General Discussion

Laura Wallace
Published Date:
May 1997
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Economic Policy and Democracy

Basant Kapur of Singapore, picking up on Kwesi Botchwey’s statement that countries would benefit economically from a stable democratic environment, suggested that the key question was not whether a democratic or authoritarian regime was needed but rather whether the country was achieving economic growth. After all, initially, South Korea and Taiwan were not democratic regimes, but their form of authoritarianism had proved quite capable of pushing through economic reforms. Moreover, some democratic regimes were riddled with corruption, while authoritarian countries such as China had managed to combine corruption and very rapid economic growth. What was needed above all were market-oriented and outward-oriented strategies that enabled systemic corruption to be reduced and business to be promoted, and studies should be undertaken to establish the best way of designing and implementing these strategies. Robert Barro had asked if it was democracy that brought about economic growth or if economic growth allowed democracy to flourish. So one might well ask if it was possible to assume that economic growth should come first and democracy second.

Dahlan Sutalaksana of Indonesia suggested that some of the sensitivity surrounding the issue stemmed from the fact that democracy was not necessarily defined the same way in every nation. If Indonesia had followed the Western-style democratic way, it would have picked Javanese as the national language in the late 1940s, as the majority of the population then spoke Javanese, and it would make Islam the national religion, as most Indonesians were Islamic. But instead, the government had opted not to establish a national religion, and the Indonesian language was developed from several regional languages (such as Malay). Although human rights issues needed to be addressed worldwide, economic growth could stimulate the process to true democracy. Thus, the answer lay in managing the country so that economic policies were good, the government was good, and the results were good.

Joseph Tsika of the Congo, however, observed that his nation, like many others, really had no choice. Because of poor economic management decisions in the past, the Congo now had to turn to the international community for help in financing growth. But the donors insisted that they would only provide financial support if the country became more democratic. Autocratic policies used to enable the Congo to mobilize everyone behind an ideal, but that was no longer possible with a democratic system.

Reacting to these remarks, Kwesi Botchwey offered a defense of democracy for Africa. Democratization was important for development because it affected the sustainability of reform programs and helped mobilize people at the regional and district levels. Good autocrats were fine so long as they remained good, and pursued good economic policies. But the problem was that when they ceased to be good, there was no way to get rid of them. Thus, it was important to anchor the reform process in a political environment that made it possible for the electors to get rid of the elected when they turned wayward. How this should be done, however, should be left up to the country. Moreover, countries should not rush into the democratization process and should not define democratization as a checklist of things to be done that would automatically reproduce what had happened in the Western democracies.

But should democracy be a condition of financial support? As long as the macroeconomic policy framework was good and the processes of resource mobilization and use were accountable and transparent, the minimum conditions for financial support existed to enable the donors and the adjusting country, through informal dialogue and consultation, to gradually encourage the evolution of a full-fledged democratic environment.

The problem with democracy and development in Africa, Botchwey continued, was partly the way democracy had been introduced into the development battle between donors and African countries. There was a presumption that African governments and people left on their own would not democratize, that somehow they were almost innately autocratic, and therefore, without the carrot and the stick, things would not happen. The concept of democracy was put forward, but it really meant Western-style democracy, pure and simple. In addition, Africans had a great deal of concern about inconsistencies in Western attitudes toward democracy—inconsistencies that had sapped the moral strength of the call for democracy. There was a perception in the developing world that when the market was large and the spoils sufficiently attractive, donors found a way of turning their eyes away from obvious abuses, such as in human rights.

In response to a question from Jacob Mwanza of Zambia as to why Ghana’s macroeconomic performance—often cited as a success story—had deteriorated after the democratization process had begun and governance had improved, and what that said about the links between performance, democracy, and good governance, Botchwey pointed out that before democratization, the government (even though it was not elected) had made greater use of dialogue and consultation with those involved than subsequently. In addition, starting in 1992, with the democratization of the trade union, a great deal of pressure was exerted on the government, causing the wage bill to rise to an unsustainable level. Everyone started to negotiate, negotiate, and negotiate, and everyone was engrossed in politics and winning elections. Obviously, there had to be an economic impact, and thus a price was paid for democratization. But the problems arising from democratization were being overcome, and they could be resolved through debate.

Jean-Claude Brou of Côte d’Ivoire concurred with Botchwey’s emphasis on the value of dialogue and consultation among the various parties in a country. Only with such communication was it possible to stick to proper macroeconomic policies over the long term, and democracy offered a way of keeping those avenues of internal communication open. Thus, although appropriate macroeconomic policies were the sine qua non for development, the democratic process was also essential. But there was no point in comparing a country that had 200 years of democracy behind it with one that had started only 3 or 4 years ago with a special socioeconomic situation. Each country had to find its own way down that road.

On another topic, Michael Foster of the United Kingdom asked Sutalaksana how Indonesia, unlike many other oil producers, had managed to avoid the so-called Dutch disease—whereby the result of having a large oil sector is a loss of competitiveness of the other tradable sectors because of an overvalued exchange rate. The United Kingdom suffered from this disease in the early 1980s, and Nigeria had suffered from it over the years at a great cost. Part of the answer no doubt was keeping the exchange rate more competitive through a devaluation. But how could Indonesia achieve a real devaluation in light of the potentially adverse monetary consequences of trying to effect that?

Sutalaksana responded that fortunately Indonesia had immediately recognized the problem in the early 1980s because it had been listening to advisors and observing the experiences of other countries. What was Indonesia’s solution? First, it used some of the oil proceeds to repay loans, rather than reschedule them as originally planned. Second, it took drastic measures to promote exports of non-oil goods, including the liberalization of imports of raw materials for these goods. Third, it tried to monitor imports more tightly, in part through preshipment inspections. As a result, oil and gas exports now accounted for only about 33 percent of total exports, sharply down from about 80 percent in 1982.

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