35218 A XWorld Bank Publication Sunimarv World Development Report 19831 ivision Library 2AT. * 1 WNorld Economic Recession and Prospects for Recovery .Mdanagernent in Development PY (e ...orld I)evelopment Indicators --7 ~ Ja ft X Y _ - '4 ,, 48a,,§a,> X, _ _ -, A~~~ .1/t /m S S -s4+~~~~~~~~~~~~~~~~~~~~~~~I 18v 0\! e n~~~~~~~~~~~~~~ 1/ttv \' 'S W~~~~~~~~~~~~- ./ b'',\ -\+L~~~~~~~~~i~ r \ >tN ~~~,> 00 11l.. l" h- weW0 I -11 1 w,-^1t'w 74@VA9/S & .-\I 0% (rxl\ ( ,%%0 WORLD DEVELOPMENT REPORT 1983 I I II i,i I t r l .ti til.I I !i anI11 fk L - )I I t t , > L. ti I ,, I) t .11L ),t ito ' , k1 )1t 1\-1. Li I IIIk C()\YrL\ '- Foreword by A. W. Clausen Definitions Glossary of Acronyms and Initials 1 Overview Part I World Economic Recession and Prospects for Recovery 2 The prolonged recession 3 The outlook for developing countries Part II Management in Development 4 The search for efficiency 5 The role of the state 6 Pricing for efficiency 7 National economic management 8 Managing state-owned enterprises 9 Project and program management 10 Managing the public service 11 Reorienting government 12 Concluding themes Technical Appendix Bibliographical Note World Development Indicators The 1983 World Development Report, published for the World Bank by Oxford University Press, takes as its main theme the role of manage- ment in development. It discusses the means available to governments of developing countries for achieving greater efficiency in the use of human and material resources, and the different roles appropriate to government and private enterprise. Macroeconomic policy, adminis- trative and institutional reform, the effectiveness of bureaucracies, ac- countability, and incentives are among the topics covered. The wide-ranging review of issues in public management follows an analysis of recent trends in the international economy and their im- plications for developing countries. The Report concludes that a con- certed national and international effort is needed to ensure that recov- ery from the prolonged current recession is strong and lasting and that individual economies are restructured to meet changed economic conditions. As in previous years, the sixth World Development Report presents detailed and up-to-date statistical profiles of 125 countries with pop- ulations of 1 million or more. The unique "World Development Indi- cators" section consists of 27 tables that provide information on the main features of social and economic development. (See the sample table in the centerfold of this pamphlet.) Indicators cover such areas as growth and structure of production, industrialization, commercial energy, merchandise exports and imports, balance of payments and debt service ratios, flow of external capital, external public debt and international reserves, demography, labor force, education, income dis- tribution, and defense and social expenditure. Indicators related to health and life expectancy also are presented. In addition, five world maps show GNP per capita, adult literacy, life expectancy at birth, the share of agriculture in gross domestic product, and the groups into which economies have been placed- low-income and middle-income developing economies, high-income oil exporters, and market and nonmarket industrial economies. This broad range of internationally comparable statistical information is suitable for individual country studies and cross-country analyses. Statistics are drawn from data collected by the World Bank on its member developing countries and augmented by information from such sources as the International Monetary Fund and the United Nations. 1 How to Order World Development Report 1983 Option #1: Order any edition from World Bank Publications. Use the Book Order Card on pages 19 and 20 of this Summary. Please specify whether you prefer hardcover, $20 (English only) or paperback, $8. Option #2: Order in English, French, Spanish, German, Japanese, Arabic, Chinese, or Bahasa Indonesia from the appropriate publisher of local editions listed below. Publication dates and prices vary. Please check with publisher. Also available from the World Bank and local distributors listed on pages 17 and 18 of this Summary. Prices may vary by country. English: Oxford University Press, Australia, Canada, Hong Kong, India, Japan, Kenya, Malawi, New Zealand, Nigeria, Pakistan, South Africa, Singapore, Tanzania, U.K., U.S., and Zimbabwe. Information Publication Ltd., Singapore, Malaysia, Hong Kong, Taiwan, Philippines, and Burma. French: Editions Economica, 49 rue Hericart, 75015, Paris, France. Also, Le Diffuseur, C. P. 85, Boucherville J4B 5E6, Quebec, Canada. Spanish: Editorial Tecnos, O'Donnell 27, Madrid, Spain. Also, Info- tec, San Lorenzo 153-11, Col. del Valle, Deleg. Benito Juarez, 03100, Mexico, D.F., Mexico. German: Fritz Knapp Verlag, Neue Mainzer Strasse 60, 6000 Frankfurt am Main, F.R. of Germany. Also, Uno-Verlag, Simrockstrasse 23, D-5300, Bonn 1, F.R. of Germany. Japanese: Eastern Book Service, 37-3 Hongo, 3-Chome, Bunkyo-Ku 113, Tokyo. Also, Maruzen Co., Ltd., 3-10, Nihonbashi 2-Chome, Chuo-Ku, Tokyo. Arabic: Al-Ahram, Al Galaa Street, Cairo, Egypt. Chinese: China Financial & Economic Publishing House, 8, Da Fo Si Dong Jie, Beijing, China. Bahasa Indonesia: University of Indonesia Press, Department of Eco- nomics, Salemba 4, Jakarta, Indonesia. 2 SUNINIARY For three years worldwide development has been stunted by the worst recession Background since the 1930s. While world population continues to expand, production and and fOCus of trade have lagged, unemployment has risen, and much industrial capacity has the Repolrt remainied idle. In some counltries, notably in Africa and Latin America, standards of living have declined. In early 1983 the zvorld economy at last began to emerge from the economic downturn that had persisted for longer than was foreseen even a year ago. The recovery remains tentative. Many of the countries that borrowed hleavyily in the 1970s are faced with a serious liquidity crisis as a consequence of persistent highi interest rates and stagnant export earnings. Low-income countries dependent on raw materials have been hard hit by historically low commodity prices. The developing countries' present difficulties are the culmination of events and policies dating back a decade or more. They