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Structural adjustment programs (SAPs) consist of loans (structural adjustment loans; SALs) provided by the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) and the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
(WB) to countries that experience economic crises. Their purpose is to adjust the country's economic structure, improve international competitiveness, and restore its balance of payments. The IMF and World Bank (two
Bretton Woods Bretton Woods can refer to: *Bretton Woods, New Hampshire, a village in the United States **Bretton Woods Mountain Resort, a ski resort located in Bretton Woods, New Hampshire *The 1944 Bretton Woods Conference, also known as the "United Nations Mo ...
institutions) require borrowing countries to implement certain policies in order to obtain new loans (or to lower interest rates on existing ones). These policies are typically centered around increased
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
, liberalizing trade and foreign investment, and balancing government deficit. The conditionality clauses attached to the loans have been criticized because of their effects on the social sector. SAPs are created with the stated goal of reducing the borrowing country's
fiscal imbalance Fiscal imbalance is a mismatch in the revenue powers and expenditure responsibilities of a government. In the literature on fiscal federalism, two types of fiscal imbalances are measured: Vertical Fiscal Imbalance and Horizontal Fiscal Imbalance. W ...
s in the short and medium term or in order to adjust the economy to long-term growth. By requiring the implementation of
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
programmes and policy, SAPs are supposedly intended to balance the government's budget, reduce inflation and stimulate economic growth. The
liberalization of trade Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liber ...
,
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
, and the reduction of barriers to foreign capital would allow for increased investment, production, and trade, boosting the recipient country's economy. 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 adjustments (also called structural reform), such as the World Bank, have spoken of "
poverty reduction Poverty reduction, poverty relief, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty. Measures, like those promoted by Henry George in his economics ...
" 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 Paper Poverty Reduction Strategy Papers (PRSPs) are documents required by the International Monetary Fund (IMF) and World Bank before a country can be considered for debt relief within the Heavily Indebted Poor Countries (HIPC) initiative. PRSPs are als ...
s (PRSPs), 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 The Poverty Reduction and Growth Facility (PRGF) is an arm of the International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered ...
, which is in turn succeeded by the Extended Credit Facility.


Regions supported

Structural adjustment loans are mainly distributed to
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
, located primarily in East and South Asia, Latin America, and Africa. including Colombia, Mexico, Turkey, Philippines, Pakistan, Nigeria, Sudan, Zimbabwe and other countries. As of 2018,
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
has been the largest recipient of structural adjustment program loans since 1990. Such loans cannot be spent on health, development or education programs. The largest of these have been to the banking sector ($2 trillion for IBRD 77880) and for
Swachh Bharat Mission Swachh Bharat Mission (SBM), Swachh Bharat Abhiyan, or Clean India Mission is a country-wide campaign initiated by the Government of India in 2014 to eliminate open defecation and improve solid waste management. It is a restructured version of ...
($1.5 billion for IBRD 85590).


Goals

SALs have three main goals: increasing economic growth, correcting balance of payments deficits, and alleviating poverty. With the increasing demand for structural adjustments in various countries, the boundaries between SAL and other types of loans issued by the International Monetary Fund and the World Bank have become blurred. For example, both the SAL and the Enhanced Structural Adjustment Loan (ESAF) issued by the International Monetary Fund tend to provide low-income member countries with preferential support for medium-term structural reforms, but enhanced structural adjustment loans are more supportive to promote growth and strengthen the balance of payments. Another type of loan issued by the World Bank, sector adjustment loans, differs from SAL only in that the former places more emphasis on improving one economic sector rather than the entire economy.


Financing

SAL initially financed the loan by selling gold held in trust funds and accepting donations from donor countries. Subsequent loans are based on the repayment of trust funds and interest earned. The SDR is the accounting unit of the loan, and the disbursement and repayment of the loan are in US dollars. The amount of SALs issued to a country is usually proportional to its quota in the International Monetary Fund.


