Stabilization and Structural Adjustment: Macroeconomic Frameworks for Analyzing the Crisis in Sub-Saharan Africa

233 Pages·1994·1.07 MB·English

by  Finn Tarp

STABILIZATION AND
STRUCTURAL ADJUSTMENT
The past decade has been disastrous for Africa. Different solutions have been
proposed for this crisis, but the stabilization and structural adjustment packages
of the World Bank and the IMF have had much the greatest influence.
Characteristically these packages are designed to diminish the role of the state
and enhance that of the market, but a whole range of strategies have been pursued
to achieve these ends.
Given that much of the literature in this area is descriptive, and orientated
around case studies, it is difficult to disentangle the key features of the debate.
Stabilization and Structural Adjustment offers clarification by looking beyond
individual programmes to assess the relevance of the macroeconomic theory and
models that underlie them. It begins by examining the peculiar weaknesses of the
African economies and the issues of macroeconomic management they create,
before proceeding to outline the different frameworks within which stabilization
and structural adjustment packages can be analysed. Whilst particular attention
is paid to IMF and World Bank models, because of their unique influence,
alternative perspectives are also considered.
The result is the clearest overview to date of the economic theory underlying
this key area of development economics.
Finn Tarp is Associate Professor of Development Economics at the Institute
of Economics of the University of Copenhagen. Formerly with the Food and
Agricultural Organization of the United Nations, he worked as an economist for
a decade in southern Africa from 1978 to 1988. He has previously published on
agricultural price policy, agrarian transformation and income distribution and
growth.

STABILIZATION AND
STRUCTURAL
ADJUSTMENT
Macroeconomic frameworks for analysing
the crisis in sub-Saharan Africa
Finn Tarp
London and New York
First published 1993
by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
This edition published in the Taylor & Francis e-Library, 2001.
New in paperback 1994
© 1993 Finn Tarp
All rights reserved. No part of this book may be reprinted or reproduced or utilized
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue reference for this book is available from the British Library
ISBN 0–415–08179–3 (Print Edition)
0–415–08180–7 (Pbk)
Library of Congress Cataloging in Publication Data
Tarp, Finn, 1951–
Stabilization and structural adjustment: macroeconomic frameworks for analysing
the crisis in sub-Saharan Africa / by Finn Tarp.
p. cm.
Includes bibliographical references and index.
ISBN 0–415–08179–3 (Print Edition)
0–415–08180–7 (Pbk)
1. Economic stabilization—Africa, Sub-Saharan. 2. Structural adjustment
(Economic policy)—Africa, Sub-Saharan. I. Title.
HC800.T37 1993 399.5'0967—dc20 92–7431 CIP
ISBN 0-203-01864-8 Master e-book ISBN
ISBN 0-203-15225-5 (Glassbook Format)
CONTENTS
List of tables vii
Preface ix
Acknowledgements xiii
List of Abbreviations xv
INTRODUCTION 1
1 MACROECONOMICS OF AFRICA 7
Nature of the African economy 7
Economic performance 11
Sources of the crisis 14
Getting the issues right 25
2 MACROECONOMIC CONSISTENCY AND
ADJUSTMENT POLICIES 29
Sector and budget constraints 30
National balance, absorption and economic policy 33
Savings and investment 43
Government and fiscal policy 45
Monetary balance and policy 50
Summing up 54
3 FINANCIAL PROGRAMMING AND
STABILIZATION 56
The ‘empty’ framework 59
The Polak model 60
The monetary approach 64
Financial programming in theory 68
Financial programming in practice 73
Discussion 75
4 GROWTH PROGRAMMING AND ADJUSTMENT 79
Accounting framework 81
CONTENTS
Growth and resource gap models 82
Revised minimum standard model 86
Growth programming in practice 90
Discussion 93
5 GROWTH-ORIENTED ADJUSTMENT – AN
IMF/WORLD BANK SYNTHESIS? 99
A conceptual framework 100
Policy analysis 104
An empirical analysis 108
Issues and problems 110
Conclusion 116
6 ALTERNATIVE APPROACHES AND
PERSPECTIVES 120
Adjustment with a human face 121
Structuralist-inspired views and models 126
Radical perspectives 138
African alternative framework 143
Final remarks 146
7 CONCLUSIONS 150
Notes 167
Bibliography 194
Index 205
vi
TABLES
1.1 Comparative structural data on sub-Saharan Africa,
other developing regions and OECD economies 8
1.2 Gross domestic product, aggregate demand and
other economic indicators, 1965–89 12
1.3 Aggregate demand, external resource balance and
external debt, 1965–89 13
1.4 Domestic macroeconomic variables and policies,
1980–9 16
1.5 Balance of payments – current account, 1980–9 20
1.6 Balance of payments – capital account, 1980–9 20
1.7 Terms of trade, net financial transfers and external
debt, 1980–9 21
1.8 External economic shocks – interest rate and terms
of trade, 1980–7 22
5.1 Impact effects of changes in policy instruments,
behavioural parameters and exogenous variables 106
vii

PREFACE
I was introduced to the field of development economics during the Second United
Nations Development Decade, and was immediately intrigued by the coexistence
of a variety of competing theoretical and practical approaches to development
problems in the Third World. I took note of the fact that the orthodox, neo-
classically-inspired school of thought was largely on the defensive. Planned
development with a focus on distributional goals became, in my understanding, a
realistic goal to strive at for an economically-active, interventionistic state,
committed to development.
From 1978 I spent a decade as an employee of the Food and Agriculture
Organization of the United Nations (FAO) in various field assignments in southern
Africa. In this way, I was effectively exposed to the extremely difficult socio-
economic and political conditions of sub-Saharan Africa. I was introduced to
widely-different political and economic systems with dissimilar approaches to
development, and became gradually more realistic about ‘the possibilities of
development planning’, and the fact that governments may not be representative
of the aspirations of their people.1
Deficiencies in the formulation of plans and their implementation, insufficient
and unreliable data, unanticipated external and internal economic disturbances,
institutional and managerial weaknesses, and so on, are obstacles which by now
have a very real meaning to me. I came, in other words, to perceive the crisis in
planning in sub-Saharan Africa (SSA) and accepted that there is a need to rethink
and reformulate government strategies and policies and that market relations have
a role to play even in the development of planned Third World countries.2
From 1981 onwards I devoted a substantial part of my efforts towards
participating in the process of redirecting the Mozambican agricultural policies
and planning systems. I was, however, taken by surprise by the strength of what
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