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close this bookPrivate Sector Development in Low-Income Countries - Development in Practice (WB, 1996, 188 p.)
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

Recent policy reforms

Reforming low-income countries responded by implementing reform programs that emphasized macroeconomic stability, openness to trade, and price deregulation. Exchange rate reforms have eliminated large black market premiums in countries where the official exchange rate had been kept artificially low. Nominal devaluations, leading to large real exchange rate deprecations, and reduced rationing of foreign exchange, often through auctions, have been among the biggest changes. The devaluation of the CFA franc in January 1994 symbolized the changing consensus on exchange rate policy in Africa.

Trade reform has been a central part of these reform packages. To liberalize imports, governments largely started by removing foreign exchange rationing and non-tariff barriers such as licensing and quotas. For tariff barriers, most governments have adopted a gradual approach—both because of the importance of trade taxes for revenues and because firms need to adjust to reductions in effective protection. Progress often has focused on simplifying tariff codes and reducing maximum rates. On the export side, there has been movement on reducing export taxes—and several governments raised farm-gate prices even as world prices for export crops fell.

Trade reforms have been complemented by domestic pricing reforms in Africa, generally reducing the number of goods subject to price control. Most price controls on agricultural outputs have been lifted, although only half the reforming economies have removed price controls and subsidies for fertilizer. The marketing of staples (except maize) has been liberalized in almost all countries. Most manufactured products have been decontrolled, except for petroleum, where government involvement is extremely costly, especially in countries with refineries.

Reforming low-income countries responded by implementing reform program that emphasized macroeconomic stability. Openness to trade, and price deregulation

Most reforming countries in Africa have also improved their monetary policies. But delays in dealing with fiscal deficits, which came from weak tax revenues and public sector losses, have put a disproportionate burden of stabilization on monetary policies. The costs of tight monetary policies have been high interest rates and restricted access to credit for the private sector. Small enterprises and farmers have been particularly hard hit.

In China, the government redirected the country's huge savings to the provinces by liberalizing agriculture and making coastal and economic zones attractive manufacturing platforms for export. The economic reform program emphasized gradual trade reform, exchange rate reform, and internal price deregulation. In India; the government's reform program focused on fiscal stability, with trade liberalization (particularly a reduction in the coverage of quantitative restrictions on imports) and deregulation of internal markets (including greater competition in the financial sector).