Structural Adjustment Programs (SAPs) are those economic programs which are implemented by the International Monetary Fund (IMF) and World Bank with an aim of improving the economic status of developing countries. This programs were started in the 1980s and loans which were based on the conditions that the borrowers have to abide to. These loans which are offered by the World Bank to the developing countries are referred to as Structural Adjustment Loans. They are called Structural Adjustment Loans because they are meant to adjust the structural development of these developing countries. The loans are meant to remove the excessive control by the governments in the economic sectors (Dollar, & Svensson 51). By so doing, the IMF and the World Bank will be able to promote their neo-liberalism agenda. Neo-liberalism is the economic policy which endeavors at removing much of the financial authority from the public sectors to the private sectors. The IMF and the world bank has formed a financing mechanism that will ensure that the macroeconomic policies of the developing countries are supported through loans and subsidized interest rates.
Washington Consensus was a term which was first suggested by John Williamson in 1989. It came up with various recommendations which included financial liberalization; trade liberalization; elimination of barriers to the foreign direct investments; liberalizing market entry and competition; fiscal discipline; among others. These recommendations were based on neoclassical economics which were supported by various international bodies. The policies of Washington Consensus were applied for more than two decades in the developing countries such as Asia, Latin America, and Africa. The intervention stages were divided into two: ensuring Structural Adjustment Programs and macroeconomic stability; and improving the efficiency of institutions by reducing corruptions and bureaucracies. The developed countries played important role in ensuring that the developing countries obtain the loans. But on the other hand, they found a leeway of creating a neocolonialism by which they could have absolute control over the developing countries (Dollar, & Svensson 51). By 1970s and 1980s, the debt crisis had started to affect the developing countries forcing them to look for financial support from developed countries.
Structuralism become an orthodox in the development theories of the 1970s in Latin America, Asia, and Africa. The basic tenets of structuralism included the appreciation of the fact that the economic structure of advanced economies were different from those of weakling economies. The structural difference was a s a result of colonization by the western imperialists. The advanced industrial economies wanted to use the Keynes theories of economics. They wanted to ensure that their aggregate demands are properly managed. The developing economies were the special cases in the Keynes theory. The developed economies played an important role of modernizing the economic structures of the developing economies. As a result, they developed strategies that led to the development foreign substitution which resulted into export-led strategies. SAPs basically require the developing countries to devalue their currencies and to remove any trade restrictions and price controls. By devaluing their currencies, the imports will be very expensive while the exports will be cheaper to the foreign countries. As a result, devaluation will lead to an increase in exportation and decrease in importation.
Export led growth is an economic policy which is adopted by the developing countries to ensure that there is an improvement in exportation. This is done by manufacturing simple products which are exported to developed countries. Most of these products are manufactured in Export Processing Zones. Export processing zones can either be fenced or unfenced. In fenced EPZs, the production is done within a specific region which is controlled by the government. In an unfenced EPZ, private bodies are allowed to undertake the manufacturing and processing of products without the restriction of the government. When unfenced EPZ was tried in Mauritius, there was a great increase in the amount of products being manufactured from a meagre 3% to whooping 67%.
The Structural Adjustment Programs and the free trade have great impacts in the debt regime of developing countries. One of the Structural Adjustment Programs is to extend loans to the developing countries. Many scholars believe that these loans do not just bring the financial problems to the borrowing countries but also comes with the economic problems. Through, debts, developed countries acquire more control over the developing countries than through colonization (Shah 1). As a matter of fact, it is cheaper to gain control of the developing economies through debts than through colonization. The issue of debt cancellation is a gimmick used by the developed economies to ensure that the debts owed are paid off. It is not meant to cancel debts per-se, rather it is meant to reduce debts to sustainable levels which can easily be repaid back.
Works Sited
Shah, Anup. "The Heavily In-debt Poor Countries Initiative is Not Working." (2001).
Shah, Anup. "Structural adjustment—a major cause of poverty." Global Issues 24 (2013).
Dollar, David, and Jakob Svensson. What explains the success or failure of structural adjustment programs?. No. 1938. World Bank Publications, 1998.
