Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized STRUCTURAL A Alan January CPO E 1 B 1 e i o t CPO Bank interpretations CRITICAL Discussion Discussion staff Batcheider 198S r9 use VIEW ADJUSTMENT ( Co Papers to are n s u 1 Paper . stimulate {Consultant) those repor: ta n ) t No. LENDING of discusslon on the 1985-21 work aut.hors in and progress .. i:omme11t. and CPD FOR are The viev.;s circulated s-AFF and f?52.l USE for ORA ONLY FT Preface
The paper was prepared as a contribution at a training seminar at
Easton in May 1984 on Structural Adjustment Lending. It was presented as one:
part of a session on SALs, the other consisting of a presentati0n by Stanley
Please entitler\ "Structural Adjustme;1t Lending: A Supportive View".
(Mr. Please's views have been published in his book entitled The Hobbled
Giant.) The two presentations were intended to initiate a discussion by
participants. The paper was further discussed at an internal seminar, at the~
Bank, in October 1984. The present paper, therefore, does not aim at
d~veloping a comprehensive and balanced assessment of the experience with the
Bank's structural adjustment lending. The focus is on developing a critical
view. The paper concludes that incremental strategies of reform as opposed to
the global and comprehensive adjustment attempted through SALs may be more
effective vehicles for policy change. lt makes a case for "longer t!.me
horizons, more modest expectations, and smaller scale approaches" in the
Bank's policy based lending.
While this version reflects some of the comment:s made by Bank staff
and others at the two seminars, the views expressed are solely those of the
au tho rs. r
•
Luis de Azcdrate ',• CONTENTS
~ I. INTRCOUC'1'ION 1-7
II• OBJECTIVES ANO CHARACTERISTICS OF S&LS 8-18
A. THE EVOLVING RATICNALE FOR SALS 8-11
B. ALT~RHATIV~ IN IHE CHOICE OF SAL CHARACTERISTICS 11-18
III. ~O MONTHS OF S~L EXPERIENCE: A STATISTICAL PROFILE 18-20
IV. ANALYTIC CRITICUE 20-46 A. LACK OF CLEAR SELECTION CRITERIA
B. WEAK THEORY OF REFORM 22-32
C. OVERDESIGN AND KISSPeCIFICATION 32-46
1. Exceaa!vely Coapr•h•~~ivo end Co•pl•x 33-38
2. Toe ftuch Explicit Condition~lity 33-4t. v. CONCLUSIONS
T~Bt.ES 1-8 FOOTNOTES STRU~TURAL ADJUSTft~NT LENDING fl. Critical View • by Elliot Berg and Alan Batcheld•r
1. INTRODUCTION
Since 1960, there haa be••'l a £lo"'•ring 0£ "new at.yl•" World Bank
~ending characterized by a policy £ocua and conditionality. Thea a
loan• and credit• include export rehabilitation credit•, which
p~ovid• £oreign axchang• £or critical ittduatri••: aingle iaport
loan•
lending 0£ varioua deacriptiona Rehabilitation Loa::\ and Kadagaecar'• Induatrial Aaaiatanc:• Credit, £or exaaple>; and Structural AdJu•t••::lt Loanc veh1claa now account £or 20-30" 0£ total Bank landing, dep•inding on d•%1nition. They carry varying degreea 0£ condition1alit11'. and th• extent to which they are .. proJ•ctiz•d" e.lso vari••· But all are ti~d ~? policy change, the SAL--th• aubJect 0£ thi& pap•r--•oat 0£ all. l Tl\.e di:f'ference• between the new atyle, policy-baaed l:ending and- - "traditional'" aaaiatance can b• exaggerr&ted. ProJec:t loe1na can do> c:ontai~l .::ovenanta with perlor•ance condit.1.ona. And non-proJ•ct lending i• hardly new: Bank ;;a.at.. p~ovided £ree-atanding end qu1.ck-dieburaing £oreign exchange.' -- - · .!1.u.t th• dj,££erencea are reel. Conditionality waa not a •1alient: - = • Thia ia a revia•d v•raion 0£ a ~iper praaented at th$ Structural A~Juataa~t Seuin•r~ May 7-10, 1~84, and a Bank S••inar on October 4, 1984. The preaent veraion tak•• account 0£ co•••nta •c:d• at th••• two •••ina.ra, either by incorporating th•• in th• text oz· by noting the• in £ootnotea. .• Page 2 feature of prOJ9Ct loan• in th• paa~. And Bank progra• loa1na were liait•d in vol~•o (~h•Y avere9ed atiout 7- o:f total bank lsndinQ in the 1970•> and in goal•: they were ai.med at eaaing balancr.- of payaents cr1••a that area• fr~• export earning shortfalls or natural c:liaaatera. -sector Leana." as defined io Bank operating rul••· financed slicsa of aector~l inveataont pregraaa and w•r• irn general reatrict•d to c:ountr1•• w1th goc:.d planning .snd 1•pleaant1nc; capacity. ~olicy condit1onn w~r• •1n1aal in Ch••• loana or credita. l970a. the ••1na~ree• devel~paent lii•rature gave relatively little dttention to th• ia:.>aet o:f policy Ox'l econoaic per:foraanc•· It wa.a rarely i9ner•d altogether. but for noat writer• of the :i.oa · ,Jnd 60a. what really counted waa capital !nv•At.aent and tec:.~"=!.!.ogy trana£er. 2 Even wh•re policy re!ora we.a explicitly cona..,d11red, ·ita iapact waa Judg•d to be aodeat. Tho heavier w•ight now being given t.o policy and to pol.icy retora rai••• many interesting analytic ia&uea, of which two will be considered here. First, what are the chang•• in tha in~11llactusl ratio:'l«h°l for roaource transfer•, wh~n growth i• conatr11ir.~id ir. a •a.:ior- w&y by· beet doaeatic policiea. and whan th• r•aourc~ t:i:~ana:f•r i• to ce •••ociated w1th poll.CY rf11!01;a? Ar,d ••condly, what. a:i·e the ~•:i~r iapllcationA o:f the n•w oa~haa1a on policy :for the way develo~atnt inatitutiona· degr•• of. integration b~tween tl'\ought and a<::tior. tha·'.:. cha::nc:teriz•• within 4n analytic fraaewor" that prqvid•• both an 1nt•.i.!ac:tual Pogo 3 rationals for the aid relationahip and pr~ct1cal guidelinao £or aid sganci••· The aa1n conatraint to growth ia dofinod aa ohortagoo 0£ capital and acceaa to technology. Siapla a~o~o~ic ~odola riarrod-Doaar and .. two-gap" epproochaa> provide on overall •acroaconon1c £raaework £0~ estimating .. nooda," an explanation o~ · how aid 1n~lowa a£:lact output. growth, und inatruaonta for 11oaauri:ng raaulta. Vor donor~, aapecially the Bonk, th.La aokoa rooourc• "gap•" a principal preoccupation in country oconoaic work. At th• r.icroeconc•ic level the contarpioco o:l .. traditional"" aid woa an activity with a beginning ond an end. and with w~ll-d•:linad inputa and known coata and Cuauolly> neasurobl• outputa. Fro• a· ••. PrOJ•ct-centarad par~pactive. each ~euntry can be viewad aa a poaaeaaor. 0£ potential invoat1u1nt.a that eithor axiot--i .a., are on th• ahal£ elreedy--or can bo dovolopod by propGr preparation; only ~ £~acal or foreign exchango conatrcinta provont thoir execution; Tne. - : £unction o:l ec:onoaic aaoiatance thon ia to relaaae th• binding _,conat.;-aint to f'aat•r growth, .uauelly :loroign exchange availab!lit:y, by f'~nancing th• o££ahor• coata 0£ prQJ•~ that. a ..t t.h• ec:ono•i.c criteria o~ aid donora. .. .. ~ -- t Thi.a. ':"tradi tionel .. approach aha pad th• analytic tool a that. heiva - - - . - - • - . do•inat•d th• de~.·alc:>p•Oiilnt :£111ld •inc• the 19~0.. a~auae th• . ~· · · .. proJact waa th• priaary v«1h1cla 0£ developaf'lnt aaaiat.anca, proJoc:t ·~·••valuation bee••• the boat dovalc:Jp•d raicroac:cno11r.ic: ·i.natru••ri~ 0£ ·the:•· .. aid pr·ac:titioner. Juat •• invoataant-powored gr~vth •od•l• at.&Q~bad aoat ottent.i.on on th~ nacroeconoaic aide. : ProJec:t.a and capital inveataant.a were alao th• principa~· co~cfrna '4 •.i.d 1net.t.t:.ut.i.one. extent other aid 1nat1tutiona> th• prOJ•ct waa tha backbone 0£ the organi:i:ation atructure. ProJect. cycloa regulated the £1.:." 0£ activity. The proJect:£o.:ua alao pro\11ded guidel1nea for baa1c :- aanagtn1•nt deciaiona auch aa how auch to 1-.nd what purpoaea. Country allocationa 0£ courae alwaya dependdd OR I I aore t_han proJect conaiderat1ona. but certainly the availability=o4 "aound" pro]ecta haa alwaya been an important input 1n thia ~ daeiaion. And although proJect •aoundn~aa" involvee auch •ors than ~•ternining an acceptable tat• o~ return, the ideal of proJect _- .. aoun~n••• ha• provide~ a conceptual anchor £or aid organization. aapecially ~ithin the Bank. Policy-baaed loana ana.l.ytical aca:££olding that aurrounda ••traditional°' :fcr111a · 0£ resource trana£er. While policy re£or• haa bean recognized, alor~g · with capital inveat•ent and technology tran111£er, aa a •aJor £actc1r - in developaent., the analytic iaplicationa 0£ thia changa·hava r•~•i~ed little attention. Not •uch theory c£ policy-baaed lending· ha& bean advanced with reapact to SAL• {~r otharw~aa>. So'tKeir r.ational• ia uncertain. and £or ll&nagera o-£ aid inatitutiona t.hez·e •r• unanawared q~••t1ona, auch aa: what criteria ar~ appropria~•• £~ ;aelec:t_ing cou:-.triea that w1.:.1 bene£it. £ro• th••• loana/credit.a:' · how ahoul~ their aiz• be det.erained; and how ahould their e£:fectiveneoa be evaluated? All 0£ theae iaattera are touched on in thia ·paper, thoug~ the··_' ~•in aapha•i• 1• on the e££ect.1vanaaa quaat.ion. The analyaia ia P~:t.ial .,· in aaveral raepact.a • The £ocua, %1rat 0£ all,-i•·on·t.he .SAL~-.tha biggaat. b~oadeat, •o•t conditional 0£ th• policy~baaad- Page " lending in•truaent•· Related type• o:f loan•lcr•d1ts are not con!\1dered. It i• partial •l•o in that we do not di•cua• th• que•tion 0£ the theoretical •uitabil~ty of Bafik~propo••d policy changes in ·~•ci:f1c ca•••--i .•·. whether th• r'.IC:O••~nded tari££ c:hangea in a giY"On SAL. country are analytically correct, wh•ther rate change• urged on public enterpri••• ar• in accord with aound pricing princi~l••~ or whether agricultural price change• diacu•a•d with client govern•ent policy-•ak•r• have taken •uitabl• account 0£ other ~gricultural pri~••· likely •up~ly ela•ticitiea, 8nd :f iacal i•pact.a. Suc:h qu••tiona, which focus on th• i••U• 0£ the econo•ic •oundn•a• of Ban~_ policy r•c:0Ra•ndation&1, how•var int•r••ting. are not cona-id•J~•d here. ill• a~u•• that th• propo-1• aad• in SALa' are techn1.c:•lly appropriate. Mor do we •ay 11.uc:h by way of eapirical a•••••••nt of t!i• SAL expcrien~• .. except :for a f91ii1 tentative obaervat1on• on th• "ep;ntrerl\:. SAL inpact on GNP growth rat~•·. At thi• •tag•. eapirical a•••••••nt in t•r•• of atated ObJ•Ctivea •uch ea belanc• 0£ pay••nt• equilibriua, ia not £eaai.bl•. Th• ti•• pericr.l i• too •ho~t; SAL• ar• •uppo••d to have their iapact only in the aediua t•r•--•o,•-five year• a£ter their b89inning. For a•11•••••nt 0£ •o•• : - aapect• o:f the SAL, th• aonitor1ng of progr••• ia •xtr•••ly : dif~~cult; thi• i• •o where proc••••• are involved and not •ir.gle event• or acta; and ~~•re there are aany auch proc:•••e• involved in _ ~n SAL._ Evaluation J.• n•c•••arily •ubJ•ctiv• in •uch c:aae•. 11or•ov•r, even whera1 concrete indications o:f progr••• ar• avai-lable, Peg• 6 it 1a often i•poaaibl• to di••ntangl• th• iapact 0£ en SAL fro• thet of an IMF progra• or other £actora. Ita ••phaaia i• on what ••c•~ wrong with SALS. Inevitably. what i• right about th•• i• alighted. I~ i• for thia reaaon worthwhile at th• outaet to note th• nany poaitiv• r-ult• flowing fro• t.h• growth of policy-baaed lending. and th• uae of SAL• in particular. • It haa firat of all had a •aJor iapact. f!lr th• better, on th• orientation of Bank ataff,. eapecially eeo1'o•iata. · Polic:y iaau•• nave aoved to c:enter atag• in Bank ec:onoaic and aector·work and thi• ~a• not only increaaad aubatantially th• ua.-fuln••• of th~•• atudi•• but alao raiaed th• polic:y and political awar•n••• of Bank ataff. Secondly. the SAL• have ra1aed the intenaity of diacuaaion of ·- •any c:rucial polic:y iaauea in th• 16 recipient c:ountri••· They r~preaen.t th• •oat c:arefully deaigned and detoil•d rafo::-a prograa effort• ever put toge~h•r by a developaent inatitution.; They have- provided a aedal for other international agenc:i••• and for b1lat•1ral ~onora. T•c:hnic:iana in LDC. now have at l•a•t th• poaaibility oi' •••ing what th• detail• o~ a c:oapr•h•naiv• progra• of polic:y refc1rlil look-~ik•. Moreover, th• 9££ort ha• puahtwd £orward th• proc:••• 0£ refer• -in aoat 0£ th• SAL c:ountri••• though it ia too aeon to be au.re of thia •. As 0£ aid-1'384. obaervable, relatively una11biguoua • .aank ataf~ point out elao that polic:y-baaad lending i• new and experiaental,. and that aany adJuat••nta are being aade ea experience ec:c:uaulat••· In £ec:t. aoae argue. aany of th• critic:i••• in thi•• p&per are being addreaaad. Page 7 -failur•s'' have occurred in only thr•• of th• l& SAL countri••--in Senegal wh~r• diaburaeEenta were atopped. and in Guyana and Bolivia~ wh•r• run-on ShLa were denied becauae of inadequate perfor•ance. Non4th•l•••• genuine probleaa do exiat with policy~baaed lending in general and the SAL in particular. Firat. th• criteria for selection 0£ SAL countri•• are not clear. Secondly, the theory 0£ re£or• on which the SAL reota ia not clearly ~pelled out~ Thirdly, the SALs are. often too co•plex. and 5a!:.