Financial systems and development

and Bangladesh. Africa's population is growing countries increasingly discriminate against the defaster
than has that of any other region of the veloping countries. Voluntary restraint agreeworld
in this century. In some countries fertility ments for steel, bilateral agreements for textiles,
rates are close to the biological limit. This strains the tighter Multifibre Arrangement (MFA), and
the capacity of the economy to maintain the stan- lower quotas on sugar and other agricultural proddard
of living and reduces the ability of the gov- ucts have their greatest effect on the exports of the
ernment to provide social services, including edu- developing countries. The share of developing
cation and health. Yet some societies remain country exports that face nontariff barriers (NTBs)
unconvinced of the need to reduce population is roughly 20 percent, about twice the share of ingrowth.
dustrial country exports. Much of the discussion of
The links among poverty, environmental degra- NTBs focuses on manufactured goods, but the prodation,
and population growth are often direct. As portion of agricultural exports from the developing
more and more people in poverty press upon lim- countries facing NTBs is higher (26 percent, comited
natural resources in rural areas, they begin to pared with 18 percent for manufactures).
deplete the stock of renewable resources. In South Another disturbing departure from the principle
Asia the long-term deforestation of watersheds has of nondiscrimination embodied in the General
caused severe erosion. Population pressure on the Agreement on Tariffs and Trade (GATT) is the infragile
land base in Africa and the Middle East has crease in bilateral trade agreements. Bilateral arbecome
serious. The arid and semiarid areas of the rangements could-although they need not
world are likely to face a crisis of water scarcity by necessarily-discriminate against nonmembers
2000. Desertification and deforestation-often (see Box 1.1). If they do, they might greatly harm
irreversible-have reduced the land available for the world trading system.
agriculture, wildlife habitats, and recreation.
The rise of bilateralism and the increasing use of
But not all environmental degradation results nontariff barriers underline the importance of the
from the pressure of population growth. Intensive Uruguay Round of trade negotiations. These talks
use of hydrocarbons by high-income countries and are tackling complicated issues such as trade in
deforestation in sparsely populated tropical areas services, the protection of intellectual property
are starting to have global effects. The same is true rights, and the politically contentious matter of agof
the growing amounts of hazardous materials ricultural trade reform. Progress on agriculture
that are generated mainly by industrial countries. would be particularly welcome for some of the
Some developing countries are experiencing highly indebted countries, such as Argentina and
serious air and water pollution. Increasingly- Brazil. Agreements on trade in financial services
although with differing degrees of urgency- might prepare the way for greater integration of
developing country governments are attempting domestic financial systems and international capito
curb the adverse externalities of growth.
tal markets, resulting in improvements in efficiency
and resource allocation.
Protectionism and trade
Many developing countries have significantly
liberalized trade in the course of their broad struc-
The acknowledged success of outward-oriented tural adjustment programs. These steps have bendevelopment
is partly responsible for the move to- efited the countries taking them. However, it is
ward market-based policies. Moreover, the high- often believed that countries which liberalize uniincome
countries recognize the role of trade in pro- laterally lose a bargaining chip that might have
moting growth and industrial development in the been used at the GATT negotiations to increase
low- and middle-income countries-and thus have their access to export markets. In fact, credit is
accorded them a variety of concessions and prefer- given in the GATT for the binding of (that is, acences.
(These include the Generalized System of ceptance of treaty limits on) tariffs. Such commit-
Preferences, the EC's Lome Convention, and the ments can be negotiated and traded even after tar-
U.S. Caribbean Basin Initiative.) Despite this, and iffs have been unilaterally reduced.
despite the encouraging growth in world trade in Developing countries can also improve their exrecent
years, the world's trading system has be- port prospects by following an appropriate excome
markedly less liberal. Governments have re- change rate policy. Many developing countries
duced conventional tariff protection but have have corrected their overvalued exchange rates in
raised other barriers to trade instead.
the 1980s; real effective exchange rates have de-
Specific "safeguard actions" taken by industrial clined for most developing countries (see Figure
15