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MACROECONOMIC ADJUSTMENT POLICIES
The Philippines has had 18 stand-by credit arrangements with the IMF since 1962. The eighth arrangement, in 1970, was spawned by the third balance-of-payments (BOP) crisis, which erupted that year. The poor performance of the foreign trade sector and the monetary and fiscal policies prior to 1970 led to growing current-account deficits. The 1969 presidential elections accelerated government spending and delivered the final blow as the money supply increased by 20 per cent. In line with the conditions of the eighth arrangement, the peso was devalued by 39 per cent, from P3.90 to P6.40 per US dollar, in February 1970 and the reserve requirement was raised 2 per cent by May 1970. The stringent conditions that accompanied the arrangement resulted in the reduction of the current-account deficit by 75 per cent, a BOP surplus, and a 4 per cent increase in GNP .
The modest success of the eighth arrangement led to the ninth, tenth, and eleventh programmes, for the period 19711973, when total external debt grew at an average annual rate of 7 per cent. Credit grew modestly in 1971 and 1972, at 11.2 per cent and 11.6 per cent respectively. In 1973 the money supply target was missed by a wide margin as the government failed to stop the rapid expansion of liquidity due to the commodity price boom.
Surprisingly, the twelfth stand-by programme, in 1974, called for a 42.5 per cent increase in money supply, one-third higher than the previous year's growth. In this programme, BOP imbalances due to the oil shock were to be met by increases in the level of medium- and long-term borrowings and not through devaluation of the overvalued peso. The programme targets were for the most part not met. The inflation rate reached 33 per cent and the trade deficit widened. It was in this period that short-term capital inflows began to circumvent the debt ceiling that existed only for medium- and long-term debt. The weak performance of the Philippine economy and the pattern of light conditionality that began in the ninth arrangement continued under the thirteenth arrangement in 1975. By 1976 the BOP was in a precarious situation.
The chronic balance-of-payments difficulties forced the government to request an extended fund facility (EFF) from the IMF. The EFF was a medium-term arrangement (1976-1978) under which the IMF not only set fiscal and monetary targets but also outlined performance criteria for structural adjustment as part of the conditions for a loan. The EFF structural adjustment programme had three important subprogrammes: tax reform to promote increased domestic savings so as to lessen dependence on capital inflows, a large public investment programme to improve infrastructure and to reduce energy dependence, and major tariff reform to improve resource allocation.
The ambitious targets in all the three sub-programmes of reform and investment were missed by a wide margin. The failure of the structural adjustment programme was partly due to the difficulties experienced by the government in implementing the agreed-upon changes in the incentive structure, that is, tariff reform. In the public investment programme, the projects undertaken had long gestation periods and required large amounts of resources. The failure of tax reform had the government turning to short-term loans (which up to this period were unmonitored) to finance public investments. By 1978 the Philippines exceeded the debt limit by 33 per cent.
The sixteenth arrangement, in 1980-1981, which was engendered by the second oil shock and the international recession, called for monetary restraint, limited domestic credits to the public sector, set a ceiling on the international reserve level of the banking system, and imposed a limit on foreign borrowings with 1 to 12 years' maturity. Up to this time, the IMF had not realized the flaw in the debt limit. As in previous agreements, all performance criteria in this programme were not met. In this period, the responsibility of managing structural adjustment programmes was shifted to the World Bank, while the IMF concentrated on short-term stabilization.
The first structural adjustment loan from the World Bank, in 1981, contained measures to bring about trade liberalization and industrial reform.
Several difficulties were encountered, however, when tariff reforms were delayed when the government attempted to increase revenues through additional import duties.
The country did not have an arrangement with the IMF in 1982. In that year, the budget deficit increased rapidly because of the government's attempt to bail out failing corporations. For the same reason, a substantial portion of the budget went to government corporations as equity contributions. Given a weak revenue system and the enormous increase in government expenditures, the government had to resort to foreign borrowings to finance the deficit, half of which were short-term loans.
