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depend not only on their own policies, but also on ditworthiness, continues to be required. the rate of growth of industrial economies and The two simulations outline a continuing bleak whether protectionist measures are rolled back. outlook for many low-income African countries. In Two simulations-a Low and a High-have been the High simulation, their average per capita prepared for the period 1985-90 and are discussed income stagnates at present reduced levels; in the in detail in Chapter 10. Both simulations assume Low simulation, there is yet another period of fallthat developing countries continue with their ing per capita incomes. Special efforts are therepresent course of policies, which in many cases (as fore needed to deal with these prospects. Addiin some low-income Asian economies) imply sub- tional external assistance is not, by itself, the stantial policy reforms and adjustment efforts. Pol- solution to Africa's problems. It must be based on icy improvements are in three principal areas--key major changes in African programs and policies. economic prices, exchange rates and trade policies, Nonetheless, such reforms are unlikely to be susand domestic savings. These contribute to effi- tained without additional external assistance, over ciency in the use of resources and to export com- and above that projected in the High simulation. petitiveness. As for industrial economies, the dif- The challenge for the next five years is to ensure ference between the simulations is that the Low that the world reaches the High case. How it could one assumes a set of policies that fail to address do so will be implicit in many of the chapters in current problems and as a result lead to further this Report and is made explicit in Chapter 10. It is problems, whereas the High one embodies policy quite clear that foreign capital will play a significhanges that result in greater progress in adjust- cant part in meeting the challenge of faster growth; ment. The Low simulation makes three basic it is also possible that its legacy from the past ten assumptions: no progress in reducing budgetary years will act to slow growth, unless creditors, deficits and in improving the monetary-fiscal bal- debtors, and the international community conance so that real interest rates remain high; a fail- tinue to ease the pressure of debt. ure to tackle labor market rigidities so that unem- In contributing to the resumption of growth and ployment stays high and real labor costs continue the restoration of creditworthiness of the developto increase; and a substantial increase in protec- ing countries, the World Bank is addressing investtion. By contrast, the High simulation assumes ment and institutional development issues crucial reduced fiscal deficits compared with the Low sim- to sustaining longer-term progress. Against the ulation, thus permitting improvements in the background of growing strength in domestic instimonetary-fiscal balance and a resultant lowering of tutions in borrowing countries and much greater real interest rates; reductions in labor market rigid- resource scarcity than in the 1960s and 1970s, Bank ities such that unemployment declines and the assistance is helping governments to strike an increase in real labor costs slows down; and an appropriate balance between additional investincreasing success in adjustment that results in a ments and the maintenance of existing capacities, steady decline in protection. to achieve greater selectivity and efficiency in pub- For developing countries, the implications of lic sector investments, and to develop a framework these assumptions are far reaching. In the High of policy and institutional arrangements conducive simulation their output grows at a healthy 5.5 per- to the growth of activities in the private sector. cent a year (or 3.7 percent a year per capita), and The financial resources provided directly by the there is a major improvement in all the major debt Bank make important contributions to restored indicators. The Low simulation produces a differ- growth and momentum in development, but they ent and more problematic outcome: growth slows can never be more than a rather small proportion to 4.1 percent a year (or 2.3 percent a year per of the total resources required. The Bank is, therecapita). If there is a sizable