E. C. 48 This report is not to be published nor may it be quoted as representing the Bank's views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT POSTWAR ECONOMIC GROWTH IN SOUTHEAST ASIA F October 10, 1955 Economic Staff Prepared by: Dragoslay Avramovic POSTWAR ECONOMIC GR(MTH IN SOUTHEAST ASIA Table of Contents: Page I Introduction and Summary 1 II Growth in Oixtput 2 A. Effects of the War 2 B. Agricultural Production 3 C. Industrial Production 5 D. Growth in Gross Domestic Product 8 III Capital Formation 10 A. Rates of Investment 10 B. Public and Private Investment 12 C. Capital-Output Ratios 14 D. Savings Rates 16 E. Inter-country Differences in Savings Rates 18 IV External Aspects of Grt-wth 21 A. Growth in Import Demand 21 B. Development of Exports 22 C. Terms of Trade 25 D. Export Promotion vs. Import Substitution 28 E. Capital Movements 29 Appendix I Sources and MWthods Appendix II ublic Development Programs in Southeast Asia - 1 - I--ITRODUCTION AND SUIMARY It is the purpose of this paper to review the major trends in the developiaent of Southeast Asia since the war and to appraise the area's conditions and growth pros- pects. The survey covers Burma, Ceylon, India, Indonesia, MHalaya, Pakistan and Thai- land. It did not appear useful to discuss the development in the Associated States of Indochina since the largest part of the country was a battlefield until recently. Many of the findings contained in this paper should be regarded as tentative. Factual evidence on which the analysis rests is scanty and often unreliable. This is particularly the case with national income estimates, where considerable differences exist in concepts and in the comprehensiveness of coverage. Although an attempt has been made to eliminate the obvious discrepancies, the data presented in this paper should be considered to indicate only broad orders of magnitude. The gravity of the traditional development problem in Southeast Asia can probably be best described in terns of three factors: low per capita income, the lack of drive in a largely self-subsistent society, and high pressure of population on land. The static character of the economy, associated with a low level of savings and invest- ment, prevents the creation of sufficient employment opportunities outside agriculture to absorb both the steady increment to the labor force and the existing rural popu- lation surplus. The resulting pressure of 7o1,ulation on land makes for a high man-lanc ratio, stimulates parcelization of holdings, compels cultivation of more submarginal land. and increases under-employment. Small per capita production and, consequently, low real income in agriculture, aggravated by the maldistribution of income because of land tenancy, impedes development of the market for industrial goods. As a result, aggregate savings in the industrial sector remain low. This in turn prevents an in- crease in the rate of accumulation of industrial capital, while new capital formation in agriculture is directly limited by the low level of per capita agriculwural. income. Since the war, two external factors have tended to break down the tendency to- wards stagnation inherent in the economies of the area. The first and most important of these was the achievement of political independence. Until the war, all of the countries in question, except Thailand, were parts of colonial empires; with the excep- tion of Malaya, all becqTe independent states following the war. This political change was accompanied by r-reaching ambitions for the betterment of living standards and by a strong desire for a greater degree of social equality. As a result, newly-born national authorities suddenly became the main vehicles for economic growth and social change. The second dynamic factor working from the outside was the sharp fluctuation o world demand caused by the Korean war. Due primarily to price increases, export value more than doubled between the first half of 1950 and the first half of 1951, substan- tially enhancing domestic money incomes and, since import prices rose at a lower rate, real incomes as well. This coincided with a substantial expansion of public investmern under developnent plans formulated during 1949/50. The increase in domestic incomes, caused by the boom in exports of raw materials, served as a financial base for increas ed public investment activity and made much easier the task of the new governments in launching a concerted development effort. By this fortunate combination of circum- stances the additional real income was acquired before the new investment had even started; the normal process of growth, involving investment first and only then an in- crease in income out of which to finance the next round of capital formation, was re- versed without large-scale borrowings abroad. The boom in exports was followed by a slump in the second half of 1951. However, not all export prices fell below the pre- boom level, and the increase in incomes during the upswing stage of the inventory cyclr remained a net gain for most of the area. Adjustments required in the downturn result ed in some slackening of capital accumulation in the private sector, but this was more than offset by the.increasing rate of the pu1blic investment, financed by drawing on reserves. - 2 - The effect of the development efforts and of the export boom has been a growth in output at a rate higher than the rate of population increase. In the area as a whole, excluding Indonesia for which data are not available, output rose during 1948-1953 at an average rate of 2-3A% per annum. Since the rate of population in- crease was about l% early, the annual per capita rate of growth in output appears to have been around 1 . The highest rates of growth in aggregate output were achieved in Thailand, Malaya and Ceylon. However, since almost all countries in the area suffered extensive damage during the war, a part of the increase in output had to compensate for the retrogression of the previous decade. By 1952, Indonesia had no more than regained its prewar level of aggregate output, while in Burma the 1953/54 output was still 17% lower than before the war. For the area as a whole, the output of food grains per capita is mnly now approaching the prewar level. Savings and investment rates appear to have been rising in the last decade. In India, the increase in both output and investment during the last three years has surpassed all expectations, and there are indications that the country may be approashing the threshold of rapid capital accumulation which might be followed by a sustained growth in income. Nevertheless, the over-all level of savings and invest- ment in the area as a whole is still low and the present average gross investment rate is less than 10%. The obstacles to a substantial increase in, and to efficient utilisation of savings are great, particularly in some countries, and they cannot be easily overcome. In the future, the development efforts may be expected not only to continue, but to increase. They will be greatly facilitated if the capital-output ratio (capital requirements per unit of additional output) is maintained at the low level of 2.0-2e: which has thus far prevailed. While development prospects appear particular- ly promising in India, all indications are that other countries in Southeast Asia will also continue to regard economic growth as the central problem of their public policy. For economic development of all countries in the region, and particularly of those with a high ratio of exports to national income, the trend in world economic conditions is of decisive importance. The rate of economic progress in Malaya and Ceylon and, to a lesser extent, in Thailand, Burma and Indonesia, largely depends on both the long-term growth and the extent of income fluctuations elsewhere, particularl, in North America and western Europe. Although there have been considerable intermit- tetvariations, world demand for Southeast Asian exports has been strong during the last decade. Internal development efforts will be greatly facilitated as long as world income consumption and trade continue to expand at rates comparable to those thai have prevailed since the war. II-GRORTH IN OUTPUT A. Effects of the War The Second World War had a strong impact on the productive potential cf South- east Asia. Some of the countries - Indonesia, kalaya and Burma - were battlefields and their agriculture, mining, industry and transport were severely damaged. The productive facilities in the Indian subcontinent were devoted to the allied war effort which required a very high rate of utilisation of the transport system and the in- dustrial structure, and kept repairs and replacements to a minimum. In both occupied and unoccupied regions reduction in personal consumption was accompanied by consumptiox of capital. A great increase in the money supply, resulting from war expenditure, was followed by inflation, the effects of which were felt for several years after the war ended. - 3 - The main source of food in the area -- rice .* was particularly affected. Im- mediately after the war there were 15 million acres of abandoned rice field6,and ex. ports of rice fell from the arewar level of 5.5 million tons to less than 1 million in 1946. The expansion of acreage under foodgrain in India could not compensate for the loss, since poor weather, lack of fertilizers and draft of the best labor to the arny prevented at the time an increase in output. Rubber plantations and tea estates in the occupied territories had reverted to jungle, More than a third of the prewar railway track had been torn up or completely worn out and other means of transportation had been similarly damaged. An expansion of the capital stock occurred only in India, where new metal and machine industries were built in response to war demand. However, this expansion was not able to offset the generally adverse effects of the war on the area as a whole. The time required for reconstruction varied from country to country and among economic sectors. In some areas, reconstruction was slowed by civil disorder and military operations which continued after the war; the outstanding case is that of Burma, which has not yet regained the prewar level of aggregate output, chiefly because of the domestic political insecurity and war conditions. Military operations and civil disorder also hampered growth in Malaya and in Indonesia. B. Agricultural Production Recovery has progressed faster in industry and in the production of some raw materials for export than in agricultural production for the domestic market. Since agriculture is the most important component of total output, its slow recovery has strongly inluenced the over-all rate of growth. The prewar level of aggregate food output in the area as a whole was not reached until 1951. Since then, however, the upward movement has continued. Table I Aggregate and Per Capita Production of Food Grains in Southeast Asia. / / .2/ 1953 as % Prewar 1948 1952 1953 of prewar Aggegate production Thous. tons c Rice 64,o66 65,591 66,670 76,667 119.6 Other grains 31,289 27t91L 3O 24 103.1 Total 95,355 93,502 97,034 108,921 11J2 Populationt thousands 477s662 539,158 573,698 581,512 121.7 Production per capita kgs. 199.6 173.4 169.1 187.3 93.8 Data relate to the crops harvested in the latter part of the year indicated and in the first half of the following year. 1934-38; for some commodities and some countries 1937-41, 1936-38 and 1937-39. For Indonesia, Java and Madura only. Wheat, barley, maize, millet and sorghum. Estimates for some smaller items. 