Issue Brief: Stuctural Adjustment Programmes (November 1997)

Structural adjustment programmes (SAPs), were originally designed to stabilize developing country economies. Instead, they have imposed harsh economic measures which deepen poverty, undermine food security and self-reliance and lead to unsustainable resource exploitation, massive environmental destruction, and population dislocation and displacement. Given the mounting evidence, Northern countries must reconsider the appropriateness of using their lending and aid programmes to support the structural adjustment regimes of the World Bank and IMF.

What are SAPs?
"Structural adjustment" is the name given to a set of free market economic policies imposed on countries by the World Bank and International Monetary Fund (IMF) as a condition for receiving financial assistance. SAPs are designed to improve a country's foreign investment climate by eliminating trade and investment regulations, boosting foreign exchange earnings by promoting exports, and reducing government deficits through cuts in spending. The kind of structural adjustment programmes referred to here are programmes developed by the World Bank and International Monetary Fund (IMF) in the early 1980s. These programs attach a number of stringent conditions to cash transfers. They have offered the Bank and the IMF a means of gaining stronger influence over the economies of debt-strapped governments in the South.

New loans and aid are given only if the debtor nation implemented IMF/World Bank-sanctioned reforms. In order to continue receiving funds, countries already devastated by debt obligations have little choice but to adhere to conditions mandated by the IMF and World Bank. In addition, most donor countries, including Canada, will not contribute bilateral assistance to any developing nation unless that country has accepted these conditions and adopted structural adjustment programmes.

Although SAPs differ from country to country, they typically force indebted countries into adopting a series of harsh economic measures which include:

  • a shift from growing diverse food crops for domestic consumption to specializing in the production of cash crops or other commodities for export;
  • abolishing food and agricultural subsidies to reduce government expenditures;
  • deep cuts to social programmes, usually in the areas of health, education and housing, and massive layoffs in the civil service;
  • currency devaluation to make exports cheaper but imports more expensive;
  • liberalization of trade and investment and increases in interest rates to attract foreign investment;
    privatization of government-held enterprises.
  • Canadians, who will soon feel the severe impacts from recent federal and provincial budgets, can begin to identify with the citizens of developing nations who suffer SAP cutbacks to health, education and other basic social programmes.

The Argument for SAPs
The World Bank and IMF argue that SAPs are necessary to bring a developing country from crisis to economic recovery and growth. They believe economic growth, driven by foreign investment, to be the key to development. The resultant wealth, they claim, will eventually \trickle-down\ or spread throughout the economy and eventually to the poor. SAPs are not designed to achieve social well-being; multilateral agencies and other donors simply hope that applying free market principles to a developing economy will improve social welfare in the process. This process of adjustment, as described by many World Bank and IMF officials to developing countries, is one of sacrifice, of present pain for future hope.

Arguments Against SAPs
Non-governmental organizations (NGOs), grassroots organizations, social movements, church groups, economists, social scientists and a number of United Nations agencies have rejected the narrow conception of economic growth as the link between adjustment and the achievement of social objectives. As long as social objectives remain, at best, secondary goals of SAP policies, the goal of equitable resource and wealth distribution will remain marginal and incidental. They charge that SAP policies have contributed to a significant redistribution of income and wealth from poor to rich both nationally and internationally.

The objection to SAPs rests on the following bases:

  1. They rely too heavily on unfettered free markets as the essential engine of growth;
  2. They over emphasize restoring the balance of payments, rather than adopting a more just and equitable approach to resolving the debt crisis;
  3. SAPs lack transparency, accountability and public participation in their design and implementation
  4. a fixation on deregulation, privatization and dismantling of the state, undermining the state's sovereignty and limiting its role for socio-economic intervention;
  5. SAP implementation pays little attention to private wealth and income concentration and the exclusion of the poor from decision and control over resources. It ignores both private sector inefficiency and the political repression needed to impose SAPs through more authoritarian states, thereby undermining democracies and democratic practice;
  6. SAPs hurt the poor disproportionately through deep cutbacks in social programmes. Poverty alleviation programmes designed to cushion the effects of adjustment cannot reverse the impact that SAP policies play in contributing to the general decline in the social sector. Women are particularly affected by cutbacks to social programmes. User fees, privatization, massive layoffs and cutbacks of social services have led to deepening malnutrition, hospital closures, and deepening poverty;
  7. SAPs rely too much on investment that is short-term, concentrated in the export sector, neglecting and even undermining food security and self-reliance;
  8. They mandate drastic currency devaluations which radically diminish the buying power of local people's wages, sometimes from one day to the next, so that many basic necessities become inaccessible.
  9. SAPs, as currently designed and implemented, violate the UN Convention on the Rights of the Child, the UN Declaration on the Right to Development, and Convention of the Elimination of Discrimination Against Women.
  10. There remains no strategy for adjusting the whole world economy, which includes the Northern economies, to the priority goals of equitable and sustainable development and poverty reduction through more equitable trade policies, debt reduction, technology transfer and increased concessional transfers to the poorest countries;

