 . 14.2 . . .
a. See the technical notes. b. Figures in italics are for 1980. not 1981 c. Figures in italics are for 1970-80. not 1970-81 d Includes Luxembourg.
165
Table 10. Structure of merchandise exports
Percentage share of merchandise exports
Machinery
Fuels, Other and
minerals, primary Textiles transport Other
and metals commodities and clothing equipment manufactures
1960e 1980i 1960 1980 1960 1980L 1960a 1980b 1960 1980b
31 Mozambique U 100 0 0 0
32 Sudan 0 1 100 96 0 1 0 2 0 (,)
33 Togo 3 58 89 32 3 4 0 3 5 3
34 Ghana 7 83 0 0 10
166
Percentage share of merchandise exports
Machinery
Fuels, Other and
minerals, primary Textiles transport Other
and metals commodities and clothing equipment manufactures
1 960a 1 980b 1 96O 1 98O' 1 96O 1 980b 1 96O 1 980b 1 960a 1 980b
65 Mongolia . . . . . .
66 Colombia 19 3 79 77 0 6 (.) 2 2 12
67 Tunisia 24 56 66 8 1 18 1 2 8 16
68 Costa Rica 0 1 95 65 0 5 0 4 5 25
69 Korea, Dem. Rep. . . . . . . . .
70 Turkey 8 8 89 65 0 16 0 3 3 8
71 Syrian Arab Rep. 0 74 81 18 2 4 0 1 17 3
72 Jordan 0 29 96 35 0 4 0 9 4 23
73 Paraguay 0 (.) 100 88 0 (.) 0 (.) 0 12
80 Algeria 12 99 81 1 0 (.) 1
(.) 6 (.)
81 Brazil 8 11 89 50 0 4 (.) 17 3 18
82 Mexico 24 39 64 22 4 3 1 19 7 17
83 Portugal 8 7 37 21 18 27 3 13 34 32
84 Argentina 1 6 95 71 0 2 (.) 7 4 14
85 Chile 92 59 4 21 0 (.) 0 1 4 19
86 South Africa 29 23 42 23 2 1 4 5 23 48
87 Yugoslavia 18 9 45 18 4 9 15 28 18 36
88 Uruguay . . 1 71 61 21 16 . . 4 8 18
89 Venezuela 74 98 26 (.) 0 () 0 (.) (.) 2
90 Greece 9 25 81 28 1 17 1 3 8 27
91 Hong Kong 5 2 15 5 45 34 4 19 31 40
92 Israel 4 2 35 16 8 8 2 13 51 61
93 Singapore 1 28 73 18 5 4 7 26 14 24
94 Trinidad and Tobago 82 93 14 2 0 () 0 1 4 4
High-income
oil exporters . . 98 a (.) w . (.) w . . 1w . . 1w
95 Libya 100 100 0 (.) 0 (.) 0 (.) 0 (.)
96 Saudi Arabia 95 99 5 () 0 (.) 0 (.) 0 1
97 Kuwait .
. 89 . 1 . . 1 . . 3 . . 6
98 United Arab Emirates . . . . . . . .
Industrial market
economies 11w 13w 23w 15w 7w 5w 29w 35w 30w 32w
99 Ireland 5 3 67 39 6 8 4 19 18 31
100 Spain 21 8 57 20 7 5 2 26 13 41
101 Italy 8 7 19 8 17 11 29 33 27 41
102 New Zealand () 7 97 72 0 3 (.) 5 3 13
103 United Kingdom 7 18 9 8 8 4 44 35 32 35
104 Japan 11 2 10 2 28 4 23 55 28 37
105 Austria 26 5 22 12 10 9 16 28 26 46
106 Finland 3 8 50 22 1 7 13 18 33 45
107 Australia 13 28 79 44 (.) 1 3 7 5 20
108 Canada 33 28 37 23 1 1 8 26 21 22
109 Netherlands 15 26 34 23 8 4 18 17 25 30
110 Belgiumc 15 15 9 11 12 7 13 22 51 45
111 France 9 8 18 18 10 5 25 34 38 35
112 United States 10 9 27 23 3 2 35 40 25 26
113 Denmark 2 5 63 38 3 5 19 24 13 28
114 Germany. Fed. Rep. 9 7 4 7 4 5 44 45 39 36
115 Norway 22 59 34 9 2 1 10 12 32 19
116 Sweden 10 9 29 12 1 2 31 40 29 37
117 Switzerland 2 5 8 4 12 6 30 33 48 50
East European
nonmarket economies 18 ii' 33 w . . 3w . . 34 w . . 21 w
118 Albania
119 Hungary 28 25 7 7 38 32 21 27
120 Romania
121 Bulgaria 3 . 75 12 . . 6 . 4 .
122 Poland 20 . 9 . 6 . . 36 29
123 USSR 24 . 28 . 1 . 21 . 26
124 Czechoslovakia 20 7 11 9 () 5 45 50 25 29
125 German Dem Rep
a. Figures in italics are for 1961, not 1960. b. Figures in italics are for 1979, not 1980. c. Includes Luxembourg.
167
Table 11. Structure of merchandise imports
Percentage share of merchandise imports
Machinery
Other and
primary transport Other
Food Fuels commodities equipment manufactures
1960 198O' 1960 1980' 1960a 1980b 196Oa 1980b 1960a 1980b
168
Percentage share of merchandise imports
Machinery
Other and
primary transport Other
Food Fuels commodities equipment manufactures
196O 1980b 196O 1980b 1960 198O' 196O 1980b 196O 1980b
65 Mongolia
66 Colombia 12 3 12 15 6 43 38 31 32
67 Tunisia 20 14 9 21 4 8 23 23 44 34
68 Costa Rica 13 9 6 15 6 4 26 24 49 48
69 Korea, Oem. Rep
70 Turkey 7 4 11 48 16 5 42 18 24 25
71 Syrian Arab Rep. 24 14 8 25 5 4 15 23 48 34
72 Jordan 18 17 3 . . 28 . 34
73 Paraguay 13 24 . 1 . . 36 . . 26
Upper middle-income 15w lOw 9w 19w 15w 8w 28w 32w 33w 31w
74 Korea, Rep. of 10 10 7 30 25 17 12 22 46 21
75 Iran, Islamic Rep. of 14 13 1
(.) 1 5 23 44 61 38
76 Iraq . . . .. . . S S
77 Malaysia 29 12 16 15 13 6 14 39 28 28
78 Panama 15 10 10 31 1 1 22 21 52 37
79 Lebanon . . . S . .
80 Algeria 26 21 4 2 2 5 14 37 54 35
81 Brazil 14 10 19 43 13 6 36 19 18 22
82 Mexico 4 8 2 2 10 7 52 50 32 33
83 Portugal 15 14 10 24 28 11 26 25 21 26
84 Argentina 3 6 13 10 11 7 44 40 29 37
85 Chile .
. 14 . . 21 . . 4 . . 27 . . 34
86 South Africa 6 5 7 1 9 6 37 52 41 36
87 Yugoslavia 11 8 5 24 25 12 37 28 22 28
88 Uruguay 5 8 24 29 46 7 17 30 8 26
89 Venezuela 18 15 1 2 10 5 36 43 35 35
90 Greece 11 9 8 23 16 8 44 36 21 24
91 Hong Kong 27 12 3 6 16 6 10 22 44 54
92 Israel 20 11 7 26 18 6 28 21 27 36
93 Singapore 21 9 15 29 38 7 7 29 19 26
94 Trinidad and Tobago 16 11 34 38 7 3 18 25 25 23
High-income
oil exporters 15 w 2w 2w 38 w . 43 w
95 Libya 13 19 5 1 10 2 40 38 32 40
96 Saudi Arabia 14 . 1 . .
2 . . 39 .
. 44
97 Kuwait . . 15 . . 1 . . 2 . . 36 .
. 46
98 United Arab Emirates 11 . 10 . . 2 . . 38 . 39
Industrial market
economies 22w 11w 11w 27w 24w lOw 16w 22w 27w 30w
99 Ireland 18 12 12 15 11 5 21 27 38 41
100 Spain 16 13 22 39 25 11 22 18 15 19
101 Italy 20 13 14 28 31 13 13 21 22 25
102 New Zealand 8 6 8 22 16 6 29 30 39 36
103 United Kingdom 36 13 11 13 27 11 8 26 18 37
104 Japan 17 12 17 50 49 19 9 6 8 13
105 Austria 16 6 10 15 20 9 29 29 25 41
106 Finland 13 7 10 29 20 7 33 27 24 30
107 Australia 6 5 10 14 16 5 31 36 37 40
108 Canada 12 8 9 12 12 7 36 46 31 27
109 Netherlands 18 15 13 24 14 7 22 20 33 34
110 Belgiurnc 15 11 10 17 26 11 21 22 28 39
111 France 25 10 17 27 25 9 14 21 19 33
112 United States 24 8 10 33 25 7 10 25 31 27
113 Denmark 18 11 12 22 11 8 23 20 36 39
114 Germany Fed. Rep. 26 12 8 23 28 10 10 19 28 36
115 Norway 12 8 9 17 13 8 36 29 30 38
116 Sweden 13 7 14 24 13 7 26 27 34 35
117 Switzerland 18 8 8 11 13 10 21 24 40 47
East European
nonmarket economies
118 Albania
119 Hungary 12 16 28 13 28 29 24 34
120 Romania
121 Bulgaria
122 Poland 14 . 18 11 . . 27 30
123 USSR 12 4 . . 18 . . 30 . 36 .
124 Czechoslovakia 10 19 . 15 . 36 . 20
125 German Dem. Rep.
a. Figures in italics are for 1961, not 1960. b. Figures in italics are for 1979, not 1980. c. Includes Luxembourg.
169
Table 12. Origin and destination of merchandise exports
Destination of merchandise exports (percentage of total)
Industrial East European
market nonmarket High-income Developing
economies economies oil exporters economies
Origin 1960 198P 1960 1981 1960 1981k 1960 1981a
170
Destination of merchandise exports (percentage of total)
Industrial East European
market nonmarket High-income Developing
economies economies oil exporters economies
Origin 1960 1981 1960 1981 1960 1981a 1960 1981
65 Mongolia . . .
66 Colombia 94 70 1 4 0 (,) 5 26
67 Tunisia 76 75 3 1 2 4 19 20
68 Costa Rica 93 62 (.) 2 (.) C) 7 36
69 Korea, Dem. Rep. . . . . . . . . . .
70 Turkey 71 47 12 7 () 15 17 31
71 Syrian Arab Rep. 39 60 19 18 11 7 31 15
72 Jordan 1 6 11 7 26 32 62 55
73 Paraguay 61 47 0 0 0 0 39 53
Upper middle-income 67 w 63 w 6w 4w (.) 3w 28 w 30w
74 Korea Rep. of 89 67 0 () 0 10 Il 23
75 Iran, Islamic Rep. of, 62 55 3 (.) 1 1 34 44
76 Iraq 85 47 1
(.) (.) (.) 14 53
77 Malaysia 58 53 7 3 0 1 35 43
78 Panama 99 72 0 () 0 1 1 27
79 Lebanon 21 10 8 8 32 51 39 31
80 Algeria 93 89 0 2 (.) () 7 9
81 Brazil 81 54 6 7 (.) 1 13 38
82 Mexico 93 91 () (.) 0 0 7 9
83 Portugal 56 77 2 2 () 1 42 20
84 Argentina 75 45 5 25 (.) (.) 20 30
85 Chile 91 67 (.) (.) (.) 2 9 31
86 South Africa 71 80 1 (.) (.) 0 28 20
87 Yugoslavia 48 31 31 49 1 3 20 17
88 Uruguay 82 54 7 8 0 2 11 36
89 Venezuela 62 71 0 () 0 (.) 38 29
90 Greece 65 56 21 8 1 13 13 23
91 Hong Kong 54 60 (.) (.) 1 3 45 37
92 Israel 76 68 1 1 0 (.) 23 31
93 Singapore 38 41 4 1 1 7 57 51
94 Trinidad and Tobago 80 76 0 (.) () (.) 20 24
High-income
oil exporters 83w 64w (.) w (.) w Ow 8w 17w 28w
95 Libya 67 86 7 (.) 0 (.) 26 14
96 Saudi Arabia 74 72 0 () 0 3 26 25
97 Kuwait . 51 . 1 . . 4 44
98 United Arab Emirates 91 12 0 () 0 45 9 43
Industrial market
economies 67 w 65 w 3w 3w (.) w 4w 30 w 28w
99 Ireland 96 85 () 1 () 3 4 11
100 Spain 80 56 2 4 (.) 5 18 35
101 Italy 65 61 4 3 2 10 29 26
102 New Zealand 95 63 1 4 (.) 2 4 31
103 United Kingdom 57 68 3 2 2 6 38 24
104 Japan 45 46 2 3 2 7 51 44
105 Austria 69 69 13 11 () 3 18 17
106 Finland 69 62 19 27 (.) 1 12 10
107 Australia 75 50 3 4 1 3 21 43
108 Canada 90 84 1 3 () 1 9 12
109 Netherlands 78 81 1 2 1 3 20 14
110 BeIgium' 79 83 2 2 1 2 18 13
111 France 53 66 3 4 (.) 4 44 26
112 United States 61 55 1 2 1 4 37 39
113 Denmark 83 81 4 2 () 2 13 15
114 Germany. Fed. Rep. 70 72 4 4 1 3 25 21
115 Norway 80 88 4 2 (.) (.) 16 10
116 Sweden 79 76 4 4 (.) 3 17 17
117 Switzerland 72 70 3 3 1 4 24 23
East European
nonmarket economies 19 30 w 59 53 w (.) 1w 22 w 16w
118 Albania 1 . . 93 . 0 6
119 Hungary 22 27 61 53 (.) 2 17 18
120 Romania 20 35 66 37 () 2 14 26
121 Bulgaria 13 16 80 69 (.) 6 7 9
122 Poland 29 34 () 17 10
123 USSR 18 32 51 49 (.) (.) 31 19
124 Czechoslovakia 16 22 67 65 (.) 3 17 10
125 German Dem. Rep 19 24 68 65 () 1 13 10
171
Table 13. Origin and destination of manufactured exports
Destination of manufactured exports (percentage of total) manufactured
Industrial East European exports
market nonmarket High-income Developing (millions
economies economies oil exporters economies of dollars)
Origin 1962a 1980' 1962 1980b 1962 1980b 1962 1980k' 1962a 1980'
2 Bhutan
3 Lao. PDR 35 0 0 65 ()
4 Chad 19 0 6 75 1
19 Tanzania 93 58 0 () 0 () 7 42 16 83
20 Viet Nam 10 0 0 90 1
21 China 8.150
22 Guinea
23Haiti .