are a conse- quence partly of conditions in the industrial market economies and partly of weaknesses in domestic management. Part I of the 1983 World Development Report analyzes the 1980-82 recession in the context of the underlying long-term global economic trends and discusses how the world economy might evolve over the next decade, depending on the policies adopted in both developed and developing countries. Part II reviews how developing countries have managed development and draws from this experience a number of important lessons for the future. Particular attention is given to the institutions required to sup- port development and the way these might be better run. The Report stresses four themes: * The growing interdependence of the world economy has height- ened the need for concerted international actions to maintain the growth in world trade and capital flows. * The growth of national output per unit of new investment has been declining during the past two decades; scope for generating more savings is limited, so higher rates of growth must come primarily from more efficient use of resources. * The economic performance of countries has varied greatly, not just because of unequal resource endowment, but also because of differ- ences in policy and management; it is possible to learn from country experience to design policy reforms, backed by strengthened institu- tions, that will permit faster growth. 3 * Management skills are scarce and many governments are over- stretched; the challenge is to devise development strategies that min- imize the management burden through approaches that stress decen- tralization, selectivity, and incentives. Chapter 2 argues that the recession of the past three years was no simple repetition of the mid-1970s. Following the jump in oil prices in 1973, GDP growth rates slumped and then recovered rapidly, although growth in the three subsequent years was still below the average for 1970. By contrast, the decline in growth rates after the 1979 oil price increase was less steep, but the recovery has been much slower. Developing countries are directly affected by fluctuations in the in- dustrial world. Overall their growth rates have been higher since 1960; however, even those that have grown fastest have not been able to avoid the cyclical influence of industrial countries. They have also been affected by high interest rates. Both effects were powerful in the early 1980s; many developing countries were squeezed between stagnating export earnings and soaring interest payments on their debt. Developing countries have reacted to these pressures in different ways. Those middle-income countries that had adopted outward-ori- ented trade policies-mainly in East Asia-have mostly managed to maintain the momentum of export expansion and avoid serious new debt problems. But some countries, including several in Latin America that had borrowed heavily and adjusted less (or inappropriately) during the 1970s, have been hit by the high interest rates and have had to deflate in response to a liquidity crisis. In Latin America as a whole, according to preliminary estimates, debt service as a ratio to export earnings rose from 33 to 53 percent between 1980 and 1982, while GDP fell by 3.6 percent. East Asia's debt service ratio in 1982 is estimated at only 9 percent. The two largest low-income countries-China and India-have come through the current recession with encouraging resilience. They were not so heavily dependent on foreign trade, had little commercial debt, and so were not much affected by high interest rates. They have also made impressive progress in agriculture. Low-income countries in Africa, being more dependent on primary commodity exports, have suffered badly from the world recession. Their per capita income has continued to fall and, unless the trends are reversed, could be lower by the end of the 1980s than it was in 1960. To prevent this happening will require policy reforms by many African governments, a recovery of commodity prices, and a large expansion of international aid to the region. Tradc coid Protectionism has not so far prevented a substantial growth in trade. prottcti(.mlsili Chapter 2 describes how developing countries have increased the vol- ume of their exports by an average of 5.1 percent a year in 1970-80; for manufactures alone, the growth rate was 15.9 percent a year. As a result, the market share of developing-country manufactured goods in 4 industrial economies has increased from 1.7 percent in 1970 to 3.4 percent in 1980. But the danger lies in the future. Protectionist sentiments have been growing in the industrial countries, largely on account of the implacable rise in unemployment and the financial difficulties of companies that are no longer internationally competitive. The temptation to seek relief by import controls has been considerable, at times irresistible. Among many measures to protect ailing industries, governments have erected a formidable set of controls against the textile exports of developing countries. The Multifibre Arrangement, covering as much as 15 percent of developing-country manufactured exports, is an extreme example of trade restriction since governments started to undo the protectionism that contributed to the depression of the 1930s. In other industries, too, the exports of developing countries have faced new (particularly nontariff) trade barriers. The political challenge is first to halt and then to reverse the drift toward protectionism. The ministerial meeting of the General Agree- ment on Tariffs and Trade (GATT) held in November 1982 set the stage for further liberalization. Greater participation by developing countries in GATT would help strengthen its role as the most appropriate forum for continued negotiations to reduce trade barriers. An important part of the analysis set out in Chapter 2 is devoted to Debt u,1- issues related to international debt. Capital markets have become highly til integrated over the quarter century since currency convertibility was established. While this integration has many merits, a sharp rise in U.S. interest rates can turn an acceptable debt service burden for a developing country into a debt crisis. Viewed globally, the world debt situation is manageable, provided there is close international