·oc:!y too mu.ch fictional , conditionality. And finally, conditionality aa expreaall'lrin the SALs may obatruct 6chieveaent 0£ th• £unda••ntal obJ•ctive of policy dialogu•,: which i• the changing of •ind• about what i• good policy. Th• reaainder. of the paper 1• divided into four parta.; Part II - ::-_eviewa. the evolution of th• Bank' a rational• for the SAL progra• and, aurvey• th• array of choice• that were available to fraaera of SAL s.trat&gy. Part III preaenta a atati•tical picture of experi•nce w.1th- SALa; the kinds of countri•• ad•itted to the progra•; the iapor~anc• of SAL aoney to th• borrower•: the additionality 0£ SAL money; and th• growth experience 0£ countri•• ~it~ SALa. Part I'll' of£era a critical analyaia of SALa, and Part V is th• conclusion. Page 8 II. OBJECTIVES AND CHARACTERISTICS OF SAL.S A. 1'HE EVOL.VING RATIONAl.E FOR SALS• The Bank £irat int.roduced SAL.a in early 1'380. rn their original JU•ti£icat1on• 0£ th• new lending inatruaent, Bank o££iciala atr••••d two conaiderationa: £irat, that th• L.DCa# external econoaic envlron••nt had recently beco•• diattnctively di££erent, coapar•d-with earli•r year' and, aecond, that ~t leaat •o•• 0£ th• c~ange• w•r• long-tera or peraanent. In early 1'380, three change• w•r• cited: th• incr•a••d price 0£ oil; the negative i•pact 0£ the'· alowdown o{ th• CECO econo•i•• on LDC export earning•; and high rat••-0£ induatrial country inflation and conaequent high iaport pric•~- £or LDC•. Deteriorating t•r•• 0£ trade and growing _curren.t account de£1cita were creating increa•ingly severe resource conatra1nta, and were giving ri•• to wid•~Pr•ad BOP cri••• in th•1 developing countri••· Th••• three external developaent• were id•ntif ied aa peraanent .:or at leaat long-tera> in character and, therefore, a• requiringr "long-~•r• atructural 4dJuataent• in th• econoai•• 0£ ~h• developing- - countriea.... Bank o££icera announced that they w•r• prepared to 1111ake - '· • . One- ueainar participant ob••rved that no theoretical rational•t waa really needed £or the SAL.. A great •any count:ri•• were in d•t•p econoaic: trouble in 1980, and weya had to b• found to h•Ip th••· Th• SAL. wa• one reapon••· Page '3 ata£i and conaultanta available to aaaiat ~overna~nta in the proceaa 0£· structural adJu•t••n~. But the ai'.uation wa• viewed aa calling £or meire tt1o4n o4Q1/.iaa. In early 1980, th• Bank pro,l!foted that ourt"ent account de£ici1:.a of low inco•• countrie• in 1980 would be triple their 1978 level,, and· rla~ ~~ nearly five percen~ aa a ahar• 0£ GM~. Bigger de£ici1:.• were predicted £or 1981 and 1982. Reaponding to thi• iaaediate and potentially per"iatent criaia, th• Bank introdur.ad SAL• and •~ld:s th•• quick diabur:aing to reduce growth-inhibiting raductiona ;Ln iaporta !n recipient countriea. By early 1981, high interest rates and sl~w growth 1n. concessional asai.atance had·been added to th• liat 0£ 111>eternal change• ]Uati£ying the new £era 0£ Bank help, b~~ "c~ntinumd high x·atea 0£ in£lation'" h'ld be•n dropped. Kore aigni£icant, again in eftrly 1981, Bank o££1cials began to cit• "inappropriate do~e•tic pol1c1ea" aa growth obatacl•• calling £or baaic structural ad]uat•enta that would d•••rve Bank encouras•••nt and aupport,. A• a reault 0£ internal reviewa and evolvin; experience in 1981 and 1982, t~~ BOP aspect •oved ta a aecondary poaition 1n Bank diac::ua•lona 0£ SAL•. The need for policy change• received incr•a8:1ng ••phaaia. Land•ll-Mill•' D•c••b•r 1982 paper re£l1tet~ t.1'1~!6 tranaition. H• cit•• the long-ter• ri•• in energy coat.a,, the rlae ~n price• 0£ aanu£actured i•porta, high intereat rates, and receaaion aa change• in th• external environaent callin~ for Bank Page 10 3 aupport £or structural adJU•t•ent. But he then gives "'111appropriate do•••tic polici••" aa an equally important £'actor. He writes: · Conceptually, structural ad3uatL4~t ia designed to ~••pond to peraanent changes in the exterrial environaent and aay be distinguished :fro• structural re:fora to correct. :for. inappropriate doll!.eatic policiea. In practice, th••• tw10 e1leaenta. becoae inextricai:lly interrwoven and cona.aqu•ntly. n.on• o:f the prograaa supported by structural adJ?.lat.•ent. lending aay b• regarded a• solely. correcting :for •x~•rnal •:hock• • • Many o:f th• re:foraa proposed under SAL ar•1 long overdue and ar• not neceaaar1ily apeci:f:lcally ~· Th• BOP equilibriu• obJective ha;a i1cav•r diaappetiroc;i a•• a ratic1nale £or SAL.a. The SAL. prograa 'i• a reaponae to exiat.~ng or !••inen~ BOP criaea and it• obJectiv~ 1• to help L.DCa aake internal adJu.11~1'enta that will accelerate growth now and produce•a su&t.o!l1inable balance on c:urr· ,nt ac~ou~t in the aediu• t"~• crf 4.;6 . yearel_• Bu.t the eaphaai• within the ~tsnk clearly ah.'i.£ted d1.;1ring 1982 to '?C'llicy re:fora. indeed, one aapectt receivea auch eaphaaia: t.ha·t SAL. 1aoney. will bring Bank repreacntatlivea to th• borrower•' policy-· a~king "high table," the level• of govern••nt where policy i• decided. Thia,· Bank aanageaent a•••:r::t•to, ia where .the pclj,."cy ~ialogu• can be •ad~ aoat e:££ective. Th• Bank d•ciaion to aove ac.. ,;· • aggreaaively into iaatt111i.:·~ ~f - hig?-1 econo•ic policy ia conaistent wi;t.h the intent 0£. a.!my o':f it• £oundera: The Fund and Bank are not buain•~• in~titutiona in th• ordinary oenae. W:il• they iauat b• ~~•ra~ed ao aa to conaerve their .- Pago 11 aaae~a and allow the aoBt !ruit£ul uao o! thoir !ac111tiea, they are not pro£1t-•aking inatitutiona. Tho bu~inoaa 0£ tho Fund and Bank involvea aattora 0£ high economic polic~. They should not. bec:oae Juat two ao:i:"e £inancial institutions. 'The.Fund haa cun•iatently •nJoyed·that involve~ent. Tho Bank has ~apparently had retlaona., up to the preaent., to ope·rate at a alightly l••• grand level. B. ALTERNATIVES IN THE CHOI~E OF SAL CHARACTERISTICS The rationale £or SALa hea thua eo111a to :f'ocua c:in tho- ~ -· developaental uae:f'ulnesa o:f' re£orain9 domestic polic:ioa and on the tie to loaria large enough to win ac:cesa to the aont aenior policy - - · .. aekera., thereby p&raitting Bank ata£r:f to accelerate re£or•t cind to · · .. in:£luenca it• character. But in the beginning., lorig-t·era ·c:h~ingea in: the LDCa"' external. trading anvironaant had been eiaphaai:z:ed aoat., •• · · had the need £or quick diaburaementa to raducG BOP gapa. i'heaa ·. ~ "'~·!o~•pt.iona prevailed when tho Bank' a aanag@aent" waa dec:idi;ng how t:o • · '· · ahape th• SA~ progr~a. ._ Th• charac:tAr1atica oz the prograa were certa1~ly not· i :.£oreordained. The Bank' a innovators c:oz:icaivably had val:'i.O\la I elternat1vea., aoae ~£ which are auggaated belov. · '·· - .-~Sell. Adv!Sf•· GJ,va It. or Rawal\'d Users? ·1.' 0£.Ban~ o££iciola ware that. good atructural adJu•t•ent prograaa would i! . .. be. d~££ic:ult ~o c.ea1gn and that country designer• could be greatly : · ~ 1 l ~~elped by acceaa to t.h• expertiae 0£ Bank ata££." The ·aanknau the~ to. decide wh"t.he.:- t.Q aell advice., in the aannGr 0£ aoat. o£ ·t.he i.' ·. wor19!a_conaul'e.•anta., to aubaidize or give 1t away., in tne ~i11anner Q-£ _. 9·~:o: ~genci•• loana that would induce countries to apply advice they might not teka in the ebaence of the loans. It would no~ have been inconceivable to aet up a policy-advising unit~ independent of lending operations. But this would have been contrary to the BenK'• atyle. The deciaion therefore was to attach advice tQ loana. ••How Much Money in an SAL 1 Once the decision waa. 1ulda to tia _ .... policy advice to loana. the Bank had to doc:.1.da on a :aat.hocr £or deter•_ining the aize 0£ eac:b loan. In acme Bank discussion. it was proposed tha'C. the size of an SAl. ba linked to the '"costs ~f _i11pl.e•entin9 pol.:»c:y re£ora... So th'9 decision 1111:9ht have boen to aake ~he locSna J\Jat big enough to cover the coata 0£ 4dJuatiaen1:.- · . ; . have aade SAi.a like proJ•Ct loana in the sense 0£ fixing 1:.heir aize to •at.ch the coata identi£ied with their 111pleaentation • . Givan the SAl. prograa' a early eMph.;;:~ia on BOP crises,, the dec)A:oi~~ could alao have been to have each SAL cover aoae ap~c:i£1ed portion of the· country'• anticipated BOP de£ ici t. · In the event the knk deci.ded that it would not. atteapt to cut the loan ta aatch the - ~t:a:- 0£.. i~ple11enting re£oraa. nor atta11pt to aati11ate the .eoata- 0£ :- l: ~ - · _1.ap_leaenting rei'·.)raa.. But the Bank did decide t:o- coordin•ste wi.th the-· IMF_. a_nd to take account 0£ BOP de£icits in deteraining S,l\l. size. The principles.the Bonk uaea to decide SAl. aizea are d1.ffic:ult to d_\acarn_. Since. an iaportant Sank ob-Ject ia to obtain a s·eat- at &ach borrower'• policy table, the lean haa to be big enough to brir.9 ~t ~~~·· But •any other 1n£luencea"operate••the reg~ler country lendJ.ng. criteria. th• proJec:t pipeline. ate. And ·externel event.a· Page 13 iapinge: for example. the £irat Ivory Coaat SAL wan 1ncreased 50~ .when th• n&tion'a BOP suddenly worsened, --How Much Add1tionality? The Bank aight hav~ decided that each SAL would be additional to the total allocation thq ce~ntry would oth•rwia• have received. In practice SAL countriea have received ao••~additicinal £unding--on the order of 1~-30~~-though existing data ahow ao•• aabiguity.on thia aattor. aore on additionality.> --How to Schedule Rel~ase 0£ the Funds? Given the 5-6 year tiae horizon 0£ SAL prograas. the Bank aight have decided on one total £or _the whole period with releaae scheduled evenly over the included aontha.- Instead, it decided on a aeries 0£ loans. to a aaxiaua of about £ive, apaced aoae 12-18 aontha apart when all went well. The £unda could have been aaaigned £or use in praJ•cts, who•• authorization would have been conditioned· on particular polic1' re:£oraa.• or one particu_lar policy re:£or••· Inatead, the Bank decided to aake SAL• prograa loan• with the heavy BOP connotation• th• Bank att.ach••s to a:l_l p_rograa lending. Thia deciaion reatricted SALa to countrJLea with ••v•~• B9P_ probl••• and coaaitted th•~ generally to supporting change only in poli~ia• and act~ons touching directly on the underlying cau••• of th• participants' BOP probl•••· Thia deciaion. along with oth•~•o aeena that no rate 0£ return calculations are aada on u••• of SAL aoniea. Page 14 Given the d~ciaion to divid• aach SAL prograa in=o up to 5 seqµ•ntial loan• with each conditional on ac~0Rpl1shacnta during the per1od of the preceding loan. the Benk aight have m~do all of ~ach loan available on its effect1veneas datG. for Mauritius and Thailand, all SALa hav• involv~d at lcaat on• ~1d- ter• tranche with releaa• conditional upon pftrticul&r policy x·efor•s. --How Much Control to I?ut on Money Uae? G.iYen all.- 0£ t.!·u1~ abo-.iei, the tiaing of release of SAIL. funda aight ati.ll have bc~n tied in p6'C't to particular uaea of th• aoney. •·9·• to particular ti•ln~ in-BOP "needa" or to counterpart funding for particular proJe<:ta or other purpoaea. Inatead. tranche releaaea are made without any consideration for i~••dicte need& fo'C'. or uses of. th• fund•~ One• releaaed. the funda now are aubJect only to a negative l1at.6 Many SAIL.a do apecify. however. that the counterpart funda ahould be uaed to finance parta of the public inveat•er.t prograa. ,-.