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Structural adjustment in the 1980s : Kenya

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  • Swamy, Gurushri
  • DEC
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    Abstract

    Did the World Bank's policy-based lending to Kenya in the 1980s allow Kenya to undertake adjustment, or to postpone it? The answer is mixed, says the author. Success was greatest in trade liberalization (and exchange rate depreciation), and to a lesser extent in export development -- and these reforms would probably not have occurred without steady Bank lending. But one could argue that budget support through funds from the International Development Association may have helped Kenya postpone critical public sector reform -- in the civil service and social sectors and in divestiture of parastatals (including the National Cereals and Produce Board). Was aid to Kenya (including the Bank's) overgenerous? The author concludes that, based on reform behavior and performance, Kenya may deserve less aid than Ghana (Africa's best performer) but it does not exhibit the same aid dependency as other donor favorites in the region. But its public investment program did a poor job in ranking priorities, and growing reliance on grants and counterpart funds undoubtedly contributed to more consumption spending by government, particularly on the civil service and parastatals. Implementation of structural adjustments in Kenya was often lethargic and sometimes even contrary to stated policies, says the author. And despite a fairly stable political climate, commitment to the adjustment program was patchy and intermittent. Reforms ostensibly undertaken were in fact not always implemented. In principle, for example, an auction market for government paper was created, but in practice financial institutions typically undertook up most of that paper"by arrangement."And restrictions on movement of maize were removed but reimposed. Moreover, the design of the structural adjustment loans appears, in retrospect, to have been faulty. Too many conditions -- too general, and based on dated sectoral information -- were attached to each loan, in part because of political considerations. And the Bank released credit tranches when conditions were met in letter but not in spirit. The adjustment program benefited in the second half of the 1980s from lessons learned in the first half of the decade, particularly concerning trade liberalization and export development. But the design and dimensions of reform in the agricultural sector were too limited to achieve significant restructuring of the sector, and political interests effectively sabotaged the program. The second attempt at adjustment was also undermined by increasing financial laxity. The experience in Kenya underlines the difficulty of implementing structural adjustment under either financial laxity or extreme financial stringency. Note, too, that many things have changed in Kenya since this study was completed in the early 1990s.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1238.

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    Date of creation: 31 Jan 1994
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    Handle: RePEc:wbk:wbrwps:1238

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    Keywords: Environmental Economics&Policies; Economic Theory&Research; Economic Stabilization; Banks&Banking Reform; National Governance;

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