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This report presents the findings of an OED overview of 35 trade-oriented adjustment operations carried out in nine countries during the economically turbulent 19808. The countries are Colombia, Côte d'Ivoire, Ghana, Indonesia, Jamaica, Mexico, Morocco, Pakistan, and Turkey.

Case studies prepared for each of the nine countries took into account the initial conditions prevailing in the country, the design and implementation of the programs, and their impact and sustainability. They assessed the extent to which the designs of the trade policy programs took economic conditions into account and were consistent with the countries' stabilization programs, and the extent to which the Bank was aware of problems associated with the interaction of trade policy reforms and simultaneous efforts at macroeconomic stabilization.

As well as discussing these countries' specific experiences with trade policy adjustment, the study raises issues of design and implementation of trade policy adjustment lending in light of this experience. These are discussed in the report's first four chapters. The accomplishments of the adjustment programs, and their social impact, are discussed in the last two chapters.

Rationale for Trade Adjustment

Trade policy adjustment was made urgent for many countries in the 1980s when their structurally weak and of-ten poorly managed economies came under pressure from adverse changes in the international economy: These included, in particular, steep increases in real international interest rates and shifts in the terms of trade, leading to balance of payments difficulties.

Underlying most of the trade reform programs was the premise that trade liberalization establishes a more competiitive environment in which to promote efficiency, by improving resource allocation and achieving a more competitive production structure, and, therefore, growth and employment. Most of the programs contained measures to liberalize trade by reducing or abolishing quantitative restrictions (QRs) and reducing taxes on imports and exports, and to make the regulations governing domestic production more transparent. Most were implemented within a wider context of reforms aimed at macroeconomic stabilization and the restoration of economic growth.

Initial Conditions and Policy Changes

Before the adjustment period, all nine of the reforming countries--except, possibly, for Pakistan--exhibited internal imbalance, which was reflected in high inflation. Most of the countries also needed to reduce fiscal deficits. All except Pakistan did reduce these fiscal deficits to some extent, though in Colombia and Turkey these efforts failed to achieve interna1 balance. Most of the countries ubera1ized their financial markets as part of their adjustment efforts. Those that improved their fiscal performance and reduced inflation also succeeded in financial stabilization, achieving positive real interest rates and stronger external reserve positions.

In most of the countries, exchange rate adjustment and trade policy reform helped to increase exports and thereby improved the current account of the balance of payments. Most countries devalued their currency in the initial stage of adjustment. The effects of these exchange rate changes were felt most in Colombia, Indonesia, Morocco, and Turkey. In most cases, the more competitive exchange rates stimulated foreign demand for exports, facilitating the use of excess capacity (Turkey) and export diversification and the rapid growth of non-traditional exports (Indonesia, Mexico). Within the specific context of trade reform, the adjusting countries tended to focus first on export reform, and subsequently on import reform to stop the balance of payments from deteriorating further. All nine reduced non-tariff barriers to imports. Some of them then reduced import tariffs, in stages, over four to eight years. The intensive adjusters--Ghana, Indonesia, Mexico, Morocco, and Turkey--reduced both QRs and average tariff rates significantly. Colombia, Jamaica, and Pakistan adjusted less intensively. These countries did switch from QRs to tariffs, but subsequently failed to reduce tariff levels because they remained highly dependent on trade taxes for government revenue.