Chapter

II The Sample Countries and Programs

Author(s):
International Monetary Fund
Published Date:
May 1988
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This study focuses on nine recent adjustment programs with the Fund in seven developing countries: Chile, the Dominican Republic, Ghana, Kenya, the Philippines, Sri Lanka, and Thailand. Eight were standby programs for periods of 12 to 24 months and one was under the extended Fund facility (the Dominican Republic). All arrangements started during 1983. They lasted between five months and two years. Three programs—with the Dominican Republic, the Philippines, and Sri Lanka—did not run their full course.

Several criteria were used in choosing the sample countries and programs. Some diversity was sought in the regions included, in the socioeconomic characteristics of the poverty groups, in the structure of the economies, and in the range of adjustment and compensatory targeting policies observed. Data availability was a factor, and this was facilitated in some cases by choosing countries where the principal investigators of this study were involved in missions. Emphasis was placed on recent programs for which reasonable observations on the outcome could be made. In drawing lessons from this study, however, it must be acknowledged that the sample countries and programs may not be fully representative of Fund-supported adjustment programs.7

Characteristics of Poverty in the Seven Sample Countries

The seven sample countries are all developing countries with a large share of a few primary commodities in their production and exports. On the per capita income scale, they belong to either the low-income group—Ghana, Kenya, and Sri Lanka—or the lower middle-income group—Chile, the Dominican Republic, the Philippines, and Thailand (Table 1).

Table 1.The Sample Countries: Economic and Social Indicators
ChileDominican RepublicGhanaKenyaPhilippinesSri LankaThailand
Selected economic indicators
Per capita GDP (U.S. dollars)1,8701,370310340760330820
Food in total imports (percent)1216810135
Labor force (percent of total)
Agriculture19495378465476
Industry1918201017149
Selected social indicators
Life expectancy at birth (years)70635957646963
Infant mortality rate (persons per thousand)40639781493750
Per capita supply of calories2,6022,5301,7852,2142,2602,4852,399
Primary school enrollment ratio (percent)11121037610410610396
Population with access to safe water (percent)846249273770
Urban areas1008572616576692
Rural areas173539214326162
Urbanization
Share of urban population in total (percent)83563220392118
Poverty indicators
Population below poverty income level (percent)3
Urban areas103215
Rural areas554134
Geographical distribution of poverty groups (percent)
Urban areas7037233129
Rural areas306398678891
Sources: Data on per capita GD P (for 1983), food in total imports (1982), labor force (1981), life expectancy (1983), infant mortality rate (1983), and urbanization (1983): World Bank, World Development Report, 1985; data on primary school enrollment ratio, population with access to safe water, and poverty indicators (all for the early 1980s): World Bank, Social Indicators of Development, 1987, unless otherwise indicated. Data on geographical distribution of poverty groups (all for the early 1980s) in Chile, Ghana, Kenya, and Sri Lanka are from International Monetary Fund (1987).

The enrollment ratios for some countries exceed 100 percent because some pupils enrolled are older or younger than the countries’ own standard primary school ages. See World Bank, Social Indicators of Development, 1987, p.9.

Data for 1973.

The definition of poverty income is not uniform for all sample countries.

Sources: Data on per capita GD P (for 1983), food in total imports (1982), labor force (1981), life expectancy (1983), infant mortality rate (1983), and urbanization (1983): World Bank, World Development Report, 1985; data on primary school enrollment ratio, population with access to safe water, and poverty indicators (all for the early 1980s): World Bank, Social Indicators of Development, 1987, unless otherwise indicated. Data on geographical distribution of poverty groups (all for the early 1980s) in Chile, Ghana, Kenya, and Sri Lanka are from International Monetary Fund (1987).

The enrollment ratios for some countries exceed 100 percent because some pupils enrolled are older or younger than the countries’ own standard primary school ages. See World Bank, Social Indicators of Development, 1987, p.9.

Data for 1973.

The definition of poverty income is not uniform for all sample countries.

The sample countries are diverse in their degree of urbanization. In 1983, the share of the urban population ranged from one fifth for Kenya to more than four fifths for Chile, with Ghana, the Philippines, Sri Lanka, and Thailand having a largely rural population and the Dominican Republic a largely urban population.

In most of the sample countries, the poor are predominantly landless rural workers or smallholders.8 This is particularly true for Ghana, Kenya, Sri Lanka, and Thailand, where the share of the rural poor in the total poor ranged between 63 percent and 98 percent. Although data are not available, poverty in the Dominican Republic is also considered to be largely a rural phenomenon. Chile is the only country where the urban poor constitute a dominant poverty group, accounting for about 70 percent.

A substantial proportion of the rural poor in most of the sample countries is engaged in the production of exportables—sugar (the Dominican Republic and the Philippines), tea and coffee (Kenya), tea, rubber, and coconuts (Sri Lanka), and rice (Thailand). At the same time, some agricultural crops produced by the poor are largely or exclusively for domestic consumption—maize (Kenya) and paddy (Sri Lanka) (Table 2). In Ghana, most of the poor are involved in the production of foodstuffs, although a significant proportion may also be found in the cocoa sector. In Chile, the dominant poverty groups are unemployed urban workers and those (largely unskilled) employed in the urban informal sector; the rural sector also contains a significant number of poor, including both landless laborers and farmers with small land-holdings.9

