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From Wikipedia, the free encyclopedia Jump to: navigation, search Structural adjustments are the policies implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund (IMF) or World Bank, or for obtaining lower interest rates on existing loans. Conditionalities are implemented to ensure that the money lent will be spent in accordance with the overall goals of the loan. The Structural Adjustment Programs (SAPs) are created with the goal of reducing the borrowing country's fiscal imbalances. The bank from which a borrowing country receives its loan depends upon the type of necessity. The 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.[1] Through conditionalities, Structural Adjustment Programs generally implement "free market" programs and policy. These programs include internal changes (notably privatization and deregulation) as well as external ones, especially the reduction of trade barriers. Countries which fail to enact these programs may be subject to severe fiscal discipline. Critics argue that financial threats to poor countries amount to blackmail; 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. Structural Adjustment Programs were often criticized for implementing generic free market policy, as well as the lack of involvement from the country. To increase the borrowing country's involvement, developing countries are now encouraged to draw up Poverty Reduction Strategy Papers (PRSPs). These PRSPs essentially take the place of the 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, thus better fiscal policy. The content of these PRSPs has turned out to be quite similar to the original content of bank authored Structural Adjustment Programs. Critics argue that the similarities show that the banks, and the countries that fund them, are still overly involved in the policy making process.
Contents
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1 Conditions 2 History 3 Criticisms o 3.1 National sovereignty o 3.2 Privatization o 3.3 Agriculture o 3.4 Environment o 3.5 Austerity
o 3.6 Involuntary resettlement 4 Praise 5 Empirical evidence 6 IMF SAPs versus World Bank SAPs o 6.1 IMF SAPs o 6.2 World Bank SAPs 7 Donor countries 8 See also 9 References 10 External links
[edit] Conditions
Some of the conditions for structural adjustment can include:
Cutting expenditures, also known as austerity. Focusing economic output on direct export and resource extraction, Devaluation of currencies, Trade liberalization, or lifting import and export restrictions, Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets), Balancing budgets and not overspending, Removing price controls and state subsidies, Privatization, or divestiture of all or part of state-owned enterprises, Enhancing the rights of foreign investors vis-a-vis national laws, Improving governance and fighting corruption.
These conditions have also been sometimes labeled as the Washington Consensus.
[edit] History
Structural adjustment policies emerged from two of the Bretton Woods institutions, the IMF and the World Bank. They emerged from conditionalities that IMF and World Bank have been attaching to their loans since the early 1950s.[2] In the beginning, these conditionalities mainly focused upon a country's macroeconomic policy. From the 1950's onward, the United States doled out loans and other forms of financial assistance to Third World nations (now commonly referred to as LDC's - Least Developed Countries), in part, to promote the economic tenants of neoliberalism, as spelled out in the Washington Consensus doctrine. 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 FDI (Foreign Direct Investment) and to promote 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 raw commodities, especially mineral
and agricultural. Where loans were negotiated on the basis of implementing large infrastructural projects such as roads and electrical damns, the West stood to gain by employing their domestic businesses as well as broadening the means by which Western companies could more easily extract these resources. It is important to understand that the loans were made under SAP conditions at the time were advised by the top economists of both the IMF and World Bank and probably genuinely expected to produce mutually beneficial outcomes between both the West and the LDC's. Yet by most measures this was not the case. Whether the money was squandered, or SAP's were simply not politically feasible to implement, to this day an economists can point to few if any examples of substantial economic growth amongst the LDC's under SAP's. And very few of the loans have been paid off. Pressure continues to forgive these debts, some of which demand substantial portions of government expenditures to make payments on. 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.[3] These fiscal disasters led policy members 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".[2] In addition, SAPs with their emphasis on poverty reduction have attempted to further align themselves with the Millennium Development Goals (MDG). 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, as well as economic mis-management. Since their inception SAPs have been adopted by a number of other International Financial Institutions (IFIs).
