A structural adjustment program is a plan implemented by the World Bank and the International Monetary Fund (IMF) to help nations.
Structural Adjustment Programs - FPIFKey Points. The U. S. Throughout the 1. U. S. Formulated as loan conditions by Northern governments and the International Financial Institutions (IFIs), SAPs mandate macroeconomic policy changes that obligate recipient nations to liberalize their trade and investment policies. Through its aid and trade policies, Washington has worked to restructure the economic policies of the Southern nations. Starting in the 1. U. S. SAPs usually include several basic components geared toward reducing inflation, promoting exports, meeting debt- payment schedules, and decreasing budget deficits.
They generally entail severe reductions in government spending and employment, higher interest rates, currency devaluation, lower real wages, sale of government enterprises, reduced tariffs, and liberalization of foreign investment regulations. SAPs share a common objective: to move countries away from self- directed models of national development that focus on the domestic market and toward outward- looking development models that stress the importance of complete integration into the dominant global structures of trade, finance, and production. Largely championed by the Reagan administration and Margaret Thatcher’s government in Britain, the neoliberal principles that shape SAPs gained prominence in the IFIs in the 1.
The neoliberal philosophy of economic development revived the old precepts of economic liberalism, which hold that an unregulated free market and private sector are the engines for unrestricted growth, the benefits of which will trickle down from the owners of capital to the entire population. The debt crisis, which reached crisis proportions by 1. IFIs the leverage needed to impose SAPs on the debt- ridden countries of the South. With the waning of North- South private capital flows, indebted countries became increasingly dependent on the IFIs, which conditioned new lending on the implementation of SAPs. In the 1. 98. 0s, SAPs became virtually synonymous with IFI lending. At the World Bank, new leadership installed by the U.
S. Treasury Department, debt- renegotiation plans also ensured that neoliberal structural adjustment became a prerequisite for debt relief. Virtually all developing countries—particularly in Latin America and Africa, and increasingly in the transition countries of east and central Europe—have implemented or are in the process of acceding to SAPs.
SAPs have also largely succeeded inshrinking government budget deficits, eliminating hyperinflation, and maintaining debt- payment schedules. But while government balance sheets may improve, SAPs have failed to establish a base for sustainable, balanced economic development. In their wake, SAPs have bankrupted local industries, increased dependency on food imports, gutted social services, and fostered a widening gap between rich and poor.
To mitigate the harsh social impact of SAP- mandated economic restructuring and austerity measures, the IFIs have sponsored social investment funds. The objective of social investment funds is to provide temporary relief and stave off political unrest until the benefits of neoliberal reform start trickling down. The underlying structural reasons for poverty, unemployment, and malnourishment are left unaddressed. The most recent change in SAPs is the IFIs’ promotion of good governance.
Good governance measures are now a criteria for the IFIs’ stamp of approval. Problems with Current U. S. Policy. Key Problems SAPs are broadly imposed on nearly all developing countries, while the North only selectively adheres to its own neoliberal principles. SAPs may achieve nominal GDP growth, but it is growth based on unsustainable resource extraction and the exploitation of cheap labor.
Elites and foreign investors often benefit from tax breaks and production incentives, while the domestic economy contracts dramatically, along with the jobs that support the lower and middle classes. Few would deny that such problems as persistent budget deficits, inefficient and ineffective government enterprises, and rapid inflation require reforms. As a result, the standard structural adjustment package advocated by the IFIs and the U. S. The growth that does occur is commonly limited to a few sectors like raw materials extraction or goods produced with cheap labor, instead of a more well- rounded and sustainable growth in production.
