Structural Adjustment Programs

Structural Adjustment Programs Definition

Structural adjustment programs (SAPs) refer to policy reforms prescribed by the International Monetary Fund (IMF) and the World Bank to developing countries for receiving financial assistance or loans. These programs aim to help nations become more efficient and competitive globally.

Economic structural adjustment programs aimed at efficient free market systems, privatization, export-led growth, liberalization, and cuts in government expenditures directly affect the social and political system. Its implementation has witnessed some countries deteriorating and others making some progress. However, over time it started symbolizing negative reforms, which led to its replacement with poverty reduction strategy papers.

• Structural adjustment programs are economic policies implemented by the International Monetary Fund (IMF) and World Bank as a condition for receiving loans.
• It did succeed in reducing government deficit via cutting government expenditure but led to increased poverty, high inflation, and riots.
• The cons of this program weighed heavier than their Pros, so much so that replacing the whole program was to remove the negativity of the program as it harmed the economy more than uplifting it.
• It has been criticized by all quarters for having failed to achieve its objective of economic upliftment and pushing the nations towards bankruptcy and social failure.

Structural Adjustments Explained

Structural adjustment programs may be defined as policy packages for developing economies by the IMF and the World Bank for granting low-rate loans. To understand the program better, let us review the history of structural adjustment programs.

These programs were first implemented in the early 1980s in Latin American countries such as Chile and Mexico. Hence, the structural adjustment program conditions were designed to address the problem of high inflation, the balance of payments deficit, and public debt. But, unfortunately, it occurred due to economic mismanagement and worsening external situations such that the conditions deteriorated to colloquial collapse.

The IMF and World Bank continued to promote these programs aiming for economic growth and development in developing countries. Moreover, IMF and the World Bank advised the nations to follow the below measures to fulfill the goals of this program as below:

• They need to shift from food crops to cash crops like rubber and coffee to earn foreign exchange
• They must abolish government subsidies related to food and agriculture to reduce government spending
• Massive cuts in funding for social development, health, housing, and education sectors 
• Massive layoffs of government employees 
• Devaluation of currency to increase import costs and decrease the value of local goods
• Liberalization of the financial industry, investments, and trade 
• Increase in interest to draw foreign investors for investment and
• Privatization of all public companies

All these measures proved to be counterproductive and produced the following ill effects:

• Unemployment
• Four times poverty
• Social unrest
• Riots
• Increased social inequality
• Loss of national sovereignty and 
• High inflation.

Because of these, structural adjustment programs have become synonymous with harmful and exploitative economic reforms. As a result, IMF and the World Bank scrapped the entire program and launched another economic development program as Poverty Reduction Strategy Papers (PRSPs).

Examples

Let us understand the concept better with the help of some examples.

Example #1

The IMF-attached structural adjustment program reforms have faced criticism and social chaos across the globe. Since the 1970s, the IMF-imposed program has created mass protests causing economic distress in several countries, including Africa, South America, Central America, the Caribbean, and Asia. The following case would explain the cause of the riot better.

In 1976, the US backed the Egyptian government, and the Egyptian government availed of a loan from the IMF in exchange for withdrawing subsidies on food. Hence, in 1977, the citizens of Cairo protested against the increase in food prices and high inflation rates.

The citizens of Cairo suffered the violence of the Egyptian government, and the citizens continued to protest, stating to cancel or reduce the prices of essential commodities. This example explains the criticism towards these reforms.

Example #2

In August 1982, Mexico greatly defaulted on its sovereign debt. Therefore, the Mexican government, too, decided to avail of low-interest loans from IMF. Thus, in December 1982, the Mexican government availed a structured adjustment program loan worth UDS 3.8bn from the IMF. However, the IMF applied a condition on the loan stating that the government must implement free-market reforms. The IMF loan was for three years and ended in 1985.

From 1986 to 1988 and 1989 to 1993, the Mexican government made available two additional programs. The three financial policies provided by the IMF aided the country's structural reforms. Fiscal austerity, privatization of state-owned enterprises, trade barrier reduction, industrial deregulation, and foreign investment liberalization were among the reforms implemented.

The country's deficit fell from 17.6% in 1982 to 8.9% in 1983 as a result of strict fiscal policies. As a result, the policies of this program have assisted the Mexican government in reducing its debt percentage and maintaining economic development.

Pros And Cons

Keeping in view all the aspects, let us highlight some pros and cons of this program as listed in the table below:

Pros	Cons
It leads to the economic stabilization	Local companies got destroyed under liberalization.
Liberalization and privatization create more foreign investments	Many countries faced massive exploitation of natural, workforce, and mineral resources.
Government spending got reduced by many factors in these nations	Many social welfare schemes like free drinking water, government schools, government hospitals, and low-cost food got removed, worsening the situation of people experiencing poverty.
Trade barriers got removed for foreign companies.	It led to unprecedented unrest among the masses, and massive protests erupted, leading to the destabilization of the economy.
These programs provide debt relief.	These situations increased inflation and poverty could be seen rampant in these nations four times.
Overall, it improved state balance and exchequer.	However, It overburdened the current crumbling economy and led to political upheaval, social unrest, riots, and destruction of production.

Criticism

The effectiveness of these programs in promoting economic growth and development has been debated and criticized over the years. Furthermore, structural adjustment programs failed because of increased poverty and inequality, loss of national sovereignty, and limited economic growth. Let us know about the main criticisms listed below:

• These programs still need to meet their targets of generating economic growth and external feasibility of trade.
• The structural adjustment program conditions for loans only warrant short-term economic stabilization instead of poverty, inflation, and unemployment reduction.
• The austerity clause in this program has led to the elimination of social welfare programs of governments meant to help people experiencing poverty and provide basic amenities like drinking free water to the masses.
• Besides, the conditions laid down worsen poverty in those countries that accept it for getting the loan.
• Many also feel these programs have become another tool for colonizing the free African nations.
• Social development started getting ignored.
• Moreover, these programs were imposed on countries without sufficient participation and consultation from civil society organizations and affected communities.

Hence, these criticisms have led to a rethinking of the effectiveness of this program in promoting sustainable development.

Frequently Asked Questions (FAQs)

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