1937. Sources: Appendix I. - 4 - Table I indicates that Southeast Asian grain production has been losing ground for a long time and that only in the last few years has a definite upward trend reversed the process4 so that the prewar per capita output is now being approached. Agricultural performance seems to have been best in Thailand, Ceylon and Malaya, next in India, Pakistan and Ihdonesia, while Burma is at the bottom of the scale. Table II Indices of Total Agricultural and Food Output (prewar - 100 a/) Country 196/7 196/49 19051 1952/53 1953/54 Food Burma 56 74 71 81 78 Ceylon N,a. 112 123 124 133 India 96 96b/ 91 10L 116 Indonesia 6b 82 91 98 lC Malaya 75 88 100 99 98 Pakistan 109 114 113 111 114 Thailand 110 135 138 139 155 All Aricultural Commodities Burma 56 74 71 81 78 Ceylon n,a. 120 134 131 139 India 96 95 96 102 113 Indomesia 64/ 82t/ 101 110 110 Malaya 73 1T 145 127 125 Pakistan 102 1C 107 108 105 Thailand 107 138 144 146 162 a/ Burma, 1936/37 - 1940/41; Ceylon, Indonesia, Malaya and Thailand, 1934-38; India, 1936/37 - 1938/39; Pakistan, 1936-38. b/ Java and dadura only. Source: Appendix I. The reasons for the inter-country differences are many. Thailand was largely spared the ravages of war and could expand output starting at the prewar level; large-scale reconstruction was unnecessary. The strong upward trend in non-food out- put of Malaya and Ceylon received its impetus chiefly from high export prices of raw materials. When prices receded, output declined, particularly in Malaya. A similar discrepancy between food and non-food agricultural production is apparent in Indonesia The 1953 level of food output equalled the prewar level, while over-all agricultural production was 10% higher. The performance of Pakistan was better before 1950/51 than afterwards; the slump in prices of jute and cotton led to a reduction of acreage, while the output of food grains was affected by bad weather conditions. In the over-all food position of the area as a whole, the decisive role was played by India. Indian production of food grains in 1953/54 represented 62% of the total Southeast Asia output. The sharn increase in India's production which occurred in 1952/53 and 1953/54, amounting to 11.5 million tons above the 1949/50 output, is equal to the increase in the aggregate output of the area shown in Table I,and this had raised the area's per carita production of grains by 11% in a single year. For the future, therefore, the basic question appears to be whether India's gain can be maintained and increased, or whether it represents only a temporary upsurge attribut- able to favorable weather conditions. The Indian authorities are inclined to believe that approximately one-half of the increase, i.e., 5 to 6 million tons, should be attributed to the favorable weather in 1953/54, but that the rest represents a more or less permanent gain, which will be retained in an "average" year. 1/ If this estimate is accepted, the food problem in Southeast Asia, even assuming te long-run maintenance of a primitive pattern of con- sumption based primarily on starchy products, appears considerably farther from solution than is suggested by Tables I and II. The "adjusted" 1953/54 per capita production of basic food grains would then be more than 10% lower than prewar, notwithstanding the progress already achieved in long-term expansion of aggregate output. This would suggest that there is still urgent need for a further increase of the area's food production. C. Industrial Production In mining and in manufacturing, postwar growth was faster than in agriculture. By 1948 the aggregate mining and industrial production appears to have reached the prewar level, whereas, as already noted, that level of agriculturaf production was not reached for another two or three years. There were exceptions, notably in petroleum and to a lesser extent in tin, but these were more than offset by a sharp increase in electric power, construction materials and steel. However, growth in industry did not proceed uninterruptedly throughout the following six years. In 1949-1951, Southeast Asia was affected by the world re- cession in textiles. The Indian textile industry accounts for the main part of the entire Southeast Asian industrial output. The depression in textiles consequently halted over-all industrial growth until the fast expansion in non-consumer sectors of industry could compensate for the low rate of utilization of textile capacity. When textiles recovered after 1951, the rate of over-all growth increased again; the rising tempo in producers' goods industries was maintained, while consumers' goods branches resumed their upward trend. Data on aggregate industrial production are available only for India. The Indian index of industrial production does not take into account industrialization which is developing in other countries of Southeast Asia. However, in view of its relative size, Indian industry retains a dominant place in the area. 1/ Government of India, Planning Commission, Five Year Plan Progress Report for 1953/54, New Delhi 1954, pp. 56-58. -6 - Table III Index of Industrial Production in India 1954 as 1954 as Annual rate percent percent of growth 1937 1948 1949 1950 1951 1952 1953 1954 of 1937 of 1948 1948-1954 General in- 84 100 98 97 108 119 125 135 160 135 5% dex, of which: Engineering & electrical goods n.a., 100 121 146 189 170 190 233a/ n.a. 233 18% Cotton textiles n.a. 100 91 84 93 104 110 113/ n.a. 113 2% a/ First nine months. Source: Appendix I. The discrepancy in growth between the representative group of producers' goods industries and of the consumers' goods group is striking. Production of engineering and electrical goods rose 133% between 1948 and 195h, while production of textiles increased only 13%. This dces not give a complete picture of relative supplies in the consumeral and in the producers' markets, since foreign trade in both fields is significant and other industries are quite important. But the Table does reflect vigorous expansion in the investment sector and a rather slow increase in individual consumption of industrial products. In an econony which grows very rapidly, the rate of increase in investment goods industries may be expected to be higher than the rate of increase in the output of consumers' goods. V/ Nevertheless, the great discrepancy in the rates of growth shown in Table III indicates that the Indian domestic market for consumer goods is still very limited. The demand for industrial goods has increas- ed primarily in the investment field, and this increase appears to have been the main stimulant to the growth in manufacturing in the last five years. This tendency is probably less pronounced if the area is taken as a whole. The expansion in Pakistan consisted primarily of the establishment of a textile in- dustry, while the growth in the smaller Southeast Asian countries appears to have occurred mainly in small-scale light industries. However, the production of electric power also increased at least at the same rate, while the output of construction materials seems to have risen much more than that of any other commodity. Table IV, which contains production data throughout the area for several leading commodities, suggests that on the whole the over-all rate of industrial growth has been determined primarily by the investment and producers' demand, while the output of consumers' goods has increased at a considerably slower pace. 1/ These proportions may, of course, be changed through foreign trade transactions. - 7 - Table IV Expansion of Output by Coomodity Grops According to Sources of Demand 1953 as 1953 as percent percent Annual rate of growth 1938 1948 1953 of 1938 of 1948 1938-1953 1948-1953 Investment and Producers remand Cement, 000' tons 1,520 1,990 4,798 315 241 8% 20 Electricity, mil kwh 3,338 5,731 8,502 255 148 61 81 Steel, 0001 tons 982 1,277 1,531 156 120 3 3 3/h Coal, 0001 tons 30,800 31,700 38,200 124 120 l: 3 3/h Consumers?_. Demand Rice, 0001 tons 64,0 65,591 76,667 119 117 14 31 Other food grains Y 000' a tons 31,289 272911 32,254 103 115 1 2 3/ Cotton yarn, 0001 tons 592 673 739 125 111 lj 2 Cotton fabrics, mil, meters 3,907 4,092 4,708 120 115 1 2 3/h Footwear, 000? pairs n.a. 5,333 6,147 n.a. 1C n.a. 1 a Prewar average; see Table I. Wheat, barley, maize, millet and sorghum. Cement: Ceylon, India, Pakistan and Thailand. ZTHeqicity: Burma, (Rangoon only), Ceylon, India, Indonesia, Malaya, Pakistan and Thailand (Bankok only). Steel: India Coal: India, Indonesia, 1alaya (lignite) and Pakistan (including lignite). Te, Other Food Grains: All seven countries. Cotton yarn, cotton fabrics: Ceylon, India and Pakistan Footwear: Ceylon and india. Sources: Appendix I. The upper and lower limits of the postwar rates of growth within the first group (investment and producers' goods) are 20% (cement) and 3 3/4% (coal and steel respectively). The highest rate in the second group, however, is only 34% (rice) and the lowest 1% (footwear). These comparisons are tentative because of the limited number of commodities included and the lack of data for some countries. The growth in the consumers' field is probably underestimated. It does not seem likely, however, even if additional data were available and more commodities included, that the trends outlined in the Table would be fundamentally different. D. Growth in Gross Domestic Product In Table V the economic performance of the Southeast Asian countries is estimated in terms of changes which have occurred in their aggregate domestic product. The rates of economic growth so obtained are only an approximate measure of actual development, since the aggregate product data are far from adequate. A large part of total output does not enter the market; rough estimates have to be made of the sub- sistence production and a value ascribed to that production on the aesuption that price ratios would have remained unchanged if it had in fact reached the market. Equally difficult is the problem of isolating the effects of changes in the terms of trade on changes in real income, in order to obtain a measure of the growth in real output* Several countries in the area are export economies, deriving somewhere be- tween one-quarter and two-fifths of their gross income from foreign trade. The prices of their export commodities fluctuate very widely and their terms of trade are con- stantly changing, involving windfall gains and losses almost year after year. A favorable turn in the terms of trade Pay compensate for the fall4ni real output or enhance the gains from a rise, and a re"ktive drop in export pfiAs may wholly offset an'increase in real output. Table V is intended to show rates of change in real out- put only, although the gain due to favorable terms of trade may not have been complete- ly eliminated. Table V Growth in Gross Domg&ig Outnut ay! (in percentages) Present outplias Present output b/ as per- percentage of pre- centage at output in an Annual rate ef post- war p early postwar yar war growth ej Burma 83 115 21 Ceylon 153 118 2 3/ India fl n.a. 111 (11) 2j (3) Indonesia 100 100 n.a. klaya n.a. 122 3 Pakistan n.a. 109 2 Thailand ./ 210 150 6 a/ In India, Indonesia and Pakistan, net output. Burma and Thailand 1953/54; Ceylon and Malaya 1953; India, 1952/53 and 1953/54; Indonesia, 1952; Pakistan, 1952-53. c/ Burma, 1938/39; Ceylon, Indonesia and Thailand, 1938. Burma 1947/48; Ceylon and hlaya, 1947; India and Pakistan, 1948/49; Thailand, 1946/47. e/ Burma 1947/48-1953/54; Ceylon and Malaya, 1947-1953; India, 1948/49-1952/53 and 1948/9-1953/54; Pakistan, 1948/49-1952/53; Thailand 1946/47-1953/54. f/ Figures in brackets indicate growth from 1948/A9 to 1953/54, which was an exception- ally good harvest year. Non-bracketed figures indicate growth from 1948/49 to 1952/53. z/ Estimated on the basir of limited data. Sgurces and methods: Appendix I. - 9 - The period for which the rates of growth are computed is very short, five to six years, primarily because of a lack of data. Nevertheless, some broad conclusions may be drawn on the basis of Table VI, which compares an adjusted sumary of infor- mation on rates of growth in output with the rates of population increase both by countries and, although coverage is incomp3ste, for the area as a whole. Table VI Rates of per Capita Growth in Output Gross domestic Rate of Rate of Rate of output a/ in mln. growth Population, popu- per capita of Indian rupees in out- millions lation growth in Country 19S 1953 Iot output Burma b/ 3,557 3,950 2i% 1779 9,0 1% 1i% Ceylonc/ 2,670 3,156 2 3/4% 6,695 8,155 2 3/4% 0 India d7 91,600 1C,000 2 335,977 372,000 1 1/3% 1 1/5% malaya7c/ 5,337 6,581 3 5,776 6,829 2J 1% Pakistan d/ 17,646 19,216 2 72,587 79,oo01 15 Thailand / 5,168 739 6 17,Cil 192Pg6 2 1 Total 124, 141,293 2 3/4% 455,825 504.,585 Is 14% In India, gross national output. All data in 1948 prices. b/ 1947/48 - 1952/53. c/ 1947-1953. d/ 1948/49-1952/53. e/ Crude estimate. f/ 1947-1953, crude estimate. if Total adjusted for inter-country differences in the time-span for which the national rates of growth have been measured. Sources: Appendix I. The weighted annual rate of growth in real output during the five-year period 1948-53 is estimated at 2 3/4% for six countries with 86% of the total population in Southeast Asia. Since the rate of