# EXECUTIVE SUMMARY

i. This pap reviews the literatuire (World Bank and external sources) in order to assess what is known about the effects of adjustment on education, with particular emphas,s on World Bank adjustment lending. Facing external shocks and serious balance of payments disequilibria, countries have several choices: to postpone the need for adjustment by borrowing more abroad, to increase domestic controls and the inward orientation of the economy, or to undertake a program of managed adjustment (usually with IMF or World Bank assistance). World Bank adjustment lending supports several types of policies that directly or indirectly influence education: trade policies (exchange rate flexibility, trade liberalization), fiscal policies (tax and price reforms), and public sector management policies (reductions in expenditures, civil service reform). In the short term, these policies affect both education supply and demand. Long-term effects depend on whether adjustment successfully renews economic growth, and whether any short-term damages are reversible. Adjust. **.it** measures affect education through changes in the macro (budget containment, cost recovery) and micro (household incomes and prices) levels of the economy. The impacts of adjustment on education are determined by corditions L the sector before adjustment, as well as the naure and implementation of the adjustment program.

ii. Adjustment programs have incited strong debate since iheir inception, with the debate focusing on IMF and World Bank adjustment lending. However, most critics of adjustment programs say little about education directly, and do not distinguish the effects of international recession, fiscal constraints, or structural problems from the effects of adjustment measures. The Bank initially emphasized that macroeconomic adjustment policies were short-term and therefore were not the appropriate instrument for promoting long-term social development. Early adjustment programs ignored education issues, seeking to rapidly redress economic distortions. But the adjustment process lasted much er than expected, and Bank and external researchers found evidence of significant shon .m costs in the social sectors. As a result, the Bank has broadened its approach to adjustment in order to better protect education from direct and indirect negative impacts of adjustment. SAL conditionality tatgeting education increased, and the Bank also developed new instruments for policy lending to the sector: education SECALs, hybrid loans combining investment and adjustment components, traditional investment loans that specifically support sector adjustment programs, and sector investment loans.

iii. Analyzing how adjustment affects education is more important than simply determining adjustment's "guilt" or "innocence." In order to design and implement appropriate intorventions, lenders, borrowers, and policymakers need to know how macroeconomic and sector adjustment, both as on-going processes and as deliberate responses to discrete c6rcumstances, affect one another. It is particularly important to determine the likely effects of policy reforms on sector financing, and in turn, the effect of changes in financing on coverage, quality, and equity. The literature frequently suggests that declining trends during the "adjustment" period (post-1980) imply causality, and offer hypotheses about how macroeconomic or sector adjustment policies translate into sector effects. However, concrete evidence that explains the process of sector adjustment to sector or macroeconomic reforms and that supports general statements is lacking.

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