-When Should· Repey•ent• Be Co•pl•t•d? Since SAL . .progra11._ a.aeJc.. __ aua~ainable current account balance• within 5-6 yesra. repey111•anta might begin then and be coapl•ted aeon efterwarda. In fact. all ~AL• per1oda.;0£ 15-20 yenra. Obvioualy. i:£ the repayaent period• were ahortenecl. 11or•· aon•)' would be-available for additional SALc--or £or other uaea. PreoYaably, aa a SAL prograa evolvea. the rate or return will r1aa..£or at leaat ao•• proJecta in the country. For ·thi:a reeaon arid othera,_SAL prograaa aight cell for gradual raductiona in the aize of th• SAL loan• and gradual return to proJ•Ct lending. Thua f&l~. thia doea not appear to have happened--although the standard provision Page 15 o! a three-year grace perio·d for th• higher 1ncone countr1e~ g•:)eA so•• way 1n th1~ direction. --How Broad 1n Scope? Th• :first SAL• were relatively narrow in %ocua: the Kenya. Turk•~ snd Phillipin•a loan• concentrated :on trade and induatrial policy. £or exaMple. Over ti••• the •cope has' true for eacfi country•• aucceaaiv• SAL&: Kenya I had 9 conditions. Kenya II 42: Turkey I had 11 ccinditional it•••· Turkey III $5. And 1t i• true :for individual SAL•. which ty~1cally carry 35-85; condit.iona. It. ia not altogether clear why th• ~AL becaae ao coapreheii1ai..,• in ac.:>pe. • On• :factor aay have been the :belie:f tha·t. I' th~ center o:f deci•ion aaking authority. : Arguaenta about "~yn•irg-1••" I I ~ay alao play a role: that broadening o-£ policy diacuaaion: in one : 7 sector open• up poaaibiliti•• in other aec:tora. Noraal I I bureaucratic :factors aay alao b~ at work; aec:toral and :funetiC)nal I I I .• bureaus-do. not like to a941 their apec:ial ,area o:f concern n•,l~:ted in any aulti-purpo•• prograa. ror whatever rea.-ona. SAi.a have bec9•• highly coaplex.' wi1:.h very • One Bank ata:f:f •••ber •:)baerved. in ••minar diacuaaion th;at coaprehenaiveneea ia coaaet.ic: in aoat ca.. a the :focua ia o:n t,.,o or : . thr... key policy pointa. Another aaid t•etical conaiderati;ona could- -- operate: a larger nuaber o~~ it••• allow• I e111ph•a1a on progr•i•• 4::1ft aoae,. depending on circuaat.ancea. Se¥•r•l people argued t~at coaprehenaiv•n•••- haaa not i.apeded policy i dialogue. ,but ·rat~er i?Bproved it. Al•o. ac:cordinq to another,pcrtic.ipant. a co~prehanaiv• SAL alllowa proJec:ta to bci put in their ~~toral and 111acro~con•o•ic contexta. ~road policy ~ov•rage. Th• principal refer~ areaa nov. are: i•~rove•ent in trade regi•••• aob1lization of x-eaourcea, 111proveae'nt. in e!fi~i•ncy ~f doaeatic resourcQ uae, and innt1tut1onal re£ora•·: In~titutior.al co~ponenta have ~eco•• 1ncreea1ngly ~ro•1nent. Alacat I all SAL• now hav• ~ aaJor prov1a1on on debt aenageaent 1nst1tutio~a, on. public inveat••nt progre• aanageaent, on pi1blic enterpriaea, a~d on agr1cultural inatit~tiona. ?lann1n9 ••chanisaa ar• addreaaed in I seven SAL•. and £or•4tion 0£ pol1cy-~aking unit~ ia proposed in n+ne. --; col,lntriea weather BOP cr1••• without \~.sl> diaruptive o~ internatio"al trade. T~• aank, therefor•. aight ha~o ' left all BOP probl••• to tbe Fund--including ttje capecially acut~ BOP I •de£J.c1ta of the early 1~80a. But long before ~380. the Bank had eatabliahed .. progra• loenaN aa a par~i:ular caiegory 0£ lending accepted •• cppropriat~ £or a variety a£ purpo,ea: to asaiat in raconatruc:tion followi~g cale•itica: to provid~ BOP auppo~t aft•~ ah.arp drop• in export •-1Srninga: to provide BOP:I aupport e:£tar ahaz;p' 1ncre••••· in 1•?ort pric••: to help d••l with ~nder-utilization of eapacity. By 1980, the Sank h~d •ad• a nuaber bf qu1ck diabura1n~ I ' prograa loan• to countrie~ with BOP probl•••· So SAL• were d••ignated a• prograa loena ~and. aa deacrib•d ~bov~ 1n the ••i::volv1ng Rationele"' aect1on 0£ th1• p._per, t.l'\o Benk haa con.1.1.aten.tly anchored the SAL progra• to the ju.st if 1cation 0£ ac:tuel or- th?'eetening BOP criaea. But. it hea increa,ingly lo£t tot.he runc:t· reapona1~1lity for dealing with the ahort-ter' reapons• to the•• ' I I I cr1sea, while concentrating on r•£oraa 1ntend~d to atrengthen ~OP poa1tiona in th• aed1u• t•r• •. detin•d •• £ourra1x years. ----______,______ .Page 17 The Bank haa aatabliah~d no rule cond1tion1ng SAL au~hor1zationa on active IMF prograaa. But in practice, countriea have not been / dd•ittad to the SAL/?~ogra• unleaa they have had an acti~e IMF ,- / agre•P.l•nt. The 'deception waa Korea. whose SAL we:a a\!thorized in / .Oeceaber 0£ 1~d2. But that authorization apparently antici~atQd the / atand-by ~'.Jreeaent approved in .July 0£ 1983. / Ii;/practice. SAL prograaa ara generally paralleled by !MF · · pro9~'a••·· Senegal waa an exception and waa without any IMF p-rcgrsa X';r two aontha in 1982. Other SALa ha'."e continued arter' : the f borrower•~ IMF prograaa have lapaed and the countriea ha~e eitha~ not l ~ - ·, , , needed, or not been able to reach agre.e11ent on. •ucce.raor "I1!1F ar.rangeaanta. --How Reetrictiv& the Tica to the BOP? Bretton Wooda inatruaant charg9d with reaponaibility £or: praaotin~ growth. it has not o£ten aubordin6tad growth t~ BOP cona~de1~ationa. Tf\e ~Ai:._ prograaa are exc:ept.i~na to tht!I rule in tbat. wh:i~f':- ·1~heiz- ~ ~•to~•- agenda ia· •xtenai••• it. appear• r•a~rict•d to aec:~ori1 .likely to a~£.ic:t th• BOP. Re~oraa in dducation. health. or other ~•r••• unlikely: to- af£ect the BOP •• av~n though 1".hay could have :lar•:i• ei£ec:ta on growth, are not inc:luded_in SAt. prc>gro••· ·::~~How to Rgiae th• Level of PoliSY Dialogue? •ight- have concluded that the hi9h polic:y table in aoat :cou·.ntri•• could be rsached either oy. 0££e1·ing a large loan, or by :c:ondit!.oning a aector lo..;n on • wide r11nge 02! policy change• including aacroeconoaic: policioa, or even by cop.ditioning pro1ect~loana on po!1cy changes with highly v1aible pc:1:11t1cal aign1£ic..-nee (·e.g.-. ' - - . ' raia1ng energy pr1c:••• lover1ng tar.i.£1fa> ~ Or they could h.t11ive ·- · Page 18 ~ncreaaed organizational iapact by nrranein9 for annual di~cuaaicn o£. ent..ira country prograaa. In practice, the &an~ hos condluded aa1nly that 4 largQ-ai%•d prograa loan ia Lhe bes~ way to gain acceaa. III. 50 MONTHS OF SAL EXPERIENCE: A STATISTICAL PROFI~E ; Tab.lea l-8 give th• baaic 1n£or•at1on about tna SAL experiencm-- .t~•. countr1•• •nJoying theae loanai., the criteria £or eilig1b1l.'°ity, th~ ~~port.:enc• of SAL Money to the borrowera, its additionality, and the growt~ experiancQ of the SAL countri••· Th• principal ~cinta ~aorging fro• theae tabla• follow. · -1..-- Th• SAL• are highly dosirablo loana in two aain rn&pe~s. Firsti th•Y are relatively. big, ~specially whan they run their £ull Th• Turkey exper1ence 1a illuatrat1ve. Secondly, they, 1nvo!v• aigni£icant ccnceaa1onelity. as the aaturity t•r•• ~ndicate. However, IDA fun~a have been only 1C- of th• tote~. ' 2. Alaoat half the loana in nuaber hava 9one to Aaia. Turkey and. Yugoalav .La. In voluae, theae countri•~ hav.o received well over 70- of th• diabura•~•nta • . 3 •.. Five of the firat eight lcana w•nt to r.:ountriea with per capita 1nco••• below sao~ in 1982. Only three ·0£ th• aubaequent.· eight new country loana wont to auch low int".:o•e countriaa. The average per' capita; 1982 inco11• 1n rec:ip.\41nt. countr.t•• in ~h·e firist. t.wo. year& we.a below SlOvO; th• average 1n the peat two yea~• ia ...obove •2000. 4. The SAL prograa i• now buaping up c·;ai';'lat the ce1lin9 ' i.a;>o_aed _by tne lO:C liait an pro9raa loana. In I982 and 1963 th• Page 1'3 av~rage S~L a•ount~d to SlSO•n •• Thia waa about l.3x 0£ the 1983 Ba.nk.tIDA co~•itllent of S14.~bn. If each CJ:f 12 ccl.:ntrias received an average SAL loan every 18 •ontha, that would :fully abaorb the available 10:11:. 5_.""' _ In selection of countriea to recei'\'e SALa, the Bank ••••• to have :.eaned in th• direction 0£ £avor.1ng th• £aster-growing 9COl"'Ollliea. &. It i• not p?aaible to generalize about the degree of importance 0£ 3ALo to the recipient countri••· Table 5 ahowa that it ha• bQen eapecially i•portant aa a aharw of extsrna! capttal in!lowa. Except within aaaller African countriaa, the SALa don~t !inane• a big share 0£ iaports. Per~apa surprisingly, the SALa rival Fund aeaiatance in aize in hal£ tha SAL ~ountriaa. 7. When SAL• were first Lntroduced in February 1980, Bank •.anag_•••nt atteapted to obta1n additional :!undo ao SI-La i.tould niot. co•e at th• expen•• 0£ other Bank and IDA lending. That-e:f'!ort :f.aJ.led.. Bank analyst• hav• aa!d that SAL countri•• noneth•l••• enJay ao•• addJ.t..ional lending :fro• the Bank Group. The available £igurea on coaait••nta, ahown in Table 7, are a•biguoua. They •ho~ addit_J.~_nality in th• £irat )"9ar 0£ SAL participation, but little thsrea:f.ter. Oiaburaeaant data, not ahown here, do not aodify'thia co:icluaion. 8. With reapect to th• queation of whather SAL recipients have per£or.. d better in ter•• o:f growth rat•• than non•SAI. countri•11, th• data (.Tabla 8> are aabiguoua. Betw.. n 1982 and 1983, the 4v•ra•9• oil i•porti_ng LDC raia•d it• growth rate by two-thirds. Saven of t.he n_in• countriea with at leaat two years 0£ SAL• did reaa wel-1. iOn the Page 20 I I I othar hand. five of the nine achiavad 1983 gr6wth rfttea ebova th• I I I average for all oil-i•porting LDCa. I IV. ANALYTIC CRIT~QUE A. LACK OF CLEAR SELECTIPN CRJIERIA Tha Bank's aain buaineaa i• and always haa bean financi~g . . i prOJects that have acceptable rates of ret~rri and othar posi~iv• I effects en acono•lc welfare. While not wi~hout probleaa. th~ pro]act I focus give• atructure to Bank oparationa. : I I I The_ allocation of SAL• and othar policy-baaed loans raq~iraa new I . I critaria,,--new principlea--to detaraine who: is and who 1an't tji.l.igibl&. But th••• ara hard t.:> d1ac:ern. avan a:!tar :four years-of axpef1ance. The baa1~ difficulty ia that v1rtually any country can.be Ju~gad I I •~1gible. for an SAl. by th• c:r1taria that h~v• b&an expl1c1tlt or .: i•PlJ.~~tl.y ada1ttad. Sea• Senk apokaasan ~.. the SAL. aa a r+ward for overall- good perforaanc• Ca.g. a• in th• c~•• of (orea>. Ot1•r• atraa& t.h• need to avo1d ostantial or poaa~bl• balanca of P•t••nta --,er1aaa; thi• opana th• elig1bil1ty door ~ida. ·soae obaarv•rt •••th• - Bank'• role aa a provider of policy-baaad land:ng necaaaarily SAL•> wharaver it• help ia aought.· Sine• t.ha tolic:y anviron••nt i• flawad in avary country. th~ra era f•w countr1•• that. -could not put togathar a plaua1bl• cla1• £or a policy-baaed o~n. I Thu• allocation cr1taria ra•a1n undaf~nabla. Tha Bank *a• I atraaaed aoau raquiraaenta: SAL. cla111anta1 ahould hav• t.ha a~preaaad I 1 ---~ to carry out an adJu•t•ant p...-ograa. a nd the- !:L!R~sl..ll to\ draw one up,•nd oxecute it. Tbe "will" factor ••Y ~li••n•t• •••• co•~r•••· \ l Psge 21 but the "cepac1ty" el•••nt ia more f1~t1onal than real. The Bank ia re4dy to-help draw up SAL pro9raaa and provides technical assistance £or i•pl•••ntat1on. ~ glance a~ the liat 0£ actual SAL recipients provokes a number of observations relative ~o allocat1on. Fir-6~ •. only £our o1 the 16 recipients are low-inco11.e countries fora of eeonoaic a54.1atanca i& directed llla1nly t.o a1ddle-inc:o1n·e count.r1ea~ _a tandanc:y that. Tabl~ 3 shows has beco111e 111ore pronounc:e-d in recant yaara. Secondly, ~here are countries. en the list that are c~rta~nly no£ c:ho5racteriz•d by aith•r uncoaaonly poor ec:ono•ic paliciea or inf lax1ble. unaui tabl• econo•ic atruc:turaa: Thailand. Kbrcu!l , Yugoal~via, P~na•a, even the Ivory Coaat~ It 1• eapec:ially hard to understand how Thailand a~d Korea aarit thaa• loana. Th••• er• · · extr•••~Y £eat-growing econQsi••• h1ghly adaptable and with aoun~ pc;il icy env1ron11enta. Cert.a inly South Korea .. • •n•rgy policy rie,•ded £1x1ng, ea.did ita in~•reat rate atructure and cr•dit poli~i••·· eu~ th* •A•• 1• true £or •oat 0£ th• reat 0£ tba planet. And in the Thai ca•~· th• SAL addreaaaa long-tor• 1natitutional- i••u••• auch as th•• r•:for• of th• civil ..rvic"• that have only a re•ot• b•aring on ••d1ua-t•r• b•lan~• 0£ ~yaont~ iaau••• or pol~c:y ~e£ora properly d•:f.ined. Fi.nally .. the SAL rec:ipienta ar• not notably poor-p•r£or•iri19 Pogw 22 countries.