Amanda Gopaul

University of the West Indies St. Augustine

Learning the WB and IMF
What are SAP’s?
Structural Adjustment Policies are economic policies which countries must follow in order to
qualify for new World Bank and International Monetary Fund (IMF) loans and help them make
debt repayments on the older debts owed to commercial banks, governments and the World
Bank. SAPs are designed for individual countries but have common guiding principles and
features which include export-led growth; privatisation and liberalisation; and the efficiency of
the free market. SAPs generally require countries to devalue their currencies against the dollar;
lift import and export restrictions; balance their budgets and not overspend; and remove price
controls and state subsidies.
Briefly explain 5 arguments in support of saps and 5 criticisms levelled against it.
Benefits
1. The Structural Adjustment Programs was a financing mechanism of the international
monetary fund to support macroeconomic policies and reforms in low-income countries
through low interest subsidizations and loans.
2. Structural Adjustment Programs were intended to provide long-term solutions to
economic problems facing developing countries around the world by facilitating the
achievement of sustained growth and economic stability.
3. They were also designed to eliminate unsustainable external and internal imbalances of a
countries economy.
4. It is a forward-looking and long-term solution to underdevelopment in Africa and Latin
America, as it seeks to increase the elasticity of an economy to have the ability to respond
to changes, stimulate efficiency utilization and allocation of resources, elimination of
trade deficits and finally balance the expenditure and revenue of the government.
5. Structural adjustment promotes a more open and efficient economy, which ultimately
help to improve living standards and reduce relative poverty.
Criticisms
1. Loss of National Sovereignty. IMF policies need to be implemented otherwise there can
be a heavy financial penalty. This gives foreign bodies great influence over key economic
issues in developing economies.
2. Greater inequality. Structural adjustment policies have often shown a tendency to greater
inequality. For example, privatisation has often benefitted a small rich elite (e.g. Russia
1995) and have not benefitted wider population.
3. Ignore social benefits. Privatisation of key public utilities like Water (e.g. Bolivia) have
led to higher prices for a key commodity. Arguably market incentives don’t have the
 same importance when the industry plays an important social welfare function. But,
structural adjustment policies have often stuck to a certain ideology even when not
appropriate.
4. Control of inflation and fiscal austerity has led to higher unemployment and lower
economic growth – at least in the short-term.
5. Social development ignored. To meet fiscal criteria, governments have often cut welfare
spending programs which benefit the poorest members of society.
Using 1 IR theory, critically evaluate the effectiveness of SAPs. Use at least 2 cases from
Latin America/Caribbean and the other from sub Saharan Africa/Asia to support your
response.
The outward oriented strategy on export competitiveness, the adoption of liberal policies
to facilitate the more efficient functioning of markets and reduce the role and interventions of the
state in the economy lead to liberal economic policies of structural reforms in conditionality in
adjustment programs supported by the international financial institutions, such as the IMF, the
World Bank (WB) and the InterAmerican Development Bank. The general package of reforms
can be summarized as: (I) Trade reforms; (ii) Exchange rate; (iii) Tax; (iv) Financial; (v) Product
pricing policies; and (vi) Privatization.
From their inception, Africa's structural adjustment programmes have been criticized,
mainly on the grounds that they more distort their constituents' development than advance it. The
economic development as these programmes achieve is not accompanied by an attendant degree
of social progress, defined usually in terms of income distribution. Sub-Saharan Africa’s growth
improved, for the second consecutive year, to 4.5 percent in 2014. Despite headwinds, growth is
projected to pick up to 5.1 percent by 2017, lifted by infrastructure investment, increased
agriculture production, and buoyant services. The outlook is subject to downside risks arising
from a renewed spread of the Ebola epidemic, violent insurgencies, lower commodity prices, and
volatile global financial conditions. Policy priorities include a need for budget restraint for some
countries in the region and a shift of spending to increasingly productive ends, as infrastructure
constraints are acute. Project selection and management could be improved with greater
transparency and accountability in the use of public resources.
After two decades of economic growth starting in 1960, Cote d’Ivoire experienced
economic decline in the 1980s due to falling world prices for coffee and cocoa, its main exports.