population increase was somewhat below 1N, the output per capita appears to have risen at a rate of about 1J% per annum, or slightly higher. The 2 3/4% rate of growth in aggregate output may be regarded as satisfactory in that it is considerably higher than the rate of population growth. The importance of this achievement is enhanced by the fact that it has occurred after a long period of stagnation, possibly retrogression, in per capita income between 1930 and 1945. However, the rate of growth in aggregate output is far from satisfactory if compared either with that in Western Europe and Latin America since the war (6% and 4% respectively), o- with the rate required to narrow the difference between per capita otput in the developed countries and Southeast Asia. - 10 - Three negative factors must be taken into account in interpreting the aggregate data on postwar growth. As shown in Table I, in spite of all the achievements since the war, the prewar output of food grains per capita in the area as a whole is being approached only now; part of the effort in the postwar decade had to be devoted to regaining the ground lost during the war. In the second place, the rate of growth in Indonesia, which is not included in the over-all estimate, was probably lower than the average for the other five countries, so that the economic advance in the entire area is probably less satisfactory than appears from Table VI. Finally, the 1953 output data for Ceylon and Malaya may have an upward bias, since it was not possible to eliminate completely the gains in real income which occurred in 1953 as a result of the improvement in the terms of trade as compared to 1948. But there is also one positive aspect of equal or even greater importance. In the country by far the most important in terms of both population and income, India, the rate of growth sho, s a clearly upward trend during the last three years. Table VII Yearly Rates of Growth in the Indian Net Output Percentage Increase Years above the Previous Year 1949/50 2 1950/1 0.3 1951/52 3.1,5 1952/53 3.9 1953/54 1.5 Source: Appendix I. Even if some adjustment is made in the 1952/53-1953/54 rate to take account of the effect of exceptionally favorable weather on agricultural output, the tempo of growth is iApressive. Similar advance has been achieved in Burma during the last three years, with the rate of growth above 5% per annum. The results of this development in India and Burma are offset only in part by the recently declining rates of growth in Ceylon and Malaya, since the quantitative significance of the latter for the entire area is much smaller. In addition, it may be assumed that in Ceylon and Malaya the growth has already resumed, although probably at a lower rate than in 1948-1951. The downward adjustment after the Korean war boom has ceased, while external demand for thi exports of these countries - rubber, tin and tea - has gained in strength since 1953. III--CAPITAL FORMATION A. Rates of Investment The postwar period has not affected the position of Southeast Asia in the world pattern of investment rates. The economies of the area are still at the lower and of the world scale with regard to capital accumulation. However, it appears that the proportion of their gross national product devoted to fixed capital formation has not remained stagnant during the last six or seven years. This is indicated by the fact, noted previously, that the output of producers' goods has risen faster than that of consumers' goods, while in the composition of imports the share of capital equipment has been increasing, Aggregate investment data also show that the growth in output since the war has not only been followed by a pari passu rise in the absolute level of investment, but that an increase in the rate of capital accumulation s occurred. = 11 - Table VIII Rates of Fixed Capital Formation A. Gross Investment as Percentage of Gross National Product Postwar Average Including Maintenanne and Repair Exct. Mainten- Postwar ance and country 1938 1947 1948 1949 1950 1951 1952 1953 1954 Average Repair Burma 10.8 14.4 1.8 8.9 10.9 11.8 15.1 14.5 19.0 13.7 11.3 Ceylon 6.1 5.3 6.3 9.1 7.8 12.0 13.8 12.3 n.a. 9.5 7.7 India n.a, n.a,. na. 10.3 n.a. n.a. n.a. n.a. n. a. (ii,-11.5) (9.0-9.5) Indonesia 8.8 n.a. n.a. n.a. n.a. 4.7 5.3 n.a. n.a. 5.0 4.o Malaya n.a. 10.6 10.2 9. 7. 7. 10.7 10.Y n,a, 9.3 8.8 B. Net Investnent as Percentage of Net National Product Bruma 5.1 8.3 9.6 2.5 4.1 5.9 9.6 9.5 n.a. 7.1 Ceylon n.a. n.a. n.a. n.a. n.a. n.a. n.at n., n.a. (5.0) India n.a. n.a. 4.9 5.5. 5.9 63 6Y 6.5 n a. 6.o Indonesia 3.0 n.a. n.a. n.a. n.a. 0,2 0.7 n.a. n.a. 0.5 Malaya n.a. 5.1 4.7 n.a. na. n.a. n.a. n. n.a. (5.5-6.0) Exccluding maintenance and repair. Probably understated. The 1953/54 rate qpproaches 7%. Figures in brackets indicate only the order of magnitude. Sources and Methods: Appendix Ie Comparisons of investment rates may be distorted by differences in concepts and comprehensiveness of coverage, although an attempt has been made to eliminate the obvious discrepancies. Bearing in mind this qualification, it may be said that signi- ficant intra-country differences exist between India, Ceylon and Malaya, on the one hand, and Burma and Indonesia, on the other. Both the gross and the net investment rate in Burma, especially during the last few years, considerably surpass the rates in the other four countries, but this may be in part a statistical over-statement. Ex- tremely low rates in Indonesia - 5% gross and only 0.5% net - while probably containing some downward statistical bias, basically reflect the traditionally low savings effort of the country, which has been further weakened by the war, postwar political diffi- culties and inflationary financing. The generally low level of capital formation in Southeast Asia results primarily from the long-term lack of investible financial resources. In the short run, however, investment activity is also inhibited by bottlenecks other than the avail- ability of funds. The lack of technical and managerial.capacities, the shortage of skilled labor, and political insecurity have sometimes affected the postwar level of investment activity more directly than the shortage of capital. In Burma, Thailand and Malaya, foreign exchange assets continued for a considerable time to pile up above the lev- el which could be properly considered a safe minimum. When the magnitude of the Indian - 12 - First Five-Year Plan was determined, factors considered as limiting investment were both financial and technical. The efficiency with which the investible resources have been used has varied fram country to country. The largest country in the area, India, is an example of a successful dovetailing of financial efforts on the one hand and administrative and technical availabilities on the other. When the original version of the First Five- Year Plan was prepared, technical, managerial and labor capacities were underestimated. The error was corrected in two subsequent upwaad revisions of the Plan and, after a slom start, the last two years (1953/54-1954/55) were characterized by a rising rate both in investment and over-all economic activity. The country was apparently spared any waste in the utilisation of its resources. In acme other countries in the region, however, this could not be avoided. Such was the case in Ceylon and Thailand, where a number of industrial projects proved inefficient, both technically and,economically. Similar difficulties were met in the newly built textile industry of Pakistan, and there are indications that the Burmese Draft Nine-Year Plan 1952-1960 may not take fully into account the limitations imposed by shortages of technical and managerial si11. Difficulties encountered in the new industries should be partly attributed to the infant stage of their development. Cn the other hand, in some cases planning has been insufficient and hasty. The need for better coordination of investment decisions is still very great, particularly in the manufacturing field. B. Public and Private Investment Public investment was a leading factor in the increase in investment rates which occurred during the last few years. Almost all countries in the area adopted public development programs around 1950, and although there are great inter-country variations with respect to the scope of planning and the enthusiasm with which the projected public investment is carried out in practice, the over-all effect has been a considerable rise in public development expenditure. Except in Burma, the fraction of national product absorbed by public investment is still relatively small; however, since the over-all investment rate is lom, the proportion of public development ex- penditure increased by 1953 to about 45% of total investment. Table II Pbrcentaae Share of Public Investment Ttal Gross Fixed Investment 1938 1947 1953 Burma a 17 29 45 Ceylon 13 25 56 India bY n.a. 35 46 Indonesia a/ n,a. n.a. 41 Malaya n.a. 12 39 a/ 1938/39, 1946/A7 and 1953/54. i/ Net fixed capital formation in 1948/49 and 1953/54. c' 1952. Sources: Appendix I. For details on government development programs see Appendix II. - 13 - A part of the increase in public investment consists of large expenditure on social welfare, technical training and research. During 1952/53, this type of spending amounted to about 20% of total public development expenditure in India, Pakistan, Indonesia, Burma and Ceylon, taken together. If this indirectly productive investment were not treated as capital formation, the share of the public sector in total investment would be reduced to approximately 35%. Several elements have had a restraining influence on postwar private invest- ment activity. One of the effects of the long-term economic stagnation in the area has been, and still is, a reluctance on the part of domestic private capital to undertake large investment, particularly in new production fields. The existence of excess capacities in the industrial center of the area, India, both before and after the Korean boom, was a major obstacle to private capital outlay. The postwar political climate, with its lack of security and stability, was not conducive to large-scale private investment. The traditional dynamic element, foreign private capital inflow, operated on a very small scale. Fear of a slump in raw materials prices, the possibility of nationalization, civil disorder and wars in heighboring areas were a powerful deterrent to foreign privaue capita imports. The relative importance of the public and private sectors in future develop- ment will be determined mainly by two factors. On the one hand, the role of the private sector will depend on public policy ineas res, particularly with respect to the delineation of fields of investment reg,arded as suitable for private investment activity. It will also depend on the structure and level of taxation. On the other hand, the strength of the private sector will be contingent upon the vigor with which private capital makes use of the external economies that are now being created, and on its willingness to assume greater risk in relying on future growth of income. In most of the area, public development projects have been concentrated in fields -which are not competitive with private investment. The explicit assumption in the Indian and Pakistani planning, as well as in some other countries, was that the majority of industrial investment funds would be forthcoming from private sources, and that puolic investment in agriculture, devoted mostly to irrigation and the improvement of techniques, should primarily create a framework within which the productivity of private investment might increase. It was thought that the same purpose would be served by public investment in electric power, transport and cormmunications, and housing, health and education. The expectations have been met only in part; the experience in Indian private industrial investment during 195/2- 1952/53 was disappointing. Most recently, however, after the recession was over- come, there has been an increase in private investment activity. 1/ Large and properly conceived public development expenditure anpears to have-stimulated rather than deterred nrivate investment. 