SAPs and Their Ecological Consequences
Despite claims to the contrary, the World Bank and IMF have paid little or no attention to the environmental impact of SAPs. A number of comprehensive studies have clearly demonstrated how SAP policies have led to increased environmental destruction, dislocation and displacement. SAP policies call for increased exports to generate foreign exchange to service debt. Developing countries' most important exports, including timber, oil and natural gas, minerals, cash crops, and fisheries, are all derived from natural resource extraction . The resulting acceleration of resource extraction and commodity production is not ecologically sustainable. Deforestation, land degradation and desertification, soil erosion and salinization, biodiversity loss, increased production of greenhouse gases, increase in water-borne disease, the flooding of immense tracts of productive land, and air and water pollution are but a few of the long term environmental impacts that can be traced to the imposition of SAPs. In addition, SAP induced government cutbacks mean less money for enforcement of environmental regulations.

Gender and SAPs
Most studies conclude that women are bearing a disproportionate share of the burdens imposed by SAPs. The macro-economic thinking on which SAPs are based takes little account of the sexual division of labour, of resources within the household, and how shifts in entitlements and incentives have a dramatic impact on women's labour. Women, primarily responsible for child-rearing, are heavily dependent on health services; this, combined with their very limited access to productive resources, places them at a particular disadvantage when public spending on health is reduced. The introduction of user fees in hospitals and clinics has cut attendance at such facilities. As a result, maternal and infant mortality rates have risen sharply. SAPs promote the production of export-oriented crops; these tend to be grown by men. This leaves women with little support and marginal land and fewer resources to grow food crops for their family's consumption. Compensatory programmes have been put in place recently as an attempt to alleviate the impact of SAPs on the poor, but they tend to bypass women. Most structural adjustment programs, in fact, are designed around the assumption that women (and children) are dependents of men. Since compensatory programs are based on existing channels of distribution within communities and households, and since these channels often discriminate against women, they will never have any real access to any new resources received through them.

Towards an Alternative
Supporters of SAPs often explain that while SAPs are difficult to implement there simply is no alternative. The World Bank and IMF have indeed succeeded over the 1980s in reducing the development options for virtually every Southern country to one: the adoptions of SAPs.

There have been a variety of alternatives suggested. The UN Economic Commission for Africa provided a comprehensive and credible alternative to SAPs in 1989. The African Alternative Framework called for adjustment with transformation which called for a reduction in the continent's reliance on external trade and financing, for the promotion of food self-sufficiency and for greater popular participation in economic planning and decision-making.

The Third World Network and Freedom from Debt Coalition have proposed numerous alternative policies in the areas of international trade and sustainable development. Some specific alternatives for reform include:

  • promoting diversification in the products that Southern countries export and increasing processing capacity. This would coincide with the recognition of providing some protection to infant industries and the promotion of greater regional trade;
  • recognizing the need for states to play a greater role in facilitating the diversification away from traditional commodities, determining and promoting investment priorities;
  • economic policies and planning which include a gendered analysis of the various options;
  • policies that take into account environmental impacts and include sustainable natural resource use that benefits local communities;
  • an emphasis on non-price structural reforms such as land reform, institutional reforms to increase democratic practice and accountability;
  • at the international level, measures to reduce the debt problems of poorer countries, regulate capital markets and address unfair trading practices.

What is urgently required is an opening up of the political and economic space so that alternatives, such as those listed above, can be seriously considered and implemented. The greatest obstacle to this continues to be the total control over the development debate currently exercised by the Bank and IMF with the blessing and support of Northern governments, including Canada's.

The principles behind sustainable development require that Canada move away from the paternalistic view implied by \aid,\ \assistance\ and \leverage\ toward a more appropriate, cooperative approach that reflects shared interests and reciprocal responsibilities. Constructive partnerships should be based on negotiated \frameworks for policy dialogue,\ involving the governments as well as intergovernmental bodies and elements of civil society. The Canadian government should seek to replace an approach based on policy leverage and support for Structural Adjustment Programmes with \Sustainable Development Agreements,\ that are the outcome of a broadly democratic and transparent dialogue which includes all social sectors concerned, particularly popular organizations and NGOs. These agreements would include: the promotion of \soft-path\ projects; guarantees for economic, social and political rights; employment and income distribution;environmental sustainability; gender and racial equity.

Such "Sustainable Development Agreements"have been successfully negotiated between the Dutch government and governments of Costa Rica, Benin and Bhutan. The promotion of these agreements, however, should not be seen in isolation from the need to work at resolving other issues such as the debt crisis, reforming international financial institutions and unfair trade.