172
Destination of manufactured exports (percentage of total) manufactured
Industrial East European exports
market nonmarket High-income Developing (millions
economies economies oil exporters economies of dollars)
1962 1980b 1962 1980' 1962 198O 1962 1980b 1962 1980b
Origin
65 Mongolia . .
79 Lebanon 22 . 4 . . 14 . 60 . . 11
80 Algeria 50 58 0 36 0 (.) 50 6 23 49
81 Brazil 60 42 3 2 0 1 37 55 39 7.770
82 Mexico 71 82 0 1 0 () 29 17 122 3,389
83 Portugal 56 81 (.) 1 () 1 44 17 205 3,322
84 Argentina 62 42 3 5 0 () 35 53 39 1,861
85 Chile 45 29 0 (.) 0 2 55 69 20 758
86 South Atrica 54 69 (.) (.) (.) (.) 46 31 317 5,166
87 Yugoslavia 31 30 30 49 1 3 38 18 344 6,570
88 Uruguay 75 47 13 2 0 (.) 12 51 7 404
89 Venezuela 94 54 0 (.) 0 (.) 6 46 158 330
90 Greece 52 56 6 5 3 13 39 26 27 2,441
91 Hong Kong 63 64 0 () 1 4 36 32 642 18,208
92 Israel 66 69 3 (.) 0 (.) 31 31 184 4,551
93 Singapore 4 47 0 1 2 5 94 47 328 10,452
94 Trinidad and Tobago 39 65 0 (.) 0 (.) 61 35 13 206
High-income
oil exporters 13w 32 w 0w (.)w 30w 21 w 57 w 47 w
95 Libya 68 62 0 1 0 (.) 32 37 ( ) 78
96 Saudi Arabia 64 17 0 () 12 14 24 69 3 705
97 Kuwait () 37 0 () 35 24 65 39 11 2,123
98 United Arab Emirates 76 . 0 3 . 21 . 33
Industrial market
economies 63 w 66 w 3w 3w 1w 4 ri 33 ii' 27 ri
99 Ireland 76 92 0 1 () 1 24 6 134 4,909
100 Spain 57 57 1 2 () 5 42 36 205 14.967
101 Italy 65 66 5 4 2 8 28 22 3.490 65.797
102 New Zealand 90 69 0 1 0 1 10 29 23 1,174
103 United Kingdom 58 65 3 2 2 6 37 27 8.947 84.287
104 Japan 45 46 4 3 1 7 50 44 4.340 124,027
105 Austria 67 70 18 13 () 1 15 16 931 14,480
106 Finland 56 64 31 24 () 1 13 11 608 9.864
107 Australia 62 31 (.) () (.) 1 38 68 263 6,220
108 Canada 89 87 () 1
(.) 1 11 11 1.959 30,595
109 Netherlands 78 81 2 2 1 3 19 14 2,443 37.827
110 Belgium 83 84 2 2 1 2 14 12 3.257 47.440
111 France 63 68 4 4 () 3 33 25 5,317 81,654
112 United States 48 55 1.) (.) 1 5 51 40 13,957 147,336
113 Denmark 76 82 8 2 () 2 16 14 627 9,252
114 Germany. Fed Rep. 74 73 4 5 1 3 21 19 11.623 165.447
115 Norway 81 74 2 3 () 1 17 22 442 5,931
116 Sweden 76 77 6 3 () 3 18 17 1.958 24.332
117 Switzerland 74 70 3 4 1 3 22 23 2,005 26,647
East European
nonmarket economies
118 Albania . . . , ,
121 Bulgaria
122 Poland . 22 . . 63 2 . . 13 . . 10,336
123 USSR . . . . , . .
173
Table 14. Balance of payments and reserves
Receipts Gross international reserves
Current account of workers' Net direct In months
balance remittances private investment Millions of of import
(millions of dollars) (millions of dollars) (millions of dollars) dollars coverage
1970 1981° 1970 1981 1970 1981° 1970 1981a 1981°
Low-income economies 4.0 w
China and India 5.2 w
Other low-income 1.9w
1 Kampuchea, Dem. .
2 Bhutan
3 Lao,PDR
4Chad 2 . 1 1 . 2 12
5 Bangladesh 60 1.016 386 160 06
6 Ethiopia 32 254 11 4 72 370 52
7 Nepal . 19 94 262 69
63
.
48
.
. 4
.
1 25 06
11 Malawi 35 101 10 9 . 29 54 13
64
.
12 Zaire 2 42 .
. 189 294
13 Uganda 20 161 . 2 4 3 57 17 0.3
14 Burundi 15 68
15 Upper Volta 9 . 18 (.) . 36 75
16 Rwanda 7 59 1 2 () 18 8 173 59
17 India 394 4,040 113 6 1,023 8,109 54
18 Somalia
19 Tanzania
6
36
30
533
.
7
.
5
. .
21
65
38 10
. . 11 . . . 19 0.2
20 VietNam . . .
667
.
926
4
5
1 22.
40
3 166
964
3.3
50
39 Yemen, PDR 4 . .
137 60 352
.
.
59 271 4.2
40 Liberia 65 - .
. 7 0.1
41 Indonesia 310 736 .
83 133 160 6.248 30
42 Lesotho 54 265 . . 43 11
43 Bolivia 4 285 (.) 2 76 60 46 429 38
44 Honduras 64 303 . 2 8 4 20 107 10
45 Zambia 108 649 () 297 . 515 143 09
46 Egypt 148 2.135 29 2.181 746 165 1.683 18
47 El Salvador 9 86 1 48 4 6 64 277 3.5
48 Thailand 250 2.560 - 478 43 291 912 2.721 27
49 Philippines 48 2,286 . 798 29 403 255 2,859 3.0
50 Angola
567
.
() . 86 478 3.4
52 Morocco 124 1,839 63 1,013 20 59 141 510 1,0
53 Nicaragua 40 . 1 . 15 . 49
54 Nigeria 368 5,395 205 47 223 4168 21
55 Zimbabwe . . 635 . - 7 . - 4 59 327 1.7
56 Cameroon 30 () .
. 16 81 90
57Cuba .- -
174
Receipts Gross international reserves
Current account of workers' Net direct In months
balance remittances private investment Millions of of import
(millions of dollars) (millions of dollars) (millions of dollars) dollars coverage
1970 1981 1970 1981 1970 1981 1970 1981a 1981
65 Mongolia . . . . . . . .
a Figures in italics are for 1980, not 1981. b See the technical notes.
175
Table 15. Flow of public and publicly guaranteed external capital
Public and publicly guaranteed medium- and long-term loans
(millions of dollars)
Repayment
Gross inflow of principal Net inflowa
1970 1981 1970 1981 1970 1981
Low-income economies
China and India
Other low-income
1 Kampuchea. Dem .
2 Bhutan
3 Lao. PDR
4Chad 6 9 2 10 3 1
5 Bang!aaesh 513 52 461
6 E1hopia 27 149 15 24 13 125
7 Nepa'
8 Burma
1
16
64
431
2
18
2
83
2
2 61
348
9 Afghanstan 34 15 19
10 Ma 21 116 () 36 21 110
11 Maaw 38 130 3 39 36 91
12 Za'e 31 260 28 90 3 170
13 Uganda 26 85 4 53 22 32
14 Buund: 1 30 (.) 3 1 27
15 Upper Vota 2 44 2 8 () 36
16 Rwanoa ( ) 26 () 1 ( ) 25
17 ndia 890 1.987 307 647 583 1,340
18 Soma;ia 4 175 (.) 13 4 163
19 Tanzan'a 50 276 10 73 40 203
20 VetNam
21 Chna
22 Gunea 90 141 10 61 80 80
23 HaI 4 106 4 18 1 88
24 Sr anka 61 369 27 42 34 327
25 Benin 2 172 1 12 1 160
26 Centra Afrcan Rec 26 5 1 21
27 S'ea Leone
28 Maaagasca
2
8
10
64
265
2
10
5
41
74
2 5
24
191
29 Nger 12 284 1 29 10 255
30 Paks1an 484 673 114 331 370 340
31 Mozamoique
32 Suaan 60 540 22 52 39 489
33Togo 5 38 2 21 3 17
34 Ghana 40 117 12 51 28 66
Middle-income economies
Oil exporters
Oil importers
Lower middle-income
35 Kenya 30 476 15 177 15 299
36 Senega 15 266 5 53 10 174
37 Mau:an'a 4 174 3 36 1 138
38 Yemen Aab Re of 294 . 49 245
39 Vpri PDR 1 190 0 32 1 158
40 Lbe'a 7 70 12 11 4 59
41 'nam-esa 441 2.356 59 1.001 382 1.355
42 eso1flo () 47 () 7 () 39
43 Bova 54 337 17 100 37 237
44 Honau'as 29 254 3 37 26 217
45 Zamba 351 248 33 187 318 61
6 Egyc:. Aab Re of 302 3.487 247 1.570 55 1 918
47 E Savaam 8 182 6 17 2 165
48 Tf-aano 51 1.461 23 226 27 1.235
49 Phoones 132 1.529 73 367 59 1.162
50 Angoa .
176
Public and publicly guaranteed medium- and long-term loans
(millions of dollars)
Repayment
Gross inflow of principal Net nflow
1970 1981 1970 1981 1970 1981
65 Mongolia . , , .
Upper middle-income
74 Koea. Rep. of 440 6,087 198 1,820 242 4,266
75 Iran. Islamic Rep. of 940 235 . . 705
76 Iraq 63 18 46
77 Maaysa 43 1,874 45 138 1 1.736
78 Panama 67 342 24 215 44 126
79 Lebanon 12 99 2 40 9 58
80 Algera 292 2.781 33 2,399 259 382
81 Brazil 886 8,997 255 3.619 631 5,378
82 Mex;co 772 13,416 476 3,782 297 9,634
83 Portuga 18 1.622 63 606 45 1,016
84 A'gentina 487 1.845 342 1.092 146 753
85 Chile 397 1.018 163 1.175 234 156
86 South Africa
87 Yugoslavia 180 1,181 168 373 12 808
88 Uruguay 38 292 47 53 9 239
89 Venezuela 224 2,059 42 1,352 182 706
90 Greece 164 1.837 61 612 102 1.225
91 HongKong 0 39 () 155 (.) 115
92 Israel 410 2,482 25 1,368 385 1,115
93 Sngapore 58 169 107 52 62
94 T-nidad and Tobago 8 88
6
10 26 2 62
High-income
oil exporters
95 Lbya
96 Sauai Arabia
97 Kuwait
98 Un.ted Arab Emirates
Industrial market
economies
99 Ireland
100 Spain
101 hay
102 New Zealand
103 United Kingdom
104 Japan
105 Austr.a
106 Finand
107 Australia
108 Canada
109 Netherlands
110 Belgum
111 France
112 United States
113 Denmark
114 Germany. Fed. Rep.
115 Norway
116 Sweden
117 Switzerland
East European
nonmarket economies
118 Aibana
119 Hungary 1.880 940 940
120 Romania
121 BZgaria
122 Poland
123 USSR
124 Czechoslovakia
125 German Dem. Rep
a. G'oss inflow less repayment of principal may not equal net inflow because of rounding
177
Table 16. External public debt and debt service ratios
External public debt Interest payments
outstanding and disbursed Debt service as percentage of:
on external
Millions of As percentage public debt Exports of
dollars of GNP (millions of dollars) GNP goods and services
1970 1981 1970 1981 1970 1981 1970 1981 1970 1981
2Bhutan .. . .
