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Persistence and Change during Institutional Reform

  • Gun Eriksson Skoog
Chapter

Abstract

The prevalence of the soft budget constraint within the socialist system in Tanzania was not the result of a conspiracy. It was the outcome of an invisible hand. Spontaneous self-reinforcing mechanisms accounted for the prevalence and reproduction of the soft budget constraint, without this being intended by anyone. By ‘taking care’ of the parastatal financing gaps that it contributed to creating, the soft budget constraint made the problems reach the macro-economic level.

Keywords

Informal Institution Exogenous Shock Reform Programme Chapter Versus Import Support 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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  222. 227.
    Coopers & Lybrand Deloitte (1991), paragraph 4117.Google Scholar
  223. 228.
    Ibid., paragraphs 111 and 4106. See also paragraphs 4107–4113.Google Scholar
  224. 229.
    Ibid., paragraphs 490–494. When, for instance, the Nyanza Engineering Foundry Company (NEFCO) failed to secure regular customers for its foundry products, it responded by integrating forward into machining and finishing operations. However, this market, for finished agricultural and industrial spares, was already fragmented and highly competitive, so that the NEFCO further undermined its own position. (Ibid., paragraphs 497 and 4100.)Google Scholar
  225. 230.
    Ibid., paragraph 4105.Google Scholar
  226. 231.
    Overseas Consultancy Group (1990a), p. 152.Google Scholar
  227. 232.
    United Republic of Tanzania (1992a), p. 7.Google Scholar
  228. 233.
    Bhaduri et al. (1993), p. 14, and Doriye et al. (1993), pp. 25–26.Google Scholar
  229. 234.
    Already in 1988/89, the Swedish International Development Authority had contracted a local consultant to monitor Swedish import-support allocations and payment of cash cover. Data on the payment record for the period 1988/89–1991/92 are shown in Table A.15 in the appendix.Google Scholar
  230. 235.
    SPA JEM (1992), pp. 4–5.Google Scholar
  231. 236.
    United Republic of Tanzania (1992d).Google Scholar
  232. 237.
    Tanzania Association of Parastatal Organisations (1989), p. 28. TANESCO stands for the Tanzania Electric Supply Company, a public-utilities parastatal heavily supported by donors. (See Doriye et at, 1993, Table 4.3, p. 79.)Google Scholar
  233. 238.
    The same applies to the allocation of Norwegian import support, displayed in Table A.14 in the appendix.Google Scholar
  234. 239.
    Ministry of Finance (l991d).Google Scholar
  235. 240.
    See the note to Table 5.2 above.Google Scholar
  236. 241.
    For instance, partially to the Air Tanzania Corporation in 1989 or later, to the NMC in 1992 and to the Tabora Regional Cooperative Union after the 1990/91 season. (Price Waterhouse, 1992a, pp. 7, 17 and 25.)Google Scholar
  237. 242.
    Personal communications with senior staff at the Department of Commercial Banking of the Co-operative and Rural Development Bank, 30 November, and at the Department of Corporate Banking of the National Bank of Commerce, 4 December, 1992, in Dar es Salaam.Google Scholar
  238. 243.
    Personal communication with staff at the Revenue Department of the Ministry of Finance and Economic Affairs, Dar es Salaam, 22 October and 12 November, 1992.Google Scholar
  239. 244.
    United Republic of Tanzania (1992b).Google Scholar
  240. 245.
    Loans and Advances Realization Trust (1992).Google Scholar
  241. 246.
    In addition, the government provisioned for 57 billion TSh worth of doubtful debts remaining with the NBC. (World Bank, 1994, p. 17, referring to the fiscal year 1993.) According to Haggerty (1992), p. 6, an estimated amount of 49 billion TSh was transferred in 1992.Google Scholar
  242. 247.
    Parastatal Sector Reform Commission (1995), p. 25. Again data differ. Cf. the previous footnote.Google Scholar
  243. 248.
    Ibid. Cf. the United Republic of Tanzania (1996), p. 5.Google Scholar
  244. 249.
    United Republic of Tanzania (1991d).Google Scholar
  245. 250.
    Ahlquist and Wissinger (1996), Table 5.6, p. 49.Google Scholar
  246. 251.
    To be compared with, for instance, total public expenditure in 1991/92, 228 billion TSh, or official GDP in 1991 and 1992, 835 and 1,031 billion TSh. (Tanzanian Economic Trends, 1994, Tables 1 and 7, pp. 82 and 91.)Google Scholar
  247. 252.
    Haggerty (1992), pp. 6–7. The three parastatals were the notorious loss makers the National Urban Water Authority, the Tanzania Electric Supply Company and the Tanzania Posts and Telecommunications Corporation.Google Scholar
  248. 253.
    Ibid., pp. 6–7 and 9.Google Scholar
  249. 254.
    Ibid., p. 4.Google Scholar
  250. 255.
    Tanzania Association of Parastatal Organisations (1989), p. 36.Google Scholar