[edit] Criticisms
There are multiple criticisms that focus on different elements of SAPs.[4]
In many countries in sub-Saharan Africa, political stability has gone hand in hand with gross economic decline. While public debt in developing and developed countries is a nearly universal fact, low-income countries face a much more vulnerable position to maintain an equilibrated balance of payments, with some of the world's 47 poorest nations have already $488 billion in debt in 2003.[5] Due to this near universality of debt, a popular criticism is that the structural adjustment's terms have become a template for the governance of much of humanity. Hence, some argue that the democratic policy process of countless countries has been undermined by decisions formulated miles away by western economic bureaucrats and that the implementation of such policy has solely benefited the largest donor countries (the U.S., UK, Canada, and Japan). For example, the opening of countries to outside investment allows U.S. corporations to build factories in impoverished areas. The corporations are able to exploit the surplus of inexpensive labor, and usual lack of environmental regulations to create goods at a lower price. As a result, corporate profits rise and trade flows increase for that particular country. While this increases the GDP the majority of the profit actually benefits the corporation and the country in which the corporation is based. Conversely, many argue that the people employed by the corporations are desperately in need of any work at all. It is argued that the alternative forms of employment or life styles available to them are much worse. Structural adjustment became a major tool for global development of a system of nongovernmental organizations allowing for bypassing local administrations in poor countries in the realization of welfare policies.[6] Critics accuse such policies to be "not-so-thinly-disguised wedge[s] for capitalist interests." [7]
[edit] Privatization
See also: Privatisation A common policy required in structural adjustment is the privatization of state-owned industries and resources. Ostensibly, this policy aims to increase efficiency and investment, and decrease state spending. State-owned resources are to be sold whether they generate a fiscal profit or not.
[8]
Critics have condemned privatization requirements. Critics argue 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. Many scholars have argued that SAPs and Neoliberal policies have negatively affected many developing countries; the privatization of water in Bolivia and the privatization of the health system in Sub-Saharan Africa are few examples of such negative implications.[9] Privatization makes essential needs such as water and health care a commodity, and those who are poor are unable to access such basic necessities because they are unable to pay for these commodities. Therefore, many scholars have argued that SAPs are not in the interest of the borrowing country,
but rather caters to the elites of the developing and undeveloped worlds.[9] In other words, SAPs are extremely detrimental for poor countries who have structural adjustment programs in place, as many people cannot afford to pay for health care or education, leaving populations sicker and more uneducated.[10] This causes negative consequences, as sick people are not productive and cannot work to bring themselves out of debt; therefore, the privatization of a previously social service such as health care is actually counter-intuitive to the alleged purpose of structural adjustment programs.
[edit] Agriculture
The agricultural, anti-land reform and food trade policies associated with SAPs have been pointed to as a major engine in the urbanization of the global South, the ballooning of megacities, worldwide migration towards the global North, and the growth in urban poverty and slums. In the irrigation sub-sector the trend has been towards disengagement of governments from irrigation development and management. This has led to a process of delegation of maintenance and operation activities of irrigation schemes to the organized users with mixed results. Indeed, the loans from the World Bank, the major lender for irrigation development, have fallen sharply from the mid 1970's showing some recovery only since 2003. They are also a source of contention for environmental activists. A large portion of SAPs policy on agriculture focuses on the increased use of fertilizers and pesticides which harm the health of local bodies of water and therefore fish populations. The runoff caused by the over use of fertilizers increases the amount of algae in local water bodies, causing different scales of dead zones (areas where oxygen is completely consumed by decomposing algae and fish, making it impossible for life forms needing oxygen to survive in the dead zones). Dead zones affect both local and international bodies of water. An example of this degradation is, as Tiemen and Koeing reveal, Western Mali during the 1980s. Firstly, the privatization of the agricultural sector increased the inequality of food distribution and inequality wealth in general as some farmers adapted to privatization and flourished and others fell behind. Secondly, instead of "mining" (using a plot of land until it was depleted of nutrients then moving to a different plot of land allowing the first to replenish) the land like farmers did before structural adjustment, farmers were introduced to fertilizers that left the land nutrient barren and unusable.[11] Despite the growth in the GDP, structural adjustment does not appear of much help to the agricultural sector. In theory, devaluation, by lowering the relative price of farm commodities on the international market, should make a countrys agricultural exports more competitive. However, it is by no means certain that increased exports compensate for the loss of purchasing power of a cheaper currency.[12]
[edit] Environment