3 Lao. FOR
4 Chad 32 201 11.9 509 () 2 1.0 29 39
5 Banglaaesh 3.850 . 31 2 46 08 6.9
6 E1hopia 169 792 9.5 18.7 6 16 1.2 1.0 11 4 7.6
7 Nepal 3 234 0.3 95 () 3 0.3 0.2 1.6
8 Burma 101 1.639 47 28.7 3 53 09 2.4 15.8 22 1
9 Afghanistan 547 . 58 1 9 . . 2.5
10 Ma 238 738 881 64.9 () 3 02 0.8 12 38
11 Malaw 122 685 39.1 420 3 49 1.9 54 7.1 245
12 Zaire 311 3.960 17.6 77.0 9 122 12 41 4.4
13 Uganda 138 540 10.5 5.2 4 2 0.6 05 2.6 39
14 Burunai 7 154 31 161 (,) 2 03 05
15 Uppe'Vota 21 296 63 231 () 6 06 11 40
16 Rwanda 2 172 09 136 (.) 2 0.2 02 13 1.5
17 no'a 7,940 17.975 14.9 108 189 378 0.9 0.6 209
18 Soma.ia 77 877 24.4 709 (.) 4 0.3 1.3 21 61
19 Tanzania 248 1.476 19.4 283 6 34 1.2 2.1 49 72
20 Vet Nam . . . . . . . . . .
21 China . . . . . . .
.
178
External public debt
Interest payments
outstanding and disbursed Debt service as percentage of:
on external
Millions of As percentage public debt Exports of
dollars of GNP (millions of dollars) GNP goods and services
1970 1981 1970 1981 1970 1981 1970 1981 1970 1981
65 Mongolia
66 Colombia 1.293 5.123 188 140 44 408 1.8 1.8 119 13.4
67 Tunisia 541 3.171 382 38.0 18 204 4.5 6.1 175 13.9
68 Costa Rica 134 2,246 13.8 92.6 7 111 2.9 78 10.0 15.3
69 Korea, Dem. Rep.
70 Turkey 1,854 13,809 14.4 234 42 658 13 2.0 163 15.0
71 Syrian Arab Rep. 232 2,337 12.8 152 6 108 2.0 27 108 12.1
72 Jordan 118 1,419 387 2 81 50 36 5.7
73 Paraguay 112 707 191 126 4 32 1.4 13 118 9.8
Upper middle-income 12.4w 17.8 u' 1.6w 3.5w 10.1 w 15.4w
74 Korea, Rep. of 1.797 19.964 20.8 32.1 70 1.777 3.1 5.8 194 13.1
75 Iran. Islamic Rep of 2.193 . 208 . . 85 . 3.0 . 12.2
76 Iraq 274 . . 8.8 . . 9 . 09 . 2.2
77 Maiaysia 390 4.627 10.0 19.2 21 264 17 1.7 3.6 31
78 Panama 194 2.368 19.0 64.5 7 277 30 13.4 7.7 11 5
79 Lebanon 64 246 4.2 . , 1 13 0.2 .
179
Table 17. Terms of public borrowing
Average interest Average Average
Commitments rate maturity grace period
(millions of dollars) (percent) (years) (years)
1970 1981 1970 1981 1970 1981 1970 1981
16 Rwanda 9 71 08 1.2 50 44 11 9
17 India 933 3,469 2.4 5.0 35 33 8 7
18 Somalia 2 216 0 4.9 4 16 4 4
19 Tanzania 283 294 1.2 2.2 40 33 11 7
20 VietNam ., .. .. .. ..
21 China . . . .
180
Average interest Average Average
Commitments rate maturity grace period
(millions of dollars) (percent) (years) (years)
1970 1981 1970 1981 1970 1981 1970 1981
65 Mongolia . . .
181
Table 18. Official development assistance from
OECD and OPEC members
Amount
1960 1965 1970 1975 1977 1978 1979 1980 1981 l982
OECD Summary
ODA (billions of US dollars. nominal prices) 463 648 697 1385 15.73 19.99 2282 2726 25.63 27.92
ODA as percentage of GNP 51 49 .34 36 33 35 .35 38 .35 39
ODA (billions of US doliars,
constant 1980 prices) 1641 20.19 18.15 21.60 21.91 24.09 24.89 2726 2582 28.37
GNP (trillions of US dollars, nominal prices) 90 130 2.00 3.90 470 5.70 6.50 720 730 7.24
ODA detlatorc 28 32 .38 64 72 .83 .92 1 00 99 98
182
Amount
1975 1976 1977 1978 1979 1980 1981
183
Table 19. Population growth, past and projected, and hypothetical
stationary populationa
Hypothetical Assumed
Average annual growth Projected size of year of Year
of population population stationary reaching of reaching
(percent) (millions) population reproduction stationary
1960-70 1970-81 1980-2000 1990 2000 (millions) rate of 1 population
Low-income economies 2.3 w 1.7w 2,624 t 3,107
China and India 2.3w 7w 1.4w 6937 t 2,199
Other low-income 2.5 w 2.6 w 2.9w 687 t 908
1 Kampuchea, Oem. 2.6 . . . . . .
184
Hypothetical Assumed
Average annual growth Projected size of year of Year
of population population stationary reaching of reaching
(percent) (millions) population reproduction stationary
1960-70 1970-81 1980-2000 1990 2000 (millions) rate of 1 population
65 Mongolia 3.0 2.9 2.4 2 3 5 2020 2110
66 Colombia 3.0 19 2.0 32 38 62 2010 2110
67 Tunisia 2.0 23 24 8 10 20 2020 2110
68 Costa Rica 34 2.8 21 3 3 5 2005 2065
69 Korea, Oem. Rep 2.9 2.6 2.3 23 28 49 2015 2105
70 Turkey 25 2.3 21 56 68 119 2015 2110
71 Syrian Arab Rep 3.2 3.7 40 14 19 48 2020 2105
72 Jordan 31 35 3.7 5 7 18 2025 2110
73 Paraguay 26 2.6 23 4 5 8 2020 2105
High-income
oil exporters 4.3 w 4.9 w 3.4 w 20! 28!
95 Libya 39 41 37 4 6 19 2030 2120
96 Saudi Arabia 35 45 34 12 18 59 2035 2125
97 Kuwait 99 6.3 26 2 2 5 2015 2085
98 United Arab Emirates 9.3 166 20 1 2 3 2020 2110
Industrial market
economies 75
East European
nonmarket economies 1.1 0.8 w 0.7 w 411! 437!
118 Albania 28 2.5 19 3 4 6 2005 2060
119 Hungary 0.3 04 0.2 11 11 12 2000 2040
120 Romania 0.9 09 0.7 24 25 31 2000 2085
121 Bulgaria 08 05 0.4 9 10 11 2000 2080
122 Poland 10 0.9 0.7 39 41 49 2000 2080
123 USSR 12 09 0.8 291 312 373 2000 2090
124 Czechoslovakia 05 0.7 0.5 16 17 20 2000 2085
125 German Oem. Rep -01 -02 0.2 17 17 18 2000 2015
Total' 138
a. For the assumptions used in the protections, see the technical notes. b. Excludes countries with populations of less than one million
185
Table 20. Demographic and feitility-related indicatorsa
Crude Crude ta9e
birth death Chafl9 in: Percentage of
rate per rate per Crude Crude Total married women
thousand thousand birth death fertility using Contra-
population population ceptivesa
rate rate rate
1960 1981a 1960 i98i 1960-8P 1960_81e 1981e 1970 1981
1 Kampuchea, Dem. 45 . 19 . . . .
186
Crude Crude Percentage
birth death change in: Percentage of
rate per rate per Crude Crude Total married women
thousand thousand birth death fertility using contra-
population population rate rate rate ceptives
1960 1981 1960 198l 1960-81 1960_.81a 1981a 1970 1981
65 Mongolia 41 34 15 7 -16.3 -50.6 4.9 .
High-income
oil exporters 49w 44w 21 w 12w -9.0w -43.2w 7.1 w
95 Libya 49 47 19 12 -40 -38.5 7.4
96 Saudi Arabia 49 45 23 13 -6.9 -40.0 7.3
97 Kuwait 44 38 10 4 -13.4 -59.3 5.9
98 United Arab Emirates 46 30 19 7 -349 -61.6 6.8
Industrial market
economies 20w 14 ri lOw 9w -31.1 w' -7.7w 1.8w
99 Ireland 21 21 12 9 -1.9 -18.3 3.2
100 Spain 22 14 9 8 -35.0 -13.6 2.5
101 Itaty 18 11 10 10 -39.8 -1.0 1.9
102 New Zealand 27 16 9 8 -38.5 -9.1 2.1
103 United Kingdom 18 13 12 12 -25.1 2.6 1.7
104 Japan 17 13 8 6 -24.9 -19.7 17 56 61
105 Austria 18 13 13 12 -302 -3.1 1.6
106 Finland 19 13 9 9 -286 1.1 1.6 77
107 Australia 22 16 9 7 -29.5 -15.1 19 66
108 Canada 27 16 8 7 -41.9 -7.7 19 .
East European
nonmarket economies 23w 18w 8w 11w -21.2w 37.5w 2.3w
118 Albania 43 29 10 6 -336 -412 38
119 Hungary 15 13 10 14 -9.5 32.4 1.9 6 28
120 Romania 19 18 9 10 -58 19.5 2.5
121 Bulgaria 18 14 8 11 -20.8 37.0 2.1
122 Poland 23 19 8 9 -16.4 21.1 2,2 57
123 USSR 25 19 7 10 -24.9 45 1 2.4
124 Czechoslovakia 16 16 9 12 -2.5 272 2.4 66
125 German Dem. Rep. 17 14 14 14 -16.5 22 1.4
a. Figures in italics are for years or periods other than those specified. See the technical notes.
187
Table 21. Labor force
Percentage of
population of Average annual growth
working age Percentage of labor force in: of labor force
(15-64 years) Agriculture Industry Services (percent)
1960 1981 1960 1980 1960 1980 1960 1980 1960-70 1970-81 1980-2000
Low-income economies 55w 59w 77w 70w 9w 15w 14w 15w 1.7w 1.9 2.0 w
China and India 56w 60w 74w 69w 11w 17w 15w 14w 1.7w 1.9w 1.8w
Other low-income 54w 54w 82w 73w 7w 11w 11w 16w 1.8w 2,3 w 3.0w
1 Kampuchea, Dem 53 . 82 4 14 . 2.0
2 Bhutan 56 55 95 93 2 2 3 5 1.6 1.8 2.4
3 Lao, PDR 56 51 83 75 4 6 13 19 10 07 27
4 Chad 57 54 95 85 2 7 3 8 1.5 18 25
5 Bangladesh 53 55 87 74 3 11 10 15 21 2.9 3.0
6 Ethiopia 53 52 88 80 5 7 7 13 20 1.6 3.0
7 Nepal 57 55 95 93 2 2 3 5 13 2.3 2.7
8 Burma 59 55 . 67 . . 10 . . 23 11 1.4 22
9 Afghanistan 55 52 85 79 6 8 9 13 1.9 2.0 26
10 Mali 54 51 94 73 3 12 3 16 2.1 2.0 3.0
11 Malawi 52 50 92 86 3 5 5 9 2.4 2.5 32
12 Zaire 53 52 83 75 9 13 8 12 14 2.3 3.1
13 Uganda 54 52 89 83 4 6 7 11 2.6 2.1 3.6
14 Burundi 55 53 90 84 3 5 7 11 1.2 1.5 2.8
15 Upper Volta 54 52 92 82 5 13 3. 5 1.6 15 28
16 Rwanda 53 52 95 91 1 2 4 7 2.2 3.2 3.4
17 India 54 57 74 69 11 13 15 18 1.7 1.9 2.2
18 Somalia 54 54 88 82 4 8 8 10 21 30 20
19 Tanzania 54 51 89 83 4 6 7 11 21 27 3.4
20 Viet Nam 54 . . 71 . . 10 19 . 2.7
21 China 56 62 69 . 19 12 1.7 18 16
22 Guinea 55 53 88 82 6 11 6 7 2.5 2.2 26
23 Haiti 55 53 80 74 6 7 14 19 0.6 1.3 21
24 Sri Lanka 54 60 56 54 14 14 30 32 21 2.0 2.2
25 Benin 53 51 54 46 9 16 37 38 2.1 21 2.9
26 Cenlral African Rep 58 55 94 88 2 4 4 8 lÀ 1.7 2.1
27 Sierra Leone 55 53 78 65 12 19 10 16 15 1.9 2.8
28 Madagascar 55 53 93 87 2 4 5 9 1.7 2.1 3.0
29 Niger 53 51 95 91 1 3 4 6 3D 3.0 3.4
30 Pakistan 52 51 61 57 18 20 21 23 1.9 2.7 3.3
31 Mozambique 56 53 81 66 8 18 11 16 18 3.3 31
32 Sudan 53 53 86 72 6 10 8 18 20 27 31
33 Togo 53 51 80 67 8 15 12 18 2.5 17 31
34 Ghana 53 51 64 53 14 20 22 27 16 23 39
Middle-income economies 54w 55w 62w 45w 15w 21w 23w 34w 2.1 a' 2.3 w 2.7 a'
Oil exporters 54w 54w 66w 47w 13w 21 w 22w 32w 2.0 a' 2.6 a' 2.9 a'
Oil importers 55 a' 57 a' 60w 44 a' 16 w 21 w 24 w 35 w 2.1 a' 2.1 a' 2.5 w
188
Percentage of
population of Average annual growth
working age Percentage of labor force in: of labor force
(15-64 years) Agriculture Industry Services (percent)
