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A quarterly magazine of the IMF

June 2005
Volume 42, Number 2

How Investing in Education Boosts Development Cultivating Minds Joel E. Cohen and David E. Bloom Joel Cohen (Rockefeller and Columbia Universities) and David Bloom (Harvard University) consider the additional cost of reaching universal primary education by 2015—estimates range from $6 billion to $35 billion per year—not only affordable but essential for providing economic benefits, building strong societies and polities, and improving health. They also note that achieving universal primary education is about a lot more than money: many of the chief obstacles lie in the political, cultural, informational, and organizational domains. And they want the world to be even more ambitious and aim for high-quality universal secondary education, possibly by 2015 but certainly by the middle of the 21st century. Why Quality Matters in Education Eric A. Hanushek There is no doubt that education can give economic growth a powerful boost, writes Eric Hanushek (Stanford University), but simply spending more money is seldom the answer. The policy challenges facing most countries—including developing ones—in the 21st century have to do with quality rather than quantity. Economic research has until now focused mostly on the latter, but that needs to change. Key to finding out what works and what doesn't is measuring student performance. What Does it Take to Really Help the Poor? Emanuele Baldacci, Benedict Clements, Qiang Cui, and Sanjeev Gupta No one questions that human capital—in the form of better health and higher levels of educational attainment—is a major building block for economic growth and poverty reduction. But how do policymakers get the most development out of scarce public resources? The authors evaluate the effects of different policies on social indicators and economic growth. They conclude that spending on health and education can indeed boost human capital in poor countries and help them reach the Millennium Development Goals, but only if governments are held accountable. Keeping the Promise Birger Fredriksen Sub-Saharan Africa has an average primary school completion rate of just 59 percent, far from the 100 percent required by the Millennium Development Goal on universal primary education. What can the region do to enhance its chances of meeting the 2015 deadline? Birger Fredriksen, the World Bank's former Senior Education Advisor for sub-Saharan Africa, argues that the region now needs to shift its focus from boosting admissions to reducing dropout rates and improving learning outcomes. The Quiet Revolution Kin Bing Wu, Venita Kaul, and Deepa Sankar India's elite universities continue to produce the first-rate scientists, engineers, and managers who helped the country's information technology sector take off in the 1990s. Far less visible, however, is its more recent, quiet revolution in primary education, which has vastly expanded enrollment. India now needs to reduce high teacher and student absenteeism, lower repetition and dropout rates, and improve student achievement.		Financing Higher Education Nicholas Barr Higher education is faced with many problems: universities are underfunded, student support is inadequate, with the proportion of students from disadvantaged backgrounds lamentably small in many countries, and the financing of university education is usually regressive—the money comes from general taxation but the major beneficiaries are from better-off backgrounds. The United Kingdom recently instituted reforms aimed at addressing these problems. Nicholas Barr (London School of Economics) looks at what works and what doesn't when it comes to financing tertiary education. Designing a Global Compact on Education Gene Sperling and Reka Balu Gene Sperling and Reka Balu (Council on Foreign Relations) argue that it is time for the global community to follow through on its promise to develop a global compact to achieve education for all. At the heart of this compact must be an obligation for developing countries to create education plans that will really work, and for developed countries to support such plans in ways that will maximize incentives for the expansion of free, quality universal basic education. The authors call for predictable, long-term financing for recurrent costs, along with a strengthening of the World Bank's Fast-Track Initiative. Making Aid Smarter Dean T. Jamison and Steven Radelet Dean Jamison (University of California at Los Angeles) and Steven Radelet (Center for Global Development) assert that there is potential for substantial progress by 2015 toward achieving universal primary education. But much will depend on making donor support more effective. They look at the experience with targeted funding for health and suggest there is scope for similar performance-based support for education. Also in This Issue Small Fish, Big Pond Augusto de la Torre and Sergio Schmukler Many developing countries reformed their securities markets during the 1990s. As reforms intensified, so did expectations regarding capital market development. But today, the state of capital markets in developing countries is mixed. Results have been particularly disappointing in Latin America: while many of these countries embraced financial globalization much more vigorously than Asia did, today they lag considerably behind Asian countries in terms of deepening their domestic capital markets. What explains this outcome and what lessons can be passed on for future reform efforts? Brazil's Remarkable Journey Pablo Fonseca P. dos Santos Brazil's economy is finally reaping the benefits of reforms undertaken over the past 10 years. The author, who is from Brazil's Ministry of Finance, looks at the country's achievements since Lula da Silva's election as president in 2002, and outlines the reform agenda that still lies ahead.
Departments Letter from the Editor Letters to the Editor Two letters take issue with Raghuram Rajan's thoughts on why an odious debt regime wouldn't work; and the discussion of outsourcing continues. People in Economics Super Mario and the Temple of Learning Jeremy Clift seeks out Mario Monti's views on his legacy as the European Union's Commissioner for Competition, the debate over a new EU constitution, and what will be the contribution of the new think tank he now heads. Picture This Report Card on Primary Education Children everywhere are spending more years in school than ever before but positive global trends in educational participation mask large disparities between the world's richest and poorest countries. Back to Basics Fiscal Space—What It Is and How to Get It Peter Heller Fiscal space is a term that has recently become fashionable in the aid community. Peter Heller explains what it means, and what the IMF does to help countries find space for worthwhile government spending in their budgets without jeopardizing the stability of their economies. Book Reviews Bailouts or Bail-Ins? Responding to Financial Crises in Emerging Economies, Brad Setser and Nouriel Roubini The Euro and its Central Bank: Getting United After the Union, Tommaso Padoa-Schioppa Country Focus Turkey Turkey's rapid and powerful recovery from a crisis in 2001 has been bolstered by strong fiscal consolidation and a rigorous monetary policy. But large government debt and a widening current account deficit remain sources of vulnerability. The country will also have to work hard at reducing still-high unemployment. Straight Talk Debt Relief and Growth Raghuram Rajan The IMF's Economic Counsellor explains why one-size-fits-all proposals for debt relief to poor countries may be politically convenient but don't necessarily make economic sense.