Chapter 4


government objectives puts far too much emphasis on economic issues to be a complete
explanation of the basis on which governments make decisions. Government policy is also
heavily influenced by social and political concerns. It does, however, encompass all the main
elements of macroeconomic policy, and as shown in the figure above, this in turn influences
who can achieve their food requirements and how. In each country, the government will pursue
its own balance between all these different policy elements, according to its own political
philosophy: the importance it puts on its own role as a provider of goods and services; the
priority it puts on the welfare of different sectors of the population; and its own self-interest.
When governments change, these views will also change, and along with that, economic
policy.

However, governments and their economic policies do not exist in a vacuum. External and
domestic economic shocks can make existing policies unsustainable, or extremely difficult to
maintain. Governments may be forced to make abrupt changes in policy, which in turn may
have a damaging impact on the food security of its citizens. The next section examines the
macroeconomic shocks and world trends which have affected developing countries in
particular, as a context for further discussion of the macroeconomy and food security.

1.2 Macroeconomic shocks, international economic trends and food security

Many developing countries, amongst them some of the poorest in the world, have laced
problems of increasingly unsustainable structural imbalances since the mid-1970s. These
imbalances have developed in their external accounts, or balance of payments, and often also in
their internal accounts, or public sector budget. In the short run, many countries responded to
these imbalances by borrowing on international markets, which was made easier by the excess
liquidity in international markets following the oil price shocks of the 1970s. This was only an
appropriate response if either the government felt that the imbalance resulted from a temporary
shock which would soon be reversed, or the economy itself had strong automatic adjustment
mechanisms which would correct the imbalance. However, where the economy had a more
rigid internal structure, policy changes were necessary to encourage increases in economic
activity thus creating income and foreign exchange flows which would repay the borrowing. In
the absence of this a country could very easily sink into a negative spiral of increasing debt and
rising debt service payments and, in fact, this has been the experience of many poorer countries
since the mid-1970s.

If a country borrows to maintain its consumption and investment levels over the medium term,
this excess demand will, in itself, create a balance of payments deficit, as it sustains the
demand for traded and non-traded goods in excess of the production levels in the economy.
This has two effects. It increases the amount of imports and forces up the price of non-traded
goods. This distorts domestic price levels and biases production towards non-traded goods. In
most countries, this translates into a bias against the agriculture and food producing sectors.

Imbalances can be caused by macroeconomic shocks or by the continuous pursuit of domestic
policies which fail to achieve internal balance (full employment and price stability), such as
governments persisting in running high budget deficits. Major macroeconomic shocks can be
both external or internal in source. Combinations of some or all of these causes of structural
 imbalance have been faced by many developing countries in the past few decades.


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