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TitleThe state of food and agriculture, 1990
LanguageEnglish
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H F - u FOOD A'ND ACRicy_rulq,oRANIzAtior:119F THE 'UNITED NATIONS !
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FAO LIBRARY AN: 312095

Page 2

Special chapters

In addition to the usual review of the recent world food and agriculture situation, each issue of this report from
1957 has included one or more special studies of problems of longer-term interest. Special chapters in earlier issues
have covered the following subjects:

1957
Factors influencing the trend of food
consumption
Postwar changes in some institutional factors
affecting agriculture

1958
Food and agricultural developments in Africa
south of the Sahara
The growth of forest industries and their
impact on the world's forests

1959
Agricultural incomes and levels of living in
countries at different stages of economic
development
Some general problems of agricultural
development in less-developed countries in
the light of postwar experience

1960
Programming for agricultural development

1961

Land reform and institutional change
Agricultural extension, education and research
in Africa. Asia and Latin America

1962

The role of forest industries in the attack on
economic underdevelopment
The livestock industry in less developed
countries

1963
Basic factors affecting the growth of
productivity in agriculture
Fertilizer use: spearhead of agricultural
development

1964

Protein nutrition: needs and prospects
Synthetics and their effects on agricultural
trade

1966
Agriculture and industrialization
Rice in the world food economy

1967
Incentives and disincentives for farmers in
developing countries
The management of fishery resources

1968
Raising agricultural productivity in developing
countries through technological improvement
Improved storage and its contribution to
world food supplies

1969
Agricultural marketing improvement
programmes: some lessons from recent
experience
Modernizing of institutions to promote
forestry development

1970
Agriculture at the threshold of the Second
Development DiJcade

1971

Water pollution and its effects on living
aquatic resources and fisheries

1972
Education and training for development
Accelerating agricultural research in the
developing countries

1973
Agricultural employment in developing
countries

1974
Population, food supply and agricultural
development

1975
The Second United Nations Development
Decade: mid-term review and appraisal

1976
Energy and agriculture

1977

The state of natural resources and the human
environment for food and agriculture

1978

Problems and strategies in develop ng regions

1979

Forestry and rural development

1980
Marine fisheries in the new era of national
jurisdiction

1981

Rural poverty in developing countries and
means of poverty alleviation

1982
Livestock production: a world perspective

1983
Women in develop ng agr culture

1984
Urbanization, agriculture and food systems

1985
Energy use in agricultural production
Environmental trends in food and agriculture
Agricultural marketing and development

1986
Financing agricultural development

1987-88
Changing priorities for agricultural science
and technology in developing countries

1989

Sustainable development and natural resource
management

Page 121

PROBLEMS OF IMPLEMENTING
STRUCTURAL ADJUSTMENT
PROGRAMMES

Disappointing performance
After almost a decade of experience, it is
difficult to avoid the conclusion that structural
adjustment programmes (SAPs) have been
associated with uneven economic performances
within countries. Some argue that this
inconsistency lies in the weakness of the
theoretical underpinnings of the policy packages
themselves.14 Others, on a more practical level,
have argued that various governments have
implemented SAPs in very different ways and
have lacked a thorough understanciing of the
consequences of enforcing policy measures in
different orders or "sequencing"."

A recent FAO study of four sub-Saharan
African countries reveals that in only one has
careful consideration been given to policy
sequencing before the implementation of the
structural adjustment programme.'

Among others, the FAO policy review
identified the following key issues: i) the
sequencing of stabilization policies vis-à-vis
policies of structural change; ii) the sequencing
of liberalization measures across sectors; and
iii) the sequencing of liberalization measures
within agriculture itself.

While problems of sequencing are to a great
extent specific to each country, an analysis of
the general nature of the problem is both
possible and fruitful.

Stabilization and structural sequencing
As working definitions, it may be recalled that
"stabilization policy" refers to monetary and
fiscal measures taken to restrict aggregate
demand in order to control inflation and
correct an unsustainable balance-of-payments

14 The theoretical issues are discussed in A. Fishlow, The

state of Latin American economics. In Economic and social

progress in Latin America, 1985 Report. Washington, Inter-

American Development Bank, 1985.

15 Sequencing is treated in a non-technical way in J. Epstein,

1989. Old wine in nevv bottles: policy-based lending in the

1980s. In J. Weeks, ed., Debt disaster?New York, New York

University Press.

16 The study covered Ghana, the Gambia, Kenya and
Malawi. N. Spooner and L.D. Smith, Structural adjustment

and policy sequencing in sub-Saharan Africa. July 1989.
Rome, FAO.

situation; and that "structural adjustment policy"
refers to measures that act on the supply side
either directly, such as through agrarian reform
or improving input supply, or indirectly
through market liberalization, for example.
Broadly speaking, policy sequencing concerns
the order in which these policy programmes
are implemented. It is commonly perceived that
stabilization measures should precede
supply-side measures for a successful
adjustment-with-growth programme.

