Structural Adjustment - History

History

Structural adjustment policies emerged from two of the Bretton Woods institutions, the IMF and the World Bank. They emerged from conditionalities that IMF and World Bank have been attaching to their loans since the early 1950s. In the beginning, these conditionalities mainly focused upon a country's macroeconomic policy.

From the 1950s onward, the United States doled out loans and other forms of financial assistance to Third World nations (now commonly referred to as LDC's - Least Developed Countries), in part, to promote the economic tenets of neoliberalism, as spelled out in the Washington Consensus doctrine. Free market economics were encouraged in the Third World, not only as a measure of countering the spread of socialist ideology during the Cold War, but also as a means of fostering FDI (Foreign Direct Investment) and to promote access of foreign companies within the OECD nations to certain sectors of target economies. In particular, Western companies sought to gain access to the extraction of raw commodities, especially mineral and agricultural. Where loans were negotiated on the basis of implementing large infrastructural projects such as roads and electrical damns, the West stood to gain by employing their domestic businesses as well as broadening the means by which Western companies could more easily extract these resources.

It is important to understand that the loans were made under SAP conditions at the time were advised by the top economists of both the IMF and World Bank.

After the run on the dollar of 1979–80, the United States adjusted its monetary policy and instituted other measures so it could begin competing aggressively for capital on a globally. This was extraordinarily successful, as can be seen from the current account of the country's balance of payments. Enormous capital flows to the US had the corollary of dramatically depleting the availability of capital to poor and middling countries. Giovanni Arrighi has observed that this scarcity of capital, which was heralded by the Mexican default of 1982,

created a propitious environment for the counterrevolution in development thought and practice that the neoliberal Washington Consensus began advocating at about the same time. Taking advantage of the financial straits of many low- and middle-income countries, the agencies of the consensus foisted on them measures of "structural adjustment" that did nothing to improve their position in the global hierarchy of wealth but greatly facilitated the redirection of capital flows toward sustaining the revival of US wealth and power.

To this day economists can point to few if any examples of substantial economic growth amongst the LDC's under SAP's. And very few of the loans have been paid off. Pressure continues to forgive these debts, some of which demand substantial portions of government expenditures to make payments on.

Structural Adjustment Policies, as they are known today, originated due to a series of global economic disasters during the late 1970s; the oil crisis, debt crisis, multiple economic depressions, and stagflation. These fiscal disasters led policy members to decide that deeper intervention was necessary to improve a country's overall well being.

In 2002 SAPs underwent another transition, the introduction of Poverty Reduction Strategy Papers. PRSPs were introduced as a result of the bank's beliefs that, "successful economic policy programs must be founded on strong country ownership". In addition, SAPs with their emphasis on poverty reduction have attempted to further align themselves with the Millennium Development Goals (MDG). As a result of PRSPs, a more flexible and creative approach to policy creation has been implemented at the IMF and World Bank.

While the main focus of SAPs has continued to be the balancing of external debts and trade deficits, the reasons for those debts have undergone a transition. Today, SAPs and their lending institutions have increased their sphere of influence by providing relief to countries experiencing economic problems due to natural disasters, as well as economic mis-management. Since their inception SAPs have been adopted by a number of other International Financial Institutions (IFIs).