Structural adjustment programmes consist of loans provided by the International
Monetary Fund and the World Bank to countries that experienced economic
crises. The two Bretton Woods Institutions require borrowing countries
to implement certain policies in order to obtain new loans. The conditionality
clauses attached to the loans have been criticized because of their effects on
the social sector. SAPs are created with the goal of
reducing the borrowing country's fiscal imbalances in the short and medium term
or in order to adjust the economy to long-term growth. The bank from which a
borrowing country receives its loan depends upon the type of necessity. The
IMF usually implements stabilization policies and the WB is in charge of
adjustment measures. SAPs are supposed to allow the economies
of the developing countries to become more market oriented. This then forces
them to concentrate more on trade and production so it can boost their
economy. Through conditions, SAPs generally implement "free market"
programmes and policy. These programs include internal changes as well as
external ones, especially the reduction of trade barriers. Countries that fail
to enact these programmes may be subject to severe fiscal discipline. Critics
argue that the financial threats to poor countries amount to blackmail, and that
poor nations have no choice but to comply.
Since the late 1990s, some proponents of structural adjustment, such as the World
Bank, have spoken of "poverty reduction" as a goal. SAPs were often criticized
for implementing generic free-market policy and for their lack of involvement
from the borrowing country. To increase the borrowing country's involvement,
developing countries are now encouraged to draw up Poverty Reduction Strategy
Papers, which essentially take the place of SAPs. Some believe that the increase
of the local government's participation in creating the policy will lead to
greater ownership of the loan programs and thus better fiscal policy. The
content of PRSPs has turned out to be similar to the original content of
bank-authored SAPs. Critics argue that the similarities show that the banks and
the countries that fund them are still overly involved in the policy-making
process. Within the IMF, the Enhanced Structural Adjustment Facility was
succeeded by the Poverty Reduction and Growth Facility, which is in turn
succeeded by the Extended Credit Facility.
Conditions Typical stabilisation policies comprise:
balance of payments deficits reduction through currency devaluation
budget deficit reduction through higher taxes and lower government spending,
also known as austerity restructuring foreign debts
monetary policy to finance government deficits
raising food prices to cut the burden of subsidies
raising the price of public services cutting wages
decrementing domestic credit. Long-term adjustment policies usually
include: liberalisation of markets to guarantee a
price mechanism privatization, or divestiture, of all or
part of state-owned enterprises creating new financial institutions
improving governance and fighting corruption
enhancing the rights of foreign investors vis-à-vis national laws
focusing economic output on direct export and resource extraction
increasing the stability of investment. These conditions have also been
sometimes labeled as the Washington Consensus.
History Structural adjustment policies emerged
from two of the Bretton Woods institutions, the IMF and the World
Bank. They emerged from the conditionality that IMF and World Bank
have been attaching to their loans since the early 1950s. Initially, these
conditions focused on a country's macroeconomic policy.
From the 1950s onward, the United States doled out loans and other forms of
financial assistance to Third World nations. Free-market economics were
encouraged in the Third World, not only as a measure of countering the spread of
socialist ideology during the Cold War, but also as a means of fostering foreign
direct investment and promoting the access of foreign companies within the
OECD nations to certain sectors of target economies. In particular, Western
companies sought to gain access to the extraction of raw commodities,
especially minerals and agricultural products. Where loans were negotiated on
the basis of implementing large infrastructural projects such as roads
and electrical dams, Western countries stood to gain by employing their
domestic businesses and by broadening the means by which Western companies
could more easily extract these resources.
Loans made under SAP conditions at the time were advised by the top economists
of both the IMF and World Bank. After the run on the dollar of 1979–80,
the United States adjusted its monetary policy and instituted other measures so
it could begin competing aggressively for capital on a global scale. This was
successful, as can be seen from the current account of the country's balance
of payments. Enormous capital flows to the United States had the corollary of
dramatically depleting the availability of capital to poor and middling
countries. Giovanni Arrighi has observed that this scarcity of capital, which was
heralded by the Mexican default of 1982, created a propitious environment for the
counterrevolution in development thought and practice that the neoliberal
Washington Consensus began advocating at about the same time. Taking advantage of
the financial straits of many low- and middle-income countries, the agencies of
the consensus foisted on them measures of "structural adjustment" that did
nothing to improve their position in the global hierarchy of wealth but greatly
facilitated the redirection of capital flows toward sustaining the revival of
US wealth and power. During the 1980s the IMF and WB created
loan packages for the majority of countries in Sub-Saharan Africa as they
experienced economic crises. To this day, economists can point to
few, if any, examples of substantial economic growth among the LDCs under
SAPs. Moreover, very few of the loans have been paid off. Pressure mounts to
forgive these debts, some of which demand substantial portions of
government expenditures to service. Structural adjustment policies, as they
are known today, originated due to a series of global economic disasters
during the late 1970s: the oil crisis, debt crisis, multiple economic
depressions, and stagflation. These fiscal disasters led policy makers to
decide that deeper intervention was necessary to improve a country's overall
well-being. In 2002, SAPs underwent another
transition, the introduction of Poverty Reduction Strategy Papers. PRSPs were
introduced as a result of the bank's beliefs that "successful economic policy
programs must be founded on strong country ownership". In addition, SAPs
with their emphasis on poverty reduction have attempted to further align
themselves with the Millennium Development Goals. As a result of PRSPs,
a more flexible and creative approach to policy creation has been implemented at
the IMF and World Bank. While the main focus of SAPs has
continued to be the balancing of external debts and trade deficits, the
reasons for those debts have undergone a transition. Today, SAPs and their
lending institutions have increased their sphere of influence by providing
relief to countries experiencing economic problems due to natural
disasters or economic mismanagement. Since their inception, SAPs have been
adopted by a number of other international financial institutions.
