Introduction
Between late 1980’s and early 1990, low income developing countries especially African countries had a rough time. Due to several years of mismanagement, various economies were on the verge of collapsing and worse still, these countries had huge debts. So as the governments of these countries struggled to rebuild and restructure, their per capita income could not allow them, thus they stagnated. There was need to bring these developing countries from this status of stagnation to economic recovery and growth. So, the International Monetary Fund and the World Bank came up with measures that would help the third world countries (nowadays they are called Least Developed Countries) to move from this situation of crisis. Therefore, the IMF and the World Bank decided to change their lending technique. This was this reorientation was reached due to the rinsing awareness that the third world countries were being drawn back by poor policies more than not have finance to invest. This triggered the idea for conditional lending or policy-based lending. This saw development assistance shifting a great deal from financial investment to promotion of policy reforms (Lewis, 3).
Therefore, the IMF and the World Bank came up with the structural adjustment programs to help them curb misuse of funds in the respective third world countries. These structural adjustment programs were argued to bring countries from their economic statuses to economic and recovery. And so, most donor countries e.g. Canada seconded that for any developing country to get bilateral assistance, they had to adopt the structural adjustment programs.
Meaning
Structural adjustments programs refer to the policies which were implemented in developing countries by the International Monetary Fund (IMF) and the World Bank. These were conditional policies for receiving loans from the World Bank and the international monetary fund. These conditions also applied in case a country wanted to secure low interest rates on the existing loans they she has. These conditions were enforced to ensure that loans were spent according to the overall goals stated while securing them. Thus, structural adjustment programs were adopted purposefully to help reduce a country’s fiscal imbalances borrowing. The lending banks to a country will only receive loan depending on the necessity type. This was argued to allow the developing countries’ economies to grow by being more market oriented thus forcing them more to trade and production. This in return boosts their economies ( Lewis, 2).
Despite the different SAPs strategies per country, there are basic features and principles guiding them. These include: liberalization, export led growth, free market efficiency and privatization.
Generally, SAPs have several requirements including countries devaluing their currencies against the dollar; removal of price controls and state subsidies; restricting exports as they lift imports and budget balancing; no overspending.
In a nutshell, Structural Adjustment programs refers to the economic policies that countries have to abide by in order to qualify and secure World Bank and International Monetary Fund (IMF) loans as well as helping them in making debt repayments of the debts that they owe the World Bank, governments and commercial banks ( Bellow, 5).
What were these programs?
These programs included:
Devaluation of currencies. This was very strategic to make goods from these countries very cheap especially for foreigners. This policy was automatically to make imports to be more expensive than before. Ideally, according to the IMF and the World Bank, it makes a country to be wary of purchasing foreign expensive goods. However, it beats logic for the same imf and world bank was giving the same countries huge loans to increase their economic power to import from foreign countries.
The IMF and World Bank also implemented the policy on balancing national budgets in order to reduce government spending. This budget balancing can be done through tax increment and reduction on government expenditure on several sectors. This would result in minimized spending on government programmes like health, social care and education. These governments were also to do away with the subsidies which have been designed to help in regulation of basic stuff like food. The argument behind this is that it was to allow the governments in place to utilize whatever they have on infrastructural development (Lewis, 6)
SAPs also encourage these countries to shift to the growth of various food crops for domestic consumption as they specialize in the production of a cash crop like coffee, cotton, rubber etc for purposes of exportation. As they do this, these countries have to abolish the subsidies on food and agriculture. IMF and World Bank argued that this was to help the governments’ development.
For these countries to get loans, they were to accept the principle of liberalization of trade and investment. They were also invite entice foreign investors charging high interest rates. This would allow the economy to be run by the private sector which will foster money to trickle even to the poorest man.
As policy of the SAPs, the governments were to allow for privatization of some, if not all government-held enterprises. This would help in increasing the efficiency and investment into these countries as it reduces government spending on these firms.
What did the IMF and World Bank hope to achieve with them?
The World Bank and the IMF who are the proponents of these SAPs do argue that SAPs are essential in a country’s economic transformation. For economic recovery and growth from crisis, SAPs play a very important role in shaping country’s economies. They argue that economic growth that is driven and held by the private sector and foreign investors is key to development. This is because the national resources will spread all through and even the poor will taste it.
Secondly, SAPs were designed primarily to improve the foreign investment climate of different countries. This was done by abolishing investment and trade regulations, boosting the foreign exchange i.e. by promoting exports and reducing the deficits of the government through tight spending (Bellow, 15).
SAPs were also designed to help in the achievement the fiscal stability as well as the positive balance of payments. The argument here is that as the economy grows, it gains stability and due to many suspended government expenditure, there is a possibility of the country paying her debt. This means that countries would be moving from debts and financially stable situation.
In addition to that, SAPs were also designed to foundationally create a sustained non-inflationary or minimal inflationary growth. With time, the country will get used to her way of prioritizing, her fixed budget and minimal income. So, with the minimal finances and resources, the country will be responsible to budget with what they have (Bellow).
