The Implications Of Structural Adjustment Policies Economics Essay

Structural adjustment policies (SAPs) are sets of economic policy conditions implemented by developing countries under the instruction of the IMF or the World Bank in order to receive new loans or lower interest rates on older loans. SAPs have been commonplace since the early 1980’s although today they often fall under the guise of Poverty Reduction Strategy Papers (PRSPs). The conditions of SAPs adhere to neoliberal ideology and reflect free market thinking by shrinking the role of the state through austerity measures and privatization while liberalizing trade and finance. So long as SAPs have existed there has been debate on what the real the benefits and repercussions are for the developing countries which implement them. Many of the critiques of SAPs derive from an unfavourable assessment of the underlying neoliberal principles. The intention of these principles is economic restructuring while segregating the political sphere to attain export oriented economic growth in the developing countries (WHO, 2013). Based on empirical evidences in Sub-Saharan Africa, this essay is going to analyse the impact of neoliberal structural adjustment’s austerity programmes imposed by international institutions like the IMF and World Bank upon the nation states as well as the lives of African people, particularly by focussing on ethnographic studies in Zimbabwe. This essay is divided into three sections; the first section will be the explanation of the causes of SAPs and how these kinds of policies were initially introduced, the second section of this essay will be the analysis of the implications of SAPs on the receiving IMF-loan countries by highlighting three critiques of SAPs upon the lives of Sub-Saharan African people, namely increasing poverty and inequality, the threat to national sovereignty of the states’ politics and economy as well as on the implications on the environment, and in the third section, this essay will be discussing some of the possible alternatives or modifications on SAPs that may be implemented.

To understand the present problems associated with neoliberal structural adjustment policies (SAPs) we must look back to the initial introduction of SAPs due to the developing country debt crisis. In 1973 the Organization for Petroleum Exporting Countries (OPEC) tripled the price of gas, only to triple it again in 1979. This lead may oil rich nations to become awash with petro-dollars which were put into Northern banks. At this time developing countries were trying to cope with the high oil prices and the retreating prices of the primary commodities that were their main export (Taylor, 2009). To deal with this dilemma many countries began borrowing money from the Northern banks, who were offering low interest rates due to the surplus of petro dollars in their holding (Taylor, 2009). However, the high oil prices lead to inflation and so the US government in 1982 increased the interest rates (Taylor, 2009). Naturally the jump in interest rates had a devastating effect on the developing countries who had taken out loans, and in 1982, Mexico was the first country to declare bankruptcy (Taylor, 2009). The IMF and the World Bank were quick to respond to this crisis by giving loans to developing countries to make payments on the accumulating debt (Taylor, 2009). These institutions believed that to truly rise above the crisis large processes of transformation would be needed that would overcome, what they perceived to be, previously inefficient development policy with a far to inclusive role for the state (Taylor, 2009). This transformation process would be completed by creating export-oriented economies open to foreign trade while decreasing the prevalence of state involvement in the market (Taylor, 2009). It became known as structural adjustment. To ensuring these structural adjustment changes would be applied loans became conditional on successful implementation of the SAPs (Taylor, 2009). Since the Zimbabwean economy during the 1980s had experienced increasing difficulties, voluntary structural adjustment programmes was introduced in 1990 partly to forestall the imposition of a tougher programme by the World Bank and IMF (Drakakis-Smith, 1994). The structural adjustments of 1990 were then further pressure on the Zimbabwean economy due to mismanagement and more stringent conditions from the lenders, which are the IMF and World Bank (Drakakis-Smith, 1994). The pressure of the stringent conditions of SAPs not only impacted the Zimbabwean economy, but also the citizens of the country as well as in other receiving IMF-loans African countries. The next section of this essay will be discussing the implications of SAPs to African peoples, the nation states and the environment.

As suggested in the introduction of this essay, many of the critiques of structural adjustment policies stem from broader critics of the neoliberal ideology. The conditionalities of SAPs all adhere to neoliberalism and include: currency devaluation (which lowers the value of goods and services), creating regressive tax systems (lower tax rates on higher amounts of taxation), privatization of government enterprises, wage cuts, austerity measures (cuts in public spending), financial liberalization and trade liberalization through lowering tariffs and opening to foreign direct investment. These policies are intended to facilitate development in less developed countries through export oriented economic growth and a lessening of the role of the state in the market yet neoliberalism remains challenged due to, in part, the empirical evidence of the burden these policies place on the poor (Babb 2005; Castro and Singer 2004; Drakakis-Smith 1994; Kawewe and Dibie 2000; Plank 1993).

