Analytical approaches to stabilization and adjustment programs

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  • Introduction.

But these programs have not been completely put into operation and the country could not provide a good opportunity for private investment, nor for the absorption of private savings and the unemployment rate remain still high. The drastic devaluation in to boost exports could not have the expected achievements, because of high inflation and parallel exchange market. In addition it should be mentioned that Egypt is the second largest recipient of external financial assistance flows. The proportion of external debt into GDP decreased from to but this trend changed in and Egypt faced critical economic situation.

International organization engaged again to allocate the financial aid to Egypt.

Structural Adjustment Program

After , the country has tried to restructuration its program of privatization and financial liberalization. Economic growth has picked up steadily and unemployment rate reduce from This country has faced two grand events, the Islamic revolution and the war of with Iraq. After the war, the economy deteriorated and the country's infrastructure weakened. The second plan, for , was more realistic. But the country faced a debt crisis. The fourth plan was coincided with the presidential changes in The objectives of this plan have not followed by the new government.

After the oil price sharp increases, the government took the excessive and ambitious measures of expansionary monetary and budgetary policies which produced high inflation rate. The period in Morocco has indicated by high government intervention. In the economic instability and debt crisis which have been started from the end of 70s and early 80s, made the country to implement the SAPs. These programs targeted the public expenditures, extern commercial, privatization and external investment.

In the first step of SAPs implementation they adopted the budgetary policy. The period to can be nominated as the second phase of the SAPs in Morocco. These reform programs emphasis on commercial and financial liberalization and privatization. But despite of implementation of these programs the growth rate remained weak and investment kept the same level as before.

After certain signs of economic improvement appeared such as increase in GDP per capita and in international reserves but there is still remained a large gap between urban and urban areas in Morocco. Between and , Tunisia faced an economic crisis, high unemployment, low growth and the debt problem. In it was officially engaged in the SAPs. After , the country has been progressively oriented towards an open economy, despite a number of achievements, the unemployment rate remained high.

In this period Tunisia signed an accord with European Union to eliminate the customs tariff till Between and , the country has pursued its reforms and opening process but despite of the certain successes in privatization and economic reforms the private sector in Tunisia still remained small.

Therefore one specific strategy has adopted from World Bank to apply, to help the government to achieve their goals, for the period In this country tried to apply the economic reforms by opening its economy and encouraging exportations. In Turkey has confronted high inflation and real exchange rate depreciation. The expansionary monetary and budgetary policy from accumulated the budget deficit and it has influenced the exchange market and the attack on the national money.

Government economic policy

The second crisis has it was crisis of demand contraction in This crisis started from the real sector of economy but it ended in the financial sector which weakened the banking system. The share of public debt and debt interest rate into GDP increased intensively and the financial system deteriorated Mallick and Granville, IMF imposed the restrictive budgetary policy which not allowed the government to apply the massive investment. Word Bank also disposed the flexible exchange regime. In after great devaluation Turkey has faced the profound economic problem and high inflation because of his fragility banking system.

But after with entering the private sector in investment and the adaptation of appropriate international trade policy the economy started to show a great sign of economic growth.

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More precisely, we make a comprehensive assessment of the applicability of this model to analyze the performance of adjustment programs for each country in the period This section also describes the initial position of the macroeconomic equilibrium of the country related to economic growth and inflation. Section 5 presents concluding remarks. The integrated model, which was presented by Khan et al.

Account Options

The IMF model has been linked the monetary approach to the balance of payments and ensures consistency between the monetary impact of the policy changes and the desired balance of payments outcome. The private sector is assumed to own all factors of production and disposes from the nominal income.

The public sector received taxes and uses the proceeds for as government consumption. The budget constraint for the public sector:. The foreign sector receives revenues from of imports purchased by the domestic economy and it spends on domestic exports. The foreign sector budget constrain defines the balance of payment:.

The Banking sector is simply a financial intermediary which acquires assets in the form of international reserves and claims on the domestic private and public sector and supplies its own liabilities in the form of money to private sector. Thus the following price equation obtains:.

Equation 4 changed to reflect the valuation effects of exchange rate on the central Namk balance sheet:. The variation of the money demand follows the usual monetary equation the velocity of money is assumed to be constant :. Thus the monetary equilibrium condition is:. They have to be revaluated according to the variation of the exchange rate as follows:.