reduction in economic fore, strengthening its catalytic functions, particugrowth, however, the impact on debt servicing is larly with respect to aid coordination in subeven more striking. A combination of high real Saharan Africa, cofinancing with commercial interest rates and protection makes debt servicing banks and export credit agencies, and the promoconsiderably more difficult. The main debt indica- tion of private investment. In addition to its direct tors deteriorate; for a large number of countries lending, the tasks of complementing and-to the debt service ratios reach high levels. The volume of extent possible-exercising a constructive influconcessional aid declines as a result of slower ence on capital flows from other sources are also growth in industrial economies, and "involun- important factors in shaping the future role of the tary" lending, in the face of deteriorating cre- Bank. 10
In dealing with all these issues, the Report starts countries. Chapter 6 gives an overview of the with a historical perspective on the role of interna- international financial system and its relations with tional finance in economic development (Chapter developing countries. Chapter 7 examines issues 2). It then assesses the policies of industrial econo- in official development finance. Chapter 8 outlines mies from the perspective of developing countries the evolving relationship between the developing (Chapter 3). The importance of developing coun- countries and international capital markets; and tries' policies in deriving benefits from foreign Chapter 9 examines the possibilities for a bigger capital is taken up in Chapter 4; and issues in man- role for direct and portfolio investment in developaging capital flows are covered in Chapter 5. The ing countries. The Report ends by looking at pros- Report then discusses the main mechanisms pects for the future and the policies needed to prothrough which foreign capital flows to developing mote faster growth. 11
Page 1 and 2: Public Disclosure Authorized Public
Page 3 and 4: World Development Report 1985 Publi
Page 5 and 6: Foreword This is the eighth World D
Page 7 and 8: Contents Definitions and data notes
Page 9 and 10: A.4 Population and composition of G
Page 11 and 12: Definitions and data notes Capital
Page 13 and 14: culated without making deductions f
Page 15 and 16: Part I Overview and Historical Pers
Page 17 and 18: Figure 1.2 Trends in selected debt
Page 19 and 20: countries depend on three variables
Page 21 and 22: ties includes many countries in Lat
Page 23: intermediation of the World Bank an
Page 27 and 28: tury. By contrast, net capital infl
Page 29 and 30: tees on terms that seldom preserved
Page 31 and 32: mid-1960s and France a few years la
Page 33 and 34: Table 2.2 (continued) Country group
Page 35 and 36: Table 2.3 Net resource receipts of
Page 37 and 38: anking assets and liabilities. They
Page 39 and 40: Box 2.3 How inflation affects loan
Page 41 and 42: Box 2.4 The changing nature of debt
Page 43 and 44: agreement has been reached with Ecu
Page 45 and 46: Part II Role of Economic Policies 3
Page 47 and 48: Table 3.1 Current account balances
Page 49 and 50: eceipts minus social security outla
Page 51 and 52: expected to be high-a view consiste
Page 53 and 54: story. Difficulties had started ear
Page 55 and 56: Box 3.4 The costs of protecting sug
Page 57 and 58: 4 Foreign borrowing and developing-
Page 59 and 60: World Development Indicators, Table
Page 61 and 62: Box 4.1 The debt cycle hypothesis A
Page 63 and 64: guarantee that enough foreign excha
Page 65 and 66: Figure 4.5 Borrowing and growth in
Page 67 and 68: Box 4.4 Guidelines for borrowing De
Page 69 and 70: have been forced to reschedule thei
Page 71 and 72: happened to different developing co
Page 73 and 74: Figure 4.6 Change in investment, sa
Page 75 and 76:
Figure 4.7 The composition of credi
Page 77 and 78:
tion started increasing consumer su
Page 79 and 80:
Box 4.6 Capital flight in the South
Page 81 and 82:
and tighter fiscal and monetary pol
Page 83 and 84:
Export Rehabilitation Program to pr
Page 85 and 86:
5 Managing foreign finance The prev
Page 87 and 88:
Box 5.2 Integrated debt management:
Page 89 and 90:
vate borrowing more carefully. In M
Page 91 and 92:
available to the country. Some tech
Page 93 and 94:
The maturity structure of debt earl
Page 95 and 96:
developing countries greatly. For e