Criticisms There are multiple criticisms that focus
on different elements of SAPs. = National sovereignty =
Critics claim that SAPs threaten the sovereignty of national economies
because an outside organization is dictating a nation's economic policy.
Critics argue that the creation of good policy is in a sovereign nation's own
best interest. Thus, SAPs are unnecessary given the state is acting in
its best interest. However, supporters consider that in many developing
countries, the government will favour political gain over national economic
interests; that is, it will engage in rent-seeking practices to consolidate
political power rather than address crucial economic issues. In many
countries in sub-Saharan Africa, political instability has gone hand in
hand with gross economic decline. = Privatization =
A common policy required in structural adjustment is the privatization of
state-owned industries and resources. This policy aims to increase efficiency
and investment and to decrease state spending. State-owned resources are to
be sold whether they generate a fiscal profit or not.
Critics have condemned these privatization requirements, arguing that
when resources are transferred to foreign corporations and/or national
elites, the goal of public prosperity is replaced with the goal of private
accumulation. Furthermore, state-owned firms may show fiscal losses because
they fulfill a wider social role, such as providing low-cost utilities and
jobs. Some scholars have argued that SAPs and neoliberal policies have
negatively affected many developing countries.
= Austerity = Critics hold SAPs responsible for much
of the economic stagnation that has occurred in borrowing countries. SAPs
emphasize maintaining a balanced budget, which forces austerity programs. The
casualties of balancing a budget are often social programs.
The programs most often cut are education, public health, and other
social safety nets. Commonly, these are programs that are already underfunded
and desperately need monetary investment for improvement.
For example, if a government cuts education funding, universality is
impaired, and therefore long-term economic growth. Similarly, cuts to
health programs have allowed diseases such as AIDS to devastate some areas'
economies by destroying the workforce. A 2009 book by Rick Rowden entitled The
Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the
Fight Against AIDS claims that the IMF's monetarist approach towards prioritizing
price stability and fiscal restraint was unnecessarily restrictive and has
prevented developing countries from being able to scale up long-term public
investment as a percentage of GDP in the underlying public health infrastructure.
The book claims the consequences have been chronically underfunded public
health systems, leading to dilapidated health infrastructure, inadequate
numbers of health personnel, and demoralizing working conditions that
have fueled the "push factors" driving the brain drain of nurses migrating from
poor countries to rich ones, all of which has undermined public health
systems and the fight against HIV/AIDS in developing countries. A
counter-argument is that it is illogical to assume that reducing funding to a
program automatically reduces its quality. There may be factors within
these sectors that are susceptible to corruption or over-staffing that causes
the initial investment to not be used as efficiently as possible.
Recent studies have shown strong connections between SAPs and
tuberculosis rates in developing nations.
Countries with native populations living traditional lifestyles face with unique
challenges in regards to structural adjustment. Authors Ikubolajeh Bernard
Logan and Kidane Mengisteab make the case in their article "IMF-World Bank
Adjustment and Structural Transformation on Sub-Saharan Africa" for the
ineffectiveness of structural adjustment in part being attributed to the
disconnect between the informal sector of the economy as generated by
traditional society and the formal sector generated by a modern, urban
society. The rural and urban scales and the different needs of each are a factor
that usually goes unexamined when analyzing the effects of structural
adjustment. In some rural, traditional communities, the absence of
landownership and ownership of resources, land tenure, and labor
practices due to custom and tradition provides a unique situation in regard to
the structural economic reform of a state. Kinship-based societies, for
example, operate under the rule that collective group resources are not to
serve individual purposes. Gender roles and obligations, familial relations,
lineage, and household organization all play a part in the functioning of
traditional society. It would then appear difficult to formulate effective
economic reform policies by considering only the formal sector of society and
the economy, leaving out more traditional societies and ways of life.
Empirical evidence There are some serious problems in
measuring the empirical success of Fund programs. It is extremely difficult to
calculate the counterfactual; that is, what would have happened had the Fund
not intervened. Even so, a study in the journal World Development found that the
programs "often do not work", citing "high rates of recidivism, low rates of
completion, and an insignificant catalytic effect on other capital
flows". IMF SAPs versus World Bank SAPs
While both the International Monetary Fund and World Bank loan to depressed
and developing countries, their loans are intended to address different
problems. The IMF mainly lends to countries that have balance of payment
problems, while the World bank offers loans to fund particular development
projects. However, the World Bank also provides balance of payments support,
usually through adjustment packages jointly negotiated with the IMF.
= IMF SAPs = IMF loans focus on temporarily fixing
problems that countries face as a whole. Traditionally IMF loans were meant to be
repaid in a short duration between 2½ and 4 years. Today, there are a few
longer term options available, which go up to 7 years. as well as options that
lend to countries in times of crises such as natural disasters or conflicts.
Donor countries The IMF is supported solely by its
member states, while the World Bank funds its loans with a mix of member
contributions and corporate bonds. Currently there are 185 Members of the
IMF and 184 members of the World Bank. Members are assigned a quota to be
reevaluated and paid on a rotating schedule. The assessed quota is based
upon the donor country's portion of the world economy. One of the critiques of
SAPs is that the highest donating countries hold too much influence over
which countries receive the loans and the SAPs that accompany them.
Some of the largest donors are: United Kingdom
United States Japan
Canada Germany
France See also
IMF Stand-By Arrangement Washington Consensus
Bretton Woods system International Monetary Fund
World Bank Balcerowicz Plan
References Bibliography
External links IMF Factsheet on Conditionality