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This paper draws lessons from country studies of the effects of adjustment policies on the distribution of income in Chile, Cote d'Ivoire, Ecuador, Malaysia, Morocco, and Indonesia. Following an anlaytical discussion of the issues that must be confronted in the design of adjustment programs with a poverty focus, the paper synthesizes the main conclusions from the interpretative description in the country studies. Simulation exercises exploring the effects of the design of the adjustment packages in these countries on poverty and the sustainability of the measures undertaken show considerable diversity in the evolution of income distribution during adjustment. These exercises also expose the fatal flaws of narrowly designed adjustment programs. Adjustment programs, whether efficiency-focused or welfare-focused, will fail when they do not recognize the interdependence of the three criteria of efficiency, welfare, and political feasibility. Thus adjustment programs must be carefully packaged to fit country circumstances, taking into account both the political and economic environments.

This paper introduces the general structure of the 'micro-macro' economywide simulation model ('maquett') used in several case studies on the impact of adjustment policies on the distribution of income. The description of the maquette emphasizes how the short- and medium-run effects of adjustment packages are incorporated in a general equilibrium model and explains the common sturcture and variants in the specification and estimation of relationships in product, factor, financial, and foreign exchange markets. Simulations are used to illustrate the role of differences in assumptions about market adjustment mechanisms (e.g., fix-price of flex-price, closed or open financial system) on the effects of adjustment policies on the distribution of income. Adjustment to an external shock through devaluation or through fiscal retrenchment is then contrasted for an economy with different degrees of financial and foreign trade openness. The simulations show that assumptions about macroeconomic closures and behavioral parameters matter a great deal in determining the productive and distributive effects of a shock and a country's adjustment of that shock.