Table Of ContentEXTERNAL FINANCE AND ADJUSTMENT
INTERNATIONAL FINANCE AND DEVELOPMENT SERIES
Published in association with the Institute of Social Studies
General Editor: E.V.K. FitzGerald, Professor of Economics, Institute
of Social Studies, The Hague, and Director, Finance and Trade Policy
Research Centre, University of Oxford
The International Finance and Development Series reflects the
research carried out at The Hague and associated centres in Europe,
Asia, Africa and Latin America on the relationship between inter
national capital flows and the process of structural adjustment in less
developed economies. The studies in this series share a common
analytical approach based on the use of advanced social accounting
techniques and the explicit modelling of the economic behaviour of
institutional sectors, which in turn permit a new approach to
macroeconomic policy design.
Karel Jansen
EXTERNAL FINANCE IN THAILAND'S DEVELOPMENT
Karel Jansen and Rob Vos (editors)
EXTERNAL FINANCE AND ADJUSTMENT
Rob Vos
DEBT AND ADJUSTMENT IN THE WORLD ECONOMY
Rob Vos and Josef T. Yap
THE PHILIPPINE ECONOMY: EAST ASIA'S STRAY CAT?
External Finance and
Adjustment
Failure and Success in the Developing
World
Edited by
Karel Jansen
Associate Professor
Institute of Social Studies, The Hague
and
Rob Vos
Senior Economist
Inter-American Development Bank, Washington, DC
and
Senior Lecturer
Institute of Social Studies, The Hague
in association with
ISS Palgrave Macmillan
First published in Great Britain 1997 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-25907-6 ISBN 978-1-349-25905-2 (eBook)
DOI 10.1007/978-1-349-25905-2
First published in the United States of America 1997 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-17472-9
Library of Congress Cataloging-in-Publication Data
External finance and adjustment: failure and success in the
developing world 1 [edited by] Karel Jansen, Rob Vos.
p. cm. - (International finance and development series)
Includes bibliographical references and index.
ISBN 978-0-312-17472-9 (cloth)
I. Investments, Foreign-Developing countries. 2. Capital
movements-Developing countries. 3. Structural adjustment (Economic
policy)-Developing countries. I. Jansen, Karel. II. Vos, Rob,
1955- . III. Series.
HG5993.E95 1997
332.67'3'091 724-dc21 97-1791
CIP
Selection and editorial matter © Karel Jansen and Rob Vos 1997
Chapter I © Karel Jansen and E. V. K. FitzGerald 1997; Chapters 4, 9 and 12 ©
Karel Jansen 1997; Chapters 2 and 11 © Rob Vos 1997; Chapter 7 © Josef Yap and
Rob Vos 1997; Chapters 3, 5, 6, 8 and 10 © Institute of Social Studies 1997
Softcover reprint of the hardcover 18t edition 1997
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with
written permission or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988, or under the terms of any licence permitting limited copying issued by
the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP 9HE.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identified as the authors of this work in
accordance with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and
sustained forest sources.
10987654321
06 05 04 03 02 01 00 99 98 97
Contents
List of Tables and Figures xiii
Series Editor's Introduction xix
Editors' Preface xxiv
1 International Finance, Growth and Adjustment:
An Introduction 1
Karel Jansen and E. v.K. FitzGerald
1.1 Introduction 1
1.2 Background 8
1.3 The Role of External Capital in Economic Development 11
1.4 Approach of the Study and Summary of Findings 15
1.4.1 Methodology 17
1.4.2 Comparison to other studies 16
1.4.3 Main fmdings 22
1.5 Outline of the Book 29
Notes 32
2 External Finance and Structural Change 33
Rob Vos
2.1 Introduction 33
2.2 Structure, Markets and Institutions 35
2.2.1 The accounting framework 35
2.2.2 Structural change 37
2.2.3 Savings and income distribution 43
2.2.4 Financial development and investment 48
v
vi External Finance and Adjustment in the Developing World
2.3 External Finance and Economic Structure: Simulation
Results Using MSAF-based CGE Models 57
Notes 61
3 External Shocks and Domestic Adjustment
in the 1970s and 1980s 63
