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Zambia is highly dependent on copper exports, which makes the
country very vulnerable to fluctuations in its price. From
independence in 1964 until the mid-1970s Zambia had reasonable
growth, largely resulting from on good revenues from copper
exports, but it remained a highly dualistic economy. In the 1970s
the country was hit by oil-crises and by a copper-bust, which
dramatically changed the fortunes of the country. Since the
government assumed that the fall in copper prices was a temporary
setback, they chose to avoid serious adjustment measures, and
instead borrowed money on the international financial markets. It
is from this period onward that Zambia's large debt was built up.
From 1983 the government initiated some stabilisation and
structural adjustment measures, with very limited success. This
study first discusses the structural problems Zambia and the
policies of adjustment that have been tried. It then uses a
computable general equilibrium model to analyse the impact of
various strategies with regard to external resource transfers. It
compares the impacts of foreign loans or grants to the private and
the public sectors, as well as the impact of a turnaround of the
country's fortunes with regard to its external terms of trade. The
results of the policy analysis show that the scope for growth is
highly dependent on the tightness of the external resource
constraint. Of course, many of the growth constraints are domestic
in nature, but a relaxation of the foreign exchange constraint will
also make it easier to address the domestic policy problems. With
the debt burden that Zambia carries, debt service tends to dominate
the policy-making machinery.
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