Conditions

Typical stabilisation policies include: *
balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., ...
deficits reduction through
currency devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national cur ...
*
budget deficit Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
reduction through higher taxes and lower government spending, also known as
austerity Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...
*restructuring foreign debts *
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...
to finance government deficits (usually in the form of loans from central banks) *eliminating food subsidies *raising the price of public services *cutting wages *decrementing domestic credit. Long-term adjustment policies usually include: *liberalization of markets to guarantee a
price mechanism In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who n ...
*
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
, or
divestiture In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment. Divestiture is a ...
, of all or part of state-owned enterprises *creating new financial institutions *improving
governance Governance is the process of interactions through the laws, norms, power or language of an organized society over a social system ( family, tribe, formal or informal organization, a territory or across territories). It is done by the g ...
and fighting
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
(from the perspective of a
neoliberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...
formulation of 'governance' and 'corruption') *enhancing the rights of foreign investors vis-à-vis national laws *focusing economic output on direct export and
resource extraction Extractivism is the process of extracting natural resources from the Earth to sell on the world market. It exists in an economy that depends primarily on the extraction or removal of natural resources that are considered valuable for exportation w ...
*increasing the stability of investment (by allowing foreign investors) with the opening of companies * reducing
government expenditure Public expenditure is spending made by the government of a country on collective needs and wants, such as pension, provisions, security, infrastructure, etc. Until the 19th century, public expenditure was limited as laissez faire philosophies b ...
e.g. reducing government employment In the
Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Mone ...
the conditions are: #
Fiscal policy In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variabl ...
discipline; # Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like
primary education Primary education or elementary education is typically the first stage of formal education, coming after preschool/ kindergarten and before secondary school. Primary education takes place in '' primary schools'', ''elementary schools'', or ...
,
primary health care Primary health care, or PHC, refers to "essential health care" that is based on scientifically sound and socially acceptable methods and technology. This makes universal health care accessible to all individuals and families in a community. PHC in ...
and infrastructure investment; #
Tax reform Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxati ...
s which broaden the
tax base A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
and lower marginal tax rates, while minimizing dead weight loss and
market distortion In neoclassical economics, a market distortion is any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect compe ...
s; #
Interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
that are market determined and positive (but moderate) in real terms; # Competitive
exchange rates In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
;
devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...
of currency to stimulate exports; # Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; the conversion of
import quotas An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. Quotas, like other trade restrictions, are typically used to benefit the producers ...
to import tariffs; #
Liberalization Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...
of inward
foreign direct investment A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct c ...
; #
Privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
of state enterprises; #
Deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
– abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; # Legal security for
property rights The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically h ...
.


History

Structural adjustment policies were developed by two of the
Bretton Woods Bretton Woods can refer to: *Bretton Woods, New Hampshire, a village in the United States **Bretton Woods Mountain Resort, a ski resort located in Bretton Woods, New Hampshire *The 1944 Bretton Woods Conference, also known as the "United Nations Mo ...
institutions - the IMF and the World Bank. They were advised by the top economists of both. 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 Giovanni Arrighi (7 July 1937 – 18 June 2009) was an Italian economist, sociologist and world-systems analyst, from 1998 a Professor of Sociology at Johns Hopkins University. His work has been translated into over fifteen languages. Biography ...
has observed that this scarcity of capital, which was heralded by the Mexican default of 1982, Mexico was the first country to implement structural adjustment in exchange for loans. During the 1980s the IMF and World Bank created loan packages for the majority of countries in Latin America and 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 Debt crisis is a situation in which a government (nation, state/province, county, or city etc.) loses the ability of paying back its governmental debt. When the expenditures of a government are more than its tax revenues for a prolonged period, th ...
, multiple economic depressions, and
stagflation In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actio ...
. 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 Paper Poverty Reduction Strategy Papers (PRSPs) are documents required by the International Monetary Fund (IMF) and World Bank before a country can be considered for debt relief within the Heavily Indebted Poor Countries (HIPC) initiative. PRSPs are als ...
s. PRSPs were introduced as a result of the bank's beliefs that "successful economic policy programs must be founded on strong country ownership".Se
IMF website on conditionality
/ref> In addition, SAPs with their emphasis on poverty reduction have attempted to further align themselves with the
Millennium Development Goals The Millennium Development Goals (MDGs) were eight international development goals for the year 2015 that had been established following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations Millenn ...
. 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 An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence is subject to international law. Its owners or shareholders are generally national governments, a ...
. Some studies suggest that they have been "weakly associated with growth and reform did seem to reduce inflation." Others have argued, however, that "the outcomes associated with frequent structural adjustment lending are poor." Some have argued that, based on only mild improvement of growth in the 1990s from the 1980s, that the IMF should focus more on remedying management of a country's balance of payments position as originally envisaged by the IMF instead of its focusing on structural adjustments. One study pointed towards deleterious effects on countries in Latin America's democratic practices, suggesting that reforms may create an economically and politically marginalized population who views democratic government as unresponsive to its needs and thus less legitimate. However, the existence of the IMF loan itself has not led to any change away from democracy itself. Critics (often from the left) accuse such policies to be "not-so-thinly-disguised wedge for capitalist interests."


