Lessons from India's Economic Reforms
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32921 Development Public Disclosure Authorized Challenges in the 1990s Leading Policymakers Speak from Experience Montek S. Ahluwalia Eduardo Aninat Public Disclosure Authorized Leszek Balcerowicz Mario I. Blejer Kwesi Botchwey Fernando Henrique Cardoso Kemal Dervis¸ Alejandro Foxley Yegor Gaidar Rima Khalaf Hunaidi Public Disclosure Authorized Lawrence H. Summers John Williamson Zhou Xiaochuan EDITED BY TIMOTHY BESLEY & ROBERTO ZAGHA Public Disclosure Authorized Development Challenges in the 1990s Leading Policymakers Speak from Experience Development Challenges in the 1990s Leading Policymakers Speak from Experience Edited by Timothy Besley and Roberto Zagha A copublication of the World Bank and Oxford University Press © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington,DC 20433 All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and Oxford University Press. Oxford University Press 198 Madison Avenue New York NY 10016 This volume is a product of the staff of the International Bank for Recon- struction and Development / The World Bank.The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they rep- resent. The World Bank does not guarantee the accuracy of the data included in this work.The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorse- ment or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmit- ting portions or all of this work without permission may be a violation of applicable law.The International Bank for Reconstruction and Develop- ment / The World Bank encourages dissemination of its work and will nor- mally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750- 8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher,The World Bank,1818 H Street NW,Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pub- [email protected]. ISBN-13: 978-8-213-58723-5 ISBN-10: 0-8213-5872-3 e-ISBN: 0-8213-5873-1 Library of Congress Cataloging-in-Publication data has been applied for. Contents Tables and Figures viii Foreword ix Gobind Nankani, Frannie A. Leautier, and François J. Bourguignon Acknowledgments xi 1 Introduction 1 Timothy Besley 2 Lawrence H. Summers 15 Development Lessons of the 1990s 17 Comments Pedro Malan 24 Michael Mussa 27 3 John Williamson 31 The Washington Consensus as Policy Prescription for Development 33 Comments Alice H. Amsden 54 Ricardo Ffrench-Davis 57 4 Yegor Gaidar 61 Russia’s Transition Experience 63 Comments Gur Ofer 70 Anders Åslund 76 5 Kemal Dervis, 81 Returning from the Brink:Turkey’s Efforts at Systemic Change and Structural Reform 83 v vi CONTENTS Comments Roque B. Fernández 103 Steven Radelet 108 6 Fernando Henrique Cardoso 111 Reflections and Lessons from a Decade of Social Reforms in Brazil 113 Comments Enrique V.Iglesias 124 Stanley Fischer 127 7 Alejandro Foxley 131 Lessons from Chile’s Development in the 1990s 133 Comments Nancy Birdsall 154 Eliana Cardoso 158 Ricardo Hausmann 161 8 Mario I. Blejer 165 Managing Argentina’s 2002 Financial Crisis 167 Comments Agustín Carstens 178 Vijay Kelkar 182 9 Montek S. Ahluwalia 187 Lessons from India’s Economic Reforms 189 Comments J. Bradford DeLong 203 Nurul Islam 206 Richard Eckaus 211 10 Zhou Xiaochuan 215 China’s Recent Reforms 217 Comments C. Fred Bergsten 225 Montek S.Ahluwalia 228 11 Leszek Balcerowicz 231 Post-communist Transition in Comparative Perspective 233 CONTENTS vii Comments D. Mario Nuti 246 Jan Svejnar 253 12 Kwesi Botchwey 259 Changing Views and Approaches to Africa’s Development 261 Comments Jeffrey Herbst 271 Michael Chege 273 13 Rima Khalaf Hunaidi 277 Reform in Hindsight: Promises and Illusions in Jordan 279 Comments Samir Radwan 293 Djavad Salehi-Isfahani 295 14 Eduardo Aninat 301 Options and Outcomes of Chile’s Education Reforms, 1990–2000 303 Comments Carol Graham 316 Roberto Junguito 319 About the Editors 321 About the Discussants 321 Index 328 Tables and Figures Tables 5.1 Economic Indicators in the Years Preceding Turkey’s February 2001 Crisis 84 5.2 Indicators of the Early 2001 Attack on the Turkish Lira 85 5.3 Turkey’s Exchange Rate, Inflation, and Central Bank Reserves, January–August 2001 90 5.4 Actual Fiscal Indicators and IMF Program Targets for Turkey, 1999–2002 94 7.1 Chile’s Economic Performance, 1990–93 135 7.2 Chile’s Annual Economic Indicators, 1990–93 135 7.3 Chile’s Policy Response to the Gulf War and its Oil Price Shock 141 9.1 Average Annual GDP Growth in