· Table 4 ahowa that the SALa have tanded ~o go to countrioa with higher than overage 9r~wth rotea. The SAL aele<::tion ;:n:-cx:eaa. than. has tended to giv3 low p:C"iority to poorer countries. ~low-~rowing countrioa and countries su££eiing fro~ eap•cially poor pol1c1ee ank or inetitutionol weekneaaea. The ; _a.i 9ni£J.cmnca of thi" ah·:-uld not be exaggerated~ such co·mtr ie1a are a.ligible for SAL-like aaaiatanea. which wany have received. 11e __ nonethele&a aeeaa to be t..'e caaa that by e>Ci.sting eligibility ·- ;cr1t~riar.the SAL 1• J;"'egarded aa aoat appropriate to aiddle inco11ai countr~••·- Yet why auch countries should benefit £roa conceaaional, ·policy-bcaed loana ia not altogether clear.• B. WEAK THEORY OF REFORK -: ' - - _ A-a-- ni>ted ear liar. unt11 recently. analyai.a .and action proc:eeded on t.h• aaauaption th@t doae..'Jtic LDC policiea were aore or leaa OK, ao :· that· a rough haraony preveJ.led betw.. n theory and the role of. _ ~ de"'9lopaent inat.i tutiona. What le.sa developed countr1ea naededl to •According to ac;• wer~ wh~t the world developaent agencies were geared up to provide, mainly through proJecta. Letting the ?olicy genie out of tna bottle has changed all that. Pera.1atant poverty and slow econo111ic g't'Owth are no'w r1ncognized as ste••ing not only fro• resource sc•rcity and 1iaited technology, but also fro• inappropriate doaeatic policies. q~•ations i••ediately ariae. Why don't governaenta change the policies that are holding back their development? Why don't they adopt th• reforaa that •xperts tell the• will raiti• bo~n their. curr~nt national output and their growth rata. thereby increasing th• economic welfare of their pecpl• and brightening their futur• econo~ic proapects? That's the first question. The.second is: what hes money got to do w1tn all this e~yway? Why do exter,al donors have to pey money ~o 1nduc• LOC Govern••nta to do th1ngs that wu Cend presuaebly ChftyJ believe w1ll 111ak• th•• better of£? BAnk aanag•~•nt end ate££ have not ~gnor~d theae questions. They are touched on :!requ~ntly in Bank documents-and in ate££ convaraationa. But they have not r•crived much syateaatic att•nt!ln- and thia aay be on9 0£ th• reaaona why. after ~our years. uncerta1nt1ea about SAL• peraist in ~any perts of the Bank. i.lhy then aren't preauaably banef icial policy and insti ti.1tional refer•• adopted? Everyone'• li•t 0£ reaoona alght ba different. but the following £actor• •••• ~•ntral. n> Vested int•r••ts stand to lose. froa proposed refer••• and these peopl• or groups dre powerful encllgh to prevent their Page 24 6doption. The I' • whole ruling claaa or ruling •lite aay be at isaue. In~eed, soae 0£ the clisaaic writara on developaent adopt this poaition-~Paul Barari I I . I for exeaple, an~ critic• 0£ the post~colon1~1 elites rurn1ng £roa ' Franz F~non to Rane Dumont. In aore , technocrati~ anaiy~ea,I the I I pr1nc;:ipal aourcea 0£ oba·truction are: sectional vested irteires~s. , I . groupa thet enJOY special privileges Cqua.ai-rentsl· undeft' existi.ng pol1c1es--ao•e c1v1l. servants. fevor~d importers. suba1~1zed I consumers, etc. The preauaption her' i• that no re£orai wiil ' sutoaatically aake everybody better qff. It ia further: aaauaed thai I I _coapenaation 0£ loaera out ~£ refora~induced inct.. a~ :fric~ea11ea ia ' - I ,either not deairab.le £or ••underae!:'virlg" loaers or not·e~a.ily I I accomplished for the deserving loaer.. Eith~r wai; th~: "rofora~rs- are likely to generat~ opposition. I bl Policy makers• pre£erencea include other things! bY&ide _ econo11ic __ growth. At one end thia aergea with t.h'9 veat•~ intereat I _arguaent: political elit•• aay prefer th• political Cp~tronagef i I benefit• accruing to ~h••· in a ayatea 0£ direct adaini~trative I _.controls, over the ealternative o:! reliance on acre i111pek-sor1al meirket · ' I I ;~procea~e• that diaini•h ~heir political in£luence. - Ideblogical I I ~re£cre~cee could be included here: ~any govern~ents dol not~ wiah to I I _encourage the enlargement 0£ the pri~ote econo•y, or £e~r policies ~hat might aaka •ore unequal the distribution 0£ incoae]or aaaeta. I I :Other• :!ear that cor;centration of --cinoaic power in spel;:iftc trfbal I I I _o~ ethnic g::oups will follow deregul~tion, or that fore~gners will I becoae too powerful. I I Page 2:5 c> IA.11th reapec:t to aoat policy iaauea that aatter, th.are ia no iptell•~t.ual c:onaenaua on either the nature of th• prot>:l•• at hand or th-• likely 1•-;:iact 0£ given policy chfiingea. Put another: wa~~" 111oat L.DC pol1tlcal auth~ritiea and probably aoat L.DC tAchnieal people, J,ncluding_ aconoiaiast•. do not .!l!gree with the v1e1.1a 0£, •:SY• noat Bank aconoaiat.s, on how 111arketa and J1arkat. 1n.st1 tutiona work: in their . . ' ~~untry or on the iapact of proposed re£or111.s. Thia is ~specially ' true, for exaaple. in such key areas aa agrlcultural aa~k~ting, ' I ~ ~ndua~r~al policy. trade and exchange rate policies. an~ intereat ' rate policy. ' - d) Another poaaibl• reaacn ha• to do with ti•• horizons-. ' _ ~.oliticiana in aany LDCa do not have a long view, £or v?(lrio1ua ~~easona, 1pclud1ng in aany caaaa abort expe~t•d •iniste~ial tenure. Re£or11a Jllay take too long to aak• tha'. gtruggle ·for th•ilt adoption wort.hwhil~:•: especially since the policy aakera' enthua1"a11 for refor• .1f1 ,o_ft•n: ~epid. and they are often ak~ptical that reaulti+a- will be aa positive aa out.aide re£ora advocate• cla1111. I .e> T!1er• aay be too fev local technicians to prep~ra detailed and w•ll-argu•~ re£ora prograaa. 0 T\"11• abbreviated liat overaiaplifiea a coaplex and :c1-1v1ars• ' ' _ ~,eality._ Rut !£ ve accept it as serviceable, it. ia help1,%ul aa ••,re ' ' c_()nsider the naxtquaation: how does tha ''theory" of SA~s addreaa the iaaues raised? In particular, where doaa outaida ao~ey £1t in? i . I - -rha "theory" ia do £er largely 1•plic~t, though it ia beFo•1ng •ore =.e~plic:it, aa for exaaple in Stanley P~eaae's papers prep~red £or th• .Bank!' .a May 1984 •••inar on ntructural ,adJuataent. The £?1rc>win9 I argu••nta are distilled £roa Bank docuaenta and in£oraal: · I I ___ ~di_a~uaaiona. They at-a the available anawera to· th:e -que.stior:1: now ' Page 26 doea policy-baaed landing in general and th• SAL in particular, facilitate policy re:£ora in client coun~riaa? al The Bank, :n the course of preparing an SAL. provides new kno~ladga and/or technical asa1atance. This addresses a~voral 0:£ the obataclaa to change: scarcities of technical staff and lack ~f detailed data and analyaia on reform options. b) Policy-baaed loana p•r•it local ra£or••ra to override vaated 1ntaraata. Thia argu•ant takea 11~ny £oraa. It 11•• behind the coaaon atat•••nt that conditional .isid ia needed to '"lubricate" the --~refora proc•••· In so•• foraulationa a notion of coapenaation 1• - iaplicit: external resource• can pay off the loaers--thoae £or whoa- re£or• 11aana loat ace••• to auba1diaa or quaai-renta. · ·It i'l alao --- possible t.h~t external resources can b• uaad to win aupport fro• new 1ntareat groupa. to counter th• oppoaition 0£ thoa• who loae. c> Tha SAL. like conditional aaaistanca generally, can throw the balance. 0£ daci&ion-aaking in£luanc• onto the aide of the -r1a£oraera. Thia 1• a popular arguaent--that "condit.i6nality halpe the good . guy.a.." It- coaae in several varaiona. Soaati••a th• argu11ant ia that ' - thoae individual• who are rafora-ainda.d are atrengthanecL.1.n In other contexts it ia reform1•t -; ideaa that, are furthered; that is, the balanca,oL perception• iri soaa of the relevant playara.' mind•. is aaid to change in the eou:z:·se of the policy dialogue. _ d> •Fragaantation" 0£ national aconoaic aanageaant b~~~••n di££arant •inistara, according to at least one obaervar,: '"1•~ o:£t·an at . . 9 the heart 0£ the £ai 1 ura to •ov~ ahead with pol icy refor11. •• Th'I proceaa 0£ acono•i~ policy-•aking in tha~e cir~~aaiances .~~ . ; ~ ~·~!l•!-1£~i~iently diaciplinad". SAL, and other policy ... baaed ·loaria' - · Pl'llge 27 ati•ulate 6 •ore disciplined approach to policy making." and this aa been the SAL'• aoat i•portont contribution. a> The £our arguaenta JU&t cited apply to conditional lending in I 1•n•ral. Th• SAL ia aaid to provide a special advantage: it "gets .ha Sank to th• policy tabla." Because 0£ its size ~nd I oaprehanaivaneaa, it alavatea the level 0£ policy dialogue; ~ts I acroac:onoaic, t.rana-aactorol character alicita attention at cabinet. I avel or above. It I Koat 0£ theae propoaitiona directly address one or anothe~ of= I ! he earlier-liated reaaona £or :failu:x e to adopt ref:or111a. ·rhe ·:first····· I I rgu•~r.t, however a~orl'1. p~9gre•a>, la not really relevant to SALs or to pol;Lcy-baaad .... ·': aa~~rce trana:fera in general; it la an arguaen~ :for technical - saiatance and training, not :for SALs. By iaplication, •or.QoYer. it l:J99•ata th~t the inatitution-building .and learning e:fii!cta o£ SAI.a ay:~•.1111.all~ ainca the work 0£ devising the policy packagoa 'in theae nataacea :fall• to Bank ata££ articipation by local tachniciana or policy 111akera. . :- - Tbe notion th~t SALa can be instruaenta to ovarcoae tJ'• anti• e:for• obJ•ct.iona o:f local veated intei.·eat.& haa ·a certain· laua1bil~ty. But ita ••pirical content la not clear. and analytic' ueation aarka peraiat. ror example. the aachani.s• by wh!.c:h SAL oney luoric:ataa th• proceaa ia not cle11r. Co111panaation o-£ roaera ia ev•r:•xplJ.citly propoaed in SAL agreaaunta, nor woul·d 11anl' people ona~~er. it ~lwaya deairable: th• loaer·a are oiten lQaing ill-gotten r il~~d•aerved gaina anyway. In any caae, governaenta ar11·unlikely o be ~ill.109 to u .. par~ 0£ o £ore1gn a.aaiatanc• package t.o provide Pag•a 28 luap aum coapansation to psopla loaing a £low 0£ benefits. The "atrenghtening the good guys'" proposition, which r·eceives heavy emphaaia, ia clearly ;;;ertinant. But it does not see111 robuat. ~nou9h to bear the weight put on it in analysis 0£ SALa. Thia ia so partly becauae th• aaae argu111.ent can support other £orms 0£ conditional lending. But there alao exiat so111.e queationa e1bout ho"" 111.uch th• local re£ormers are really helped. It ia ~ertainl.y possible that Bank conditional lending can tilt the internal balancu 0£ bureaucratic and/or political forces in a pro-reform direc1;ion. But a rather •ore negative scenario is •qually plausible; that the position of local re£ormera ia undermined by their aaaocia1~ion with Bank-aponaor~d policiea~ they becoae identified aa "puppeta," th• policy idea~ in question become taintad--"the Bank's" ideaa. Thua, in Nigeria th• agenda propoaed by t~e Bank £or industrial ;policy reform ia said to be regarded aa "the World Bank'• program" and thi• haa apparently aade Nigerian econoaista reluctant to aupport it \)ublicly. Similar reactions have been reported £rom Kenya. A recent article entitled ""Adviser• are Blaaad £or Econoaic Woea" <~~ Nation. Nairobi, April 12, 1984> report• a Parliamentary debate during which "Econoaiata responsible £or adviaing the Pra•ident on Kenya'• policiea • • ~ were attacked £or not doing it correctly" aince they blindly follow the advice 0£ the IMF. 10 The propoaitl.on that the. SAL. aak•• ita contribution t.o policy re£ora·by iapoaing order on undiaciplined 0 £ragaented LOC policy aeking· proc••••• ia rather novel and not well-developed. In Stanley • Peg• 29 Pl•a••'• dr~ft pap•r. th• disciplinary •ff•cts of SAL~ on the Benk'a own policy proc••••a are deacrib•d aor• fully than th• i•pac•t:. on SAL. 11 r•cip1•nta. Pl•e•• 1• quit• t•ntativ• 1n this draft pap•r end ecknowledg•• that country •xp•ri•nc•• aay difi'•r. Two general atat•li•nta ahould b• qu•ationed, however. Firat. Pl•a•• seya 11~nitorabl• end t1••-bound action progra• haa n•c•acitet•d that deciaiona be aed• on policy iaau•• which in •any inatances would have been l•ft unreftolved. •• This alaoat C•rtainly overatatea th• extent to which SAL. condition• are "apecific, aonitorebl• and tiae-bound." Many ar• "procesa" conc:!itiona--"atudying'" thia or "undertaking" that. F•w in fact are aonito~abl• by herd crit•ria and.ti••- ooundedn••• in any event doea not •••• to be such a %orceful incentive, given th• fairly fr•quent delaya in tranche ~•l•a•••· Th• aecond questionable arguaent is in the saa• paragraph! In ca••• in .which th• relevant line •iniat•r hfta n•ither the will nor poaaibly the knowledge to initiate a r•for• of polici•• How auch thia ia happening in practic• i• an eapirical question. to th• clarification of which thoae with SAL country experi•nc• can c:ontr1bute. In general. however, it ,,,ould •••• to. be unlikely that bur•aucratic behavior of the kind indica~ed in thia atat•••nt would have poaitiv• result• in "disciplining" local dacision-aaking. Att~apt~. by cor• ainiatriea ~irectly affecting sectoral •inistries would normally lead to bureaucreitic resiatance--to procedural obatr·.iction.1.