South Korea after 1997

Take South Korea after 1997 as an example. Since the loan conditions have a huge influence on the economy of the recipient countries, there are many arguments about the loan conditions. When the
Asian financial crisis The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998– ...
occurred in 1997, South Korea accepted various loan conditions while accepting the largest financial assistance in the history of the International Monetary Fund. The United States and the International Monetary Fund evaluated South Korea as one of the successful cases of the IMF's structural adjustment. They believe that South Korea has been closer to the developed countries after the IMF's structural adjustment. However, others doubt whether South Korea is a successful case of IMF structural adjustment. In the process of South Korea and the International Monetary Fund reaching an agreement, the United States played a major role in it. The US government's structural adjustment to South Korea should be based on its own interests. At present, South Korea's economic structure and financial market contain many problems, which leads to an increase in social problems in South Korea and the result of instability in South Korean society. Because the IMF is subject to the distribution of power and interests of major powers, it is difficult to implement actions with fair and objective criteria. The main reason is that the International Monetary Fund reflects the political issues of American financial hegemony and voting power to a certain extent. This has led to the request of the IMF for the aided country that may have been made while ignoring the actual situation of the aided country. It often overemphasizes market liberalization and financial market opening. In the long run, these loan conditions have brought bad results to the aided countries.


Latin America

Largely as a result of the experiences in Latin America, a new theory was formulated to build upon the experiences of the 1980s and the effects of IMF structural adjustment loans, called New Developmental Theory. This sought to build upon Classical Development Theory, by utilizing insights from
Post-Keynesian Post-Keynesian economics is a school of economic thought with its origins in '' The General Theory'' of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney ...
Macroeconomics and Classical Political Economy, emphasizing the role of the necessity of export-oriented integration into the world economy toward industrialization, while also rejecting foreign indebtedness and management of balance of payments to avert recurrent crises.


Effect of SAPs

Structural adjustment programs implemented neoliberal policies that had numerous effects on the economic institutions of countries that underwent them.


End of the Structuralist model of development

After the
Second World War World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposi ...
, a Structuralist model of development relying on Import Substitutions Industrialization (ISI) had become the ubiquitous paradigm. It entailed the substitution of foreign imports by goods produced by national industries with the help of
state intervention Economic interventionism, sometimes also called state interventionism, is an economic policy position favouring government intervention in the market process with the intention of correcting market failures and promoting the general welfare o ...
. State intervention included providing the infrastructure required by the respective industry, the protection of these local industries against foreign competition, the
overvaluation In finance, valuation is the process of determining the present value (PV) of an asset. In a business context, it is often the hypothetical price that a third party would pay for a given asset. Valuations can be done on assets (for example, inve ...
of the local currency, the
nationalization Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to p ...
of key industries and a low cost of living for workers in urban areas. Comparing these inward-oriented measures to neoliberal policies demanded by the SAPs, it becomes obvious that the structuralist model was fully reversed in the course of the debt crisis of the 1980s. While the structuralist period led to rapid expansion of domestically manufactured goods and high rates of economic growth, there were also some major shortcomings such as stagnating exports, elevated
fiscal deficit The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a ''g ...
, very high rates of
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
and the crowding out of private investments. The search for alternative policy options thus seemed justified. Critics denounce, though, that even the productive state sectors were restructured for the sake of integrating these developing economies into the
global market In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering ...
. The shift away from state intervention and
ISI ISI or Isi may refer to: Organizations * Intercollegiate Studies Institute, a classical conservative organization focusing on college students * Ice Skating Institute, a trade association for ice rinks * Indian Standards Institute, former name of ...
-led structuralism towards the free market and Export Led Growth opened a new development era and marked the triumph of
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
.


