World Bank Document

exporting nations can also help by donors should make every effort borrowing from commercial andrapidly expanding their imports to expand their aid relative to bilateral lenders and multilateralfrom developing countries. GNP, even in periods of domestic institutions.* Energy. The developing coun- stringency. And they should con- 0 Investment and productiontries that import oil have been centrate their aid even more on efficiency. In attracting (especiallyhard hit by the price explosion of low-income countries. commercial) finance, and in speedthepast 12 months and can expect Commercial capital, mainly from ing development more generally,their energy costs to rise further banks but also from the bond trade and energy strategies playin real terms. At the same time, market, private direct investment an important role. So do othermodernization of their economies and official sources, will be avail- policies that increase investment,will spur demand for energy; so able to help the middle-income improve administration, raise agritheyface a continuing need to countries. But not all countries cultural productivity and makeadapt to the rising cost of imported will be well placed to borrow better use of capital, labor, naturaloil. They will find this easier if oil- much more from private commer- resources and imports.exporting countries can avoid cial sources; without additional * Human development. Thesupply disruptions and sharp price financial assistance from other internal factor on which thischanges. More generally, the world sources, their growth will slow Report has focused is the humaneconomy will perform better if oil down. In particular, there is not one: the role not only of educationprices follow a smooth path; vio- enough long-term program (non- and training, but also of healthlent fluctuations play havoc with project) finance to support the and nutrition. In addition to theinternal resource allocation and structural changes required in important direct benefits that protheexternal payments system. many countries. Some will bene- grams in these areas confer, theReliable supplies and smooth price fit from the structural adjustment Report stresses another aspect,changes will be more likely if de- lending of the World Bank and long-standing but often neglectedveloped countries improve their assistance from the IMF; enlarged -the role of human developmentenergy conservation and develop official flows of this sort, particu- as investment, contributing toalternative sources. larly from multilateral agencies, growth. The importance of tech-* Capital flows. Current ac- could and should play a larger role. nical, professional and managerialcount imbalances will be large inskills is well known. Less wellthe next few years, again requir- Internal factors known but firmly established bying special efforts to recycle finance research is the importance ofto oil-importing countries, especi- While powerfully influenced primary education, which affectsally in the developing world. There by the international environment, the knowledge and attitudes ofis a serious risk that reluctance or the progress of developing coun- farmers and other workers.inability to finance large external tries depends even more on their Investment in human resources,deficits will lead to levels of trade, own policies and initiatives. like other kinds of investment,investment and economic effici- * Trade, energy and capital can be ineffectual unless compleency-hence,of growth-lower flows. In trade, the developing mented by other productive inputsthan anyone would wish. Even in countries can use pricing and and by policies to ensure thatthe later years of the 1980s, when other policies to stimulate pro- resources are efficiently used.the severity of payments imbal- duction of internationally traded Human development programsances is expected to diminish, the goods-both exports and import must also be carefully chosen andgrowth of developing countries substitutes; but they should avoid efficiently carried out. Despite thesewill continue to depend on inflows bias toward import substitution, qualifications, there is strong eviofforeign capital. since this reduces efficiency and dence to support the common-For the low-income countries, discourages exports. With regard sense proposition that human dewhichcan borrow little commer- to energy, they, like the industri- velopment can make a valuablecially, this means more aid. There alized countries, can minimize the contribution to growth.is a real danger that the modest loss of real income caused by Studies at the firm, farm andaid increases projected in this higher oil prices through conser- project level have shown that bet-Report will not be achieved. In vation and greater domestic energy ter education, health and nutritiontheir own long-term interests, as production. As to capital flows, can raise incomes and productivwellas those of the developing they can take full advantage of ity, and that the economic rate ofcountries, both OECD and OPEC their opportunities for prudent return to investment in schooling96