What is the structural adjustment?
Structural Adjustment Programs were instituted to offer countries in need, the opportunity to avail loans from the International Monetary Fund or the World Bank. In place since the first half of the 1980s as an economic policy as such developing countries affiliated with World Bank and International Monetary Fund (IMF) can benefit from it, by the provision of loans qualified on the espousal of such policies(W.H.O, 2014). Elaborating, the loans are associated with circumstances akin to substantial policy reforms, the framework of which must be complied prior to availing the loan (Abugre, 2000).It was intended atevolving the structural adjustment of acountry by stayinganalogous to the neo-liberal schema constituted by the Bank. An offering of a more intensive nature is the Enhanced Structural Adjustment Facility, facilitated under the financingprocedureof the IMF supports macroeconomic strategies and SAPs in low-income countries via loans or subsidies with reduced interest rates.
Who imposed the structural adjustment programs?
With the vision to propel long term and accelerated economic development, the SAPs policies echo the neo-liberal dogma that facilitates globalization. The framework includes the reformationof the economy, as well as decrease of government intercession.
SAPs policies include:
- The devaluation of the currency.
- Reduction of the inflation.
- Privatization
- Deregulation of businesses.
- Managing the balance of payments.
- Reduction of tax on high-income scales.
- The reduction of government services through public spending
- Suppression of wages
- Substantial cuts in social spending.
- Introducing lower tariff rates on imports.
- Introducing a tighter monetary policy on imports.
- Acceleration in free trade
Stabilization procedures are intimately connected to SAPs policies. They typically entailcurtailing the budgetary arrears and improving balance of payments to moderate the national rate of inflation. The motion gains more momentum with the highlight of the problems associated with Structural Adjustment Programs as enunciated by the post-Washington consensus.It furthers the motion that economic reform comes with the increment of social expenditure.These measures are usually proposed for and are under conditions for HIPCs (Heavily Indebted Poor Countries) to attainnew loans or auxiliaryaid; putting them under the conditionality clause.
In my opinion the Structural Adjustment Programs brought along a few general issues like the pace, progression and reliability. Since the past decade, adistinctiveattribute of the SAPs put into operation by most developing countries, where the schemaof reforms ranges over multiple sectorsboth of macro-economic and Micro economic nature. This may also vary due sector-specific issues and managing policies creating issues of special and distinctive nature. The typical utility of the SAPs includes reform programmesthat compriseof the following elements:
- Macro-economic stabilization.
- Privatization of the public sector
- Liberalization of foreign trade
- Domestic deregulation of investment production and prices
- Reforms in the Private sector
- Labour Market Reforms
- Tax reforms
- Creation of Social Safety Nets.
Managing policy changes in so many dimensions poses special problems especially when the reforms are obviously inter-related in the sense that the effectiveness of each element in the package depends upon other elements being successfully implemented. This inter-relationship raises several issues about the design of the programme.
What is the condition of the structural adjustment programs?
Whilst availing a SAP, the archetypal stabilization policies encompass:
- An economic policy to sponsor government arrears must be devised. These may be availed in the form of loans from funding institutions like the central banks.
- Appropriation and justified inflation of food prices to reduce and eventually completely curb the lumber of subsidies.
- Currency devaluation as the solution to the balance of payments deficits and its use as an effective tool of eradication.
- The reassessment and restructuring of foreign debts.
- Appropriation and restructuring of the public services put into place by the governance and to inflate the prices contemporaneously to match the global inflation rates.
- Diminution of Budgetdebits via measures like higher taxes and lower expenditure on the government’ end.
- Diminution of a well-planned schema for the eventual riddance of domestic credit.
Referred to as the Washington Consensus, let us take a look at all that it entails. While understanding long-term adjustment policies, there are several factors chalked out which make for inclusion with the countries opting for SAPs. Liberalization of markets must be encouraged and a price-value device must bedeveloped and put into place. As an extension to the same the formation of financial organizations must be encouraged as centers of access. An obstruction that needs to be recognized early and tackled with substantial measures in place include an active and effectual anti-corruption and prevention mechanism. Constructive governance is imperative to the achievement of the above-mentioned scenarios. The stability and the nature of investments must be reworked with the subordination of FDI or the foreign direct investment. The same must be met with the open accessibility of domestic stock markets.
Privatization or expropriation of industry folios held by the governance both state and central would also contribute to economic growth. Foreign Direct investment must be encouraged as well, for which a requisite constitution must be put into place; the same must be well deliberated. “Focusing economic output on direct export and resource extraction”(Fagan, Munck; 2009) is also vital to an SAP ideology.
What do you think of it?
Over the years with the introduction and availing of Structural Adjustment Programs, several assessments and constant validation of the schemes and its functioning have been conducted. An important derivation, rather observation that has come out of these readings borders on its impact on the social fabric of the countries that have availed it. This has been seen, as a crucial alteration is the proposed need for governments to reduce their hold in the economy by means of privatizing state-owned folios and industries. This is deemed as important to opening up the economy to a healthy international competition.
The folios up for privatization include Healthcare as well. Elaborating on the conditional privatization of healthcare let us analyze the alterations further. SAPs influence the deliverance of health services as well as the demand for it. In turn by the avowal on severance in health care expenditure and by the cutback of domestic income indexes, it has become all the more difficult for people to avail basic healthcare amenities and services.
SAPs have slowed down improvements in and/or hampered the health conditions of the people in countries that have adopted or implemented them. The severity of the above has been recorded and reflected in poor nutritional levels in children and amplified occurrence of transmittable diseases. However, alarmingly the studies also indicate an accelerated infant and maternal mortality rates (SAPRI, 2004).
Summarizing, I agree with the motion that states: Structural Adjustment Programs appears to havea negative influence on poverty and wage distribution. While comparing the statistics of both participant countries and otherwise, the urban poverty headcount ratio appears to be notably higher in participant countries than in non-participant countries.
References:
Abugre, C. (2000, June). The World Development Movement. Retrieved November 29, 2014, from http://www.wdm.org.uk/resources/reports/debt/stillsappingthepoor01062000.pdf
G. Honor Fagan, Ronaldo Munck (2009) Globalization and Security: Social and cultural aspects. Introduction to volume 2: ABC-CLIO.
"Structural Adjustment Programmes (SAPs)." WHO. N.p, n.d. Web. 29 Nov. 2014.
Structural Adjustment the SAPRI Report: The Policy Roots of Economic Crisis, Poverty, and Inequality. London: Zed; 2004. Print.
"The IMF's Enhanced Structural Adjustment Facility (ESAF): Is It Working?" The IMF's Enhanced Structural Adjustment Facility (ESAF): Is It Working? N.p.,n.d. Web. 28 Nov. 2014.
