World Bank policy-based lending, 1980-1985: A review and evaluation

The World Bank's structural and sectoral adjustment lending policy of the 1980s is a fundamental departure from earlier project-based lending. Policy-based lending supports reforms designed to remove structural and institutional impediments to more efficient resource use and to facilitate adjustment to world markets. Toward this end, measures often focus on trade liberalization and export promotion. This paper reviews the literature on policy-based lending, the relationship between domestic and external growth in recipient countries from 1980-85, and the effects of lending in four country case studies (South Korea, Turkey, Malawi, and Jamaica). In a cross-country context, recipient countries have not exhibited better export performance than non-recipient IMF high-conditionality countries. Common themes that emerge from the case studies are the inability of policy-based lending to attract the level of private funding upon which continued adjustment is predicated, and the difficulty of implementing and sustaining institutional reforms. These and other lessons raise questions about the sustainability of policy-based adjustment lending beyond its chosen medium-term time frame (3 to 5 years).