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OECD Development Centre Policy Briefs

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. OECD Development Centre Policy Briefs summarise conclusions reached for policy makers.

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The Political Feasibility of Adjustment

In the history of adjustment, concern with the political aspects appeared only after long reflection. At the beginning of the 1980s, given the urgency of the financial crises afflicting many developing countries, the only thought was to restore macroeconomic balances, particularly the balance of payments, by means of short-term measures — budget cuts and tight monetary policy — and through devaluation. Adjustment was limited to a stabilization programme, the sole criterion being the reduction of the external deficit as rapidly as possible. It was soon realised, however, that stabilization is not an end in itself: reducing demand is not enough; it is also necessary to increase supply by improving resource allocation. Under the goading of the international organisations, stabilization measures were therefore supplemented by structural adjustment measures, such as reducing customs duties, deregulating financial markets and eliminating distortions in agricultural prices. This distinction between stabilization and structural adjustment is important from the political standpoint. In fact, a stabilization programme is a kind of emergency treatment....

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