1J According to the Indian plan (1951/52-1955/56), the so-called large private industry was expected to invest Rs. 2.33 billion in five years. In the Zirst two years (1951/52-1952/53), actual investment was estimated at Rs. 520 million, or only 42,1 of the planned annual rate. In the third year (1953/54), however, private investment rose to Rs. 440 million, very close to the planned rate of Rs. 466 million. In the current year (1954/55), investment of Rs. 630 million is reliably forecast. The four-year total would thus come to Rs. 1.6 billion, or 68% of the amount planned for five years. It is important to note that actual public expenditure under the plan for the sane four-year period will amount to Rs. 14.5 billion, which is 64% of the five-year plan. This indicates that the initial relative lag of private investment has been overcome. - 1)4.- Co Capital-Outgut Ratios Available information suggests that the"productivity" of cpital invested since the war has been high. A relatively large increase in output has been associ.- ated with a small amount of investment. These low capital requirements per unit of additional output have been one of the most encouraging features in the postwar development. This explains Why aggregate growth has been considerable - 2 3/4% per year - despite only a moderate increase in investment rates, to about 6% net. Table I Ikrginal Capital-Output Ratios a/ A. Gross Ratios Country Period Ratio Burma 1947/48-1953/54 4.1 Ceylon 1947/1953 2.8 India 1948A9-1952/53 3.4 ) 1948/49-1953/56( 2.8 ) Malaya 1947-1953 2.5 B. Net Ratios Burma 19/7A8-1952/53 3.3 Ceylon 1947-1953 ( 2.0 ) India 1948/49-1952/53 2.3 1948/49-1953/54 2.0 Ilaya 1947-1953 ( 1.6 ) a/ The value of fixed investment divided by the value of additional output, both in constant prices. 'kintenance and repair expenditures are excluded from gross investment. Figures in brackets are estimates based on insufficient evidence. Sources and Uhthods: Appendix I. Burma is an exception with little importance for the overall picture. The growth in output was hampered by extra-economic factors, although investment activity was relatively high. What appears really relevant is the consistency in the other three countries. 1/ Net capital-output ratio of about 2-2.5:1 must be regarded as extremely satisfa7tory; should it continue, any further increase in investment activity may be expected to yield quick and considerable increases in total output, 1 It should be noted that the present draft investment plan in Burma assumes a capital-output ratio of 2.1:1, which is fully in line with the observed ration in India, Ceylon and Iftlaya, Japan, another Asian country also appears to have a low ratio of 2:1 (ECAFE, Economic Survey of Asia and the fa; East, 1954). - 15 - A detailed satisfactory explanation of why the ratics have been so low cannot be given on the basis of availale information. 1/ The actual level of ratios has come as a surprise to the planning authorities in the countries themselves: the Indian plan was originally based on the assumption that the ratio would be 3:1. The recent experience is nou viewed as evidence that future planning should assime a considerably lower ratio, even as low as 1.2-1.5:1. 2/ Mhile this degree of optimism may be justi- fied in respect of certain industrial investment, it does not seem so for the economy as a whole. If the recent experience can be taken as a rea&ure for future planning, projected ratio should not be reduced by more than one-quarter (giving 2.3:1). What appears particularly surprising is the fact that low ratios prevailed in spite of the relatively unfavorable composition of investment. As mentioned before, mublic investment had a great share in total capital outlay; and within public invest- ment the largost expenditures were on capital-intensive (electrification, transport) and slow-yielding investments (health, education, other social welfare). Table XI Distribution of Public Development Expenditures in 1953/54 (in percentages of the total) Irrigation, a Malti-purpose Transport projects and and communi- Industry Social welfare Countr Agriculture power cations and mining and others Burma 13 9 36 20 22 Ceylon 19 22 29 8 22 India 14 34 26 4 22 Indonesia 12 21 24 34 9 Malaya 2 25 14 0 59 Pakistan 2 29 28 15 26 a/ A substantial portion of these projects can be considered as assisting agriculture. Source: Appendix II. The proportion of public investment going into industry, which may on balance be expected to enirafavorable capital-output ratio, was very low in the countries to which Table X relates: 8% in Ceylon, 4% in india and almost nothing in Malaya. Public investment in irrigation, power, transport and social welfare, on the other hand, usually associated with hiLh capital-output ratios, comprised some 80% of the total in India, above 70% in Ceylon and above 90% in I'alaya. Yet aggregate capital-output ratios were very low. 1J One of the explanations for India is that at the end of the period existing capacities were more fully utilized. For other countries, it is possible that subsistence-type investment in agriculture and housing has not been fully recorded since it has no counterpart in monetary savings. The Eastern Economist, November 5, 1954. In its last Survey, BCAFE uses the ratio of 2.5:1 for measuring aggregate capital requirements in Southeast Asia. (ECAFE, op.cit.) - 16 - The shortness of the period for which marginal ratios were calculated limits the inferences which might otherwise be drawn from the observed facts. It is tempt- ing to regard the low ratios found between 1947 and 1953 as evidence that in countries uhich nossess great quantities of cheap labor, capital requirements per unit of output are likely to be smaller than in wealthy, developed areas; they may also be taken as a further reflection of the fact that the fectors which make for high rates of profit on capital employed also result in high aggregate output per unit of fixed capital invested. On the other hand, since the period is very short, it may still be argued that the low level of observed ratios is only a temporary phenomenon caused by exceptionally favorable circumstances; it is possible, although not probable, that the wave of low ratios may be followed by a wave of heavier capital requirements. !.hile this thesis caiot be completely refuted on the grouzx of a restricted and short- term eviCence, the fact remains that in the last decade ca,ital requirements per risit of output have been low. D. Savings Rates By far the most important source of postwar investment financing has been domestic savings. In Table XII savings rates are shown for five countries in the area. The rates do not fully reflect the amount involved, however. Data on changes in inventories are not available, except for Malaya and partially for Burma. As a result of this lack, aggregate savings in the other three countries are probably somewhat understated, since it may be expected that a growth in gross product and in the stock of fixed capital would normally be accompanied by a long-term increase in the volume of inientories. There may also be a gap in the estimate of changes in external assets, While the figures have supposedly taken into account all international capital and geld movements, it is quite possible that some gold imports 4nd commodity exports which paid for the gold) were unrecorded. The countries in the area have a deep- seated tradition of hoarding monetary metals; for a long time, India has been the world's largest absorber of gold and silver, 1/ which may partly explain the countryts long-term deficiency in productive investment outlay. The magnitude of postwar gold hoarding is not fully known; however, the activity on the Bombay bullion market and the reports on gold imports into the other countries of the area, particularly Thailand, 2/ indicate that this form of savings has not completely disappeared, al- though for the area as a whole it certainly has less importance now than before the war. Uoither these tuo omissions nor tho highly tentative character of the avail- able evidence, houever, are likely to change the basic fact that, with one possible e.-ceotion (;urma), savings r.tes in the ai-ia re lou. Guesses on Indian gold hoards vary widely. The Reserve Bank of India has estimated the imports of gold between 1900 and 1952 at 45.6 million ounces and that of silver at 2,703 million. At present prices, this would amount to $4.1 billion. An additional source of hoarding was domestic output of precious metals. See Report on Currency and Finance for the Year 1951-52, Bombay 1952, pp.203-204. 2V In 1949-1953, Thailand's average annual import of non-monetary gold amounted to US $30 million. - 17 - Table XII Gross National Savings Rates (Gross National Savings as Percentage of Gross National Product) Postwar 1938 1947 1948 1949 1950 1951 1952 1953 Average Burma 22.9 3.4 7.5 12.3 10.7 16.1 20.3 22.9 13.3 Ceylon 1.1 -3.3 5.6 6.3 9.8 11.7 0.9 5.0 5.1 Indonesia n.a. n.a. n.a. n.a. n.a. 4.5 -1.0 n.a. 1.75 Malaya n.a. 7.4 7.0 6.3 19.2 17.6 11.0 6.4 12.1 India l/ n.a. n.a. n.a. 5.1 5.1 4.6 6.2 7.0 5.6 / Net Savings Rates (Net National Savings as Percentage of Net National Product) Sources: Appendix I - 18 - Two tendencies may be discerned in the postwar behavior of savings. In the first place, the degree of yearly fluctuations was exceptionally high. During the Korean war boom, the savings rate in Malaya rose to a level more than twice as high as ever before, while in Cey$,on the increase was more than 50%. This cyclical sensitivity of-savings is equally apparent during the downturn after the Korean boom. As soon as the slump occurred, savings shrank to a very low level in both Malaya and Ceylon, while Indonesia started, on balance, to consume capital. It should also be noted that the upswing in savings in 1950-51 was reflected much more in the accumulation of external assets than in the increase in domestic invest- ment. A parallel examination of Table VIII (Rates of Fixed Capital Formation) and Table XII (Savings Rates) reveals that investment rates are much more stab"Le than savings and that, as might be expected, a sudden increase in external income is devoted primarily to increased consumption and the accumulation of external monetary savings, while the accumulation of real capital lags behind and rises more slowly and regularly. As a result, investment activity reached a peak when the boom was already over, and all countries in the area had to draw on previously accumulated external assets to supplement the reduced volume of their current savings. If savings before and after the Korean cycle are compared, there are indica- tions of another tendency: a slow increase in savings rates over the period as a whole. This is clearer in the case of India and Burma than in the other five countriesS but the latter went through a more difficult period of post-boom readjust- ment, and it may be expected that now, after the readjustment, their savings will also show some increase. A similar tendency with respect to investment rates was commented on above. There is no doubt that development efforts in the area as a whole have become stronger and more effective virtually each year since the war and particularly since 1950. This is indicated by not only aggregate growth and investment figures, but even more by the number and the size of projects which have been undertaken. In India particularly, the results in the last three years may be taken to indicate the beginning of a rise in the accumulation of producers' capital which could serve as a basis for a sustained growth in income. On the other hand, however, savings rates have not shown an increase such as would fully match contemplated development targets. The marginal savings rates are higher than the averages, thereby raising the latter, but the rate of increase does not appear great enough, particularly in countries other than India, to effect a radical change in the over- all domestic capital supply position in the area. E. Inter-country Differences in Savings Rates Inter-country differences in savings rates are substantial and cannot be explained on the basis of some simple correlation. The factors which may be expected to determine the volume of savings are enumerated in Table XIII. Unfort- unately, data on one of the most important factors - income distribution - are available for one country only (Ceylon) and therefore cannot be used for any comparison. This difficulty may be partly overcome by introducing three other factors (share of foreign investment income in total domestic savings, proportion of non-agricultural income to GNP and ratio of exports to GNP), which give a