Structural Adjustment Programs

Structural adjustment programs (SAPs)
Consist of loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to
countries that experienced economic crises.[1] The two Bretton Woods Institutions require borrowing
countries to implement certain policies in order to obtain new loans (or to lower interest rates on
existing ones). The conditionality clauses attached to the loans have been criticized because of their
effects on the social sector.[1]
SAPs are created with the goal of reducing the borrowing country's fiscal imbalances in the short
and medium term or in order to adjust the economy to long-term growth.[2] The bank from which a
borrowing country receives its loan depends upon the type of necessity. The IMF usually implements
stabilization policies and the WB is in charge of adjustment measures.[2]
SAPs are supposed to allow the economies of the developing countries to become more market
oriented. This then forces them to concentrate more on trade and production so it can boost their
economy.[3] Through conditions, SAPs generally implement "free market" programmes and policy.
These programs include internal changes (notably privatization and deregulation) as well as external
ones, especially the reduction of trade barriers. Countries that fail to enact these programmes may
be subject to severe fiscal discipline.[2] Critics argue that the financial threats to poor countries
amount to blackmail, and that poor nations have no choice but to comply.
Since the late 1990s, some proponents of structural adjustments (also called structural
reform),[4] such as the World Bank, have spoken of "poverty reduction" as a goal. SAPs were often
criticized for implementing generic free-market policy and for their lack of involvement from the
borrowing country. To increase the borrowing country's involvement, developing countries are now
encouraged to draw up Poverty Reduction Strategy Papers (PRSPs), which essentially take the
place of SAPs. Some believe that the increase of the local government's participation in creating the
policy will lead to greater ownership of the loan programs and thus better fiscal policy. The content of
PRSPs has turned out to be similar to the original content of bank-authored SAPs. Critics argue that
the similarities show that the banks and the countries that fund them are still overly involved in the
policy-making process.[citation needed] Within the IMF, the Enhanced Structural Adjustment Facility was
succeeded by the Poverty Reduction and Growth Facility, which is in turn succeeded by
the Extended Credit Facility.
As of 2018, India has been the largest recipient of structural adjustment program loans since
1990.[9][10] Such loans cannot be spent on health, development or education programs.[11] The largest
of these have been to the banking sector ($2 trillion for IBRD 77880) and for Swachh Bharat
mission ($1.5 trillion for IBRD 85590).
Conditions
Typical stabilisation policies include:
 balance of payments deficits reduction through currency devaluation

 budget deficit reduction through higher taxes and lower government spending, also known
as austerity
 restructuring foreign debts
 monetary policy to finance government deficits (usually in the form of loans from central banks)
 eliminating food subsidies
 raising the price of public services
 cutting wages
 decrementing domestic credit.
Long-term adjustment policies usually include:
 liberalization of markets to guarantee a price mechanism

 privatization, or divestiture, of all or part of state-owned enterprises
 creating new financial institutions
 improving governance and fighting corruption (from the perspective of a neoliberal formulation of
'governance' and 'corruption')
 enhancing the rights of foreign investors vis-à-vis national laws
 focusing economic output on direct export and resource extraction
 increasing the stability of investment (by allowing foreign investors) with the opening of
companies
 reducing government expenditure e.g. reducing government employment

Structural Adjustment Programs

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Structural Adjustment Programs

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Structural adjustment programs (SAPs)

 balance of payments deficits reduction through currency devaluation

 liberalization of markets to guarantee a price mechanism

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