NOTES ON STRUCTURAL ADJUSTMENT

PROGRAMMES
Since the late 1950s the International Monetary Fund have been imposing
monetarism (neo-classical economic theory based economic policies) as a
condition for lending money to less developed societies facing problems with their
balance of payments.

What makes of monetarist strategies a main issue for developing societies during
the 1980s and the 1990s is that the World Bank adopted as its main policy
imposing monetarist economic policies on less developed countries. Therefore,
since the late 1970s-1980s until today, not only the IMF but also the World Bank
has been the champions for creating deregulated markets all over planet earth.
Thus, poor countries had to apply the above policies if they needed to finance
Deficit on balance of payments and/or finance new projects for further economic
and/or social development.

They have to accept the "Washington Consensus", as this neo-liberal perspective is

called.

Structural Adjustment Programmes is the name for this comprehensive

economic policies imposed on or accepted by the ruling elites in less developed
societies. The main aim of structural adjustment programmes is to transform all the
economies in the world into capitalist economies inserted in one system under the
management of international capital.

If we look at the main five measures imposed by adjustment programmes it

appears very clear that they tend to facilitate an economic environment favorable
to the activities of globalized production as controlled by transnational
corporations:

1. - promotion of outward-oriented growth;

2. - expansion of the private sector's role as the growth process's
Driving force;
3. - removal of barriers to international capital flows;
4. - diminishing economic role of the state; and
5. - deregulation and restructuring of domestic labour markets.

During the 1950s, 1960s and 1970s, "structuralism" was the established
orthodoxy for development theory and policy for African, Asian and Latin
American developing countries.

The basic tenets of structuralism were as follows:

1.- in poor countries, the economies were structurally different from
advanced industrial economies (capitalist center of the world
economy). This structural difference was an outcome of colonization
by Western European imperialist nations)
Because of the above:
2.- Advanced industrial economies needed economic policies as theorized
by Keynes (the management of aggregate demand -national demand),
while
3.- poor countries economies, being disarticulated ("fragmented"
economies, "fractured" economies), were a "special case" of
Keynesian economics: development economics.
4.- development economics was about the state-government playing the
Main role in social and economic "modernization", and planning Economic
development, in partnership with private capital -both national and foreign-
passing through stages of import-substitution leading to export-led strategies.

All the above shaped a school of thought based on the idea that the market
economies in the world were divided in a "dual" system: modern economies and
traditional economies, being the traditional economies in need of becoming
modern through "development economics".

During the last stage of the period of the Cold War, the concept of "mono-
economics" began to develop, based on the notion of final victory, end of history,
the arrival of the final stage in human development, because the capitalist system
had defeated-destroyed all alternative attempts to economic development.

This "mono-economics" (Friedman, Von Hayek, et al) concept allowed to argue

that the dynamics of the free-market was good for both "advanced industrial
economies and poor economies". Calling themselves "neo-liberals", which is just
another label for "neo-classicals", the followers of "mono-economics" argue that:

1.-The free-market structure delivers economic growth, full employment, and

human development both in industrialized areas and rural areas of the world;
2.-Structural adjustment was necessary for advanced industrial economies
and less developed economies, with the aim of unchained those economies from
Keynesian constraints and "development economics"
constraints;

3.-Structural adjustment has two main components:

a) stabilization of prices through balanced budgets, and

b) market liberalization/deregulation plus public sector reform as the
environment for free-markets.

4.-a central assumption is the primacy of macroeconomic stabilization for both

the external sector (balance of payments), and the domestic sector (inflation
under control mainly through controlling the level of wages)

5.-to support the above notions, the following political assumptions

were necessary:
-the state is always enemy of economic growth;
-international financial institutions are more prepared to lead
structural adjustment than domestic financial institutions;
-international capital is the most efficient capital available for
poor economies in their quest for economic take-off.

Of course, the origin of structural adjustment policies has to be sought not merely
in the deteriorating international economic environment of the 1970s, but also in
the evolution of policy thinking within the World Bank, the latter evolving from
the evolution of economic thinking within the elite groups in the US and the UK.