cooperation to achieve a sustained recovery in international trade and to rescue those borrowers facing acute debt servicing problems. Such problems can have one of two causes: a country's temporary shortage of liquidity or its long-term inability to service its debt, even when the interest rates it is charged are not atypically high. The debt problems of most developing countries are caused by illiquidity, not by insolvency. The ability of developing coun- tries to service their debt will depend on a continued recovery in world demand, a decline in real interest rates, and a determined restructuring of their own economies. In the meantime, they need continued inflows of capital to ease their liquidity shortage. That need has been recognized by several initiatives taken over the past year. Central banks have cooperated to provide emergency loans to some countries, notably through the Bank for International Settle- ments. The International Monetary Fund's resources have been sub- stantially expanded. During 1982 the debts of twelve countries were rescheduled and thirteen others were under negotiation in the first quarter of 1983. But the ad hoc debt rescheduling characteristic of the past is no solution for countries with deep-seated problems. And the 5 IMF's resources alone are insufficient to meet urgent needs. Close collaboration among creditor governments, commercial banks, and the international financial institutions is needed to facilitate long-term ad- justments to restore financial viability. While steps are being taken to ease the debt difficulties of the main middle-income borrowers, too little has been done to assist the low- income countries seriously affected by the 1980-82 recession. They depend on official aid for 84 percent of their foreign capital inflows, so their capacity to import and to invest is directly affected by the aid programs of the industrial countries. Aid as a proportion of the GNP of DAC (Development Assistance Committee) members was no higher in 1981-82 than in the late 1960s (0.37 percent). Tropcjsct3 Developing countries' current difficulties should be greatly eased by (or 11glhtr the recovery in the world economy that now appears to be under way, ,cc noniw 11. assisted by the fall in interest rates and oil prices that have already occurred. Interest rates remain high and are a heavy added burden on the balance of payments of developing countries. Each percentage point off Eurodollar interest rates saves these countries over $2 billion net in interest payments in a full year. The ratio of debt service to export earnings is projected to fall from a peak of 21 percent in 1982 to under 12 percent in 1995. For net oil-importing developing countries every dollar off the price of a barrel of oil reduces their annual import bill by $2 billion. The falling oil price is creating problems for oil exporters, especially those which have overborrowed and are now seriously strapped for foreign exchange. However, they should benefit if, as seems likely, the oil price hardens again in the medium term. The oil price in the longer term is expected to rise gradually; by 1995 the price in real terms is projected to be about 20 percent higher than the peak in 1981. For this reason oil-importing developing countries should persist with measures to conserve energy and actively search for additional domestic sources of energy. It would be premature to assume that the industrial countries will achieve sustained growth such as they experienced in the 1950s and 1960s. Continued rapid growth in the early 1970s was checked by the recession of 1974-75, and the subsequent recovery after 1976 petered out. For the present, inflation has been curbed, but interest rates and exchange rates are unstable, reflecting (and contributing to) a pervading sense of uncertainty. Industry and agriculture have been slow to adjust to new patterns of comparative advantage. For growth to be sustained, industrial countries must restructure, but as yet there are too few signs that underlying structural problems are being adequately tackled. Despite the encouraging signs of recovery, business confidence has been badly shaken and investment is sluggish. Global recovery cannot, by itself, produce accelerated, equitable growth in low-income coun- tries, and there is a danger that continued recession in developing 6 Past and projected growth of GDP, 1960-95 (average annual percentage change) 1985-95 Country yroup 1960-73 1973-80 1980-82 1982-85 Low Central High All developing countries' 6.0 4.7 1.9 4 4 4.7 5.5 6.2 Lose-income Asia 4.6 5 4 4 1 4.5 4.5 4.9 5.3 Africa 3.5 1.4 0.5 2.9 2.7 3.3 3.9 Middle-income Oil Importers 6.3 5.2 1 2 4.5 4.4 5.7 6.9 Oil exporters 7.0 3 7 1.3 4.2 5.3 5.7 5.8 Industrial countries 5.0 2.5 0.4 3.0 2.5 3.7 5 0 a. Excluding high-income oil exporters. countries may undermine the pace of economic recovery in the indus- trial countries. Chapter 3 depicts three sets of projections-corresponding to low, central, and high GDP growth-for the period up to 1995 (see Table). These scenarios, which abstract from cyclical fluctuations and concen- trate on underlying long-term trends, illustrate the impact of different assumptions relating to policies. The World Bank's assessment suggests that a 4 to 5 percent GDP growth rate annually over the next decade is feasible for the developing countries as a group. To achieve this, a concerted national and inter- national effort is needed to ensure that recovery from the current reces- sion is strong and lasting, and that individual economies are restruc- tured to meet the changed economic conditions. Policy reforms are needed so all economies can conform better to their comparative advantage, keep wages in line with productivity, and remove price distortions. These will be much easier to accomplish if pressures toward increased protectionism are resisted and existing bar- riers to trade begin to be rolled back-permitting the return to a rapidly expanding world trade and including increasing trade among devel- oping countries. To enable the developing countries to return to the growth rates of the 1960s and 1970s, net capital flows of all kinds must continue to increase, not as rapidly as in the 1970s, but by about 3.5 to 4 percent annually in real terms. International private capital is essential