Analytical Approaches to Stabilization and Adjustment Programs (E D I SEMINAR PAPER)

The joint model is exercise by Khan et al Real output, in the Fund model, is determined outside the system and prices, in the Bank model, are considered exogenously. The merge of the Bank and IMF models divided into a price output, a monetary and an external sector. All equations are drowning from the previous sections.

Finally, the basic structure of the integrated model is given by the thirteen preceding Equations 1 to 13 and it can be summarized like in Table The given values of the seven behavioral parameters and of the predetermined variables, the thirteen equations of the merged model help to determine the endogenous variables, conditional to the exogenous ones and the control instruments.

Following Khan et al. Its slope is given by:. The slope and position of the curve FF depend on initial conditions, the level of foreign reserves, domestic credit growth, the income velocity of money and the weight of importable in the domestic price index; note that FF is always a negatively-sloped. For the sake of our study, their intercepts with the vertical axis are also meaningful because their sizes depend on the main instrument variables D D, D E, T or G , which the government has to manage in order to control and fix the current equilibrium position of the economy.

Therefore, the empirical values for these parameters have to be estimated for the Iranian and the Turkish economies,in order to apply the model for analyzing the macroeconomic policy implemented during this last decade in these countries. In a first step, before the assessment of the seven parameters of the model, we examine the stationarity of all the time series used in our estimation. The ADF Unit Root Test shows that, for the period from to , most variables are stationary at first difference.

We can specify that once variables are considered as variation, they become stationary. In a second step, the parameters are estimated in the linear econometric system with six equations drown from the model money supply, price level variation, GDP growth in real terms, consumption, imports and exports , using annual data for the period The estimation of simultaneous equation system, with the two-stage least-squares 2SLS method, makes it possible to obtain a more efficient and therefore a more reliable economic analysis with a better comparison between the principal parameters of these six countries.

Table 2 and Table 3 report major equations and related estimates, respectively. According to our results the value of the coefficient r -1 that measures the impact of a unit variation of investment on the GDP variation correlation between economic growth and that of investment is 0.

As we can see, r is weak [4] in these developing economy; for Iran and Algeria value is slight higher because of the a large share of oil revenues in the GDP, which increases the size of the state and needs large amounts of heavy public investment and for other countries the factors of production are more efficient.

According to our results, this parameter is positive for all countries. But in Algeria, this value is greater than in the other countries which can be related to the unstable political situation in this country. This values for Tunisia is largest, its means that the influence of domestic price in inflation is not considerable. The two components of the balance of payments external sector close the system and it establish a link between the real sector and monetary sector [5].

Dilemmas of Stabilization Assistance: The Case of Syria

For Algeria this value is also positive but insignificant. In Turkey this parameter is negative which means that the high inflationary pressure and also an anticipation of a high level of inflation do not allow that the exchange rate change increase , decreases importations. For Iran and Tunisia is also negative but insignificant. The parameter " a " represents the marginal import coefficient and indicates the elasticity of imports relative to GDP. For Iran and Algeria it is lower than other countries because of the large share of oil revenue in GDP and Tunisia have highest value which shows this country is more dependent on imports.

The parameter ' c ' is the coefficient which expresses the elasticity of exports over the proportion of the exchange rate on the domestic price index [7]. This coefficient is negative and insignificant for Turkey and Morocco, in other words, despite higher prices, this country seems to keep the same level of exports.


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In other countries this parameter is positive. The macroeconomic equilibrium baseline is important in order to analyze the impact of these policies on target variables of the model, inflation rate, growth and balance of payments Goldstein and Monteil, and Gylfason, The intersection of the two curves, raised from equations 14 and 15 , labeled by BB and FF in D P d , D y space, determines the macroeconomic equilibrium position.

In this case, the sign of the s-v , the difference between the marginal propensity to save s and marginal propensity to hoard the inverse of the income velocity of money v is determinant to specify the sign of the slope of the BB curve. For the case of Algeria, Egypt, Iran and Morocco, this difference is negative and therefore the slope of BB is also negative, which means an increase in saving induced by an increase in nominal GDP is completely absorbed by the induced inflation.

For Turkey and Tunisia, this difference is positive and the slope of BB is then positive and it has a higher slope than FF in absolute value for all countries.