Report on adjustment lending II : lessons forEastern Europe

The Bank introduced adjustment lending in 1979 to help member countries restructure their economies to create conditions conducive to equitable growth while maintaining a sustainable balance of payments. A review of the experience of other nations with adjustment problems may provide useful knowledge for Eastern Europe as the region attempts to make the transition to market economies and to integrate with the world economy. Reforms such as those that Eastern Europe is initiating now have little precedent in recent economic history. Evidence from other countries indicates that output levels are likely to suffer in the early years of massive economic restructuring. Governments must be aware of these adjustment costs, which represent an investment in a better economic system. Recent experience in other countries suggests several constructive steps that Eastern European countries can take to ease their transition to market economies. These include : 1) placing a high priority on dealing with high open or repressed inflation and other manifestations of severe macroeconomic imbalances; 2) removing restrictions on labor mobility and on the exit and entry of firms at the same pace as they liberalize trade; and 3) moving early to create markets for working capital financing - with appropriate mechanisms to assess credit risks - in order to encourage economic restructuring.Economic Stabilization,Environmental Economics&Policies,Country Strategy&Performance,Economic Theory&Research,Achieving Shared Growth

Adjustment programs and Bank support : rationale and main results

This paper reviews the rationale for programs and then evaluates the design, implementation, and effectiveness of Bank-supported adjustment programs anddiscusses lessons that have emerged from the analysis of adjustment problems and programs. In countries that are experiencing acute macroeconomic imbalances manifested in the form of high fiscal deficits, balance of payments crisis and high open or repressed inflation, adjustment should start with policy and institutional reforms to deal wtih the ultimate causes of the macroeconomic crisis. Once enough progress has been achieved in reducing inflation and the fiscal and balance of payments deficits, other structural reforms aimed at improving resource allocation and achieving sustainable and equitable growth should be attempted. Among the latter reforms, the most common are: public sector reforms, trade/domestic competition reforms and financial sector reforms. Labour market reforms are not as common as they should be. The Bank can assist the adjustment process by providing both finance and policy advice. Furthermore, the Bank helps countries in mobilizing other sources of finance. The ultimate success of the adjustment programs depends not only on getting the right policies in place but also on increasing investment -- including efficient public investment, saving and growth.Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Achieving Shared Growth,Economic Stabilization

Production Technology Differences Between Canadian-Owned and Foreign-Owned Firms Using Translog-Production Functions

The discussion of foreign ownership in Canada frequently refers to a conventional view that foreign-owned firms are larger, more capital-intensive, pay higher wages and are more efficient. Evidence for these characterizations has unfortunately come from comparisons of partial productivity measures of labor or measures of average capital-intensity, with all the uncertainty that this entails. It is the object of this paper to compare the technology characteristics of Canadian and US-owned establishments in Canada by means of a translog production function estimate, utilizing micro level data. While we find strong evidence for the view that the two groups operate with different technologies, and that US-owned establishments are larger, we do not find support for the conventional view that US-owned establishments are more capital-intensive, have higher labor productivity, or lower costs of production.

Private Capital Inflows and the Role of Economic Fundamentals

Private capital flows returned to the developing countries in the late 1980s, only a few years after the debt crisis. Underlying this surge in inflows there is a decrease in interest rates and a slowdown in economic activity in the developed countries, and an improvement in economic prospects and creditworthiness in the recipient countries. The latter is due, in part, to the implementation of structural reforms comprising the deregulation of financial and labor markets, the dismantling of barriers to trade, and the reduction of restrictions on capital movements.

Leading Logarithms in Field Theory

We consider the Sudakov form factor in effective theories and we show that one can derive correctly the double logarithms of the original, high-energy, theory. We show that in effective theories it is possible to separate explicitely soft and hard dynamics being these two regimes related to velocity conserving and to velocity changing operators respectively. A new effective theory is sketched which extracts the leading collinear singularities of the full theory amplitudes. Finally, we show how all leading logarithmic effects in field theory can be obtained by means of simple effective theories, where they correspond to a renormalization effect.Comment: Latex file, 20 pages, no figures, corrected some typo

Inflation Targeting in Latin America

This paper analyzes Latin America’s recent experience with the use of inflation targeting (IT) while the region has made substantial progress toward eradicating high inflation. The paper assesses the implementation and results of inflation targeting in Latin America from a broad perspective. It starts by reviewing the issues relevant for the choice of exchange-rate regimes and monetary frameworks, documenting the evolution of exchange rate and monetary regimes in Latin America during the last two decades. Then it describes the Latin American and world samples of inflation targeters and compares their performance to non-targeters, focusing on their success in meeting inflation targets, their output sacrifice in achieving low inflation, and their output volatility. A more detailed analysis of five IT experiences follows for Brazil, Chile, Colombia, Mexico, and Peru, with reference to the design of IT in the world sample of inflation targeters. The paper concludes by focusing on the dynamics of inflation reduction in the longest IT experience in the region (the case of Chile), evaluating how IT has affected inflation expectations and hence the effectiveness of monetary policy, using a battery of alternative model estimations and simulations.

Growth and Adjustment in Chile: a Look at the 1990s

This study provides a thorough review of the post-1998 slowdown in economic growth in Chile. This was a rather turbulent period in economic history, and as such, it motivates to carry on research on the likely causes of the slowdown and its possible solutions. The authors use an econometric model to test three competing hypotheses and derive general implications from the analysis. The first hypothesis puts the blame on bad luck, because of external shocks: namely, terms-of-trade losses and reduced capital inflows following the Asian crisis. A second hypothesis blames the slowdown on policies implemented as a response to the deteriorating external conditions, in particular the inability to achieve a balanced mix of monetary and fiscal policies during the 1997–1998 period. Fiscal imbalances and restrictive monetary policy, it is argued, led to very high interest rates, severely affecting the investment and consumption decisions of the private sector. Finally, a third explanation is that the lowdown resulted from the completion of a high growth cycle associated with the structural reforms introduced in the 1985–1995 period. The authors conclude that the slowdown in the Chilean economy was a mix of severe external shocks and lack of cooperation between fiscal and monetary policies.

Inflation Targeting in Latin America

This paper analyzes Latin America’s recent experience with the use of inflation targeting (IT) while the region has made substantial progress toward eradicating high inflation. The paper assesses the implementation and results of inflation targeting in Latin America from a broad perspective. It starts by reviewing the issues relevant for the choice of exchange-rate regimes and monetary frameworks, documenting the evolution of exchange rate and monetary regimes in Latin America during the last two decades. Then it describes the Latin American and world samples of inflation targeters and compares their performance to non-targeters, focusing on their success in meeting inflation targets, their output sacrifice in achieving low inflation, and their output volatility. A more detailed analysis of five IT experiences follows for Brazil, Chile, Colombia, Mexico, and Peru, with reference to the design of IT in the world sample of inflation targeters. The paper concludes by focusing on the dynamics of inflation reduction in the longest IT experience in the region (the case of Chile), evaluating how IT has affected inflation expectations and hence the effectiveness of monetary policy, using a battery of alternative model estimations and simulations.