Fiscal Issues in Adjustment: An Introduction

Rising international interest rates, falling terms of trade, and the foreclosing of commercial credit, forced the majority of developing countries to pursue drastic adjustment policies. In spite of differences in initial conditions and in ideological predilections, common adjustment patterns were observed across many countries. Initially the focus was on short-run stabilization, in particular on restoring a viable balance of payments and on servicing the external debt. Soon it became apparent that short-run measures alone would be insufficient to restore sustainable long-run growth. Short-run measures were thus complemented by structural reforms aimed at increasing the efficiency of resource use. Yet, for many observers, the success of adjustment has been limited to containing the debt crisis. Growth has only resumed in a handful of countries. Severe macroeconomic imbalances subsist in the remainder.