A simplified macroeconomic framework is developed for the ‘fiscal gap’, which is considered to be an important stumbling block for adjustment with growth in highly-indebted developing countries. Distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange. Tentative implications for external conditionality accompanying debt-relief measures are derived.

The paper argues for the relevance of the concept of net transfers to analyze the growth constraints in heavily indebted developing countries. A conceptual shift is proposed in analyzing the sources of investment financing, from the traditional dichotomy between foreign savings and national savings, toward a more relevant dichotomy between net real resource transfers and domestic savings at constant prices. The consequences of introducing the foreign exchange constraint and the fiscal constraint for the analysis of the impact of foreign transfers are also explored.

Development and ChangeVolume 19, Issue 3 p. 371-400 When Supply and Demand Don't Intersect: Latin America and the Bretton Woods Institutions in the 1980s Richard E. Feinberg, Richard E. FeinbergSearch for more papers by this authorEdmar L. Bacha, Edmar L. BachaSearch for more papers by this author Richard E. Feinberg, Richard E. FeinbergSearch for more papers by this authorEdmar L. Bacha, Edmar L. BachaSearch for more papers by this author First published: July 1988 https://doi.org/10.1111/j.1467-7660.1988.tb00307.xCitations: 1AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL REFERENCES Bacha E. (1986) ‘External Shocks and Growth Prospects: The Case of Brazil, 1973–7.’, World Developmen. 14(8): 919– 36. Bacha, E. and R.E. Feinberg (1986) ‘The World Bank and Structural Adjustment in Latin Americ.’, World Developmen. 14(3): 333– 46. Bank for International Settlements Quarterly Series Reports. Various issue. Bianchi, A., R. Devlin and J. Ramos (1987) ‘ The adjustment process in Latin America, 1981–.’, paper presented at the Symposium on Growth-Oriented Adjustment Programmes (25–7 February), Washington DC: World Bank and IMF. Blitzer, C. (1986) ‘ Financing the World Ban.’, in R. Feinberg (ed.) (1986a). Central Bank of Brazil (1987) Brazil: Economic Progra. 14 (February), Brasilia. Feinberg, R.E. (1987) ‘ Third World Debt: Towards a More Balanced Adjustment' testimony before the Subcommittee on International Debt, Committee on Finance, US Senate (9 March., Washington DC. Feinberg, R.E. (1986a) ‘ An Open Letter to the World Bank's New Presiden.’ in Feinberg (ed.) Between Two Worlds: The World Bank in the Coming Decad. New Brunswick, NJ: Transaction Books, for the Overseas Development Council. Feinberg, R.E. (1986b) ‘ The Changing Relationship Between the World Bank and the International Monetary Fun.’, Report prepared for the Group of 24 (November 1986), mimeo. Gwin, C. and D.M. Sobol (1986) ‘ The Financing Role of the Fund in Promoting Adjustment with Growt.’. Washington DC: prepared for a G-24 Working Group, mimeo. IBRD (1988) World Debt Tables 1987–8. Washington DC: IBRD/World Bank. IBRD (1987) World Debt Tables 1986–. Washington DC: IBRD/World Bank. IBRD (1964) Articles of Agreemen. Washington DC: IBRD/World Bank. IDB (International Development Bank) (1986) Economic and Social Progress in Latin America — 1986 Repor. Washington DC: IDB/World Bank. IMF (1988) Surve. Washington DC: IMF (April). IMF (1987a) International Financial Statistic.: Washington DC: IMF (March). IMF (1987b) World Economic Outloo. Washington DC: IMF (April). IMF (1987c) International Financial Statistic. Washington DC: IMF (October). IMF (1986a) Annual Repor. Washington DC: IMF. IMF (1986b) International Capital Markets: Developments and Prospect. Washington DC: IMF (December). IMF (1986c) World Economic Outloo. Washington DC: IMF (April). IMF (1986d) Annual Repor. Washington DC: IMF. IMF (1985) International Financial Statistic. Washington DC: IMF (January). IMF (1964) Articles of Agreemen. Washington DC: IMF. Kenen, P.B. (1986) Financing, Adjustment, and the International Monetary Fun. Washington DC: Brookings Institution. Working Group of G-24 (1987) The Role of the IMF in Adjustment with Growt. Washington DC: Intergovernmental Group of Twenty-Four on International Monetary Affairs (25 March). World Bank (1986) Annual Repor. Washington DC: World Bank. World Bank (1988) ‘ The World Bank and the Heavily Indebted, Middle-Income Countrie.’, special report, World Bank New. (May). Citing Literature Volume19, Issue3July 1988Pages 371-400 ReferencesRelatedInformation

This paper argues that the main issue damaging relations between developing countries and the International Monetary Fund is the latter's position that external disequilibria are always a consequence of excess aggregate domestic demand, caused by excessive credit expansion. As a result, Fund sponsored stabilization programs center on demand contraction through a credit crunch and may establish stricter domestic performance criteria than necessary to attain the balance-of-payments objectives. The author suggests that the IMF establish a two-tier conditionality system, which he calls the “hands-off” approach, with one tier composed exclusively of balance-of-payments or foreign exchange denominated variables, and the other of domestic currency denominated variables. The two-tier system would allow more flexibility in compliance assessment and might reduce substantially the number of breakdowns of Fund programs.

The World Bank can play an increasingly critical role in financing Latin American development by providing enhanced balance-of-payments lending through structural adjustment (SAL) and sector loans. To date, however, SALs and sector loans have been constrained by funding limits and conditionality requirements and have not played as constructive and important a role in Latin America as their potential allows. This paper recommends that Bank resources be enlarged, that it increase SALs and sector loans in Latin America, and that it intensify its efforts to encourage private capital flows to developing countries. The authors also suggest a review of the Bank's conditionality policies and measures to improve the dialogue between the Bank and developing countries.

This is a study of the factors underlying the current account deficits experienced by Brazil since the mid-1970s. It also explores the country’s economic prospects through 1989, with the help of a simple macro-simulations model. The current account deficit is identically equal to the excess of domestic spending over national income. Provided that net external financing is available, this excess may increase for a number of reasons. Prominent among them is an expansion of real domestic spending, associated with increases either of real consumption expenditures or of real domestic capital formation. Even if domestic absorption is invariant, the external deficit may worsen because of inadequate domestic pricing policies. These may make it impossible for local firms to compete with cheaper foreign products, thus forcing a contraction of national income and employment. A temporary reduction of GNP below its potential value may also be caused by domestic supply shocks of a climatic or other nature. However, other factors can also cause a deterioration of the current account. In this context, this study investigates the factors underlying the evolution of the external accounts of Brazil since the mid-1970s following an approach suggested in the Dell Report and elaborated by Balassa.’ The reasons for a deterioration of the current account are divided into three groups: external shocks, burden of accumulated debt, and domestic policy actions. The first group comprises terms of trade, international interest rates, and world recession. The second includes the accumulated effect of past shocks and domestic policy actions. Finally, the third group encompasses the variables supposedly under the control of local policy-makers: domestic absorption and the economy’s tradability.

Emmanuel's view of the Center-Periphery trade relation is linked to a classical literature in trade and development theory which starts from the work of Prebisch, Singer and Lewis. A very simple general equilibrium Ricardian trade model is formulated to deal with terms of trade determination in the context of class conflict both in the Center and the Periphery. The model focuses attention on the effects of technical progress and changes in income distribution on employment levels in the Periphery, where labor surplus conditions are assumed to prevail.