# **I.** INTRODUCTION

1.01 Although many studies evaluate the effects of adjustment on economic growth and on the poor, few assess the specific impacts of adjustment progr-ms en the education sector. This paper reviews the lterature on this topic (World Bank dnd external sources) in order to assess what is known about the effects of adjustment on education, with particular emphasis on World Bank adjustment lending. Section I provides a brief description and history of adjustment lending, and analyzes how adjustment policies affect the education sector. It concludes witn a description of changes in ad astment lending and presents several types of loans that address education issues. Section II describes the types of data and methodologies used to assess the impact of adjustment on education. The section also points out difficulties in interpretii-,i available data. Section III analyzes major factors (capacity, coverage, quality, and equity) that affect education supply and demand, and suggests additional data and analyses that are required to design and implement effective adjustment interventions from the education sector perspective. Finally, Section IV broadly summarizes how the sector manages the adjustment process. It concludes with a number of questions for further research that have important implications for designing and implementing adjustment programs.

# A. Description

1.02 Many developing countries faced serious balance of payments problems during the late 1970s and early 1980s. The problems stemmed from factors such as the sharp deterioration in the terms of trade for oil-importing countries and from the legacy of weaknesses in domestic policies and institutions (for example, overvalued exchange rates and bloated civil services). Faced with adverse external shocks, a country can respond in several ways. One is to postpone the need ) adjust by borrowing more abroad--an alternative seldom open to countries already heavily indebted in the 1980s. Another is to increase domestic controls and the inward orientation of the economy--an alternative likely to be costly in terms of efficiency and growth. Finally, a country can undertake a program of managed adjustment, usujally with IMF and World Bank assistance. Adjustment broadly includes managed reductions in public expenditures as well as changes in relative prices. Adjustment measures are designed to make the economy more efficient, more flexible, and better able, o use resources and thereby to engineer sustainable long-term growth.

1.03 The World Bank's first structural adjustment loans (SALs) were extended in 1980. Adjustment loans differ fror:- traditional investment loans in that they provide quickdisbursing budgetary support disbuirsed in tranches against successful implementation of a set of agreed-upon policy actions. World Bank adjustment policies are distinct from the IMFs stabilization policies. Stabilization is short-.erm, demand-oriented, and focused on the macroeconomic and financial sides of the economy. Adjustment is aimed at the medium-term (3-5 years), supply-side, microeconomic as well as macroeconomic, and real sides of the economy. The two interventions are coordinated in thb n11diirm term since the IMF and the World Bank agree with the country on priorities '% it joint policy framew3rk

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