Page 97 and 98:
help to develop debt management sys
Page 99 and 100:
Part III Mechanisms for Internation
Page 101 and 102:
Box 6.1 The growth and distribution
Page 103 and 104:
Box 6.2 The deployment of the OPEC
Page 105 and 106:
Box 6.3 The international interbank
Page 107 and 108:
investment grew steadily for much o
Page 109 and 110:
"graduation" of some developing cou
Page 111 and 112:
Figure 7.1 Net receipts of official
Page 113 and 114:
issue is the right balance between
Page 115 and 116:
tive performance of different count
Page 117 and 118:
tion of aid directly supports priva
Page 119 and 120:
happened in the absence of aid. Two
Page 121 and 122:
gram. This involves close collabora
Page 123 and 124:
Box 7.8 Aid coordination Aid coordi
Page 125 and 126:
Figure 8.1 Net position of developi
Page 127 and 128:
Box 8.2 Arab banks and internationa
Page 129 and 130:
default clauses would ensure that a
Page 131 and 132:
perceived creditworthiness of devel
Page 133 and 134:
Debt rescheduling and the banks Ban
Page 135 and 136:
Box 8.7 Increasing the flexibility
Page 137 and 138:
Box 8.9 World Bank cofinancing The
Page 139 and 140:
9 Direct and portfolio investment T
Page 141 and 142:
Box 9.1 Direct foreign investment i
Page 143 and 144:
however, there has been a positive
Page 145 and 146:
By contrast, some of the newly indu
Page 147 and 148:
ecognition of the relevance of this
Page 149 and 150:
Table 9.2 Return on investment in e
Page 151 and 152:
Part IV Perspectives and Policies f
Page 153 and 154:
ently estimated at slightly more th
Page 155 and 156:
mies would continue to grow faster
Page 157 and 158:
Middle-income countries Major expor
Page 159 and 160:
Table 10.6 Net financing flows to d
Page 161 and 162:
cies and performance against the me
Page 163 and 164:
Table A.3 GDP, 1980, and growth rat
Page 165 and 166:
Table A.7 Consumption, savings, and
Page 167 and 168:
Table A.9 Change in export prices a
Page 169 and 170:
Table A.12 Composition of debt outs
Page 171 and 172:
problems in the Latin American coun
Page 173 and 174:
Interbank Market: A Descriptive Stu
Page 175:
Diversification in the Nineteenth C
Page 179 and 180:
Contents Key 168 Introduction 169 M
Page 181 and 182:
Table 21. Labor force 214 Populatio
Page 183 and 184:
Introduction The World Development
Page 185 and 186:
that it is a weighted average; the
Page 187 and 188:
Life expectancy The map classifies
Page 189 and 190:
GNP per capital Life Area Average a
Page 191 and 192:
Average annual growth rate (percent
Page 193 and 194:
GDP' Distribution of gross domestic
Page 195 and 196:
Average annual growth rate (percent
Page 197 and 198:
Distribution of gross domestic prod
Page 199 and 200:
Value added Food aid Fertilizer con
Page 201 and 202:
Distribution of manufacturing value
Page 203 and 204:
Energy consumption Average annual e
Page 205 and 206:
Merchandise trade Average annual gr
Page 207 and 208:
Percentage share of merchandise exp
Page 209 and 210:
Percentage share of merchandise imp
Page 211 and 212:
Destination of merchandise exports
Page 213 and 214:
Destination of manuiactu red export
Page 215 and 216:
Receipts Gross international reserv
Page 217 and 218:
Public and publicly guaranteed medi
Page 219 and 220:
External public debt Interest payme
Page 221 and 222:
Average interest Average Average Co
Page 223 and 224:
OPEC Amount 1975 1976 1977 1978 197
Page 225 and 226:
Average annual growth Hypothetical
Page 227 and 228:
Crude Crude Percentage Percentage o
Page 229 and 230:
Percentage of population of Pretgof
Page 231 and 232:
Urban population Percentage of urba
Page 233 and 234:
Life expectancy at Iniant birth (ye
Page 235 and 236:
Daily calorie supply Population per
Page 237 and 238:
Number Number enrolled in enrolled
Page 239 and 240:
Percentage of total expenditure Hou
Page 241 and 242:
Percentage of total current revenue
Page 243 and 244:
Percentage share of household incom
Page 245 and 246:
appropriateness of the exchange rat
Page 247 and 248:
and electricity, water, and gas. Al
Page 249 and 250:
import unit value index, this indic
Page 251 and 252:
The summary measures in this table
Page 253 and 254:
Data are mainly derived from the Wo
Page 255 and 256:
and other training institutions by
Page 257:
Bibliography of data sources Nation
Page 260:
World Devlelopment Report 1985 focu
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