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Through this opposition to neoliberalism is an important critique of structural adjustment which identifies the increasing rates of poverty and inequality in the developing countries which are forced to implement SAPs. The combination of reducing social services such as health care and education, reducing real wages and directing agricultural production to export is detrimental to poorer populations and works to intensify previous situations of poverty and inequality.

There is much empirical support that demonstrates how social wellbeing can deteriorate due to the emphasis on export oriented economic growth found in structural adjustment policies. According to Friedman, the heaviest burden of SAPs has particularly fallen upon the urban populations and the poor and Drakakis-Smith argued that Zimbabwe is likely to prove no exception to this situation (Drakakis-Smith, 1994) The withdrawal of consumer subsidies, rampant inflation, high unemployment and a decline in real wages due to austerity measures imposed by the IMF have led to widespread of urban unrest (Drakakis-Smith, 1994).

In looking at Zimbabwe, Drakakis-Smith (1994) states that SAPs have highly impacted the poor, where it is increasingly difficult for them to meet their own basic needs, especially in Harare, since food prices, rents and transportation costs have risen rapidly and education fees have been reintroduced. Kawewe and Dibie (2000) also found that structural adjustment programs led to increased prices in user fees for education and health care. This in turn led many families to remove children (in particular girls) from schools and had an exacerbating effect on HIV/AIDS because people could no longer afford these services (Kawewe and Dibie, 2000). Heavy exporting from the agricultural sector created less domestic food production (Kawewe and Dibie, 2000). Many of the poorest urban households spend in excess of their total income on food by borrowing or suffering from under nutrition due to poverty or other forms of entitlement deprivation after the implementation of SAPs (Drakakis-Smith, 1994). Drakakis-Smith (1994) also argued that one of the consequences of the reliance on cash purchase of commercial food which tend to impinge on nutrition and health is that the urban poor, particularly, “pay more for less and their health and nutrition suffer” (Drakakis-Smith, 1994). Additionally, SAPs lead to increased unemployment due to layoffs in the public sector and real wages of many people who work in urban areas had declined (Kawewe and Dibie, 2000).

Castro and Singer suggest that, “Two of the most pervasive trends within the context of structural adjustment health-sector reform have been toward the privatization of health services and the institution of fee-for-service policies in public sectors” (Castro and Singer, 2004). The World Health Organization states that cuts on public health expenditure and reductions in household income to put towards health care have resulted in slower rates of improvement in the national health status of populations or an overall deterioration in the level of health and wellbeing due to poorer nutrition and greater uncontrollable spread of disease (WHO, 2013). These increasing trends in poverty and inequality fail to correlate to the IMF and World Bank’s touted goal of poverty reduction (IMF, 2012b). According to the 1999 Structural Adjustment Participatory Review Initiative (SAPRI) conference in discussing the consequences of structural adjustment in Zimbabwe:

The World Bank acknowledged that structural adjustment has failed to achieve macroeconomic stability in Zimbabwe and has resulted in a failing standard of living for many, particularly members of urban households. The percentage of those households classified as poor rose from 40 percent in 1991 to 60 percent in 1995, and average consumption levels dropped by 25 percent. Cutbacks in public expenditures have also negated achievements in health and education made during the first decade of independence (before the implementation of structural adjustment), according to the Bank (Zimbabwe 1999).

Castro and Singer (2004) state in their book that David Simmons’s examination on the consequences of structural adjustment policies on health and health services in Zimbabwe shows:

Examples of public hospitals unable to supply critically needed services and medications; of overworked, poorly compensated physicians and nurses leaving the country to work elsewhere; and of changing patterns of health care-seeking behaviors, including the correlation of decreased visits by women and their children, with the introduction fees. This overall degradation in health services was accompanied by increasing rates and levels of malnutrition, increasing unemployment, and crowded, deficient housing, and has led to the embodiment of structural adjustment and its consequences “as a biological event” (Simmons 2002:94).

Based on these empirical evidences in Zimbabwe, it shows that the structural adjustments implemented by the IMF and World Bank have led to Zimbabwean health degradation due to other complexity of interrelated causal effects, particularly poverty and inequality.

