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Mr. Martin Mühleisen, Mr. Dhaneshwar Ghura, Mr. Roger Nord, Mr. Michael T. Hadjimichael, and E. Murat Ucer

Abstract

This paper assesses the economic performance during 1986-93 of sub-Saharan African countries as a group and of selected analytical subgroups of countries.

Mr. Owen Evens, Mr. Thomas H. Mayer, Mr. Philip M Young, and Horst Ungerer

Abstract

This study reviews developments in the European Monetary System from the beginning of 1983 to August 1986; it updates and complements an earlier study prepared by staff members of the International Monetary Fund and published Occasional Paper No. 19, which covered the time period from the inception of the European Monetary System to the end of 1982.

Mr. Martin Mühleisen, Mr. Dhaneshwar Ghura, Mr. Roger Nord, Mr. Michael T. Hadjimichael, and E. Murat Ucer

Abstract

The experience of sub-Saharan African countries with structural adjustment has been extensively reviewed over the past few years, both inside and outside the IMF.1 The renewed interest in developments in African countries has been prompted by the less-than-satisfactory economic performance of Africa as a whole over the past two decades. In addition, it has reflected efforts to assess the adjustment experience and the appropriateness of the adjustment strategy espoused by the IMF and the World Bank and pursued by an increasing number of African countries, as well as an attempt to draw lessons for the policy challenges for the rest of the 1990s. The present study attempts to contribute to this debate by assessing the economic performance during 1986–93 of sub-Saharan African countries as a group and of selected analytical subgroups of countries. To this end, it comprises, first, an assessment of the evolution of the savings, investment, and net financial balances of the government and private sectors for the various country groups; and second, an econometric evaluation of the relative contribution of policy and exogenous factors—such as terms of trade losses—to the growth, savings, and investment performance of sub-Saharan African countries, as well as an evaluation of the impact of foreign assistance.

Mr. Owen Evens, Mr. Thomas H. Mayer, Mr. Philip M Young, and Horst Ungerer

Abstract

The European Monetary System (EMS) came into operation in March 1979, in accordance with the Resolution of December 5, 1978 of the European Council, composed of the Heads of State and Government of the then nine member countries of the European Communities (EC).1 The objective was to create “a zone of monetary stability in Europe,” comprising “greater stability at home and abroad.” The founding fathers of the EMS intended that after two years the system should proceed to a second, final phase in which it would be given a more definite institutional framework, in particular through the creation of a European Monetary Fund. This timetable proved unachievable for economic, legal, as well as political reasons. At present, there appears to be a broad consensus that significant further institutional development of the EMS would require a major political initiative and necessitate an amendment of the Treaty that established the European Economic Community. Recent efforts to modify the operational procedures of the EMS and to increase its efficiency resulted in some changes but did not affect its basic institutional structure.

Mr. Martin Mühleisen, Mr. Dhaneshwar Ghura, Mr. Roger Nord, Mr. Michael T. Hadjimichael, and E. Murat Ucer

Abstract

The growth and inflation performance and the developments in the external accounts of sub-Saharan African countries in recent years differed significantly among the various country groups. This diversity reflected mainly differences in the stance of financial policies and in the evolution of aggregate and sectoral savings and investment balances.

Mr. Owen Evens, Mr. Thomas H. Mayer, Mr. Philip M Young, and Horst Ungerer

Abstract

This section summarizes the main characteristics and operational elements of the EMS, as laid down in the EMS Agreement, and surveys their evolution in the context of the actual operation of the EMS by the participating central banks over the last few years. The section also discusses efforts to adapt the written rules governing the system to changing needs and to the emerging actual management of the system, which resulted in an amendment of the EMS Agreement in June 1985.

