for agricultural inputs and government services; and cutbacks in nonessential expen- ditures. Despite these measures there has been steady erosion in the funds available for development. This reduced the ability of many countries to utilize external assistance for on-going and new projects.
Constraints on the availability of development funds have made our developing member countries more selective in choosing projects, and greater emphasis is being placed on the efficiency and productivity of investment. At the same time, there is grow. ing recognition that the private sector must be encouraged to play a greater role in economic development. Many developing member countries have improved the incen- tives provided to the private sector. In several countries, areas of economic activity tradi- tionally reserved for the government were being opened to the private sector, and there were visible moves to privatize public enter- prises. These are laudable policy reforms and the Bank supports them.
The economic policies pursued by our developing member countries have generally been cautious and conservative. Faced with domestic resource constraints they have postponed some capital expenditures to con- serve foreign exchange and avoid excessive debt burden. The economies of our develop- ing members remain basically healthy: infla- tion is under control, tight and sensible fiscal and monetary policies are being pursued, and more liberal market oriented policies are being followed. The financial prudence and sound economic management many countries have
exercised should enable them to resume accelerated growth as the external environ- ment improves.
Since the beginning of this year, economies in the region have shown signs of improvement which suggest that 1986 should see a resumption of more satisfactory rates of growth. These improvements are a result of the decline in petroleum prices and of the significant easing in interest rates in all finan- cial markets. Much will depend, of course, on the strength and tempo of economic expan- sion in the United States, Japan and Europe during the coming months. The much-needed reversal of protectionism and improvement in the prices of primary products will depend on such external factors. Because of their fun- damentally sound financial positions and their growing reliance on market forces, our developing members are well-placed to re- spond quickly to favorable developments abroad.
II. Bank Activities
In the light of the factors that affected the region during the past year, it is not surpris- ing that Bank lending during 1985 at $1.9 billion was about 15 per cent less than in 1984. The number of projects approved, however, was 46, about the same as during 1984.
The agriculture and agro-industry sector, including irrigation and rural development, took up 29 per cent of total lending followed by social infrastructure, such as education, housing, urban development and health care,
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