Compensatory social programs and structural adjustment : a review of experience

This study examines the recent experience of the World Bank and other donors with both sectoral and multisectoral compensatory programs, and identifies lessons learned for USAID. Section 2 summarizes some of the potential effects on various socioeconomic groups of adjustment programs, and examines the economic and political justifications commonly offered for these programs. Section 3 identifies countries (mainly in Latin America and Africa) in which such programs are being implemented or planned, detailing the types of interventions, the institutions involved, and funding levels. Section 4 presents case studies from Bolivia, Ghana, Chile, Senegal, and Mexico of the major types of programs that have been implemented (USAID was one of several donors that financed the Bolivia and Ghana programs), and assesses the extent to which they benefited their intended targets. A final section presents tentative lessons learned. (1) Despite claims to the contrary, the primary objective of most of these programs was not to redress the social costs of adjustment. (2) Except in the case of redeployment and severance pay schemes for public employees, programs designers have usually not thought through the implications of adjustment measures for income distribution and incorporated them into compensatory program design; nor is much attention given to the opportunity costs implications of adjustment. (3) Though multisector programs can lend political legitimacy to the adjustment process, it is very doubtful that multidonor, multisector programs can provide short-term poverty relief; in most cases donor coordination has been lacking and performance has been very uneven. (4) Compensatory programs can be successful only if governments are committed to them, independently of donor agendas. (5) It is necessary to examine carefully the ability of existing institutions to implement short-run programs cost-effectively and rapidly and to make sure that such programs do not stigmatize the poor. (6) The long-term efficacy of emergency public works programs is probably overestimated.