Development priorities: guidelines
A number of different terms are used to describe policy objectives in this field. Some of them are more value loaded than others. Whatever terms are used, the broad objectives are to make the market economy more effective and efficient by deregulating industry and commerce, freeing market controls and correcting market distortions such as widespread subsidies. It involves redefining the role of government and the relationship between the state and the market.
The principal terms which will be found in documents describing policy or activity relating to this field are ‘economic liberalization’ and ‘enhancing productive capacity’ or ‘economic reform’ and ‘longer term economic growth’. The DfID now uses economic liberalization and we have followed this terminology.
The DfID has developed guidelines for scoring proposals to check whether they conform to policy in this field. The guidelines state that, Economic liberalization concerns programme and sector aid that promotes policy and institutional change designed to free internal and external markets for goods and services; improves the efficient operation of markets; corrects market distortions; restructures enterprises and institutions in the public sector; and strengthens public revenue and expenditure planning and management.
The principal features of policy in this field are frequently related to World Bank and IMF policies developed to support economic stabilization policies and structural adjustment programmes (SAPs). Although they may be defined slightly differently in different circumstances the main features are to:
- liberalize trade and promote exports;
- deregulate industry and commerce;
- reform finance sector institutions;
- reduce subsidies;
- free prices;
- restructure and/or sell off state-owned enterprises;
- reduce the budget deficit, by cutting public expenditure and maximizing tax revenue;
- reduce the numbers of civil servants;
- devalue the currency and liberalize foreign exchange dealing.
The DfID and other bilateral aid agencies frequently work in support of the World Bank/IMF SAPs which include the above features. There is an increasing measure of co-ordination by aid and funding agencies in imposing conditional access to funds depending on agreement to and evidence of commitment by recipient countries to these policy features.
It must be said that, at the time of writing, there are few examples of successful SAPs which have fully transformed economies as they intended. The model most often cited is Ghana which adopted IMF-backed reform in 1983. Ten years on, the economy has finally begun to grow faster than the population, yet private investment, which is regarded as a critical test of success, is only trickling in.
SAPs often involve painful period of transition for large sections of the population. They need political will behind them if they are to achieve their goals. To quote Kwesi Botchwey, the long-standing Minister of State for Finance and Economic Planning in Ghana, Deregulating an economy requires a comprehensive macro-economic programme and policy framework. Moreover, its objectives must be properly explained and debated widely so as to build the necessary political consensus.
Consideration is now sometimes given to the provision of social safety nets in order to ameliorate the harsher effects of economic reform and to make the process more politically acceptable.
It is a feature of work in this area that aid is sometimes targeted at the private sector in addition to government institutions.
Current thinking amongst donor agencies, and particularly in the DfID, concerns effective resource mobilization. The aim is to reduce aid dependency by developing competence in ministries of finance and others concerned with effective financial management and in making effective use of internal resources by increasing the efficiency of tax collection.
Key Institutions in the economy and target groups.
It may be useful to divide this section into two areas in order more easily to identify key institutions and target groups. They are:
- those institutions and individuals concerned with forming opinion and formulating policy;
- those institutions, agencies and people concerned with the implementation of policy.
Opinion formers and policy makers
- Politicians themselves are, of course, at the apex of the policy making system. The key ministries concerned will be the Ministry of Finance, the Ministry of Trade, the Ministry of Industry, the Ministry of Economic Planning and any ministry established specifically to deal with privatization; and those ministries concerned with social safety net provision.
- Those ministries or agencies specifically concerned with negotiations with funding and aid agencies, particularly on the fulfilment of conditionality; also those agencies concerned with the co-ordination of aid provision.
- Political parties ie politicians not necessarily currently in government.
- NGOs, for example trade unions, consumer organizations, the church or other religious organizations.
- Representatives of external agencies such as the World Bank, the IMF and the UN.
- The Central Bank which will be responsible for monetary policy, the control of money supply and key interest rates.
- Government advisers who may be senior civil servants, senior Central Bank officials, think tanks and researchers and academics.
- Trade associations and other organizations representing business and private sector, for example Chambers of Trade, equivalents of the Confederation of British Industry, banks associations.
- Academic institutions, which have a role both in providing relevant education and training and in raising awareness of issues.
- The Press has an obvious role to play in forming public opinion and influencing those responsible for policy formulation.
- Government departments; those ministries mentioned above, but at the level of implementation rather than policy making. The target groups will be civil servants rather than politicians.
- The Central Bank; again at the level of implementation rather than policy, particularly in its relationship with the private sector in fields such as the supervision of commercial banks.
- Commercial and investment banks, which may have been operating within a severely regulated environment and may have staff who are unused to working within a more liberal economic regime.
- Agencies, if they exist, which have been specially set up to deal with privatization and restructuring or the disposal of state assets. It may not necessarily be the case that a special agency has been set up; privatization issues may be dealt with by an existing government department.
- The Stock Exchange, which in most countries will be small, embryonic or non-existent but nevertheless will have an important role in providing a secondary market for shares and a source of capital for investment.
- Managers in state enterprises, which may be restructured or sold off and so will need to become familiar with management practices which are more relevant in the commercial world, particularly in the areas of finance, personnel management and marketing.
- Private sector managers, who may have more experience of working within a deregulated environment and may be called on to pass on their expertise in different contexts.
- Financial and regulatory bodies responsible for market supervision, including public sector audit bodies and those bodies which have responsibility for regulating monopolistic markets ie those organizations which have the responsibility for policing the rules of the market.
- Economic development agencies concerned with the encouragement and facilitation of inward investment; also those agencies concerned with enterprise development, small businesses and training for enterprise.
- Taxation authorities, both those concerned with direct taxes such as income and corporation tax, and indirect taxes such as sales tax and VAT. This will include customs departments responsible for the collection of excise duty.
- Private consultancy companies, including insolvency practitioners.
- Ministries of agriculture and rural development and NGOs concerned with rural development and agrarian change. Most SAPs have affected issues of agricultural production more significantly than urban industrialization.
- Ministries and other agencies concerned with social safety net provision ie those agencies whose task it would be to ameliorate some of the immediate effects of economic liberalization, including unemployment and job skills retraining.
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