Academic literature on the topic 'Structural adjustment (Economic policy)'

World Bank/International Monetary Fund Structural Adjustment Programs (SAPs) have been introduced in over 40 countries of Africa. This article outlines their economic policy measures and the experience of the countries that have introduced them, in terms of nutrition, health status, and health services. The evidence indicates that SAPs have been associated with increasing food insecurity and undernutrition, rising ill-health, and decreasing access to health care in the two-thirds or more of the population of African countries that already lives below poverty levels. SAPs have also affected health policy, with loss of a proactive health policy framework, a widening gap between the affected communities and policy makers, and the replacement of the underlying principle of equity in and social responsibility for health care by a policy in which health is a marketed commodity and access to health care becomes an individual responsibility. The author argues that there is a deep contradiction between SAPs and policies aimed at building the health of the population. Those in the health sector need to contribute to the development and advocacy of economic policies in which growth is based on human resource development, and to the development of a civic environment in Africa that can ensure the implementation of such policies.

The success of World Bank policy has recently been proclaimed in Adjustment in Africa: reforms, results, and the road ahead (New York, published for the World Bank by Oxford University Press, 1994), which maintains that the Bank's macro-economic policies have improved economic performance, and that, in general, the greater the degree of implementation, the better the results. My review of this policy research report is intended to show that the presented data fail to support this claim and even bolster the contrary thesis.

This paper investigates the impact of structural adjustment policies on deforestation taking place when the agricultural frontier advances into forest reserves in Nicaragua. A computable general equilibrium model incorporating deforestation by squatters is used for policy simulations. The opportunity cost of migrating to the frontier does not simply depend on wage income opportunity, but also on market prices of basic grain which determine the capacity to consume beyond subsistence food-level given a certain real wage. Reducing public expenditures both conserves forests and enhances economic growth, while showing positive distributional effects. On the other hand, a strong conservation trend following a sales tax increase is driven by increasing poverty in rural areas. Noticeably, there are policies which initially intensify deforestation, but turn out to ease the pressure on forests over time. Rapid economic growth does not ensure less pressure on forest reserves.

This thesis aims at studying the issues of economic structure and resource allocation in development. Chapter 1 provides an introduction to economic development and gives an overview of this thesis. Chapter 2 reviews some theories and models about economic structure and structural change and points out that resource allocation is a critical factor in changing the economic structure. Five characteristics of economic structure and structural change are summarized. Essay 1 in Chapter 3 investigates the relationship between competitiveness and economic growth. Adopting the Global Competitiveness Index to represent competitiveness, we empirically show that there is a two-way causal relationship between competitiveness and economic growth. We further identify that the relationship between competitiveness and economic growth change in different development stages. Specifically, better competitiveness can enhance economic growth but not vice versa in developing countries. We therefore relate such a difference to the ability to transform resources into competitiveness. This is fundamentally a question about resource allocation. Finally, we link structural change with economic growth and show that enhancing competitiveness is equivalent to improving the capacity to change the economic structure. Essay 2 in Chapter 4 studies the impacts of sub-optimal resource allocation on economic growth by applying a new model to the case of the effectiveness of official development assistance (ODA). This new model analyzes economic growth through structural change by the difference between the observed and optimal levels of competitiveness. Regarding the positive and negative impacts of foreign aid on the receiving country in the literature, we show that the net impact of ODA depends on the value of bias caused by inefficient allocation of resources and the adoption of a biased value system. As a result, both positive and negative views of ODA in the literature are somewhat correct. In principle, ODA does work in the sense of helping needy countries providing they can allocate such additional resources efficiently. The cruel truth is that most receivers of ODA are unable to transform these resources to productive uses and even lower their economic growth. The development aid country donors or global institutions may therefore have to review their existing policy for granting aid.Essay 3 in Chapter 5 introduces a new framework to study two important structural issues in China: regional fragmentation and ownership distortion. We extend the output-oriented structural efficiency measure to include subgroups to evaluate potential gains of improving resource allocation within and among subgroups. The new framework is then applied to China's industrial sector. Applying our new method for policymaking, the empirical results advocate prioritizing ownership reform over regional reform in China. Specifically, by improving resource allocation among different ownerships, outputs of the whole industrial sector can be increased by 21% of the observed level. In contrast, the potential gains of reallocating resources between western and non-western regions are less than 1%. Such a conclusion cannot be drawn from other existing models of efficiency analysis. Finally, Chapter 6 concludes the whole thesis.