1960 1981 1960 1980 1960 1980 1960 1980 1960-70 1970-81 1980-2000
65 Mongolia 54 54 70 55 13 22 17 23 2.1 2.4 3.1
66 Colombia 50 60 51 26 19 21 29 53 3.0 3.3 2.5
67 Tunisia 52 56 56 35 18 32 26 33 07 3.0 3.2
68 Costa Rica 50 59 51 29 19 23 30 48 3.5 3.9 28
69 Korea, Dem. Rep. 53 56 62 49 23 33 15 18 24 29 2.9
70 Turkey 55 57 79 54 11 13 11 34 4 2.0 25
71 Syrian Arab Rep. 52 49 54 33 19 31 27 36 2.1 34 4.7
72 Jordan 52 51 44 20 26 20 30 60 2.8 31 4.3
73 Paraguay 51 53 56 44 19 20 25 36 2.3 29 3.0
Upper middle-income 55w 57 w 49 w 30 w 20 w 28w 31 42 . 2." ' 0 a, 2.6w
74 Korea, Rep. of 54 62 66 34 9 29 25 37 3.1 26 2.2
75 Iran, Islamic Rep. of 51 52 54 39 23 34 23 27 2.7 2.8 3.9
76 Iraq 51 51 53 42 18 26 29 32 2.9 2.9 4.0
77 Malaysia 51 56 63 50 12 16 25 34 28 29 31
78 Panama 52 56 51 27 14 18 35 55 3.4 2.4 2.6
79 Lebanon 53 56 38 11 23 27 39 62 2.1 1.0 2.8
80 Algeria 52 49 67 25 12 25 21 50 0.5 3.6 4.7
81 Brazil 54 55 52 30 15 24 33 46 2.7 1.0 3.0
82 Mexico 51 52 55 36 20 26 25 39 28 32 3.5
83 Portugal 63 63 44 28 29 35 27 37 0.4 06 09
84 Argentina 64 63 20 13 36 28 44 59 1.3 14 11
85 Chile 57 62 31 19 20 19 50 61 1.4 20 22
86 South Atrica 55 55 32 30 30 29 38 41 3.0 29 32
87 Yugoslavia 63 67 63 29 18 35 19 36 0.6 0.6 0.7
88 Uruguay 64 63 21 11 30 32 50 57 0.8 02 11
89 Venezuela 51 55 35 18 22 27 43 55 2.8 40 31
90 Greece 65 64 56 37 20 28 24 35 00 08 05
91 Hong Kong 56 66 8 3 52 57 40 40 3.3 3.7 1.2
92 Israel 59 58 14 7 35 36 51 57 3.6 2.5 2.0
93 Singapore 55 66 8 2 23 39 69 59 28 2.7 1.3
94 Trinidad and Tobago 53 63 22 10 34 39 44 51 2.5 2.6 2.1
High-income
oil exporters 54w 52w 62w 46 w 13 a 19w 25w 35w 3.7w 4.3w 3.5w
95 Libya 53 51 53 19 17 28 30 53 3.6 3.7 3.9
96 Saudi Arabia 54 52 71 61 10 14 19 25 3.3 4.4 3,5
97 Kuwait 63 52 1 2 34 34 65 64 7.0 45 28
98 United Arab Emirates 53 . . . .
Industrial market
economies 66w 18w 6w 38w 38w 44w 56w 1.2w 1.2w 0.7w
99 Ireland 58 59 36 18 25 37 39 44 0.0 11 15
100 Spain 64 63 42 14 31 40 27 45 02 11 09
101 Italy 66 65 31 11 40 45 30 44 -0.1 0.6 0.4
102 New Zealand 58 64 15 9 37 35 49 56 2.2 2.1 1.2
103 United Kingdom 65 64 4 2 48 42 48 56 0.6 04 0.3
104 Japan 64 68 33 12 30 39 37 49 19 1.3 0.8
105 Austria 66 65 24 9 46 37 30 55 -0 7 0.9 05
106 Finland 62 68 36 11 31 35 33 54 0.4 0.9 0.5
107 Australia 61 65 11 6 40 33 49 62 26 18 10
108 Canada 59 67 13 5 34 29 52 66 2.5 2.0 1.0
109 Netherlands 61 67 11 6 42 45 47 49 1.6 14 07
110 Belgium 65 66 8 3 48 41 44 56 03 07 03
111 France 62 64 22 8 39 39 39 53 07 11 07
112 United States 60 66 7 2 36 32 57 66 18 19 09
113 Denmark 64 65 18 7 37 35 45 58 1.1 06 05
114 Germany, Fed. Rep. 68 67 14 4 48 46 38 50 0.2 08 01
115 Norway 63 63 20 7 37 37 44 57 0.5 07 07
116 Sweden 66 64 14 5 45 34 41 61 1.0 03 04
117 Switzerland 66 67 11 5 50 46 38 49 20 03 0.3
East European
nonmarket economies 63 a' 66 w 42 w 18 w 30 a' 44 w 28 w 39 w 0.8w 1.1 V 0.6w
118 Albania 54 58 71 61 18 25 11 14 2.3 28 24
119 Hungary 66 65 37 21 35 43 28 36 0.5 03 0.1
120 Romania 64 64 67 29 15 36 18 35 0.9 06 07
121 Bulgaria 66 66 56 37 25 39 19 24 0.7 03 0.2
122 Poland 61 66 48 31 29 39 23 30 1.7 14 08
123 USSR 63 66 42 14 29 45 29 41 07 12 06
124 Czechoslovakia 64 64 26 11 46 48 28 41 0.8 07 0.7
125 German Dam Rep 65 64 18 10 48 50 34 40 -02 05 03
189
Table 22. Urbanization
Percentage of urban population
Number of
Urban population In cities cities
As percentage Average annual of over of over
of total growth rate In largest 500,000 500,000
population (percent) city persons persons
1960 1981 1960-70 19708P 1960 1980 1960 1980 1960 1980
Low-income economies 21 4.4 16w 55 ii 145
China and India 18 22 w 3.7 33 w 59 114
Other low-income 12w 20 u' 5.3 28 19w 40 31
1 Kampuchea, Dem. 11 35 .
7 Nepal 3 6 63 5.0 41 27 0 0 0 0
8 Burma 19 28 39 39 23 23 23 23 1 2
9 Afghanistan 8 16 5.4 58 33 17 0 17 0 1
14 Burundi 2 2 16 27 . . . . 0 0 0 0
15 Upper Volta 5 11 57 60 41 0 0 0 0
16 Rwanda 2 4 54 64 0 0 0 0 0
17 India 18 24 3.3 37 7 6 26 39 11 36
18 Somalia 17 31 5.7 5.4 34 0 0 0 0
19 Tanzania 5 12 6.3 86 34 50 0 50 0 1
29 Niger 6 13 7.0 72 . . 31 0 0 0 0
30 Pakistan 22 29 4.0 43 20 21 33 51 2 7
31 Mozambique 4 9 6.5 82 75 83 0 83 0 1
32 Sudan 10 26 6.7 71 30 31 0 31 0 1
33 Togo 10 21 5.9 66 60 0 0 0 0
34 G5ana 23 37 4.6 5.0 25 35 0 48 0 2
44 Honduras 23 36 5.4 55 31 33 0 0 0 0
45 Zambia 23 44 52 65 35 0 35 0 1
46 Egypt 38 44 3.6 29 38 39 53 53 2 2
47 El Salvador 38 41 3.2 34 26 22 0 0 0 0
48 Thailand 13 15 3.5 34 65 69 65 69 1 1
49 Philippines 30 37 38 3.7 27 30 27 34 1 2
50 Angola 10 22 57 5.8 44 64 0 64 0 1
56 Cameroon 14 36 56 74 26 21 0 21 0 1
57 Cuba 55 66 2.9 19 32 38 38 32 1 1
190
Percentage of urban population
Number of
Urban population In cities cities
As percentage Average annual of over of over
of total growth rate In largest 500,000 500,000
population (percent) city persons persons
1960 1981 1960-70 1970_81a 1960 1980 1960 1980 1960 1980
65 Mgoiia 36 51 5.2 4.0 53 52 0 0 0 0
66 Colombia 48 64 5.2 2.6 17 26 28 51 3 4
67 Tunisia 36 53 3.8 4.0 40 30 40 30 1 1
68 Costa Rica 37 44 42 36 67 64 0 64 0 1
78 Panama 41 55 44 3.6 61 66 0 66 0 1
81 Brazil 46 68 4.7 39 14 15 35 52 6 14
82 Mexico 51 67 4.7 42 28 32 36 48 3 7
83 Portugal 23 31 1.8 24 47 44 47 44 1 1
84 Argentina 74 83 20 20 46 45 54 60 3 5
85 Chile 68 81 31 24 38 44 38 44 1 1
92 Israel 77 89 43 3.1 46 35 46 35 1 1
High-income
oil exporters 30 w 68 w 8.5 w 8.2 w 29w 28 w Ow 34 i' 0! 3!
95 Libya 23 54 8.0 8.1 57 64 0 64 0 1
Industrial market
economies 68 w 78 w 1.9 w 1.4 w 18 w 18 w 48 w 55 w 104 I 152
99 Ireland 46 58 1.6 2.5 51 48 51 48 1 1
East European
nonmarket economies 48 w 62 w 2.6 w 1.8 w 9w 7w 23w 32w 35t 64t
118 Albania 31 37 3.8 3.4 27 25 0 0 0 0
119 Hungary 40 54 21 1.4 45 37 45 37 1 1
122 Poland 48 57 18 17 17 15 41 47 5 8
123 USSR 49 63 27 18 6 4 21 33 25 50
124 Czechoslovakia 47 64 2.1 19 17 12 17 12 1 1
Figures in italics are for years or periods other than those specified.
191
Table 23. Indicators related to life expectancy
Life expectancy Infant
at birth mortality rate Child death rate
(years) (aged 0-1) (aged 1-4)
1960 1981 1960 l981 1960 1981
192
Life expectancy Infant
at birth mortality rate Child death rate
(years) (aged 0-1) (aged 1-4)
1960 1981 1960 1981 1960 1981
65 Mongolia 52 64 109 53 14 4
66 Colombia 53 63 103 55 14 4
67 Tunisia 48 61 159 88 36 9
68 Costa Rica 62 73 83 27 8 1
79 Lebanon 58 66 68 40 5 2
80 Algeria 47 56 165 114 39 18
81 Brazil 55 64 118 75 19 7
82 Mexico 57 66 91 54 10 4
83 Portugal 63 72 82 26 9 1
84 Argentina 65 71 61 44 4 2
85 Chile 57 68 114 42 18 2
86 South Africa 53 63 135 94 28 17
87 Yugoslavia 63 71 92 31 11 2
88 Uruguay 68 71 50 39 3 2
89 Venezuela 57 68 85 40 9 2
90 Greece 69 74 40 18 3 1
91 Hong Kong 67 75 37 10 2 (.)
92 Israel 69 73 31 15 2 1
93 Singapore 64 72 36 12 2 (.)
94 Trinidad and Tobago 64 72 54 31 4 1
High-income
oil exporters 44 w 57 w 173 w 96 w 43 w 13 w
95 Libya 47 57 158 97 36 12
96 Saudi Arabia 43 55 185 111 48 17
97 Kuwait 60 70 89 33 10 1
98 United Arab Emirates 47 63 135 52 26 3
Industrial market
economies 70w 75w 30w 11w 2w (.)w
99 Ireland 70 73 29 11 2 (.)
100 Spain 68 74 50 10 4 (.)
101 Italy 69 74 44 14 3 1
106 Finland 68 75 21 8 1 ()
107 Australia 71 74 20 10 1 (.)
108 Canada 71 75 27 10 2
109 Netherlands 73 76 18 8 1
(.)
110 Belgium 70 73 31 12 2 (.)
111 France 70 76 27 10 2 ()
112 United States 70 75 26 12 1 (.)
113 Denmark 72 75 22 8 1
(.)
114 Germany, Fed. Rep. 70 73 34 13 2 1
115 Norway 73 76 19 8 1
(.)