to the development process, in the form of both direct investment and com- mercial lending. The liquidity problems of some major borrowers have shaken confidence in international lending with the perverse effect of reducing the availability of commercial capital even to some developing countries that have managed to perform well during the current crisis; this has resulted in postponed investment, curtailed inputs, and slowed development. In this context the role of international financial institutions is ex- tremely important. Substantially increased lending in support of sound development programs is essential to regain and sustain the devel- 7 opment momentum of middle-income borrowers. The poorest devel- oping countries-especially those in sub-Saharan Africa-have been hardest hit by the current prolonged recession. They are particularly dependent on flows of concessional resources. An essential interna- tional action to ameliorate the crisis and restore some forward move- ment for these countries would be early agreement on substantially increased contributions to IDA, to be channeled entirely to the poorest countries. II?L scarr/h International actions can greatly improve the external environment for confronting developing countries, but cannot supplant the efforts that the developing countries must make themselves. Part II of the Report explores how developing countries can manage their affairs better, drawing on the lessons of the past twenty-five years. The underlying concern is the search for greater efficiency in the pursuit of govern- ments' social and economic objectives. The current economic slowdown makes the task more urgent, as well as more difficult. Too often development is discussed only in terms of policies, without regard to the institutions and people who decide and execute them. This Report seeks to redress the imbalance. It examines the role of the state, stresses the importance of appropriate incentives (especially prices) to foster development, and discusses the institutional arrangements needed to formulate and carry out a consistent development strategy. The Report draws on country experience to identify ways of improving the efficiency of state-owned enterprises, project management, and, more generally, the performance of the public bureaucracy. Over the long term the challenge for developing countries is to use their limited resources more efficiently and more equitably. Every gov- ernment faces this challenge: whatever the political objectives, the goal is to find the most cost-effective means of achieving them. Chapter 4 summarizes some of the evidence for potential gains from greater ef- ficiencv. Eliminating major price distortions alone may increase GDP growth by as much as one or two percentage points a year. Other substantial gains could result from better investment decisions, prompt completion of projects, proper maintenance of plant and machinery, and fuller use of human skills. In most countries, the consequences of inefficiencies are felt most by those who have least-the poor. This stress on efficiency is compatible with efforts to assist the poor. Well-designed programs to improve management of public projects, reduce inflationary budget deficits, make bureaucracies more respon- sive, limit nonessential activities, and share the management burden with the private sector to ensure that vital public services are performed well-all these complement efforts to assist the poor. Today's difficult economic situation requires more than ever a critical appraisal of those well-intentioned initiatives that have gone awry-the costly subsidy that mainlv benefits the better off, or the state enterprise that employs a bloated labor force at relatively high wages. To raise the standard of 8 living of the very poor, scarce resources must be carefully targeted as well as efficiently managed. Chapter 5 discusses the role of the state. The boundary between the Rotl of state and the private sector is never clear-cut and varies widely from tl7cu itat countrv to countrv. Whatever the division of roles, it is misleading to analyze efficiency in terms of ownership. What matters more is creating the conditions that encourage efficiency in both the private and public sectors. Such an environment is largely determined by governments, not simply by the way they affect the private sector through legislative and fiscal measures but also by the way they manage their own affairs. Good management of the economy depends on well functioning public institutions as well as on the correct choice of policies. For this, public sector activities have to be tailored to the limited managerial resources available. However, in an effort to accelerate development, governments have become increasingly active. In the process many have often been badly overstretched and hence have contributed to inefficiency. This Report suggests ways to strengthen public manage- ment and, more generally, the incentives needed for all enterprises to operate more efficiently. Governments could also share more of the burden of promoting development with other organizations-private firms, community asso- ciations, and the like. Much is to be gained from relying on markets to do what experience has shown that markets generally do best. That still leaves the government responsible for macroeconomic policy, for managing public revenues and expenditures, and for running public enterprises and public services. Equipping the public service to carry out these tasks well is difficult enough. The Report distinguishes between two complementary aspects of I i, efficiency: allocative efficiency and operating efficiency (how well in- i,uprtu,1, stitutions are run). Prices are an extraordinarily effective allocative mechanism. This is true not only for market economies; almost all the economic reforms attempted by the centrally planned economies (for example, Hungary, Yugoslavia, and China) have been toward greater reliance on prices. But the difficulty lies in ensuring that prices reflect relative scarcities. Chapter 6 contains an analysis of major price distortions in thirty- one economies during the 1970s. In this period relative prices changed rapidly, partly because of floating currencies and two sharp increases in the cost of oil. Many countries failed to adjust their domestic prices to these international changes, so price distortions assumed serious proportions. Cross-country analysis set out in Chapter 6 reveals that the best economic performances tend to be closely associated with the lowest price distortions in the key prices governing trade, foreign ex- change, capital (interest rates), wages, and energy. However, countries that have tried to correct price distortions have seldom found it easy. To obtain good results, adjustment programs must be tailored to the (Text continues on page 12.) 