Structural adjustment policy is composed of:

A) Stabilization, and
B) structural adjustment.

A) is composed of
A.1 fiscal policy
A.2 monetary policy
A.3 devaluation

B) is composed of
B.1 resource mobilization
 B.2 public sector allocation
B.3 market liberalization
B.4 institutional reform

B.3) market liberalization is composed of:

B.3.1 goods market (agriculture and industry)
B.3.2 current account (exports and imports)
B.3.3 domestic financial markets (banking system)
B.3.4 capital markets (treatment to foreign capital)
B.3.5 internal factor markets (capital and labour)
B.3.6 return to market-determined price
B.3.7 removal of qualitative restrictions
B.3.8 promotion of private sector operations
B.3.9 limitations on the role of government

B.3.8) promotion of private sector operations is composed of:

B.3.8.1 divestiture (leaner civil service, health,
education, housing, etc)
B.3.8.2 closure (transferring state firms to the private
sector)
B.3.8.3 privatization of services (contracting out)
B.3.8.4 exposure to competition from the private
sector (prisons, hospitals, schools, etc)

By and large, any adjustment programme will 'stabilize' the internal

economy through
adjusting the exchange rate;
reducing any fiscal deficit (reducing public expenditure
and/or increasing taxes),
contraction in the money supply,

and, 'structural' adjustment will

liberalize the trade regime (reduction/abolition of
Restriction on imports;
more incentive to export);
improving the productivity of public investment
(charging for services,
abolishing subsidies, etc);
restructuring the tax system (through indirect taxes);
liberalizing the allocation of credit, and
 improving the incentive to save;
improving efficiency of public enterprises
(emphasis on profits);
liberalizing prices (especially price of labour,
labour markets will be the main
target here).

"Structural adjustment Programmes are undermining recovery prospects,

Compounding inequalities, undermining the position of women, and Failing to
protect access to health and education services. "Project interventions often
continue to cause unacceptable –and unacceptably violent- human displacement
and environmental damage.
"The Bank has failed to develop a coherent debt-reduction strategy for the world's
poorest countries.”While endorsing 'good governance' in the South, the World
Bank is itself unaccountable to citizens and governments in the developing world."

Focusing on structural adjustment programmes, Oxfam (1994) summarizes that

"structural adjustment programmes (SAPs), designed by the World Bank and the
IMF, and proliferated in the early 1980s, as one country after another in the South
was afflicted by a lethal combination of high interest rates and falling commodity
prices. Along with the balance-of- payments loans came conditions. These required
government compliance with targets for residing budget deficits, liberalising
imports, deregulating internal markets, and promoting exports. The stated objective
has been to support export-led recovery. More recently, the World Bank and the
IMF have claimed that SAPs constitute and integral part of a poverty-reduction
strategy geared towards 'employment intensive' growth."

And, then says that "what is unacceptable...is the imposition of the type of extreme
deflationary measures associated with structural adjustment. The Bretton Woods
system was created to avoid such pressures, and far more could have been done to
develop alternatives.
In particular, as we argue below, the Bretton Woods agencies should have
demanded large-scale debt reduction to release development resources"... "Instead,
the IMF has imposed a monetarist strait-jacket on much of the South. Potentially
competitive labour intensive industries and rural employment have been
undermined by declining public investment in social and economic infrastructures,
credit shortages and import constraints. Moreover, the imposition of an 'export-led
growth' strategy for resolving the debt crisis has carried the seeds of its own
destruction, especially in the world's poorest countries. Increased commodity
exports have contributed to the most protracted and deepest depression in world
markets since the 1930s..."In Oxfam's view, these adjustment policies were in large
measure responsible for the 'lost decade' of the 1980s, when most developing
countries experienced steep declines in human welfare.

The danger now is that structural adjustment policies will consign large swathes of
the developing world to another 'lost decade' of deepening poverty, rising
inequality, slow growth and mass unemployment"...

