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Adjustment Policies and the Environment: A Critical Review of the Literature Ca

Adjustment Policies and the Environment: A Critical Review of the Literature Carlos Eduardo Frickmann Young and Joshua Bishop CREED Working Paper Series No 1 July 1995 International Institute for Environment and Development, London Institute for Environmental Studies, Amsterdam The authors gratefully acknowledge valuable comments and suggestions received from David Coady (UCL), Wilfrido Cruz (World Bank), Ritu Kumar (IIED) and David Pearce (UCL). This paper was originally prepared under the CREED project entitled "Macroeconomic Policy and the Environment", sponsored by the Netherlands Ministry of Foreign Affairs. Abstract Adjustment programmes in developing countries have been the subject of an intense debate since their debut in the early 1980s. Consideration of the environmental consequences of adjustment has added a new dimension to the discussion. This paper seeks to review the existing literature, examining the links between adjustment policies, the environment and the use of natural resources. Special attention is paid to the evidence presented in selected country case studies. A wide diversity of findings suggests that there is no simple answer to the question of whether adjustment is good or bad for the environment. The complexity of adjustment itself makes generalisation impossible, as do the varying circumstances of adjusting countries. Abrégé Les programmes d'ajustement des pays développés sont devenus l'objet d'un intense débat depuis que les organismes financiers internationaux ont fait de leur adoption la condition préalable de leur intervention. La prise en considération de leurs conséquences environnementales a donné au débat une dimension nouvelle et le nombre des études portant sur cette question augmente rapidement. Le propos de ce texte est de présenter la littérature existante sur ce sujet, tout en démontant les articulations possibles entre politiques d'ajustement et utilisation des ressources environnementales et naturelles. On y apporte une attention particulière aux études de cas de différents pays spécifiquement consacrées au thème des rapports entre ajustement et environnement. La diversité des situations rencontrées suggère qu'il n'existe pas de solutions d'ordre général à ce problème. Pas plus l'approche optimiste de la Banque Mondiale («les programmes d'ajustement ont tendance à être bons pour l'environnement»), que celle, pessimiste, de ses critiques («les programmes d'ajustement ont tendance à être mauvais pour l'environnement»), ne reposent sur des résultats de recherche incontestables. Les situations varient d'un pays à l'autre et les études de cas demeurent donc essentielles pour parvenir à une meilleure appréciation du problème. Resumen Los programas de ajuste en países en vía de desarrollo han sido tema de intenso debate desde que su puesta en práctica se convirtió en condición necesaria para que intervinieran las agencias finacieras internacionales. El tomar en cuenta las consecuencias del ajuste sobre el medio ambiente ha añadido una nueva dimensión a la discusión, aumentando rápidamente el número de estudios sobre este tema. Este ensayo tiene como objetivo revisar la literatura existente, organizando los vínculos posibles entre las políticas de ajuste y el uso de recursos naturales y de medio ambiente. Se presta una especial atención a casos de estudios que focalizan específicamente el interrogante entre el ajuste y el medio ambiente. La diversidad de las situaciones halladas sugiere que no hay respuestas genéricas al problema. Ni el enfoque optimista del Banco Mundial (que los programas de ajuste tienden a ser buenos para el medio ambiente) ni el enfoque pesimista de sus críticos (que los programas de ajuste tienden a ser malos para el medio ambiente) han sido respaldados con evidencia indiscutible. Dado que las situaciones varían de país en país, los estudios de casos son esenciales para entender mejor la problemática. The programme of Collaborative Research in the Economics of Environment and Development (CREED) was established in 1993 as a joint initiative of the International Institute for Environment and Development (IIED), London, and the Institute for Environmental Studies (IVM), Amsterdam. The Secretariat for CREED is based at IIED in London. A Steering Committee is responsible for overall management and coordination of the CREED Programme. Environmental Economics Programme, IIED IIED is an independent, non-profit organisation which seeks to promote sustainable patterns of world development through research, training, policy studies, consensus building and public information. The Environmental Economics Programme is one of seven major programmes of IIED; it conducts economic research and policy analysis for improved management of natural resources and sustainable economic growth in the developing world. Environmental Economics Programme IIED, 3 Endsleigh Street London WC1H 0DD, UK Tel +44 (0)171 388 2117; Fax +44 (0)171 388 2826 e-mail: Jacqueline.Saunders@iied.org Institute for Environmental Studies, (IVM) IVM is a non-profit research institute, based at Vrije Universiteit, Amsterdam. The Institute's primary objective is to carry out multi- and interdisciplinary research on environmental issues, based on cross- fertilisation of monodisciplinary sciences. Environment and the Third World is one of eight major IVM research programmes. IVM, Vrije Universiteit De Boelelaan 1115 1081 HV Amsterdam The Netherlands Tel: +31 20 444 9555; Fax: +31 20 444 9553 e-mail:secr@ivm.vu.nl CREED Steering Committee members include: Prof Johannes Opschoor, Institute for Social Studies, The Netherlands (Chair) Prof Gopal Kadekodi, Centre for Multidisciplinary Development Research, India Dr Ronaldo Seroa da Motta, IPEA, Brazil Dr Mohamud Jama, Institute for Development Studies, Kenya Dr Anantha Duraiappah, IVM, The Netherlands Prof Harmen Verbruggen, IVM, The Netherlands Joshua Bishop, IIED, UK Maryanne Grieg-Gran, IIED, UK Contents page 1 INTRODUCTION........................................................................................................ 