9 From "World Development Indicators" Table 1. Basic indicators GNP per capita Average Life Area annual Average annual Adult expectancy Population (thousands growth rate of inflation' literacy at birth (millions) of square Dollars (percent) (percent) (percent) (years) Mid-1981 kilometers) 1981 1960-81t 1960-70c 1970"81 1980- 1981 Low-income economies 2,210.5 t 31,020t 270 2.9 w 35m 11 2m 52w 568u China and India 1,681.5 t t2,a49 t 280w 3.5 w 56 w 61 iv Other low-income 529.01 16,171 t 240w 0 6 3.3 m 11.6 m 40 u 50 1 Kampuchea Dem 181 3 8 2 Bhutan 13 47 80 01 45 3Lao PDR 3 5 237 80 44 43 4 Chao 45 1284 110 -22 46 74 15 43 5Bangladesh 90 7 144 140 0 3 37 15 7 26 48 6Elhiopia 32 0 1222 140 14 21 41 15 46 7 Nepa 150 141 150 00 77 93 19 45 8 Burma 341 677 190 14 27 10 7 66 54 9 Afghanistan 16 3 648 119 50 20 37 10 Ma 6 9 1240 190 13 50 9 7 10 45 11 Mauaw, 62 118 200 27 24 103 25 44 12 Zaire 298 2345 210 -01 299 353 55 S0 13 Uganda 13 0 236 220 -0 6 3 2 412 52 48 14 Burund 4 2 28 230 24 2 8 116 25 45 15 Upper Vo0a 63 274 240 11 13 95 5 44 16 Rwanda 53 26 250 1 7 131 134 50 46 17 nda 690 2 3 288 260 14 71 81 36 52 18 Soma a 44 638 280 -02 45 126 60 39 19 Tanzana 191 945 280 19 18 119 79 52 20 V,el Nam 55 7 330 87 63 21 Ch na 9913 9 561 300 5 0 69 67 22 Guinea 5 6 246 300 0 2 15 4 6 20 43 23 Hat 51 28 300 05 40 100 23 54 24 Sri Lanka 15 0 66 300 2 5 18 13 1 85 69 25 Ben n 3 6 113 320 0 6 19 9 4 28 50 26 Cenral Air can Rep 2 4 623 320 04 41 12 6 33 43 27 SerauLeone 36 72 320 04 122 15 47 28 Macagascar 9 0 587 330 -0 5 3 2 10 6 50 48 29 N ger 5 7 1 267 330 -1 6 21 12 2 10 45 30 Pak stan 845 804 350 2 8 3 3 131 24 50 31 Mozambique 12 5 802 33 32 Sudan 192 2506 380 -03 37 159 32 47 33 Togo 2 7 57 380 2 5 1 3 8 9 18 48 34 Ghana 11 8 239 400 1 1 7 6 36 4 54 Middle-income economies 1,128.41 41,1086 1,500w 3.7wa 3.0 13.1 n 65w 60 w Oil exporters 506.5 t 15,036 t 1,250 w 3.6 w 3 0rm 13 8 r 58 57 w Oil importers 621.9 1 26,072 t 1.670 w 3.7 wv 3 0 m 13 0 m, 72 iv 63 a' Lower middle-income 663 7 t 19,302 t 850 , 3 4 a' 2 8 11 1 59 a' 57,,' 35 Kenya 1 7 4 583 420 2 9 16 10 2 47 56 36 Senegal 59 196 430 -03 1 7 79 10 44 37 Maur,Ian,a 16 1031 460 15 21 90 17 44 38 Yemen Arab Rep 73 195 460 55 156 21 43 39 Yemen. PDR 2 0 333 460 40 46 40 L beria 1 9 111 520 1 2 1 9 8 9 25 54 41 Indonesa 1495 1919 530 41 205 62 54 42 Lesotna 1 4 30 540 7 0 27 10 5 52 52 43 Bol v a 5 7 1099 600 1 9 3 5 23 0 63 51 44 Honduras 38 112 600 1 1 29 91 60 59 45 Zamo,a 5 8 753 600 0 0 7 6 84 44 51 46 Egyp! 43 3 1001 650 3 5 2 6 11 1 44 57 47 E Sanauor 47 21 650 1 5 05 108 62 63 48 Thaiand 480 514 770 46 18 100 86 63 49 Ph fppines 496 300 790 2 8 5 8 131 75 63 50 Angoia 7 8 1247 42 51 Papua New Gu,nea 31 462 840 2 5 4 0 8 6 32 51 52 Morocco 20 9 447 860 2 4 2 0 8 2 28 57 53 Nicaragua 28 130 860 06 18 142 90 57 54 N,gera 87 6 924 870 35 4 0 14 2 34 49 55 Zimbabne 7 2 391 870 10 13 101 69 55 56 Cameroon 87 475 880 28 42 106 50 57 Cuba 9 7 115 95 73 58 Congo Peope s Rep 1 7 342 1.110 10 5 9 118 60 59 Guatemala 75 109 1 140 26 03 104 59 60 Peru 170 1285 1170 10 104 343 80 58 61 Ecuador 86 284 1180 43 61 141 81 62 62 Jamaca 22 11 1180 08 40 168 90 71 63 Ivory Coasl 8 5 322 1200 2 3 28 13 0 35 47 64 Dom nican Rep 5 6 49 1260 3 3 21 91 67 62 10 in World Development Report 1983 GNP per capita Area ~~~~~Avrge Avergee Area rtnnual Average annual Adult expectancy Population (thousands growth rate of inflation literacy at birth (millions) of square Dollars (percent) (percent) (percent) (years) Mid-1981 kilometers) 1981 1960-81' 1960-70 1970-81d 1980- 1981 65 Mongo a 1 7 t.565 64 66 Coomba 264 1 139 1,380 32 119 224 81 63 67 Tun,s,a 6 5 164 1,420 4 8 3 6 8 2 62 61 689 Cosa Rica 23 51 1,430 30 19 159 90 73 69 Korea Dem Rep 16 7 121 66 70 Turkey 45 5 781 1.540 3 5 56 32 7 60 62 71 Syran Arab Rep 93 195 1,570 38 26 120 58 65 72 Jordan 3 4 98 1,620 70 62 73 Paraguay 31 407 1,630 35 31 124 84 65 Upper middle-income 484.7 t 21,806 t 2,490 4.2 3.0 m 18 6 i 76 u 6580 74 Korea Rep o0 389 98 1,700 69 175 196 93 66 75 ran Islam,c Rep of 401 1 648 -0 5 201 50 58 76 raq 135 435 1 7 57 77 Malaysa 142 330 1,840 43 -03 74 60 65 78 Panama 1 9 77 1,90 31 16 7 6 85 71 79 Lebanon 2 7 10 1 4 146 96 80 Agera 196 2382 2140 32 27 134 35 56 81 Brazi 1205 8512 2220 51 461 421 76 64 82 Mexco 712 1973 2,250 38 35 191 83 66 93 Portugal 98 92 2520 48 30 170 78 72 84 Argent na 28 2 2 767 2,560 19 214 134 2 93 71 85 Ch,e 11 3 757 2560 07 330 1646 68 86 South Alr ca 295 1221 2 770 2 3 3 0 12 8 63 87 . . 22 5 256 2 790 50 12 6 19 4 65 71 69 .. 29 176 2820 1 6 511 602 94 71 89 Venezuiea 154 912 4,220 24 13 125 82 68 90 Greece 97 132 4.420 54 32 148 74 91 Hong Kong 5 2 1 5,100 6 9 24 18 4 90 75 92 Israe 40 21 5160 36 62 455 73 93 or - 24 1 5240 74 1 1 52 83 72 94 1 .Tobago 12 5 5670 29 32 187 95 72 High-income itl exporters 15.0 1 4,012 t 13,4600 6 2 w 18.2 m 32 w 57 w 95 L bya 31 1760 8 450 4 7 52 173 57 96 Saud Araba 93 2150 12,600 78 243 25 55 97 Kua,' 1 5 18 20,900 -0 4 18 2 60 70 98 Unelea Arab Em rates 1 1 84 24 660 56 63 Industrial market economies 719.5t 30,9351 11.120w 3.4w 4.3 9.9m 990w 75u 99 reand 34 70 5.230 31 52 142 98 73 100 Spar 380 505 5.640 42 62 160 74 101 !a'y 56 2 301 6 960 36 44 15 7 98 74 102 New Zealand 3 3 269 7 700 1 5 36 12 9 99 74 103 UnteaKngdom 560 245 9110 21 41 144 99 74 104 Japan 1176 372 10,080 63 51 74 99 77 105 Austr a 7 6 64 10 210 40 3 7 61 99 73 106 Fnand 46 337 10680 36 60 120 100 75 107 Ausra a 14 9 7687 11080 25 31 115 100 74 r08 Canada 242 9976 11400 33 31 93 99 75 109 Neherands 142 41 11 790 31 54 76 99 76 110 Begum 99 31 11920 38 36 73 99 73 111 France 540 547 12190 38 42 99 99 76 112 dnoted Slates 22998 9,363 126820 2 3 2 9 72 99 75 113 Denmark 51 43 13,120 26 64 100 99 75 114 Germany Fed Rep 617 249 13.450 32 32 50 99 73 115 Norway 41 324 14.060 3 5 4 4 9 a 99 76 116 Sweden 93 450 14.870 26 43 100 99 77 117 Swarzernand 64 41 17430 19 44 49 99 76 East European nonmarket economies 380 8 t 23,422 t . . 