By 1983 it became apparent that the Philippine economy was near the edge of a cliff. It was clear that the country was borrowing at unsustainable levels. The seventeenth stand-by programme, which became effective in February 1983, aimed at reducing the BOP deficit by one-half from that of the previous year. This was to be achieved by limiting the growth of net domestic assets of the monetary sector, slowing down government loans to public corporations, and setting a ceiling on foreign borrowings, including a subceiling on short-term non-monetary debt. By the middle of the year, the BOP deficit and money supply had surpassed their targeted limits. Reluctantly, the government allowed the peso to adjust a little bit to relax the BOP pressure and curtail money growth. The IMF deemed this action too late and too little, and for the first time it terminated a programme with the Philippines. Two months after the beginning of the fourth crisis, in August 1983, the peso was devalued by 21.4 per cent.
Negotiations for the eighteenth stand-by arrangement started upon the onset of the fourth crisis during the last quarter of 1983. An arrangement between the Philippines and the IMF was not reached until December 1984. In the interim, the Philippines had to keep a ceiling on money growth and had to devalue successively to lighten the pressure on the economy. The protracted negotiations indicated that the IMF had reverted to its strict monetarist prescriptions in its dealings with the Philippines.
CONSEQUENCES OF ADJUSTMENT POLICIES FOR THE POOR
The overshooting of money-supply targets set by the IMF before the 1983 crisis was due largely to the budget deficits incurred by the government. During the period 19701980, the money supply was permitted to grow at 17 per cent annually, compared to 4.4 per cent and 10 per cent in the 1950s and 1960s respectively. The departure from conservative monetary and fiscal policies of the earlier periods contributed to high inflation rates and partly explains the declining trend in real wages. Between 1970 and 1980 the nominal exchange rate fell by less than 2 per cent. Thus, nominal adjustment of the peso value does not fully compensate for the fact that domestic inflation was higher than in the rest of the world during the 1970s.
During the second half of the 1960s the average annual inflation rate based on the consumer price index was 6 per cent, while in the first half of the 1970s it was 16 per cent. With the oil shock in 1979 and 1980, the inflation rate was 17.5 and 18.2 per cent respectively. Thereafter it declined, reaching 10 per cent in 1983.
The 21 per cent devaluation of the peso in the last quarter of 1983 triggered a 26.1 per cent jump in the general price level. In 1984 the inflation rate averaged 50.3 per cent. The sustained tight money policy reduced the average inflation rate to 25.0 per cent by November 1985. To mop up excess liquidity, the Central Bank engaged in open market operations that drove interest rates to excessively high levels. This and the limited flow of imported inputs generated supply shocks that forced firms to lay off workers. By December 1985 the inflation rate had fallen to 5.7 per cent.
TABLE 9. Total number of workers terminated for economic reasons (permanent and temporary shutdown/retrenchment), 1983 to mid-1985
Source: Labour Statistics Service, Ministry of
Labour and Employment.
a. Total does not add up because of multiple reports.
Table 9 shows the number of workers terminated quarterly from 1983 through the first half of 1985. After the October 1983 devaluation, the number of laid-off workers increased rapidly, so that the fourth-quarter total accounted for more than half of the 1983 total. Successive devaluations and the stringent monetary policy in 1984 also brought abnormally high levels of layoffs. This continued up to the first quarter of 1985.
The adjustment policies that were designed to place the economy in a reasonable growth path had not in any way alleviated the status of the poor. While the Philippines indeed showed positive real growth rates in the past decade, the distribution of output on the average changed negligibly. The agriculture sector, which provided more than 50 per cent of all employment throughout the 1970s, accounts for roughly one-fourth of gross domestic product on the average. A World Bank report on poverty trends determined that poverty rates in rural areas are higher than in urban areas. In the former, poverty in 1983 was 43 per cent, while it was 19 per cent in the latter.
The monopolistic structures that emerged during the decade were encouraged by a strong industrialization bias of previous development strategies and were simply reinforced by the adjustment policies implemented. Because of the emphasis on import-dependent industrialization, traditional agriculture remained relatively stagnant, although the non-agricultural sectors were heavily dependent on it for foreign exchange. The agriculture sector in recent years underwent a structural evolution in which a dichotomy arose because of the monopolization of the agricultural export industries by the government. In this set-up, an export subsector existed side by side with a lagging food sector.
