Growth in the 1990s: Pleasant and Unpleasant Surprises

1. Growth in the 1990s: Pleasant and Unpleasant Surprises Presentation to ICRIER September 28, 2004

2. Five disappointments • Length, depth, and variance in the “transition recession” in the FSU/EE countries • Severity and intensity of the financial crises • Argentina’s implosion • Weakness of the response to reform, particularly in Latin America • Continued stagnation in Sub-Saharan Africa

3. Output Depth Duration Beginning Of transition Time How long? How Deep?

4. Deep, long, and variable

5. Markets miss the mark on East Asia

6. Collapse of convertibility in Argentina • The Mexican debt crisis marked the end of one era, the Argentina crisis perhaps the end of another • The severity given the collapse was not a surprise—it was design. • What was surprising was that it collapsed in spite of every attempt to “pre-commit”

7. Growth came, but did not stay in Latin America, despite steady reform progress

8. The predicted “renaissance” in Africa recedes into the future… • While there are brief episodes of growth in some SSA countries, there is no “locomotive” to pull the rest along. • This is a disappointment, but a surprise?

9. Lessons from the 1990s Growth in the 1990s: A Mixed Record(divergence “big time”) EAP SAR OECD LAC MNA AFR ECA

10. Four pleasant surprises • Strong growth in the India, China, and Vietnam. • Robust progress in social indicators, in spite of low growth in many countries • Resilience of the world economy to stresses • Bright spots of continued growth

11. Coal to Newcastle: Growth rates in India (per capita, PPP)

12. The star performers in growth are middle of the pack in many indicators

13. Brazil has slow growth but substantial progress on enrollments—especially of the poor

14. A pleasant surprise: the sky did not fall I would say the biggest misjudgment that I can remember making…was the sense of profound pessimism about Russian economic reform that I had in the fall of 1998, and that if you had said that by 2003, they would be issuing Eurobonds at300 basis points spreads, I would have thought that its was absolute madness. Lawrence Summers, in Practitioners in Development

15. Continued growth, in spurts • The 1990s did see rapid growth in a number of countries… • Dominican Republic • Uganda • Poland • Chile

16. What did we learn about growth? • Growth is enormously volatile over the medium run—with many booms and busts—little growth persistence • The “symptoms and syndromes” emerge from growth regressions • Centrality of “institutions”

17. Growth is not steady, but is a series of episodes…

18. And from millions of growth regressions? Syndromes

19. “Institutions” are central The first, overwhelming lessons we learned in the 1990s, is the transcendent importance of the quality of institutions and the closely related question of the efficacy of the administration. Well- executed policies that are 30 percent off are much more effective than poorly executed policies that are spot on. • Lawrence Summers, Practitioners in Development