99 a 72 a 118 Abana 29 29 70 119 Hungary 107 93 2100' 50 29 99 71 120 Romana 225 238 25405 82 -02 98 71 121 Bulgaria 89 111 73 122 Poland 35 9 313 98 73 123 OSSR 2680 22,402 100 72 124 Czechosovakia 153 128 72 125 German Dem Rep 16 7 108 73 a See the rechn,cal notes b Because data for the early 1960s are not avaalable, figures n tallcs are for perIods other than that specfihed c Fgures lf 1acs are for 1961-70 nor 1960-70 d FRgures n talcs are for 1970-80, not 1970-81 e FRgares n ta cs are for years other han those spec lied See the techn ca notes 11 circumstances of individual countries and managed with close attention to timing, pace, and scope. NVitional Correcting price distortions cannot alone ensure more efficient re- (''111(1111 IC source use. A sound macroeconomic policy framework is a precondition !aHr7e4omC,J,t for sustained economic growth. It is important for this framework both to be flexible enough to adjust to external circumstances and to provide appropriate incentives. Yet there are no simple generalizations about the policies to adopt, or the institutional arrangements needed for managing these policies, that would apply to all countries. Chapter 7 reviews country experience in managing economic and financial policy. Current structural adjustment problems underline the need for greater attention to policy analysis. Planning has been exces- sively concerned with producing detailed, long-term blueprints for de- velopment, to the neglect of policy analysis and the preparation of public investment programs. The process of planning-formulating a development strategy, analyzing policy, and assessing investment op- tions-matters more than drafting comprehensive plan documents that rapidly become obsolete. Many countries still lack the close links between policy analysis, investment analysis, and budgeting needed to define and carry out a development strategy. They also need more timely and reliable feed- back, which can be obtained by better monitoring of the economy. But governments do not have the resources to evaluate continuously all activities and, in any event, attempting comprehensiveness is inher- ently wasteful. Selective tracking of government activities is the key, whether through data collection, auditing, or project evaluation. In particular, more of the resources of central statistical offices should be devoted to assembling essential data on national accounts and other information that are most relevant for policy analysis. This implies running fewer major censuses and more small sample surveys that can quickly yield data on specific issues under review. A lwl1z£IX'111\' The role of the state as regulator is critical in establishing an envi- Etatc ( ,Zcuctj ronment conducive to efficiency in all economies. The role of the state ,'llt Z'11ZC9L' as producer varies considerably, with state-owned enterprises (SOEs) accounting for as little as 2 or 3 percent of GDP in the Philippines, but rising to as much as 64 percent in Hungary. Everywhere, governments are showing increasing concern about the performance of SOEs. They can be a large drain on the national budget, needing massive subsidies to cover operating losses. Chapter 8 suggests ways of improving SOE efficiency. An agenda for reform would concentrate on: * Setting clear-cut and attainable objectives and policies * Devolving responsibility for the achievement of the agreed objec- tives to the management of the enterprise, with ministries desisting from day-to-day interference in the running of the enterprise 12 * Devising measurable performance indicators that are regularly monitored * Liquidating nonviable enterprises that are an unjustified burden on the state and otherwise encouraging, wherever possible, competi- tion among enterprises and with imports. Negotiated agreements between the state (as owner) and the enter- prise can help put relations between SOEs and government on a sound basis. The essential task is to define the SOE's objectives and the policies and related corporate plan for their fulfillment, and to set out the financial obligations of each party. Developing such a framework to guide SOEs toward greater efficiency is a lengthy, complex process that requires commitment, persistence, and flexibility on the part of the representatives of both the state and the enterprise. Government's efforts to promote development are also evidenced by vwr?am ill the ever-growing number of programs and projects being undertaken PI w'c t in developing countries. These, too, have strained the managerial ca- iz,7I/c cu,'// C//I pacity of governments. Over the years much has been learned about ways to lessen these strains; Chapter 9 assesses the lessons of this experience. While management systems vary according to the activity, many successful projects and programs share certain qualities: * The development of management skills through on-the-job training and incentives. On-the-job training helps to ensure relevance and avoids diverting staff from productive work. Different incentives have been used to retain and motivate staff: apart from financial rewards, these include promotion and stable tenure; collegial management styles; and public recognition of performance. Management development policies often have their main payoff in the long term, so persistence is a precondition of success. * The use of the private sector, nongovernment organizations, and program beneficiaries. This involves developing new management skills- such as the ability to supervise contractors and to enlist the help of beneficiaries. * Managerial autonomy coupled with the development of manage- ment information systems. Successful organizations have delegated responsibilities to clearly defined management units and developed effective systems for measuring their performance. Timely reporting of results has given managers the encouragement of recognition and the pressure of possible sanctions. Reporting results to beneficiaries and to the general public is also an important and much-neglected perfor- mance incentive. * A simplified management task, through isolating priorities, defin- ing individual and agency