Structural Adjustment and the SAPRI/CASA Experience

In the mid-1970s, Western aid agencies and attendant think tanks were aglow with optimism. As more and more money flowed into their field of endeavour, predictions were made that world poverty would be conquered by the end of the century. The World Bank, under its new president, Robert McNamara, led this charge, expanding its lending five-fold in real terms while also encouraging bilateral donors and private banks to increase their outlays. Today, the field of international development has evolved into a multi-billion-dollar industry, but poverty has broadened and deepened around the globe, and inequality, both within and among nations, has increased at an astounding pace.

A generation ago, as countries in the South borrowed heavily from banks in the North flush with petrodollars they needed to recycle, they were sowing the seeds of severe economic crises. Interest rate charges on external debt skyrocketed and the terms of trade (prices paid and received for goods and services traded) shifted against their exports of primary commodities. The combined effect led to an explosion of debt service charges and of accumulated debt. Non-productive and poorly conceived investments, made with, and often promoted by, private and official lenders, made the repayment challenge even more daunting. And many governments, particularly in Latin America, took on the added responsibility of repaying not only their own debts but also those of private companies, including many loans that they had not guaranteed.

The Origins of Structural Adjustment

The debt crisis and the consequently increased vulnerability of poor nations facilitated the spread of the Thatcher/Reagan economic 'revolution' of the late 1970s and the 1980s. 'Stabilization' measures designed by the International Monetary Fund (IMF) imposed strict fiscal and monetary discipline on indebted countries as a condition for receiving short-term balance of payments credits. These policies were designed to generate savings and foreign exchange with which to bring countries' internal and external accounts into balance and facilitate the repayment of their foreign creditors. When food, fuel and transport costs soared with the removal of government subsidies, and street riots and protests consequently erupted in a number of countries, the World Bank stepped in with funds that were conditioned on longer-term, structural and institutional changes that had less immediate impact than the austerity measures required by the Fund. These structural and, subsequently, sectoral adjustment policies were designed to open markets and reduce the state's role in the economy. They came to include measures of: trade liberalization; investment deregulation; privatization of public utilities, marketing boards and other state enterprises; reform of the agricultural sector, the labour market and pensions; and the liberalization of almost all domestic markets. Along the way, the two principal international financial institutions (IFIs) would cross into each other's territory, sometimes in collaboration, at other times in conflict.

By the second half of the 1980s, one quarter of overall World Bank lending was being extended in the form of non-project, structural adjustment loans at a time when adjustment programmes had not yet been imposed to a significant extent on either Asian or Central European countries. While adjustment programmes were justified at that time as medium-term prescriptions designed to turn around emergency economic situations, they turned out, in fact, to be long-term, one-size-fits-all economic restructuring programmes imposed on countries regardless of their circumstances. Two-year time frames for success turned into five-year, ten-year and, in most cases, two-decade projects without sustained economic development in sight.

The economic theory underlying adjustment programmes came to justify not only measures that would both squeeze savings from national budgets and generate foreign exchange in order to ensure the repayment of foreign creditors, but also those that would create a friendly investment environment for foreign investors. The liberalization of markets, deregulation and privatization — all keyed on the systematic erosion of traditional roles of the state — would, it was argued, attract and retain investment that, in turn, would guarantee growth and development. Structural adjustment became the only economic strategy acceptable to the US Treasury, to the IFIs and, by extension, to other official lenders and donors. When reality contradicted theory, and investment and growth did not consistently ensue — and as foreign investors and some national élites gained handsomely while development prospects dimmed for the vast majority of citizens — these failures of the adjustment 'model' were typically explained away with claims about the long-term nature of the problem or the lack of full compliance of governments in implementing economic reforms.

In reality, full compliance with the usual myriad of Fund and Bank policy conditions has seldom been feasible, especially in the face of extensive public opposition to the implementation of the policies. Yet, the vast majority of measures required — ranging from the dropping of trade barriers that protected the livelihoods of small farmers and fledgling domestic industries to the rewriting of national labour laws — have typically been adopted as governments have been forced, under threat of being cut off from international financing, to respond to the interests of their official and private creditors over those of their own people. Such policy conditionality has also raised major political issues, including the implications for the sovereignty of states and for the democratic control of policy by national electorates. Although the IFIs are, by statute, prohibited from interfering in the political affairs of their member countries, governments have been pressured to change laws to comply with adjustment conditionality, legislatures have been kept in the dark about loan requirements, and cabinet ministries other than those responsible for strictly financial and economic matters...