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close this bookPrivate Sector Development in Low-Income Countries - Development in Practice (WB, 1996, 188 p.)
View the document(introduction...)
View the documentForeword
View the documentAcknowledgments
View the documentAcronyms and abbreviations
View the documentDefinitions and data notes
View the documentOverview
close this folderChapter 1-From state to market uneven progress
View the document(introduction...)
View the documentRecent policy reforms
View the documentFast and slow growers
View the documentThe drag of public
View the documentRegulation and barriers to competition a harsh business environment
View the documentPoor quality of physical infrastructure and human resources
View the documentThe reform agenda
close this folderChapter 2-Establishing an attractive business environment agile firms, agile institutions
View the document(introduction...)
View the documentThe private sector's assessment of the business environment
View the documentFoundations of a dynamic private sector
View the documentSecure, flexible transactions
View the documentCompetition-and simplified regulation
View the documentEnterprise development
View the documentEfficient infrastructure
View the documentThe agenda for developing an attractive yet competitive business environment
close this folderChapter 3-Reforming public enterprise farther performing and faster
View the document(introduction...)
View the documentPublic enterprises are not performing well
View the documentTurning to the private sector—slowly
View the documentThe way forward—farther and faster
close this folderChapter 4-Building robust financial systems— difficult but pressing
View the document(introduction...)
View the documentWhat went wrong?
View the documentWhat has been done?
View the documentWhat remains to be done?
View the documentThe path for reform
View the documentSelected bibliography

What went wrong?

Interventionist policies of the past crippled the fledgling financial systems of many low-income countries, including most of those in Sub-Saharan Africa. Large budget deficits were monetized, and inflation followed. To keep nominal rates from rising, interest rates were controlled. But the resulting reduction in real rates reduced incentives for the formal banking system to intermediate savings. It also fostered capital flight and encouraged enterprises with access to credit to overborrow. Inefficient public enterprises grew at the expense of the more efficient private sector. Many commercial banks were nationalized. Credit was allocated by government decree. And banks lost their ability to screen and assess credit risks. Central barking and oversight withered to the detriment of the banking system. Bad loans accumulated, and the losses were periodically recognized and monetized—adding to the bouts of inflation and the unpredictability of the economic environment. This situation has left most low-income countries ill-equipped to generate the private supply response to structural reforms.