roles, and dividing big programs into smaller tasks and management teams. Clarity and concentration count, whether in choosing a single program goal or limiting extension advice to a few 13 key messages; agreeing on a set of goals and roles in multiagency programs; or developing relevant skills. The management techniques appropriate for physical projects (con- struction, industrial plants, and such like) differ significantly from those needed in people-centered programs (such as agricultural extension, education, health, or squatter upgrading), where the beneficiaries are active participants. People-centered projects are surrounded by many uncertainties about how to influence behavior, which influence is the key to their effectiveness. Successful management therefore depends on incorporating in the design of programs a learning process that will allow implementation to be constantly adapted. Chapter 9 also reviews the management problems that arise when projects and programs are implemented by several agencies. Again, there is a contrast between physical projects, which can rely on contacts between agencies, and people-centered programs, which need contin- uous informal contacts among field staff. A11111a7,lz,, Project-level efforts to improve management cannot compensate for the' puieli a general shortage of skills or public service personnel practices that need reform. These issues are discussed in Chapter 10. System-wide structural and procedural reforms also may be required-issues that are taken up in Chapter 11. In recent years public employment in developing countries has grown four or five times faster than in industrial countries and two or three times faster than population. This trend is in response to the demand for improved public services. But often there is overstaffing at lower levels, accompanied by shortages of professional and technical staff. Governments are in constant competition with the private sector for competent staff. Care must be taken to balance the needs of the public and private sectors. The long-run solution to this problem lies in pro- ducing more skills of all kinds-which means increasing the respon- siveness of the formal educational system to trends in the labor market. But the immediate shortages remain and can be met partly through job-related training and more imaginative personnel policies. Training is widely advocated but poorly executed. Public service training needs to be made more relevant to the demands of the job. This entails forging close links between trainers and trainees and be- tween training and career development, as well as developing local training materials and programs. Ensuring that staff training is relevant is the responsibility of the government's personnel office. A strong civil service requires a per- sonnel office that actively manages rather than passively administers personnel policies. Strengthening personnel management demands, above all, improving the management capabilities of personnel offices and giving them the status they need to carry out policy reforms. Other policy measures discussed in Chapter 10 include establishing career schemes for occupational groups, instituting an effective system of 14 performance evaluation, and avoiding big salary differentials between the private sector and the civil service. Even when governments have effective methods for managing SOEs, Biu lol- as well as their own projects and programs, they can still find them- sIirm selves overstretched by the range of responsibilities they have assumed. Administrative capacity is limited in every country; in some developing countries it is the scarcest resource of all. Reducing the burden on senior administrators is therefore a precondition for greater efficiency, and much can be achieved by decentralizing-both within the public sector and to groups outside it. Day-to-day decisions can devolve to those who are responsible for carrving them out, and who have the advantage of detailed knowledge not possessed by those at the center. Decentralizing is a way to increase the responsiveness of government to those it serves and can involve those outside government-community organizations, for example- whose active support is often necessary in promoting development. Decentralization to relieve an overburdened central administration will be successful only if it is accompanied by the transfer of adequate staff and financial resources. Local government authorities are widely found to be weak, precisely because they are denied material support. Burden- sharing can also be achieved by subcontracting, with some public serv- ices provided by private operators. Decentralization and accountability go hand-in-hand. The key to ef- Stl'tIwliny fective accountability is a good information system linked to well de- atolmItibllitl, fined performance criteria. Private firms achieve this by creating profit centers with managers being given clearly demarcated responsibilities. Public bureaucracies can adopt a comparable arrangement if programs are fully identified in the budget, so that a specific service can be costed and evaluated. Lacking the cost consciousness of a profit-making or- ganization, governments have made slow progress in introducing pro- gram budgeting, despite considerable discussion of the need for budget reform over the years. At present some twelve developing countries have begun to introduce such a system. External accountability is primarily achieved through the political process. It is greatly assisted by the practice of openly publishing reg- ular reports which are prepared by public bodies and which detail their expenditures and achievements. The concept of information as a pow- erful weapon for increasing public accountability can be expanded to cover a wide variety of public services. Appropriately channeled, client pressures can have a salutary effect on public managers. This was demonstrated in the case of Kenya when the government decided in 1978 to publish school examination results, thus enabling parents to compare the performance of their children's school with others. This generated considerable public pressure to upgrade the quality of teaching. A similar approach can be used to enhance internal accountability. The Indonesian family planning program, by publishing the