Agriculture Reference
In-Depth Information
give better results but runs the risk of provoking violent popular protests that
can potentially force governments to reverse policies). Given the size of stake-
holders, popular reactions are likely in countries that continue to have signifi-
cant parastatal presence. But prolonging the inevitable will mean losses in
growth and employment at considerable economic and political costs to the
country. Moreover, prolonging the inevitable permits special interests to be-
come even more entrenched, making the inevitable change even more difficult.
3
Thus, if the government is truly committed to agricultural and economic de-
velopment, the key condition of “how” will be to gradually do away with the
negatives that hamper development of private trade—open up the economy and
let private trade compete on a level playing field with public parastatals—and
use public policy to regulate and supplement, rather than replace, the private
market.
Leveling the Playing Field for Domestic Markets
The country case studies suggest that, although the rationales have lost their
significance, many countries continue to practice old policies and facilitate
the operation of parastatals with a host of regulatory supports. Restrictions
on grain movement continue to be fully enforced in Pakistan and Vietnam and
partially enforced in India and Indonesia. The parastatals are supported with
cheap or interest-free credit in India, Pakistan, Vietnam, and the Philippines;
and their share of the agricultural and trade credit available in these coun-
tries continues to be large. In addition, India also enforces restrictions on pri-
vate storage and rice processing by imposing levies on rice millers, and it fa-
cilitates FCI's operation by providing it with preferential access to railway
transportation.
Therefore, the first step would be to gradually eliminate policies or prac-
tices that favor parastatals or other public sector organizations and create a level
playing field in which all economic actors can participate competitively. To
achieve this objective, policy decisions have to be credible and transparent, es-
pecially in countries where governments have reversed their policies or made
them unpredictable, as has often been the case. Examples include reversal of
movement restrictions policies in India and Pakistan, trade policy reversals in
Indonesia, and frequent changes in open-market sales prices and credit policies
in India. These policies create uncertainties for the private sectors, which, in
turn, increase their transaction costs and discourage investments. The private
sectors will thrive if policies are clear and consistent, if red-tape in commerce
3. Efforts to privatize fertilizer distribution in Egypt and Bangladesh are instructive. The pri-
vatization effort moved forward but the respective parastatals, including their storage facilities,
were not disbanded. In both cases, short-term emergencies arose which, conveniently, were blamed
on the private trade and, in both cases, the privatization was backtracked and the governments reim-
posed public controls.