Summary of the Economic and social impacts of SAPs

Structural adjustment -- the standard IMF/World Bank policy package which calls
for slashing government spending, privatization, and opening up countries to
exploitative foreign investment, among other measures -- has deepened poverty
around the world. In the two regions with the most structural adjustment
experience, per capita income has stagnated (Latin America) or plummeted
(Africa). Structural adjustment has also contributed to rising income and wealth
inequality in the developing world. Here's how various structural adjustment
policies increase poverty:

 Privatization -- Structural adjustment policies call for the sell off of

government-owned enterprises to private owners, often foreign investors.
Privatization is typically associated with layoffs and pay cuts for workers in
the privatized enterprises.
 Cuts in government spending -- Reductions in government spending
frequently reduce the services available to the poor, including health and
education services (though the IMF and World Bank now say they preserve
health and education spending).
 Imposition of user fees -- Many IMF and World Bank loans call for the
imposition of "user fees" -- charges for the use of government-provided
services like schools, health clinics and clean drinking water. For very poor
people, even modest charges may result in the denial of access to services.
 Promotion of exports -- Under structural adjustment programs, countries
undertake a variety of measures to promote exports, at the expense of
production for domestic needs. In the rural sector, the export orientation is
often associated with the displacement of poor people who grow food for
their own consumption, as their land is taken over by large plantations
growing crops for foreign markets.
 Higher interest rates -- Higher interest rates exert a recessionary effect on
national economies, leading to higher rates of joblessness. Small businesses,
 often operated by women, find it more difficult to gain access to affordable
credit, and often are unable to survive.
 Trade Liberalization -- The elimination of tariff protections for industries
in developing countries often leads to mass layoffs. In Mozambique, for
example, the IMF and World Bank ordered the removal of an export tax on
cashew nuts. The result: 10,000 adults, mostly women, lost their jobs in
cashew nut-processing factories. Most of the processing work shifted to
India, where child laborers shell the nuts at home.

The following was Oxfam's overview of the 'lost decade':

---In Latin America per capita incomes dropped by 10 per cent and investment
fell from 23 per cent to 16 per cent of national income during the 1980s. Import
activity dropped sharply, as governments transferred a massive stream of wealth
-totalling over $200bn, or some 6% of GDP, during the decade- out of the region.
Inevitably, deflation on this scale increased social misery, with the costs of
adjustment passed disproportionately to the poor. The World Bank itself
estimates that nearly one third of the region's population was living in poverty by
1990, up from 27% a decade earlier; and an estimated 10 million children are
suffering from malnutrition. Over the 1980s, the poorest 20% of the region's
population saw their share of income fall to less than 4%. Unfortunately, the
Bank has remained oblivious to the connections between these trends and its own
adjustment policies. The Inter-American Development Bank has identified
inequality as one of the major obstacles to recovery in the region.

---In Africa, where more than thirty countries have embraced structural
adjustment, average incomes fell by 20% during the 1980s, open unemployment
quadrupled to 100 million, investment fell to levels which were lower than in
1970, and the region's share of world markets fell by half to 2%. Today, sub-
Saharan Africa is the only developing region in which poverty is increasing and
human welfare is worsening. Africa recovery prospects have suffered in acute
form from the emphasis placed by SAPs on export-led recovery. As one country
after another expanded production of primary commodities for stagnant world
markets, they contributed to the worst international price slump since the 1930s.
During the second half of the 1980s, West African cocoa producers almost
doubled their production, only to see their foreign-exchange earnings fall. The
IMF now concedes that worsening terms of trade have undermined its adjustment
programmes, and the World Bank's most recent GLOBAL ECONOMIC
PROSPECTS report acknowledges that world prices for coffee, cocoa and tea -
Africa's major primary commodity exports- have been depressed by oversupply."
An empirical illustration of Oxfam's argument is the
following:
Diverging prices for commodities and manufactured goods in the international
market during the process of globalization: Oxfam (1994) added that "...economic
growth has yet to translate into a reduction of poverty and inequality...". The World
Bank "...also confirmed that there is little prospect of economic growth making an
Impression on poverty in the foreseeable future. In Ghana, the star pupil of both
the World Bank and the IMF, the average citizen will not cross the poverty line for
another half-century. Moreover, after a decade of adjustment and aid transfers
equivalent to 8% of national income, private investments in Ghana remains
insufficient to replace existing capital stock, and the country's debt has tripled to
over $4bn."

