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World development report 1989
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1989
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Financial InstitutionsDevelopment TheoryEconomic DevelopmentDevelopment EconomicsSustainable DevelopmentAnnual SeriesFinancializationDevelopment Studies (Film Studies)Monetary PolicyInternational FinancePublic PolicyEconomicsInternational Capital MarketMajor Development IssuesFinanceGlobalizationBusinessExternal EnvironmentCapital StructureFinancial Crisis
The World Development Report 1989 examines development challenges, noting that growth rates in developing countries vary widely and that many still rely on government‑led financial systems shaped by 1960s‑70s policies. The report seeks to advise developing countries on transitioning to private‑sector‑driven economies while retaining necessary capital controls until broader reforms are implemented. It argues that without substantial foreign capital, developing nations must mobilize domestic financial resources, reduce government involvement in credit allocation and interest rates, and implement prudent regulation and supervision as controls are relaxed. The report finds that while external conditions negatively affect growth, domestic policies play a larger role, and that countries adjusting their economies successfully reduce external imbalances yet still face challenges in achieving internal balance.
This is the twelfth in the annual series assessing major development issues. Economic growth rates among the developing countries have varied considerably. The external environment has had an adverse impact on growth, but domestic policies have been more important. Countries striving to adjust their economies have had considerable success reducing external imbalances but less success with internal balance. In the absence of large inflows of foreign capital, countries will need to rely on the mobilization of domestic financial resources. The structure of a country's financial system reflects its economic philosophy; the present financial structure of many developing countries reflects their approach to development in the 1960s and 1970s, an approach that emphasized government intervention in the economy. Today many countries are revising their approach to rely more heavily on the private sector. For the financial sector, this implies a smaller role for government in the allocation of credit, determination of interest rates, and the daily decisionmaking of financial intermediation. Relaxation of these controls calls for an effective system of prudent regulation and supervision. Hence while the objective is an open market, countries should not remove all capital controls until other economic and financial reforms are in place.