Chapter 4


When other sources of external credits ceased, IMF and World Bank remained the credit
suppliers of last resort. In order to be eligible for IMF and World Bank loans, the
governments have been obliged to launch substantial economic reform programmes,
subsumed under 'adjustment'. These reforms are intended to bring about a realignment of
supply and demand and a re-allocation of the production resources towards more efficient
resource use.

Two broad areas of adjustment policies can be distinguished:

* Stabilisation, also called macro-economic adjustment, refers to immediate changes of
 certain macro-economic parameters (e.g. devaluation of exchange rate, tighter monetary
 policies, reduction of budget deficit) aiming at achieving short-term objectives (lowering
 of inflation and reduction of the balance of payment deficit). The measures primarily
 affect the demand side of the economy which can be more easily and quickly influenced
 than production, hence the gap between aggregate production and demand is narrowed
 by a cut in demand. Short-term macro-economic adjustment is primarily IMF's concern.

* Structural adjustment refers to fundamental changes of the way in which the economy
 operates. It involves market, trade, institutional and special sector reform measures (e.g.
 deregulation of markets and prices, reform of international trade policies, privatization,
 agricultural policies, etc.). The reforms aim at improving the production potential and
 efficiency of the economy, hence closing the gap between production and demand by
 increasing production in line with economic growth. This issue is specifically of concern
 to the World Bank. As the structural adjustment policies need to be implemented in an
 appropriate sequence and require a certain time to materialise, they are, contrary to
 stabilisation policies, of rather medium- to long-term nature.

Adjustment programmes usually comprise a package of short-term stabilisation as well as
longer-term structural adjustment policies. The specific features of the policies will be
discussed further below. Although the policy reforms are designed to address the specific
problems of a particular country, the adjustment programmes of various countries often
comprise a similar set of policies. This is because, first, the problems which many countries
face are quite similar in nature, and, second, the therapy prescribed by IMF and World Bank
is by and large based on same concept of exchange rate adjustment, demand and monetary
contraction, deregulation and market liberalisation.

In their efforts to adapt policy to respond to downward economic trends, decisions have to be
made by the governments of the countries concerned about priorities and objectives, including
how to protect and enhance their citizens' food security. Changes in macroeconomic parameters
can affect both availability of food and the access of vulnerable groups to the food which is
available. In economic terms, national parameters such as the exchange rate have an impact on
the incentives to produce food, as opposed to other agricultural commodities, and also a
country's ability to import food, to make up domestic shortfalls, in other words the availability
or supply of food. Access to food partly depends on availability, but it also depends on income
earning opportunities, which are very dependent on the level of activity in the economy as a
whole. The effective demand for food by vulnerable groups in the population is sensitive to


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