The country came under World Bank/IMF structural adjustment in 1989. Under the SAP, Cote
d’Ivoire was required to cut government spending by 30%, capital expenditures by 15% to
increase taxes Privatize state enterprises, Deregulate the labour market, Reduce the civil service,
eliminate price controls, devalue the currency, enact trade and financial reforms. poverty
increased as Cote d’Ivoire is the world’s largest cocoa producer providing for 43% of the world’s
output. The cocoa industry was privatised in compliance with the World Bank and IMF
conditionality (SAP). Following the privatisation, between 1988 and 1995, the incidence and
intensity of poverty doubled from 17.8% to 37% of the population. Even though, Cote d’Ivoire’s
exports increased from $3 billion to $5 billion from 1980 to 1995, the GDP remained stagnant at
$10 billion for that period.
During 1990-1995, public spending on education fell by more than 35% and that on
health fell slightly. By 1995, only 45% of girls from the poorest quintile of households were
getting primary education. The enrollment rate at the secondary level fell from 34% to 31% .
After user fees were mandated for the public health care system by the IMF in 1991, many health
problems deteriorated. The incidence of stunted growth in children shot up from 20% in 1988 to
35% in 1995. Teachers’ wages and salaries were reduced in conjunction with the structural
reforms. A law implemented in 1991 cut starting salaries of primary, secondary, and university
teachers to half the amounts of those hired previously. This led to a decline in the quality of
education as highly skilled personnel left the country to seek better employment overseas mainly
to France and Canada. Cote d’Ivoire is the world’s leading cocoa producer. Those who own the
countries’ large cocoa plantations use children to clear land for the planting of cocoa trees, and
for weeding and harvesting crops.
Through trade liberalization policies the poverty level of agricultural workers increased
greatly as a result of the liberalization of the cocoa industry. With the fall in cocoa prices,
agricultural workers were left to fend for themselves at below profit levels. The government who
used to set the minimum guaranteed price could no longer protect them. Because 70% of the
population is engaged in agricultural activity in Cote d’Ivoire, the fall of cocoa prices
significantly increased rural poverty. It can therefore be argued that not at all times trade
liberalization policies can work. Understanding that the country is responsible to accepting and
implementing reform is one side of the coin. On the other side of the coin one needs to look at
the stability of the country and the effects it can have on the country in the long run. The lax of
education can be considered a reason for the exacerbated child labour within the country,
likewise the brain drain the country would have gotten.
Subsequently, when looking to the Caribbean and SAP programmes implemented, one
can see where it works and where it fails. In looking at Grenada, they underwent IMF
intervention through the IMF’s Extended Credit Facility (ECF) and Poverty Reduction and
Growth Facility (PRGF) funding initiatives, agreed to by Prime Minister Keith Mitchell and
implemented in 2014. The objectives were to restore fiscal and debt sustainability, boost long
term growth through structural reform, safeguard the resilience of the financial sector. According
to the IMF in its 2014 review, program objectives were not on track to be met due to: difficulties
of program implementation in the midst of major shocks, the need to reflect the macroeconomic
and institutional challenges of small countries in program design which were neglected, Growth
projections were too high, and the large number of structural reforms were not met as Grenada’s
capacity and institutional constraints were not taken into consideration. Program ownership was
also in question during both the first and second PRGF/ECF arrangements manifested in
difficulties in meeting both the fiscal and structural reform objectives of the programs.
Adjustments were made in 2017 and in the 2018 review the IMF reported developments
inroads were made. However, despite such achievements, Grenada still reflected relatively high
levels of public debt, insufficiency regarding job creation and the need for strengthening their
institutional capacity to execute policy implementation. Additionally, the need for strengthening
their growth potential was another challenge highlighted. The factors hindering growth included
Grenada’s susceptibility to economic shocks and natural disasters, insufficient labor skills and a
high unemployment percentage of 23½. In analysis of this. One can see that , the challenges in
implementing such programs in the midst of major shocks are reflected through the mixed
outcomes implemented as well as a realization of the need take into consideration both
macroeconomic and institutional challenges of smaller countries such as Grenada within the
design of such programs.
Conclude