A Prize Worth Having: The IMF and Price Stability

This essay assesses the benefits of a low-inflation environment for the world economy. To start, the main costs of inflation are reviewed—namely, how it distorts the calculus of profitability, encouraging short-term projects at the expense of longer-term investment and diminishing the value of relative price signals. Then, the progress that most countries have made in recent years toward achieving low inflation is reviewed. The new low-inflation environment has brought noticeable gains—faster global growth, increased stability, and reduced vulnerability. The role of the IMF in helping foster a low-inflation environment is also discussed, highlighting the Fund’s important support for policy reform efforts in its member countries. To conclude, the essay identifies future challenges for economists and policymakers: locking in the benefits of low inflation, identifying how far policies should go toward lowering inflation further, and expanding the knowledge frontiers on the transition toward adopting inflation targeting.

The Importance of Economic Policy in Development: Contrasts Between Korea and Turkey

In the mid-1950's, Turkey was a much richer country than Korea. With about the same population, Turkish GNP was about three times that of Korea, Turkish exports were fifteen times those of Korea, and the Turkish savings rate was much higher than Korean. By 1980, the situation was dramatically reversed, as Turkish income was 40 percent below Korea's, Turkish exports were less than one-fourth those of Korea and the Turkish savings rate was about two-thirds of Korea' s. This paper examines the variables that affected economic growth and shows the critical importance of the different policy choices in the two countries.