World Bank Document

and tighter fiscal and monetary policy. In terms of
stabilization, the results have been good; the budget
and current account deficits have been reduced
payments position transformed from a deficit of $3.2 bil- substantially. But progress toward longer-term
lion to a surplus of $2 billion. Indonesia's government efficiency has been slow. In particular, the governfollowed
this improvement by liberalizing interest rates ment has failed to carry through most of its trade
and abolishing credit ceilings. In 1983-84, the economy reforms, postponing the vitally needed expansion
recovered, growing by about 5 percent yearly.
eforts.
In the late 1970s, Hungary resumed implementation of of exports.
a program of economic liberalization initiated a decade Turkey, too, avoided adjustment in the 1970s. It
earlier, Market-based production incentives were financed its current account deficits by borrowing
enhanced, subsidies reduced, and the autonomy of heavily and continued to protect domestic indusenterprises
expanded. When the international economic try behind high import barriers. This promoted a
environment deteriorated in 1979-82, Hungary did not high-cost, inefficient industrial structure; the increhalt
liberalization, but did reverse the deterioration in mental capital output ratio for manufacturing had
the balance of payments through stabilization measures . i
such as devaluations, reductions in investment, and tripled n a decade. In an effort to maintain
sharp increases in domestic energy prices. The stabiliza- growth, the government pursued expansionary
tion program led to a temporary slowing of economic monetary and fiscal policies. Nevertheless, GNP
growth from 5 percent in the 1970s to 2 percent in 1980- growth fell from about 6 percent a year in 1967-72
83, but prospects for restoring moderate, sustainable and 1973-76 to 2 percent a year in 1976-80. By the
growth are now good. Meanwhile, Hungary has contin- late 1970s, annual inflation had risen to 100 percent
ued to extend the reach of its market-based, outward- and debt service obligations (including short-term
oriented development strategy, which played a key role
in steering the country clear of debt rescheduling difficulties
in recent years.
debt) were three times the value of exports.
Between 1978 and 1980, Turkey rescheduled over
$9 billion, or nearly 80 percent, of its external
debts.
In January 1980 the government announced a
shift toward an outward-oriented development
strategy, with greater reliance on market forces.
The early stages of the program involved a large
devaluation of the exchange rate and the adoption
of a crawling peg; tight monetary restraint; deregulation
of interest rates; a phased reduction in con-
sumption subsidies; rationalization of the public
years, particularly in the form of sector adjustment
loans.
The Special Action Program comprises financial measures
and policy advice to help countries implement
adjustment measures needed to restore growth and creditworthiness.
The principal elements of the program investment program; and higher prices for state
are (a) expanded lending for high-priority operations in enterprises. Within two years, the benefits were
support of policy changes, (b) measures to accelerate dis- quite apparent. GNP grew by roughly 4 percent a
bursements under existing and new high-priority year in 1980-83; inflation was cut by two-thirds;
projects, and (c) advice to governments on reordering merchandise exports doubled despite a world
investment priorities and improving external debt man- recession; the current account deficit declined from
agement.
Through December 1984, forty-four countries bene- over 5 percent of GDP to 3 percent; and the counfited
from the program. Fourteen new loans were made try's creditworthiness was restored.
under this program, including two SALs and twelve sec- With the easing of the immediate crisis, the Turktor
adjustment loans. Ongoing projects were modified to ish government has been able to develop its
increase cost sharing, establish revolving funds, restruc- reforms. It is gradually decreasing import quotas
ture design and implementation, add financing for work- and reducing tariffs, reforming the management
ing capital and recurrent costs, and make use of supple- and financing of state enterprises, tightening its
mentary loans. By releasing the immediate financial m
constraint, these operations have permitted the contin- management of external debt and domestic bankued
implementation of 267 projects, representing an ing, strengthening the tax system, and raising
approximate value of about $13 billion. Overall, the energy and agricultural prices closer to interna-
Special Action Program will raise World Bank disburse- tional levels. Although much has been achieved,
ments in fiscal 1984-86 by about $4.4 billion over what more recently the adjustment process has weakthey
would otherwise have been. The program has now ened, as evidenced by the way that inflation and
been formally terminated, but the instruments intro- the budget deficit started to rise again during 1983-
duced during its implementation will continue to be 84. However, Turkey's overall performance since
used, as needed, as part of the Bank's overall operations. 80h been one of ermos pessive tun-
= 1980 has been one of the most impressive turn-
67