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close this bookSCN News, Number 02 (UNSSCN, 1988, 12 p.)
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Economic Adjustment and Nutrition

As a result of economic recession and the debt crisis, since the early 1980’s a large number of countries have undertaken major shifts in economic policy. Often these ‘adjustments’ were precipitated by balance-of-payments crises, and used large loans from the IMF. They usually meant substantial reductions in public spending, and price alterations. The poor, especially in the poorest countries, were particularly vulnerable to loss of income and access to public services - to the extent that there were increasing fears that their nutrition levels were being seriously affected. Some scattered evidence showed that economic shifts coincided with nutritional deterioration - for example in Lesotho as shown here - and indeed the necessity for knowing more about recent nutritional trends gave impetus to setting up an inter-agency programme in food and nutritional surveillance.

A symposium on “Economic Recession, Adjustment Policies and Nutrition” was held at the SCN annual session in Tokyo in April 1986. This marked a start of new efforts to draw attention to the effects of adjustment policies on the nutrition of the poor, and to argue for their protection in times of economic stress. The SCN issued a statement that was put out by the ACC, as follows.

Lesotho: Malnutrition in clinics (top) and economic indicators.

What is “Structural Adjustment”?

Development efforts in many low income countries have been hampered since the early 1980’s by economic recession and, more recently, by a sharp downturn in commodity prices and a decline in capital flows. The IMF and the World Bank have advised many developing countries to remedy their severe balance-of-payments problems by adopting economic structural adjustment programmes. These programmes consist of measures to restrain fiscal deficits and monetary expansion, reduce government spending and revenues, fix more realistic currency exchange rates and introduce incentives. According to the World Bank, adjustment programmes benefit the poor by eliminating policy-induced distortions which limit the mobility of resources, suppress agricultural prices and subsidize capital. However, while adjustment operations “clearly benefit the poor” over the long term, there may be transitional costs: small scale farmers may be affected by increases in prices, while landless agricultural labourers and urban workers may have to pay more for food. Children from poor households may also be compromised by reduced government funding for health and education. Most of these social costs are transitional, the World Bank says, incurred as aggregate demand is brought in line with aggregate supply and as some workers become temporarily unemployed.

“Arising from a symposium held at its twelfth session at the United Nations University in Tokyo (7-8 April 1986), the ACC Sub-Committee on Nutrition draws the following to the attention of the ACC:

(a) The economic recession has had a detrimental impact on nutrition. Certain adjustment policies, particularly those aimed at redressing balance-of-payments problems, have often aggravated the situation as an undesirable side-effect. This outcome is not inevitable if appropriate measures are taken, as has been shown in several cases.

(b) Reductions in public expenditure on health, education and other basic services, and some alterations in price structures, coupled with unemployment and falling incomes, have compounded the negative effects on nutrition. The poor have been the most affected. Stable or even improving trends in malnutrition and child mortality rates are being reversed. This adverse situation affects a country’s human capital and long-term economic development.

(c) The ACC Sub-Committee on Nutrition requests ACC to recommend that nutrition objectives for the poor form an explicit part of adjustment policies and programmes of Governments and member organizations, including special compensatory measures where appropriate, with a view to providing an adequate level of nutrition for vulnerable groups. Some countries and organizations of the United Nations system have recently given prominence to these approaches.” [Source: Report of ACC/SCN 12th Session]

IMF Speech

Concern for the social effects of adjustment mounted during 1986 and 1987. In an important speech at the U.N. in Geneva in July 1986, M. de Larosiere, Managing Director of the IMF, emphasized the importance of safeguarding human needs in times of adjustment. His speech has been widely circulated, and is worth quoting at some length:

“Programmes of adjustment cannot be effective unless they command the support of governments and of public opinion. Yet this support will be progressively harder to maintain the longer adjustment continues without some pay-off in terms of growth and while human conditions are deteriorating. Likewise, it is hard to visualize how a viable external position can be achieved if large segments of the work force lack the vocational skills - or even worse, the basic nutritional and health standards - to produce goods that are competitive in world markets. Human capital is after all the most important factor of production in developing and industrial countries alike.

“But the fact that adjustment need not conflict with growth and protection of basic human needs does not mean either that the latter automatically result from the former. No. The extent to which adjustment is compatible with growth and with an improvement in living standards depends in large part on what form that adjustment takes. Adjustment that takes the form of increases in exports, savings, investments and economic efficiency will clearly be more supportive of growth than that which relies on cuts in investment and in imports. Similarly, adjustment that pays attention to the health, nutritional and educational requirements of the most vulnerable groups is going to protect the human condition better than adjustment that ignores them.

“This means, in turn, that the authorities will have to be concerned not only with if they close the fiscal deficit but also with how they do so. For example, safeguarding human needs may imply that employment in overstaffed and loss-making public enterprises or defense spending be reduced in preference to cutting an accelerated immunization and health care programme for children. Similarly, safeguarding human needs may imply that credit flows be managed so that small-scale producers are not crowded out by large enterprises and the public sector.

“The forms of adjustment that are most conducive to growth and to protection of human needs will not emerge by accident. They have to be encouraged by an appropriate set of incentives and policies. They will also require political courage.”