India, China, and Developing Regions, 1971–2003 190 9.2 Average Annual GDP Growth in 20 Large Emerging Economies, 1971–2003 191 11.1 Empirical Studies Reviewing Experiences of Transition Economies 239 Figures 8.1 Private Sector Deposits Began Falling in Argentina in Early 2001 169 8.2 As the Crisis Worsened, Public Assets Displaced Private Ones on Bank Balance Sheets 170 8.3 Central Bank Liquidity Assistance Financed about a Third of the Drop in Private Deposits 173 8.4 In Mid-2002 Private Deposits Started to Recover 174 8.5 By Late 2002 Central Bank Had Recovered its Intervention Costs, and the Exchange Rate Was Improving 175 11.1 GDP and Private Sector Participation in the Kyrgyz Republic and Moldova, 1989–2001 239 11.2 Domestic Credit to Private Sector and Market Capitalization of Listed Companies, 2001 241 viii Foreword TWENTY YEARS AGO THE WORLD BANK INVITED A SELECT GROUP OF DEVELOPMENT economists—among them Lord P.T.Bauer,Albert Hirschman, Sir Arthur Lewis, and Gunnar Myrdal—to celebrate and critique their seminal contributions to the field. Each scholar delivered a lecture at Bank headquarters in Washington,D.C., and sub- mitted an accompanying essay.The resulting two-volume Pioneers in Development provided a rich history of thinking on development. This volume was inspired by Pioneers, but with a twist. Instead of intellectuals, this time the Bank invited prominent policymakers—though many are also first-rate scholars—focusing on those from developing regions. (Larry Summers and John Williamson are not from developing regions, but their vast experience with devel- opment issues merits their inclusion here.) The goal was to gain insights into the political dimensions of development policymaking, as well as pick up on the intel- lectual history of development where Pioneers left off.The policymakers were asked to assess their experiences and consider what they would have done differently had they known then what they know now.They rose to the challenge—filling their reflections with the development ideas that have influenced history as well as pro- viding a feel for the blood, sweat, and tears of policymaking. This book is part of a larger project undertaken by the Bank in 2003–05 to understand the development experiences of the 1990s, an extraordinarily eventful decade. Each of the project’s three components serves a different purpose. Economic Growth in the 1990s: Learning from a Decade of Reform provides comprehensive analy- sis of the decade’s development experiences, while At the Frontlines of Development: Reflections from the World Bank considers the decade’s operational implications for the Bank.This volume offers insights on the practical concerns facing policymakers. Each of the policymakers represented here delivered a lecture to a Bank audience in 2003 or 2004; those lectures or related essays are contained here, along with a set of comments on each from experts in the areas discussed. What arises most forcefully from the presentations has little to do with the widely debated policy matters of the 1990s—such as privatization, macroeconomic stabiliza- ix x FOREWORD tion, and capital account liberalization—though the policymakers are eloquent on these issues. Instead, the policymakers are most insightful when they discuss the process of policy reform. Beyond the requisite analytical rigor, the lectures make clear three additional considerations for crafting sound policy. First, economic reforms are also inherently social reforms, and policymaking must reflect this social dimension. Second, each country’s social,political, and institutional constraints and opportunities make home-grown solutions critical to success.And third,policy continuity and cred- ibility strongly affect expectations, and hence influence reform outcomes. Another striking aspect of the policymakers’ contributions involves the learning process that emerges in their descriptions of the policy dilemmas they faced.To name just a few,there is Fernando Henrique Cardoso, who first made his mark as a leading dependency theorist, but later institutionalized fiscal responsibility through legislation and practice (among other significant reforms) as president of Brazil. His transforma- tion reflects a fundamental shift in development thinking since the time of Pioneers. There is Mario I. Blejer, who speaks candidly about the challenges, adjustments, and mistakes he encountered as Central Bank governor during Argentina’s