World Reaps Benefits Of Economic Reform

From Argentina to Italy, nations are cutting deficits and curbing inflation.

While the travails of east Asia endure, much of the rest of the world is making progress on a number of economic fronts that is helping to improve living standards.

Even as Washington gloats over submitting the first balanced budget in 30 years, deficits in many other capitals, from Rome to Ottawa, are coming down - in some cases dramatically.

Inflation, too, has fallen in many nations - including Argentina, where prices once seemed to rise by the minute. Incomes in sub-Saharan Africa have grown for the second consecutive year after 20 years of decline. Pensioners in Russia are seeing less of their retirement funds robbed by inept money management.

Behind all the progress is a period of unprecedented economic reform sweeping the globe. Some of it is being instituted by graduates of universities in the free-market West who have now attained power and influence.

Other initiatives are being driven by the simple desire to keep up in an increasingly competitive global market. Even countries in troubled east Asia recognize they must reform to keep up.

Whatever the reason, nation after nation is slashing deficits and holding down inflation at a time of dramatic change.

"We have had a decade of almost continuous reform," says Ian Kinniburgh, an economist at the United Nations in New York.

Indeed, many countries and international organizations are now tackling issues that have dogged them for decades. In addition to Argentina bringing inflation under control, the Bank of Canada has specific inflation targets to meet. In the International Monetary Fund (IMF), officials now diplomatically demand that nations cut bribery. "Five or 10 years ago, it was unmentionable," notes one IMF official.

Several factors are spurring these worldwide policy reforms:

* Growing evidence that it works. Post-World-War-II studies of developing nations find that those with more-balanced budgets, liberal trade policies, more privatization, and freer markets have done better than countries with imbalanced budgets, closed markets, and state enterprises.

If a nation's economic policies follow what has been dubbed the "Washington consensus," they are more likely to enjoy rapid growth and rising living standards, the studies find.

* Globalization. In order to attract and keep foreign investment, nations must offer an attractive business environment. That means reform. "The discipline of the market has a strong deterring effect on bad practices in these countries," says Uri Dadush, an economist at the World Bank in Washington. "They will be severely punished - and quickly - if they stray too far."

* Required reform. About 65 nations are under "programs" of the IMF (more than a third of the IMF's total membership). In return for loans, the IMF insists these countries make reforms. And even when a country is not borrowing IMF money, officials are urging various reforms during annual policy reviews.

Individual regions also set up their own standards. In Europe, to qualify for membership in the European Monetary Union with its single currency starting January 1999, nations must get their budget deficits to a level equivalent to 3 percent of national output. There is also a requirement for a low level of inflation.

* Communist decline. Not only has Marxism taken a tumble, but classic economics with its emphasis on free markets has enjoyed a revival in "emerging-market" nations as well as industrialized countries.

* A wired world. Costs and speeds of shipping and communication have dropped dramatically. It is now easier for businesses to spread their enterprises, know-how, and technology to the farthest nations.

For these reasons, hardly a corner of the world has escaped economic reform. The results, in some cases, have been dramatic. Last year, reforms helped produce a healthy 5 percent real growth rate in Latin America.

"We are talking of a very different Latin America than during the years of the debt crisis," says Dadush, referring to the 1980s when many nations struggled to repay billions of dollars of debt.

"Over the past 10 years, the countries of Latin America have come into their own as democratic societies and market economies," notes an Inter-American Development Bank report.

MEANWHILE, better fiscal policies, greater trade liberalization, and more-realistic foreign exchange rates in sub-Saharan Africa have helped lead to the rising per capita incomes - an average of 1 to 1.5 percent a year the past two years.

The picture in the former communist nations, however, is "decidedly mixed," says Jan Vanous, president of PlanEcon Inc., a Washington consulting firm that specializes on the region.

There has been great progress in Poland and Hungary, Mr. Vanous says, and even a slight upturn in the Russian economy after years of decline. But there's much more to be done.

Without sufficient help from other nations, the former Soviet bloc could develop "very different kinds of capitalism" from those in the West, he adds. Few people are seizing control of the economies and sometimes those people are members of organized crime.

"It is very important that capitalism does not get discredited in its early stage," Vanous says.

Other countries are struggling, too. West European nations, for instance, have high unemployment rates. The welfare state makes it costly to fire employees, says an IMF official, discouraging employers from hiring new workers. The east Asia crisis is a reminder that many nations must continue to reform. "A wake-up call," says an IMF economist.

Yet with inflation low worldwide, most economists see a historic level of progress. Says a new UN report: "The world economy is experiencing widespread economic growth as it moves toward the close of the millennium."