The instability of the Philippine food sector led the government to intervene in the food market through the National Food Authority whenever it deemed it necessary. Where there is a chronic deficiency in food supply that leads to food-price increases, the Authority attempts to stabilize prices through food imports.
In the past decade, the government's resources were largely devoted to investment projects. The government priorities through the years can be discerned from the sectoral allocation of government expenditures. The share of social services declined substantially, from 44.2 per cent in 1965 to 34.9 per cent in 1970. Thereafter, it accounted for less than 25 per cent of the total budget. On the other hand, the allocation to economic services (infrastructure and non-infrastructure expenditures) was increasing. In 1982 its share was 42.4 per cent.
One-third of total government expenditures in 1982 went to general public services.
Real personal consumption expenditures (PCE) increased in the 1970s and the first half of the 1980s. On a per capita basis, however, a declining trend could be discerned in the 1980s (table 10). In the second half of 1983, when the crisis began, real PCE per capita declined by 0.15 per cent from its level for the same period in the previous year. The decline became more pronounced in the first half of 1984, and in the following six months real PCE per capita decreased by 1.36 per cent from the previous year's level.
Adjustment policies are designed to provide long-term solutions to macroeconomic problems posed by a BOP crisis. The distributional impact, if it is not altogether assumed away in the process of formulating policies, is seldom given consideration.
The short-run effects of these policies in the form of high domestic inflation rates and decreasing per capita real incomes make worse an income distribution that is already skewed because of the structural defects of the economy. Clearly, if adjustment policies are designed to minimize the effects on the domestic economy, the burden of "adjustment" will be more equitably distributed. An alternative, given that adjustment policies are formulated in a certain manner, is to design auxiliary policies consistent with them that will meet the needs of the poor.
A survey carried out by the National Nutrition Council provides some preliminary but nevertheless worrisome indications of the effect of the crisis on preschool children. The survey measured weight-for-height status for all regions in the Philippines in 1984 and 1985. For the whole country, the percentage of preschoolers falling below 85 per cent of the weight-for-height standard increased from 13.3 to 14.3. An examination of the reginal results shows that the western Visayas, principally Negros and lloilo Province, which grow sugar for export, exhibited an increase from 13.8 to 20.1 per cent in the proportion of preschoolers falling below 85 per cent of the standard weight for height. Even the most urbanized region, metropolitan Manila, had an increase from 8.8 to 14.4 per cent.
TABLE 10. Real personal consumption expenditures per capita, 1980-1984 (semestral)
|1980- 1981||1981 -1982||1982- 1983||1983- 1984|
|First six months||572||585||586||590||583||2.27||0.17||0.68||-|
|Second six months||655||660||665||664||655||0.76||0.76||-0.15||-1.36|
Source: NEDA, Natronal Income Accounts Staff.
The differences in the degree of deterioration and the fact that some regions exhibited improvements between 1984 and 1985 is evidence that these changes can be attributed to a large degree to the difficult external adjustments. The depressed world prices of sugar caused visible starvation in Negros, while metropolitan Manila has seen many of its import dependent manufacturing operations shut down. In the kind of adjustment that has so far been carried out, sugar and factory workers have found themselves with greatly diminished means of providing for their livelihood.
SUGGESTION FOR FURTHER RESEARCH
An analysis of the short-run impact of macroeconomic adjustment policies on the poor is quite intricate, since it may be necessary to classify the economy by sectors and income groups for this purpose. Difficulties could arise because distributional and price interactions among sectors brought about by exogenous disturbances are complex.
Intersectoral complications are by no means the same for all developing countries. Thus, an intersectoral model that lends itself well to empirical verification in a particular country may not be suitable for another country. Interactions among sectors are likely to be the product of the history of economic policies, which, given initial resource endowments, shape the structure of the economy. For this reason research in this area can appropriately begin with an examination of the structure of the particular economy. A unique set of structural constraints and current policies will govern each country's evolution.
