Economic Lessons For Poorer Nations

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FOR several decades, economists have been studying what makes a developing country grow and prosper. Have they learned anything?

Yes, says Stanley Fischer, who was until last September chief economist at the World Bank in Washington. For one thing, comparisons between dozens of developing countries show that those that managed their economies well - keeping budget deficits down, limiting inflation, and watching their balance of payments so as not to pile up massive external deficits - have done better than those that did not.

``There is a need for macroeconomic stability,'' says Dr. Fischer, who is now back at the Massachusetts Institute of Technology. ``A lot of what we know is what we have relearned.''

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The Brazils of the world, Fischer notes, are finally deciding that rapid inflation ``does get you in the end.'' He sees an increased understanding among developing-country policymakers of ``the importance of the basics.'' And many countries are at last making changes in economic policies.

Argentina, for example, has just launched ``massive'' policy reforms that could reduce inflation, slim the bureaucracy, and allow that nation's economy ``to stabilize and rejoin the rest of the world,'' says Fischer. Among economists, Argentina is infamous as a country that has regressed economically because of poor government management.

Some countries, notes Fischer, have trouble implementing desirable economic policies ``for political reasons.''

Looking at Latin America and the Caribbean, the just-released annual report of the Inter-American Development Bank sees some promise for the 1990s as a result of lessons learned: ``Despite the short-run costs associated with stabilization and structural adjustment policies adopted by the countries of the region, the outlook for the decade is positive, provided that governments maintain their resolve to reform the public sector, restructure the productive sector, and search for innovative and efficient w ays to position their countries within the international economic framework.''

Says Fischer: ``Those countries which expose themselves to international competition do better. You need to join the modern world and not believe you can do it on your own.''

Prime examples of such ``export-oriented'' development policies include Taiwan, Hong Kong, and South Korea.

Another lesson, though not a surprise, is that those nations which have devoted more resources wisely to education do better than those which have put less attention on schooling.

One of the most important world developments affecting economic policy in the developing countries is the collapse of communism in Eastern Europe and the Soviet Union. For decades, many poorer countries figured they had a choice of two models of economic development - the communist one and the free-enterprise one.

``You can't say that anymore,'' says Fischer. ``There has been an essential collapse of the state planning model.''

Fischer acknowledges that to some degree the world economic system is stacked against the poorer nations. They have seen their terms of trade turn against them, as imports became more expensive relative to the price of their exports. Their economies are less diversified and thus more vulnerable to economic shocks.

But some developing countries have taken on the world and made progress, says Fischer. ``The other guys [nations] sit there complaining ... and it doesn't get them anywhere.''

Another change Fischer sees is the tendency of the industrial nations to forgive more of the $1.3 trillion in developing-country debt. Under the ``Brady plan,'' named after United States Treasury Secretary Nicholas Brady, commercial banks have been encouraged to write off portions of their loans to developing countries. Deals have been made with Mexico, Venezuela, and Costa Rica, with Uruguay next.

A big change, says Fischer, is that governments of the industrial nations now are starting to forgive their official loans to poorer countries, such as those to Poland, Egypt, and many African nations. ``We are making progress,'' he says.

As for the future, he sees East Asia ``doing fine,'' India at a ``crisis point,'' and Africa with ``many, many problems.''

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