The mixed results of International Monetary Fund structural adjustment programmes in less developed countries are a major motivation for this research. Explanations must be advanced as to what may inhibit the success of such programmes. South Africa has often found itself in a precarious position- with a deteriorating balance of payments, a position similar to other countries that have accepted IMF loans. Furthermore, South Africa undertook an IMF loan in 1993. Financial support from the IMF incorporates structural adjustment programmes. These may include measures such as tighter monetary policy, reduction in the budget deficit, exchange rate devaluation and ceilings on domestic credit with increased interest rates (Ferguson, 1988). These policies illustrate the principle of ‘conditionality,’ whereby access to further loans is conditional on certain criteria being met, such as reduced budget deficits and inflation rates. The principle of conditionality has met with a great deal of criticism. Bacha (1987) and Dell (1982) argue that these aggregate demand-reducing conditions more often than not stagnate domestic economies, worsening the balance of payment and result in programme breakdowns. Essentially, they refer to the IMF conditions as ‘unrealistic.’ The IMF denies this, arguing that shortfalls are mainly due to a lack of political commitment to carry out its conditions (Winters, 1994). This issue of conditionality will be examined in detail, using three specific case studies. The aim of this study is to examine the characteristics of Brazil, Mexico and Zambia to see whether or not the IMF programmes were successful. Guidelines will be established for South African policy from these case studies. South Africa is trying to adjust to the competitiveness of the international economy. At the same time, the need for reconstruction and development exerts increasing pressures on the balance of payments. Guidelines are established for a successful economic adjustment for South Africa. The research concludes that South Africa is certainly in line for a successful transformation. The rigidities are not as extensive as has been the case in Brazil and Zambia. Institutionally, South Africa is sound. However there are still challenges in this area, such as export diversification and economic stability to attract foreign investment.

AbstractThe handling of the Greek crisis was not successful. Despite the sacrifices that the Greek people had to endure, the country’s structural problems both in the public sector and the economy have not been resolutely resolved. This chapter offers an explanation for this failure. The main idea is to connect the externally imposed policy conditionality, with the particular characteristics of Greece’s domestic political economy, seeking to integrate an analysis of impediments and opportunities for structural reform. While the literature on external institutional constraints emphasizes the possibility for achieving convergence, the institutionalist literature points towards divergence among national political economies, as institutional change and policy performance are conditioned by crucial intervening variables, namely, aspects of the domestic institutional infrastructure. In this context, Greece is a paradigmatic case of long-delayed or stalled reforms despite external pressures that promoted them. While most attention has been paid to the weaknesses of the EMU, this analysis’ emphasis is on the role of crucial domestic factors. The analysis takes place in three steps: (a) the outline of Greece’s institutional profile and growth trajectory based on an analysis of formal and informal domestic institutions; (b) the description and analysis of the design, implementation and impact of the adjustment programs; and (c) in view of (a) and (b) an assessment of whether the adjustment programs implemented in Greece took into consideration the characteristics of the country’s political economy, and how and to what degree the failure to do so accounts for their results.

AbstractThis chapter focuses on two significant aspects of crisis management in the Eurozone: (a) its democratic legitimacy and (b) its socioeconomic consequences. The two issues are very important, since both the socioeconomic effects of an adjustment program and its democratic credentials determine to a large extent its “ownership” by local societies and consequently its chances of success. Effectively, these two aspects refer to the “input” and “output” side of democratic legitimacy, that is, to legitimation through democratic processes and representation, and policy outcomes respectively. The analysis evaluates the first aspect of the legitimacy equation using criteria derived from democratic theory and applying them to the governance structure of the bailout programs. On the second aspect of legitimacy, that of outcomes, the socioeconomic consequences of the crisis management are reviewed, and their distributive aspects discussed. The chapter demonstrates that the EU’s legitimacy has suffered along both aspects as a result of the crisis and the way it was handled. This leaves the EU in a particularly vulnerable state in the event of a future crisis.