Competitive insertion into the world market

Since SAPs are based on the condition that loans have to be repaid in
hard currency In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and ...
, economies were restructured to focus on
export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is a ...
s as the only source for developing countries to obtain such currency. For the inward-oriented economies it was therefore mandatory to switch their entire production from what was domestically eaten, worn or used towards goods that
industrialized countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state that has a high quality of life, developed economy and advanced technological infrastruct ...
were interested in. However, as dozens of countries underwent this restructuration process simultaneously and often were told to focus on similar
primary goods Primary goods are presented in the book ''A Theory of Justice'' (1971) written by the American philosopher John Rawls. In the first edition of the ''Theory of Justice'', these goods are supposed to be desirable for every human being, just as they ar ...
, the situation resembled a large-scale
price war A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
:
Developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
had to compete against each other, causing massive worldwide over-production and deteriorating world market prices. While this was beneficial for Western consumers, developing countries lost 52% of their revenues from exports between 1980 and 1992 because of the decline in prices. Furthermore, debtor states were often encouraged to specialize in a single
cash crop A cash crop or profit crop is an agricultural crop which is grown to sell for profit. It is typically purchased by parties separate from a farm. The term is used to differentiate marketed crops from staple crop (or "subsistence crop") in subsist ...
, like cocoa in Ghana, tobacco in Zimbabwe and prawns in the Philippines, which made them highly vulnerable to fluctuations in the world market price of these crops. The other main criticism against the compelled integration of developing countries into the global market implied that their industries were not economically or socially stable and therefore not ready to compete internationally. After all, the industrialized countries had engaged in the
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
of goods only after they had developed a more mature industrial structure which they had built up behind high
protective tariff Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise, ...
s and
subsidies A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
for domestic industries. Consequently, the very conditions under which industrialized countries had developed, grown and prospered in the past were now discouraged by the IMF through its SAPs.


Removal of trade and financial barriers

The erosion of the Bretton-Woods-System in 1971 and the end of capital controls caused
multinational corporation A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...
s (MNCs) to gain access to large sums of capital that they wanted to invest in new markets, such as in developing countries. However, foreign capital could not be freely invested yet because most of these countries protected their nascent industries against it. This changed radically with the implementation of SAPs in the 1980s and 1990s, when controls on foreign exchange and financial protection barriers were lifted: Economies opened up and
foreign direct investment A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct c ...
(FDI) flowed in en masse. A great example of this is the fall of the local textile industry within many African nations, replaced in part by Chinese counterfeits and knockoffs. The scholars Cardoso and Faletto judged this as yet another way of capitalist control of the Northern industrialized countries, it also brought advantages to local elites and to larger, more profitable companies who expanded in size and influence. However, smaller, less industrialized businesses and the
agricultural sector The primary sector of the economy includes any industry involved in the extraction and production of raw materials, such as farming, logging, fishing, forestry and mining. The primary sector tends to make up a larger portion of the economy in de ...
suffered from reduced protection and the growing importance of transnational actors led to a decline in national control over production. Overall, it can be said that the debt crisis of the 1980s provided the IMF with the necessary leverage to impose very similar comprehensive neoliberal reforms in over 70 developing countries, thereby entirely restructuring these economies. The goal was to shift them away from state intervention and inward-oriented development and to transform them into export-led, private sector-driven economies open to foreign imports and FDI.


Privatization of utilities

Privatization of utilities given into by imposed structural adjustment has had negative effects on the reliability and affordability of access to water and electricity in developing countries such as
Cameroon Cameroon (; french: Cameroun, ff, Kamerun), officially the Republic of Cameroon (french: République du Cameroun, links=no), is a country in west-central Africa. It is bordered by Nigeria to the west and north; Chad to the northeast; the ...
, Ghana,
Nicaragua Nicaragua (; ), officially the Republic of Nicaragua (), is the largest country in Central America, bordered by Honduras to the north, the Caribbean to the east, Costa Rica to the south, and the Pacific Ocean to the west. Managua is the coun ...
,
Pakistan Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's List of countries and dependencies by population, fifth-most populous country, with a population of almost 24 ...
and others.