~i:> an~ poli~ical aaneuvering. Iapl•••ntation o-£ policy reforaa require• the acquieac•nc• of th• i•Pl•••nting agenci••· It will usually do 1 lit~l• I1 I __ good t~ ~in agr••••nt froa Finance or Plannihg Kiniaters, o~ e~eri a I I P!'i••, M.inister, if relevant -technical •iniatri•• are alienated 'in the 1 proc•••· We return to thi• point later. The final ele1tent .in tll• hnk"a iaplicit theory of refora ';via I I SAL• aa noted above, page 27, i• that th• SAL •buy•~ place at ~th• I policy table." The SAL"• apec:ial characteristica--ita size an~ ,coapre~enaiveneas--giv• it the weight required for thi• purpoa~: I I. relevant>. Aa with th• other propoait.1.ona abo~t ho~ SAL• facilitate ~•foia. I I ' . . I th.1.a one ·.a. plausible, and supporting exaapl•• doubtl••• exiat.i e,ut I I h•~• too queationa ar.i••--about th• pr•cia• 1"•aning and generaiity of· I th• arguaent. and about it& iaportance. I .:. .;, =: .. a> In at leaat aoae countri••~ Bank rea~dent repreaentatit••I I •nJOY extraordinary degr.. a of ace••• and co;naiderabl• pol icy : I' influence even where th• Bank prograa ia not, eapecially largo.: . - • I b>. If acceaa ·and influence are- a, £unctiion of th• Giz• ·of $n SiAL, ' ! what kind of function ia it? Waa 91:50 111n. niecesaary to get to I th•1 I I I ~~ad table in th• Ivory Co.sat. or would SlOd an.--or 9:50 an• -- ~flV•t · been•' enough? I . I e> Tho concept of -getting to the poli~y table'" can ita•lf b•• I I ~ueationed. It iapli•• a diacontinuous pro~••• of policy dial?gu•1: , I __ that. at lower levela of aid, political atte~tion and coaa~t••nt are I Page 31 ••all, p•rhap• non-•xiatent but that at. aoa• unspecified but 1•uch _: h.iJh•r l•v•l of conditional aid, the loc;:al po-liti:al coaau'~it~t' ' ·~ -~••• involved. In :fact, diaaggregated refer• dialogue ~an and joe&- generate high-level political debate--e.g., over such': atmdane ' •attars aa b~a prices, or £ertili2ar subaidiea, or th• pri~• o:f ' gasoline. Moreover, it can be argued t!lat aoat of the "re~1 ·• I pro9r••• in re:for• occura--1£ arid when ~t occura--at .low<•r', political I and bureaucratic levela, th• executing lt•v•la. A Vic• Pr·o~id4tnt of th• Wcrld Bank and th• Pri•• !'liniater 0£ Ruritania can aiti down at "the policy table" and agree that agricultural pric•• ahould-b• raiaed. But that's only th• beginni.ng 0£ policy re:for•. Th• extent - 0£ tbe Jj:'ric•_ ri••· th• pattern of relat1v• prie••• chargea: ~or p1.1bli'C I ••ctor tranaport, th• price 0£ .aacka, ae•d• and fertiliz•ra, •ark•ting regulationa--all th••• auat be addreaaed in detai-1. And thia can be-done only at lower levela. Finally,. negot1ati¢ln 111uat be ' I don• in a universe where coaaunication i's difficult, th• apen- 0£ I. I c~ntral governaent adainiatrative contrdl aaall, in:formati~n spar•• ' and env1ronaental change• :fr.equent. It :i• in thia kind 0£: set.ting I ' . I that general policy chang•a •r• trana£or,aed int.<:> operationl!ll _-_r•.aJ.ity~_ It. i• h•r• that i•pl•••nting a 1uthoriti••• r•pr••ciant1111t.ivea I 0£. lin• •1niat.r1•• and ~h• or9ana. of general• adainiatratio~I co•• into their own, ar•od with discretionary auth~rity in abundance+ I The conc:luaion that •••rges fro• th~• disc:uaaion ia t~at th• theoretical or analytic: atructure underlying policy-baaed iendirig, ' .,I and ••p•cially SAl.-type lending, ia very, thin. Explicit ..;>f iaplicit I I analyaia of what preventa r•fora eppeara to be aparae and Page 32 con~•ptually rudi••nt~ry. end diacuaaion of how policy-baaed lttnding 1.• auppo••d to overcoae eh••• obat.ac::l•• i.a only beginni~g. • C. OVERDESIGN AND KISSPECIFICATION The SAL i• the top of the line in p~licy-baaed lending: 1n•t.r~••nt.£. th• flagship of the Bank's fleet. It 1• alao ~ew, and- the leeaona of experience are only now b•g1nn1ng to c:o•• in~ 1"hero · ' is.. no~ ye~ enough exper1.enc• for :fir• Judgaent about offect~vaness, I and eval.uation will be di:!:ficult in any caae for reasons in~iceated earlier. But it i• not too early to rai•• so•• question• a~out t~a deaign and apecif1cation of SAL•. ' ~wo .b.eaic cri tic1 ••• are put :forward here: that •oa~ SA!~• havg ~ · beco.ae _too_ coaplex, too co•prehenaive in ac~pa: ·and th&t they c:ontairi t-oo •uch explicit conditionality. Th••• de£i~i•nc.1ea reduce.the· SAL'• ~:ffectiv•n••• •• a vehicle of policy refor• in variou~ waye: I by ~preading ata:ff •o thinly that in-depth refor• effort• are diacouraged; by aak1~g •ore dif~icult th• taak of genuin• pplicy dialogun and training o:f local re:for••r•~ ~nd by coaplicati~g the taax o:f •cnitoring. •. Attention ia being ~ivcn to th•.. •attera in varioua parts <>£ t.h• · Banx. On• aeainar participcmt put :forward the propoai ti on them tfi• 1 SAL allowa wir.nera and loaara to c:o•• together ao that i•pl:1cit or exp.licit co•penaation arrang•••n'l:.• can be worked out: th• c:oa·tu and bema:fita 0£ a ref or• can be internalized in this way. 1ncr•a~iz2g t.h• 1 cha.nee• of aucceaa. - • Pa9ca 33 1. A• not~d earlier, th• firat SAL• tended to concentrat~ on one aector".'-for exaapl• induatrial policy in Turkey, the Phili;)-ina;s and K~nya. Condition• w•r• r•lativ•ly !•w in nu•b•r. and th~i~ apec~~~city waa liaited. Over ti•• th• SAL. haa c:o•• to inC'lUd1a aany' aectora, aany aore policy conditiona, and nuaeroua inatitu~ional A nuaber o:f probl••• aria• £roa th-• co9;prelhenaive and coaplex character of SALa. Firat, th• deepening o; r•:fora •:fforta can b• i•p•ded. Broade~in9 of th• range o! condition• covered aay aak• it i,apoi•aHil.'' to bring 11uf:fici•nt r•aourc•a to bear on th• r•fora 0£ poricy .1n anyc one ~cay aactor. Thia ..... to have happened i..n Kenya. for exa11pla, whe~e trfld• policy. rriora, th• centerpiece 0£ t.h• £irat SAL. a.lght h~v~~ been puahed further had aor• auatain•d and focuaed attent:Lon b••~ g~ven to trade ia•u•• in th• aecond round. - Th• probl•a iiit _general, and ia related to th• acarcity o:f ata:f:f available to deal with the nuaeroua and co•plex iaauea of the typical SAL.. Inappropriate Coaconenta; Ina;1tut1onql Refor•- -- Sec::oz:tdly, inappropriate coaponenta are being included in :SM.a-.-· - The institutional reforaa that have beco•• coaaon :feature• pf 1;hese loans adc\reaa basic conatrainta to better pol.icy-iaaking and: ar11 there-for l 0£ ;>ri•• iaportance. But "policy re-fora'.. and "institutional change" are not the sa•• kinds 0£ aniaal. Tbey ' Page 3< di££er. uaually but not in 3~1 inatancea, in £our waya, all of th•• related. Policy refer•• are ti••·bound in the •onae of being on•• ti••· apec:ific actiona. They are uauelly achievable in the ahort or me~iu• tera. They ere uauelly quantifiable and aonitorabl•. And they are adaiI ely feeaible. The beat exa•pl•~ are price changea: raiaing th "1 price 0£ dieael, fuel or th• price 0£- rice by 30" by Jan ·Jary l. 198~. !nat1tutional chang•• are proceaa-related; they involve not a one~ti•• change. but procedurea. They thua uaual ly require · tranaforaetiona in adaini1'trative atructur•• and waya 0£ doi~,g thinga. They are therefore noraally lon·g-tera in nature. ·and are not read1ly-quantLfiable. Their aonitoring ia in •oct ca••• subJ•ctive. And the probl••• they addreaa do not exiat because of wrong~ headedn••• or ideo1.:,9y. or hiat~ry, but rather are rooted in the condition 0£ unde~developaent. Budget refora. to take one exaaple. will ~•quire better a-counting procedure& 1n ell •iniatries-aa well aa et the Finance Mi!li .. try. It will require a cllii>l>ring up of the £~nencicl·debr1• and £iacal ak•l•tona left eve~ £r6a year• or decade• 0£ living with. budget.. that have been acre f ictioncal than rear-- · budg•t• in which allocation• are amaller than appropriations. prograaa are peraiatently under-coated, and line it••• are· increeaingly reaoved fr~• real spending. Th••• are not •att•r• aubJ•ct to re•edy in ~-7 yeara. They will change only gradually, and can probably beat be advanced by alow-and prudent at~pa and in a non- cont•ntioua environaent. Vet inatitutional "reforaa" are included in SA~a-aa thou~~ they ere ~•enable to th• &4•• kinda of dialogue and monitoring a• policy re£or••• aa though they are operating on th• aa•• ti•• track, and aa though th•Y require the aa11~ kind of conditionality. Non• 0£ thi• ahould b• interpreted •• do~nplaying the i•portanc• 0£ inatitutional d•v•lop••nt and th• n•ed £or a •aJor Bank rctl• in e£fort• to str•ngth•n c•ntral econoh!ic deciaion-aaking inatit."Utiona. It ia aiaply uiicl•ar why thf\a• inat1tut1onal iaau•• ahoul¢t b" part of or de£1cient Jn th•ir budg•ting and planning, not priaarily b•caua• o~ bad polic~•• but becaua• th• •nvironaent is that 0£ undev•lop•d econo•i•a--1..• •• accountant• ar• l·!lC~ing and well-entr•nch•d auditing and: _accounting rulea ar• rare; £ilea are poor; ata:f£ arci iow paid, uncoaaitted, poorly trained; authority ia rarely delegated; · ainiat~i•• hold on to in£orsation; an~ econoaic analyaia i& very 1.ap~r£ectly brought to b•ar on policy deciaiona. Undoubtedl11• ther• l.& rooa :for dialogu• abou~ how to i•prove thea• adainiatrati"'• - · ayateaa, and t.h•r• i• n••d for aon•y and technical aaaiatancar. But inclu.aion of the•• aattera in a larger. ti11e-bound package, ~lnd one 0£ heavy apparent conditionality, would •••Ill unneceaaary and probably counterproductiva • . Thar~ia a ralat•d point. On the one hand, the SALa hav• becoae il"'cre.aaingly. coapreh•naive in acope, endowed with nu•erou• C1:l1nditiona and often extre••lY d•teil•d. On th• other hand, difficu+tie~ of I i•pleaentation are fr•quently treated in an extraordinari+y cavalier way.: Thua in SAL a!tar SAL, one £inds exquisitely craft•~ diagn6aes of particular probl••• Ce.g., inadequac1aa in the a1za and Page 36 co•poaition 0£ a public inveat•ent progra•> £ollowed by a line or two to the e££ect that: "Bank-provided technical aaaiatance will strengthen the inveat••nt planning proceaa over the courae 0£ the ~A~.·· In back-to-o££ic• report• there are r0peated expr•a•iona of dia_apprnntaent at alow progreaa in introducing rolling budgeta, or reviai~g d~bt reporting pra~ticea 0£ paraatatala. or iaproving th• organization r~ road aaintenance services. The intractability 0£ inatLtutional probl••• ••••• to b• a permanent aource 0£ aurpriae·and disappoi.nt•ent. Th• Bank ato££ involved know th• l•••on: that theae prob.iea.. are deeply-rooted in th• environm•nt 0£ underd•velop••nt. requira auch aore thought.£ul attention :;..