Mr. Owen Evens, Mr. Thomas H. Mayer, Mr. Philip M Young, and Horst Ungerer

Abstract

From its inception until 1983 the EMS was characterized by frequent periods of exchange market strain and numerous consequent realignments of central rates among currencies participating in the ERM (Tables 5–10). Realignments took place in September and November 1979, March and October 1981, February and June 1982, and March 1983. The general experience in these periods of strain suggested that resisting market pressure through intervention and short-term monetary measures could buy time for a weak currency by redirecting capital flows in favor of countries with high nominal interest rates, but that in the absence of appropriate and sufficient policy measures aimed at the underlying causes of weakness, exchange rate changes would eventually become inevitable. In these early years, the size and frequency of central rate realignments increased significantly, indicating that the needed drive for greater economic convergence to generate stable exchange rates had achieved only limited success (Chart 1).32

Mr. Martin Mühleisen, Mr. Dhaneshwar Ghura, Mr. Roger Nord, Mr. Michael T. Hadjimichael, and E. Murat Ucer

Abstract

The Solow-Swan framework, which is at the core of neoclassical growth models, has been used extensively for empirical analyses of growth in industrial and developing countries because of its simplicity and ease of application.22 In this frame-work, steady-state growth depends on technological progress and population growth, both of which are exogenous to the model; in the absence of technological progress, per capita output does not grow. Also, in this framework an increase in the savings (investment) rate can raise per capita economic growth in the short run. However, because of diminishing returns to capital, per capita output in the long run grows at the rate of exogenously given technological progress. As such, economic policies do not affect steady-state economic growth in the neoclassical framework, although they can affect the level of output or its growth rate when the economy is in transition from one steady state to another.

Mr. Martin Mühleisen, Mr. Dhaneshwar Ghura, Mr. Roger Nord, Mr. Michael T. Hadjimichael, and E. Murat Ucer

Abstract

This section reports the results of an empirical investigation of the factors that influenced growth, savings, and investment in sub-Saharan Africa during 1986–92. A multiple regression framework is used to separate out the effects of macroeconomic stability on growth, savings, and investment while controlling for the effects of other variables. The empirical methodology used is outlined in the Appendix. Actual data covering 39 countries during 1986–92 were used.52 The time span covered by this study is somewhat short, and, thus, the empirical findings should be viewed as preliminary and interpreted with caution. However, these results tend to indicate that the behavior of growth, private investment, and domestic savings in sub-Saharan Africa is consistent with certain theoretical regularities. The findings also confirm the results of several previous empirical studies of growth, savings, and investment. In particular, these aggregates reacted favorably to a stable macroeconomic environment during 1986–92. The evidence suggests that macroeconomic stability is conducive to higher rates of savings and investment and to faster rates of economic growth. Nevertheless, the direction of causality between macroeconomic policy variables and foreign aid on the one hand, and growth, savings, and investment on the other hand, are not clear-cut. A full investigation of these causal relationships is beyond the scope of this study. However, the broad correlations presented in this section are indicative of the important links between macroeconomic stability and growth, savings, and investment.

Mr. Owen Evens, Mr. Thomas H. Mayer, Mr. Philip M Young, and Horst Ungerer

Abstract

An assessment of exchange rate variability must be judgmental and is necessarily fraught with a variety of technical and conceptual difficulties. In this section, overall performance in terms of exchange rate variability is reviewed; the technical aspects are dealt with in a technical note at the end of this section. In order to assess the performance of the currencies participating in the EMS exchange rate mechanism, it would be desirable in principle to compare actual performance with estimated performance given the same exogenous world events, but in the absence of the EMS institutional apparatus. The requirements for constructing such a “counterfactual” experiment are, however, daunting. Therefore assessment has to be somewhat more limited and based on several elements: first, a comparison of exchange rate variability among the ERM currencies before and after the system’s inception; second, a comparison of exchange rate variability between participating and nonparticipating currencies;36 and third, an assessment of changes in exchange rate variability over time among the nonparticipating currencies. To the extent that a variety of different approaches all point in the same direction, some confidence can be placed in the results.