"Rethinking Growth Policies in the Developing World:" Comments 5

By Paul J Amani (Tanzania)

1.0 Introduction

For decades, many poor countries of the world including Tanzania implemented a series of development reform policies mostly conditioned by International Financial Institutions (IMF and WB), with the aim of achieving economic growth and alleviate poverty. The emphasis of these policies changed over time depending on what economists believed to be the best course of action for the country(s) to achieve high and sustainable economic growth. Notwithstanding of all the efforts, Sub-Sahara African countries (including Tanzania) remains the poorest in the world. This paper therefore, discusses the impact of the growth policies by citing Tanzania’s experience. A major reference is made on Dan Roderick’s lecture at Havard University- “Rethinking Growth Policies in the Developing World”, 2004.

2.0 Summary of Rordick’s Lecture

In my understanding, I think the author is concerned with ongoing poor economic situation among poor countries particularly those in Sub-Saharan Africa despite decades of tying reforms policies in the pursuit of social, economic and political development. Without doubt, the founding pillar of these policies is the orthodox development thinking and theories; “stabilize, liberalize and privatize” of the advanced countries proposed as a cure for the economic destitution of the poor countries. Of all reforms trade liberalization has been pointed as the most striking policy as it required the developing countries to “eliminate restrictions on imported goods and services”. Despite the fact that many countries adopted the policies, only few succeeded. China, Vietnam and India for example, become successful through unorthodox means-by grafting market system on top of a planned system, underplayed private property rights, and opened trade to the world- in a highly protected trade regime with favors on special economic zones. He insists the importance of countries to protect their macro-economic activities, cautiously integrate into world trade, ensure effective property rights and maintain social cohesion, solidarity and political stability.

3.0 Tanzanias economic reform policy experience:

Soon after attained its independence in 1961, Tanzania nullified the role of market in the economy and backed socialistic political system with the state controlling everything. Towards the end 1970s and early 1980s the country suffered extensive economic decline and heavy financial crisis of which the major cause was said to be government’s poor economic policies and structural weaknesses (Wangwe et al, 1998).
To solve the problem, Tanzanian government approached IMF and the World Bank to seek loans and extend repayment period of both principal and interest. In return the country was compelled first to implement Structural Adjustment Program with the aim of stabilizing external and internal balance of payment, reduce fiscal deficits and promote export oriented production through devaluation, producer price changes, trade liberalization, privatization, and legal reform (Gibbon, 1993; 11). Other measures would include creation of conducive environment for foreign environment, abolish price controls and retrenchment. President Nyerere, rejected the program calling it “economic suicide” to the country. However, in 1986 there was no option, and the country opened the doors and signed agreement with IMF and World Bank to implement the Economic Recovery Program(s).

It is over two and a half decades since the economic recovery programs were implemented in Tanzania; the country’s economic situation did not improve much. While urban poverty is said to be decreasing, a great problem remains in the rural areas. The largest household survey ever conducted in Tanzania in 2000/2001, number of people living below basic need poverty line increased to 11.4million compared with 9.5million reported in 1990/1. Last years’ projections show the number has increased. As well privatization of public companies has substantially increased the unemployment rate, lowered wages, and increased the cost of goods and services and reduced access to the poor population in the country. For example, though 700,000 new job seekers join the labor market in Tanzania every year, only about 30,000 of them get employment. Today, privatization has increased the prices of fertilizer and other inputs, and reduced access to credit. While large scale farmers and private traders have benefited from liberalization and privatization, small farmers, who constitute the majority of Tanzania's population, have not enjoyed such benefits. Majority of people in the country have increasingly facing difficulties in accessing essential services, including water and sewerage, adequate shelter, electricity, education, health care and other basic services.

We cannot deny that lack of sound state backed policies especially on trade has brought some unusual effect to Tanzania. Internal productions and market of local goods and services has been suppressed due to large importation of cheap products from the developed countries. On the other side, it is important to ask ourselves, what could have been the country`s economic situation without the economic recovery programs? The country enjoys a higher degree of macroeconomic stability today as compared to the situation before 1986. Growth Domestic Product (GDP) growth per annum averaged 4.2 % in 1996, 6.7 in 2006 (http://www.imf.org/external/index.htm ) reversing the declined per capita income in the decade before. Again, despite setback in microeconomic policy during the first half of the 1990s the government achieved macroeconomic stability in the late 1990s. For example, inflation was reduced from about 30% in 1980 and early 1990 to 4.6% in 2002 when the fiscal imbalances were curbed by prudent fiscal management reducing government deficit below 13 percent of GDP. Acceleration of structural and institutional reforms as well as creation of new institutions led to improvement in the investment climate, increased foreign direct investment flow and job creation. The financial sector has been substantially transformed into highly diversified, competitive, and vibrant one. Whereas the financial sector was dominated by one publicly owned commercial bank and other few small financial units by the end of 1990’s, currently the sector comprises 22 private commercial banks of which 13 are foreign owned, 12 nonbank financial institutions, pension funds, 14 insurance companies, and more than 63 foreign exchange bureaus.

The balance of payments improved significantly, reflecting large donor inflow and increased export earnings from nontraditional exports mainly gold and diamond, gemstone and fish products. Overall gross foreign reserves rose from the equivalent of 1.6 months of export in 1995 to 6 months of export by December 2002. Tanzania is currently benefiting debt relief enhanced by Heavy Indebted Poor Countries (HIPC) initiatives which has have paved the way for additional donor inflow and increased budget expenditure allocation to social and other priority sectors such as roads, judiciary and HIV/AIDS.

Conclusion

For better and quick results, I think: One the economic policies should be changed to reflect the Tanzanian environment. Currently, they are highly conventional in the sense that they focused and reflect the economic growth of their countries of origin and hence difficult to be applied in a different environment. Two, the poor and inefficient physical and financial infrastructure in the country should be reinstate. Third, restrictions in forms of high tariffs should be imposed on the imported goods in order to promote domestic production of manufactured goods and hence reduce inflation. And fourth, poor, incompetent and corrupt officials in both public and private sectors who have been not only are incapable of formulating and implementing development projects should be replaced.

References
Dan Rodrick, “Rethinking Growth Policies in Developing World” , Lecture given at Havard University in October, 2004.

Ferreira, M. L. 1996. “Poverty and Inequality during Structural Adjustment in Rural Tanzania;” Policy Research Working Paper 1641, World Bank, Washington, D.C

Gibbon, P., 1993. Social Change and Economic Reform in Africa, Scandinavian Institute of African Studies. Uppsala, Sweden

Samwel W, 1998, "The Impact of Structural Adjustment Program in Tanzania," A Paper Presented in Ethiopia.

http://www.dagliano.unimi.it/media/finalEnglishprograme.pdf

http://www.povertymonitoring.go.tz/documents/HBS_2000_contents_of_summary.pdf