rough indirect indication of the pattern of income distribution. TABLE XIII FACTORS AFFECIG SAVINGS RATES As Percentage of Gross National Product Foreign Gross invest- Gross domestic ment in- nat'1. Postwar Gross income come as c Gross income Rate of Non-agri- annual Country domestic per head of demestic nat'1. per head Rate of aggre- Rate of cultural rate of and savings (Indian savings savings (Indian public gate private Export income price Year rate Rs) rate Rs) savings taxation savings ratio ratio increase (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) 1ul1 17.1 230b/ 7 16.1 228_ 8.9 15.1 7.2 28.7 45.0 0 Malaya..,_ 1952 16.5 i,45o 38 11.0 1,360 3.8 15.8 7.2 l.5 6o.o 3.5% '0 Ceylon. b/ b/& 1949 9.0 bJ 28 6.3 520 2.1 16.8 4.2 It0.0 48.4 8% India, 1951/52 9.1af 300 2 9.0 298 2.6 8.2 6.4 7.3 50.1 1% Pakistan, 1952/53 n.a. 250 n.a. n.a. 245 0.0 7.8 n.a. 10.0 40.0 2% Thailand, c/ q 1952 n.a. 310 n.a. n.a. 308 4 12.0 n.a. 16.2 42.8 6% Indonesia, Y c 1951/52 3.3 300 212 2.7 290 0.7 13.8y 2.0 13.5 44.0 15% a/ "ostwar average, estimate dJ Total revenue ratio U/ 1953 income e/ 1951 Y Estimate I/ Wage ratee. Sources and methods: Anperdix I - 20 - Since the number of cases considered is small, data unreliable and the time-period shorts, any findings that emerge from Table XIII are of limited signifi- cance. As far as it goes, however, the Table suggests several tentative conclu- sions. (a) There is no direct relationship between per capita income and the rate of public savings. The country with lowest per capita income, Burma, has the highest public savings rate, while India, which occupies the middle position in income levels, generates public savings at a rate considerably higher than do Ceylon and Indonesia. It seems that at least for the countries shown in the Table, political and social forces are much stronger determinants of public savings rates than is the level of income. On the other hand, aggregate taxation ratio greatly depends on the importance of export taxes and government export monopolies in the whole taxation structure. The countries with high proportion of exports to national income (Malaya, Ceylon, Burma) can collect taxes much more easily than the economies. where export proportion is low (India, Pakistan). It should be noted, however, that a high aggregate taxation ratio is not necessarily followed by a high volume of public savings; in Ceylon, Wlaya and Indonesia almost one-sixth of gross national product is absorbed by taxation, but a very small past is left after current government expenditure is financed. (b) The rate of private savings seems to be correlated more closely with income distribution and with the rate of monetary fluctuations than with the level of per capita income. Indias, which shows a high private savings rate relative to other countries with higher per capita income, derives about 50% of total income from non-agricultural sources - a proportion higher than in any other country except Malaya. In Malaya, all factors except' taxation appear to contribute to raising the private savings rate. The export ratio is the highest in the area; non-agricultural employment is the source of three-fifths of total income, and per capita income is the highest in the area. Malaya has a very high domestic savings rate (16.5%); and even after 38% of total savinis are taken up by foreign invest- ment income, the remaining national private savings represent the greatest propor- tion of GNP in the area (7.2%). In Ceylon, however, which has the highest per capita income after Malaya, the rate of national private savings is low (4.2%); and in Indonesia the private savings rate is the lowest in the region (2%). (c) An inverse correlation is suggested between savings rates and inflation. Inflation seems to have strongly worked against capital accumulation in Indonesia; the country has a relatively high per capita income, but the propensity to save, which has been traditionally low, may have been reduced to a minimum under the im- pact of a rampant inflation with a 15% yearly rate of price increase. A similar observation can be made for national private savings in Ceylon, where wages increas- ed substantially (8% per annum). Conversely, monetary stability in India and Burma appears to have provided an incentive to save. In each country the rate of price increase over the whole postwar period was barely 1% per year. Their savings rates are high, although per capita income is low. (d) The most consistent relationship appears to exist between public and private savings. Public, private and aggregate national savings rates move closely together: the rank of each country is the same for each of the categories, the countries with the highest and lowest private savings having also the highest and lowest public savings, respectively. The ratios of public to private national sav- ings vary widely, from 1*31 in Burma to 1/3:1 in Indone.Aa, but the consistency in over-all position is maintained. For the period in question at least, the Table suggests that forces which bring about high savings rates operate in both the pri- vate and public field. The Table may also suggest that high public savings and investment, by increasing the level of economic activity and creating additional opportunities and need for capital formation, may favorably affect the private sector in terms of both its earning capacity and its incentive to mobilize unutil- ised resources. . 21 - IV...XTERNAL ASPECTS OF GROWTH A. Growth in Imgort Demand In all countries in the area except India, the growth in real income has been associated with an increase in the volume of imports.I/The Indian exception is due mainly to the fact that a large part of the economic expansion has occurred in the agricultural sector, thus gubstantially reducing food import requirements. In addition, the Indian capital goods industry has been able to satisfy a large part of domestic investment needs and expenditures on imports for development purposes have risen less than the amount of import savings achieved in food. In other countries, however, the volume of imports appears to have been rising at a considerably higher rate than.doestic real income. Table XIV Relationship between Increase in Income and Increase in Imports Annual Rate of Grewth olJume o? Ratio of Increase in Imports country Period Real Income g/ o to Increase in Income (4:11- (1) (2) (3) (5) Burma 47/48-53/54 4 8b 2.0 Ceylon 1947-1953 4 1.9 India 48/49-52/53 21 -1l -0.5 Malaya 1947-1953 4i 5 1*3 Thailand 1946-1953 7 1.6 a/ Including gains fron the improvement in the terms of trade. See Table XVIII. 1947/A8 - 1952/53. 1948/49 - 1954/55. 1948 - 1953. e 1948 - 1954; crude estimate. Sources and 1hthodA: Appendix I Several factors have brought about the increase in import demand. In the first place, the expansion of investment actitity, particularly in the public sector, was not possible without an increase in import supplies, since none of the sountries except Indfa has a domestic industrial base capable of productig capital goods, The import component of total fixed investment amounted, on the average, to about 30% in Burma and 35% in Ceylon and Malaya, Ybile the original version of the Pakistani plan en- visaged that 41% of total invedtLment expenditire would be made for imported equipment. Another factor, spread over the whole econonV, was the import demand created by the expansion of domestic money income in consequence of increased investment or resulting from deficit financing of current government expenditure. This inflationary souroe was prticularly strong in Indonesia and Thailand, while Pakistan and Ceylon also suffered from balance of payments pressure caused by deficit financing. Imports of all countries in the area, but especially of these four, would have risen more had 1/ nother7eception iaay be Pakistan. The index of import volume is not available but it has been roughly estimated that imports in 1954 were 10% smaller than in 1948. This eacline reflects import restrictions call d forth by the emergence of balance of payments difficulties. - 22 - various restrictive import practices not been adopted. To that extent, income elasticities of demand shown in Table XIV (column 5) include a significant downward bias, but even so they reflect the basic postwar tendency of a faster rise in imports than in real income. These two factors -- foreign exchange cost of enlarged public investment and investment or budget inflation - have introduced a new element in the traditional adjustment mechanism which prevailed in Southeast Asia before the war. The countries in the area did not at that time vary the supply of money autonomously; they had a minimum of latitude in fiscal and credit policy, and the fluctuations in their domestio money incomes were almost com=3etely correlated with changes in the balance of pay- ments. With the establishment of independent monetary systems after the war and with a changed approach to the purposea of public policy, this automatism ceased to exist. The manner in which the monetary policy was used varied fran country to country. India and Burma were careful to avoid domestic price increases, Indonesia, Thailand and Ptkistan suffered from various degrees of investment and budget inflation, Ybile Ceylon and Malaya were subjected primarily to a monetary exoansion caused by a traditional dynamic factor - a large increase in export incomes. B. Development of E rts In all countrie 1n the area the volume of exports rose after 1947-48. The increase vas modest, howeverl and, except in India, it was considerably smaller than the rise in imports. Table IV Export and Iaort Velume Indices t194U - 100) 1938 19W 1948 125 E 254 63 100 71 97 12a Burma I 197 100 100 1C2 152 18J E 80 91 100 112 120 126a/ ceylon I89 98 100 135 144 139k/ IdaE 172V/ M1b/ 100 98 109 fl3O/ I ilk lC6VW 100 118 85 92cs E 73 89 100 134 105 alaya 81 85 100 181 139 13 E n.a. n.a. 100 129 145 112 I n.a. n.a. 100 n.a. n,a. n.a. E 75 46 100 162 1&3# 126@/ Thailand 11 74 100 n.a. n.a. 175V E - Exports I - Impfirts Eleven-month average Undivided India e Twelve-month average '6 Nine-month average Three-quarters average g, Six-month average Crude estimate Sources Appendix I. - 23 - Southeast Asia is one of the main raw materials-producing regions in the world econoqr, with a high degree of specialization in a limited number of staple goods. Nine commodities (rice, oil seeds and oils, tea, rubber, tin, petroleum, sugar, cotton and jute and their manufactures) account for about 75% of total exports. World demand for the area's export products has a high income elasticity but low price elasticity; on the other hand, the elasticity of supply is limited in the short-run at full capacity, since a considerable time-lag occurs before new investment can yield greater quantities of additional output. A large increase in external demand is usually reflected in an imediate sharp rise of export prices, with an expansion of output lagging behind, while a decline in world demand cannot be arrested by even a substantial reduction in export prices. The instability introduced into the domestic economy by external fluctuations, even when they are limited to inventory changes, is v very great, particularly in countries which are highly dependent on exports as a aource of income. In these circumstances, some policy of diversification might have been expected as soon as the countries gained political and economic independence. However, the slow growth in volume of exports is only partly explaLned by the inelasticity of supply and by diversification policies. Several export comnedities are also threatened by a jecular decline in world demand, in absolute terms or relative to the growth rate of world trade, while the production of natural rubber is subject to severe competition from the synthetics. In order to distinguish, at least approximately, between cases where exports are limited by supply conditions and cases where the main limitations stem from demand, the following Table has been prepared, indicating comparative growth in output of basic commodities in the world as a whole and in Southeast Asia. - 24 - Table XVI Relationship Between Southeast Asian and World Output ofSelee Commoditile (percentage changes) Percentagg ebareeat Ratio between Output of Southeast SE Asian output in SE Asian and Cmoiy World cutta Apia up wrd qutt world growh Rice 100 111.5 100 119.7 42.4 45.5 1.07 Natural Rubber 100 172.3 100 173.6 