Stagnation, Inequality, Adjustment, and Élite Interests

Abstract

Adjustment and stabilization programmes, almost universal among developing countries during the 1980s and early 1990s, were mostly introduced in response to chronic macroeconomic imbalances and external deficits, often associated with negative or slow growth. These programmes have been shaped by financing from and conditions set by the Bretton Woods’ institutions, the International Monetary Fund (IMF) and World Bank. The programmes redistribute the timing and extent of costs and benefits among economic actors. Most expenditure-reducing policies (including government employment cuts, removal of subsidies, increases in real interest rates, and the control of money supply) and of some expenditure-switching policies (such as real domestic-currency devaluation) tend to impose large welfare costs immediately, while their benefits emerge only after one to two years. Stabilization and adjustment programmes affect real wages and staple commodity prices, and may thus elicit protests from the population groups especially affected: the poor and the organized middle class (Auvinen 1996b).