116 Sweden 73 77 17 7 1 (.)
117 Switzerland 71 76 21 9 1 (.)
East European
nonmarket economies 68w 72w 38w 25w 3w 1w
118 Albania 62 70 83 . 9
119 Hungary 68 71 48 21 2 1
120 Romania 65 71 77 29 8 2
121 Bulgaria 69 73 45 20 3 1
122 Poland 67 73 56 21 5 1
123 USSR 68 72 33 . . 2 .
124 Czechoslovakia 70 72 24 17 1 1
125 German Dem. Rep. 69 73 39 12 3 (.)
193
Table 24. Health-related indicators
Daily per capita
Population per: calorie supply
As percentage
Physician Nursing persons Total of requirement
1960 1980 1960 1980 1980 1980
Low-income economies 12,222w 5,785w 7,217w 4,668w 2,218w 97w
China and India 6,977w 2,626w 6,727w 3,322w 2,270w 99 w
Other low-income 37,737w 15846w 9,707w 8,953w 2,050 w 92 w
1 Kampuchea, Dem, 35,440 4,010 2,053 88
2 Bhutan 90
3 Lao, PDR 54,140 20,060 4,980 3,040 1,829 97
4 Chad 72,190 47,530 5,780 3,850 1,768 74
5 Bangladesh 10,940 24,450 1,960 84
6 Ethiopia 100,470 58,490 14,920 5,440 1,735 76
7 Nepal 73,800 30,060 33,420 1,977 86
8 Burma 15,560 4,660 8,520 4,750 2,174 113
9 Afghanistan 28,700 16,730 19,590 25,990 1,775 73
10 Mali 64,130 22,130 4,710 2,380 1,871 85
11 Malawi 35,250 40,950 12,940 3,830 2,095 94
12 Zaire 79,620 14,780 3,510 1,920 2,180 94
13 Uganda 15,050 26,810 10,030 4,180 1,760 83
14 Burundi 96,570 45,020 4,530 6,180 2,114 96
15 Upper Volta 81,650 48,510 4,090 4,950 1,791 95
16 Rwanda 143,290 31,510 11,620 9,840 2,364 88
17 India 4,850 3,640 10,980 5,380 1,880 87
18 Somalia 36,570 14,290 4,810 2,330 1,952 100
19 Tanzania 18,220 17,560 11,890 2,980 2,051 83
20 Viet Nam . 4,190 2,930 1,977 90
21 China 8,330 1,920 4,020 1,890 2,539 107
22 Guinea 26,900 16,630 3,260 2,490 2,071 77
23 Haiti 9,230 8,200 4,020 2,490 1,620 96
24 Sri Lanka 4,490 7,170 4,170 1340 2,238 102
25 Benin 23,030 17050 2,700 1,670 2,292 103
26 Central African Rep. 49,610 27,050 3,280 1,760 2,198 94
27 Sierra Leone 20,420 18,280 2,960 2,130 2,053 89
28 Madagascar 8,900 10,170 3,110 3,660 2,466 109
29 Niger 82,170 38,790 8,460 4,650 2,327 92
30 Pakistan 5,400 3,480 16,960 5,820 2,184 106
31 Mozambique 20,390 39,110 4,720 5,600 2,170 70
32 Sudan 33,420 8,800 3,030 1,410 2,447 101
33 Togo 47,060 18,100 5,340 1,430 2,101 95
34 Ghana 21,600 7,630 5,430 780 1,964 88
194
Daily per capita
Population per: calorie supply
As percentage
Physiciana Nursing persona Total of requirement
1960 1980 1960 1980 1980 1980
65 Mongolia 1,070 450 300 240 2,681 111
66 Colombia 2,640 1,920 4,220 1,220 2,529 108
67 Tunisia 10,030 3,690 . 890 2,789 116
68 Costa Rica 2,700 1,470 710 450 2,766 116
69 Korea, Oem. Rep. . . 440 . . 3,073 126
70 Turkey 2,800 1,630 16,310 1,130 2,965 122
71 Syrian Arab Rep. 4,630 2310 6,660 1,440 2,909 117
72 Jordan '5,800 1,890 1,930 1,310 2,355 96
73 Paraguay 1,810 1,710 1,380 1,100 2,741 134
High-income
oil exporters 13,285w 1,295w 4,496w 841 w 3,036w 127w
95 Libya 6,580 730 1,320 400 3,459 147
96 Saudi Arabia 16,370 1,640 5,850 1,150 2,895 120
97 Kuwait 1210 590 270 180
98 United Arab Emirates . 900 . . 340 .
Industrial market
economies 816w 554w 474w 183w 3,433w 134w
99 Ireland 950 760 190 120 3,718 148
100 Spain 850 460 1,290 330 3,361 135
101 Italy 640 340 1,330 330 3,662 150
102 New Zealand 850 670 . 130 3,685 126
103 United Kingdom 940 650 210 140 3,306 132
104 Japan 930 780 310 240 2,912 124
105 Austria 550 400 440 230 3,579 135
106 Finland 1,570 530 170 100 3,196 118
107 Australia 750 560 .
. 120 3,159 117
108 Canada 910 550 290 90 3,369 127
109 Netherlands 900 540 130 3,514 131
110 Belgium 780 400 450 120 3,916 160
111 France 930 580 530 120 3,391 134
112 United States 750 520 340 150 3,658 139
113 Denmark 810 480 220 210 3,566 133
114 Germany, Fed. Rep. 670 450 370 170 3,561 133
115 Norway 900 520 330 90 3,315 124
116 Sweden 1,050 490 100 60 3,202 119
117 Switzerland 740 410 350 160 3,551 133
East European
nonmarket economies 683w 356w 358w 212w 3,412w 133w
118 Albania 3,620 960 530 310 2,664 110
119 Hungary 720 400 330 150 3,534 134
120 Romania 790 680 420 270 3,337 126
121 Bulgaria 710 410 550 190 3,646 146
122 Poland 1,070 570 460 240 3,521 134
123 USSR 560 280 340 210 3,372 132
124 Czechoslovakia 620 360 230 130 3,477 141
125 German Dem Rep. 1,180 520 , . .
. 3,780 144
a. Figures in italics are for years other than those specified See the technical notes.
195
Table 25. Educationa
Number Number
enrolled in enrolled in
secondary higher education Adult
Number enrolled in primary school school as as percentage literacy
as percentage of age group percentage of of population rate
Total Male Female age group aged 20-24 (percent)
1960 1980 1960 1980 1960 1980 1960 1980 1960 1979 1960 1980
Low-income economies 80w 93w 68w 105w 34w 80 w 18w 29 w 2w 4w 34w 52w
China and India 90w 100w 80w 111w 40w 86 w 21 w 32w 4w 37w 56w
Other low-income 37w 70w 50w 83w 24w 55 w 6w 19w 1w 2w 23w 40w
1 Kampuchea, Dem. 64 82 46 3 (.) 31
2 Bhutan 3 11 15 7 3 1 (.)
3 Lao, PDR 25 96 34 104 16 88 1 17 (.) (.) 28 44
4 Chad 17 35 29 51 4 19 3 (.) 6 15
5 Bangladesh 47 62 66 76 26 47 8 15 3 22 26
6 Ethiopia 7 43 11 56 3 30 11 (.) 1 15
7 Nepal 10 91 19 126 1 53 6 21 3 9 19
8 Burma 56 84 61 87 52 81 10 20 4 60 66
9 Afghanistan 9 30 15 49 2 10 1 10 C) 2 8 20
10 Mali 10 27 14 35 6 20 1 28 1 2 10
11 Malawi 62 73 51 1 4 C) 25
12 Zaire 60 90 88 104 32 75 3 23 (.) 1 31 55
13 Uganda 49 50 65 58 32 42 3 5 (.) 1 25 52
14 Burundi 18 29 27 35 g 23 1 3 (.) 1 14 25
15 Upper Volta 8 19 12 24 5 14 1 3 (.) 2 5
16 Rwanda 49 70 68 74 30 67 2 2 () 16 50
17 India 61 76 80 90 40 61 20 28 3 9 28 36
18 Somalia 9 41 13 53 5 29 1 6 (.) 1 2 60
19 Tanzania 25 104 33 110 18 98 2 4 (.) 10 79
20 Viet Nam 116 124 109 48 3 87
21 China 109 117 126 106 21 34 1 43 69
22 Guinea 30 33 44 44 16 22 2 16 5 7 20
23 Haiti 46 64 50 69 42 59 4 12 (.) 1 15 23
24 Sri Lanka 95 100 100 103 90 97 27 51 3 75 85
25 Benin 27 62 38 84 15 39 2 16 1 5 28
26 Central African Rep, 32 70 53 92 12 49 1 10 1 7 33
27 Sierra Leone 23 39 30 45 15 30 2 12 C) 1 7 15
28 Madagascar 52 100 58 45 4 12 (.) 3 50
29 Niger 5 23 7 29 3 17 4 (.) 1 10
30 Pakistan 30 57 46 81 13 30 11 15 2 15 24
31 Mozambique 48 93 60 107 36 79 2 6 (.) 8 33
32 Sudan 25 51 35 60 14 43 3 16 C) 2 13 32
33 Togo 44 116 63 144 24 89 2 33 2 10 18
34 Ghana 38 69 52 77 25 60 5 36 () 1 27
196
Number Number
enrolled in enrolled in
secondary higher education Adult
Number enrolled in primary school school as as percentage literacy
as percentage of age group percentage of of population rate
Total Male Female age group aged 20-24 (percent)
1960 1980 1960 1980 1960 1980 1960 1980 1960 1979 1960 1980
65 Mongolia 79 105 79 107 78 102 51 89 8 9 95
66 Colombia 77 128 77 127 77 130 12 46 2 11 63 81
67 Tunisia 66 103 88 118 43 88 12 27 1 5 16 62
68 Costa Rica 96 108 97 109 95 106 21 48 5 26 . . 90
69 Korea, Dem. Rep, . . 116 . . 118 . . 114 . . . . .
...
101 9 . . 99
111 France 144 112 98 112 143 111 46 85 10 25 . 99
112 United States 118 98 . . . . 86 97 32 55 98 99
113 Denmark 103 98 103 97 103 98 65 87 10 29 . 99
114 Germany, Fed. Rep. 133 . 132 . 134 . . 53 . 6 26 . . 99
115 Norway 100 100 100 99 100 100 57 94 7 25 . . 99
116 Sweden 96 97 95 97 96 97 55 86 9 37 . . 99
117 Switzerland 118 86 118 86 118 87 26 55 7 17 . . 99
East European
nonmarket economies 101w 104w101w 97w 101w 97w 45w 92w 11w 20w 97w 99w
118 Albania 94 108 102 111 86 105 20 63 5 6 .
197
Table 26. Defense and social expenditure
Defense expenditure
as percentage of Central government expenditure
Central government per capita (1975 dollars)
GNP expenditure Defense Education Health
1972 1980b 1972 1980b 1972 1980b 1972e 1980k' 1972 1980b
2 Bhutan . . . . .
.
3 Lao, PDR . . . . . . . . . . . . . S
5 Bangladesh 0.5 .
. 5.1 . . (.) .
. 1 . . (.)
6 Ethiopia 2.0 . . 14.3 . . 2 . . 2 . . 1
9 Afghanistan . . . . . . . .
. S . S S
21 China .
. 4.6 . . 15.9 .
. 10 . . 10
22 Guinea . . , . , . . .
. . . . .
23 Haiti .. .. .. .. ..
24 Sri Lanka 1.3 . . 4.1 . . 4 . . 12
25 Benin . . . . . . . . . . .
Lower middle-income 3,2w 3.8w 12.7w 15.6w 15w 18w 15w 16w 4a 5w
35 Kenya 1.3 4.4 6.0 16.4 3 11 11 13 4 5
36 Senegal , . , . . . , . . , . . . '
37 Mauritania .
. 12.6 . . 29.4 . . 36 . . 13 . . 3
38 Yemen Arab Rep. . . 10.6 . . 33.2 .
. 21 . . 8 . .
3
39 Yemen, PDR ' . . . ' ' . . ' . . , .
40 Liberia .
. 1,7 . . 5.8 .
. 6 , 13 . . 6
41 Indonesia .
. 3.4 . . 13.5 .
. 10 . . 6 . . 2
42 Lesotho . , . . . , . . , , . . , .
56 Cameroon 15 . 9.1 . . 7 . . 9 4
57 Cuba . , . , . . .. . . . . . . . ,
58 Congo, People's Rep. . . . . . , . , . . , .
198
Defense expenditure
as percentage of Central government expenditure
Central government per capita (1975 dollars)
GNP expenditure Defense Education Health
1972 1980' 1972k 1980' 1972k 1980b 1972 1980b 1972 1980b
65 Mongolia . . . . . . . . . . . . . . .
66 Colombia . . . . . .
High-income
oil exporters . . . . . .
. . . . .
95 Libya . , . . , , . , . . . .
96 Saudi Arabia . . . . . . . . . . , . . . , .
97 Kuwait 2.7 2.9 8.4 12.2 314 366 559 276 206 154
98 United Arab Emirates . . 6.2 24.5 47.5 . . 1,119 . . 296 . . 200
Industrial market
economies 5.0w 3.6w 21.3w 12.2w 281 . 254w 77w 1 ' 141 w 240w
99 Ireland . . . . . . .
. . . . . , , . . ,
105 Austria 1.0 1.2 3.0 3.1 47 71 160 229 156 302
106 Finland 1.5 1.7 6.1 5.6 80 107 203 280 140 199
107 Australia 2.8 2.3 14.5 9,4 188 170 55 152 108 182
108 Canada . 1.8 7,7 136 68 .
. 118
109 Netherlands .
.
3.1 , 5,5 . . 208 . 495 .
. 447
110 Belgium 2.6 2.8 6.6 5.4 157 206 364 551 34 63
111 France . . 2.8 . . 7.3 . . 208 .
. 258 .
. 431
112 United States 6.3 4.9 32.2 21.2 453 392 45 49 120 193
113 Denmark 2.3 . . 7.0 . . 169 , , 377 , , 231
114 Germany, Fed, Rep. 3.0 2.7 12.4 9.6 200 225 24 22 281 463
115 Norway 34 .
. 9,4 . 201 206 255
116 Sweden 3.6 3.2 12.2 7.5 283 288 335 460 81 87
117 Switzerland 2.0 2.0 15.1 10.2 184 189 51 62 122 215
East European
nonmarket economies
118 Albania . , . . ,
119 Hungary . . . . .
122 Poland . . . . . . ,
123 USSR
124 Czechoslovakia
125 German Dem, Rep.
a. Figures in italics are for 1973, not 1972 b. Figures in italics are for 1979, not 1980.
199
Table 27. Income distribution
Percentage share of household income, by percentile groups of households
Lowest Second Third Fourth Highest Highest
Year 20 percent quintile ciuintile quintile 20 percent 10 percent
Low-income economies
China and India
Other low-income
1 Kampuchea, Oem.
2Bhutan
3 Lao. PDR
4Chad
5 Bangladesh 1973-74 69 11.3 16 1 23.5 422 274
6 Ethiopia
7 Nepal 1976-77 4.6 80 11 7 16.5 592 465
8 Burma
9 Afghanstan
lOMali
11 Malawi 1967-68 10.4 11.1 13.1 14.8 506 401
l2Zare
13 Uganda
14 Burundi . . .
15 Upper Volta . . .
16 Rwanda
17 India 1975-76 70 9.2 13.9 205 49.4 33.6
18 Somalia . .
. .