Currently, global transformation processes are intensifying, causing increased uncertainty and volatility in economic dynamics. Under these conditions, there is an increasing need to raise economic resilience, which is a condition for maintaining stable growth dynamics, and is considered the ability of the economic system to absorb shocks and quickly adapt to changes in external and internal conditions. The most important condition for ensuring economic resilience is maintaining macroeconomic balance and counteracting the growth of excessive imbalances. The purpose of this research is to identify factors and mechanisms for the formation of macroeconomic imbalances, establish their relationship with economic resilience, and determine general approaches to economic policy for the adjustment of imbalances. The methods used in this research are analysis, synthesis, comparison, and generalization. Some of the conclusions that emerged from the research are as follows. Macroeconomic imbalances manifest themselves not only in the disruption of foreign economic equilibrium, but also in a slowdown in economic growth, internal recession, increased inflation, and a decrease in the global competitiveness of the economy. In most economies, external and internal imbalances are stable, and chronic, and attempts to combat them can lead to their transformation, but do not eliminate them. Constant macroeconomic imbalances are caused by inertial factors: the specifics of the development model of the national economy, structural disproportions, and the fight against which regular macroeconomic policy (monetary, fiscal) is ineffective. An effective tool for adjusting macroeconomic and structural imbalances is structural policy. It has been established that the influence of structural policy on macroeconomic balance and resilience is realized through the following channels: increasing the efficiency and competitiveness of production, raising mobility of production factors and reallocation of resources; and improvement of self-regulation mechanisms of the economic system.

The main purpose of this paper is to assess the economic vulnerabilities of the Republic of Moldova (RM) at the macro level, as well as to formulate policy proposals for sustainable economic development. The paper focuses on the analysis of time series data between the previous global crisis (2009) and that caused by the COVID-19 pandemic (2020). The paper identifies the following economic vulnerabilities of the RM, which formed during the years of independence: pro-cyclical fiscal policy, reduced public revenues, consumption-based economic model, low investment in the economy, declining labor force, exchange rate instability in crisis situations. The paper also highlights the differences between the policies of the RM compared to neighboring European countries, especially in terms of indicators of their economic stability in crisis situations. The paper identifies the following policy areas for sustainable economic development: modernizing the structure of the economy, countercyclical fiscal policy, increasing public revenues, streamlining public services, increasing public investment, developing of private pension funds, implementing public policy in the field of financial education, accelerating growth and investment in the future. In this context, the question is "what should national policies contain?" in order to ensure a sustainable development of national economy. The experience of the new EU Member States was taken into account in formulating policy proposals. If all these economic policies will be implemented in the first decade after the COVID-19 pandemic, the RM can move from a consumerbased economic model financed by loans to an investment-based and sustainable economic development one.

Coherent integration for transformation and structural adjustments in the socio-political, economic and cultural realms of each unit within the framework of social democracy might have appeared to be contributory to market-efficiency and the objectives of neo-liberalization as well as economic growth. In the present dispensation the authors have taken the attempt to analyse scales of normative frameworks in the socio-political, socio-economic and cultural context under various timelines to suggest as alternative means, in addition to policy coherence for the sustainable developmental goals.

Together with the destruction of Berlin Wall in 1989 and fall of The Soviets 1991, one of the basic problems of transition economies is the matter of high inflation. The underlying factor of the high and/or hyperinflation process is the rupture of input relations and its negative supply shocks. Emergence of inflationary structure brought irregularity in macroeconomic indicators, too. Many structural adjustments were created in order to lighten the effects of transition process; and improvements were tried to be done in economic indicators such as inflation interest, budget balance and foreign debt which is the reflection of current deficit. In efforts for improving basic economic indicators Maastricht criteria were accepted as the basic criteria due to the fact that they are compulsory for membership process for some transition economies and others optionally accepted them as they are examples. Therefore, in this study based on Maastricht criteria, the convergence of transition economies to these criteria were accepted as success indicator and concordantly it was studied in which proportion the policy implementations are/aren’t successful or whether they correspond to theoretical expectations. In this study it was aimed to test the matter of fact which is accepted as criteria convergence in literature and with panel data analysis it was tried to reveal whether convergence come true in terms of criteria. Hence, the difference between the countries that provided discipline and those do not provided it is found and its effects to development performance is clearly determined.