Oxfam(1994) listed the following assessment of structural

adjustment programme's effect on employment:
1) In Zambia, fragile industries have been confronted with punitive interest rates
and a surge in competition from cheap imports. More than three-quarters of its
textile factories have closed by 1993, generating mass unemployment in urban
centres. "This has not prevented the IMF from lauding Zambia as a model to be
followed by others for its achievements in lowering inflation.

2) In countries such as Mexico, Costa Rica and Bolivia, average wages have
fallen by one third since 1980 -and they are still falling. "This partly explains the
increase of 38m to 69m in the number of urban-based people living in poverty in
the region. In Costa Rica, one of Latin America's model adjusters, the proportion
of the population unable to meet its basic needs increased from 21% to 28%
between 1987 and 1991."

3) According to the International Labour Organisation, real wages in Africa have

fallen by between 50% and 60% since the early 1980s in most countries. "In
Tanzania, the average minimum wage was below even the minimum food basket
by 1988, and by 1991 it was insufficient to purchase twenty day's worth of
goods."
4) "In Latin America, open unemployment has risen to an average of over 10%,
and is considerably higher in countries such as Peru and Bolivia. In Sub-Saharan
Africa, average unemployment in countries such as Zambia, Tanzania and Ghana
is in excess of 20%.

5) "Rising unemployment and falling wages have been accompanied by a

massive expansion of employment in the informal sector, which now accounts
for around two-thirds of employment in Africa. This has been welcomed by the
World Bank and the IMF as a move towards market 'flexibility'. However, that
'flexibility' reflects the deepening impoverishment of women, who have been
forced to take on multiple jobs, working long hours for low pay in the informal
sector to maintain family income. Their plight has been worsened by a steep
decline in informal sector wages, which have fallen by almost 60% in Latin
America since 1980s."

6) "In Chile, widely cited as a model adjuster by the World Bank and the IMF,
income inequalities have widened dramatically. In 1990, minimum wages were
20% lower than in 1980. Meanwhile, the income share of the poorest 20% of the
population fell by a fifth between 1980 and 1990. Flexible labour markets are
now the main cause of poverty in Chile." ( see C. Schneider, "Chile, the
underside of the miracle", and R. Rojas, "15 years of monetarism in Latin
America. Time to scream")

7) Trade union rights "have been severely eroded in a number of adjusting

countries. Chile under the regime of General Pinochet is most extreme example.
But the right to collective action in defence of wages has also been seriously
curtailed in Ghana, Zimbabwe, Mexico and the Philippines.

8) In Latin America, adjustment policies have dramatically changed the "poverty

profile in most countries. In addition to the general increase in poverty noted
earlier, the number of people living in extreme poverty increased from 62m to
93m between 1980 and 1990. Over the same period, falling wages and rising
unemployment increased the urban poor population, which in 1993 accounted for
60% of the total."

9) "In the Philippines, the mass unemployment and impoverishment caused by

stabilisation and structural adjustment forced millions of destitute families to
migrate to marginal upland forests and coastal areas for a subsistence livelihood,
with devastating environmental consequences."
A. Rahman Khan ("Structural adjustment and income distribution. Issues and
experience", ILO, 1993), concludes that "the claim that, on average, official
adjustment programmes under the auspices of the World Bank and the IMF have
performed well, not only by the conventional standards of promoting adjustment
and preserving growth but also in terms of protecting the poor, is very hard to
substantiate convincingly".

IMF and World Bank-imposed cut backs on social expenditure as a an

'efficient' measure to implement structural adjustment programmes have
been burdening the poor sectors of less developed societies. Oxfam (1994)
found that "in the Philippines, real per capita spending on health was lower in 1992
than in 1982. Moreover, the share of health spending in the total budget fell from
3.4% in the early 1980s to 2% for the period 1990-1993. Meanwhile, the expansion
of cost-recovery has undermined the access of the poor to health provision".