22 Guinea . . . .
23 Hai . . . .
29 Nige' .. .
30 Pakistan . .
. .
31 Mozambigue
32 Sudan 1967-68 40 89 16.6 20.7 498 34.6
33 Togo
34 Ghana
Middle-income economies
Oil exporters
Oil importers
Lower middle-income
35 Kenya 1974 2.6 63 11.5 192 604 458
36 Senega
37 Mautania
38 Yemen Arab Rep.
39 Yemen. POR
40 L'be'a
"41 Indonesia 1976 66 7.8 12.6 236 49.4 34.0
42 Lesotho
43 Bolivia
44 Honcuras
45 Zambia
46 Egypt
47 E Savacor
48 Thaiianc 1975-76 5.6 96 13.9 211 498 341
49 Philippines 1970-71 5.2 90 12.8 190 54.0 385
50 Angota
51 Papua New Guinea
52 Morocco
53 Nca'agua
54 Ngena
55 Zimbabwe
56 Came roon
57 Cuba
58 Congo. Peoples Rep
59 Guatemaia
60 Pe'u 1972 19 51 110 210 610 429
61 Ecuador
62 Jamaica
63 Ivory Coast
64 Domnican Rep.
200
Percentage share of household income, by percentile groups of householdsa
Lowest Second Third Fourth Highest Highest
Year 20 percent quintile quintile quintile 20 percent 10 percent
65 Mongolia
66 Coombia
67 Tunisia
68 Costa Rica 1971 33 8.7 13.3 199 54 8 39.5
69 Korea Dem Rep.
70 Turkey 1973 3.5 8.0 125 19.5 565 407
71 Syran Arab Rep
72 Jordan
73 Paraguay
Upper mddIe-income
74 Korea. Rep. of
75 Iran. Islamic Rep. of
76lraq
1976 ......
.
..
. . .
15.4
.
.
224
. .
453
.
27.5
80 Aigena .
. .
201
Technical notes
This edition of the World Development Indicators lowing manner. The first step is to convert the
provides economic indicators for periods of years GNP series in constant market prices and national
and social indicators for selected years in a form currency units to one measured in constant av-
suitable for comparing economies and groups of erage 1979-81 prices. This is done by multiplying
economies. Although the statistics and measures the original constant price series by the weighted-
have been carefully selected to provide a compre- average domestic GNP deflator for the base period
hensive picture of development, readers are urged (that is, by the ratio of total GNP in current prices
to exercise care in interpreting them. This is par- to total GNP in constant prices for the 1979-81
ticularly true of comparing indicators across period). The second step is to convert the series
economies, because statistical methods, coverage, measured in constant average 1979-81 prices in
practices, and definitions differ widely. The sta- national currency to one in US dollars by dividing
tistical systems in many developing economies still that series by the weighted-average exchange rate
are weak, and this affects the availability and re- for the base period. The weighted-average ex-
liability of the data, the more so for countries that change rate is the ratio of the sum of GNP in
are not members of the World Bank. current prices to the sum of the GNP divided by
All growth rates shown are in real terms and, the annual average exchange rate in national cur-
unless otherwise noted, have been computed by rency per US dollar for 1979, 1980, and 1981. The
using the least-squares method. The least-squares third step is to convert the series measured in
growth rate, r, is calculated by regressing the an- constant average 1979-81 US dollars to one meas-
nual values of the variable in the relevant period ured in current US dollars by multiplying that se-
using the logarithmic form: Log X = a + bt + e, ries by the implicit US GNP deflator for 1979-81.
where X is the variable, a is the intercept, b is the This procedure was followed for most economies.
slope coefficient, t is time, and e is the error term. The GNP per capita figures were obtained by di-
Then r is equal to [antilog b] - 1, the least-squares viding GNP at market prices in US dollars by the
estimate of the growth rate. population in mid-1981. The use of the three-year
base period is intended to smooth the impact of
fluctuations in prices and exchange rates. Because
the base period is changed every year, the per
Table 1. Basic indicators capita estimates presented in the various editions
of the World Development Indicators are not com-
The estimates of population for mid-1981 are pri- parable.
marily based on data from the UN Population Di- Because of problems associated with the avail-
vision. In many cases the data take into account ability of data and the determination of exchange
the results of recent population censuses. The data rates, information on GNP per capita is shown
on area are from the FAO Production Yearbook 1980. only for East European nonmarket economies that
Gross national product (GNP) measures the total are members of the World Bank. The World Bank
domestic and foreign output claimed by residents. has a research project under way to estimate GNP
It comprises gross domestic product (see the note per capita for nonmarket economies that are not
for Table 2) and factor incomes (such as invest- members. But until a broadly acceptable method
ment income and workers' remittances) accruing is prepared, figures will not be shown for the GNP
to residents from abroad, less the income earned per capita of such economies.
in the domestic economy accruing to persons For Romania the GNP per capita figure has been
abroad. It is calculated without making deductions derived, following the World Bank Atlas method,
for depreciation. by using adjusted official Romanian national ac-
The GNP per capita figures were calculated ac- counts data and converting them into US dollars
cording to the World Bank Atlas method, under at the effective exchange rate for foreign trade
which the conversion of GNP proceeds in the fol- transactions in convertible currencies. For Hun-
202
gary the GNP per capita figure has been derived Gross domestic product per capita computed convention-
by applying the Atlas method to official GNP es- ally and computed by using the ICP method, selected coun-
tries, 1975
timates with the official commercial exchange rate.
Several factors may influence the level and com- Index of GDP per capita
(United States 100)
parability of these estimates with those of other
lnternatu,nal
countries. The World Bank is also aware of other dollars con- GDP per capita at
US dollars verted at purchasing-power-
estimates that have been made for Hungary: these converted at purchasing-power- parity exchange rate
official exchange parity exchange as percentage of that
estimates have been derived by using methods Country rate rates at official rate
that attempt to account for taxes, subsidies, wage
and price distortions, and other possible distor- Africa
Kenya 3.4 6.6 195
tions introduced through the exchange rate; they Malawi 1.9 4.9 255
cover a range of different results. Zambia 6.9 10.3 149
The use of official exchange rates to convert na-
Asia
tional currency figures to US dollars does not ac- India 2.0 6.6 322
curately measure the relative purchasing power of Iran, Islamic Rep. of 22.1 37-7 171
currencies. In particular, differences between de- Japan 62.3 68.4 110
veloping and industrial economies in their real Korea, Rep. of 8.1 20.7 254
income, measured by their GNP per capita in US Malaysia 10.9 21.5 198
Pakistan 2.6 8.2 312
dollars, are likely to be exaggerated. The reason Philippines 5.2 13.2 251
is that exchange rates are based on prices of in- Sri Lanka 2.6 9-3 365
ternationally traded goods and services and may Syrian Arab Rep. 10.0 25.0 250
bear little relation to the prices of goods and serv- Thailand 5.0 13.0 261
ices that do not enter international trade but that Europe
make up the bulk of the national product of most Austria 69.8 69.6 100
developing economies. Belgium 87.8 77-7 88
The inadequacy of the exchange rate has been Denmark 104.5 82.4 79
France 89.6 81.9 91
demonstrated by the UN International Compari- Germany, Fed. Rep. 94.7 83.0 88
son Project, which has developed reliable meas- Hungary 29.6 49.6 168
ures of real GNP on an internationally comparable Ireland 37.2 42.5 114
scale (see Irving Kravis and others, A System of Italy 47.9 53.8 112
International Comparisons of Gross Product and Pur- Luxembourg 90.2 82.0 91
Netherlands 84.5 75.2 89
chasing Power [Baltimore: Johns Hopkins Univer- Poland 36.0 50.1 139
sity Press, 1975]; Kravis and others, International Romania 24.3 33.3 137
Comparisons of Real Product and Purchasing Power Spain 41.0 55-9 136
[1978]; and Kravis and others, World Product and United Kingdom 57.6 63.9 111
Income: International Comparisons of Real GDP [1982]). Yugoslavia 23.2 36.1 156
Basic indicators for UN/World Bank members with a population of less than 1 million
GNP per capita
Area Average Average annual Adult Life ex-
(thousands annual rate of inflation literacy pectancy
Population of square growth (percent) rate at birth
(millions) kilo- Dollars (percent) (percent) (years)
UN/World Bank member Mid-1981 meters) 1981 19600b 1960-70 1970-81' 1980d 1981'
204
Tables 2 and 3. Growth and structure of fense and security is regarded as consumption ex-
production penditure.
Private consumption is the market value of all goods
Most of the definitions used are those of the UN and services purchased or received as income in
System of National Accounts. kind by households and nonprofit institutions. It
Gross domestic product (GDP) measures the total includes imputed rent for owner-occupied dwell-
final output of goods and services produced by an ings.
economythat is, by residents and nonresidents, Gross domestic investment consists of the outlays
regardless of the allocation to domestic and foreign for additions to the fixed assets of the economy,
claims. It is calculated without making deductions plus changes in the net value of inventories.
for depreciation. For most coun.tries, GDP by in- Gross domestic saving shows the amount of gross
dustrial origin is measured at factor cost, but for domestic investment financed from domestic out-
some countries without complete national ac- put. Comprising public and private saving, it is
counts series at factor cost, market price series gross domestic investment plus the net exports of
were used. GDP at factor cost is equal to GDP at goods and nonfactor services.
market prices, less indirect taxes net of subsidies. Exports of goods and nonfactor services represent the
The figures for GDP are dollar values converted value of all goods and nonfactor services sold to
from domestic currency by using the average an- the rest of the world; they include merchandise,
nual exchange rate for the year in question: that freight, insurance, travel, and other nonfactor
is, they were not calculated by using the World services. The value of factor services, such as in-
Bank Atlas method described in the note for Table vestment income and workers' remittances from
1. Because of these differences in concept and in abroad, is excluded.
method of conversion, the figures in these tables The resource balance is the difference between ex-
are not comparable with the GNP-based numbers ports and imports of goods and nonfactor services.
in Table 1. The GDP figures nevertheless show the National accounts series in domestic currency
relative size of different economies. units were used to compute the indicators in these
As in Table 1, data are shown only for East tables. The growth rates in Table 4 were calculated
European nonmarket economies that are members from constant price series; the shares of GDP in
of the World Bank. Table 5, from current price series.
The agricultural sector comprises agriculture, for- The summary measures in Table 5 are weighted
estry, hunting, and fishing. The industrial sector by GDP in current dollars for the years in question.
comprises mining, manufacturing, construction, and
electricity, water, and gas. All other branches of
economic activity are categorized as services. Table 6. Agriculture and food
National accounts series in domestic currency
The figures for value added in agriculture are from
units were used to compute the indicators in these
the World Bank's national accounts series in na-
tables. The growth rates in Table 2 were calculated
tional currencies, converted to 1975 dollars.
from constant price series; the shares of GDP in Cereal imports and food aid in cereals are measured
Table 3, from current price series.
in grain equivalents and defined as comprising all
The average growth rates for the summary cereals under the Revised Standard International
measures in Table 2 are weighted by country GDP
Trade Classification (SITC) Groups 041-046. The
in 1970 dollars. The average sectoral shares in Table
figures have discrepancies attributable to the use
3 are weighted by GDP in current dollars for the
of crop-year and calendar-year data and donor-
years in question. country and recipient-country data.
Fertilizer consumption is measured in relation to
Tables 4 and 5. Growth of consumption and arable land, defined as comprising arable land and
investment; Structure of demand land under permanent crops, including land under
temporary crops (double-cropped areas are counted
GDP is defined in the note for Table 2. once), temporary meadows for mowing or pas-
Public consumption (or general government con- tures, land under market or kitchen gardens, and
sumption) includes all current expenditure for land temporarily fallow or lying idle.
purchases of goods and services by all levels of The figures on food and fertilizer are from the
government. Capital expenditure on national de- Food and Agriculture Organization (FAO): from
205
computer tapes for Production Yearbook 1981, Trade count because reliable and comprehensive data are
Yearbook 1981, and Fertilizer Yearbook 1981; and from not available.
Food Aid Bulletin, October 1980 and January 1983. The summary measures of growth rates of en-
In some instances data are for 1974 because they ergy production are weighted by volumes of pro-
provide the earliest available information. duction in 1974; those of growth rates of energy
The index of food production per ca pita shows the consumption, by volumes of consumption in 1974;
average annual quantity of food produced per cap- those of energy consumption per capita, by popula-
ita in 1979-81 in relation to that in 1969-71. The tion in 1974.
estimates were derived from those of the FAO, Energy imports refer to the dollar value of energy
which are calculated by dividing indices of the importsSITC (Revised) Section 3and are ex-
quantity of food production by indices of total pressed as a percentage of earnings from mer-
population. For this index, food is defined as com- chandise exports. The summary measures are
prising cereals, starchy roots, sugar cane, sugar weighted by merchandise exports in current dol-
beet, pulses, edible oils, nuts, fruits, vegetables, lars.
livestock, and livestock products. Quantities of food Because data on energy imports do not permit
production are measured net of animal feed, seeds a distinction between petroleum imports for fuel
for use in agriculture, and food lost in processing and for use in the petrochemicals industry, these
and distribution. percentages may be overestimates of the depend-
ence on imported energy.