85.8 86.5 1.01 Total Rubber (natural & synthetic) 100 259.2 100 173.6 83.9 56.1 0.67 Tea 100 133.0 100 134.9 84.2 85.3 1.01 Tin Concen- trate (Sn content) 100 97.7 100 87.6 64.0 57.4 0.90 Crude Petrol- eum 100 249 100 120.9 3.6 1.7 0.48 Sugar 100 126.3 100 75.8 10.0 6.0 0.60 Copra 100 107.3 100 106.2 41.5 39.7 0.96 Palm Oil 100 121.7 100 88.3 44.6 32.3 0.73 Cotton 100 129.4 100 96.9 17.4 13.0 0.75 Prewar 1952 1953 Prewar 1952 1953 Prewar 1952 1253 1952 1953 Jute 100 135.4 76.4 100 139.3 68.1 93.2 95.9 83.0 1.03 0.89 a/ Excluding USSR, Eastern Europe and China. ]/ Rice, tea, palm oil and jute, 1934/38 averaff; rubber, 1939, petroleum and cotton, 1938; tin, 1936; sugar, 1937/38; copra 194850 (prewar figure not available). Sr Appendix I. - 25 - The fall in world demand, resulting from technological changes and from the development of substitutes, was the main cause of the absolute decline in the South- east Asian output and exports of jute and tin. In these two commodities there is a parallel drop in world and Southeast Asian production. In sugar, oils and cotton, the limiting factor has been on the supply side: Southeast Asian output is smaller than it was prewar, while world production and consumption has been rising at a fair- ly high rate and is now substantially above the prewar level. Petroleum output in the area has risen in absolute terms, but the area,'e rate of growth has been by far lower than the world rate. Rubber is a special case. The area's output of natural rubber has risen at a very satisfactory rate in absolute terms (more than 70% over prewar), but the production of synthetics has risen even more. As a result, South- east Asia's share in total rubber production dropped from 81$ before the war to 56% in 1953. The area is the only supplier of tea for the world market, so that the con- siderable increase in output above the prewar level is the same for both the world as a whole and Southeast Asia. On the whole, Table XVI would appear to indicate that, except in tin, jute and tea, the export markets for traditional products were not fully utilized. It is probable that for scme cammodities further increases in exports would have involved some price sacrifices. Nevertheless, other more profitable employment opportunities were not readily available, and since the competitive position of Southeast Asia in its traditional exports was strong an additional export expansion, had it occurred, would have produced a considerable net gain in incame. C. Terms of Trade The adverse effects of the disproportionate increase of the volume of im- ports relative to exports were greatly mitigated by the improvement in the terms of trade. In the face of an inelastic supply of exports, strong postwar external de- mand pushed export price upward, while during the Korean war boom the world-wide in- ventory accumulation resulted in price increases which assumed fantastic proportions for sce canodities. The slump which followed was extremely sharp, but except for copra, jute and cotton, prices did not fall below the pre-Korean level. After mid- 1953, export prices recovered in response to the upswing in economic activity and de- mand in Europe. The upward trend was mild but steady, and on the whole it has been maintained for almost two years. Import prices were much less erratic and their level, except in India and Pakistan during the last few years, remained considerably below that of export prices. - 26 - Table XVII Indiceg of Terms of Trade (1948 = 100) o12 2 12e JW M 1951 19Z2 19 2153" Buza 58 62 100 90 81 175 184 252 209 Ceylon 139 105 100 111 147 151 109 122 132 India 80 105 100 106 105 130 92 97 96 Malaya 119 96 100 97 150 179 140 125 122 Pakistan n.a. n.a. 00 108 118 123 94 70 79 / Price indices are not available for Thailand and Indonesia. It pay be assumed, however, that Thailand's terms of trade behaved similarly to those of Burma and Ceylon, while the Indonesian index would have been similar to that of Malaya. See ECAFE, Gains from Trade in ECAFE Countriep, Economic Bulletin, Vol. V, No. 1, 1954. Burma, Ceylon, India and Pakistan: average for nine months; Malaya: average for six months. fgt gs Appendix I. Year-to-year fluctuations in export and import prices, numerous and exten- sive as they were, do not obscure the basic fact that the area a a whole received additional income of substantial magnitude from improved tema of trade. The gain influenced the balance of payments by increasing foreip exohap supply; at the height of the Korean boom, the expansion of export income us so great that Malaya and Ceylon, countries with the highest export ratios, suffered from an export infla- tion, with an increase in domestic prices of 30-40% in a twelve-uith period. The indirect effect of the improvement in the teso of trade an the.rate of economic growth consisted of a substantial increase in both private savings and tax- ation receipts, which were used, usually with some time-lag, to finance investment. The direct impact consisted, except in Pakistan ere the terms of trade. deteriorated, of a greater rise in real income than was warranted tar the actual increase in real output. The magnitude of this "windfall" gain can be seen in Table XVIII. - 27 - Table XVIII Annual Rates of Growth Excluding and Including the Effects of Changes in the Terms of Trade Country Period Rate of Growth in OutputaJ Rate of Growth in Real Incoma/ Burmsb 1947/48- 2 1/4 4 1953/54 Ceylon 1947-1953 2 3/4 4 Indiag/ 1948/49- 2 1/2 2 1/2 1952/53 Malaya 1947-1953 .3 1/2 4 1/2 Pakistan 1948/49- 2 1/4 2 1952/53 Thailand 1947-1953 6 7 &/ Rate of growth in output excludes, and rate of growth in real income includes, the effects of changes in the terms of trade. 1?/ The 1947-1953 rate of growth appears so high because the 1947 (base year) output and income were extremely low due to the war destruction. The 1953/54 output was only 83% of that in 1938/39, while the 1953/54 real income was approximately equal to, or alightly higher than, the prewar. C/ If the year 1953/54 is included, the average annual rate of growth in aggregate output and income rises to 3% for the entire period. Sogrces and Methods: Appendix I. In absolute terms, and expressed in a uniform currency, it has been esti- mated that the capacity of Southeast Asia to import increased, on account of the im- provement in the terms of trade, asme U.S. $2.4 billion, at 1949/59 ,Orces, over the period between the first half of 1950 and the second half of 1953 .i This can be taken only as a very rough estimate; it contains an upward bias, since in the base year (1949/50) the terms of trade were exceptionally unfavorable for those countries that benefited most from the Korean boon. Nevertheless, the estimate indicates the order of magnitude. The distribution of gains was uneven. A lion's share was taken by Malaya and Indonesia. Ceylon followed next, while Thailand and particularly Burma reaped the benefits later and for a longer period, since the cycle in the price of rice lag- ged behind and was more lasting than in other primary products. The Indian gain was very modest since the benefits from other exports were greatly offset by the world 1/ EAFE, Economic Bulletin, op. cit. - 28 - depression in textile products. Pakistan appears to have been the only country that suffered a net lose. D. Export Promotion Vp. Import Substitution In determining the allocation of resources, the countries in the area con- atantly face the choice between export promotion and import substitution. The prob- lem seems much less acute in India and in Pakistan than elsewhere. In a large coun- try with a variety of natural resources and without an obvious comparative foreign trade advantage on a mass scale, economic development may be expected to depend pri- marily on domestic rather than export demand. In this case, the increase in domestic requirements for raw materials and capital goods would be the basic determinant of export growth. The ratio of imports to gross national income In India is only 6%, and in view of limited prospects for Indian exports, it may be assmed that export expansion would be a follower rather than a leader in the oreation of income. The position of smaller countries in the area is different. They have for a long time been specialized producers for the world market, relying on exports as their most important source of income. In view of the limitations imposed on other possible directions of development, the specialization appears to have paid relative- ly wel, except in Burma. The two countries with the highest ratio of exports to national output, Malaya and Ceylon, enjoy the highest per capita income in the area, and they, together with Thailand, had the highest rate of growth in both output and real income after the Second World War. Whether such a degree of specialization will constitute an optimum use of resources in the future depends primarily on the development of world demand for Southeast Asian export commodities. The demand since the war, with all its fluctua- tions, has been strong, except in tin and jute; and if it is assumed that the present world economic upswing will not be followed by a prolonged and deep depression, the smaller countries in the region would not find it profitable to stop expanding their export industries. On the other hand, there is certainly a point beyond which specialization represents a misuse of resources. The case for diversification is strong, particularly in view of the high rate of population growth, which can be only partly absorbed by export activities. What appears necessary is the maximum use of other investment opportunities alongside export expansion as may be determined by the long-term rate of growth in world demand. Table XI show the changes which have occurred in the proportion of gross domestic product going to exports. It reveals conflicting tendencies from country to country. On the whole it indicates a decline; except in Indonesia, for which a particularly depressed postwar year is recorded, the decline is moderate. This is partly the result of favorable export prices, but it also suggests that the distribu- tion of resources between home and export use has not undergone radical change since the war. -.29 - Table XIX Ratio of Exportp of Goodl and Services to Gross Domestic Product (in percentages) 122-98 Zi Burma 32.8 15.6 29.8 Ceylon 43.4 37.0 35.3 India n.a. 5.4W 4.7 Indonesia 20.3 n.a. 11 . Malaya n.a. 42.1 35 Pakistan n.a. 4.4 9.9 Thailand 21.0 1.4/ 22.0 a/ 1948. 1952. Source: Appendix I. E. Capital Mbvements The extent to which current national output was supplemented by external re- sources appears relatively small. The deficit on current account of the area as a whole during the seven-year period 1947-1953 amounted to $1.7 tillion, or $240 million per annum. It was covered mainly by grants-in-aid and by drawing on external reserves. Grants amounted to some $600 million, while the utilization of reserves gave an additional $800 million. The net foreign capital inflow was small, about $300 million. Gross import of capital was, of course, larger, but countries in the area have since the war repaid a considerable portion of their external debt and have also purchased some of the foreign-owned assets, thereby reducing the not amount of resources received on capital account. A great part of external payments consisted of investment income and other payments to foreign production factors. In the area as a whole, excluding Malaya, such payments amounted to about $1,000 million during 1947-1953, or slightly less than $150 million per annum. In Malaya, investment payments were exceptionally large, about $900 million in the seven-year period. Table XX compares the balances on current external account with gross national income and gross home investment. - 30 - Table XX Relative MMItude of Capital. Movementpsg (in percentages) Annual Averaomea/ Cmd 24 Indonesi4 Mial= Pakist 1. Balance on current account as percen- tage of grose ra- tional income 1.2 -2.4 -0.4 -1.0 2.3 -0.8 2. Balance on current account as percen- tage of gross fixed investment/ 9.4 -24.0 -4.1 -19.4 24.8 n.a. 3. Balance on goods and services as percen- tage of gross national incomES/ 2.6 0.7 -0.4 0.3 10.2 -0.6 4. Balance on goods and services as percen- tage of gross fixed investment.2/ 19.9 6.7 -4.0 7.1 110.8 n.a. 1A/ Comparable figures for Thailand are not available. 1?