Economic Reforms and Poverty in Jamaica*

By Danielson, Anders | Ibero-americana, July 1, 2000 | Go to article overview

Economic Reforms and Poverty in Jamaica*


Danielson, Anders, Ibero-americana


I. INTRODUCTION

Low income countries, particularly in Africa, Latin America and the Caribbean, have undertaken major changes of their economic systems in the past two decades. A substantial part of these reforms have been endorsed or sponsored by international financial institutions (IFIs), particularly the IMF, the World Bank, and the regional development banks. Given the wide variety in country characteristics it is perhaps somewhat surprising to find that most reforms are quite similar. The cure recommended by the IFIs is more or less the same in Nigeria as in Nicaragua; the cause of stagnation in Trinidad is thought to be similar to the one in Tanzania.

A somewhat heated discussion continues as to the outcome of this policy change. While some claim that the results are encouraging and that reforming countries fare better than comparable (typically representatives of those responsible for policy design), non-reforming countries, others claim that the reforms by and large have failed.1 Critics, however, are by no means a homogenous mass: they range from Cornia et al. ( 1986) that call for a more human face to adjustment to Taylor (1993) according to whom parts of IFI-designed reforms may be irrelevant at best and disastrous at worst.

Controversies have aroused partly because different analysts see different objectives with reforms and partly because different counterfactuals are being applied. Thus, for instance, if the objective of reforms is to provide a stable macroeconomic environment (meaning low inflation) several countries have experienced reform success (if only for limited periods of time), when reform success is formulated in tenus of poverty alleviation, increased gender equality, or sustained growth of per capita incomes, the results are grim. A more difficult problem however is that of the counter-factual: what would have happened in the absence of economic reforms? Surely, status quo could not have been preserved as countries typically commence IFI-sponsored programs only in crisis or near-crisis situations. The problem, then, is to find out what alternatives the governments had as they embarked on reforms. Several critics of reform programs fall into this trap by criticizing policy changes on the implicit assumption that a viable alternative would have been status quo.

The typical reform program may be divided into two phases: stabilization and, as it is euphemistically known, adjustment. In theory, these should follow each other sequentially with adjustment policies being implemented only as stabilization has been concluded. In reality, this is not the case: adjustment policies are frequently being promoted when inflation is still high and in the face of untenable external fiscal situation. Even though adjustment should be easier in a stable economic environment, the distinction between the two is more analytical rather than practical - after all, both phases use the same instruments to achieve different objectives. A case in point here is the exchange rate manipulations that are used during the stabilization phase in order to reduce the external gap. as well as in the adjustment phase to transfer resources between sectors.

While the objectives of a reform program may be debated - and that debate concerns essentially the time span over which to evaluate results - it is quite clear that improvement in the individuals' well-being is always one of the objectives. As a caricature, one could perhaps say that in a typical reform program the IMF - in theory responsible for design of the stabilization phase - evaluates progress in terms of standard macroeconomic indicators such as the rate of inflation, the fiscal balance and the current account position. While the World Bank - supposedly responsible for designing the adjustment phase - is concerned with growth and, thus, welfare of the population.

Even if one accepts this portrayal of the IFIs' division of labor (and one should not do that without a number of qualifications), it is quite clear that the well-being of the population is of some concern to the IMF as well. …

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