"In India, the Department of Rural Development cut its social expenditure budget
in the first year of the country's stabilization programme. This was followed in
1992-1993 by a 46% cut in the rural sanitation budget and a 39% cut in rural
water-supply spending –areas of social expenditure of vital importance to poverty
reduction."

"In Nicaragua, per capita social spending is back to the level of the mid-1970s,
following a dramatic decline during the 1990s"..."Meanwhile, infant mortality rates
are increasing, after declining steadily for more than a decade."

"In Zimbabwe, per capita spending on health and education has fallen by one third
since the introduction of an adjustment programme in 1990"... "Infant and maternal
mortality rates have increased sharply, with maternal mortality rates have increased
sharply, with maternal mortality rates among women from Harare attending the
city's main hospital doubling between 1991 and 1992."

"In Zambia, where the World Bank pledged to protect social expenditure, the 1992
education budget accounted for 9.1% of the total budget, compared with 13.4% in
1985. In the health sector, the World Bank itself has acknowledged that the
introduction of user-fees is perceived by village women as a serious threat to their
health status, yet it initially supported their introduction. These fees have had a
detrimental impact on the provision of immunisation for measles, whooping cough,
diphteria and tuberculosis -diseases which have re-emerged as major killers across
the country."
"Evidence from many developing countries have shown that economic pressures
and the introduction of user-fees in education result in disproportionately higher
drop-out rates among young girls."

"Oxfam's experience across Africa, Asia and Latin America is that the curtailment
of social services, has forced women to compensate by increasing their unpaid
work-burden. Increased poverty, the collapse of water and sanitation services, and
the erosion of primary health acre provision has brought with it an increase in
incidence of poverty-related diseases -such as measles, cholera and malaria- and in
the amount of time spent by women caring for the family."

United Nation's "Human Development Report 1996", identified five types of bad
economic growth that were most common in the world after the triumph of
"globalization", which is equivalent to structural adjustment programmes in less
developed societies. The five types were:

-Jobless growth -the overall economy grows, but fails to expand job
opportunities.
-Ruthless growth -the rich get richer, and the poor get nothing.
-Voiceless growth -the economy grows, but democracy/empowerment of the
majority of the population fails to keep pace.
-Rootless growth -cultural identity is submerged or deliberately
outlawed by central government, as in some of the states of former
Yugoslavia or the Kurdish areas of Iraq and Turkey.
-Futureless growth -the present generation squanders resources needed by
future generations.

About the last type of growth, two major forces contribute to increase
environmental damage when structural adjustment programmes are implemented:

-activities of transnational corporations in the

manufacturing, agribusiness and mining sectors, creating atmospheric pollution,
water pollution, degrading fertile soil, and making million of smallholders landless.
-activities of poor people, both in the countryside and the urban areas through
survival activities.

D. Reed (ed.), "Structural Adjustment, the Environment, and Sustainable

Development", Earthscan, 1996, wrote a
"Summary of the Environmental Impacts of
External/Internal Adjustments.

"...Both devaluation and trade liberalization"...in..."the countries included in this

study"..."have had important and immediate effects on their extractive and
agricultural economies. In some cases, the growth impacts are clearly positive; for
example, new agricultural incentives have stimulated expansion and diversification
of tradeable crops and shifts to nontraditional commodities. The environmental
impacts of those shifts are positive in that they have improved relative returns to
the agricultural sector, raised farm incomes for some producers, and thereby
encouraged on-farm investments. Over time, these improvements may also
encourage the introduction of new technologies and reduce poverty- induced
environmental damage." "One of the key points raised in the foregoing
conclusions is that the environmental impacts of the external adjustments are
determined largely by the farmers' status in the adjusting countries. Commercial
producers are able to respond to new price incentives from international markets
by diversifying crops, intensifying production, and continuing to introduce new
technological improvements. They are also able to absorb the rising costs of
agricultural inputs without major difficulty. In short, the changing ratio of inputs to
producer prices has either remained favorable to commercial farmers or their
expanded production has overridden the negative effects of relative price changes."