Industrial policy refers to the policy of industrial development, where the term “industry” encompasses the organization and strategic man­agement of human and material resources. The aim of this policy is primarily to stimulate and secure the tracking of structural adjustments and restruc­turing of companies in order to empower them to grasp the changes within the business environment and to face the economic challenges and increased competition on a global scale. Inclusive and sustainable industrial develop­ment means that all parts of society have equal benefits from industrial pro­gress, which, in addition, enables the satisfaction of basic social and human needs. Such industrial development enables a continuous increase in the living standard for all people and new technological solutions for environ­mentally friendly industrialization. Successful implementation of inclusive and sustainable industrial development in the age of globalization requires approaches that use globally available knowledge, technology, innovation and capital. The determination of the Republic of Serbia to join the EU entails the obligation to respect inclusive and sustainable industrial development. In order to achieve sustainable industrial development in the Republic of Serbia, it is necessary to promote the circular economy and educate business entities. Business entities must be introduced to the importance of more effi­cient use of material resources and possible savings in industrial processes, through the organization of promotional and educational gatherings and the use of services of centers that are active in this sector.

There is an immense literature on the effects of exchange rate changes on macroeconomic indicators, specifically on the trade balance, growth, inflation, and overall productivity in open economies. One of the main attempts in the related literature is about ascertaining whether the exchange rate fluctuations alter domestic prices. This possible mechanism is called as the pass-through effect which is getting more important since the argument that exchange rate adjustment is a part of the solution for global rebalancing is empirically well-supported. Starting from this claim, this study purposes to explore whether there is an exchange rate pass-through effect in 19 high-income OECD countries over the period 1990-2015. To this end, using a panel data set of consumer price index, producer price index proxied by wholesale price index, the nominal effective exchange rates, and industrial production presented by the value-added share of industry sectors in gross domestic product, structural vector autoregressive (VAR) and autoregressive distributed lag (ARDL) models are estimated in an unbalanced panel data analysis procedure. Results reveal that exchange rate pass-through effects on the domestic prices are significant but not that strong in both the short-run and the long-run. Expectedly, the pass-through effects tend to diminish over time. The study concludes that policy-makers need to consider policy actions accompanying the exchange rate changes to ensure domestic price stability which consequently interacts with many macroeconomic indicators.

This contribution goes beyond viewing a system as a black box receiving inputs and producing well defined outputs to an external environment. Its purpose is to explain the complementarity between first and second order cybernetics as well as of economic and sustainable performance. It discusses a black box using the notion of eigenform as developed by Heinz von Foerster (2003) wherein a performing object is understood changing overtime with apparent stability. It contemplates the concepts of structural and linguistic recursions and highlights the values of second-order and ontological cybernetics. The outputs of a black box are fed back to its inputs, possibly in real time, in order to manage its performance towards the often-economic requirements of the system’s external environment, but showing signs of change and adaptation. The transformations the social systems perform are adaptive and change over time, making them non-trivial machines. Beyond producing technological transformations, the complexity of social systems emerges from the operational, moment-to-moment- interactions of its participants. Their outcomes are produced by changes in structure and ethical values, necessary for social sustainability and improved (policy) performance. These changes produce adjustments to the system’s outcomes which are the observer driven mechanism of second-order cybernetics.

This policy brief reviews the experience of the countries under the Euro currency, focusing on those that have been under significant pressure in recent years- Greece, Ireland, Portugal and Spain, referred to as "emerging" economies. At first they experienced stable growth and converged to the most advanced countries, but subsequent adjustment has proven elusive due to macroeconomic conditions, worsening structural deficiencies, and incomplete integration. The conditions for the survival of the Euro zone are complex and still far from fulfillment. While Latin America has recently experienced a similar period of stable growth, there is no room for complacency. The main lesson from Europe's experience is that Latin America must take advantage of the current context of growth, stability and optimism in order to carry out much-needed reforms that will leave countries adequately prepared to face a downturn in the world economy.