Another leading concern over the neoliberal fundamentals of structural adjustment is the threat it poses to the national sovereignty of developing countries. The basic premise of this concern is that such strong influence by an external organization, one heavily dominated by Northern countries no less, the diminishing of state power through privatization and the opening up of countries to foreign investment interests work to diminish national autonomy and self-control. In addition, SAPs put recipient countries in very poor bargaining positions (Babb, 2005). Due to the stringent conditions of SAPs, the spending priority of receiving-loan nation states has focused on meeting debt obligations even at the cost of squeezing domestic welfare (Chattopadhyay, 2000). This has given the nation states not much opportunity to preserve their national sovereignty align with the shrinking role of the states under the implementation of the structural adjustments.

In a study on national sovereignty in Mozambique Plank (1993) discovered that the role and authority of the nation state had been severely diminished by SAPs. Duties that had formerly been carried out by government bodies had become the responsibility of foreign investors, donors and other non-governmental organizations (Plant, 1993, p. 407). Plank finds that this coincides with the larger trend across other African nations as governments find there are insufficient alternatives for external assistance (1993, p. 415). The traditional notions of African sovereignty, or alternatives such as “local autonomy, increased equity, expanded democratic participation”, had been discredited by the orthodox assumptions informing SAPs (Plank, 1993, p 415). The effect of SAPs on the national sovereignty of recipient countries has led some scholars to characterize the situation as a ‘post-colonial’ one in which the countries of the world do not play on an even field (Tan, 2011).

Another critique of SAPs that has received slightly less attention than the concerns discussed above is the impacts the policies have on the environment. There are essentially two parts to this concern. The first part is the increasing debt burden of most countries and the failure of structural adjustment policies to adequately address the environment has led to the belief developing countries will not be able to afford engaging in environmental sustainability (Babb, 2005). O’Brien (2003, p 179) has reported that very few of the IMF’s SAPs have included a mention of negative environmental implications. Although the IMF has recognized the linkages between policy and environment there has been no tendency, and even reluctance from some Executive Directors, to adequately incorporate ideas of environmental sustainability into policies or negotiations with governments (O’Brien, 2003, p. 179)

The second area of concern is the belief the pressures of debt and structural adjustment will push governments of developing countries to over exploit their natural resources (Shah, 2001) although some people claim the economic development brought on by liberalization is a mechanism to establishing environmental respect (presuming there is economic development)(Babb, 2005). Particularly the export orient mechanism for growth can cause negligence towards long term and sustainable environmental planning (Kothari and Kothari, 1993). This caused vast areas of forests to be clear cut to make room for agriculture and having such side effects as overgrazing, erosion and silt loading in the ocean although these problems have since been amended (Kothari and Kothari, 1993). Some remaining ecosystem hot spots are being leased out to foreign development to promote tourism. Deforestation, erosion and over-cropping are also seen in most African countries, where it is illegal for Mayan people to cut a tree for subsistence purposes (Kothari and Kothari, 1993).

Rather than facilitating development in less developed countries, the conditionalities of SAPs under neoliberal ideologies tend to be seen as manipulating the receiving-loan countries. Understanding the roots of the problems under the SAPs in the previous section can help in addressing new alternatives or some amendments to the structural adjustment policies. It has explicitly been shown in most receiving-loan countries that the policies are not entirely working, based on the empirical evidence suggested earlier in this essay; the neoliberal conditionalities of SAPs have placed a significant burden on the poor (Babb 2005; Castro and Singer 2004; Drakakis-Smith 1994; Kawewe and Dibie 2000; Plank 1993). Therefore, this section is attempted to suggest several alternatives to the structural adjustment policies by the IMF and World Bank.

Due to the stringent conditions of SAPs, the spending priority of receiving-loan governments has focused on meeting debt obligations even at the cost of squeezing domestic welfare. Another area which can be looked into for modifications of the conditions of SAPs is the inclusion domestic concerns along with the foreign and international concerns. The inclusion of domestic concerns would be in favour of the local citizens of the recipient countries, because they are facing the greatest impacts from the implementation of SAPs, as mentioned earlier in this paper in which their social wellbeing deteriorates due to increases in inequality and poverty. As citizens, they have a right to voice their needs, especially those that have been violated under conditions of SAPs.

Farmers should have the right to access affordable farming tools and fertilisers, children should have the right and access to proper education and all citizens should have the right to proper sanitation and healthcare. Collective representation of citizens, contributing their role, as well as active participation in development through civil society movements, will affect the conditions of SAPs. Recognized labour movements can be an example of collective representation of citizens at both local and global levels defending the needs and views of the citizens, as well as direct participation in the decisions that may significantly affect their lives. These kinds of participation by citizens are seen as a form of inclusion of domestic concerns in accomplishing the reformation of the condition implementation of SAPs.

