TOPIC: STRUCTURAL ADJUSTMENT PROGRAMME (SAP)
In the 1980s, the World Bank and the International Monetary Fund (IMF)
implemented structural adjustment programs. It is a mechanism that the World
Bank has employed in reaction to numerous economic crises in the developing
world. In several nations around the world, the World Bank has employed the
structural adjustment program as a tool to encourage economic growth and
development. The bank contends that through fostering a more productive and
competitive economy, structural adjustment programs serve to enhance
economic stability and reduce poverty. Yet, some of the detrimental social and
economic effects of structural adjustment programs, particularly on the poor,
have been criticized.
Structural adjustment programme: a set of economic reforms that a country
must adhere to in order to secure a loan from the international monetary fund
(IMF) and World Bank, two Bretton woods institutions that date from 1940s,
have long imposed conditions on their loans. However, the 1980s saw a
concerted push to turn lending to crisis-stricken poor countries into
springboards for reforms.
Objectives of Structural Adjustment Programme (SAP)
 To attain macro-economic balance
 To allocate resources more efficiently
 To mobilize more resources over the longer term and thus raise economic
growth rates and living standards
Policies for structural adjustment
• Measures to combat inflation, such as tightening monetary or fiscal policies
that can lead to interest rate taxes.
• This policy can be paired with other measures to reduce inflation, such as
higher taxes and reduced spending, to address the budget deficit.
• Removal of Tariff Barriers which protect domestic industries and opening the
economy free trade.
• Devaluation occurs as a result of giving up fixed exchange rates and allowing
the currency to fluctuate. As a result, exports may be more competitive and
domestic demand may increase. Yet, it raises import prices and typically lowers
living standards.
• Privatizing state-owned businesses. In theory, this might increase productivity
and efficiency because private companies have an incentive to increase
efficiency in order to increase profits. This raises money for the government.
• Eliminating food subsidies, which could skew the market, cause an
oversupply, and impede economic diversification toward a more industrialized
economy.
• Cutting back on bureaucracy and red tape.
• Sealing off tax loopholes and cutting down on corruption.
• Market deregulation to promote competition and attract more businesses to the
industry.
CRITICIMS OF STRUCTURAL ADJUSTMENT PROGRAMME
1. Information handling policies. Increased taxes and interest rates
frequently result in a recession and rising unemployment. They frequently
cause immediate pain. This is possibly the main cause of structural
adjustment's widespread unpopularity in the nations where it is practiced.
We could argue that dealing with inflation is vital to protect structural
adjustment. If not addressed, inflation might only worsen, making a
future adjustment even more difficult. The agony is frequently very
fleeting, too. Low inflation, if addressed, allows for a time of economic
stability.
2. The poorest segment of society is affected by spending decreases.
Spending reductions on crucial welfare services like education and
healthcare have frequently been the result of structural adjustment. It's
common to think of structural adjustment as increasing inequality.
Spending reductions don't have to affect the most vulnerable groups in
society. Military spending could be the target of spending reductions,
and/or the budget could be balanced by raising taxes on affluent earnings.
Through tools like Poverty Reduction Strategy Papers (PRSPs), the IMF
has recently urged structural adjustment strategies to include poverty
reduction. Critics counter that the fundamental policies still apply despite
the new aims for eliminating poverty.
3. A reduction in national sovereignty. The IMF's policies must be followed
in order to avoid paying a steep financial fine. This provides foreign
organizations considerable sway over important economic concerns in
emerging economies.
4. A rise in inequality. Policies for structural adjustment have frequently
shown a tendency to increase inequality. For instance, privatization has
frequently benefited a small, wealthy elite (such as in Russia in 1995) but
not a larger population.
5. Disregard social advantages. The privatization of important public
utilities, such as water in Bolivia, has resulted in higher pricing for a
crucial good. Market incentives may not be as significant when an
industry performs a critical social welfare role. Nonetheless, even when
not necessary, structural adjustment measures frequently adhered to a
certain philosophy.
6. Unemployment. At least temporarily, tighter fiscal restrictions and
inflation control have resulted in more unemployment and slower
economic growth.
7. Ignoring social development. Governments frequently slash welfare
spending programs that help the most vulnerable people in society in
order to achieve fiscal requirements.
8. Often, diversification is hampered by free trade. By selling raw materials,
developing economies frequently enjoy a comparative advantage. Yet,
this inhibits the economy from diversifying. Developing countries
demand free trade for their goods, but wealthy countries frequently
impose taxes on agricultural exports, making the situation worse.