Chapter 4


that are financed through the formal credit market (including agricultural credit schemes, if
interest rates are adjusted in line with market rates. The case of preferential agricultural
credit conditions will be discussed later). To the extent that investments in food production,
processing and marketing have been financed through informal credit sources, the impact is
likely to be less severe or even positive (see Box A-3).

The impact of restrictive monetary and credit policies on the state of food security of
vulnerable groups is mainly indirect and similar to the case of reduced public investments
(see discussion under Section 4.2 above) through the effects of an investment decline on
employment and income.

In the long run, the rather negative impact of restrictive monetary and credit policies on
food supplies, food demand and overall food security may be outweighed by positive effects
resulting from lower rates of inflation if monetary policies, together with other measures
of macro-economic and structural adjustment, are effective in achieving this aim.

After having analysed the impact of policies subsumed under stabilisationn" or "macro-
economic adjustment" (exchange rate, fiscal and monetary policies) we will now turn to
another set of policies which often form an important part of policy reform packages and a
subsumed under "structural adjustment policies". This refers to trade, sectoral and
institutional reform measures and involves major structural changes in the economy with the
objective of providing the foundation for achieving long-term sustainable growth.

6. Trade Policy

6.1 Contents of trade policies

Trade policy comprises all policy measures which set the conditions for the movements of
goods, services and capital across country borders. Typical trade policies are import and
export taxes/subsidies, non-tariff barriers, and regulations concerning capital exports and
imports. There exist close linkages between trade policies and other macro-economic policy
spheres, in the sense that import and exports taxes often constitute a, or even, the major
source of governments' tax revenues, and, as we already know from the previous chapters,
imports/exports of goods and capital are strongly influenced by exchange rate and monetary
policies, too.

Prior to adjustment, the governments of many developing countries had tried to tackle the
problem of growing current account and balance of payment deficits by imposing restrictions
on cross-border movements of goods and capital. By creating market distortions and
encouraging the misallocation of the production resources, these policies have, instead of
solving the problem, rather accelerated the process of economic decline and growing
structural imbalances (see Figure 4.1).


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