ABSTRACT
This chapter suggests that fiscal policy can increase the rate of export diversification if, as in Indonesia and Mauritius, it is driven by the needs of exporters rather than importers, and if subsidies focused on exporters are combined with consistently competitive exchange rates. The coalitions of political forces which have been able to frustrate equitable development, sometimes development of any sort, in natural resource economies have been changed in very poor as well as in middle-income countries, enabling, in Sierra Leone, at least a restart of the momentum of development, and in Uganda, much more than that. In both countries, the switch to an activist real exchange rate policy empowered exporters, notably of cash-crops, and local NGOs, in a manner that laid the basis for, although it did not directly create, a strategic state-business alliance and a stable developmental state.
