Comment

For decades great faith was vested in the powers of macroeconomic policy to stimulate rapid growth in developing countries. Microeconomics was relegated largely to the design of public investment projects, and there was a belief shared by many development economists, by the OECD and by development agencies such as the World Bank, that good macroeconomic policies plus sound public investment projects were the key to development. Good macro policies implied getting prices right, and notably the most strategic prices — that of money (the interest rate) and that of foreign exchange (the exchange rate). The emphasis on macro policy was very understandable since so many developing countries had for so long had difficulty in getting these things right. With the onslaught of the debt crisis in the early 1980s (which was largely the result of inappropriate macro policies), it became painfully clear that a stable macroeconomic environment was a necessary condition for sustained economic growth. Unquestionably, for example, rates of inflation in excess of 30–40 per cent depressed economic growth and so did foreign exchange crises brought about by poor fiscal management. There was a tendency, however, to believe that good macro policies were a sufficient condition for sustained growth. It was somehow taken for granted by policy-makers and aid agencies that if a satisfactory standard of macroeconomic management was achieved, all other good things would follow.