It would be a fair statement to say that stabilization programmes in the Philippines have been designed and implemented with a limited regard for their effects on the country's human population. This limitation can be traced to two factors. First, the existing information base about the relationship between macroeconomic adjustments and microeconomic adjustments is small. Some data are available from the surveys that have been conducted by the census office, but these have not been processed in such form that their macroeconomic implications can be analysed. Moreover, the processing of cross-sectional data itself has been problematic in the decade as resources for this purposes have been constricted. In the past decade there was a presumption, now increasingly being called into question, that economic growth at the macro level automatically addresses many of the problems of nutrition and poverty.
The second reason for this limited regard for effects of stabilization programmes on the human population is that the modelling efforts of both international agencies (such as the IMP) and local researchers have not found the connection crucial until the onset of the 1983 crisis. The experience of previous programmes did not involve absolute declines in total real output. The present crisis, however, has seen absolute declines in an economy with a heavily skewed income distribution, and the deep effects on the poor cannot be ignored.
While adjustment programmes are not explicitly meant to impose the greater burden on the poor, actual experience has been that redistribution against the poor is implicit in stabilization programmes. The mechanism through which the effects of policies on distribution are transmitted is, therefore, important and must be identified for a given economic structure. This being the case, a more articulated macroeconomic model that explicitly takes into account income groups should be used and the relationships of important aggregates be spelt out.
The theoretical specification that may require incorporating microeconomic concepts within a macro framework can be translated in an empirical computable model. The extensive use of data found in social-accounting matrices (a 1978 table exists for the Philippines) and microeconomic demand and supply equations seem to be called for. This would be the only way to evaluate the impact of macroeconomic policies on groups in society, especially those already being left behind in, or, perhaps, by, the development process.
1. Central Bank of the Philippines, Statistical Bulletin (Manila, 1983).
2. E. de Dios, ed., An Analysis of the Philippines Economic Crisis (University of the Philippines Press, Quezon City, 19841.
3. National Economic and Development Authority, Philippine Development Report: 1984 (APO Press, Pasig, Philippines, 1985).
4. National Census and Statistics Office, Survey of Households (National Government, Manila, 1971, 1976, 1978, 1979, 1980, 1981, 1982).
5. A. Quisumbing, "Nutrition and Welfare Issues in the Philippines: Some Perspective for Research," paper presented at the Workshop on Nutrition and Welfare, University of the Philippines at Los Baņos, 1981.
6. L. A. Florencio and M. B. Aligaen, "Food and Nutrition in Filipino Urban Households," Nutrition Reports International, vol. 21, no. 3 (1980).
7. M. Thompson and G. Slayton, "An Essay on Credit Arrangements between IMF and the Republic of the Philippines: 1970- 1983, " Philippine Review of Economics and Business (in press).
8. Central Bank of the Philippines, Quarterly Economic and financial Report (Manila, 1985).
9. Central Bank of the Philippines, "Economic memorandum," Nov. 1984.
The World Bank, Washington, D.C., USA
Something has gone awfully wrong with development. Poor people have been lured into urban areas with high expectations but little realization of a higher standard of living. They then are expected to pay a price for development from which they have derived little or no benefit. Their real wages, in contrast to their expected wages, have been hardly better than the real income they realized in their former rural settings. Yet it is proposed that their real wages should now be substantially reduced, especially by asking them to pay significantly higher prices for food. They are being turned back to their rural areas, where the ratio of land to people has often much deteriorated during this period of development. One needs to ask fundamental questions about the value of development that exacts such a high price from the poor and provides them with so little return.
It may be too early to tell whether the appropriate questions are being addressed and whether the right lessons will be learned. Practitioners and advisors are naturally still preoccupied with devising and analysing short-term curative measures for survival. Yet, sooner or later, a proper analysis of the recession and the adjustment policies should lead to a thorough reappraisal of fundamental propositions in development theory and practice. As for lessons, so far it is clear only that some schools of thought have been thoroughly discredited. Countries that have pursued "growth at any cost" or "equity at any cost" may have had spurts of success along the way, primarily backed by large injections of aid and loans, but the recession has vividly demonstrated that they were unable to sustain their efforts to eliminate poverty and malnutrition.