Table 2.The Socioeconomic Characteristics of Major Poverty Groups1
Geographical Composition of PopulationLocation of Poverty2
(In percent)Major Poverty GroupsMajor Products
Chile
Urban areas8370Unemployed and workers in the informal sector (*)
Rural areas1730Landless farm workers
Dominican Republic
Urban areas56. . .Unemployed
Rural areas44. . .Landless farm workers (*)Sugar(X)
Ghana
Urban areas3237Workers in the informal sector
Rural areas6863Smallholders and landless farm workers (*)Cocoa (X), foodstuffs
Kenya
Urban areas202
Rural areas8098Pastorales and smallholders (*)Coffee (X), tea (X), maize
Philippines
Urban areas3933Unemployed and workers in the informal sector
Rural areas6167Smallholders and landless farm workers (*)Rice, corn, coconuts (X), sugar(X)
Sri Lanka
Urban areas2112Unemployed workers
Rural areas7988Landless farm workers and smallholders (*)Paddy, tea (X), rubber (X), coconuts (X)
Thailand
Urban areas189
Rural areas8191Smallholders and landless farm workers (*)Paddy (X)
Sources: Data on the geographical composition of the population and the location of the poor are from Table 1; other data are compiled from various sources identified in International Monetary Fund (1987).

The dominant poverty groups are indicated by an asterisk (*), and the export products are indicated by (X).

The geographical distribution of poverty groups.

Sources: Data on the geographical composition of the population and the location of the poor are from Table 1; other data are compiled from various sources identified in International Monetary Fund (1987).

The dominant poverty groups are indicated by an asterisk (*), and the export products are indicated by (X).

The geographical distribution of poverty groups.

Most sample countries have a rural subsistence sector. In its magnitude, the subsistence sector is particularly important for Kenya. Most sample countries also have an underground sector. Reflecting the presence of a severely misaligned relative price structure, the underground sector was particularly large in Ghana at the time of the program.

The Sample Programs

For Chile, Kenya, Sri Lanka, and Thailand, the sample programs were supported by stand-by arrangements for durations ranging between 12 months and 24 months. For Ghana, the program studied is a three-year economic recovery program supported by two stand-by arrangements. In the Philippines, the program was also supported by two stand-by arrangements, although not consecutive. For the Dominican Republic, the program was supported by an extended Fund facility arrangement. The arrangements for Chile, Ghana, Kenya, and Thailand ran their full course, while those for the Dominican Republic, the Philippines, and Sri Lanka did not (Table 3).

Table 3.The Sample Programs
ProgramsProgram PeriodsAmount of Purchases
Beginning/Ending1ProgramActual
(SDR millions)2
ChileTwo-year stand-by arrangementJan. 1983/Dec. 1984500 (154)500
Dominican RepublicExtended Fund facility arrangementJan. 1983/Dec. 1983371 (450)124
GhanaOne-year stand-by arrangementJuly 1983/June 1984236 (150)236
18-month stand by arrangementJuly 1984/Dec. 1985180 (88)180
Kenya18-month stand-by arrangementMar. 1983/June 1984176 (170)176
PhilippinesOne-year stand- by arrangementFeb. 1983/Jan. 1984315(100)100
18-month stand by arrangementDec. 1984/May 1986615 (140)403
Sri LankaOne-year stand-by arrangementSept. 1983/Dec. 1983100 (56)50
ThailandOne-year stand-by arrangementJan.1983/Dec. 1983271 (100)271
Source: Fund documents.

The month in which the program expired.

The amounts in parentheses are in percent of quota.

Source: Fund documents.

The month in which the program expired.

The amounts in parentheses are in percent of quota.

All the sample programs initially entered into force in 1983, after a prolonged world recession had caused a substantial deterioration in the external terms of trade of the program countries. The effects of these adverse external developments were aggravated in some cases by adverse weather conditions or domestic civil disturbances and in all cases by expansionary financial policies and/or a misaligned domestic price structure. As a consequence, the sample economies had not only severe domestic and external imbalances that were reflected in large fiscal and external deficits, high unemployment, or domestic inflation, but also low growth. An example of a prolonged economic deterioration prior to adoption of the program is provided by Ghana, where, between 1970 and 1982, real export earnings fell by more than half, import volume by one third, the rate of domestic investment by 10 percentage points, and real per capita gross domestic product (GDP) by 30 percent. In Chile, import volume fell by 44 percent in 1982, real GDP declined by 13 percent, and the unemployment rate reached 20 percent. In the Dominican Republic and Sri Lanka, net external reserves declined sharply and became negative.

The sample programs were formulated and executed in a crisis environment, recognizing that without a program the economic imbalances confronting the countries would not have been sustainable. In most cases, the economic imbalances, as reflected in the external and fiscal deficits, had already grown too large to be handled without a program and without external financial assistance. The program with Thailand was perhaps the only exception. It could be characterized more as a response to a potential problem than as a response to an actual crisis.

Most sample programs followed earlier attempts to deal with the imbalances that had been unsuccessful either because of inadequate efforts or because of adverse external shocks. Some of the measures that had preceded adoption of the programs were often not only counterproductive but also had apparent adverse consequences for the poverty groups in those countries. A characteristic example is Ghana, where severe import restrictions were used to limit the adverse balance of payments impact of a misaligned official exchange rate and of an inadequate producer price for the dominant export crop. Such a policy created distortions in production and allocation, contributed to the growth of illicit transactions, and restrained investment, output growth, and employment, thereby hurting poverty groups in general and the rural poor in particular.

Although the sample programs had strong elements of macroeconomic policy management, such policies were in most cases complemented by structural measures to increase capacity utilization and expand production capacity. Thus, credit restraint and fiscal consolidation were invariably complemented by a pricing policy to promote production—particularly the production of exportables. Such policies were especially evident in the programs of Ghana and Sri Lanka. Some programs were specifically aimed at increasing domestic investment for growth—as illustrated by the programs of Chile, the Dominican Republic, and Ghana.

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