## POLICY RESEARCH WORKING PAPER 1238

# Summary findings

Did the World Bank's policy-based lending to Kenya in the 1980s allow Kenya to undertake adjustment, or to postpone it? The answer is mixed, says Swamy. Success was greatest in trade liberalization (Lnd exchange rate depreciation), and to a lesser extent in export - develop ment and these reforms would probauly not have occurred without steady Bank lending. But one could argue that budget support through funds from the International Development Association may have helped Kenya postpone critical public sector reform - in the civil service and social sectors and in divestiture of parastatals (including the National Cereals and Produce Board).

Was aid to Kenya (including the Bank's) overgenerous? Swamy concludes that, based on reform behavior and performance, Kenya may deserve aid less than Ghana (Africa's best performer) but it does not exhibit the same aid dependency as other donor favorites in the region. But its public investment program did a poor job in ranking priorities, and growing reliance on grants and counterpart funds undoubtedly contributed to more consLmption spending by government, particularly on the civil service and parastatals.

Implementation of structural ad,ustment in Kenya was often lethargic and sometimes even contra:.y to stated policies, says Swamy. And despite a fairly stable political climate, commitment to the adjustment program was patchy and intermittent. Reforms ostensibly undertaken were in fact not always implemented. In principle, for example, an auction market for government paper was created, but in practice financial institutions typically took up most of that paper 'by arrangement.' And restrictions on movements of maize were removed but reimposed.

Moreover, the design of the structural adjuitment loans appears, in retrospect, to have been faulty. Too - many conditions too general, and based on dated sectoral information - were attached to each loan, in part because of political considerations. And the Bank released credit tranches when conditions were met in letter but not in spirit.

The adjustment program benefited in the second half of the 1980s from lessons learned in the first half of the decade, particularly concerning trade liberalization and export development. But the design and dimensions of reform in the agricultural sector were too limited to achieve significant restructuring of the sector, and political interests effectively sabotaged the program. The second attempt at adjustment was also undermined by increasing financial laxity. The experience in Kenya underlines the difficulty of implementing structural adjustment under either financial laxity or extreme financial stringency.

Note, too, that many things have changed in Kenya since this study was completed in the early 1990s.

- - This paper a product of the Chief Economist's Office, Africa Regional Office is part of a larger effort in the region to study the process and impact of structural adjustment. Copies of the paper are available free from the World Bank, 181 H Street NW, Washington, DC 20433. Please contact Vanessa Saldanha, room J1O-206, extension 35742 _(75_ pages January 1994.

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