This recession and the pursuant adjustment policies provide unprecedented challenges, not only in determining what will not work in the elimination of abject poverty but also in answering the more difficult questions of what will work. Hypotheses about appropriate sets of policies that could effectively address the twin objectives of growth and poverty alleviation have yet to emerge. At this stage, all we can say is that policies aimed solely at efficient growth are also not enough. To the contrary, there is evidence from theory and practice that explicit attention to poverty must be an integral part of any solution.
Assessment of the Bank's position and its impact on countries must be based not only on what it says and does in conjunction with structural adjustment loans but also on its project-financing activity and its ongoing economic and sector studies in various countries. Any genuine concern for the alleviation of poverty and malnutrition suggests that adjustment policies advocated by anyone, including the World Bank, should be scrutinized in two dimensions. Do they contribute to the elimination of poverty over the long term, and do they alleviate or aggravate poverty and malnutrition in the present and the foreseeable future?
Most of my remarks are focused on the second question. Yet there are at least two reasons why we should not overlook the long-run implications of adjustment policies for poverty. First, many of the policy changes advocated are likely to eventually improve the welfare of the poor. Many of these policy changes are long overdue and there is no better time to implement them than now. Second, there are undoubtedly some policy adjustments that can make a positive difference for the poor in a relatively short time, and there are also others that will not. An evaluation of the short-term effects of policy adjustments obviously should influence our assessment of different adjustment policies, the extent to which a short-term negative impact might be tolerated, and the choice of measures for alleviating these consequences.
As you know, the principal function of the World Bank is to assist countries to eliminate poverty. During the early years of the Bank's existence, the emphasis was almost entirely on stimulating capital transfers to the developing countries and ensuring the efficient use of their own as well as their borrowed resources for growth in the national product. The presumption was that this growth would be widely shared by the entire population. Then in the late 1960s, a disenchantment set in with this ''trickle-down" theory. Failure to reduce poverty significantly was attributed to excessive population growth and to lack of attention by investment programmes that would explicitly generate higher incomes among the poor by both governments and external assistance programmes.
In retrospect, one might question whether the diagnosis in the 1960s and 1970s was entirely correct. Some of the failures to eradicate poverty are attributable to inefficient public investments and excessive government interventions in markets. These are precisely the same policies the recession has shown to be in need of urgent adjustment. To the extent that the failure to eradicate poverty was the consequence of policies that all now recognize need to be reformed, in particular the policies discriminating against agricultural development, the adjustments occurring now in the 1 980s may turn out to be more beneficial than the partial reorientation of some investment projects carried out in the 1970s.
Effective policies to eliminate poverty need to continue to emphasize specific and explicit attention to the equity impact of investments and policies. The Bank is clearly achieving this emphasis through its selection of projects that will provide more remunerative employment to small farmers as well as its selection of projects in population, health, nutrition, and education. The Bank's policy advice on structural adjustment, however, has yet to pay enough explicit attention to the equity implications when ownership of physical and human resources are very unequally distributed, as is the case in many countries.
Turning now to the question of the World Bank's position on currently advocated structural adjustment policies and their effects on poverty and malnutrition in the immediate time horizon, my review of Bank documents leads me to conclude that a uniform, clear position has yet to emerge. At present, there are at least two positions. It is far too early to tell whether the older position on structural adjustment will be supplanted by the newer approach or whether both will coexist for a long time. In the meantime, it would be dangerous, I believe, to follow the natural and not uncommon instinct to "explain" any observed discrepancy between existing approaches as merely representing pragmatic adaptations of one single, coherent policy.
Early Structural Adjustment Policy
The first position, which dates from the Bank's beginnings, is that growth is essential for solving many problems, including poverty and malnutrition. Therefore, although structural adjustment policies do not directly address issues of human resource development and basic needs, they will eventually enable countries to do better on that score as well. The only criterion for selecting adjustment policies ought to be whether they will enable the country to attract more capital and use its resources effectively toward the growth objective. From the very beginning, attention has been drawn by the Bank to the fact that in the short-run the poor may get hurt, although it is often said there is yet no conclusive evidence. The Bank's response under this policy stance has been that countries that implement all the recommended savings can afford to set up special income-transfer programmes for the very poor. Unfortunately, the administrative and political difficulties for setting up such programmes have usually not been investigated, and much less have such programmes been designed and implemented.