E. V,K FitzGerald and Khwaja Sarmad
3.1 Exogenous Shocks and Structural Adjustment 63
3.2 A Methodology for Estimating External Shocks and
Domestic Responses 65
3.3 The Nature of the External Shocks Experienced by LDCs 68
3.4 External Shocks and Individual Economies 74
3.5 Domestic Response to External Shock 75
3.6 Conclusions 86
Notes 88
4 External Finance, Investment and Growth 90
Karel Jansen
4.1 Introduction 90
4.2 The Public Sector Loan Boom 95
4.2.1 Public sector response to capital inflows:
Theoretical considerations 96
4.2.2 Public sector response: A comprehensive view 100
4.2.3 Patterns of public sector adjustment:
A mixed experience 102
4.3 Private Investment 110
4.3.1 Private investment under structural adjustment 112
4.3.2 Private investment in the case study countries 115
4.4 Conclusion 118
Notes 120
Contents vii
5 Incomplete Adjustment: Fiscal Policy, Private
Savings and Current Account Deficits in Mexico
since 1982 121
Angel Calderon-Madrid
5.1 Introduction 121
5.2 Crisis and Recovery 123
5.2.1 Background to the 1982 crisis 123
5.2.2 The orthodox stabilization attempts of 1982-87 125
5.2.3 Successful heterodox stabilization in 1987-92 129
5.3 Macroeconomic Adjustment Policy During the Stabilization
Programmes 131
5.3.1 Fiscal adjustment and debt management 131
5.3.2 The problem of speculative attacks on the balance
of payments 135
5.3.3 Exchange and interest rate management during the
heterodox programme 138
5.4 Private Sector Behaviour Under the Heterodox Programme 141
5.4.1 Current account deficits and fiscal surpluses 141
5.4.2 Private savings and the consumption boom 143
5.4.3 Private sector portfolio adjustment 144
5.5 The Implications for Macroeconomic Policy 146
Postscript: Determinants of the Exchange Rate Crisis of 1994 148
Notes 153
6 External Shocks and Domestic Adjustment
in Pakistan 157
Khwaja Sarmad
6.1 Introduction 157
6.2 A Historical Perspective 158
Period I (1970-77) 161
Period II (1978-86) 163
Period III (1987-90) 165
6.3 The Links with the Outside World 167
The burden of external debt 172
viii External Finance and Adjustment in the Developing World
6.4 Capital Accounts of Institutional Agents and the
Flow of Funds 173
6.4.1 Savings and investment 173
Period I (1970-77) 173
Period IIa (1978-81) 175
Period lib (1982-86) 175
Period III (1987-90) 175
6.4.2 Capital flight or net acquisition of external private
assets 176
6.4.3 Flow of funds 179
6.5 Conclusion 186
Notes 188
7 The Philippines: Finance Without Development 190
Josef Yap and Rob Vos
7.1 Introduction 190
7.2 External Finance and Growth 192
7.3 Political Economy and Adjustment Policies 198
The 1970-74 Regime 198
The 1975-79 Regime 202
The 1980-82 Regime 205
The 1983-85 Regime 208
The New Regime: 1986-93 210
The political economy of external debt management 214
7.4 Private Sector Adjustment and Emerging Policy Dilemmas 216
Private and public accumulation behaviour 216
Emerging policy dilemmas 222
The fiscal bind and a reassessment of the debt
management strategy 224
7.5 Conclusions 226
On policy effectiveness 226
On the role of external finance 227
Policy implications 229
Notes 232
Contents ix
8 Imports, Investment and Aid in Tanzania 234
Joshua Doriye, Howard White and Marc Wuyts
8.1 Introduction 234
8.2 Capital Inflows to Tanzania 234
8.3 Accounting for Aid in the Tanzanian Economy 237
8.4 Impact of Aid on Economic Development 244
8.5 Policy Changes Under Two Aid Booms 251
8.5 Conclusions 257
Notes 258
9 External Finance and Adjustment in Thailand 260
Karel Jansen
9.1 Introduction 260
9.2 External Shocks 261
9.3 Policy Regimes 271
9.3.1 Development strategy 271
9.3.2 Adjustment policies 273
9.3.3 Policy regimes 285
9.4 Conclusion 293
Notes 298
10 External Dependence, Structural Adjustment
and Development Aid in Sub-Saharan Africa 300
Rolph van der Hoeven
10.1 Introduction 300
10.2 The Continuous Need for External Resources 301
10.3 Trade in the Context of Structural Change 305
10.3.1 African trade during the crisis years 305
10.3.2 Trade policies for structural change 310
10.4 Debt in the Context of Structural Change 313
10.4.1 The growing mountain of debt 313