Even when a SAP- directed economy is growing, it is generally failing to create employment and generate the revenues needed to pay for the unregulated influx of foreign imports. Thus, reforms intended to open countries to foreign trade, investment, and finance may result in increased exports and greater access to foreign capital, but they also heighten financial volatility and speculative investment, flood the affected countries with imported luxury goods, undermine local industry, and constrict local buying power. SAPs benefit a narrow stratum of the private sector—mostly those involved in export production, trade brokering, and portfolio finance. These winners are usually well- connected elites and transnational companies. Layoffs of government workers, wage constraints, higher interest rates, reduced government spending, and the shutdown of domestic industries all contribute to the shrinking of the domestic market. The weak state of the domestic market exacerbates the worsening socioeconomic conditions. The result can be increasing political instability (such as riots over food prices), outbreaks of guerrilla violence, and widespread disaffection with (and nonparticipation in) electoral political systems.
The emphasis placed by SAPs on increased exports can hasten the destruction of ecosystems by accelerating extractive enterprises such as the timber, mining, and fishing industries. In agriculture, SAPs augment the economic liberalization resulting from free trade agreements, undermining peasant agriculture while reinforcing export- oriented agribusiness (and its dependence on dangerous agrochemicals). The insistence by SAPs on the deregulation of laws and the downsizing of enforcement agencies further obstructs a government’s capacity to protect its environment. Though reduction of world poverty is proclaimed as a major goal of U. S. Increased unemployment and decreased government services are the most direct blows, but changes in the tax system often emphasize easy- to- collect, regressive sales taxes that also disproportionately affect the lower classes. Tightened credit requirements and higher interest rates make it virtually impossible for small farmers and businesses to invest.
The liberalization of trade does make imported items less expensive, but most people in low- income countries consume little besides basic necessities. Although the IFIs and the U. S. In this latter regard, SAPs have been successful.
A narrow elite in countries undergoing SAPs do benefit from restructuring and increased integration, but the main beneficiaries are foreign investors and traders. After decades of subverting populist and interventionist central governments, the IFIs have recently accepted some of the criticisms leveled against their neoliberal notions of a minimalist state. But the IFIs only tend to adopt neostructuralist programs of social investment after the dirty work of neoliberal structural adjustment has been mostly completed. Likewise their late concern for good governance only surfaces after successive SAPs have already dismantled many important state institutions and continue to undermine the ability of governments to exercise control over national economic development. Toward a New Foreign Policy. Key Recommendations The U.
S. Loan conditions and program documents should be publicly available so that all parties are informed and accountable. As SAPs guide how money is spent, they are supposed to ensure good use of development funds. Yet SAPs are largely imposed on developing countries without sufficient input from the very sectors of society that will be subjected to them. Sometimes SAPs are imposed despite overt opposition. Through its financial clout in the IFIs, its central role in shaping global economic integration, and its own bilateral lending programs, Washington has the power to change or eliminate SAPs. Unfortunately, the U.
S. Instead, it continues to pursue short- term gain, viewing the strict economic reforms required by SAPs as the best way to promote U. S. Though macroeconomic factors need not be excluded from Washington’s policies, they should be part of a broader definition of U. S. The World Bank recently launched a historic initiative to encourage such participation, working with civil society groups in several countries to assess the impact of SAPs (see SAPRI under Sources for More Information). Foreign loans and aid agreements should be transparent. Conditions and terms of all lending should be stated publicly so that the recipient country’s citizenry is fully aware of the potential impact of lending agreements. The U. S. Although governance stipulations (such as increased budgetary transparency and judicial reform) may be positive changes, they place an added burden on countries and increase the power of Washington and the IFIs to dictate policy in the South.
The U. S. In its insistence on the promotion of the private sector, Washington fails to recognize the fundamental importance of government regulations and safety nets in fostering and maintaining economic development. Immediate debt relief for impoverished countries should be a priority for the U.
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DEPARTMENT OF STATE 543-K-604. AGENCY FOR -ouiv INTERNATIONAL DEVELOPMENT. Grenada Readies For Structural Adjustment by Leroy Baker, Tax-News.com, Washington 09 October 2001. Although keen to point out that the economy is not doing as.