Recent Structural Adjustment Policy
The second and more recent policy stance is enunciated in the World Bank's policy study Poverty and Hunger: Issues and Options for Food Security in Developing Countries. This report strongly endorses growth as the ultimate solution and by implication many of the policy changes advocated under structural adjustment. But the report also indicates that, under the best of circumstances and policies, it will take a long time before growth will cure poverty, in particular where the initial distribution of assets is very unequal. Therefore, governments need to intervene actively to ensure adequate food consumption by all through cost-effective and administratively and politically feasible methods.
The new approach recommended in this recent policy statement has far-reaching implications for the Bank's involvement in structural and adjustment operations. The policy statement implies, for instance, caution before recommending that food prices should be raised. The damage to the poor needs to be assessed, and then it must be determined whether special food or income-distribution programmes are politically or administratively feasible. Only if it has been established that the poor can be reached more cost-effectively through targeted programmes than by maintaining lower food prices should it be recommended that food price subsidies should eliminated. In some circumstances, where there are many poor people and they are difficult to reach, it may be more cost-effective to subsidize the food in the market for everyone and to target new taxes for those who can afford to pay for the subsidized food.
A proper cost-effectiveness analysis almost certainly challenges the often-stated recommendation that countries should let their food prices fluctuate with the world market price and compensate poor farmers or consumers where appropriate with targeted income or food transfer programmes. It is quite unrealistic to think that it is feasible to set up temporary distribution programmes on short notice at any reasonable cost.
In parallel with the preparation of the Bank's study on food-security policy, there are currently in preparation a number of structural adjustment operations that are beginning to incorporate the second position I have just briefly described. The following are some illustrations of this position.
Grain Marketing Reform Programme in Mali, 1980
Perhaps the first structural adjustment operation in which the Bank recognized the need to go slowly in raising food prices for consumers while promoting higher prices for producers, was in the case of the Grain Marketing Reform Programme in Mali in March 1980. The structural adjustment reforms were to be linked with a multi-year commitment of food-aid shipments to be sold by the government at official prices. These prices were to be raised gradually. The proceeds from the sale of the food aid were to go into a special fund to compensate the government for its losses from selling to consumers below the cost of purchasing the grain.
The reforms did not materialize as originally planned, but the attempts made in this case should be lauded for having established a ground-breaking precedent in donor collaboration and particularly for introducing the use of food aid in support of structural reforms. Another feature, also common to subsequent, similar efforts, is worth noting. The main beneficiaries were to be middle-income, salaried urban workers. The primary motivation for compensating potential losers was to remove political obstacles to the implementation of structural reforms, and another objective was to forestall demands for higher wages. Apparently, there was not much effort made to limit the programme to low-priced food or to target the efforts to the poorest groups.
Proposed Agricultural Incentive Programme for Guinea-Bissau, 1986
An Agricultural Incentives Programme Credit is proposed for Guinea-Bissau by the World Bank this year. The loan comes under the category of what the Bank calls sectoral adjustment lending. Essentially, its aims are the same as those of the Mali grain-policy programme- to support the revamping of agricultural policies in order to increase food and export-crop production. Predictably, this means raising official producer prices- and consumer food prices too - while promoting market liberalization and reducing foreign-exchange deficits. Also like the Mali programme, this set of policy reforms will be linked to a plan providing a buffer for those adversely affected by a rise in consumer food prices. It would also be based on a fund constituted from the sale of food-aid donations, and it would be co-ordinated by the World Food Programme.
In this plan, however, proceeds from government food-aid sales would go towards raising wages of low-income urban groups commensurate with the real income drop experienced because of higher rice prices. There is also a provision to monitor the effects of higher food prices on both production and urban and rural consumption.
Analysis of the expected income effects on the rural population by region revealed that, in most cases, farmers would not suffer net income losses from higher food prices because of compensating higher producer prices. Only one zone is projected to lose under the new price structure. The Bank recommends that compensatory policies be targeted there also.