number 15 of new acceptors recruited by different subunits, established a per- formance norm and thereby encouraged each subunit to strive to meet or better the norm. In this way, a monitoring system-essential if decentralization is not to result in an unacceptable loss of control by the center-can also be used to motivate local managers. A close in- terconnection thus can exist between decentralization, competition, and accountability that may be exploited to improve efficiency. hi The underlying assumption of this Report is that all governments of cnw1H910H)l developing countries, whatever their political complexion and their concern for equity, do attach priority to economic and social devel- opment. Governments nevertheless vary greatly in the commitment of their political leadership to improving the condition of the people and encouraging their active participation in the development process. When political leaders are recognized for their integrity, vision, and concern for the public welfare, these qualities can be reflected in the ethos and performance of the public service and will have a profound impact on all sections of society. But if corruption is rife, public bureaucracy is likely to become demoralized and self-serving. Governments can achieve more through persistent but selective ef- forts at administrative reform, step by step, rather than through major changes that threaten many entrenched interests simultaneously and are therefore often neutralized by them. The correct time horizon for institutional development is decades rather than years. But the very pressures that push governments into an activist role are those that drive them to seek quick solutions. Too often a program has hardly started before fashions change, support is withdrawn, the approach changed, and a new program started. Institutional reform will be suc- cessful only if it is pursued with vision, tenacity, and strong political leadership. The economic fluctuations of the 1970s, and their culmination in the recession of 1980-82, have underscored the uncertainty of the economic environment in which farmers, businesses, and governments have to operate. Readiness to take risks and show flexibility in responding to unforeseen events are therefore essential to successful management. 16 Background Papers for World Developmzent Report 1983 Thirteen background papers are being prepared as supporting documentation for the 1983 Report. These in-depth Working Papers, which will be available in English only, provide a new perspective on current issues in international economics and management. They will appear between August and November 1983. In November they may be ordered as a set for the special price of US$29. The titles are listed below and on the order form on page 20 of this pamphlet. -The Japanese and Korean Experiences in Managing Development (#574) -Price Distortions and Growth in Developing Countries (#575) -Planning in Developing Countries: Lessons of Experience (#576) -Managing State-Owned Enterprises (#577) -Development Finance Companies, State and Privately Owned: A Review (#578) -Economic Reform in Socialist Countries: The Experiences of China, Hungary, Romannia, and Yugoslavia (#579) -Corruption and Administrative Performance: Examples from Developing Coun- tries (#580) -Decentralization in Developing Countries: A Review of Recent Experience (#581) -Policies for Strengthening Local Government in Developing Countries (#582) -Managing the Public Service in Developing Countries: Issues and Prospects (#583) -Training for Public Administration and Management in Developing Countries: A Review (#584) -Successes and Failures in Meeting the Management Challenge: Strategies and Their Implementation (#585) -Managing Project-Related Technical Assistance: The Lessons of Success (#586) Directory of World Bank Publications Distributors Argentina Belgium Carlos Hirsch, SRL Publications des Nations Unies Florida 165-4 Piso Ave. du Roi 202 Galeria Guemes B 1060 Buenos Aires 1307 Bruxelles Australia, Papua New Guinea, Fiji, Sol- Canada omon Islands, Western Somoa, and Le Diffuseur Vanuatu C.P. 85 Australian Financial Review Informa- Boucherville J4B 5E6 tion Service Quebec The Australian Financial Review Egypt 235-243 Jones Street, Broadway Al Ahram Sydney, NSW 2001 Al Galaa Street Cairo (List continues on the following page.) 17 Directory of Distributors (continued) Germany (Federal Republic of) Mexico UNO-Verlag INFOTEC Simrockstrasse 23 San Lorenzo 153-11 D-5300 Bonn 1 Col. del Valle, Deleg. 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Account Number Expiration Date Signature Name Title Address City, State, Postal Code Country 19 Iu'Llbications Order Foi n I .'lf u Price Cloth (English Stock Number Title oty. only) Paper Total WDR-SET World Development Report (1978-1983) Set Includes Six Volumes (Available While Supplies Last) US$60 US$24 WDR-83 Management in Development US$20 US$ 8 WDR-82 Agriculture and Economic Development US$20 US$ 8 WDR-81 Global, National Adjustment to Promote Sustainable Growth US$20 US$ 8 WDR-80 Poverty and Human Development US$20 US$ 8 WDR-79 International Policy Issues and Structural Change US$20 US$ 8 WDR-78 Priorities in Middle-Income Countries US$20 US$ 8 WDR-SWP SET Background Papers to the 1983 World (Available Development Report NA US$29 November 1983) Set Includes 13 Staff Working Papers SWP 574 Japanese and Korean Experiences NA US$ 5 SWP 575 Price Distortions and Growth NA US$ 3 SWP 576 Planning in Developing Countries NA US$ 3 SWP 577 Managing State-Owned Enterprises NA US$ 3 SWP 578 Development Finance Companies NA US$ 3 SWP 579 Economic Reform in Socialist Countries NA US$ 3 SWP 580 Corruption and Administrative Performance NA US$ 3 SWP 581 Decentralization in Developing Countries NA US$ 3 SWP 582 Local Government in Developing Countries NA US$ 3 SWP 583 Managing the Public Service NA US$ 3 SWP 584 Training for Public Administration NA US$ 5 SWP 585 Successes and Failures NA US$ 3 SWP 586 Technical Assistance NA US$ 3 Subtotal Cost Total copies: Air mail surcharge if desired ($2.00 each) Total Prices may vary by country and are subject to change without notice. 20 tWAtit Llsers Saly about the World Devlelopmitenit Report [A] most remarkable publication. 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