15 Concluding Remarks

Laura Wallace
Published Date:
May 1997
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Jack Boorman

The agenda for this seminar reflected a presumption that there is now an acceptance of the proposition that a continued stable macroeconomic environment—as illustrated by the comments on Indonesia—is a prerequisite for rapid economic growth. I think that presumption has been fully endorsed.

This is, of course, one of the key lessons of the Asian miracle. Indeed, East Asia has many lessons to offer, demonstrating the need for, and the rewards from, high levels of savings and investment, budget discipline, and relatively low inflation rates—all essential ingredients in establishing an environment conducive to a dynamic private sector and to growth.

But does this mean Africa can simply copy what worked best in East Asia and hope for a similar takeoff in the years to come? This is one of the issues underlying the debate this year, as well as in the previous seminars.

What seems to come out of this discussion is that the economic environment has changed dramatically since the East Asian countries established the basis for their spectacular growth. In a world of economic globalization and integrated financial markets—not to mention the sea change in the prospects for private capital flows—one must ask whether the relative costs and benefits for Africa of opening up its markets only slowly are the same as those faced in Asia when countries in that region took their decisions regarding liberalization. We all know the figures. Last year, for example, there were $60 billion in official assistance and about $200 billion in private flows—three times the amount of official assistance. This reality has, I believe, changed the rules of the game and, importantly, the opportunities that are available to developing countries. But I agree with David Cole that this does not necessarily mean a portfolio investment market is needed. It does mean, however, an openness to various kinds of flows, particularly private direct investment flows.

The message that came through this discussion seemed to be that the cost of acting slowly—and forgoing the benefits that faster access to outside capital and technology can provide—is too dear. The warnings of David Cole of misstepping in the liberalization process are well taken, but I believe that most here want to see as rapid progress as possible, consistent with the maintenance of sound and stable financial systems.

We are having this debate at a time when, after years of trying to stabilize economies that have been battered by terms-of-trade shocks, by civil strife, and by economic mismanagement, many African countries are finally turning in positive growth rates. Hopefully, we are seeing the end of the long decline in per capita income levels in so many African countries.

Macroeconomic stabilization has played an important role in this reversal. That is clearly something we have learned how to do, and its results are, as Mark Baird has said, becoming increasingly evident. But at the same time, by now we had hoped for better results. Growth simply has to be higher. Real progress in the closing of the ever-widening gap between Africa and much of the rest of the world will require much higher growth rates. The supply side of economies is responding, but it needs to respond even faster!

How do we do that? Looking across the African continent, countries have, by and large, been reasonably successful in implementing what may be described as “early stage” structural reforms. They have reformed the exchange rate systems, opened the trade and payment systems, removed price controls, and liberalized production and marketing systems, especially in the agricultural sector.

These reforms are all essential prerequisites. But the record on the more difficult reforms—involving revenue mobilization, public enterprises, privatization, and the financial sector—has been much more uneven. Moreover, as banking systems have run into problems—and we know that that is the case in all too many countries, not just Africa—some observers have questioned whether the initial liberalization might have been too rapid. That is why we cast the agenda for this seminar around the themes of accelerating structural reform in these various areas.

My sense from the response of our African friends is that we struck a nerve here—that it is precisely these issues with which you are wrestling at home! There seems to be a general acceptance of the need to press firmly on with market-based monetary and exchange management and the promotion of sound financial systems, but with the coherence and sustained commitment and with the prerequisites in place that those kinds of reforms require. There is also a need for the attendant legal and institutional changes. Only through such measures can we ensure efficiency in resource allocation, attract foreign investment, and foster the much-needed domestic savings and investment that ultimately hold the key to the faster growth everyone is seeking.

But how should these reforms be sequenced? And what is the optimal pace of reform, both within sectors and across sectors? Some of you clearly favored a more gradual approach, while others opted for moving as quickly as possible and on as many fronts as possible—especially if there was the political will to do so. Indeed, a quick move to more market-oriented policies can sometimes depersonalize and depoliticize the reform process in a very helpful way. But on this issue, as on others, I think semantics tend to disguise how much common ground there is within the group.

One unmistakable message to be taken from this discussion is that the politics of structural reform are tough and that more effort must go into communicating the cost and benefits of policy options. For structural adjustment programs generally, as several speakers noted, more effort needs to go into explaining the short-term costs as well as the medium-and long-term gains that are hoped for from such programs. Several of our African colleagues have indicated that they now have a clearer vision of the steps that must be taken—much as the East Asian policymakers had been convinced of the steps they needed to take at various critical turns in their economic development.

But it is also clear that, more than ever before, there is a strong need for policymakers to engage in a dialogue with their own civil societies—especially the private sector, which has a vital role to play in fostering economic growth—to assure that these groups are brought along with the reform process and not surprised by measures. For example, as a number of speakers pointed out, privatization is not an easy issue to sell to labor unions and other vested interests in the parastatal sector. In these cases, the cost of inefficiencies and inaction must be clearly spelled out. We all heard the plea that the donor community and the multilateral institutions could help by being more sensitive to the fact that this is a difficult social and political issue, not just a technical one.

More generally, as the dialogue with civil society is stepped up, the pressures for democratization and good governance will grow. My sense from the discussions here is that there is widespread acceptance of the view that good governance—defined to include greater transparency and accountability in the life of governments—is desirable and, inevitably, a legitimate concern of donors. At the same time, there is a need to find new ways to craft programs and sector projects to assure donors that their monies are being put to good use, while—and here is the trick—at the same time permitting governments to retain “ownership” of their reforms, ownership being emphasized by many around the table as absolutely critical to successful reform efforts.

However, there is also the view that governance and democracy are not the same thing and that there needs to be more exploration, country by country, and perhaps with more subtlety, in the search for democratic processes appropriate to the conditions of Africa. There is also a need to take seriously the concern expressed here that the treatment of countries on such sensitive issues as human rights be consistent.

Which leads me to my final thought. With a consensus now on the stabilization and structural measures that need to be taken to ensure sustainable growth and prosperity, what should we be debating? I believe Mark Baird and Ravi Kanbur hit the nail on the head, and I would subscribe to putting more energy into understanding individual country circumstances—debating with policymakers, NGOs, the private sector, and all interested parties on how best to proceed, what the appropriate pace of reform can be, and what institutional environment needs to be in place to proceed from one reform to the next. Indeed, country specificity needs more and more to be the focus of our dialogue.

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