The Failure Of Structural Adjustment Programmes Essay

, Research Paper

The failure of structural adjustment programs

Many bankers and economists view the Third World as places where the economies have yet to take off. All they need are resources to stimulate the imminent prosperity. To alleviate the immense poverty, unemployment and destitution that afflicts the vast majority of people, the poor and the working class , in these nations, economists and bankers look toward the free market as the solution. As developing nations debts accumulate to point where some must declare bankruptcy, the international banks, the International Monetary Fund (IMF) and the World Bank, began giving loans to these with the aim of stimulating the economy. Attached to these loans are conditions, meaning the debtor nation must adhere to stringent domestic social and economic policies if they were to continue to qualify for future loans and food aid. These financial aid programs are dubbed structural adjustment programmes (SAPs), and are designed to put developing nations on solid footing within the global economy so they could repay their loans. The economic policies that the IMF and the World Bank favour are those which aims producing products as cheaply and abundantly as possible for export. And in turn, jobs would be created and a considerable revenue would be generated. According to their theory, this is supposed to raise the overall standard of living of the people in these nations and help the local economy expand. Since the implementation of them in the 70s though, SAPs have not remedied the plight of the poor and the working class nor caused the economic growth the IMF and World Bank economists have predicted. In fact, evidence shows that SAPs have exacerbated the very problems they were designed to solve: poverty, dependence, and debt. Using Jamaica as a particular example, the following will outline the origins of SAPs and the general effects they have had on countries where they have been implemented.

Firstly, it would be appropriate to briefly explain the general history and context of the global economy that led to the implementation of SAPs.

Third World countries were decolonised as their importance to advanced capitalist countries declined. After the second World War, the Western industrial countries became more self-sufficient: dependence on raw materials declined because they were used more efficiently and synthetic substitutes for them were being developed. The agricultural output of these countries were also on increase. Developing nations chiefly played the role of providing industrially advanced countries with raw materials, as long as there was a demand for it amongst industrial countries, domestic wealth was generated.

The markets for high priced and sophisticated commodities amongst the Western countries kept expanding during this period so much wealth was created as the world economy grew and grew. The new pool of global savings ensured profits for the continuous stream of new investments. This post-war period is known as the long boom . With the exception of the newly industrialising countries (NICs) in East Asia and Latin America, most developing nations failed to gain much self-sufficiency because of their subservient role in the global market economy as solely raw material exporters.

The reason why they did not achieve economic independence is due to the fact that the Third World has been (and are being) excluded from world trade and investment. Most global trade is done between the industrially advanced countries because they mainly produce manufactured goods. The reason why the NICs were prosperous is because they were able to break into world trade by producing such goods. But the prospects of the rest of the Third World transforming into even partially industrialised nations are quite hopeless if they continue to be excluded from world trade.

The 1970s marked the decline of the long boom, the 1979-82 recession being the final nail in the coffin. With scarce investment opportunities and an overflow of capital, banks began to their increase loans to the Third World. But with the recession of 1979, the debtor nations found it impossible to pay off their loans. Thus a debt crisis ensued. The crisis peaked when Mexico defaulted on its loans in August 1982. So most Third World countries remained in a state of social and economic crisis. Economic growth stagnated. Construction projects sat unfinished and finished ones were unpaid for. Real interest rates rose dramatically in 1980-82 (about 30%) thereby increasing the interest on the existing debts, so loans were needed just to cover the interest payments.

Industrial nations and international banks recognised the need for a way to stimulate the faltering economies of the developing nations so loans and debts can be paid back. So SAPs were devised to improve government financial balance sheets and to stimulate economic growth and prosperity.

Structural adjustment loans are geared towards construction projects and the expanding government services (for business), paving the road toward economic prosperity. The IMF and the World Bank was certain that the gap between export income earning and the cost of imports would close. If the governments of the debtor nations agreed to implement the social and economic policies, then the debt collection date would be postponed by the big banks thereby maintaining a certai