Chapter 4


 Eighties, various countries are undergoing adjustment programmes at the same time.
 Coincident efforts to increase exports are likely to encounter a limited absorption
 capacity on the world market, especially as far as primary products are concerned. This
 can be particularly important for the many developing countries which are heavily
 dependent on primary commodity exports. As a result market prices will go down, and a
 further deterioration of the terms of trade counteracts the positive current account effects
 expected from the raised export volumes. This issue is referred to as the problem of
 'fallacy of composition' or 'collective adjustment'.

There are further reasons why no firm and general conclusions can be drawn as to the
success of adjustment programmes:

* The distinction between short-term and long-term effects. For example, how will the
 investment decline commonly experienced in connection with adjustment affect the
 further growth prospects and the future balance of payments situation?

* Almost no country under adjustment has fully implemented all policy conditions
 included in the adjustment programme. A World Bank review revealed that, out of 15
 adjusting countries surveyed, 70 per cent had fully implemented the exchange rate policy
 conditions, but only 57 per cent the agricultural policy conditions and 55 per cent the
 trade policy conditions. To what extent has the limited success of adjustment
 programmes to be attributed to the fact of incomplete implementation, and to what extent
 to the other factors mentioned above?

Although, for the various reasons listed above, the overall efficacy of adjustment
programmes is difficult to assess, there is no question that adjustment policies have
significant impacts on all economic spheres. The changes in macro-economic parameters and
conditions induced by the reform measures have substantial repercussions through the
meso-, down to the micro-levels of. the economy, individuals and households. They are
affected as producers and consumers. Some may gain in one and lose in another respect.
Negative short-run effects may be outweighed by positive effects in the long-run but still be
a matter of concern if vulnerable and already food insecure population groups are adversely
affected during the transition period of adjustment.

2) Short-run effects of adjustment programs on vulnerable population groups

In Table 4.18, a crude attempt is made to summarise the likely short-term direction of
income changes of different population groups under adjustment.


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