The Interaction of Market Failure and Structural Adjustment in Producer Credit and Land Markets: The Case of Nicaragua
The literature on agrarian institutions and market failure has focused on the dissimilar asset endowments, informational asymmetries, variable risks, and externalities that differentially affect agents. In a scenario where the assumptions of perfect markets are violated, imperfect factor markets, resulting from differential prices of labor, credit, and land faced by enterprises of different scale, are common among rural producers in developing countries [Sen 1981, 201-228, 327-350; Bardhan 1989; de Janvry 1981]. Systematic and simultaneous failures in such markets have been theorized to lead to efficiency and welfare losses and the persistence of secondbest forms, or institutions, for organizing work: sharecropping, tied-labor arrangements, or functional dualist relations between large-scale, agro-export estates and marginal, below-subsistence peasant farms. In Latin America, the involuntary unemployment, bimodal land ownership patterns, and skewed distribution of producer credit that characterize labor, land, and capital markets in export and peasant agriculture offer tacit evidence of simultaneous market failures. Under the "conditionality" of structural adjustment and economic stabilization policies required by the World Bank and the International Monetary Fund, the problems that issue from inherent credit market imperfections, in particular, can be exacerbated. Facing mandates to balance budgets, control inflation, raise domestic savings rates, and shrink public sector activity, indebted developing countries face restrictive fiscal and monetary policies. The impact on farm credit is often severe as the state and private banking sectors maintain historically high nominal, if not real, interest rates; impose sharp restrictions on the supply of producer credit; tighten