• d will change alo..,ly even with the aoat intelligent and auatained aaaiatance. B~t the l•••on do•• not •••• to b~ adequately inatitutionalized. Coaprehenaiven••• and Credibility A third inconvenience 0£ lar9• aiz• and co•prehenaiveneas ia a poaaib~• loaa 0£ credibility regarding conditionality. Thi• can occur i.n two waya. Firat, becauae the SAL involvea a lot 0£ ~oney and carriea he-svy ay•bolic value among private bank•r• and ot_her dor.or•~- cance.llation beco••• too atrong a sanction to uae. Secondly, it coaplicat•• th• e~aluation 0£ e££ectiveneaa by magn1£ying the weighting problea: i£ Kenya geta a 8 on tariff re£or•. an A- on rolling budgata and a D• on grain aarketing re£ora. how does th• evaluat~on 0£ the SAL aa a whol• add u9? How ia th• Bank's sta££ to decide whether to abandon, delay or carry on with a progra• in a country w!.th both •any Aa and Da? Both of th••• crod!bility i.aauea are £urther conaidered below. ?ac;a 37 Personnel-Related Probleaa Alao, the co•prehenaiv•naaa and co•9laxity 0£ the SA~ craataa a set of spacial peraonnel-rela~ed proble~a. Firac, th& elaboration, .· nagotiation and aonitoring o:f an SAL abaQrbe an onor•ou• aaount o:f .. ata:f:f ti••· In aoao ca•••• it crowds out econo•ic end ••ct.or wo·rk. Alao. the SAL. raquiraa akilla that. ar& particularly ra:ra.- Econoaiata ar• good at analyzing aacrooconoaic probl••• i" an ~ggregative way, and ao•• can handle aectoral analy.,.a pretty well~ rh•Y.· ar•. good at diagnoaia. ••p•cially quantitat:i.ve: th.;.y can' ···aaur·• e:ffactiva rates o:f protection and can calculat~ do.,.atic r•,aource · · coe££ic:ients. Bu~ it' a a long step £roa this level o:f analysis to th• de£inition o:f apoci:fic tecoaaendation~ at a disaggr~gated level. It'• one. !-hi.lg to aay. that th• price o:f rice ia low. quite another to-·: say ~hat it ought to be, and auch aora ~i:f:fic:ult ta kno~ whether a given pr~c• riea ia "appropriate" or "acceptable." It'a one thing to d11acrib•- a. tari:f:f atructure with inappropriats -incentives; another-- : · . a~d. very di:f:farent t!\ing--to invent a technically and politica'lly _acceptable alternative. Econo•iata are good at th• £irat set o:f prool•••· not ao good at th• aecond. One ataf£ coaaent on th• Kenya experience undersc:or~• thia • problea: Failur• to :fully anticipate iapleaentation problaaa ate~• :froa inau:f:ficient knowledge o:f govarnaent procadurea and inau:f£iciant underatanding o:f bureaucratic procedu~ea. Finally, expari•nce with th• Kanya cperation reveal• th• . need to work out ac:tion plana in great.er detail".· The e-a·nk ata:f:f' a strength liea in a•••••ing developa•int ·problwaa and outlining general linaa o:f action to overcone them~ It i·a on l••• :fir• ground when it coaea to apprai11ing and prograaaing the apeci:fic actiona that:. are r•qui'red to· iapleaent th••· ' I Pag• ~8 I !!orecw•r, e1':£act1v• •onitoring of th• •any cov•nJnt~ in th• a~nda:;d SAl. cou.ld be virtually all-abaor:..!.ng, •v•1'1 il r•atrictod to ' I I • tho~• tan"gible c:on.ditiona that have: ao'Jl• quantitative! baa,ia. Th• I I ~ituat:.ion j s_alaaya -:hanging ao :f'aa:t--.:ertainly :f'aatet th.an can be :f.o.llow•d-£ro11 far awl:ly. Pric•a are, riaing and fell1nf at di:f'f'erent r4t~•: p~liti<:al. t'lnd securit~ cond1,tion.1; ar• aubJ•Ct to r·apid change: aoa• .tapo~tant :fac~ors will chang• 'befcre the SAl. inkl i.s dry. It ia I hard tc. ae-111 how Senk tachniciana aon.•.toring an SAl. cal't at.ay -rn ·t:ouch i with th••• changea. I"~~ I - ~~ £act, the conc•ption, •~•gotiation and aonitor~ng o:f pol1cy - I c:onditi~na -~•aancia auch •xtraordin~ry capecit1••• if tt 1•• ·t:o- be' done : _ w££~iv~.ly, t.hat en• haa to wor.d•r wt:•ther acarc1t·y , £ nucti- akil"la • i , . I d~••n't-••"'•rely limit the volui.e o:f policy-baaed l•nfiin~J the Sank-- , I For ~hat ia involved i•i ia1••naely More I deaanding th1:1n putting t.ogeth•r ro4d or pow•r proJ•ctr, :~-~ ~'!11 _develeipaeot. proJacta. It i.a • alao aucn aore ~~alanctingI ·than: I The IMF ata:f£ have .s: aorle bounded pol-icy I -:.-.c--ar~na: :t::iey :£ocaa on a ••all nuabeJ;: 0£ well-defined Jerfor•a-nce . ! I : ~ crit~ia:. ~hey have w•ll-worn pat.ha tC'J follo,.. in ter~a o:f data n•eda-,- -- 1 .. i . __ :. -. procec;!ur~a.. e ,i)eCtationa 0£ local p•ople. Th• i•pli~ation is ·clear: I I -grea·~~~ _•1•plic:.1ty and focu8, _. •ore •odeat aet: 0£" r~for11 goala, I I would •••• to be called :for. 2. Too Much· E>'R..lJ,cit Cond1~1?nality I I I Condit1onal1ty ia et the h•art o~ policy-baaed ~end•n9; c I i :-eApec~all~-~AL•. The aain JU•ti£icationg for condit~onal aaaiatanc• are atra1ght£orvard. Page 39 ' I a> Aaaiatanc• without conditionalit~ will be in•1fect1ve in I countri•• wh•r• the policy environ•ent i• inhibitirig.) ' -· I b> Aaaistance without condition& can sustain waataf'ul progress - •- and inappropriata inctitutiona. and delay necessary c~ang•s in•failed pol.t.c1ea. c> Conditionality can increase the total voluae 'pf aid. Soae part of' the- - :foreign- aaaiatanc.-. con•tituency' in all doborI couritriea ·ia ' I concerned that aid aoney be uaed .. tjlf'f'ectively .. -:-:tn«t ;i"t have I a.ign..ificant e:ff'ecta on recipient cqunt.r19•' inc:oae and- :gi~owth.- · If : I aid is perceived to be uaef'ul in p~oaoting policy raf'bra1s.- pcHitical · 0 ~: I support for aid prograaa will be i~craaaed. I ' ' I . d> For aany countri••· inad•q'llate volu~e• 0£ conk::ee1aiorial I aaaista~c•. an un£avorable externa~ econoa1e •nviron.. nt. and ari' • I ! accuaulation of' dubioua doaeatic p'l1eie• indicate t~at policy I ' I ~•:foraa. have to be a •a)or aource ~:£ 1ncreaaed ·9·rcwt::~ in the next~ decade. I For all th••• rea&on•. few ob••rvora nowadaya quieat-ion.the I .I l_egit1111acy 0:£ conditional aid: £Qr: the •oat part: debeite is over th-e ~ype of conditi~nality that ia app~opriata. The SAl. haa b••n conceived by; the 3ank as it• main hard I • ' I conditionality inatruaent. and it ia ao regerded by qutaiders. - : : incl_uding representatives o:f client atatea. It ia -i-~deed ·highl'y · con£rontational in appearance and cf'tsn .. in fact·.: - ·Fo:,l a nuJiber ·cf I - ""' .. I I reaaona. however, it would be a 11101-e ef'f'active inatrqmsnt i·f. its I I app~arancg of' hard condit!onality were ahad&d. Page 40 Firat of all. political realitiea liait th• intenalty of I c~nd1tionality that any donor inatit~tion can iapoaa on:c1iect a.tates. Even the aoat hard-noaad lender• Cor grantor•>: have to I reco9niz• th• niceti•• cf national ~ov~rei9nty. Horeov~r. borrowing I atate~ are a£ter all :full •••b•rs o~ th• organization, ~nd even-the \oreakeat o£ thoa o:ften he·.;e power:ful patron stat•• whoae; vo:l.cea are I liatened to. b~ dank aanageaent. F'in~lly. t.he aar~·iaga ·"•t'"••n 11en1ber , ~Q~•rn••nta and lending inatitutiona ia not readily dia~olvabl•~ and I both pa_rties know it; the Bank can't and won't break off-' rc1lationa with ~ c~ient atat• i:f proaia•d poli~y re:for•• lag. Ev:en 11:.he IMF• I I the pi,l,lar of ! Bureaucratic :forcea alao wo~-~ in a parallel :faahidn t.j:> dilute I th• tru& real conditionality of any ~rograa. Nait.her ~o,-:al ra:foraera ,I I nor donor agency ata:f:f want '"their'" prograa to :fail. · 'lih•y thore:for• I I l~= on..the. aunny aide in aaaeaaing ~er£oraance. Int~• ca•• of-th• I I SAL th~• i• ••p•cially •a-y to do be7au•• their overal~ evaluation I • inv~y ... _aubJactive JUdg•••nt on ao •any count• that B~Y reaaonebl• I I :forward aoveaent can be deeaed accep~ablo per:foraance. 1 ·1n addition; : I tft• ·~~-t.ipl• coaponenta of th• SAL allow, evaluation• t~I giva·ha~vy , I weight to th• •ore aucceaa:ful coapon~nts. Thea• argua,nta are - I elaborated below. The point ia that th••• bureaucratic± propensitiaa I I eo•bine with polJ.tic:al conatraint.s t~ moderate all conditionalit.y.· I '1 The SAL thua oceupiea·the worst o:f two world•. I~ giv•• the illusion Page 41 o:f_hor~ conditionality iapoaed by outaidera and it is; often strongly ' con£ronto"tional in tone. But ita conditionality is in truth olmost alw~ya ao:ft:. The Qi:f:ficulty of Effective Monitorina • £vary_SAL containa a very large number o:f action~ the borrower •• ~uat toke ~o aotiaiy conditionalit~ re~uireaenta. Th~ae are of ~oni I . dif:ferent typea. Numeroua atudiea ar~ to be launched~ intongibla - ' . I I itaaa, like i•proveaent o:f procedu~ea, are alao colt\111.on. I\ :fo"w .. c~nditiona are quanti£1ed, but tha bulk are not.·· Tog~the1r, th"ese · I I circ:uaatanc:aa •aka the SAL ah1oat i',apossibly di:f':ficul"I:.- to 111on.itor. I I Firat, in iaany casaa the iapli;ed in:formation..,gatli:iering •-l£ort would itael£ be overwhelaing i:f vig',orously pursued. thi.fl1 i• tr·u.r ·n·ot I I • only be 'I _. • a.ao.aa o:f ahi:ft.ing variablee. For ~xampla. an iiaport:~icenaing : _ aya"l;.e• can be abolished but thei e:f£',ect.a nul.li~iacr by fb"-angea ~rr · ·-' ·:: ' £?re,t.gn exchange allocat.iona. The laonopoony powara of marketing-·· ·; ' I I organization• can be t.arainated aa ~greed, but cont.in~ation or ' . liceaa1ng regulations aay pre•.::.ant entry o:f private- co~peti•t"ora-.· In I :£act., auch o£:feetting count.er-re:£oraa are quitci co11u•oil...... ·- .z - I ... ~econd. it. i• inherently very di:f:ficult. to aaaea~: progreaa ' toward t.n~ aany int.o.ngible ol:IJ•ctiv!la such aa, .. •or~ ~oll-sbor4t.1.on I I : ..• between ~U~iat.riea o:f ~lanning and f"inance, •• the ...edu~at.ion 0:£ ·1ocol ! • .. .o:ff~cial~ in policy analyaia, ... or -~ncreaaing the pol'j/cy awaren-eaa" oi pollt1ca1 authorit.iaa. . i- .... Peg~ 42 A third £actor ia the general sparsity of hard cri~er1a for 11eaaur1n9 per£oraance. Unlike the criteria i~ IMF stan~by~. whic~ are quantitative and hence OCJectiva, the SALs provide .l.on~~ iista 0£ obJectiva~. 0£ which per£oraance on al11oat al.l. are open to subJective • Ju~g111ent.,,. Thi• ia true 0£ al111oat all the institutional' de,,.elopment QbJective• and the attitudinal change ObJecti?aa. The ·~riteria proble11 also arises in the 11atter 0£ deter111n1ng an "ac~eptable rate 0£ char.ge" • In all the u1.1ual conditionality targets, ·tl'la :SAL . criteria involve .. introducing .. or .. improving .. or .. reduc'ing'"- or· '"increasing" ao11ath1ng--e.g., a ayat.aa 0£ export' incent:ivei!l, h1-gher aalariea. £or 111enagere 0£ etate-own~d enterpriaea, betta~ p~&r.f'or.-ance . 0£ SOE• o:i;-.iiberalizat1on 0£ th• aarketing ayatea. ·No~ only 'da th-tise : ~target• uaually defy quantitative aeaaur••ent, but "t·hoee that are -· ·~lt1diaenaior:ial, e.g. improved par£or•anca 0£ paraatatala, nay not be aeae1:1rabla even in tar11a 0£ ••aore .. or '" leaa, •• "better" 1or "worae .. becau•• 0£ weighting probl•••· : ·:: .... • Thi~: laat point i• tr\la aor• generally: even i£ a9r••:••nt were p~••1bla c;>n acceptable rat•• 0£. prograr.a on ind.iv.idual :re:f•oraa, an inaolubl• w•ight1ng probl•• would r••ain, aa noted eerlior. Every : S~l. r!lc;;p~~nt will do better in •o•• areaa. than in ·ot:he:r.·a. B'ecauae . 0£ ~t,l•: gr~at nuab•r 0£ •l•••nta in each agree11ent 1, evei.~y asaeae.. nt. · ' - '· _0£ an. SAL he• to deal with the weighting problea thia presents. rn _every ca•~·. aoaa target.a 1,,ill reaain a• !ar away aa 'iver wnil• clear -. progreaa will hav• been aa~1• toward• ao•• othar·a. So those who aee: · _cupa a·a hal£-eapty can beaoem failure, while th"cae .who :aee t.hea aa : hal:C:-~~l:l can weight th• latter targeta heavily and c:laillt a\.l.c:Ceaa. Page 43 And the entirely obJ&<:tive outaide evaluator would be hard-pressed to· argue. that any one weighting syatea was superior t.o all• oth.ers. given the Sank'• general ObJectiVGJ. Finally. given the diff~renced that exiat in county circuaatancas. a decision about weighting £or one • co~ntry i• unlikely to be o:f 11.uch help when choosing the wt1ightin9 aystaa £or even th• country next door. Fifth, aa noted earlier. the 11.onitcrs and aivaluators ~:i:ll have 6n interaat in th• perpetuation 0£. t.he SAL.. There is. conaequentl y. a atro!lg ~andency on both aides to accentuate the.positive:- So even ~•re l~tt.le ha• c:hanged, aany of the Bank at.a£:£ ~ill tend to point - - -·· - . to. recant aigna 0::£ prcgraaa, to iaainent breakthrough•.: - - . - - - ra~piant. country a1niat.ara will raport·how thet"r·recalcitrarit colieaguea are "nov beginning to aove in the right.direction'". -·In:::.