This comprehensive report delves into the economic policy responses of the Nordic countries amidst the tumultuous period marked by the COVID-19 pandemic, the subsequent recovery phase, the energy crisis, and inflation spanning from 2020 to 2023. It provides a critical examination of the macroeconomic strategies employed during these challenging times, highlighting the lessons learned and the effectiveness of different policies. The report raises pivotal questions regarding the outcomes of these policies, their impact on the Nordic economies, and the lessons that these countries can glean from each other's experiences. Key Findings and Highlights: Fiscal Support Measures: The report evaluates the unprecedented fiscal support measures implemented by the Nordic countries during the pandemic. It discusses how these measures, while stabilizing the economies, resulted in overgenerous subsidies to firms, indicating areas for future refinement. Job Retention Schemes: An analysis of job retention schemes reveals their critical role in preserving employment during the pandemic. The report suggests that while effective, these schemes should be designed to avoid hindering necessary structural changes within the economies. Fiscal Policy Challenges: The need for fiscal policies that can stabilize the business cycle, provide household income loss insurance, allow for public investment, and address the needs of an ageing population is emphasized. It argues for debt financing beyond current limits to meet urgent investment needs. Energy Crisis and Green Transition: The energy crisis is examined as a case study in balancing immediate relief with long-term sustainability goals. The report discusses the importance of allowing price mechanisms to encourage the green transition while providing timely support to consumers and businesses. Overall the report underscores the importance of policy adaptability, advocating for economic policies that can swiftly respond to unforeseen crises without compromising long-term fiscal sustainability. It calls for targeted support measures that aid vulnerable households and firms during economic downturns without impeding structural adjustments. Furthermore, it emphasizes the necessity for adequate resources towards active labour market policies, including vocational training and subsidized employment. Facing intricate trade-offs between maintaining robust economic policy frameworks and adapting to new challenges, the Nordic countries stand at a crossroads. The report advocates for a vibrant exchange of policy insights and impacts, stressing the need for adaptable, targeted, and well-resourced economic policies. This report is essential reading for policymakers, economists, and anyone interested in the complexities of economic policy-making in the face of multiple crises. It offers a thorough analysis of the Nordic experience, providing valuable lessons for both the region and beyond.

This paper identifies policy issues that affect the extent, distribution, and condition of forests in Latin America. Forest management policies are only one element in the framework; policies related to agricultural development and land tenure can have potentially negative consequences for forests. Mineral exploration, hydroelectric reservoirs, highway projects, and urban expansion also have impacts on forest conversion. Finally, macroeconomic policies affect forests through their impact on investment, public spending, foreign trade, and other economic variables that have consequences for land use. Examples of the Bank's lending for forests as integrated with agricultural structural adjustment loans (AGSALs) in Honduras, Nicaragua, and Peru are presented.

This paper explores the extent to which Uruguayan institutions (as interbranch relations, electoral rules, budgetary rules, etc.) and political actors (parties, factions, interest groups and bureaucrats) involved in the budgetary process affect the fiscal performance of governments in terms of sustainability, efficiency and representativeness. Since the early nineties and the beginning of the structural adjustment and the economic reforms of the Washington Consensus, Uruguay has been strongly committed to implement a restrictive fiscal policy. However, unlike most Latin American countries, Uruguay has been able to sustain a relatively large public sector and particularly the largest welfare state in the region. To a large extent, this particular combination is the result of a Uruguay's particular democracy where the budget law has become the most important piece of legislation for all incumbent governments and relevant political actors. The paper includes a description of the broad policy making process and the set of actors and institutions characterizing the Uruguayan political system; a description of the budgetary policy making process; a set of hypotheses dealing with the level of Sustainability, Efficiency and Representativeness of the fiscal policy.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

We examine real and financial spillovers to safe haven financial flow destinations due to risk-off shocks in global financial markets. Using country-specific structural vector autoregression models over the period 1990 to 2021, we show that dynamics for Japan appear to be different to those of Switzerland and the United States in four main ways. First, in response to risk-off episodes over the estimation period, the yen real effective exchange rate appreciates sharply and significantly, with the effect persisting over time. Second, no significant effects on portfolio flows to Japan are found, in spite of the exchange rate effects, suggesting a rapid adjustment of financial markets to shifts in equilibrium exchange rates. Third, negative real spillovers from risk-off shocks appear to only apply to Japan with exchange rate appreciation exacerbating declines in GDP growth. Fourth, risk-off shocks do not have a statistically significant effect on domestic economic policy uncertainty in Japan, which may be related to the strong expectations priced in of overseas portfolio holdings repatriated back to Japan. Our findings have important implications for policy makers in safe haven destinations in managing domestic financial vulnerabilities associated with risk-off episodes.

