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Download PDF (865.9 II Background Spain's remarkably high rates of economic growth stability, and improve Spain's external accounts through, over the decade and a half between the implementation inter alia, a substantial liberalization of foreign trade. of the Fund-supported Stabilization Plan of 19592 and The various measures adopted as part of this liberal- the onset of the oil crisis in the mid-1970s were largely ization effort were to have a profound influence on the made possible by a change in the orientation of its composition of Spanish growth and on the relative role of economic policies, which had theretofore promoted self- the tradables sector. The adjustment program was sufficiency in an increasingly interdependent world. launched with a 43 percent devaluation of the peseta and Prior to 1959, Government policy had sought the rapid the elimination of the system of multiple exchange rates, development of an industrial base through a high degree supported by a marked tightening of financial policies. of protection and official intervention in the economy. Ceilings were imposed on government expenditures and Rigidly enforced quantitative restrictions on imports and on bank lending to the public sector. Prices for transport strict export licensing, widespread price controls, and a and public utilities were raised by nearly 50 percent, and large body of legislation regulating virtually every aspect taxes on gasoline and tobacco were likewise increased. of productive activity ranging from procurement and Ceilings on bank credit to the private sector were also distribution to investment3 were the main characteristics imposed. of what is now referred to as Spain's period of autarky. The objectives of the program were met within a short Policies aimed at promoting self-sufficiency in turn period. The annual rate of inflation fell from 33 percent introduced a number of rigidities in the Spanish economy in 1958 to 1.5 percent in 1960; the trade balance that were to hamper severely the development process. recorded its first surplus since 1951 as a result of a 50 Describing some of the strains on the economy brought percent increase in the volume of exports, and so did the about by autarky, Wright (1977) states: current account under the influence of a rapidly growing tourist sector. More important, growth, which had come Industry had developed, but often based on small units to a standstill over the crisis years, resumed. Between whose high costs and inefficiency rendered them quite uncompetitive on world markets. As industrial growth had 1961 and 1974, the Spanish economy grew at an average accelerated so, too, had the demand for products which annual rate of 7.3 percent, with the highest rates (10 per- could not be produced in Spain, and which could not be cent on average) being registered in the three-year period obtained elsewhere due to the very poor level of exports and immediately following the program. This overall growth the consequent strict implementation of import controls. performance was second only to that of Japan among the This created shortages. In 1959, exports equaled less than member countries of the OECD. As part of an aggressive 4 percent of GNP—lower than the percentage of any OECD export promotion program begun in 1959, an export country except Turkey. The system of multiple exchange subsidy scheme was introduced to offset the effects of rates created further distortions in prices and costs and had a 4 indirect taxes, and rebates were granted for import duties dampening effect on the balance of payments. on intermediate goods used in the production of export The Stabilization Plan, which had been brought into products. At the same time, restrictions on imports were being as a result of a severe balance of payments crisis substantially relaxed, and the number of products subject over 1958-59, sought to restore financial and price to quotas sharply reduced. A concomitant liberalization of capital flows, particularly foreign direct investment, gave a special impetus to Spain's industrialization drive 2Spain joined the Fund and the World Bank in the autumn of 1958. A comprehensive history of the relations between the Fund and Spain by allowing domestic firms to absorb more rapidly 5 is provided by Muns (1986). technological changes. The combined effect of these 3 Public enterprises were required to purchase supplies and equip- measures led to a substantial acceleration in the growth ment on the Spanish market. State authorization was required to expand industrial capacity—and hence output—and to undertake any type of industrial investment. Preferential treatment was granted to certain industries whose development was deemed, to be in the 5The requirement for prior administrative authorization for foreign "national interest." investments involving less than 50 percent ownership of a given 4Wright (1977), p. 28. Spanish enterprise was eliminated in 1959. 3 ©International Monetary Fund. Not for Redistribution II • BACKGROUND of foreign trade. Both exports and imports in volume try or Agriculture—firms would set specified targets for terms grew over this period at average annual rates in production or some other indicative variable, and the excess of 15 percent, and their corresponding ratios to State would provide the necessary support in the form of GDP more than doubled. The transformation of the fiscal incentives or, most often, subsidized credit. The Spanish economy into an industrial state was hastened by allocation of such resources tended to be arbitrary, less the diversification of imports implied by the opening up guided by market realities than by the desire to to the outside world that permitted the much-needed strengthen industries perceived to be of ''strategic" renovation of capital equipment. Between 1959 and 1974 importance. Thus steel and shipbuilding were accorded the contribution of industry to Spain's GDP rose from 30 preferential treatment; not surprisingly these sectors were to 42 percent, while that of agriculture fell from 20 to 11 most adversely affected by the oil price rises and the percent. The share of the labor force employed in agri- ensuing international recessions. At the same time, and culture fell, over the same period, from 42 to 24 percent. notwithstanding the beneficial impact associated with the Three factors played decisive roles in enabling Spain initial round of trade liberalization, the process of to finance the rapid import growth that facilitated the industrialization, against a background of nearly two expansion of the industrial sector: an enormous increase decades of autarky, proved unbalanced, with the bulk of in receipts from tourism, emigrants' remittances, and industrial output directed to the domestic market. By the foreign investment. Tourist arrivals rose from 4.2 mil- mid-1970s, Spain was still the most closed economy in lion in 1959 to over 35 million in 1974, an eightfold Western Europe as measured by commodity trade flows; increase, which by the early 1970s generated sufficient the ratios of exports to GDP stood at 7½ percent and that foreign exchange to finance the entire trade deficit, then of imports to GDP at 14½ percent. averaging about 5 percent of GDP. The growth of An underestimation on the part of policymakers and tourism over this period had a stimulative effect on other entrepreneurs of the relative importance of cheap oil and sectors of the economy, such as construction and credit, buoyant growth abroad, and the persistence of a commerce, and encouraged the development of much- statist approach to economic policy has been suggested needed infrastructure.6 Although reliable figures on as being partly responsible for Spain's delayed adjust- emigrants' remittances over this period are not available, ment to the first oil shock. While, as a result of the rise in it is estimated that they were equivalent to between 15 to oil prices, various measures were implemented in a 20 percent of the trade deficit. For its part, foreign number of energy-dependent European countries to limit investment began to account for an increasing share of the consumption of energy products, in Spain investment gross capital formation; 20 percent by the end of the in energy-intensive sectors continued unabated. A partial 1960s in the industrial sector. Foreign investment in the indication of this may be gleaned from an examination of chemical and motor vehicle industries was particularly data on net petroleum imports by Spain and other OECD heavy. Other factors that had an impact upon Spanish countries after 1973 (Table 1). While countries differ in economic growth over this period were the continued available domestic energy resources, all the countries prosperity of Spain's main trading partners and the avail- listed are net petroleum importers, and all were thus ability of inexpensive imported oil, which induced a adversely affected by the rapid growth in the price of rapid substitution away from domestically produced crude oil. Nevertheless, it is clear that during 1973-80, coal, but which was to leave the industrial sector in a Spain's net petroleum imports rose in dollar terms by vulnerable position at the outset of the oil crisis. over 1,200 percent, well above the corresponding in- Although the Stabilization Plan of 1959 was a crucial creases for the other countries in Table 1 (with the turning point in Spain's economic development, exception of Portugal) and substantially in excess of the signaling the beginning of a more outwardly oriented cumulative percent increase for
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