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Structural Adjustment Programmes
Since the early 1980s the International Monetary Fund (IMF) and the
World Bank have been major players in the international systems of lending and borrowing.
The huge loans to developing countries made in the 1970s when oil dollars
swelled the western banks had become an intolerable burden as interest rates began
to rise. Poor countries lacking the hard currency to service debts had few options. When
one country (Mexico) did default, the whole international credit system was in danger of
collapse.
When the IMF and World Bank became involved in lending money and
rescheduling existing debts owed by developing countries, their help came with
conditions. These Structural Adjustment Programmes (SAPs) required economic reforms
designed to improve a country's economic stability by increasing export income,
reducing public spending and achieving economic growth.
WHAT ARE THE ELEMENTS OF A STRUCTURAL ADJUSTMENT PROGRAMME?
The devaluation of a country's currency is the first step. This
makes a country's exports cheaper on the world market, but imported goods are
more expensive. The reduction of trade barriers and tariffs creates a favourable
environment for foreign investment. Public expenditure deficits must be reduced;
state-owned companies are privatised.
WHAT HAS BEEN THE IMPACT OF STRUCTURAL ADJUSTMENT?
A neutral view of SAPs is that it is about countries living
within their means: sound advice. In the 1980s, economic reform for many Third World
countries was overdue. Achieving economic growth has improved the
standard of living for most people in developed countries. Popular economic theory
proclaimed that this was the only way ahead for poor countries. That was the first
mistake: assuming that what had worked for rich countries would work for all. The same
economic theory was applied to rich and poor, and to all poor countries with little
variation. A second mistake happened as SAPs were developed. The same advice on which
export crops to grow was given to most countries, resulting in overproduction of some
commodities and a drop in their prices on world markets. Instead of rising,
export earnings often declined. Country by country, structural adjustment became the
problem, not the solution.
ARE STRUCTURAL ADJUSTMENT PROGRAMMES ALL BAD?
Some countries - Ghana, for instance - have benefited from the structural
adjustment package. Other countries have made some gains. But economic
progress has not helped the poorest people. In November 1993, the IMF
and World Bank pronounced Zambia a "showpiece" of economic reform. Zambia
was said to be "doing well". [Times of Zambia, November 1993]
Earlier that year Zambia's Episcopal Conference had written an open letter, "Hear the
Cry of the Poor", challenging the supposed gains of structural adjustment and
demonstrating that the poorest Zambians were loosing out in the "showpiece"
economy.
STRUCTURAL ADJUSTMENT'S CASUALTIES
CAFOD's partners provide evidence from their experiences with the poorest
people that it is the weakest who suffer most from SAPs. To help cushion the
blow of what was meant to be short-term economic reform, structural adjustment
packages in most countries went hand-in-hand with safety nets: funds for social
programmes for victims of SAPs. Over the years many of these safety nets have failed
to offer enough protection to those most at risk. In the countries where CAFOD partners
monitor the effects of structural adjustment (Zambia and Zimbabwe), it is clear that
many people are not receiving the basic health and education services the safety nets were
intended to provide.
WHAT DO OUR PARTNERS SAY?
By looking at two countries in particular - Mexico and Zimbabwe -
we can see how the underlying economic theory of structural adjustment effects the
everyday lives of the poorest people.
Currency devaluation A modest
devaluation of currency need not spell economic disaster; when the devaluation is
substantial and swift, inflation follows. CAFOD's partner CENCOS gives this glimpse
into Mexico's economic "health" in 1995:
The economy deflated by 6.8%; inflation reached 51.97%; the
devaluation of the peso to the dollar was 110%; $52 million was paid in foreign debt
servicing. Nevertheless, our total debt rose to some $200 billion, representing 76.1% of
the national GNP.
Cuts in public spending and the introduction of fees for
public services Decreases in public spending and the
introduction of fees for education and health care hit the poorest first. A CAFOD
partner in Zimbabwe, CADEC, reports:
The introduction of school fees for primary education in towns hits
especially the very poor families who survive in the informal sector. There are poor
families, often single mother households, who cannot afford the fees . . . already now the
number of school drop-outs at primary level is significant.
And of the effects on health, the same partner says:
Nowhere are the "killing effects" of ESAP (Economic
Structural Adjustment Programme) more obvious than in the health status of the
people. Low or no income at all and high prices lower the nutritional
standards of the people. People now have one
meal per day . . . Our Government introduced
fees for treatment in the hospitals and clinics . . . As a consequence
hospital and clinic attendance declined.
Structural adjustment: a short-term cure? Poverty
is long term say partners in Zimbabwe. One generation's poverty affects future
generations. ESAP is meant to be a short term cure that will bring benefits to
everyone in the end. But for one woman, "in the end" seems like too long to
wait.
I have heard that ESAP will be painful for some time, but that
eventually our situation will get better. I think I will be dead by then."
WHAT DOES CAFOD SAY ABOUT SAPS?
Since 1992 the World Bank has held that "substantial poverty
reduction is [its] overarching aim". These fine words have never made a enough real
difference in the way SAPs have been designed and implemented. CAFOD calls for SAPs
to be judged on whether they alleviate poverty, and not just whether a country
reaches short-term monetary targets. What could change? The development of new SAPs should
involve more input from community groups within the country in question. Social
indicators (life expectancy, literacy rates) should be measured along with economic
indicators (growth rates, balance of trade) when determining the effects of structural
adjustment. Investment in small-scale agriculture and in employment-generating
projects is needed. Balanced and sustainable growth depends on much more than just
increased export earnings. The effects of structural adjustment on women and the
environment particularly need to be monitored. The financial institutions imposing SAPs
should be more accountable to the countries who fund them. Structural adjustment is bound
up with existing patterns of indebtedness and with increasingly liberal trade policies.
While reforming SAPs is crucial, it must go hand in hand with the cancellation of
unpayable debt the establishment of fairer world trade patterns if the poor are to have a
fair deal.
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