Table 7. Industry
Table 9. Growth of merchandise trade
The percentage distribution of value added among
manufacturing industries was calculated from data The statistics on merchandise trade are from UN
obtained from the UN Industrial Development Or- publications and the UN trade data system, sup-
ganization (UNIDO), with the base values ex- plemented by statistics from the UN Conference
pressed in 1975 dollars. on Trade and Development (UNCTAD), the In-
The classification of manufacturing industries is ternational Monetary Fund (IMF), and in a few
in accord with the UN International Standard In- cases World Bank country documentation.
dustrial Classification of All Economic Activities Merchandise exports and imports cover, with some
(ISIC). Food and agriculture comprise ISIC Major exceptions, all international changes in ownership
Groups 311, 313, and 314; textiles and clothing 321- of goods passing across customs borders. Exports
24; machinery and transport equipment 382-84; and are valued f.o.b. (free on board), imports c.i.f.
chemicals 351 and 352. Other manufacturing com- (cost, insurance, and freight), unless otherwise
prises ISIC Major Division 3, less all of the above. specified in the foregoing sources. These values
The figures for value added in manufacturing are are in dollars at prevailing exchange rates. Note
from the World Bank's national accounts series in that they do not include trade in services and are
national currencies, converted to 1975 dollars. thus different from the trade figures in Part I of
this year's World Development Report.
The growth rates of merchandise exports and imports
Table 8. Commercial energy are in real terms and are calculated from quantum
(volume) indices of exports and imports. For most
The data on energy generally are from UN sources. developing economies these indices are from the
They refer to commercial forms of primary energy: UNCTAD Handbook of International Trade and De-
petroleum and natural gas liquids, natural gas, velopment Statistics and supplementary data that
solid fuels (coal, lignite, and so on), and primary show revisions and updates. For industrial econo-
electricity (nuclear, geothermal, and hydroelectric mies the indices are from the UN Yearbook of In-
power)all converted into coal equivalents. Fig- ternational Trade Statistics and UN Monthly Bulletin
ures on liquid fuel consumption include petroleum of Statistics. The summary measures are median
derivatives that have been consumed in non- values. Note again that these values do not include
energy uses. For converting primary electricity into trade in services and are thus different from the
coal equivalents, a notional thermal efficiency of trade figures in Part I of this year's World Devel-
34 percent has been assumed. The use of firewood opment Report.
and other traditional fuels, though substantial in The terms of trade, or the net barter terms of
some developing countries, is not taken into ac- trade, are calculated as the ratio of a country's
206
index of export unit values to that of import unit Table 12. Origin and destination of merchandise
values. The terms-of-trade index numbers shown exports
for 1978 and 1981, with 1975 = 100, thus indicate
changes in export prices in relation to import prices. Merchandise exports are defined in the note for Table
Note in this year's edition that data are given for 9. Trade shares in this table are based on statistics
1978 rather than 1960. The unit value indices are on the value of trade in current dollars from the
from the same sources cited above for the growth UN and the IMF except those for nonmember East
rates of exports and imports. European nonmarket economies, which are based
on data from the Secretariat of the Council for
Mutual Economic Aid (coMEcoN). Unallocated
exports are distributed among the economy groups
Tables 10 and 11. Structure of merchandise
in proportion to their respective shares of allocable
trade
trade. Industrial market economies also include Gi-
The shares in these tables are derived from trade braltar, Iceland, and Luxembourg; high-income oil
values in current dollars reported in UN trade tapes exporters also include Qatar. The summary meas-
and the UN Yearbook of International Trade Statistics, ures are weighted by merchandise exports in cur-
supplemented by other regular statistical publi- rent dollars.
cations of the UN and the IMF.
Merchandise exports and imports are defined in the
note for Table 9. Table 13. Origin and destination of
In the categorization of exports in Table 10, fuels, manufactured exports
minerals, and metals are the commodities in SITC
(Revised) Section 3, Divisions 27 and 28, and the The data in this table are from the United Nations
nonferrous metals of Division 68. Other primary and are among those used to compute special Table
commodities comprise SITC Sections 0, 1, 2, and 4 B in the UN Yearbook of International Trade Statistics.
(food and live animals, beverages and tobacco, Manufactured goods are the commodities in SITC
inedible crude materials, oils, fats, and waxes) less (Revised) Sections 5 through 9 (chemicals and re-
Divisions 27 and 28 (minerals, crude fertilizers, lated products, manufactured articles, and ma-
and metalliferous ores). Textiles and clothing rep- chinery and transport equipment) excluding Di-
resent SITC Divisions 65 and 84 (textiles, yarns, vision 68 (nonferrous metals).
fabrics, and clothing). Machinery and transport equip- The economy groups are the same as those in
ment are the commodities in SITC Section 7. Other Table 12. The summary measures are weighted by
manufactures, calculated as the residual from the manufactured exports in current dollars.
total value of manufactured exports, represent SITC
Sections 5 to 9 less Section 7 and Divisions 65, 68,
and 84. Table 14. Balance of payments and reserves
In the categorization of imports in Table 11, food
commodities are those in SITC (Revised) Sections The current account balance is the difference between
0, 1, and 4 and in Division 22 (food and live an- (i) exports of goods and services plus inflows of
imals, beverages and tobacco, and oils and fats). unrequited official and private transfers and (ii)
Fuels are the commodities in SITC Section 3 (min- imports of goods and services plus unrequited
eral fuels, lubricants, and related materials). Other transfers to the rest of the world. The current ac-
primary commodities comprise SITC Section 2 (crude count estimates are from IMF data files.
materials excluding fuels), less Division 22 plus Net direct private investment is the net amount
Division 68 (nonferrous metals). Machinery and invested or reinvested by nonresidents in enter-
transport equipment are the commodities in SITC prises in which they or other nonresidents exercise
Section 7. Other manufactures, calculated as the re- significant managerial control. Including equity
sidual from the total value of manufactured im- capital, reinvested earnings, and other capital, these
ports, represent SITC Sections 5 to 9 less Section net figures also take into account the value of di-
7 and Division 68. rect investment abroad by residents of the re-
The summary measures in Table 10 are weighted porting country. IMF data files were used in com-
by merchandise exports in current dollars; those piling these estimates.
in Table 11, by merchandise imports in current Workers' remittances cover remittances of income
dollars. by migrants who are employed or expected to be
207
employed for more than a year in their new econ- teed loans that has been disbursed, net of repay-
omy, where they are considered residents. ments of principal and write-offs at year-end. In
Gross international reserves comprise holdings of estimating external public debt as a percentage of
gold, special drawing rights (SDRs), the reserve GNP, GNP was converted from national curren-
position of IMF members in the Fund, and hold- cies to dollars at the average official exchange rate
ings of foreign exchange ui3der the coMrol of mon- for the year in question. The summary measures
etary authorities. The gold component of these are weighted by GNP in current dollars.
reserves is valued throughout at year-end London Interest payments are those on the disbursed and
prices: that is, $37.37 an ounce in 1970 and $397.50 outstanding public and publicly guaranteed debt
an ounce in 1981. The data on holdings of inter- in foreign currencies, goods, or services; they in-
national reserves are from IMF data files. The re- clude commitment charges on undisbursed debt
serve levels for 1970 and 1981 refer to the end of if information on those charges was available.
the year indicated and are in current dollars at Debt service is the sum of interest payments and
prevailing exchange rates. The reserve holdings at repayments of principal on external public and
the end of 1981 are also expressed in the number publicly guaranteed debt. The ratio of debt service
of months of imports of goods and services they to exports of goods and services is one of several
could pay for, with imports at the average level rules of thumb commonly used to assess the ability
for 1980 or 1981. The summary measures are to service debt. The average ratios of debt service
weighted by imports of goods and services in cur- to GNP for the economy groups are weighted by
rent dollars. GNP in current dollars. The average ratios of debt
service to exports of goods and services are
Table 15. Flow of public and publicly weighted by exports of goods and services in cur-
guaranteed external capital rent dollars.
208
porting Countries (OPEC) with the objective of and from the World Bank, the Population Council,
promoting economic development and welfare. It the US Bureau of the Census, and recent national
includes the value of technical cooperation and censuses.
assistance. All data shown were supplied by the The net reproduction rate (NRR) indicates the
OECD. number of daughters that a newborn girl will bear
Amounts shown are net disbursements to de- during her lifetime, assuming fixed age-specific
veloping countries and multilateral institutions. The fertility rates and a fixed set of mortality rates.
disbursements to multilateral institutions are now The NRR thus measures the extent to which a
reported for all DAC members on the basis of the cohort of newborn girls will reproduce themselves
date of issue of notes; some DAC members pre- under given schedules of fertility and mortality.
viously reported on the basis of the date of en- An NRR of 1 indicates that fertility is at replace-
cashment. Net bilateral flows to low-income countries ment level: at this rate childbearing women, on
exclude unallocated bilateral flows and all dis- the average, bear only enough daughters to re-
bursements to multilateral institutions. place themselves in the population. A population
The nominal values shown in the summary for continues to grow after replacement-level fertility
ODA from OECD countries were converted into has been reached because its past higher birth
1980 prices using the dollar GNP deflator. This rates will have produced an age distribution with
deflator is based on price increases in OECD coun- a relatively high proportion of women in, or still
tries (excluding Greece, Portugal, and Turkey) to enter, the reproductive ages. The time taken
measured in dollars. It takes into account the par- for a country's population to become stationary
ity changes between the dollar and national cur- after reaching replacement-level fertility thus de-
rencies. For example, when the dollar depreciates, pends on its age structure and previous fertility
price increases measured in national currencies have patterns.
to be adjusted upward by the amount of the de- A stationary population is one in which age- and
preciation to obtain price increases in dollars. sex-specific mortality rates have not changed over
The table, in addition to showing totals for OPEC, a long period, while age-specific fertility rates have
shows totals for the Organization of Arab Petro- simultaneously remained at replacement level
leum Exporting Countries (OAPEC). The donor (NRR= 1). In such a population, the birth rate is
members of OAPEC are Algeria, Iraq, Kuwait, Li- constant and equal to the death rate, the age struc-
bya, Qatar, Saudi Arabia, and United Arab Emir- ture also is constant, and the growth rate is zero.
ates. ODA data for OPEC and OAPEC were also To make the projections, assumptions about fu-
obtained from the OECD. ture mortality rates were made in terms of female
life expectancy at birth (that is, the number of
years a newborn girl would live if subject to the
mortality risks prevailing for the cross-section of
Table 19. Population growth, past and population at the time of her birth). Economies
projected, and hypothetical stationary were first divided according to whether their pri-
population mary-school enrollment ratio for females was above
or below 70 percent. In each group a set of annual
The growth rates of population are period averages increments in female life expectancy was assumed,
calculated from midyear populations. The sum- depending on the female life expectancy in 1975-
mary measures are weighted by population in 1970. 80. For a given life expectancy at birth, the annual
The projections of population for 1990 and 2000, increments during the projection period are larger
and to the year in which it will eventually become in economies having a higher primary-school en-
stationary, were made for each economy sepa- rollment ratio in 1975-80 and a life expectancy of
rately. Starting with information on total popula- up to 62.5 years. At higher life expectancies, the
tion by age and sex, fertility rates, and mortality increments are the same.
rates in the base year 1980, these parameters were To project the fertility rates, the first step was
projected at five-year intervals on the basis of gen- to estimate the year in which fertility would reach
eralized assumptions until the population became replacement level. These estimates are speculative
stationary. The base-year estimates are from up- and are based on information on trends in crude
dated computer printouts of UN, World Population birth rates (defined in the note for Table 20), total
Prospects as Assessed in 1980, from the most recent fertility rates (also defined in the note for Table
issue of UN, Population and Vital Statistics Report, 20), female life expectancy at birth, and the per-
209
formance of family planning programs. For most are from the same sources mentioned in the note
economies it was assumed that the total fertility for Table 19.
rate would decline between 1980 and the year of The percentage of married women using contracep-
reaching a net reproduction rate of 1, after which tives refers only to married women of childbearing
fertility would remain at replacement level. For age (15-44 years). These data are mainly derived
sub-Saharan Africa, total fertility rates were as- from Dorothy Nortman and Ellen Hofstatter, Pop-
sumed to remain constant until 1990-95 and then ulation and Family Planning Programs: A Fact book (New
to decline until replacement level was reached. For York: Population Council, various issues); Doro-
a few other countries in Asia and the Middle East, thy Nortman, "Changing Contraceptive Patterns:
those rates were also assumed to remain constant A Global Perspective," Population Bulletin, vol. 32,
for some years before beginning to decline. In sev- no. 3 (Washington, D.C.: Population Reference
eral industrial economies, fertility is already below Bureau, August 1977); Office of Population, Family
replacement level. Because a population will not Planning Service Statistics, Annual Report 1976
remain stationary if its net reproduction rate is (Washington, D.C.: US Agency for International
other than 1, it was necessary to assume that fer- Development); and publications of the World Fer-
tility rates in these economies would regain re- tility Survey. The data refer to a variety of years,
placement levels in order to make estimates of the generally not more than two years distant from
stationary population for them. For the sake of those specified.
consistency with the other estimates, the total fer- All summary measures are weighted by popu-
tility rates in the industrial economies were as- lation.
sumed to increase to replacement level by 2000
and then to remain constant.
For all the projections, it was assumed that in-
ternational migration would have no effect.
