Policy Forum: Trade and Fiscal Adjustment in Developing Countries: Editorial Note
During the I98os many developing countries have been subject to adjustment programmes of one form or another. Most of these programmes have been under the aegis of the World Bank's structural adjustment programme. Crudely this programme involves the disbursement of tangible resources on concessional terms, in exchange for policy reform. In contrast to IMF Stabilization Loans, where conditionally typically attaches to demandmanagement policies, SAL conditions largely attach to supply-side reforms. For example, conditions can apply to trade policy reform, agricultural prices, the structure of taxation, the operation of parastatal enterprises and so on. The World Bank's Operational Manual defines SALs as 'non-project lending to support programmes of policy and institutional change necessary to modify the structure of the economy so that it can maintain both its growth rate and the viability of its balance of payments in the medium term'. Following the inception of the programme in I980 there were close to 200 loans worth some $30 billion disbursed over the first decade. It is therefore an important source of finance. Since SALs are targeted at longer-term supply-side reforms it may be a little early to reach a final judgement on their overall impact. However, early analyses have raised some important questions regarding their economic effects, particularly regarding their impact on GDP growth and investment formation. In both cases the evidence available thus far suggests that adjustment programmes may be damaging rather than helpful. This creates two needs: first a need for further empirical analysis of the impact of adjustment programmes; secondly a need to explain how the programmes have operated in practice, with a view to improving future design. This Policy Forum is a contribution to the debate on the second of these. One thing we have learned in connection with adjustment is that the timing and sequencing of policy reforms may be important. In the first paper Rod Falvey and Cha Dong Kim evaluate' theory and evidence on these matters. The issues they address include: is a one-shot liberalisation superior to a multistage one?; should product markets be liberalised before factor markets?; how does the speed of liberalisation impact on adjustment costs? One thing which is clear from the Falvey-Kim analysis is that hard-and-fast rules are hard to come by. Nonetheless, the authors feel sufficiently confident in their assessment to offer guidelines on the staging of a liberalisation programme. These include early macroeconomic stabilisation combined with trade reforms which shift intervention away from quantitative restrictions, and measures to