Local environments can easily become casualties of pro-trade policies. Pro-trade policy promotes an increase of industry geared toward Western needs. As a result of the new policy, local industries begin to focus on producing inexpensive goods to sell on the international market. The focus on creating the least expensive product often leads to environmentally exploitative industry. As these new industries are often unregulated there are no laws prohibiting this exploitation. For example, emissions from factories are much less regulated in developing nations. As a result, the environmental cost (the harm done to the ozone layer for example) of producing a product like steel in China is much greater, than it would be in the U.S. Another example would be the run off of chemicals or pharmaceuticals into local rivers and other bodies of water. In developing nations the pollution of rivers has become a cause for international intervention. This pollution not only affects local populations who sometimes bathe and drink the polluted waters but is also damaging the oceans on a large scale. It is possible for SAPs to include clauses that require industry regulations. However, for the most part, regulatory clauses have not been included in SAPs. The majority of the policy creators view these regulations as a hindrance to trade and therefore to economic development. In addition, many argue that it is unfair for developed nations (and IFIs) to demand that their environmental policies be followed. All developed nations have gone through a period of industrialization wherein local environments were damaged. While these periods of industrialization led to increased environmental problems, they also greatly contributed to the development, prosperity, and increased standard of living for the country's citizens. They argue that developed countries essentially have had a head start in economic development, and that less developed countries deserve their own head start. Critics debate whether the world can handle this head start or not. It has been argued that developing countries would benefit more from debt cancellation than an industrial "head start." Perhaps it is due to the ineffectiveness of Structural-Adjustment Policies that rural farmers must resort to measures that harm the environment. Extensive cultivation or the draining of resources has resulted from the industrialization implemented by the policies of SAPs. The objectives of SAPs may be to reform the economical structure of impoverished or developing nations. However, their lack of consideration and research completed for their influences on the household level can cause the global issue of environmental degradation as farmers may result to unsustainable measures. Potential deforestation and desertification are only a few of the negative results of extensive cultivation.[13]
[edit] 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 miscellaneous 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[citation needed] diseases such as AIDS to devastate some areas' economies by destroying the workforce. Recent studies have shown strong connections between SAPs with Tuberculosis rates in developing nations.[14]
[edit] Praise
In principle, conditionality is a tactic used not only to make sure loans are paid back, but also to ensure that they are used effectively. If there are no conditions on the loan, the country might not use the money to reduce poverty (see fungibility). This argument however, logically misses the counter-argument that there are many other conditionalities which could be imposed which would not necessarily create the burden of payment (and therefore, the subsequent lack of ongoing governmental investment) which is seen by many critics as creating a vicious circle. A corollary of this problem is that, should such a vicious circle indeed exist, its only overriding tendency is to allow for outside multinational investment to provide the service and food needs to the society, which can no longer function in a productive, cost effective manner.
While both the International Monetary Fund (IMF) 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 (they can not pay their international debts), while the World bank offers loans to fund particular development projects.
[edit] References
1. ^ Greenberg, James B. 1997. A Political Ecology of Structural-Adjustment Policies: The Case of the Dominican Republic. Culture & Agriculture 19 (3):85-93 2. ^ a b See, IMF website on conditionalities 3. ^ See Towson.edu webpage on SAPs 4. ^ For another overview, see Towson.edu's page 5. ^ Steger, Manfred. Globalization A Very Short Introduction (2003) Oxford University Press 6. ^ Pawel Zaleski Global Non-governmental Administrative System: Geosociology of the Third Sector, [in:] Gawin, Dariusz & Glinski, Piotr [ed.]: "Civil Society in the Making", IFiS Publishers, Warszawa 2006 7. ^ Kapur, Davesh. (1998). The IMF: A Cure of Curse? Foreign Policy. No. 111. pp. 114129. http://www.jstor.org/stable/1149382 8. ^ Cardoso and Helwege, "Latin America's Economy" Cambridge, MA: MIT Press (1992) 9. ^ a b McPake, Barbara. 2009. Hospital Policy in Sub-Saharan Africa and Post-Colonial Development Impasse. Soc Hist Med 22 (2):341-360. 10. ^ Feo, Oscar. 2008. Neoliberal Policies and their Impact on Public Health Education: Observations on the Venezuelan Experience. Social Medicine 3 (4):223-231. 11. ^ Koeing, Dolores, and Tiemen, Diarra. 1998. The environmental effects of policy change in the west African Savannah: resettlement, structural adjustment and conservation."The journal of political ecology 5(1): 23-52 12. ^ Greenberg, James B. 1997. A Political Ecology of Structural-Adjustment Policies: The Case of the Dominican Republic. Culture & Agriculture 19 (3):85-93. 13. ^ Greenberg, James B. 1997. A Political Ecology of Structural-Adjustment Policies: The Case of the Dominican Republic. Culture & Agriculture 19 (3):85-93. 14. ^ New York Times: Rise in TB Is Linked to Loans From I.M.F 15. ^ Koeing, Dolores, and Timan Diarra. 1998. The Environmental Effects of Policy Change in the West African Savannah: Resettlement, Structural Adjustment and Conservation in Western Mali. The Journal of Political Ecology 5 (1): 34. 16. ^ Coping with Austerity (Google Books) 17. ^ Bird, G. "IMF Programs: Do they Work? Can they be made to work better?" World Development vol 29, no.11 (2001) 18. ^ See the IMF website on lending. 19. ^ For links to the IDA and IBRD websites, see the World Bank's webpage
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"Structural adjustment" is the name given to a set of "free market" economic policy reforms imposed on developing countries by the Bretton Woods institutions (the World Bank and International Monetary Fund (IMF)) as a condition for receipt of loans. SAPs were developed in the early 1980s as a means of gaining stronger influence over the economies of debt-strapped governments in the South. To ensure a continued inflow of funds, countries already devastated by debt obligations have little choice but to adhere to conditions mandated by the IMF and World Bank. Most donor countries, including Canada, condition their bilateral assistance upon a country's adoption of structural adjustment programmes.