M. de Larosiere,
Managing Director of the I.M.F.
ECOSOC, July 4, 1986

Adjustment With a Human Face

UNICEF has been pushing for greater attention to the ‘people-oppressing’ features of adjustment policy for some years. Recently, the first volume of a major study was published, edited by senior UNICEF staff. The book, subtitled ‘Protecting the Vulnerable and Promoting Growth’ (see review in the Publications section), gives considerable detail of policy options, overall and in different sectors. UNICEF’s alternative strategy combines the basic elements of adjustment with equal concern for promoting growth and protecting the vulnerable. The six main policy components of “adjustment with a human face” are more expansionary economic policies, aimed at sustaining levels of output and requiring larger amounts of medium-term external finance; policies that influence the allocation of income and resources (“meso” policies) within a given macro policy package - to reinforce the expansionary approach and secure priority use of resources to fulfill the needs of the vulnerable; restructuring within the productive sector to strengthen employment and income-generating activities, focussing especially on small farmers and informal producers; policies to improve the equity and efficiency of the social sector by improving the targeting of interventions and their cost effectiveness: compensatory programmes to protect basic health and nutrition of low-income people before resumed economic growth enables them to meet their own needs; and monitoring of the human situation, especially living standards, health and nutrition.

Meanwhile, the World Bank, which has provided structural adjustment loans to developing countries since the early 1980’s, has been developing new approaches for protecting the poor during the adjustment phase. The Bank saw a need to address the social costs of adjustment as part of its adjustment loans and other operations, particularly by improving the effectiveness and poverty orientation of social spending in health and education. In fiscal 1986, about one third of World Bank loans went to programmes for agriculture, health, primary education, urban development and nutrition. In African countries implementing adjustment measures, 45 percent of lending was directed to such programmes, compared to an average of 28 percent for the whole region. Another World Bank priority is to develop effective and targeted compensatory programmes for nutrition and employment in coordination with other agencies and NGO’s. Following a joint consultation on “food aid for structural adjustment” in December 1986. Bank and WFP staff began identifying countries undergoing adjustment where increased collaboration might prove particularly fruitful. The Bank is also co-operating with other agencies such as ILO in employment schemes for displaced workers and with NGO’s on poverty relief programmes. The case for special attention to nutritional objectives in adjustment loans has been articulated within the World Bank - and we reproduce an extract from a position paper on this topic below.

Ministerial Session

In May 1987, ILO, UNICEF and WFC met in Rome for a consultation on the impact of economic recession on nutritional levels. In a report to WFC’s 13th Ministerial Session in Beijing in June, 1987, the consultation reported “a growing convergence of views” on adjustment. “There is broadly based agreement that low income countries will be able to successfully undertake adjustments only if the trends of declining or negative capital flows are reversed.” They called for special attention to the needs of the poor and hungry, especially during the adjustment process. The Ministerial Session, attended by representatives from 34 countries, found that the issues surrounding structural adjustment were “complex”. However, protection of food and nutrition needs should be a key element in the objectives of adjustment.

Suggested Profile for Nutrition Sectoral Adjustment Loans
[Extracts from Briefing Note from World Bank (February, 1987)]

“Why are sectoral adjustment loans needed in the area of nutrition?

-Through effects on household income and purchasing power, economic adjustment can have a nutritionally negative impact on those poor people already living on the margin. Loans specifically addressed to nutrition can offer a way to carry out tightly targeted, compensatory programmes to cushion the shock on the poor.

-In many countries current expenditures that impinge on nutrition, particularly consumer food price subsidies, are both sizeable and inefficient. Adjustment loans in the area of nutrition can offer a reform instrument to decrease costs of such expenditures while increasing their nutrition impact.

-Reforms and investments in such other areas as education, worker productivity, health and family planning will be limited in their success if a basic threshold of nutrition is not ensured. These adjustment loans can offer a way to buttress objectives of other Bank lending operations.

“Such loans should be set up to increase the cost-effectiveness of government expenditures related to nutrition. A common area of reform would be consumer food price subsidies. Other examples are feeding programs for workers in industry and for school children of all ages. Assistance in taking advantage of opportunities for food aid should be provided. As it becomes increasingly clear that food aid is not merely a temporary phenomenon in some countries, the need arises to take better advantage of (and use more effectively) this important additive but non-fungible resource. Many countries are limited by absorptive capacity.

“Developing national institutional abilities to address nutrition concerns is also of crucial importance. Many nations lack the capability to deliver nutrition services effectively. Numerous programmes, run by both government and non-governmental organizations, often overlap or, worse, sometimes run counter to each other. Also needed is the capability for monitoring the nutrition status of vulnerable groups. This would aid both in institution building for nutrition and in Bank evaluation of adjustment operations and their social impact...

“In order to develop adjustment loans, an understanding of current programmes in the country, at both the governmental and non-governmental levels, and the institutional framework for these programmes is necessary. An understanding of how a particular adjustment package might affect food consumption and nutrition: an appropriate analytical framework, information on nutrition status, food consumption or household expenditure of at-risk families, and data on price and income elasticities. Estimations of the effects of the intended adjustment on nutrition and also as a means to measure it as adjustment unfolds.

“The loans would need to include targeted compensatory measures to offset negative effects. Strategies should be developed to build institutional capacity in nutrition and food planning and delivery and how to take better advantage of food aid.”