Interview with Paul Chabrier: Middle Eastern and North African Countries Need To Accelerate Process of Economic Integration

• Pages: 205-208

Page 205

IMF Survey: Growth slowed in the MENA countries in 1997 and is projected to weaken further in 1998, due to declines in oil prices-an indirect result of the Asian crisis. How heavy has the impact of the Asian crisis been on the MENA countries and how have they responded to its effects? Chabrier: So far, the impact of the Asian crisis on the MENA countries has generally been quite moderate. One might almost say that the crisis has had a certain beneficial effect, in the sense that it has increased these countries' awareness of the importance of financial sector reforms and the need to reduce their dependency on oil and diversify their output.

Of course, the big story for the region in 1997 and 1998 was the behavior of oil prices. Since October 1997, the decline of oil prices has been quite substantial-about 30-40 percent. Most of the affected countries-such as Algeria, Egypt, and the Gulf countries-have sufficiently strong reserves to accommodate a temporary decline. But in the context of our policy dialogue with country authorities, we are saying the problem is real, and nobody knows whether this decline is durable or just temporary.

Our advice is don't be Page 206 complacent, adjust; but also use this time to rethink your policy, both in terms of fiscal structure and in terms of diversification of the economy and encouragement of the private sector.

IMF Survey: After stagnating for more than a decade, performance in most of the MENA countries began to pick up in 1996 and 1997. How do these economies compare with other emerging market economies in terms of attracting investment, managing debt, and integrating into the global economy? Chabrier: It is true that performance in the MENA region picked up in the 1990s. But the region still lags behind others in important respects. Per capita real growth was negative during the 1980s, according to recent World Economic Outlook estimates, and barely positive during 1990-97-that is far below the performance of developing countries in Asia and Latin America.

The disappointingly low per capita growth occurred despite relatively high rates of investment. This points to something that we have not focused on sufficiently until recently-the efficiency of investment. It is true that there has been a lot of investment, but it has not always been directed at the most efficient sectors. And very often, these investments were made on the basis of wrong signals. There has been considerable price distortion-subsidized prices, low energy prices, for instance-which, when their effects surfaced, lowered the efficiency of investment.

The MENA countries also lag behind other developing country regions in their progress toward integration with the global economy. The region's share in world trade declined to barely 4 percent during 1990-97 from 7 percent in the 1980s, compared with much smaller declines for Africa and the Western Hemisphere and a strong increase in Asia.

Foreign direct investment has picked up sharply in the 1990s compared to the 1980s-heavily weighted by investment in the oil industry. But it remains much lower than the other regions-for example, 0.7 percent of GDP, compared to 1 percent for sub-Saharan Africa, 1.6 percent for Western Hemisphere and 2 percent for Asia.

At the same time, the debt burden has climbed from a relatively low level in the 1980s to an average 38 percent of GDP during the...