a shift from growing diverse food crops for domestic consumption to specializing in the production of cash crops or other commodities (like rubber, cotton, coffee, copper, tin etc.) for export; abolishing food and agricultural subsidies to reduce government expenditures; deep cuts to social programmes usually in the areas of health, education and housng and massive layoffs in the civil service; currency devaluation measures which increase import costs while reducing the value of domestically produced goods; liberalization of trade and investment and high interest rates to attract foreign investment; privatization of government-held enterprises.
Canadians can begin to identify with the citizens of developing nations when we experience similar SAP-like cutbacks to health, education and other basic social services.
The achievement of social well-being is not an integral component of SAPs but a hoped-for result of applying free market principles to the economy. The process of adjustment, as described by many World Bank and IMF officials to developing countries, is one of "sacrifice," of "present pain for future hope."
promoting diversification in the products that Southern countries export and increase processing capacity. This would coincide with the recognition of providing some protection to infant industries and the promotion of greater regional trade; recognizing the need for states to play a greater role in facilitating the diversification away from traditional commodities, determining and promoting investment priorities; economic policies and planning which include a gendered analysis of the various options; policies that take into account environmental impacts and include sustainable natural resource use that benefits local communities; an emphasis on non-price structural reforms such as land reform, institutional reforms to increase democratic practice and accountability; at the international level, measures to reduce the debt problems of poorer countries, regulate capital markets and address unfair trading practises.
What is urgently required is to open up the debate to allow for serious consideration of alternative measures. What stands in the way is the total control over the development debate currently exercised by the Bank and the IMF with the blessing and support of Northern governments, including Canada. In addition, fundamental reform of the Bretton Woods Institutionsto ensure greater transparency, accountability, and equitable participation in the development of any programmes that will directly affect communities is essential (see brief on "Reforming the Bretton Woods Institutions"). The Halifax G-7 Summit provides an important opportunity to alter the debate and begin the process of transformation.
over-emphasize the restoration of balance of payments instead of adopting a more just and equitable approach to resolving the debt crisis; undermine the state's sovereignty and limit its role for socio-economic intervention through a fixation on deregulation, privatization and dismantling of the state in the name of unfettered "free markets"; exacerbate the disparities between rich and poor by facilitating income concentration by the wealthy and the exclusion of the poor from decisions and control over resources; undermine democracies and democratic process. Southern governments must accept SAP measures imposed by non-democratically elected bank officals even if they conflict with government policy and the will of the people_the alternative is default and bankruptcy; lack transparency, accountability and public participation in their design and implementation; hurt the poor disproportionately through deep cutbacks in social programmes. User fees, privatization, massive layoffs and cutbacks of scial services have led to malnutrition, school and hospital closures, recurrence of previously eradicated disease, and deepening poverty; undermine national food security through an over-reliance on investment that is shortterm, concentrated in the export sector; make many basic necessities inaccesible to local people as currency devaluations drastically reduce the buying power of local wages;
violate the UN Convention on the Rights of the Child, the UN Declaration on the Right to Development, and the Convention on the Elimination of Discrimination Against Women; focus on domestic economic adjustment to the exclusion of the whole world economy, which includes Northern economies, to the priority goals of sustainable development, self-sufficiency and greater popular participation in economic planning and decisionmaking.
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