Structural adjustment

Categories: Development | Economics and finance stubs

Structural adjustment is a term used by the International Monetary Fund (IMF) for the changes it recommends for developing countries. This includes internal changes (notably privatization and deregulation) as well as external ones, especially the reduction of barriers to trade. Due to the near universality of Third world debt, structural adjustment's terms became a template for governance of much of humanity.

The term "structural adjustment" has been somewhat replaced since the late 1990s by an emphasis on "poverty reduction", with developing countries encouraged to draw up Poverty Reduction Strategy Papers (PRSPs); the content of these is often quite similar to Structural Adjustment Programs.

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Conditions

Structural Adjustment Programs (SAP) are loans from the IMF given to a nation with certain conditions. Nations are demanded to follow these conditions for approval of the loan. These conditions are technically known as "conditionalities".

Some of the conditions commonly are:

  • Cutting social expenditures,
  • Focusing economic output on direct export and resource extraction
  • Devaluing currencies against the dollar,
  • Lifting import and export restrictions,
  • Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets)
  • Balancing budgets and not overspending,
  • Removing price controls and state subsidies
  • Privatization, or divestiture of all or part of state-owned enterprises,
  • Enhancing the rights of foreign investors vis-a-vis national laws.
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Effects

SAPs have the effect of commercializing the soveriegnty of national economies. Lowered wages cause local purchasing power to be reduced, privatization of public enterprises reduces state capacity and export expansion often displaces local production systems. The agricultural, anti-land reform and food trade policies associated with SAPs have been a major engine in the urbanization of the global South, the ballooning of megacities, worldwide migration towards the global North, and the growth in urban poverty and slums.

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Further reading

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External links

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