Table 21. Labor force
The estimates of the hypothetical size of the
stationary population, the assumed year of reach- The population of working age refers to the popula-
ing replacement-level fertility, and the year of tion aged 15-64. The estimates are based on the
reaching a stationary population are speculative. population estimates of the World Bank for 1981
They should not be regarded as predictions. They are and previous years. The summary measures are
included to provide a summary indication of the weighted by population.
long-run implications of recent fertility and mor- The labor force comprises economically active
tality trends on the basis of highly stylized as- persons age 10 years and over, including the armed
sumptions. They differ from the corresponding forces and the unemployed, but excluding house-
figures in last year's edition because of the as- wives, students, and other economically inactive
sumption of a higher life expectancy at birth: 82.5 groups. Agriculture, industry, and services are de-
years compared with 77.5. A fuller description of fined in the same manner as in Table 2. The es-
the methods and assumptions used to calculate timates of the sectoral distribution of the labor
the estimates is available from the Population, force are from International Labour Office (ILO),
Health, and Nutrition Department of the World Labour Force Estimates and Projections, 1950-2000, and
Bank. from the World Bank. The summary measures are
weighted by labor force.
Table 20. Demographic and fertility-related The labor force growth rates were derived from the
indicators Bank's population projections and ILO data on
age-specific activity rates, from the source cited
The crude birth and death rates indicate the number above. The summary measures for 1960-70 and
of live births and deaths per thousand population 1970-81 are weighted by labor force in 1970; those
in a year. They are from the same sources men- for 1980-2000, by estimates of labor force in 1980.
tioned in the note for Table 19. Percentage changes The application of ILO activity rates to the Bank's
are computed from unrounded data. latest population estimates may be inappropriate
The total fertility rate represents the number of for some economies in which there have been im-
children that would be born per woman, if she portant changes in unemployment and under-
were to live to the end of her childbearing years employment, in international and internal migra-
and bear children at each age in accord with pre- tion, or in both. The labor force projections for
vailing age-specific fertility rates. The rates given 1980-2000 should thus be treated with caution.
210
Table 22. Urbanization into account revised estimates of population.
Nursing persons include graduate, practical, as-
The data on urban population as a percentage of total sistant, and auxiliary nurses; the inclusion of aux-
population are from the UN (Patterns of Urban and iliary nurses enables a better estimation of the
Rural Population Growth, Population Studies, no. availability of nursing care. Because definitions of
68, 1980), supplemented by data from the World nursing personnel varyand because the data
Bank and from various issues of the UN Demo- shown are for a variety of years, generally not
graphic Yearbook. more than two years distant from those speci-
The growth rates of urban population were calcu- fiedthe data for these two indicators are not
lated from the World Bank's population estimates; strictly comparable. The daily calorie supply per capita
the estimates of urban population shares were cal- was calculated by dividing the calorie equivalent
culated from the sources cited above. of the food supplies in an economy by the pop-
Data on urban agglomeration are also from the ulation. Food supplies comprise domestic produc-
United Nations. tion, imports less exports, and changes in stocks;
Because the estimates in this table are based on they exclude animal feed, seeds for use in agri-
different national definitions of what is "urban," culture, and food lost in processing and distribu-
cross-country comparisons should be interpreted tion. The daily calorie requirement per capita refers to
with caution. the calories needed to sustain a person at normal
The summary measures for urban population as levels of activity and health, taking into account
a percentage of total population are weighted by age and sex distributions, average body weights,
population; the other summary measures in this and environmental temperatures. Both sets of es-
table are weighted by urban population. timates are from the Food and Agriculture Organ-
ization.
The summary measures in this table are weighted
Table 23. Indicators related to life expectancy by population.
Life expectancy at birth is defined in the note for
Table 1. Table 25. Education
The infant mortality rate is the number of infants
who die before reaching one year of age, per thou- The data in this table refer to a variety of years,
sand live births in a given year. The data are from generally not more than two years distant from
a variety of sourcesincluding different issues of those specified, and are mostly from UNESCO.
the UN Demographic Yearbook and UN, "Infant The data on number enrolled in primary school refer
Mortality: World Estimates and Projections, 1950- to estimates of total, male, and female enrollment
2025," Population Bulletin of the United Nations, no. of students of all ages in primary school; they are
14 (1982)and from the World Bank. expressed as percentages of the total, male, or
The child death rate is the number of deaths of female populations of primary-school age to give
children aged 1-4 per thousand children in the gross primary enrollment ratios. Although pri-
same age group in a given year. Estimates were mary-school age is generally considered to be 6-
based on the data on infant mortality and on the 11 years, the differences in country practices in
relation between the infant mortality rate and the the ages and duration of schooling are reflected
child death rate implicit in the appropriate Coale- in the ratios given. For countries with universal
Demeny Model life tables; see Ansley J. Coale and primary education, the gross enrollment ratios may
Paul Demeny, Regional Model Life Tables and Stable exceed 100 percent because some pupils are below
Populations (Princeton, N.J.: Princeton University or above the official primary-school age.
Press, 1966). The summary measures in this table The data on number enrolled in secondary school
are weighted by population. were calculated in the same manner, with second-
ary-school age generally considered to be 12-17
years.
Table 24. Health-related indicators The data on number enrolled in higher education are
from UNESCO.
The estimates of population per physician and nursing The adult literacy rate is defined in the note for
person were derived from World Health Organi- Table 1.
zation (WHO) data, some of which have been re- The summary measures in this table are weighted
vised to reflect new information. They also take by population.
211
Table 26. Defense and social expenditure especially those for education and health, are not
comparable for a number of reasons. In many
Data on the central government transactions are economies private health and education services
from the IMF Government Finance Statistics Yearbook, are substantial; in others public services represent
IMF data files, and World Bank country docu- the major component of total expenditures but
mentation. These transactions include current and may be financed by lower levels of government.
capital (development) expenditure. The inade- Great caution should therefore be exercised in us-
quate statistical coverage of state, provincial, and ing the data for cross-economy comparisons.
local governments and the nonavailability of data The summary measures for defense expenditure
for these lower levels of government has dictated as a percentage of GNP are weighted by GNP in
the use only of central government data. This may current dollars; those for defense expenditure as
seriously understate or distort the statistical por- a percentage of central government expenditure,
trayal of the allocation of resources for various by central government expenditure in current dol-
purposes, especially in large countries where lower lars. The other summary measures in this table
levels of government have considerable autonomy are weighted by population.
and are responsible for many social services.
Central government expenditure comprises the ex-
penditure by all government offices, departments,
establishments, and other bodies that are agencies Table 27. Income distribution
or instruments of the central authority of a coun-
try. It does not necessarily comprise all public ex- The data in this table refer to the distribution of
penditure. total disposable household income accruing to per-
Defense expenditure comprises all expenditure, centile groups of households ranked by total
whether by defense or other departments, for the household income. The distributions cover rural
maintenance of military forces, including the pur- and urban areas and refer to different years be-
chase of military supplies and equipment, con- tween 1966 and 1981.
struction, recruiting, and training. Also falling under The estimates for developing economies in Asia
this category is experiditure for strengthening the and Africa are from the results of a joint project
public services to meet wartime emergencies, for of the World Bank and the International Labour
training civil defense personnel, and for foreign Office (ILO). Those for Turkey, Hong Kong, Ma-
military aid and contributions to military organi- laysia, and the Republic of Korea are from data
zations and alliances. gathered by the World Bank from national sources
Education expenditure comprises public expend- but not adjusted. The estimates for Sri Lanka are
iture for the provision, management, inspection, from the results of a joint project of the World
and support of preprimary, primary, and second- Bank and the Economic and Social Commission
ary schools; of universities and colleges; and of for Asia and the Pacific. The estimates for Latin
vocational, technical, and other training institu- American countries other than Mexico come from
tions by central governments. Also included is ex- the results of two joint projects of the World Bank,
penditure on the general administration and reg- one with the ILO, the other with the Economic
ulation of the education system; on research into Commission for Latin America. Those for Mexico
its objectives, organization, administration, and are the results from the 1977 Household Budget
methods; and on such subsidiary services as trans- Survey.
port, school meals, and medical and dental serv- Data for industrial market economies other than
ices in schools. the Netherlands are from Malcolm Sawyer, Income
Health expenditure covers public expenditure on Distribution in OECD Countries (OECD Occasional
hospitals, medical and dental centers, and clinics Studies, July 1976); the joint project of the ILO
with a major medical component; on national health and the World Bank; and the UN Statistical Office,
and medical insurance schemes; and on family A Survey of National Sources of Income Distribution
planning and preventive care. Also included is Statistics (Statistical Papers, Series M, no. 72, 1981).
expenditure on the general administration and Data for the Netherlands are from that country's
regulation of relevant government departments, statistical office.
hospitals and clinics, health and sanitation, and Because the collection of data on income distri-
national health and medical insurance schemes. bution has not been systematically organized and
It must be emphasized that the data presented, integrated with the official statistical system in many
212
countries, estimates were typically derived from which households are ranked according to per
surveys designed for other purposes, most often capita household income, not according to their
consumer expenditure surveys, which also collect total household income, is superior for many pur-
some information on income. These surveys use poses. The distinction is important because house-
a variety of income concepts and sample designs. holds with low per capita incomes frequently are
Furthermore, the coverage of many of these sur- large households, whose total income may be rel-
veys is too limited to provide reliable nationwide atively high. Information on the distribution of per
estimates of income distribution. Thus, although capita household income exists, however, for only
the estimates shown are considered the best avail- a few countries. The World Bank Living Standards
able, they do not avoid all these problems and Measurement Study is developing procedures and
should be interpreted with extreme caution. applications that can assist countries in improving
The scope of the indicator is similarly limited. their collection and analysis of data on income
Because households vary in size, a distribution in distribution.
213
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National A System of National Accounts. New York: UN Department of International Economic and
accounts and Social Affairs, Statistical Office, 1968.
economic Statistical Yearbook. New York: UN Department of International Economic and Social Affairs,
indicators Statistical Office, various issues.
World Bank Atlas, 1983. Washington, D.C.: World Bank, 1983.
World Bank data files.
FAO and UNIDO data files.
National sources.
Energy World Energy Supplies. UN Statistical Papers, Series J, various numbers. New York: UN
Department of International Economic and Social Affairs, various years.
World Bank data files.
Trade Direction of Trade. Washington, D.C.: International Monetary Fund (IMF), various issues.
International Financial Statistics. Washington, D.C.: IMF, various issues.
Handbook of International Trade and Development Statistics. New York: UN Conference on
Trade and Development, various issues.
Monthly Bulletin of Statistics. New York: UN Department of International Economic and
Social Affairs, Statistical Office, various issues.
Yearbook of International Trade Statistics. New York: Department of International Economic
and Social Affairs, Statistical Office, various issues.
United Nations trade tapes.
Balance of Balance of Payments Manual. 4th ed. Washington, D.C.: IMF, 1977.
payments, International Monetary Fund balance-of-payments data files.
capital flows Development Co-operation. Paris: OECD, various annual issues.
and debt
World Bank Debt Reporting System.
Population World Population Prospects as Assessed in 1980. New York: UN Department of International
Economic and Social Affairs, Population Division, 1979.
United Nations population tapes.
World Population: 1977. Washington, D.C.: US Bureau of the Census, International Statistical
Programs Center, 1978.
World Bank Atlas, 1983. Washington, D.C.: World Bank, 1983.
World Bank data files.
Labor force Labour Force Estimates and Projections, 1950-2000. 2nd ed. Geneva: International Labour
Office, 1977.
International Labour Office tapes.
World Bank data files.
Social Demographic Yearbook. New York: UN Department of International Economic and Social
indicators Affairs, Statistical Office, various issues.
Statistical Yearbook. New York: UN Department of International Economic and Social Affairs,
Statistical Office, various issues.
Statistical Yearbook. Paris: UNESCO, various issues.
World Health Statistics Annual. Geneva: WHO, various issues.
World Health Statistics Report. Special Issue on Water and Sanitation, vol. 29, no. 10.
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214
The World Bank
World Development Report 1983 analyzes in its opening chapters the severe repercussions
of the 1980-82 world recession on developing countriesthe stagnation in world trade,
compounded by the sharp deterioration in commodity prices and high interest rates
that have halted economic progress in so many countries and given rise to severe debt
problems. In reviewing prospects for the 1980s, the Report argues for concerted in-
ternational action to roll back protectionism and maintain growth in capital flows,
especially concessional aid to low-income countries.
The unfavorable external environment tacing the developing countries lends partic-
ular urgency to strengthening development performance. The management aspects of
development are the main topic of he 1983 edition. The second part of the Report
discusses the means available to governments to make their bureaucracies and state-
owned enterprises more efficient. It focuses on issues in economic planning, financial
management, decentralization, and accountability. The authors have drawn heavily
on country experience worldwide, as well as on the Bank's own experience gained
from assisting several thousand projects over the past quarter century.
Numerous tables and multicolor maps and graphics supplement the main body of
the Report. Case studies are interspersed to provide analyses directly related to the
substance of the text. The final portion of the Report comprises "World Development
Indicators," 2? two-page tables containing economic and social profiles of 125 countries.
World Development Report has been published annually by the World Bank since 1978.
Each edition examines the current world economic situation and prospects as they
relate to development and offers a detailed analysis of a particular topic or sector of
importance in economic and social development.
ISBN 0-19-520432-8
ISSN 0163-5085