- aaJ'ly caaea the Bank repcrta that "Govarnaent haa agreed"" to raviae x· - or increase Y. Six acntha later the agreeaent in prin~iple aay· ' -reaa.1~, b~t action 1• still :fcrthcoaing. The pdrtiea ~an attl1 aay z. ' 7 t...1'\at th• re:fora in question i• underway, though d•layeC:S. ': • ' :. . Finally. and along the aaae lines. there are alao~t t1lweya ways · :- to -JU&ti:f.y non-perioraanca on ncn-invidioua grounda. The lli1ri:fc:ireeaerit · - - · o:f SAL. ccnd1tional.1t.y ia even aora aubJact to the kinda 0£ ao:ftaning· propenait1•• that one writer recently attributed· "l::o Fund · conditionality. 12 I£ the ceilipgs Con governaent spending er de£icita on • credi ':. growth> are not observed. the iae11ber under:tak1a.S not tc aak• :fur-Uer dra:fts on standby credit without periaisaion · of the IMF. Thia aounda tough. The catch, howev,a:I:'. ia that. per11isaicn appears always to b•r :forthcoaing. ~~r• ------~_:__ __ ---· are alway a explanations• e-nd th• explanation• are aC:1c:aptad • and aaauranc:e. that new aeaaurea being taken will pr•v•nt ·• z·ec:urrenc:fl! are accepted • - - - .. Page 44 Non-credibilitY of the Deterrent - ··-----· --- __:.. __ - ·--'-·---;;..· Ad_d•d to the near-iapoaai_bility of ObJective 111onit.or!ng and ths •a•• of positive perfor•ance evaluationa, there ia ~he non- cr~dibili~Y. of th• deterrent. A• noted earlier the Bank auat afiriri~ fro• the ulti•ate aanction, cancellation. Caaaation of dia~urae~~nia =- '.'""-;..;.-=-· ~·coo strong a.r••ponae by th• Bank to banal acta of non- p•rforaanc•· In the one caae where it waa dona waa virtually coatl••• to Senegal. whcae ahar• cf Bank-IDA : : - ... diabur•••anta-- . - haa been ~O>c higher. during J'uly-F•bruary 0:£ fiacai' 1984, than it '"'a• during fiacal 1981 and 1982. A• Table 7 ahcwa;-· !. =. ... ~ : ... _ "'h_ow_aver •. new Bank-IDA ccaai taent.. to Senega! have dropped oif • and · ii· · · 1• net clear when that declino will be reveraed. One reaacn for lowering th• level of explicit conditionality, t]\~_n_, i_•. that it i• illuaory--not effective in ·1nducirig co:apl!anc~ ...... - : .-·- an,d_ hence unneceaaary. A aec:ond · reaaon ia that it tenda tic 1:1• c~un_t•rproduct ... ve, creating an ataoaphera of confrontation· wh,ic:h ia' ~ ·. · :-:··-_.:.·.. harllil_ful to true dialo9u•. which in turn ia th• aource of durable - --: ; policy refora. \ii~ Ji.oted earlier that. one explanation for t.h• p•r•iat.ance .of· a anti-g_ro!o'th econoaic pclici•• i• that acat. LDC public sect.er deeiaicn ...•~k•r~ and int•ll•ctuala are not perauaded t.hat the typical Bank: ~~onc•i•t•' analy••• reflec~ th• realitiea.of t..heir ccuntriaa. They~ do_n#t. really b•li•¥• that. the Bank'• aarket-ori•nt•d policy reforaa · w111 work. :~n• k•Y to durable re£6r•. is e:f:fectiv• dialogue, tho :fashioning 0£ a true meeting o:f •inds on policy ia~u••· But the SAL. with ita c:o•plex and heavy conditionality. ia poorly designed £or this • purpo••· Th• reaaon i• that the S~L proceaa. p•r•ita little gll?fuin• dialogue between believer• . : _~~~l:'~ic;a~•: and political leader• who doubt the applicability and/or-·: ·~£ic;:acy 0£ th• Bank* a aedicine. Th• eacance 0£ tti• proceaa ia 'the elaQoration o:f the teraa 0£ conditionality by Bank ata£:f,, working aor~ c:ir l••• cloaely with coaaitted th• technical level. th• working out 0£ .. detail•" is don• in aoat countri•• by Bank ata£:f or conaultanta. On the bureaucratic~ -political level. th• local re£ora~ra try to win acceptance in part by da£ending th• re£or•a on their aerita. but alao--'o£t•n moatly--by 11iniaizing th• extent 0£ th• prop.oaed change. tiy pointirt~ out th• "£l~x~blilty" 0£ th• conditionality and by atreaa.tng the aoney pay- 0££. Very little in the way 0£ •ind-changing is involved in all :~ .thia. The Bank ata££ in particular in£requently enyagea in dialogue with thoae who are deeply opposed to the changea. Koreover, bec:auae 0£ th• coaplexity 0£ th• conditi'o·nality provisio~~· SAL negotiationa and aoni toring involve extena.iv·e int.rao- ' bM: coordination,. but relatively little traini:ng_ of local c1:f£iciala - in th•_ t;echnical aape<:ta 0£ the policy re:foras under cc.n·•1d111ratiori: - So the SAL. exerci.. a provide little opportunity :for the di·aJ.ogue and debate that aight change ainda and that aight have training e££ecta. 13. Page 46. Th• point can be put another way. Policy dialogue. t~ be I I 9!£•ctiv• 1n changing •ind•• ha• to involve an hon••t exchian91• 0:£ I I v~•w•. and ••a•urad debate. not only o:£:g•neral prin~iple~-and I I _pr~a_i•••• but 0:£ detail•. Th!.• iapli•a: sustained dialogu~ at th• I I working level between :foreign and local: technician•. Th• :sAL. · • I I provide• very li~it•d oppor~unity :for thia kind 0:£ dialog~•· I I Lowering th• level 0:£ apparent con~itionality and :fo~u•aing on' • I I dial_ogue do•• not aean t.h• abandonaent o:f conditionality~·:· It can'. I enter. .into th• d•t•r•ination 0:£ overall, levela o:f' country. I:lending. • • -- a• I 1t now do•• to aoae extent. It ahould ~l•o be incorporat~d in the· · I I ot.)\•~~~~truaenta 0£ Bank lending. £roa:th• prOJ•Ct to th•···ctor or I - ! ._ 'i aub-SAL loan. But whatev•r fora it tak~•· it ia not the I I _con~.J..~.ionality aa auch that 1• crucial but th• -quality of :dialogue: it-- I' engender•. v. COHCL.us:IaNS _. rn t.h.• paat £ew yeara.,non-proJ•ct: or policy-ba••d l+nding:haa l aa;a.~d aaJc.r iaportanc• in aoat develo,paent aaaistanc• a1J•nc:iea. ·and I • I : _c~t8:1-J'lY in: the World Bank. Thia ref l;ecta a widwapread eonc:ern over I I policy re:fora. Policy refer•• bec:aae a aaJor i••u• in th•~ lat.•· · - · ' I ' I 1970_' a. when it beca•• clear that poor policiea were aorel pez·vaaive I ' ando ;l.••• affordable than in the paat; ~hat productive pro~ecta were I I hard.er to find. wh·il• ongoing proJecta ':needed to be •u•ta~n•cl• and ' : that ~olicy-ba••d aaa1etance had there~or• becoae acre co~t-e:£:£ective : · I I I than ••traditional'" proJect loan•. I I Several critical th•••• run through th• paper.· Fir•~· -1:.he I I • •· - ~.,-r:'l_yi·ng ' -~f' SAL• in particular, inadequately tr•~t• many beaic queations. The queation. . of why governaenta need aoneyI froa outside tQ do thinga that are good for th•• and their people: requires much clo~er .. : I ' I analyaia. W• alao need to know aor• about the aachani•• ~y which I I • outaide aid. actually £acilitetEa th• re~or• proceaa. Alac?.' thsre ara I I ob~iou•ly circuaatanc•• in which policy~baaed aasistance ~~ri tetard- I I rather than atiaulate rofora--an iaaue :not sddreae~ at ail in thia ·, I pap~r--and little •Y•t•aetic analyai• h:aa been -given to t2:'at I I : probl••· Th• ~•Y aaaumption underlyin~ the SAL~-that glo~al, I ' I c~aprehen~iv• "r•:fora-aongering" ia ao~• •:f:fectiv• t3an i+cr•aental I I atat•giaa of refora--certainly warrant~ a cloaer look. I ' I ~econdly, th• nature and liaita o~ hard conditional~~y ~r• not I always appreciated. Th• SAL.,a a•e•ingly hard and all-anc~•p~:aeing I conditionality is largely illusory. So it is not clear w~y axplic1t c~nditionality continue• to receive auqh ••pha~i•. with c~nditiona ' I being pi:l•d on condition• iri th• elabox!ation 0£ th••• agrr••<11nta • Thi•- j,a ••p•c:ially ao since it• coaple~ity and it• overlay -o:j~ heavy - ' I apparent conditionality aak•• it a lea~ aeceptabl• vehicl~ :fc)r real I i - dialogu• between Bank ata:ff' and local ~uthori ti••. In ftlct. SAL• '1 I I :.a.~r .. a.a too little th• iaportance 0£ re~l dialogue, 0£ chahging ainda, I oa a basic engine of policy re:fora. T~• SAL concantratea! on high ' I I l~vel discussion, political draaatizat~on. cross-sectoral: and I I " I I cnaprahenaive conditionality. Thi• approach l•avea too liittre rooa I I I I ~;:for auatained technical dialogue and f~r interaction betw~n Bank I I I . ataf'f' ~nd local techniciana at the wor,ing level~ the lev.-r at which I I I people reaain to b• convinced that the: re£oraera' ideaa a:r• right. A third underlying th••• in the paper i• t~at the policy re:fora enterpri•• ia vital but extreaely di:f:fieult and aubJect t~ high riaka o:f :failure. Thero i• a great te•ptation to con:fuaa •v•ntlii with p~oc•ai•••· Thia i• true o:f both policy re:foraa and inati~utional .. . i . change•. though eapecially the latter. It'• alaoat never:•nough to • aake ona-ti•• changea in pr~ducer price~. aubatdiaa. exch.nge rat••· Succ:esaiv• edJuataenta are required, to. account :for price: che1nge1..: and I other new :factors. So it ia a policy ad)uataent process th-at~ i• I I needed. Siailarly. aa part o:f an SAL or other p~licy-baa~d l~an. ~- 1 I rol~ing budget 1• introduced, and a "cdntract plan" ia artanged :for i I better_ aanag•••nt o-£ a atate-owned entlll!rpri••· But thia -i~ orrly the l;>•ginnil)g •. not the end 0£ :r.e:fora. More ;to the point. the ~an~i aenda I an econoaiat or two to help an SAL cou~try cut b.ack it• publtc I inveataent prograa. giving eapha•i• to ao-called ·--quick yifelding I' proJecta.~· The Bank Cand Fund) tec:hnidiana ~hen record thia event aa a aign o:f progr•&• and ao it ia. But it i• th• aaalleat ~na aoet - . £ragil• of fcrward Jt•P•• one tiny vic1l.ory in a long struggl"il1. To · I -regard it otherwise i• to riak ael:f-deqeption and cynicia~. Kost I _planner• know that klad proJ•cta not only don't die,. they "1•v41r even I I . 'fade away~ So thci airport. th• big da1'. tb.• dub"ioua: ·auger a:Lll th-at - · ·· were pr1,1ned_ :froa the public inveataent 'prograa thia year wil:L aur•lY: - ' I be back again aoon. Th• teat· o:f aucc•••i"ul' re:f'"ora-ing wic1:1 b•• how ' I e:f:feci:.ively their reapp•aranc::e ia deal~ with when the Ban:k ia not All o:f thi• auggeata th• need :for longer ti•• horiz~na. aore - •c::>d•at expectation•. and. aaall•r acal• approach•• aa po~i-cy--baaed lending a~rategy ia reviewed. Cloaer attention ahould ~· given to Page 49 increaental or pieceaeal change via conditioned prOJeCt or tlector loana.- Tha policy r'•f'ora potential• cif proJect loans have been given poor aarks. But in truth, proJ•ct conditionality waa ne~er given the chance it deaervaa •. ProJ•cta can be aqnitored adequately~ and th• • threat o:! Bank cancellation can b• aor• convincing when :tt :Lnvolv•• o~y one _a-rea 0£ Bank-country contact. Th• proJect and ~ector ~oana - ' als~ provide better opportunity £or o~going diacua~iona ~£ donor and I l~a.4 :t_echni.ciana in aector poli.:y council• end. hence, ::£or education -- and training •:!:!ecta. • Although there will alway• be ca~•• wher• SAL-type : - - .. cOllprehen_aiv•n••• and aize will be appropriate, the Bank aight now _~_consider- narrowing it• area of conc:er~ in aany ·countri•d -~rl order to -c.OJM:ant·re-te r•aourcea where policy dcfici~mciaa are crit.icalc,- and" o' perh.spa ripe :!or change. Financial cone.trainta ar~ aovJ,!ng the Bank-- I in th-1-• direction anyway. But a aor• diver••· and aaal.l;.er acale · - array o:! policy-baaed lending inatruaenta, inc1ud1ng aa~y 0£ a•utl_l.sr acal•. aay b• aor• •f:!.. ctiv• in bringing policy:' dialogue and durable policy refer•• to a large nu•:ber o:! cour.tri••· I I : : ·.: ..,..__ Sev•r~l participant• d•nied the pdlicy-changing potent:i:l!tla of:~ - . : - __ individual proJec:ta. On• noted that i'rOJect conditional.it::ll' i• : 'uaua-lly- ieaa credible than in progr-s11 lendinq: e road pro3ec:t can't be at.opped in •idat.reaa becau-•• 0£ nqnper:!oraance on a poli.cy condition. Another cited the caae of the Ivory Coaat, Wh•2~• all rice ralated agricultursl proJecta were foundering bec:auae o:E Gc>vernm11ant--a - h•a1.tanc:y to raiai&• rice prices. Witll SAL•, rice pricea: ha"• been raiaed thr•a ti•••· fOOTNOTES l._ A• uaed h•r•. th• t•r• "SAL" eabrac:ae IDA Structural AdJu•t••nt Credi ta. 2. A. Horberger. •ua1ng the Resources at Hand More E~:f-~tively." ... A•eric:an Economic Review, May 19~9. Harvey Leibenatein ~as not yat b•en able to perauade the ec:ono•ic:a pro:feaa1on that x-1ne:f:fic:ienc:ies I· ar1se :fro• :factor• other than managerial inadequacy. 3. Pierre M. Landell-Milla. "Structural AdJu•t•ene ten~ing:-"Early l'!xperienc:e," Finance end Dev&lop111ent. Oec:ew.ber, 1981. p.: 17. ~-- ~. Ibid •• p. 18. '5. Fred M. Vinaon,. "A:fter the Savann'1h Con:farenc:e."