World Bank Document

mies would continue to grow faster than Latin low-income Asia; although growing more rapidly
American countries. On average, the East Asian than Africa, low-income Asian countries would be
countries are less indebted, and their resilience to faced with a deteriorating external environment
external shocks is greater. The large group of mid- for trade and finance just when they are making
dle-income oil importers (other than major progress in liberalizing their economies. They
exporters of manufactures) would, in the High would hardly be encouraged to liberalize any fursimulation,
see their exports grow rapidly enough ther. But if the High simulation prevails, they
to permit them not only to meet required interest could grow at 5.8 percent a year (or somewhat
payments, but also to resume import growth (5.9 below the 6.4 percent growth rate of recent years).
percent a year) and improve capacity utilization In the process, they would restructure their econoand
economic growth. In the Low simulation, to mies for stable and sustained growth in the 1990s.
the contrary, middle-income countries would be
required to continue the compression of imports Capital flows and debt
and cuts in investment that have characterized
recent years. This would put in severe jeopardy The financial implications of the two scenarios
efforts to achieve structural adjustments and estab- show profound differences (see Table 10.5 and Figlish
the base for resumed growth in the 1990s. No ure 10.1). In the High simulation, the developing
doubt there is room for increasing allocative effi- countries' interest payments on medium- and
ciency of economic resources, especially energy, in long-term debt (in 1980 dollars) decline from $59
many middle-income countries. But the economic billion in 1984 to $45 billion in 1990. Interest payoutcomes
portrayed for them raise questions about ments in 1990 would be far outweighed by exports.
the ability of sociopolitical fabrics in many coun- The most significant outcome of the High simulatries
to withstand such continuing pressures. The tion is that the creditworthiness of developing
development crisis in many middle-income coun- countries improves, partly because they persist
tries would become more pronounced.
with the policy reforms that are under way in
For many low-income African countries, the eco- many countries. As a result, developing countries
nomic outlook is bleak. The Low simulation would would obtain more external capital (see Table
mean another five-year period of falling per capita 10.5)-enough to finance a rise in their current
incomes. Incipient economic reforms in many of account deficits (in 1980 dollars) from $36 billion in
these countries would surely fall victim to an inter- 1984 to $61 billion in 1990. The bulk of that increase
national environment in which primary commod- is accounted for by low-income Asian countries,
ity prices would not improve from present very which with their limited debt and low debt service
depressed levels, imports would need to be com- ratios are also projected to attract more capital
pressed further, and additional aid flows would inflows, and by major exporters of manufactures
not be available. Unfortunately, the High simula- and the oil exporters.
tion holds out hopes only for a maintenance of In the High simulation, total net financing flows
average per capita incomes at the low levels to (see Table 10.6) would increase in current prices
which they had declined by 1984. Additional exter- from $72 billion in 1984 to $121 billion in 1990, or at
nal assistance, by itself, is not the key to dealing an average annual rate of 11.6 percent. In 1980
with the problems of low-income African coun- prices, the growth rate would be only 3.8 percent a
tries. Reforms of domestic economic policies to year, and total net financing flows would be only
improve the utilization of domestic and external slightly larger in 1990 than they were in 1980. Net
resources are essential. Without them, no amount ODA flows are projected to be 0.37 percent of GNP
of external assistance can improve the economic of industrial countries and to increase by 10.3 perconditions
of African countries. Nonetheless, such cent a year in current prices and 2.7 percent a year
reforms are unlikely to be effectively sustained in 1980 dollars. This would provide some limited
unless there are parallel reforms in donor pro- scope for meeting the financing needs of lowgrams.
Donors must, in particular, be willing to income African countries without continuing the
make adequate financial assistance, over and current process of diverting concessional financing
above that projected in the High simulation, avail- from other low-income countries. An adequate
able to support those low-income African coun- response to the financing needs of low-income
tries that are implementing substantial policy African countries would require aid flows larger
reforms.
than those projected in the High simulation. The
The Low simulation would also be a setback for share of net private capital flows (nonconcessional
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