of a dependent (farmers excepted) than a partner in economic growth. Thus, w:ien the public sector's resources started to dry up, much of the private sector went into a sharp decline. Public policy limited the flexbility with which private firms could react to changing circumstances, making the decline almost irreversible.

In this context one must underswre the impact of the real rate of exchange', which has helped to reduce the competitiveness of exports and encourage an inward-orientation among the majority of private enterprises. Most enterprises now struggle to find markets for their production in the face of a shrinking overali domestic market. The efficacy of protection of domestic manufacturing is declining: every increase in import duties (to generate revenues and to compensate for the real appreciation of the currency) appears to reduce actual protection by enhancing the incentives for smuggling.

Public expenditure (through both agencies and parastatals)5 has always had powerful inApacts on private enterprise, both positive and negative. Over the last decade, the effects of public expenditure and the need to finance tremendous fiscal deficits have tumed sharply negative. While expenditure in the 1970s arguably supported and-encouraged private investment, in the 1980s public expenditure has increasingly channeled limited financial resources and human capital towards uses that served neither development nor poverty allevistion, precluding their potentially more efficient use in the private sector. Government's financing methods (such as forfeiture taxes and accumulation of domestic arrears) have further curtailed the capital available to private enterprises. Furthermore, the government has denied the private sector open, competitive access to up- and downstream linkages with public enterprises. Finally, it has prohibited competition with parastatals, further limiting potential private investment.

The "creativity' of tax authorities has become a serious threat to business. Among the most egregious recent outcomes: export premia are counted as income when they are due (not when they are paid) and thus subject to profit taxes, often in advance of their actual receipt by exporters; and the latest tax (a 5% withholding tax on gross sales) is at best a tax pre-payment measure in times of tight liquidity and at its worst an inflationary surcharge. Not surprisingly, the CECPS survey showed 19% in nominal terms and between 1982 and 1988.

3 The CECPS mission of June 1990 surveyed 38 private SMEs (the sample was not randomly selected but it appears to be reasonably representative), and interviewed a dozen larger enterprises and a number of microentrepreneurs. Obviously, few of the conclusions derived from the survey and interviews have their basis in statistical inference.

**4.** The real exchange rate is often measured by multiplying the nominal exchange rate by the ratio of foreign to domestic prices (although technically it should be multiplied by the ratio of the prices of tradable to nontradables goods). It is thus a critical determinant of the competitiveness of exports in international markets and that of imports in domestic markets.

5 In 1988, current expenditure totalled about 33% of GDP.

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