Supply-side measures take time to produce
changes in supply and, unless demand is
restrained, such measures would result in an
unmanageable current account deficit. Again,
stabilization measures aim at restoring external
and internal balances, and devaluation of the
exchange rate is a major instrument toward this
end. To sustain the exchange rate adjustment,
appropriate monetary and fiscal policies have to
be implemented. As this process proceeds,
econornic stability is essential for growth in
savings and investment and for controlling
inflation. Moreover, stabilization requires
contractionary pressure on aggregate demand,
and trade liberalization applies pressure on
industries competing with imports. Simultaneous
application of the two may increase business
failure and unemployment and generate strong
political opposition.

The sequencing debate has centred around
the importance of stabilization programmes
preceding structural adjustment measures and
the need for stabilization policies to accompany
supply-side measures during the adjustment
process. In practice, there has been little
disagreement over sequencing in this sense.
Macro-economic reforms must be followed by
certain elements of supply-side policies at the
sector level, essential for ensuring an effective
micro-economic response to the
macro-economic incentive structure put in
place. It is at this micro-economic level that
major weaknesses have been identified in the
sequencing of adjustment policies.

Sequencing of liberalization
The case for liberalization identifies government
intervention in markets to be the cause of
inefficiencies ("distortions"), and goes on to
argue that ending these interventions improves
resource allocation after the economy has fully
adjusted. The sequencing issue arises because
of the familiar problem that removing one
intervention in an economy in which there are
many others may worsen rather than improve

101

Page 122

102

the allocation of resources. Economic theory
offers little guidance on an optimal sequence
for removing market distortions. Nevertheless,
some broad conclusions can be derived from
the general principle that the objective of
structural adjustment is to achieve a reasonable
and sustainable rate of growth.

Liberalization can be analysed under five
categories: i) the domestic market for goods
and services; ii) the external market for goods
and services; iii) the domestic market for factors
of production land and labour; iv) domestic
money markets; and v) the link between these
markets and the international financial system.

Much of the analysis of sequencing focuses
on the liberalization of external accounts. It is
usually argued that the current account should
be liberalized first, and the capital account later.
A more practical explanation is that early
liberalization of the capital account when the
economy has yet to stabilize results in
disruptive capital flight. For the same reason,
the domestic money market should be
liberalized before the external capital account in
order to bring domestic interest rates in line
with international rates.' However, liberalization
of the domestic money market requires
repressing inflationary pressures, which
invariably means reducing the fiscal deficit.
Thus, one arrives at a general rule for policy
sequencing: liberalization of the domestic
money market requires removing exchange
controls on capital movements, which in turn
requires establishing the fiscal deficit at the
desired (non-inflationary) level.

This apparently commonsensical
generalization is of little relevance for countries
with very underdeveloped money markets,
which is the case for virtually all of
sub-Saharan Africa, many Asian countries and
parts of Latin America and the Caribbean. In
small countries particularly, but also in large
low-income countries, money markets are very
narrow and inefficient because of the limited
range and quantity of financial assets and the
small number of traders. In these countries,
formal financial markets do not play a
significant role in valuing the real capital stock
of the country, most of which is not traded
domestically because it is not actually a
commodity (e.g. common property agricultural
land in much of Africa) or because it is traded

17 S. Edwards, Sequencing and economic liberalization in

developing countries. In Finance and Development,
24:1(1987)

on foreign markets (e.g. local assets of
international firms). Furthermore, the competitive
efficiency of foreign exchange markets can be
severely compromised by the presence of a few
private financial institutions, usually with
international links, that dominate trading.

More relevant to countries across the range
of development is the liberalization of
commodity markets. Comparatively little
emphasis has been given to the sequencing of
domestic market liberalization compared to
liberalizing economic relations with the rest of
the world. But some steps must be taken to
liberalize key domestic markets and allow
export-increasing incentives to change the
structure of production. Without first generating
export growth, trade liberalization will put
pressure on foreign exchange reserves and the
process will be unsustainable. However,
increased export production initially requires
increased imports of essential inputs.

FAO analyses have revealed contrasting
experiences in the management of trade
liberalization. In Kenya, for instance, trade
liberalization was the major element of the first
SAL but the foreign exchange requirements
associated with it became unsustainable and
the liberalization process had to be abandoned.
Ghana, on the other hand, allocated foreign
exchange according to availability through
auction, and the types of goods eligible for
entry to the auction expanded over time in line
with the rising supply of foreign exchange.

Since the purpose of adjustment is the
reallocation of resources, flexible factor markets
must be a part of general liberalization. With
regard to labour markets, this flexibility would
seem to be present throughout the developing
world beyond the needs of adjustment. In the
1980s, real wages in Africa, Asia and Latin
America have been flexible downwards, in many
cases to an extraordinary degree.'

Sequencing of agricultural liberalization
Given the importance of foreign exchange
availability, and given that the agricultural
sector is the most important sector for foreign
exchange generation in many low-income
economies, the stimulation of agricultural
production is required at an early stage in the
reform programme. This implies that

18 For Africa see V. Jamal and J. Weeks. 1987. Rural-urban

income trends in sub-Saharan Africa. In World Employment

Programme Working Paper Series, Working Paper 18.
Geneva, Labour Market and Employment Planning Section.

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