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Structural adjustment
Structural adjustment programmes (SAPs) consist of loans provided by the International Monetary Fund
(IMF) and the World Bank (WB) to countries that experienced economic crises.[1] The two Bretton Woods
Institutions require borrowing countries to implement certain policies in order to obtain new loans (or to lower
interest rates on existing ones). The conditionality clauses attached to the loans have been criticized because of
their effects on the social sector.[1]

SAPs are created with the goal of reducing the borrowing country's fiscal imbalances in the short and medium term
or in order to adjust the economy to long-term growth.[2] The bank from which a borrowing country receives its
loan depends upon the type of necessity. The IMF usually implements stabilization policies and the WB is in charge
of adjustment measures.[2]

SAPs are supposed to allow the economies of the developing countries to become more market oriented. This then
forces them to concentrate more on trade and production so it can boost their economy.[3] Through conditions,
SAPs generally implement "free market" programmes and policy. These programs include internal changes
(notably privatization and deregulation) as well as external ones, especially the reduction of trade barriers.
Countries that fail to enact these programmes may be subject to severe fiscal discipline.[2] Critics argue that the
financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply.

Since the late 1990s, some proponents of structural adjustment, such as the World Bank, have spoken of "poverty
reduction" as a goal. SAPs were often criticized for implementing generic free-market policy and for their lack of
involvement from the borrowing country. To increase the borrowing country's involvement, developing countries
are now encouraged to draw up Poverty Reduction Strategy Papers (PRSPs), which essentially take the place of
SAPs. Some believe that the increase of the local government's participation in creating the policy will lead to
greater ownership of the loan programs and thus better fiscal policy. The content of PRSPs has turned out to be
similar to the original content of bank-authored SAPs. Critics argue that the similarities show that the banks and
the countries that fund them are still overly involved in the policy-making process. Within the IMF, the Enhanced
Structural Adjustment Facility was succeeded by the Poverty Reduction and Growth Facility, which is in turn
succeeded by the Extended Credit Facility.[4][5][6][7]

1 Conditions
2 History
3 Criticisms
3.1 Undermining national sovereignty
3.2 Neo-colonialism, neo-imperialism
3.3 Privatization
3.4 Austerity
4 Empirical evidence
5 IMF SAPs versus World Bank SAPs
5.1 IMF SAPs
6 Donor countries

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7 See also
8 References
9 Bibliography
10 External links

Typical stabilisation policies include:[1][8]

balance of payments deficits reduction through currency devaluation

budget deficit reduction through higher taxes and lower government spending, also known as austerity
restructuring foreign debts
monetary policy to finance government deficits (usually in the form of loans from central banks)
eliminating food subsidies
raising the price of public services
cutting wages
decrementing domestic credit.
Long-term adjustment policies usually include:[1][8]

liberalisation of markets to guarantee a price mechanism

privatization, or divestiture, of all or part of state-owned enterprises
creating new financial institutions
improving governance and fighting corruption
enhancing the rights of foreign investors vis-à-vis national laws
focusing economic output on direct export and resource extraction
increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic
stock markets).
These conditions have also been sometimes labeled as the Washington Consensus.

Structural adjustment policies emerged from two of the Bretton Woods institutions, the IMF and the World Bank.
They emerged from the conditionality that IMF and World Bank have been attaching to their loans since the early
1950s.[9] Initially, these conditions focused on a country's macroeconomic policy.

From the 1950s onward, the United States doled out loans and other forms of financial assistance to Third World
nations (now commonly referred to as least developed countries, or LDCs). Free-market economics were
encouraged in the Third World, not only as a measure of countering the spread of socialist ideology during the Cold
War, but also as a means of fostering foreign direct investment (FDI) and promoting the access of foreign
companies within the OECD nations to certain sectors of target economies. In particular, Western companies
sought to gain access to the extraction of raw commodities, especially minerals and agricultural products. Where
loans were negotiated on the basis of implementing large infrastructural projects such as roads and electrical dams,
Western countries stood to gain by employing their domestic businesses and by broadening the means by which
Western companies could more easily extract these resources.

Loans made under SAP conditions at the time were advised by the top economists of both the IMF and World

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After the run on the dollar of 1979–80, the United States adjusted its monetary policy and instituted other
measures so it could begin competing aggressively for capital on a global scale. This was successful, as can be seen
from the current account of the country's balance of payments. Enormous capital flows to the United States had the
corollary of dramatically depleting the availability of capital to poor and middling countries.[10] Giovanni Arrighi
has observed that this scarcity of capital, which was heralded by the Mexican default of 1982,

created a propitious environment for the counterrevolution in development thought and practice that
the neoliberal Washington Consensus began advocating at about the same time. Taking advantage of
the financial straits of many low- and middle-income countries, the agencies of the consensus foisted
on them measures of "structural adjustment" that did nothing to improve their position in the global
hierarchy of wealth but greatly facilitated the redirection of capital flows toward sustaining the
revival of US wealth and power.[11]

During the 1980s the IMF and WB created loan packages for the majority of countries in Sub-Saharan Africa as
they experienced economic crises.[1]

To this day, economists can point to few, if any, examples of substantial economic growth among the LDCs under
SAPs. Moreover, very few of the loans have been paid off. Pressure mounts to forgive these debts, some of which
demand substantial portions of government expenditures to service.

Structural adjustment policies, as they are known today, originated due to a series of global economic disasters
during the late 1970s: the oil crisis, debt crisis, multiple economic depressions, and stagflation.[12] These fiscal
disasters led policy makers to decide that deeper intervention was necessary to improve a country's overall well-

In 2002, SAPs underwent another transition, the introduction of Poverty Reduction Strategy Papers. PRSPs were
introduced as a result of the bank's beliefs that "successful economic policy programs must be founded on strong
country ownership".[9] In addition, SAPs with their emphasis on poverty reduction have attempted to further align
themselves with the Millennium Development Goals. As a result of PRSPs, a more flexible and creative approach to
policy creation has been implemented at the IMF and World Bank.

