1. Fiscal discipline: Large and sustained fiscal deficits by central and provincial governments are a main source of macroeconomic dislocation in the form of inflation, balance of payments deficits, and capital flight. These deficits result from a lack of political courage in matching public expenditures to the resources available. An operational budgetary deficit in excess of 1–2% of GNP is evidence of policy failure.
2. Reducing public expenditures: When government expenditures have to be reduced, the view is that spending on defense, public administration, and subsidies, particularly for state enterprises, should be cut rather than primary education, primary health care, and public infrastructure investment.
3. Tax reform: The tax base should be broadened, tax administration improved, and marginal tax rates should be cut to improve incentives.
4. Interest rates: Financial deregulation should make interest rates market-determined rather than state-determined, and real interest rates should be positive to discourage capital flight and increase savings.
5. Competitive exchange rates: Exchange rates should be sufficiently competitive to nurture rapid growth in nontraditional exports but should not be inflationary—the conviction behind this assessment is that economies should be outward-oriented.
6. Trade liberalization: Quantitative restrictions on imports should be eliminated, followed by tariff reductions, until levels of 10–20% are reached—the free trade ideal, however, can be temporarily contradicted by the need for protecting infant industries.
7. Encouraging foreign direct investment: Foreign investment brings needed capital, skills, and know-how and can be encouraged through debt–equity swaps—exchanging debt held by foreign creditors for equity in local firms, such as privatized state enterprises. Barriers impeding the entry of foreign firms should be abolished. Foreign and domestic companies should be allowed to compete on equal terms.
8. Privatization: State enterprises should be privatized. Private industry is more efficient.
9. Deregulation: All enterprises should be subject to the discipline of competition—this means deregulating economic activity in the sense of reducing state controls over private enterprise.
10. Securing property rights: Secure and well-defined property rights should be made available to all at reasonable cost.