"Small farmers and rural workers with little or no land cannot absorb the increased
costs of agricultural inputs, such as seed and fertilizer,as easily; nor have they been
able to respond as effectively to the new price incentives offered by trade
liberalization. Given their precarious situation, the small farmers' priority is to
ensure their families' food security, often by extensifying food production, with all
the attendant environmental problems. There are indications that the small farmers'
situation has opened opportunities for commercial farmers to expand their
commercial land holdings, thereby increasing their benefits from the emerging
economic system. The full impact of the emerging economic changes on small
farmers and rural populations will become more evident when the impacts of
internal adjustment, including fiscal policy reform,are taken into account."

"The extractive sectors, including forestry and mining, have responded quickly to
the new economic incentives. Expansion in these sectors created environmental
problems, and although some are already visible, the studies suggest that the long-
term impacts may be more serious. This point also applies to the tourist sector.
Local employment may increase as new hotels and facilities are built, but
environmental problems are already in evidence and are expected to intensify.
Expanded industrial production, coupled with expanded transport systems relying
on poorly maintained used equipment, will lower the quality of urban
environments through rising air pollution levels. These environmental costs are not
immutable features of the adjustment programs implemented in the nine countries.
They often result from disregard for the effects of price changes on the
environment and from the lack of complementary policy reforms prior to or during
the economic restructuring process."

"...As regards reductions in agricultural extension activities and social services, the
impacts fall decisively on the poor, and most directly on the rural poor and
women"..."Loss of credit for agricultural inputs, such as hybrid seeds and fertilizer,
the reduction of agricultural extension services to encourage intensification of
production, and the disruption of marketing systems caused by privatization are
among the most direct effects of internal economic adjustments on rural
populations. These changes generated downward pressure on the living standards
of the poor and, in the process, accelerated the most intractable environmental
problem facing many countries -that is, poverty-induced environmental
degradation."

"...Poverty has deepened in seven of the nine countries, and it continues to be

pervasive in El Salvador. In these countries, the 'informalization of the economy',
declining agricultural productivity in many areas, diminishing access to
agricultural inputs and technical advice, an increasing population pressures have
converged to lower living standards, particularly among the rural poor. Cutbacks in
social services have weakened the survival systems of the most vulnerable. The
poor respond to their falling standards of living by migrating and by increasing
their reliance on natural resources."

"Depending on conditions in each country, the direction of migration varies: in

some African countries, the poor tend to move back to the land; in El Salvador,
Jamaica, and Venezuela, they move to urban areas. Jamaicans often emigrate from
the island to the United States and Canada. Those who remain survive through
agricultural extensification,
deforestation,
intensified use of marginal lands, and
a wide range of informal productive activities ranging
from brewing home beer to catching animal species
 for export."

"The decline in living standards has been accompanied by a weakening of

institutions of both the government and civil society involved in managing and
protecting the environment. The institutional decline resulted in the loss of
resource rents, weakened control over natural resource management, and increased
extraction of natural capital. In short, the social and institutional impacts of
adjustment measures transmitted to the environment are profound, and they may
have long-term consequences."
________________

(Some basic literature:

J.Toye, "Structural Adjustment, Issues and Experience", ILO, 1995
A. Rahman Khan, "Structural Adjustment and Income Distribution",
ILO, 1993
UNDP, "Stabilization and Adjustment. Perspectives on adjustment and
economic reform in Africa", UN, 1991
L. Demery and T. Addison, "The alleviation of poverty under
structural adjustment", World Bank, 1987.
Oxfam, "Africa. Make or Break. Action for Recovery", Oxfam, 1993
Oxfam, "Embracing the Future. Avoiding the Challenge of World
Poverty", Oxfam, 1994
Oxfam, "The Oxfam Poverty Report", Oxfam, 1995
D. Reed (ed.), "Structural Adjustment, the Environment, and
Sustainable Development", EarthScan, 1996
R.Rojas: 15 years of monetarism in Latin America: time to scream
UNCTAD: The Trade and Development Report, 1997 (press release 1)
UNCTAD: The Trade and Development Report, 1997 (press release 2)
R.Rojas: Notes on economics: about obscenities, poverty and inequality
World Development Report 1997, World Bank, 1997)