With the help of local and international NGOs in development, the necessities and welfare of the citizens who are deeply impacted by the implementation of SAPs can be provided for, especially in rural areas in impoverished countries that are under SAPs. The role of NGOs is important in the inclusion of domestic concerns by campaigning and raising issues of “labour conditions, poverty alleviation, ecological sustainability, gender equity, good governance and debt relief” (O’Brien, 2003). An example of NGOs that can help in affecting the changes of the conditions of SAPs is Structural Adjustment Participatory Review International Network (SAPRIN), which is a globally established network that legitimizes challenges to SAPs by citizens and global civil society in various countries on four continents (SAPRIN, 2005). Particularly in economic policymaking by assessing the real impacts of World Bank and IMF-supported economic reform programs (SAPRIN, 2005). SAPRIN can be seen as a Southern Non-governmental Organizations (SNGOs) that consists of participant countries including: Bangladesh, Ecuador, El Salvador, Ghana, Hungary, Mali, Uganda and Zimbabwe (SAPRIN, 2005). Through these kinds of SNGOs, the voice of the people in South who are the most impacted by the implementation of SAPs can be heard not only at a local level, but also at the global level.

Another area of domestic concern that needs to be addressed for reforming SAPs is the national sovereignty of developing countries due to the shrinking role of the state under the implementation of the structural adjustment. Regardless the conditionalities and austerity measures imposed under SAPs, it is not always wise for recipient nation states to adhere to the IMF and the World Bank or depend on their advice. The recipient nation states should play their part in negotiating with the donors by addressing crucial economic issues, rather than favouring their political power. Instead of being overly concerned about maintaining political power, nation states should be addressing the issues of their countries’ wellbeing, such as well-paid jobs for the citizens and environmental concerns that are at risk of exploitation by both foreign and domestic private corporations. Through this kind of mandate by the nation states, they would have more powerful sovereignty to protect their citizens as well as their interests, which can also attract investment from some corporations.

The role of the nation state in dealing with business sectors, both domestic and foreign, is also important to maintain their national sovereignty. With reformation, foreign and domestic private business corporations also have to be open for change in terms of more reasonable payment for their employees, greater concern on environmental issues, rather than just focussing on their bottom line which is to make profits by exploiting other means. Moreover, growing business responsibility for the environment is not only a rational business response to so-called “win-win” opportunities, but meeting the responsibility for the environment by corporate businesses is also seen as responding to the influence from governments as well as civil society organizations and movements as a whole (Murphy and Bendell, 1999). Additionally, governments should avoid any corruption which can harm the wellbeing of their nations. The roles of the states and business corporations have a high possibility to change the condition of those deemed most at risk as resulted from the loan of SAPs. According to Chattopadhyay (2000), the citizens of developing and impoverished countries’ access to food and other necessities can be increasingly guaranteed through ‘exchange entitlement’, which is having sufficient income to purchase those needs. After the implementation of SAPs, there has been a steady erosion of entitlements (Chattopadhyay, 2000). Therefore, instead of squeezing the entitlements to meet debt obligations or political corruption, governments of recipient countries should seek opportunities by negotiating with the business corporations to address exchange entitlement, which can benefit both, nation states sovereignty as well as their citizens. Due to the conditions of SAPs, many developing and impoverished countries have failed to create and protect basic entitlements that serve as the foundation for strong economies, compounded by the failure to reform the nature of their political relationships (Chattopadhyay, 2000).

In conclusion, this essay has covered most of the implications of the structural adjustment programmes implemented by the IMF and World Bank in Sub-Saharan African countries, particularly in Zimbabwe. Some of the more intrinsic problems with structural adjustment can be traced all the way back to drawbacks in the Washington Consensus itself. Accroding to Ocampo (2004), there are several problematic areas of the Washington Consensus that have not been addressed through reforms and can been seen spanning out into all the policies it informs. The first of these areas is the currently narrow view of what defines macroeconomic stability and the importance of opening this definition up (Ocampo, 2004). Secondly is lack of attention towards the beneficial effects of certain polices can have on investment and growth (Ocampo, 2004). Third is the tendency to regularly place the most emphasis on the development of economic policy over social policy (Ocampo, 2004). Lastly, the failure to include the choices, opinions and concerns of the citizens who will be most affected. Therefore, despite the alternatives of the structural adjustments that have been discussed in this essay, above all, to tackle these large hurdles requires a slow, incremental process and the allowance of time for trial and error.