/ Deficit is indicated by a minue sign. Sy/ The balance on current account includes, and the balance in goods and services excludes, investment and other foreign factor payments. Sources and methodps Appendix I. Three countries in the area-Malaya, Burma and Thailand--had an over-all net surplus on both current account as a whole and on the account of goods and serv- ices. Each received some external aid, loans and direct private capital. However, their accumulation of external reserves was larger than the amounts received from abroad. The other four countries--Ceylon, India, Indonesia and Pakistan-were not recipients of external resources, drawing on their international assets and also receiving grants or loans from abroad. In relation to national income and investment, however, the magnitude of these resources was modest. In Ceylon and Indonesia, the inflow of funds was offset by investment payments. The data in Table XX should not obscure the fact that foreign financial re- sources had a practical importance far above that suggested by the relative magni- tudes. In some countries, like India and Pakistan, they were crucial in averting temporary balance of payments crises, and they also served to defray the heavy foreign exchange cost of a number of large investment projects, particularly in electric - 31 - power, irrigation and transportation, which otherwise would have not been readily undertaken. The low level of postwar capital imports has been accompanied by a decline in the ratio of investment payments to exports compared either to the prewar level or to the level soon after the war. Table XII Investment- &rvice Rati (Gross payments on investment account as prcentage of exports of goods and services) Country 1=82 Burma 18 n.a. 1.4 Ceylon 18 10.6 3.7 India .) ) 4.9 Pakistan) )12.7 ) 2.4 1.8 Indonesia 31a/ 10.0 Malaya n.a. 8.62/ 3.8 Thailand n.a. 5.3 1.8 a/ Rough estimate. / 1952. / 1949. Source: Appendix I. While the absolute amount of investment payments remains quite large, the decline in the proportion is substantial. It suggests a relative improvement in the external capital position, it introduces more flexibility in the disposition of foreign exchange earnings and, if savings are not reduced, it raises the countries' capacity to service new external debt. The need for external financial resources may be expected to rise swiftly and substantially in future years. After a relatively slow start, the countries in the area are only now entering a dynamic stage of development, which is likely to generate a need for capital at a much faster rate than that at which domestic savings are likely to grow. In addition, the pressure on the balance of payments will probably increase more than is warranted by the lack of domestic savings, due to the inelasticity of the domestic productive structure and the uncertainty of world de- mand for the area's traditional export commodities. Almost all countries in the area are planning a considerable increase of present public investment expenditure. The greater emphasis on industrialization apparent in the drafts of the new plans will raise the import requirements for capital goods, while expected increases in money incomes, after basic food requirements are satisfied, are likely to result in an in- crease in the propensity to import industrial consumer goods. The demand for imports appears to have risen faster than income in the last several years, and there is no reason to believe that this trend will be reversed in the immediate future. Increased import requirements can be partly met by further drawing on avail- able foreign exchange. reserves. In spite of a cansiderable liquidation which - 32 - occurred both before and afteroothe Korean war boom, the reserves are still relatively high (except peaps in In&mana and Pakistan), due primarily to the spectacW imroveaents in the terms of trade eduring 1950-1951. Table XXII Ratio of External Reperves to Annual ImDorts (in millions of US dollars) Present gold and Annual imports Gold and foreign exchange foreign exe (1953 - 1954 holdings as percentage of Cg,, holdna .:ae) annuaL .imorts Burma 142V 190 75 Ceylon 205W 315 65 India 1,782 1,213 147 Indonesia 295w 691 43 Malaya 67W 1,042 65 Pakistan 191 336 57 Thailand Total 3,5%6 4,115 86 a/ Malaya, December 31, 1953; Burma, India, Indonesia, Pakistan and Thailand, December 31, 1954; Ceylon, January 31, 1955. 12/ Including foreign assets of commercial banks. Source: Appendix I. There are rather rigid limits, however, beyond which the drawing on external assets endangers both the long-run external liquidity and the internal monetary sta- bility of the particular country. Except under exceptionally favorable circumstances, countries engaged in a development process are not likely to replenish external re- serves as long as there is a rapid accumulation of producers' capital at hcme. While almost all countries in the area may use a part of their reserves to finance invest- ment, they cannot do so for a prolonged period. All this raises the problem of future foreign capital requirements. If a low level of capital-output ratio is maintained, the task of development will be facilitated but it will not be solved. The popular pressure to raise the rate of growth above the 1947-1953 level is great; the growth already achieved actually serves as an additional incentive to a more rapid advance in the future. A recurrence of fortuitous gains from external price movements cannot be expected, and while domestic savings may be expected to rise, all present signs suggest that the rate of increase will be moderate. For economic growth of all countries in the area, but particularly for those on its periphery the importance of world economic conditions cannot be overemphasized. The trend in world income, consumption and trade determines the economic life of Malaya and Ceylon; it affects the most important single source of income in Burma, Thailand and Indonesia. The future economic development in this part of the area is closely linked with both the long-term growth and the cyclical fluctuations else- where, particularly in North Amerioa and Western Europe. High rate of growth in the rest of the world is a necessary condition though not the single essential of South- east Asian growth. APPENDIX I Sources and Methods Table I United Nations, Statistical Yearbook; FAQ, Yearbook of Food and Agri- Eiturat_itistics; FAO, Monthly Bulltin of Agricultural Economics and Statistics. Table II For all countries exceDt India and Burma: FA0 Yearbook of Food and Agri- cultural Statistics; FAO, Monthly Bulletin of Agricultural Economics and Statistics, March 195.7 For India: The Eastern Economist index until 1948/49 (1936/37-1938/39 base) and I-ndi Department of Agriculture index beginning 1949/50 (1949/50 base). For Burma: Ministry of National Planning, Economic Survey of Burma. Table III Economic Commission for Asia and the Far East, Economic Survey of Asia and the Far East; ECAFE, Economic Bulletin for Asia and the Far East; United Nations, MonthlyBulletin of Statistics. Table IV United Nations, Statistical Yearbook; FAQ, Yearbook of Food and Agri- cultural Statistics; ECAFE, Economic SU-ey of Asia and the Far East. Table V Fercentage changes in output and growth rates are derived from the follow- ing sources: Burma: Official GNP estimates by the Burmese authorities (The Ministry of NTional Planning, National Income of Burma; The Ministry Of National Pianning, Economic Survey of Burma). Ceylon: Data in current prices computed by the Ceylonese Ministry of Y ance (Department of Census and Statistics, Statistical Abstract of Ceylon). After some conceptual adjustments, the conversion into constant prices has been made by using the index of unit value for exports and the wage rate index for the rest of the econony. India: For the period 1948/49-1951/52, official estimate (Government of Idia, Central Statistical Organization, Estimates of National Income, 1954). For the years 1952/55-1953/54, semi-official preliminary estimate (Planning Commission, The Second Five Year Plan, A Tentative Framework, 19). The output-n the last two years may be slightly understated. Indonesia: Semi-official estimate by a foreign expert (Daniel Neumark, The National Income of Indonesia, Economics and Finance in Indonesia, June 1954). Mlaya: Data in current prices for 1947 and 1948 computed by Frederic Benham, The National Income of Malaya, 1951. Data in current priEsW7for 19971953 computed by the IERD Mission (IBRD, The Economic Development of Mlaya, 1955). After some conceptual adjustments, the conversion into constant prices has been made by using the index of unit value for exports and the average of the three existing cost of living indices for the rest of the economy. Pakistan: Data in current prices for 1948/49 computed by The Minist of Economic Affairs, Government of Pakistan, Report of the Economic Appraisal Committee, 1952. Preliminary data in current prices for 1949/50-1952/53 Appendix - -2- computed by The Central Statistical Office, Government of Pakistan, National Income Astimates, 1955. The conversion ito constant prices has been made by using the index of unit value for exports and the cost of living index for the rest of the econozy. Thailand: Crude estimate based on (a) J. Gould, Preliminary Estia tes of TEW Gross Geographical Product and Domei-fltional Income of Thailand, 1938/39, 1946/195o and 1952; (b) index of agricultural production; (c) volume changes in main export commodities. Table VI The-Indian rupee is chosen as a common currency into which other national data are converted. It is at par with the Ceylonese rupee and the Burme yat; by its weight alone it expresses mcre adequately than any other currency the relative prices ratios. Since there are differences in the time-span for which the national rates of grcwth in output have been measured, while year-to-year rates diverge from the five or six-year annual average, the comparability was achieved by projecting backward to 1948 a national output which would have been obtained if year-to-year rates of change had been equal to the annual average. The 1948 figures thus computed are somewhat different than the actual shown in the notes on Table V. In order to have comparable concepts, estimated depreciation allow- ances have been added to the not national output of India and Pakistan. In India, depreciation in the year 1948/49 is put at the same level as in 1949/50, for which an estimate of Ra 5.1 billion is available, covering depreciation, repairs and maintenance (huberjee and Gosh, The Pattern of Income and Expenditure in the Indian Unions international Statistical Conference, 1951). For the year 1952/53, depreciation is estimated at Rs. 5.8 billion on the assumption that replacement regirements were in- creasing at the same rate as net national output. Since the figures are relatively small, final results in the table would not be changed if some other assumption was adopted. For Pakistan, it has been assumed that depreciation allowances amounts to 4% of the gross product. Sourcest Output data, Table V and notes; population data, United Nations, Statistical Yearbook. Table VII See notes accompanying Table V. Table VIII All gross investment data (unadjusted) appear to include maintenance and repair expenditure alongside capital consumption allowances. The avail- able evidence for Ceylon and Malaya suggests that such expenditure amounts to about 20 of reported gross fixed investment (K. Williams, The National Income of Ceylon, 1951; the comparison of Benham's and IB-D figures for Malaya). On the basis of this it has been assumed that the same ratio applies to other countries in the area, and corresponding adjustments have been made. It should be noted that in the Scandinavian countriess which include the maintenance and repair expenditure into gross capital for- mation, this expenditure has been estimated for Norway at 18%, for Denmark 26% and for Sweden 29% of gross fixed investment (OMC, Statistics of National Product and Expenditure, 1954). - 3 -Appendix I 3- Sources: See notes on Table V for Durma, Ceylon and Halaya. For India, inaition to sources for Table V, B. R._Shenoy, Basic Considerations relating to the Plan Frame, 1955. Forindonesia, the 1938 figures taken from ECAFE Economic Survey for Asia and the Far East, 1950, and SCAFE, Economic ulletin, Vol. III, Nos. 1-2. Table IX See notes on Table V. For India in 1953/5h, Planning Commissionp Third Progress Report, 1954. Table X Capital-output ratios have been