assignment: structural adjustment policies
Structural adjustment policies
Proponents of these schemes say that short-term drawbacks (i.e. reduction in health for the more economically disadvantaged section of the community) are necessary prices to pay for a long-term economic health of the country. Opponents say that forgiving the crippling debt load and applying some limitations on military spending might be better approaches. Using the sources of information offered in this module, discuss the arguments for and against external involvement by the IMF and World Bank in the affairs of sovereign nations.
I would like to discuss the arguments for and against external involvement by the IMF and World Bank in the affairs of sovereign nations with regards to how successful they help develop the requirements for a healthy society discussed in module 8. I will rate the arguments due to how successful they are at helping a society reach the requirements: if the SAPs help promote a healthier society, then the involvement of by the IMF and the World Bank will be justified; however, if the country’s health deteriorates because of their involvement, then the SAPs are not justified.
Structural adjustment policies are designed to address “instabilities in macro-economic factors” such as inflation and economic recession (ucsc). Common indicators of successful implementation include “the condition of the balance of payments, economic growth, [and] government deficits.” (ucsc) Therefore there are many critics that state the policies neglect the general health of the society and focuses too much on only economic health. The forced implementation of the Structural Adjustment Policies is called “conditionality” by the IMF and World Bank (IMF).
The arguments for implementation of the Structural Adjustment Policies are the following:
1. Conditionality ensures the country can repay the loans: since loans are an investment by the country lending the money, conditionality “gives confidence to the borrowing country by clarifying the terms on which the IMF will continue to make its financial resources available.” (IMF) The SAPs are designed so that the countries can achieve relatively short term economic growth and thus start lifting their country out of economic crisis and repay the loans as soon as possible. Repayment is essential because other countries also need loans from the IMF and the World Bank.
2. Hiring a professional from a developed country to manage the projects ensures that the money is used in the way that was agreed upon and quality of the completion of the project: usually, there is so much corruption and unrest in the countries borrowing the money that such a measure is required even if large amounts of money is used (as in the case of road building in Uganda that Dan mentioned). This is also to give lenders confidence in giving out large amounts of money.
3. Since 2005, the IMF and World Bank has been revising their old policy of SAPs and replacing them with new Poverty Reduction and Growth Facility (PRGF) programs that focus more on the social health of borrowing countries rather than immediate loan repayment (IMF). The new program is region specific: each loaner has their own Poverty Reduction Strategy Papers (PRSPs) that target the problems, unlike the one-size-fit-all model of the previous SAPs. The IMF and World Bank have argued that these new policies have had relatively more success than the SAPs, and are a one step in a better direction. However, since they are new, while critics claim that the PRSPs are not better than the SAPs, they actually have little to no evidence to do so.
Arguments against enforcement of Structural Adjustment Policies:
1. Spiral race to the bottom (globalissues.org): the movement to force so many vulnerable economies, that depend on exporting similar products, to open up their trade barriers means that a huge price war will result. The only benefiters are the rich, Western countries because the prices of commodities are driven down to dirt cheap prices, while the borrowing countries have to produce more and more in order to keep up with their growing dept. This is especially dangerous when a developing country is propped up by large amounts of foreign investments. When the economy becomes volatile and the foreign companies retreat out of the country, it leaves a large vacuum of unemployment that may result in an economic crisis. Critics say that SAPs are essentially a tool for rich countries to keep trade imbalance so that they can reap the benefits.
2. Money flowing out of the local economy into the hands of multinational corporations: (globalissues.org) since developing countries usually export commodities (raw materials) and import products (processed goods), the “multiplier effect” does not happen in the local economy. There is one case where a community produced and exported peanuts, but had to import peanut butter from a developed country. The locals decided that this was ridiculous, so they started making peanut butter in their own community. These costs much less, and provided many more jobs for the community (Home Grown). Therefore critics propose that the SAPs stop forcing countries to open up and increase their export quotas, but start encouraging regional self-sufficiency.
Now to see if the SAPs help a community develop their basic health requirements. My most basic requirements for a healthy society include two categories:
1. Community development, including safe water, food security, safe ways to treat wastes (human and otherwise), affordable medicine, doctors within walking range, and education.
2. Stable politics and economy, including criteria such as fair rule of law that is enforced (e.g. no corruption), safety margins (extra help in case of sudden natural disasters like drought; this can be in the form of social security/welfare, or other sources of income i.e. diversify the economy), and regional autonomy as to how that aid is best used.
The SAPs encourage cutting back on community development to favour international trade. They believe that there will be hardship before the “trickle down” effect can happen. Aside from helping stabilize the economy and politics, SAPs eliminate safety margins, and do not allow regional autonomy of aid usage. The only aspect the SAPs seems to help develop is “food security” by providing more jobs to the locals, although this is shown to be largely a race to bottom where people get progressively poorer. Therefore, the policies do not meet my requirements of helping a country or community before more health. It seems like that the economists believe in a trickle-down effect, while I believe that a trickle-up effect will be the most efficient way a health society can be achieved.
Personally, I believe that the success of the SAPs is questionable. Aside from the above arguments, from my observations, they seem to have other harms. For example, they encourage over consumption by rich countries because they prompt loan countries to produce more exports as a means to lift themselves out of poverty. Also, they let countries buy or produce weapons when they cannot even produce their own food, due to encouragement of shifting production to a more export oriented focus, but no restrictions on military spending (my suspicion is that this is because weapon producing companies in the developed countries benefit greatly from sales to developing countries that are unstable).
Also, these SAPs are made by predominantly white, rich, and male economists that work in a large, isolated building. They do not know much about the real world of the people which the policies apply to. Moreover, these are the same economists that encourage unsustainable growth in their own countries. They propose that a small amount of inflation is healthy, sometimes a high percentage of unemployment is a necessary evil, and there will always be a large gap between the rich and the poor. This is how capitalism and free markets work. There is no other way to encourage innovation and efficiency other than fierce competition. By forcing countries to implement the SAPs, we are imposing a paradigm and system, that the developed countries take for granted and view as the pinnacle of success, onto other cultures and regions that may not have the same values as we do.
In addition, there is no doubt that our economic system has many failures, commonly known as market failures, where there really are not any solutions to currently. How can we justify imposing a system that does not work well in our country onto other countries and hope that it turns out well? Why can we not let these countries learn from our mistakes and experiment with their own system that will work better on their own country?
Finally, the “success” of our market system depends on a consumer society. The high growth of our economy is the result of our desire to obtain more and more material goods, which we see as a rise in levels of living. My question is, do we really want to create a world that consumes like us? I believe it is neither possible nor sustainable. According to conservative calculations done by using the ecological footprint method, we will need four earths in total for everyone to consume the way the developed countries are currently consuming.
References
http://www.globalissues.org/TradeRelated/SAP.asp
http://ucatlas.ucsc.edu/sap/does_it_work.php
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