  251. 256.
    Personal communication with a senior manager at the National Transport Corporation, Dar es Salaam, 6 December, 1991.Google Scholar
  252. 257.
    Personal communication with a senior manager within the Board of Internal Trade, Dar es Salaam, 4 December, 1991.Google Scholar
  253. 258.
    Haggerty (1992), p. 6.Google Scholar
  254. 259.
    Ibid., p. 14.Google Scholar
  255. 260.
    Ministry of Finance (1991b), p. 7. When the new law to make co-operatives autonomous, commercial and self-sustaining was adopted in 1991, the government similarly promised to guarantee the financing of co-operatives during their whole restructuring period. (Larsson, 1991, p. 6, and United Republic of Tanzania, 1991a, Attachment 1.)Google Scholar
  256. 261.
    World Bank (1991b), p. 106.Google Scholar
  257. 262.
    Recent preliminary observations are ambiguous. There are suggestions that loss-making parastatals survived for several years after 1992, partly through access to non-serviced credit from the National Bank of Commerce. See, for instance, the World Bank (1995), pp. i, iv, xiii and 9, and the International Monetary Fund (1996), pp. 6–7. On the other hand, a consultant involved in the reform of industrial and trade parastatals suggests that many of them survived by scaling down operations to a minimum. (Personal communication with Bo Andreasson at Swedish Development in Gothenburg, 24 June, 1997.)Google Scholar
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    Kiondo (1989), pp. 317–318.Google Scholar
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    Cf. Adam et al. (1994), pp. 142–143.Google Scholar
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    Corruption Commission (1997), passim.Google Scholar
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    Personal communications with senior staff at the offices of two bilateral donors, Dar es Salaam, 17 and 18 November, 1992. For Swedish import support to the firm, see Table A.15 in the appendix.Google Scholar
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    Personal communication with senior staff at the Research and Planning Department of the National Bank of Commerce, Dar es Salaam, 6 December, 1991.Google Scholar
  263. 268.
    International Monetary Fund (1996), p. 7.Google Scholar
  264. 269.
    Ahlquist and Wissinger (1996), Table 5.6, p. 49.Google Scholar
  265. 270.
    Tanzanian Economic Trends (1992), Table 2, p. 64, and (1993/94), Table 2, p. 84.Google Scholar
  266. 271.
    Given an estimated population growth of 2.8 per cent per annum during the period 1978–1988. (Bureau of Statistics, 1989, p. 1.)Google Scholar
  267. 272.
    According to Bagachwa and Naho (1990), referred to by Sarris and van den Brink (1993), Table 16, p. 55, the second economy jumped from 47 per cent of official GDP in 1983 to 70 per cent in the following year, and thereafter declined to 61 per cent in 1988. Using a different approach, Sarris and van den Brink (1993), Table 15, p. 51, similarly found its share to fluctuate around 60 per cent during the period 1985–1988. See also their Table 17, p. 56. Cf. the discussion in Chapter I on the revised official GDP data, according to which total output grew faster from 1989 onwards than indicated by Table 5.19 above.Google Scholar
  268. 277.
    Income inequality appears to have increased, however, due primarily to more rapid growth in certain regions. (Danielson, 1996, pp. 14–19.)Google Scholar
  269. 274.
    According to the terminology of Pelikan (1987).Google Scholar
  270. 275.
    World Bank (1991b), p. 95.Google Scholar
  271. 276.
    Kornai (1990c), p. 26.Google Scholar
  272. 277.
    See Chapter 1V.Google Scholar
  273. 278.
    Pelikan (1987), p. 31.Google Scholar
  274. 279.
    See Table 5.11 above.Google Scholar
  275. 280.
    Based on official GDP figures according to the revised national accounts by the Bureau of Statistics (1995a), Table 20, pp. 29–30. (Unrevised figures are incomplete.)Google Scholar
  276. 281.
    Cf. Lipumba (1991), p. 28.Google Scholar
  277. 282.
    However, given the underestimated output indicated by the official GDP figures in the table, this growth is overestimated.Google Scholar
  278. 287.
    Calculations based on price and quantity indices, the one for food prices being a weighted average of official and open market producer prices. (World Bank, 199 lb, I1:1, pp. 32–33.)Google Scholar
  279. 284.
    The payments for these unrecorded exports are often presumed to be more or less equivalent to private transfers from abroad as recorded in the balance of payments, and to have financed most of the own-funded imports. (World Bank, 1995, pp. 27–28.) See Maliyamkono and Bagachwa (1990), pp. 98–108, for details on the ‘second economy within foreign trade.Google Scholar