Advantages

*Autonomy: During the entire SAL loan process, member countries always have the initiative in policy selection. The International Monetary Fund and the World Bank are obliged to provide member countries with advice, guidance and policy building, but they have no right to replace members. The country’s arbitration guarantees the economic autonomy of the member states. *Flexibility. The International Monetary Fund and the World Bank have always taken flexible measures to avoid rigid lending regulations due to insufficient understanding of a country’s situation. For example, taking into account the difficulties and uncertainties in the implementation of long-term policies by a country’s domestic government, member countries are usually allowed to amend their adjustment plans. In the initial broad period when the demand for funds is large, the quota of a country is too low compared with its economic scale, and the adjustment plan is effective, the IMF and the World Bank are allowed to break the practice and adjust the specific Quota for loans issued by the state. *Continuity. Due to the long time required for structural adjustment, the IMF and the World Bank generally prefer to provide a series rather than a loan to ensure the periodicity and continuity of the structural adjustment plan. Therefore, the loan becomes a catalyst for obtaining additional financing. This provides a guarantee for the fundamental structural adjustment of the comprehensive measures of key departments, and avoids the possible adverse effects of the inconsistency of the project loan cycle and the pace of policy reform. *Thoroughness: The purpose of rooting out bad economic performance and supplemented by a series of supporting comprehensive policy measures, although this may make a country pay adjustment costs in the short term, but in the long run, it will definitely help. As a country’s economy is on track and achieving a virtuous circle, this is precisely the key to the difficulty of obtaining long-term benefits in the past, such as project loans and other forms of loans. In addition, SAL also has the advantages of long loan life, low loan interest rate, loose loan conditions, and easy negotiation. Because of this, SAL has been welcomed by many developing countries and has played a role of positive for the improvement of economic conditions in these countries.


Criticisms

There are multiple criticisms that focus on different elements of SAPs. There are many examples of structural adjustments failing. In Africa, instead of making economies grow fast, structural adjustment actually had a contractive impact in most countries. Economic growth in African countries in the 1980s and 1990s fell below the rates of previous decades. Agriculture suffered as state support was radically withdrawn. After independence of African countries in the 1960s, industrialization had begun in some places, but it was now wiped out.


Undermining national sovereignty

Critics claim that SAPs threaten the
sovereignty Sovereignty is the defining authority within individual consciousness, social construct, or territory. Sovereignty entails hierarchy within the state, as well as external autonomy for states. In any state, sovereignty is assigned to the perso ...
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 favor political gain over national economic interests; that is, it will engage in
rent-seeking Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
practices to consolidate political power rather than address crucial economic issues. In many countries in
sub-Saharan Africa Sub-Saharan Africa is, geographically, the area and regions of the continent of Africa that lies south of the Sahara. These include West Africa, East Africa, Central Africa, and Southern Africa. Geopolitically, in addition to the List of sov ...
, political instability has gone hand in hand with gross economic decline. One of the core problems with conventional structural-adjustment programs is the disproportionate cutting of social spending. When public budgets are slashed, the primary victims are disadvantaged communities who typically are not well organized. An almost classic criticism of structural adjustment is pointing out the dramatic cuts in the education and health sectors. In many cases, governments ended up spending less money on these essential services than on servicing international debts.


Neo-colonialism, neo-imperialism

SAPS are viewed by some postcolonialists as the modern procedure of colonization. By minimizing a government's ability to organize and regulate its internal economy, pathways are created for multinational companies to enter states and extract their resources. Upon independence from colonial rule, many nations that took on foreign debt were unable to repay it, limited as they were to production and exportation of cash crops, and restricted from control of their own more valuable natural resources (oil, minerals) by SAP free-trade and low-regulation requirements. In order to repay interest, these postcolonial countries are forced to acquire further foreign debt, in order to pay off previous interests, resulting in an endless cycle of financial subjugation. Osterhammel's ''The Dictionary of Human Geography'' defines colonialism as the "enduring relationship of domination and mode of dispossession, usually (or at least initially) between an indigenous (or enslaved) majority and a minority of interlopers (colonizers), who are convinced of their own superiority, pursue their own interests, and exercise power through a mixture of coercion, persuasion, conflict and collaboration". The definition adopted by ''The Dictionary of Human Geography'' suggests that
Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Mone ...
SAPs resemble modern, financial colonization. Investigating
Immanuel Kant Immanuel Kant (, , ; 22 April 1724 – 12 February 1804) was a German philosopher and one of the central Enlightenment thinkers. Born in Königsberg, Kant's comprehensive and systematic works in epistemology, metaphysics, ethics, and ...
's conception of liberal internationalism and his opposition to commercial empires, Beate Jahn said:
... private interests within liberal capitalist states continue to pursue the opening up of markets abroad, and they continue to enlist their governments' support, through multilateral and bilateral arrangements—conditional aid,
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF), and
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
(WTO). While the latter agreements are formally "voluntary," in light of the desperate economic dependence of many developing states, they are to all intents and purposes "imposed." Moreover, the beneficiaries of these agreements-sometimes intentionally so, often unintentionally-turn out to be the rich countries. The
Agreement on Trade-Related Aspects of Intellectual Property Rights The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal agreement between all the member nations of the World Trade Organization (WTO). It establishes minimum standards for the regulation by na ...
(TRIPS), it has been argued, turned the WTO into a "royalty collection agency" for the rich countries. The Structural Adjustment Programs (SAPs) connected to IMF loans have proven singularly disastrous for the poor countries but provide huge interest payments to the rich. In both cases, the "voluntary" signatures of poor states do not signify consent to the details of the agreement, but need. Obviously, trade—with liberal or nonliberal states—is not a moral obligation, yet conditional aid, like IMF and WTO policies, aims at changing the cultural, economic, and political constitution of a target state clearly without its consent.


