Poverty and income distribution during adjustment : issues and evidence from the OECD project

Drawing lessons from country studies, the authors examine the effects of adjustment policies on the distribution of income in Chile, Cote d'Ivoire, Ecuador, Indonesia, Malaysia, and Morocco. After analyzing the issues that must be confronted in designing adjustment programs with a focus on poverty, they synthesize the main conclusions of the different country studies. With simulation exercises they explore the effects of the design of the adjustment packages on poverty and on the sustainability of the measures undertaken in these countries. These exercises show considerable diversity in the evolution of income distribution during adjustment. They also expose the fatal flaws of narrowly designed adjustment programs. Adjustment programs - whether focused on efficiency or on welfare - will fail when they do not recognize the interdependence of the three criteria of efficiency, welfare, and political feasibility. Adjustment programs must be carefully packaged to fit country circumstances, taking into account both the political and economic environments.