  280. 285.
    Cf. Lipumba(1991), p. 29.Google Scholar
  281. 285.
    The trade deficits also grew when illegal exports are included. Bhaduri et al. (1993) note that when illegal exports more or less equalling regular exports during the period 1986–1991 are taken into consideration, the official trade deficits are reduced by 40–50 per cent (pp. 119–120). With revised official GDP figures, the share of imports grew less towards the end of the period.Google Scholar
  282. 287.
    According to data on import licences issued, which consistently overstate actual imports however. Calculations based on Bhaduri et al. (1993), Table 6.4, p. 118.Google Scholar
  283. 288.
    According to the Bank of Tanzania (1991c), Table 2.2, the actual budget deficits were well below the planned levels during the period 1986/87–1990/91.Google Scholar
  284. 289.
    As revealed by a comparison of the figures in Table 5.9 with the public expenditure data on which Table 5.19 is based. The latter, as well as the associated data on budget revenues, also serve as the point of reference in the following assessments of the budgetary impact of soft finance.Google Scholar
  285. 290.
    See Table A.24 in the appendix, the data of which are compared to the public-revenue data on which Table 5.19 is based.Google Scholar
  286. 291.
    See Table 5.17 above.Google Scholar
  287. 292.
    According to calculations based on the same data as those on public finances presented in Table 5.19. (Bank of Tanzania, 1995, Table 2.1, p. 63.) For reasons undetected by me, figures vary largely between sources. According to data from Economic Surveys inter alia, the share of total expenditure on ‘public debt’ grew from 18 to 24 per cent during the same period. (Bagachwa, 1992a, Table, 3, p. 55.)Google Scholar
  288. 293.
    Bhaduri et al. (1993), p. 104.Google Scholar
  289. 294.
    Again, this growth is overestimated since official GDP is underestimated.Google Scholar
  290. 295.
    Bank of Tanzania (1990a), Table 18, p. 57, and (1995), Table 2.1, p. 63.Google Scholar
  291. 296.
    Calculations based on Bank of Tanzania (1989), Table 14, p. 50, (1995), Table 1.11, p. 57, and Shitundu (1993/94), Table 2, p. 20.Google Scholar
  292. 297.
    Nyagetera (1992), Table 2, p. 77, and calculations based on this source.Google Scholar
  293. 298.
    During the ERP period, credit grew by on average more than 30 per cent annually while the targets were about 15 per cent. (United Republic of Tanzania, 1989, p. 6.) See Bank of Tanzania (1991c), Table 2.1, for annual comparisons.Google Scholar
  294. 299.
    Kornai (1990c), p. 29.Google Scholar
  295. 300.
    Lipumba (1991), p. 36, continues that, ‘Adequate credit can be extended without causing inflation provided that borrowers of working capital pay back’.Google Scholar
  296. 301.
    Ibid., p. 32.Google Scholar
  297. 302.
    United Republic of Tanzania (1989), p. 6.Google Scholar
  298. 303.
    Lipumba (1991), pp. 35–36. Cf. Doriye (1990), p. 9.Google Scholar
  299. 304.
    See Table 5.19 above.Google Scholar
  300. 305.
    Collier and Gunning (1991).Google Scholar
  301. 306.
    Ibid., pp. 534–536.Google Scholar
  302. 307.
    Doriye (1990), p. 9.Google Scholar
  303. 308.
    Lipumba (1991), p. 36. Also Collier and Gunning (1991), pp. 536–538, argue that given the role of the Tanzanian banking system in financing public expenditure, raised nominal interest rates may have increased the rate of inflation. Since government domestic debt then took the form of bank deposits, higher interest rates pushed up the debt-service payments - uncovered expenditure increases that had to be financed by the inflation tax.Google Scholar
  304. 309.
    For a discussion of the monetary effects of counterpart funds, see Doriye et al. (1993), pp. 80–81 and 87.Google Scholar
  305. 310.
    Wolf (1990), p. 5.Google Scholar
  306. 311.
    The Selected Probe Team was established in 1994 and submitted its report in 1995 (The Selected Probe Team, 1995).Google Scholar
  307. 312.
    Thus the partial and gradual character of reform, to which the soft budget constraint contributed, can be described as a process of repeated trial and error. While the political leadership tried to maintain large parts of the old system, it innovated with partial reform measures ‘at the margin’. These were introduced reluctantly, in response to explicit or perceived pressures. The leadership’s behaviour was reactive rather than active. Eventually, when partial measures did not sufficiently improve the situation, the leadership was forced to try yet another measure, and so forth.Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Gun Eriksson Skoog
    • 1
  1. 1.Stockholm School of Economics — EFI The Economic Research InstituteSweden

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