Much has been written on the possible causes of the relative poor performance of the Cameroonian economy over the decade preceding the devaluation of the CFA franc: an unfavorable international context characterized by an average 60% deterioration in the external terms of trade following a sharp decline of coffee, cocoa and oil prices, the key export products; accumulation of domestic arrears, which seriously squeezed liquidity for private suppliers and banks; loss of competitiveness of the Cameroonian economy and more generally of a number of CFA franc countries of the sub-region, partly due to overvalued CFA Franc; the emergence of the Dutch disease, with a dramatic fall in agricultural and industrial production and increased reliance on oil revenues (Blandford et al. [1995], World Bank [1996, 1998], Njinkeu and Bamou [2000], Amin [2002]).<sup>12</sup> In addition, the downward adjustment of real wages in the formal public sector, which resulted in a 70% decline in civil servants’ salaries in 1993 may partly explain the rapid acceleration of urban poverty in the 1990s; to the extent that fiscal contraction (cuts in public spending and a hiring freeze) was at the heart of the stabilization program in a recessionary context of falling public and private investment. These policies led to over 12% reduction in the size of the civil service between 1995 and 1999, and were partly successful in reducing the fiscal pressure on public finance.<sup>13</sup> Even though the fiscal balance remained negative in the second half of the 1990s, it was relatively small, and since 2000, surpluses have been recorded, with the highest of 2.4% of GDP attained in 2001. However, in a context of continued low gross fixed capital formation, especially in the primary and secondary sector, the welfare and social costs of some of the policies embedded in the stabilization program of the 1990s continues to be felt. In particular, unemployment rates continued to rise, and in the absence of an effective unemployment benefits system, the deterioration of welfare, especially among poor households with no safety nets, has been a source of concern.

In urban areas where most households derive their income from wages, the short-term effect of some of these policies were even more direct, with a number of welfare and behavioral consequences translated through the labor market (World Bank [1996]).<sup>14</sup> In a highly segmented labor market, informal sector activities grew rapidly to account for over 51% of GDP in 2000, from 41% in 1990 (Cameroon DSCN [2000]). To account for this characteristic feature of the Cameroonian economy, labor market segmentation, whether imposed by geographical factors, sector of employment, or efficiency wages considerations, is an important aspect of the Cameroon’s financial SAM. This financial SAM also emphasizes among other things, urban informal sector employment, rural tradable and non-

> 12 By 1985 oil revenues and production accounted for over 65 percent of GDP in a country which up to the early 1980s derived over 90 percent of its GDP from agriculture; Benjamin and Devarajan [1985] emphasize the Dutch disease as a possible cause of the poor performance of the Cameroonian economy from the early 1980s and onward.

> 13 There may be other reasons to explain the rapid increase of poverty: in the 1998 World Bank Country Assistance Strategy to Cameroon,  it is stated that “the post-devaluation growth rates were not high enough to absorb new entrants to the labor market or those loosing public sector jobs; no special employment generating program was started in either urban or rural areas, and there were no effective social safety nets.”

> 14 It has long been documented that labor markets play an important role in the transmission process of macroeconomic policy shocks and structural adjustment policies (Agénor [2001], Horton et al. [1994]); and the role of labor market in alleviating poverty, especially in urban areas, is crucial.

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