·fo~eign-A:f:fair§.~ var.- z-4·-'-cJ'Uiy 1946>,. P. 626. 6. Several o:f the early loan• requir•d uae o:f aoae-o:f tih• £ore1gn' axchan·ge_ and aoae o-1 th• counterpart funda £or· pcirt~cu14r purpoa9s. : - -- - Thi.• reatric:tiv• practice waa al:)andon'9d in July 1981. ' : - : ~ - : ~ - ~ = I 7. The "aynergiaa"" pr••i•• aaaerta ttiat changing two pchici•• · togather will tiring greater total ben19:f1ta than:i:f the two change•'-~'·-= are aada elone. I 8 • . Stanley P 1.-eae,. T.....,h..,.e..._.H... o-...b_,b_,l"""ia""d.._..,G..,i..,a..,n~t..,..::....__E"'-=a""a::.::• .... v... a=-_,,o ... n..._t.....,h"'e ...... w... o... r.....,.l..,d._.B ... a""""'n...,k._.. lileatv-iew Pr•••· Boulder 1984. ' I 9.- Stenl._y Plee.. ,. 11Th• Inatitutiona:1 Diaenaion o:f Ec:oqoaic -PoliC)!. Manegeaent,. .. Dra:£t.,. 23 J'an. 1984,. p. :16. · c - • - ~ -- ' - • 1.0.. In a 1968 article on e .. mditiona1: aaaiatanc:e Albert! H!rachaan -and:· .Rich.rd . Bird .c:oaaent. on thia general :iaaue:I .... . pow•r •••• CButl at. beat,. aituationa ;in which aid helpa 1 vir·tue :.•.o >: · triuaph in thia :faahion are the exce~tion rather than th• -r·ule. ·rhe - ncraaJ. c:aae i• :far acre prcaaic:: th-! kn~wledga that aid i•~ avai.l,,ble : 1:f c:ertain polic.1e• •r• adopted aerv-!• to 11.ake th••"I poiici.e• Mora· attractive and l•- coatly than they :would .ctherwi•• be~ 1'h••• polJ..ciaa will there£o~~ c:ften be adc~ted by aid-hungry gcvernaenta=rn :. apite o:f c:ontinu.ing doubt• c:f the pc~ic:y-aakera theaaelY••, · - · .: • r••i•tanc:• :froa ao•• quarter• wi.thin 1th• goverri••nt,. on.!alaught againat• the 'deal' :£roa the cppoaitidn,. I and general diataate :for the whole procedure... Albert. O. Hirachaan and Richard Bird'; Fc1reign Aid-.;. A CFftfcjUir §Dd a Propoatl, InternatiJnal Finance.. Sec:tioti-.- -t>opartaent..- - o:f Eeonoaica,. Princ•ton Univeraity,. Eaaaya in Interna~ipnal Finaric:e; #69, J'.uly 1969,. P• 9. ' 11. Please, "Th• Inatitutioneil Diiaenaion." 12. L.aughlin Currie, Ih.9.._Role o;f Econo111ic Adviaers in Dev•elopillg ·---<:9Y0t-.fie8. IJeatport., Conn., Greenwood Preas, 1981, P~ 102. 13. In on• SAL. country, negotieition• on th• agie•••nt ~•re well-· advanced when a local o££icial, attending a •••ting called to dia~uac th• dra£t agr••••nt, expr••••d hie ainiatry•a opposition to one c1£ th• beia1c propoaala--in thi• inatance, th• ultiiaate aboliti6n 0£ pan- - t~:":"ritorial pricing £or :f'ar• outp•.1t.!i and input••• Th• c££j,cieil in -que~tion waa two or thr•• level• down in th• hierarchy, but waa in • the.key i•pl•••nting •iniatry I i983 ---·1 Jul 32 Keny& II i:Jo.g (70 IDA) 20 1 5 i1.6 Mar 83 Thailand II 1;75.S 201 5 · - SVIR:. 20: Apr - ·: · PhiJ.ipp!nea II J:o2.2s I 5 - - -SVIR"' May -- T:-go !40.0 (IDA) --1 - - - J~"l .----·Jamaica II :60.2 i1: 4 : · SVIR Jun. - Turkey r.v ~00.8 l 'J', 4 SVIR 1 15 3 SVIR Jun Yugoslavia ~75 I i i984 -· .Jul :-S3 !voey COa:at II ~5C.7 11: 4 io.97 Nov : · J:orea. IX is: 3 Sv:tR . - ~00 1 • iiQV ·:·Panama :eo ... l is 1 3 SVIR Dec !i'....duriti~s !I ,40 i1: 4 io.47 _1 . II !55 (IDA} I O•c - Malawi I I , I I· I LI •'.; • , I I' ' ' ' " I . '"I TABLE 2 I I -,•·, I 1 1 • .. 1. SALs ,' 1980-Ap=il · 19B·h · · Amounts,· 'Geographic Distribution, and , ,. · · •Repayment Terms, by Fiscal Year•·' ; · I' I ~ I ' ' t . I ' i ' I I I J I ,. 1 Terms ,. I I • • 11 · Nwnber§ ,, A,mount'I tos Len,gth I Grace~, Fi'~~a·l·, ~wnbe~ ot; Millions ·~f Dollars'.',. j . '1·, I EUl\,MID-EA$T ,~ Yp.~r. , : Sf.L.' fi: Total IDA M'R ASIA WEST.HEM. N. AFR 15-3 17-4 20-5 . hiio '' Numbers 1 1 1 1 1 Amount a 305 (55) 55 50 200 200 120 1981 Nwnbers 7 30 l 1 2 3 Amounts . 717 (38) ·120 200 22 375 390 1982 Numbers 6 1 •3 1 1 1 3 2~ Amounts 1070.7 (80) 150 540 76.2 304.5 25!' 530.7 290 1983 Numbers 2. 2 1 2 ·l 2 3f Amounts 1284.7 (110) 170.9 477.8 60.2 575.8 275 361 608. 19849 Numbers 5 3 1 1 2 2 Amouhta 705.9 (SS) 345.7 300 60.2 ~160.2 290. 7 1 I I' TOTALS ' . - N"Wiiber-1 - -- 20- -- - 10 I - ----.,- ,5 - 6 T - -n 10 8~5.2 1772.4 1345.~ Amounts 4083.J (338) 0Ue6 ~517.8 268,6 1455.J I ! ~ . ' I . ' i ' i I i ' I ' ' ' ; ' ' I ' I a fifst number, length of lQan. Second number, length of grac;e .period. . , b In the length-grace division the third loan to Kenya· is on standard IDA terms. c, .$P million of the $22 m Guyana SAL was a credit on standard IDA terms. i d 1.JP.O million of the $140 m Pakistani SAL wa11 a credit on stan4ard IDA ter~s. , e,. lo the geographic division, the -6tl) loan to Yugoslavia is fo.r. $275 m. In the length-9r1,"~" ~ivisiqn,, the 6th loan, to Togo, for $40 m is on IDA terms. Both Yugoslavia and the Togo loans al'."'! included • 1 .. in the Ul54 m total. f 11 ,.$70,m of the 130.9 Kenya II SAL was a credit on staqdard ID~ 1 ~qr~q. 9 , IO J;.he len9th-grace div~~ion th~ .f.}fth lqll~ !.~ to·'Ofllawl on !J·tandard IDA ter~s •, I ,, I •• t ., • • • " ' I I I ! TABLE 3 I. f ·1 I' . I I I' New SAL Countries, by Income Category anc\ by Fiscal Year, '1u I 11 · t and Total Sii.La Active in April 1984. Income Group Fiacal Year Active SAL Number of Active J• I ,j I ' , 1980 l981 1982 19fl3 1984 Participants, ~ank/IDA SAL Countries ' ., Dase4 on . f 1 If , ., "I : 'I t· I' . I 'f1 lP82 GNP . " Apr !J. l 984 Borrowing as Percent of per Capita Countr,i.ea Total Eligible (U.6. Dollars) : I I I , t I I I ($410 or leas) 1 1 l 0 3 39 7.7 II ($411-805) 1 2 0 0 1 22 ~.5 -la -1cJl III ($806-1410) 1 2 2' 0 0 5 23 21. 7 IV ($1411-2UO) 0 0 1 0 1 2 15 13.J V (over $2440) 0 0 0 1 0 1 10 10.0 Total New1 3 5 5 I il,t I ff, · ·1••' 1 Active Totals 3 7 ·11 ' 11 u·. I 12' ti' 1 109 11.0 Per Capital' 1982 I . ' , )•I II I I GNP of New SAL ' I ' 'I ' " . ' ' '' I 1 , I countries a 'I . ' ! • Unwpighted av. i . $-763 676 1086 1595 2120 Av. weighted by 19821ro~ulati~ns1,· ~107.9 12S 830 2571 2UO I 8 Bolivia expired. h.uuvana expired. cPakiatan exph·ed. dsenegal cancelled. I I 'I.! ,, ' I , , ,PfUE 41 IA!vel and Gn:wU1 Rate• of GI' pt1r., qplt.11 and~ R!ltq•.of X for 'll¥>98 Ablw Average hn.llll W. Ou1~, in Onler of FJ.ot SAL A'.W! k-llLUlll ~ iliddle-Inoane ~ HWle'-1.nwLe ua2 aw per capita Par ~it.a WP alP Per capita OG> QlP Qiuntdu OU'lt.l'in OUluw f!!·!!1 DolJe.!L l!J60-ll mo-10 mo:11 1960-U IR0:70· mo:a1 ~ e no 21.H 5.H 5.H x x x 'l\ll'lwy UJO ~.5 6.0 5.4 x llDUv11 510 l.t !.2 4.4 x ftLl Uw.&n.a 120 l.I 5.1 A.2 x x Senegal ttO -0.J 2.5 2.0 ~ 610 1.1 n.a. n.a. lt•adtim 12•0 2.1 n.a. n.a. Ha1-1 no 2.1 ... , 5.6 x x x l\llXJ Olut 1140 J,J 1.0 6.2 x x lfD&'ea 11'9. 6.t 1.6 t.1 JC x x 'lbalhid \ 190 '1.t 7.2 x x x ...ittaun ··~ 380 2.1 6.7 5.1 x x I J-1c.a USO c.1 4.t -1.2 1Vp J50 2.5 1.5 '· . >.2 I x Y19»1ovu 2HO 5,0 ' !i,11 5•. , x x ,_ •· 2120 l.1 1.1 4.6 x Aver9• f..ca l I ' I .. I' _ ~ ______~~,~·~~-~ and I.uUaLt- o.1- :. t.l J ,).6 J.t s.o 5.6 ~ tli4lle-Inoa18 ' " ' ' .. . ,• c • TABLE S Importance of the SALs to Borrowers: Each SAL _ as a Percent of the Borrower• s Merchandise ImPor1~~, • .rta· Gros• Domestic :tnves1::11ent, and I'i:a G:coss PUblic Exte:nal Capital· Flowa Dollar Value of the SAL as a. -- Percent of the Bor;ccwer's: ------~..- .. -~- . _ , . _ . _Jlau _of . Merchancliso GJ:os:s Public: Extc.r:ul Gross.Domestic~ · - - - couns:x_ · _: ~ ~ ~ ~ Imports Ca:pita~iOw- . ~e1l4'ioe- - . - Kenya . Mar 80 2.39 13.2~ ·4.17 'l'urJcey · Mar 80 2.61 9.00.: 1.38 Bolivia · · · JUD 80. 6.00 11.39•. t..31 Philippines · Sep SO 2.59 14. 39 ... : . -· 1.88 Turkey {Sup:) . Oct:. so 0.98 3.38• - o.s: Seneqal . · Ilec 80 s.oob 21.20· 15.09b Guyana F.eb 81 39 .. 22 22.91c· 26.16 Turkey Ir · May 81 3.37 16.52- .2.23 Ma.w:i tius ~ · - Jun 81 2.llc n.a. 3.asc Malawi · Jwi 81 12.53 34.62 14.40 Ivory Coast 'Oct 81 . 6.16 12.84 ·6 .. 41 Korea Dec 81 0.96 . 4.11 1.44 ':hail.and M"\: 82 l.SO 10.27 1.46 Jamaica K&:r 82 5.17 18.68- 16.09 Turkey Ill Mar 82 . 3.42 16. 77 2.26 Pakistan - : JUD 82 2.62 20.80 3.27 Xenya ll : ·. Jul. 82 6.73 27 .so . 7.52 Thailand. IJ: : Mar 83 1.75 12. 0 i ·· - - - . " . l. 70 Philipp. IX , Apr 83 3.80 19. 77· ... - 2.59 '?o • .. a.. All .loans made or planned in 1981 throuqh 1984 use· 1981 figures - ... .. -. : - ~ ~ wnen C&lc:ulat.1.ng' the ratios unless indicated. Loans :nm.de. in. l~~o - · - -use 'figuraa ~o: 'that year. b. 1'78 figures c. 1979 figures a. 1980 figures _.e..,_ . .calcul~ted tJ:cm Gill' and percent o! GCP placed in c!omeiltic:: ilivestment; . · · -· J~ce: ·World Bank, World Development Report, 1981, 1982; 1983:) TABLE 6 I'iUI' Disbursements; IMF Ondrawn Authorization~, · 25 April 19841 and SAL Authorization• tor SAL:.countriets Du:ri.n 1 (Amount Uti.drz~wn) (Amount ti'ndra~ (Type of IMF Total IMF . . __ Arrangement) Disbursement~ (April 30, 1Sf83l (April 25, l9~·-..... Total SAL Commitment Kenya: (Stand-3yl ~ -~ !-!9_ TUrkey: (Stand-B!'l : __ .... __ ~ -~-!2~6- - J:SOlivia: (Stand-By) --.. - Ph!l1pp:tneS:(~Can~-By) : : .:. . : - Senegal: (UF and Stand Byl i !12 - -- 445 . Guyana: (En') ! _s~ - . 22 -- - - Mauritius: (Stand-B)') ! 102 - -- -~$~-is_ 55 Malawi: (Stand-B'J and UT) ~ _s_ 2s_ - 100 Ivory coast:(EFF) ! ~32 - 400 Korea: (Stand-By) ! ~62 - .. -- . 550 Thailand: (Sund-B:t·> ! !42 ------~111_ 325 Jamaica: (En') ! !2~ --- I 136 {E:FY) 1635 i4'6 - -- ( Togo: (Stand-By) ! - ~ -- ~l~ - ---.---$ 22 - 40 -. Yugoslavia: (Stand-By) !1~8} 275 Panama:· · (Stand-By) ! -'2 60 __ = _ =l- _IMF _dis)iur_sements ~do include a.\l ma-ie under a~_~n9~~n1:_:i~ -·~ =~~~ec~t- ._a-~ ~t?~e~ ~. - -- ·tilne ~t initial·SAL authorization • . __ . _2 1\epr••~t-•__ t;he _undUbursed portion o~ the IMF ·arranqwnt .. in ei.ie-c:i ~ii. 'tnis~ = o.._ ~-: date.- rt ·~at arrangeMJit. waa at.ill in effect -~n Apr1_1 %5,; l9lr4 / t:.h~n t:.he- ~: ~ ~ ~un_~i•~ur•. .S -~ti.on appears in the last column to avoid ,~double count-ina. 'fABLZ 7 l&nlc-mA c:o-itmen.U to the SAL COUntriH of ... J'°9 1. 19131 Doll.&r '1'otala J:ry COUnt:y by Piscd Year &Ad 'fot&l• for Eac:b Tear'• Rev SAL Cowitrie• •• a Per.:ant of ,. ..' Total l&nlc-IDA co-itMnta CIA ail.Uona of o.s. do114ara.) eosm " of lat S!L !!ll 1911 1982 -'---19~--- 1910 192.0 133.0 131.2 1'2.9 1910 500.0 722.0 '47.1:-...:. H9.4 - - - - .. - ~~------scm-'fO'fAL 5'7.5 792.0 155.0 779.0 DI- Countri.. FTIO) ' of TOt&l Sank-IDA t.ndiNJ 5.'7• '·''' P!Ulippizae• 1911 395.5 412.0 533.0 452.t. - .. 502.• 7" Seneqal 1911 31.• 52.l 102.9 19.5' c"<: -32.2 Ma11ritiua 1911 o.o c.o 3o.o •.o·-:--12.2 ------1911 : 39.5 13.8 120.0 113.0 ....".·4. SOJl'fO'nL 414.1 7U.9 5'1.4 603 .• 5 or- cc.mt.de• mu ' Of ~ l&nlc-IDA tendJ.D9 4.U 4.2, 5.4• 4.5, - . 4··2• I'\OIOry CO.at 1912 52.4 33.4 133.0 374.5· 32·.2 XOZ-.a 1912 225.0 544.0 390.0 470.0 . - 672.0 'ftlailasid 1912 215.1 542.0 325.9 '34.1)-. 393.1 1912 ••• 5 o.o "·' 133.1:·.:.;. 120.4 1912 1'4.0 lU.o 202.0 309.5' - : . 3Cl4.0 ------. - - - - - . StJ1l-TOTAL 793.0 1,214.4 1,095.1 1,921.1 1,521_.7 nr- c:ount.n.e• n12> ' Of TOtal l&nlc-IDA r.eadin ~AL 1.10.l 2,571.5 2,752.4 1,2t1.o- · 3,ou. 7 'fot&l ll&nlt•IDA t.endi.nc) 10,012.3 U,411.7 12,291.0 13,0U.9" -14,477·.o· 12 Country Total -- . -· .. -- - •• a • ,:> -- ~ - • hrcenc of 'foul B&nlc- --- IDA IAni!J.A9 ThaC Year 11.41' 22.40• 22.47\ 25.3!1•· ... 21.20··· ! . TABLE 8 GDP Growth Rates for Nine SAL Countries and Average of Net Oil Importing LDCs, by Calendar Year, 1980-83. Net-Oil Im~rting SAL countries Developinq Kenya Turkey Philippines Maurltius Malawi Ivory Coast ~orea Thailand Jamaica Cuuntrles- GDP Growth Rate I' I 1980 5.8 -0.1 4.9 -10.6 -0.1 6.5 -J.5 5.8 -5.4 4.5 1981 4.8 4.4 J.8 6.8 -o.J 1.4 7.1 6.J J.J 1.9 1982 (prov.) 2.3 4.7 3.0 5.0 J,O -1.8 5.J 4.1 0.2 1.5 1983 (est.) J.O 3.1 1.3 0.7 4.9 -4.0 9.2 6.0 1.5 2.~ TABLED -A Change between 1982 and 1983 in GDP Growth Rate +30• -34' -56' -86, .. +63• -122• +73• +46' +650• +67' TABLB8'-B Array by 1983 Estimated Growth Rate Ivory Coast Mauritius Philippines Jamaica·Average ~Turkey Malawi Thailand Korea .-4.0 . 0.1 1.J· 1.5 2.5 3.0-, J.1 4.9 6.0 9";2" 11· I ', I .,, , . I l 'I ,, I 11 I I I I ,, Ir I " ' I ' ".. . "" .. ..