THE DEBT CRISIS, STRUCTURAL ADJUSTMENT AND THE RURAL POOR
Creators: name: Behrman, Jere
name: Behrman, Jere
Publisher: name: Unknown
Year: 1990
Subjects: Community/Rural/Urban Development
Financial Economics

description: This paper has three major parts. First, a review of the current situation and recent trends both with regard to poverty and the international debt situation in developing countries. Second, consideration of implications of analytical frameworks for the analysis of the impact of macro adjustment, perhaps in response to international debt, on rural poor. Third, summary of some recent cross-country and country case study analyses of important aspects of the impact of structural adjustment on the rural poor. Current situation and recent trends in poverty and in international debt: Those living in poverty largely are in rural areas in Asia. Recent estimates are that in the mid 1980s over 70 per cent of those living in poverty are in Asia. This means that there have been ongoing improvements in the situation of the majority of those living in poverty even during the 1980s despite the fact that in that decade most nations in Africa and Latin America had severe debt and growth problems. The distributional neutral elasticities of poverty reduction with respect to income growth are in the 2-3 range, so 2-3% drops in the population share living in poverty would result from 1% distributionally neutral increases in mean per capita income. However such estimates are very sensitive to the assumptions about distribution, and recent world distribution apparently has become somewhat more unequal. The current debt situation and recent changes therein vary a lot among regions and within regions. The two regions with the most severe debt problems are Sub-Saharan Africa and Latin America and the Caribbean. These two regions suffered the two largest external terms-of-trade and interest rate shocks in the 1985-88 period in comparison with the 1970s, which may account for part of their relatively difficult debt situations at the end of the 1980s. But this is hardly the whole story, for instance, South Asia experienced about the same magnitude of such shocks as did Latin America and the Caribbean, but had a much less severe debt problem at the end of the 1980s. For both Africa and Latin America and the Caribbean there have been possibly significant developments recently that promise some amelioration of what has been long deteriorating debt and more general economic situations. There have been new bilateral and multilateral measures for debt relief and reduction for low-income debt-distressed African countries, though it is not clear that these changes are accompanied by other changes necessary for sustained economic growth. The Brady initiative promises debt and debt service reduction with donor support for some Latin American (and other SIMICs _ Severely Indebted Middle-Income Countries) countries that commit themselves to substantial adjustments. These developments seem to have created a sense of cautious, qualified and limited optimism. From the point of view of the present paper, the most important point of this review of the debt situation is that debt problems are not severe in most Asian countries in which reside over 70% of the developing country poor. Therefore, to the extent that there is some danger of negative effects of adjustment policies precipitated by the debt crisis on the rural poor, the relative success of Asian economies in avoiding such problems means that the danger is much less than it might have been if the Asian region had the debt problems of Sub-Saharan Africa or Latin America and the Caribbean. Analytical framework for considering the impact of macro economic adjustment on the rural poor: One can speculate about many possible effects of macro adjustment policy changes, precipitated in part by debt considerations, on rural poverty. Within simple models, some of these are predicted with confidence about their direction, if not their magnitudes. Within more complicated models, or with a combination of macro adjustment policy changes, such predictions are much less confident, not only with regard to the magnitudes, but also possibly the signs. Real incomes of poor rural households can be altered by macro economic adjustment policies through the conduits of meso market and infrastructural variables to change the assets broadly-defined that the household has, to change the prices broadly-defined that the household faces for the goods and services that it produces and for the goods and services that it uses, and to change the net governmental and private transfers that the household receives. In addition, there may be induced household formation or dissolution and migration, both of which may have important implications for rural poverty. Ideally the impact of macro policies on rural poverty would be analyzed within an economy-wide model with different types of rural households, with a multiplicity of relevant markets and assets, and with explicit representation of the impact of macro policies over time. Such an approach would suggest at least the order of magnitude of such effects, within a framework that allows for the possibility that such households can cope considerably in response to the changes that they face. One important fact that must be kept in mind in this analysis is that the responses have time subscripts, depending on the • duration and the success of the macro policies being considered. It is easy to think of situations in which the immediate impact of a particular macro policy on an important meso variable for rural poverty may be in one direction, but the longer -run effect may be in the opposite direction. Such considerations point to some limitations of even the best of the