Chapter 4


There are reasons to assume that, if successful in achieving its overall objectives of economic
stabilization and sustained economic growth, the reform programs will eventually have strong
positive impacts on the food economy and on food security. Increased production,
employment, income and economic efficiency are expected to contribute to a reduction of
existing food deficits from the supply as well as the demand side (see Section 6 and Figure A-
12 in Annex 1).


 Box 4.8 Macroeconomic Adjustment and Food Security

 From 1983 onwards, Indonesia suffered a sharp downwards movement in its terms of trade which required
 the adoption of an adjustment package including major public expenditure cuts and currency devaluation.
 This was successful in reducing the current account deficit to 2% of GDP by 1987, though less successful in,
 reducing the budgetary deficit. Although growth slowed, it still averaged 2.9% p.a. between 1983 and 1987.
 Average per capital caloric intake increased by 5.7% over the period, rising at every level of income,
 indicating that food security levels were maintained, if not improved over this period.

 The Philippines also faced the necessity for adjustment in the early 1980s, as a result of an acute debt crisis.
 Greatest emphasis was placed on sharp real reductions in government expenditure, and both fiscal deficit
 and current account balance responded favourably. However, this was at the expense of the growth rate.
 GDP per capital fell 17% during 1982-87. Malnutrition rose over this period, indicating a deterioration in
 food security for vulnerable groups.

 There appear to be two major reasons why adjustment policies had such different effects on food security in
 these two countries. In Indonesia, there was more emphasis on switching production incentives in the
 economy, and there was a favourable supply response from both cash crops and labour-intensive
 manufacturing, so that the demand for food was maintained. In the Philippines, the emphasis was on
 disabsorption or deflation of the economy, which reduced demand. Although public expenditure was cut in
 both countries, more effort was made in Indonesia to protect services to the poor, whereas in the Philippines
 health and education expenditures were heavily cut.

 Source: F. Stewart, "The Many Faces of Adjustment", World Development, Volume 19, No.2


Nevertheless, these overall positive, yet hypothetical, prospects need to be critically evaluated.
In assessing the overall impact of economic adjustment programs on food security, the
following issues have to be raised:

1) Will the countries undergoing economic adjustment programs really achieve the objectives
 of economic stability and balanced economic growth?

2) Almost all policy changes create gainers and losers, very few policy changes benefit
 everyone in practice. It is important to examine whether the losers from the policy change
 are amongst the poor and food insecure. Any policy which penalises the most vulnerable is
 likely to create greater problems of food insecurity.

3) Negative short-run effects may be outweighed by positive effects in the long-run, but still
 be a matter of concern, if they worsen the position of already food insecure households
 during the transition period of adjustment. The time horizon of the poor is very short.


- 168-