Use of Food Aid Fund to Support Proposed Structural Adjustment in Mauritania, 1986
In a proposed structural adjustment credit, the World Bank will support the continuing efforts of the government of Mauritania to keep public spending down, to decontrol prices to provide incentives to producers, and to adopt a flexible exchange rate. Some of these measures lead to increases in consumer food prices that are agreed to be necessary at this time.
Mauritania is heavily dependent on food aid and will continue to be so for the foreseeable future. It is particularly noteworthy that donor and food-aid co-ordination issues are being given high priority in this credit.
Along with the World Food Programme, the Bank would be helping the government to set up a common fund into which would go the counterpart funds from food-aid sales. As in the Mali and Guinea-Bissau plans, this fund would be organized by the country's donors. It would be used to improve food availability and nutrition and to promote income-generating activities. Guidelines agreed on by both government and donors will provide criteria for limiting free food-aid distribution to the truly needy. Currently, free food aid makes up 60 per cent of the food-aid supply. This percentage will remain high in order to offset the negative impact of higher prices on the poor. Half the proceeds of food-aid sales now go for these distribution costs and for maintenance of food security stocks. With the institution of the common fund, the remainder could be mobilized for investments that, in general, enhance food security - mainly those with a medium-term impact.
In the past Mauritania has very successfully managed food-aid distribution in the rural areas and avoided a strong urban bias, even to the extent of setting retail prices in the outlying districts substantially below city prices. At the same time, the increased needs of low-income people will be addressed by this programme as well.
Proposed Compensatory Programme for Reducing Food Subsidies in Morocco, 1986
The government of Morocco has agreed to eliminate consumer food subsidies by 1990 as part of a programme of structural adjustment as 11 per cent of government expenditures are devoted to food subsidies. This measure, though politically drastic, has been deemed necessary to reduce Morocco's budget deficit, to reduce foreign-exchange outlays on growing food imports, and to redirect agricultural incentives to the food crops in which the country's comparative advantage lies. Analysis by the Bank and the IMP has shown that the increase in consumer food prices resulting from the withdrawal of subsidies would cause serious reductions in the real income of urban and urban fringe low-income groups as well as some of the poorest rural population.
A recent report prepared by the Bank proposed a number of programmes to offset the effects of eliminating consumer food subsidies, which are likely to have negative repercussions on overall welfare, nutrition, and political stability. Basically, it is proposed to target direct transfers of food through existing social centres and work projects and to initiate supply-side policies aimed at containing the increase in food prices by reducing production and marketing costs.
Several features not encountered in the previous cases are worth highlighting. The population needing compensatory programmes is quite large - on the order of 2 million people in urban areas. Although it is possible to build on experience with existing programmes in Morocco, the proposed administrative task is formidable, and there are no clear proposals for administering the proposed massive rural work programme. However, it is estimated that even inadequate coverage and compensation to the poorest will cost around 10 per cent of the expected savings from existing subsidies. The prospects of an effective programme would be greatly enhanced if food aid could be counted on to co-finance this approach in Morocco as well as in other countries. Yet, for whatever reasons, food-aid agencies are expected to phase out food aid.
Because the problems of poverty and nutrition are worsening, pursuing better policies in the 1980s than in the 1 970s is obviously not enough. We have yet to evolve a set of policies that would effectively address the twin objectives of growth and poverty-alleviation in the short term as well as over the long term. While we know that "growth at any cost" and "distribution at any cost" may provide temporary comfort but will fail to produce lasting benefits and can precipitate sharp reversals, the propensity for proposing simplistic solutions unfortunately does not diminish in times of crisis. One such solution in current vogue is that "efficient growth" will work. There is little basis in theory or in practice to suppose that even efficient growth will eliminate poverty at any time in the foreseeable future and certainly not in the immediate future. Hence, some special attention to alleviating the worst aspects of poverty will also be required.
I believe that the SCN can play an important role in the evolution of such a set of policies if it underscores the following principles and pursues the following actions: - It should not only draw attention to the magnitude of the problem but provide development agencies with assistance (data, research) that will help them develop cost-effective solutions. It should resist any suggestion that poverty and nutrition problems are always best addressed in the context of specific relief measures. It should play a more active role in promoting the use of food aid in the context of promoting development with the twin objectives of growth and poverty-alleviation.
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