1 2 ADJUSTMENT PROGRAMMES: ORIGINS AND OBJECTIVES............................. 2 2.1 Stabilisation........................................................................................................ 2 2.2 Structural Adjustment......................................................................................... 3 3 CRITICISM OF ADJUSTMENT................................................................................. 4 3.1 Economic impacts.............................................................................................. 4 3.2 Social and political consequences ....................................................................... 5 4 ENVIRONMENTAL CONSEQUENCES ................................................................... 7 4.1 Agriculture......................................................................................................... 7 4.2 Forestry............................................................................................................ 11 4.3 Industry and energy........................................................................................... 13 4.4 Public sector reform.......................................................................................... 15 5 EXTERNAL DEBT, ADJUSTMENT AND THE ENVIRONMENT........................... 17 5.1 Debt and the environment.................................................................................. 17 5.2 Adjustment and the environment........................................................................ 18 6 CONCLUSION........................................................................................................... 31 REFERENCES .........................................................................................................................32 CREED Working Paper Series No 1 1 1 INTRODUCTION Over the past fifteen years many developing countries have undergone a wrenching process of economic reform and adjustment, with mixed results. Macroeconomic and sectoral reforms undertaken with the support of international donors have not always ensured a sustained return to economic growth, while in some cases they may have harmed the poor and exacerbated social tensions. Critics argue that the reforms have gone too far and too fast; defenders maintain that they need to go even deeper and that further delay would be dangerous. Parallel to this debate, and until now largely unrelated to it, there has been increasing global concern about environmental degradation in the developing world. An emerging consensus on the conditions of sustainable development suggests that many developing nations have been pursuing an unsustainable model of development, which if successful would simply mean further environmental degradation and depletion of natural resources. Towards the end of the 1980s, some authors started linking environmental degradation in developing countries to the process of economic adjustment. A common refrain was that developing countries were being pressurised, by the debt problem, "unfair" trade patterns and other structural factors, into adopting economic practices that were not only socially harmful but also environmentally damaging. This paper reviews the recent literature and empirical evidence on this issue. Starting with a brief review of macroeconomic adjustment programmes (Section 2), it highlights the main criticisms made in terms of their economic efficiency, social equity and political support (Section 3). An overall review of the environmental consequences of economic policy reform is presented in Section 4. The links between debt, adjustment programmes and the environment are explored in more detail in Section 5, where empirical and country case studies are summarised. Finally, Section 6 presents the key conclusions of this review. CREED Working Paper Series No 1 2 2 ADJUSTMENT PROGRAMMES: ORIGINS AND OBJECTIVES The roots of adjustment lie in the so-called "debt crisis" of the late 1970s and early 1980s, which resulted from a temporary mis-match between demand and supply on the international capital markets. Demand for credit by the developing countries resulted from chronic balance of payments pressures, often linked to deep structural imbalances inherited from the previous decade. At the same time, anti-inflationary monetary policies being pursued in many developed economies had a deadening effect on private capital markets. As commercial credit dried up, developing country governments turned to the international financial institutions, such as the International Monetary Fund (IMF). The latter, however, insisted on comprehensive economic reforms, including fiscal restraint, privatisation of public industry and greater openness to foreign investment and trade, as essential conditions for the release of further credits. The various reforms are often grouped into two categories: stabilisation and structural adjustment (World Bank 1988, p.1). The two types of reform packages share certain overall objectives, such as improving the trade balance and altering the extent and nature of government involvement in the economy in order to improve efficiency. This is not surprising considering their common reliance on a neo-classical framework. They differ somewhat in their choice of instruments, time-scale and assumptions about the extent of reform required to set the economy back on the path of sustained growth. Nevertheless, stabilisation and structural adjustment programmes are intended to be complementary rather than exclusive. Their aims and means are described in more detail uploads/Litterature/ environmental-adjustment-needs.pdf