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, such as
Naomi Klein Naomi A. Klein (born May 8, 1970) is a Canadian author, social activist, and filmmaker known for her political analyses, support of ecofeminism, organized labour, left-wing politics and criticism of corporate globalization, fascism, ecofascism ...
, have argued that SAPs and neoliberal policies have negatively affected many developing countries.McPake, Barbara. 2009. Hospital Policy in Sub-Saharan Africa and Post-Colonial Development Impasse. Soc Hist Med 22 (2):341-360. Privatization has had disparate effects on women and men; one study examines how the privatization of the male-dominated manufacturing and extractive industries in Argentina as a result of structural adjustment programs and subsequent rise in unemployment among men have forced women into the labor market in which they are underpaid and face poor working conditions. Feminist studies critique the economic theory behind structural adjustment because its focus on the "productive economy" renders invisible the reproductive labor women do while assuming the "reproductive economy" will continue to function in the same way it did prior to the economic restructuring.
Postcolonial feminist Postcolonial feminism is a form of feminism that developed as a response to feminism focusing solely on the experiences of women in Western cultures and former colonies. Postcolonial feminism seeks to account for the way that racism and the long- ...
Chandra Mohanty says “the proliferation of structural adjustment policies around the world has reprivatized women’s labor by shifting the responsibility for social welfare from the state to the household and to women located there.”


Austerity

Critics hold SAPs responsible for much of the economic stagnation that has occurred in the borrowing countries. SAPs emphasize maintaining a balanced budget, which forces
austerity Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...
programs. The casualties of balancing a budget are often social programs. 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 (low inflation) and fiscal restraint (low budget deficits) 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 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.


IMF SAPs versus World Bank SAPs

While both the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) and
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
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 (they cannot pay their international debts), 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,See th
IMF website
on lending.
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 The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
funds its loans with a mix of member contributions and
corporate bond A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of ...
s. Currently there are 185 Members of the IMF (As Of February 2007) 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. However, the largest donor only holds 18% of the votes. Some of the largest donors are: * United Kingdom * United States (18%) * Japan * Canada (2%) * Germany * France


See also

* Balcerowicz Plan *
Bretton Woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...
*
Debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
*
Debt of developing countries The debt of developing countries usually refers to the external debt incurred by governments of developing countries. There have been several historical episodes of governments of developing countries borrowing in quantities beyond their abilit ...
* Debt-trap diplomacy *
IMF Stand-By Arrangement The IMF Stand-By Arrangement (SBA) is an economic program of the International Monetary Fund (IMF) involving financial aid to a member state in need of financial assistance, normally arising from a financial crisis. In return for aid, the economic p ...
*
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
*
Latin American debt crisis The Latin American debt crisis ( es, Crisis de la deuda latinoamericana; pt, Crise da dívida latino-americana) was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as ''La Déca ...
*
Neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...
*
Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Mone ...
*
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...


References


Bibliography

* *


External links


IMF Factsheet on Conditionality
{{DEFAULTSORT:Structural Adjustment Development economics International Monetary Fund World Bank Neoliberalism Loans Welfare economics