Objectives: (1) Preparing panel data sets for both the United States and Israel that contain a rich set of farm attributes, such as size, specialization, and output composition, and farmers’ characteristics such as off-farm employment status, education, and family composition. (2) Developing an empirical framework for the joint analysis of all the endogenous variables of interest in a dynamic setting. (3) Estimating simultaneous equations of the endogenous variables using the panel data sets from both countries. (4) Analyzing, using the empirical results, the possible effects of economic policies and institutional changes on the dynamics of the farm sector. An added objective is analyzing structural changes in farm sectors in additional countries. Background: Farm sectors in developed countries, including the U.S. and Israel, have experienced a sharp decline in their size and importance during the second half of the 20th century. The overall trend is towards fewer and larger farms that rely less on family labor. These structural changes have been a reaction to changes in technology, in government policies, and in market conditions: decreasing terms of trade, increasing alternative opportunities, and urbanization pressures. As these factors continue to change, so does the structure of the agricultural sector. Conclusions: We have shown that all major dimensions of structural changes in agriculture are closely interlinked. These include farm efficiency, farm scale, farm scope (diversification), and off-farm labor. We have also shown that these conclusions hold and perhaps even become stronger whenever dynamic aspects of structural adjustments are explicitly modeled using longitudinal data. While the results vary somewhat in the different applications, several common features are observed for both the U.S. and Israel. First, the trend towards the concentration of farm production in a smaller number of larger farm enterprises is likely to continue. Second, at the micro level, increased farm size is negatively associated with increased off-farm labor, with the causality going both ways. Third, the increase in farm size is mostly achieved by diversifying farm production into additional activities (crops or livestock). All these imply that the farm sector converges towards a bi-modal farm distribution, with some farms becoming commercial while the remaining farm households either exit farming altogether or continue producing but rely heavily on off-farm income. Implications: The primary scientific implication of this project is that one should not analyze a specific farm attribute in isolation. We have shown that controlling for the joint determination of the various farm and household attributes is crucial for obtaining meaningful empirical results. The policy implications are to some extent general but could be different in the two countries. The general implication is that farm policy is an important determinant of structural changes in the farm sector. For the U.S., we have shown the different effects of coupled and decoupled (direct) farm payments on the various farm attributes, and also shown that it is important to take into account the joint farm-household decisions in order to conduct a meaningful policy analysis. Only this kind of analysis explains the indirect effect of direct farm payments on farm production decisions. For Israel, we concluded that farm policy (or lack of farm policy) has contributed to the fast structural changes we observed over the last 25 years. The sharp change of direction in farm policy that started in the early 1980s has accelerated structural changes that could have been smoother otherwise. These accelerated structural changes most likely lead to welfare losses in rural areas.

This document was prepared in the context of the Program for the "Improvement of Surveys and the Measurement of Living Conditions in Latin America and the Caribbean" (ISLC/MECOVI). Bolivia ranks among Latin America's so-called "early adjusters". While Bolivia's economic reforms, which began in 1985, have clearly brought economic stability and some structural change, they have failed so far to bring a major boost to the economy and export production. Using household survey data, this paper analyzes how and to what extent Bolivia's economic reforms, which began in 1985, have made an impact on living conditions of the Bolivian population between 1985 and 1995.

We examine the adjustment of a small, open, emerging market economy (SOEME) to an unexpected increase in the minimum wage using an extended New-Keynesian SOE model that incorporates heterogeneous households, a flexible production structure, and a minimum wage rule. We calibrate the model for Colombia and find that an unexpected increase in the minimum wage has significant effects on the low-skilled labor market, and weaker impacts on inflation and the policy interest rate. The rise in the minimum wage increases production costs and prompts the substitution of formal low-skilled labor with informal workers and machinery, resulting in reduced output, increased inflation, and higher policy interest rates. We also observe that the minimum wage influences the transmission of productivity, demand, and monetary shocks, leading to a more persistent impact on macroeconomic variables, and a less efficient monetary policy to control inflation. Our findings suggest that the minimum wage has important macroeconomic implications, and affects emerging market economies through different channels than in developed economies.