co-puted directly, i.e. they result from dividing aggregate investment by increase in output. One-year time lag has been assumed as a gestation period. Investment data have been reduced to constant prices by using the British index of export prices of metal and engineering goods for the import component, and the appropriate domestic price or wage-rate index for the domestic component. Indirect computation (investment rate divided by the rate of growth in output) yields very similar results as direct computation. Sources: See notes on Tables V and VIII. Table XI See Appendix II. Table XII Sources: See notes on Tables V and VIII. In addition, International - FEEZFu, Balance of Payments Yearbook. For India, Taxation Enquizy Commission Report, 1955. Both gross product and gross savings exclude maintenance and repair expenditure. Table XIII See notes on Tables V, VI and XII. Data on price movements (mostly cost of living) are taken from: United Nations Monthly Bulletin of Statistics; International Monetary Fund Internatio Financial Statistics; ECAFE Economic survey and Economic Bulletin. Rates of public savings (31?T#ence between public revenue and current expenditure) and of aggregate taxation have been computed from data in ECAFE Economic Survey and Ebonomic Bulletin. Gross domestic savingi 8 ude, and gross national savings in- clude, factor payments (investment income and private remittances). Table XIV See notes on Table XX for growth in real income. Data on growth in the volume of imports, except for Thailand, are taken from: United Nationsp Monthly Bulletin of Statistics; ECAFE Economic Survey aM Eco Bulletin. For Thailand, the 195Ncrent value has been decreased by 20% to obtain an approximate volume figure (1948 base). Table XV See notes on Table XIV. Table XVI See notes on Table I. Table XVII United Nations, Monthly Bulletin of Statistics; International Monetazy Funds Interwional Financial Statistics; ECAFE, Economic Survey and Economic Bulletin. - APPENDIX II Public Development Programs in South East Asia 1. The attached tables contain basic information on development programs and major investment projects presently executed or contemplated by the public authoritke in India, Pakistan, Ceylon, Burma, Indonesia and Malaya and Singapore. The periods covered by the programs vary from country to country, and great differences exist in the extent to which the countries actually follow in practice their investment plans. As a result, the compiled data for the area as a whole should be regarded as highly tentative, and any interpretation of the inter-country differences should be made with utmost caution. 2. In Tables A, B and C, an attempt is made to put together all available r(gregate information. Table A shows the total investment called for by the national develonment programs, as well as the annual averages. Converted into U.S.$ at the official exchange rates, the annual average for the area as a whole amoVnts to 41,623 million. LI Table B, this average is related to the population numbers and to national incomes, in order to obtain an approximate idea of per capita public develop- ment expenditure and of the proportion of national income which will be devoted to oublic capital formation. For the area as a whole, the aqnual per capita spending on nublic development is planned at about $2.80, while the programmed public investment rate varies between 2.6% -nd 13% of the national income. Table C presents the dis- tribution of public development expenditure by economic sector. In addition, in- formation is given on actual expjenditure during 1953/54. It shows the total for the q.rea of $1,378 million, compared to the planned annual average of $1,623 million. In the last year (1953/54), heavy emphasis was laid on agriculture, irrigation and power (41p of total expenditure), and on transport and communications (26%). 3. All data shown in the attached tables have been compiled from the avail- able published material on public development programs in the area. Since the pro- grams are very flexible, particularly in some countries, the information presented reflects only the general framework of the desired rate and pattern of development. In practice, both the overall size and the composition of investment expenditure may differ considerably from the concepts embodied in the existing programs. Table A Public DeveloDment Programs, Totals and Annual Averages (in millions) Total Program Annual Average Nat'1. OS$ Nat'1. US$ Oountry Currency Period Currency Equivalent Currency Equi%a- lent. India Rupee 5 yrs.,1951/52-55/56 22,489 4,710 4,498 942 Pakistan Rupee 3 yrs.,1951/52-53/54 2,066 622 689 207 Ceylon Rupee 6 yrs.,1953-1959 1,600 337 267 56 Burma Kyat 9 yrs.,1952-1960 5,100 1,067 564 118 Malaya & Malayan Singapore $ 5 yrs..1955-1959 1,350 450 270 90 Indonesia Rupiah 5 yrs..1956-1959 11,400 1,000 2,280 200 Total 1,623 -2 - Appendix II Country Notes; India: The 1953 revision of the Five-Year Plan. The annual average in the Six-year Plan, which was submitted to the Colombo Conference in 1950, amounted to $644 million, and that in the original version of the Five-Year Plan (1952), $869 million. Subsecuent revisions raised the total program to Rs.22,489 million, or $942 million annually (shown in the table above). The Second Five-Year Plan is now in preparation. According to preliminary renorts, it is intended to raise development ex,enditure by 50 to 100% above the First Five-Year Plan. Pakistan: Actual public spending on development in the last three years. The plan originally prenared for the Colombo Conference in 1950 amounted to Rs.2,600 million (including Re.400 million private investment) over the -eriod of six years, 1951-1957, or 4131 million annually. The Colombo Plan was superseded by the Two-Year Priority Program, 1951, amounting to Rs.507 million or $77 million per annum. Both programs were highly tentative with regard to both cost estimates and coverage; actual spending was almost double that original- ly contemplated. For this reason, actual rather than planned expenditure is presented in the table. A comprehensive development program is in oreparation. In the meantime, the Loonomio Apraisal Committee has tentaively estimated public development requirements in 1953-1957 (five years) at Rs.3,000 million or $181 million per year. Ceylon: The development program outlined by the IBED mission in 1952. The original national version, submitted at Colombo in 1950, amounted to Rs.1,359 million for the six-year period 1951-1957 ($48 million annually). The second versim, prepared in 1951, amounted to RO. 3,200 million (gross) for the same period, yielding an annual average of $112 million. None of the three programs has been officially adopted as a formal development plan. The actual average public expenditure on development during the last three years (1951/52-1953/54) amounted to $64 million. Burma; Planned net public investment (alone and in joint venture with nrivate enter- prise) within the develonment program prepared in 1953-54. Total orogram, including both public and rivate investme.it (net), amounts to K.7,500 million or $174 million annually. Total gross investment is planned at K. 10,675 million or $248 million per annum. As formulated, the program is more an overall guide to develonment policy than a rigid set of investment targets. Malaya and Singapore: The development program recommended by the IBRD mission, 1954. The original plan, submitted at Colombo in 1950, amounted to M$ 838 over six years, 1951-1957, or US$ 45 million annually. The revised version for three years, 1951-53, was considerably higher: M$ 603 million, or US$ 67 million per annum. The IRD recommendation will soon be considered by the Govern- ment. Indonesia: The draft Five-Year Plan as reported most recently in the press. Actual spending in 1951-1953 amounted to RP. 5,484 or at the annual rate of $' million. Appendix II General Note: The following exchange rates were applied for conversion into US dollars: Country Currency Currency Units per US dollar India Rupee (Re.) 4.775 Pakistan Rupee (Re.) 3.320 Ceylon Rupee (Re.) 4.750 Burma Kyat (K.) 4.780 Malaya malayan dollar (M) 3.060 Indonesia Rupiah (Rp.) 11.400 Sources: India: The Five-Year Plan Progress Report, 1953/5L,; the Colombo Plan, 1950; The First Five-Year Plan, 1952. Pakistan: The Colombo Plan,.1950; The Ministry of Economic Affairs, Report of the Economic Appraisal Committee, 1953; The Third Annual Report of the Colombo Plan, 1954. Ceylon: IBRD, The Economic Development of Ceylon, 1953; The Colombo Plan, 1950; The First and the Third Annual Renort of the Colombo Plan, 1952 and 1954. Bumi: The Economic Survey of Burma, 1954. Malaya and Singanore: IBERD, The Economic Develo?ment of Malaya, 1955; The Colombo Plan, 1950; The Second Annual Report of the Colombo Plan, 1953. Indonesia: Press reports, March 1955; The Second and the Third Annual Report of the Colombo Plan, 1953 and 1954. Appendix I Table XVIII Rates of growth in output are taken from Table V. Rates of growth in in,- come have been computed from national accounts (see notes on Table V). The conversion into constant prices has been made by using the index of import prices for exports and the appropriate domestic price index for the rest of the econogr. Table XIX For gross domestic product data see notes on Tables V and VI. Data on exports are taken from national statistics and from International Mionetary Fund, Balance of ayments "earbook. cable XX See notes on Tables V, VI, VIII and XIX. Table I See notes on Table XIX. Appendix II TABLE 3 Relationship Among, the Main Agzregates A. Planned Public Development EMenditure Per Capita in US $ Equivalent India Pakistan Ceylon Burma Malaya Indonesia Total Annual average .lanned exendi- ture, mln.US4 942 207 56 118 54 200 1,577 3stimated po- pulation, thou- sands 372,000 80,000 8,384 19,249 7,057 81,100 567,790 Annual expnLen- diture oer capita, US$ 2.53 2.59 6.86 6.07 7.65 2.47 2.78 B. Planned Public Development Expenditure as Percentage of National Income Annual average planned expendi- ture, min. national currency Rs. 4,498 Re. 689 Rs.267 K. 564 M$ 270 Rp.2,280 National Income 105,800 18,067 4,374 4,267 5,462 88,690 Annual ex- Denditure as % of national income 4.25 3.81 6.10 13.2 L.94 2.57 Country Notes: India: po-ulation in 1953; net national nroduct in 1951/52. Pakistan: estimated in 1954; national income in 1952/53. Ceylon: population in 1954; national income in 1953 estim.ted as 95% of gross national product. Burma: po-ulation in 1954; not national product in 1952/53. Malaya: population in 1954 (including Singapore); national income in 1953 estimated as 96% of gross national product. InLonesia: .opulation in 1954; national income in 1952. Appendix II Sources: Annual average planned exnenciture taken from Table A. Data on population from United Nations, Statistical Yearbook, 1954. National income data: India, Central Statistical Or.anization, Istimates of National Income ' 1948/49-1951/52, New Delhi 195' ; Pakistan, Central Statistical Office, Go- vernment of ?akistan, 1954; Burma, The Ministry of National Planning, The National Income in 1952/53; Malaya, IBRD, The Economic Development of Malaya, 1955; Indonesia, D. Neumark, The National Income of Indonesia, 195U. w 6. Appendix II TABLA C Distribution of Public Develonment Expendit%reby Economic Sector 1. Distribution of Planned Rxnenditure Percentage Distribution Irriga- Total tion, Transport Industry Social welfare Program Agri- multi-pur- & com- and & Misc. invest- Country Period in US$ mln culture pose Pro- nications Mining ment. jects and power o India 51/5Z-55/56 4,710 17% 27% 2L% 8% 24O Paki&- tan ./51-57 783 18 32 20 19 11 Ceylon 53-59 337 17 25 27 5 26 Burma b/ 52-60 1,569 n.a. 19 20 n.a. 27 Indo- nesia 56-60 1,000 13 25 25 25 12 Malaya 55-59 450 15 12 20 5 48 2. Distribution of Actual Spending in 1953/54 Percentage Die tribut ion Irrigation, Actual multi-rAurpose Transport Industry Social welfare spending Agri- projects and & commu- and and others Country in US$ m1n. culture oower c/ nications Mining India 745 14 34% 26% 4% 22% Paidstan 273 2 29 28 15 26 Ceylon 66 19 22 29 8 22 Burma dJ 78 13 9 36 20 22 Indonesia 152 12 21 24 34 9 Malaya 64 2 25 14 0 59 Total 1,378 12 29 26 10 23 _g The program submitted to the Colombo Conference. :g Both public and pri*te net investment. Do~ A substantial portion of multi-purpose projects can be considered as assisting agriculture. d/ Gross investment,