Lastly, IMF and World Bank adopted SAPs in order to help save the public from the dominance of unproductive investments. This necessitated the move to adopt the principle of privatization of such assets to the private sector who can manage them well and make it productive. In this manner, the SAPs were adopted to increase productivity in Africa and create more job opportunities.
Using a third world country as an example, to what extent did they succeed or fail in their stated goals?
Nigeria is one of the third world countries and for that reason, subscribed to the IMF and World Bank demands for purposes of loan. For over a decade now, Nigeria has implemented the SAP strategies but to the astonishment of everybody, not even a single objective of this program is attainable. Moreover, there is no hope of achieving any soon using the program instruments. However, all that can be seen in Nigeria to date in relation to SAPs is the foreign market with its associated ceremonies. This is the situation in most African countries.
SAPs have terribly failed in most third world countries. Nigeria serving as an example has several reasons that can be used to claim so. These are:
According to the objectives of the SAPs, these programs do dictate Nigeria to import more than her exports. This is against the trade laws i.e. import-export equation which dictates that a country must export more than it imports in order to generate a positive balance in trade. This has made Nigeria to be indebted and cannot afford to free herself from the claws of debts. The coming of foreign exchange markets in Africa is a big blow to the development of the continent at large. It has also made Nigeria to be involved indiscriminate importation and neglecting potential foreign exchange earners. In this manner, foreign exchange markets increased the cost on imports rather than reducing.
Foreign exchange markets do have mandatory harsh effects on the people. By devaluing the currency of a country, a country’s currency loses value with time. As time goes by it weakens in relation to other currencies.
SAPs advocated for the shift of farming tactics from variety cash crop farming to variety food cropping in order to create a good foundational base for food and thus government reduction on expenditure. However, earnings from the mainstay of African economies i.e. primary commodities have been reducing gradually for quite some time since around 1980’s. Thus this subjects the government to chip in for it to sustain food security in the country by subsidizing on fertilizers and even food in times of need ( Bellow, 17).
African nations that implement SAP are increasing experiencing budget deficits and indebtedness for there is no economic growth. Everybody can concur that surpluses are realized on growing economies. As they do this, they are able to pay their debts and develop their infrastructure. However, in Africa, countries that implemented SAP do experience much unemployment. This is the trend in countries that have employed SAP, throughout the world.
SAPs do undermine the sovereignty of a state by limiting the socio-economic prowess of the country. When a country privatizes her assets, it releases her economic weapon to the investors who will manipulate the economy the way the like. This is very dangerous for it exposes people to more injustices in the hands of private investors. The deregulation and dismantling the state under the umbrella of creating free markets is a threat to locally produced goods. The local companies are likely to die and the spill-over effects will be very many for instance, people will lose jobs etc.
SAPs do escalates the differences between the poor and the rich. This is because the poor sinks more while the rich gets more opportunities to take exhaust milk dry the poor.. This situation comes by because the SAPs policies do raise the output growth. Output growth usually benefits the poor and output growth usually benefits the poor. Secondly, SAPs increase the social spending and these safety net measures that are put in place by SAPs do favor the poor than the rich. Countries which have implemented SAPs experience high rates of inflation. This has seen several people in government companies sent home due to forceful retrenchment. Inflation makes life to be more expensive and encourages more spending. This is very dangerous for it can cause revolution in the country thus destabilizing peace in the country
Conclusion
Developing countries have nowadays come to their sense and seen the impacts of structural adjustment programs in their lives and to their economies. This has made this term to have a negative connotation to an extent that the World Bank and the IMF decided to come up with a new initiative branded the Poverty Reduction Strategy Initiative. Under this initiative, countries develop Poverty Reduction Strategy Papers (PRSP). However, it is surprising that despite all this negativity towards the program, the World Bank and the IMF could only afford to change the name. Under the new initiative Poverty Reduction Strategy Paper, the policies adopted are the same ones that were of the Structural adjustment programs.
If the World Bank and the IMF are really concerned with the third countries status, they should rise and implement policies which are sound and practical. They should come up with unbiased policies that will:
- Promote diversification product exportation and increase their processing capacities. This will protect the infant factories and promote regional trade at the same time.
- Recognize roles of countries in facilitating diversification from traditional commodities promote and determine priorities of investing. Policy planning should consider gender too.
- Consider the environmental factors and the sustainability of the resources of the countries.
- They should put more emphasis on institutional reforms, land reforms and democratic processes among others that are non-priced.
- Will reduce debts at the international levels and to regulate unfair trading practices.
Works cited:
Bellow, U. K. "Fiscal Policy Implications of Structural Adjustment Program." Presentation at the First National Biennial Conference of the Faculty of Business Administration, University of Lagos, Lagos, Nigeria, Oct. 26-28, 1987.
Lewis, W. A. Theory of Economic Growth, Tenth Printing, Unwin University Books, London, 1972.
The United Nations. African Recovery. A United Nations Publication, New York., 1993 in The Guardian, Nigerian edition, Vol. 9, No. 5676, March 19,