While the main focus of SAPs has continued to be the balancing of external debts and trade deficits, the reasons for
those debts have undergone a transition. Today, SAPs and their lending institutions have increased their sphere of
influence by providing relief to countries experiencing economic problems due to natural disasters or economic
mismanagement. Since their inception, SAPs have been adopted by a number of other international financial

There are multiple criticisms that focus on different elements of SAPs.[13]

Undermining national sovereignty

Critics claim that SAPs threaten the sovereignty of national economies because an outside organization is dictating
a nation's economic policy. Critics argue that the creation of good policy is in a sovereign nation's own best interest.
Thus, SAPs are unnecessary given the state is acting in its best interest. However, supporters consider that in many
developing countries, the government will favour political gain over national economic interests; that is, it will
engage in rent-seeking practices to consolidate political power rather than address crucial economic issues. In
many countries in sub-Saharan Africa, political instability has gone hand in hand with gross economic decline.

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Neo-colonialism, neo-imperialism
SAPS are viewed by some postcolonialists as the modern procedure of colonization. By minimizing a government's
ability to organise and regulate its internal economy, pathways are created for multinational companies to enter
states and extract their resources. Upon independence from colonial rule, many nations that took on foreign debt
were unable to repay it, limited as they were to production and exportation of cash crops, and restricted from
control of their own more valuable natural resources (oil, minerals) by SAP free-trade and low-regulation
requirements. In order to repay interest, these postcolonial countries are forced to acquire further foreign debt, in
order to pay off previous interests, resulting in an endless cycle of financial subjugation.[14]

Osterhammel's The Dictionary of Human Geography defines colonialism as the "enduring relationship of
domination and mode of dispossession, usually (or at least initially) between an indigenous (or enslaved) majority
and a minority of interlopers (colonizers), who are convinced of their own superiority, pursue their own interests,
and exercise power through a mixture of coercion, persuasion, conflict and collaboration".[15] The definition
adopted by The Dictionary of Human Geography suggests that Washington Consensus SAPs resemble modern,
financial colonisation.

Investigating Immanuel Kant's conception of liberal internationalism and his opposition to commercial empires,
Beate Jahn said:[16]

... private interests within liberal capitalist states continue to pursue the opening up of markets abroad,
and they continue to enlist their governments' support, through multilateral and bilateral arrangements
—conditional aid, International Monetary Fund (IMF), and World Trade Organization (WTO). While the
latter agreements are formally "voluntary," in light of the desperate economic dependence of many
developing states, they are to all intents and purposes "imposed." Moreover, the beneficiaries of these
agreements-sometimes intentionally so, often unintentionally-turn out to be the rich countries. The
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it has been argued, turned
the WTO into a "royalty collection agency" for the rich countries. The Structural Adjustment Programs
(SAPs) connected to IMF loans have proven singularly disastrous for the poor countries but provide
huge interest payments to the rich. In both cases, the "voluntary" signatures of poor states do not signify
consent to the details of the agreement, but need. Obviously, trade—with liberal or nonliberal states—is
not a moral obligation, yet conditional aid, like IMF and WTO policies, aims at changing the cultural,
economic, and political constitution of a target state clearly without its consent.

A common policy required in structural adjustment is the privatization of state-owned industries and resources.
This policy aims to increase efficiency and investment and to decrease state spending. State-owned resources are to
be sold whether they generate a fiscal profit or not.[17]

Critics have condemned these privatization requirements, arguing that when resources are transferred to foreign
corporations and/or national elites, the goal of public prosperity is replaced with the goal of private accumulation.
Furthermore, state-owned firms may show fiscal losses because they fulfill a wider social role, such as providing
low-cost utilities and jobs. Some scholars have argued that SAPs and neoliberal policies have negatively affected
many developing countries.[18]

Critics hold SAPs responsible for much of the economic stagnation that has occurred in borrowing countries. SAPs

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emphasize maintaining a balanced budget, which forces austerity programs. The casualties of balancing a budget
are often social programs.

For example, if a government cuts education funding, universality is impaired, and therefore long-term economic
growth. Similarly, cuts to health programs have allowed diseases such as AIDS to devastate some areas' economies
by destroying the workforce. A 2009 book by Rick Rowden entitled The Deadly Ideas of Neoliberalism: How the
IMF has Undermined Public Health and the Fight Against AIDS claims that the IMF's monetarist approach
towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was unnecessarily
restrictive and has prevented developing countries from being able to scale up long-term public investment as a
percentage of GDP in the underlying public health infrastructure. The book claims the consequences have been
chronically underfunded public health systems, leading to dilapidated health infrastructure, inadequate numbers
of health personnel, and demoralizing working conditions that have fueled the "push factors" driving the brain
drain of nurses migrating from poor countries to rich ones, all of which has undermined public health systems and
the fight against HIV/AIDS in developing countries. A counter-argument is that it is illogical to assume that
reducing funding to a program automatically reduces its quality. There may be factors within these sectors that are
susceptible to corruption or over-staffing that causes the initial investment to not be used as efficiently as possible.

Recent studies have shown strong connections between SAPs and tuberculosis rates in developing nations.[19]

Countries with native populations living traditional lifestyles face with unique challenges in regards to structural
adjustment. Authors Ikubolajeh Bernard Logan and Kidane Mengisteab make the case in their article "IMF-World
Bank Adjustment and Structural Transformation on Sub-Saharan Africa" for the ineffectiveness of structural
adjustment in part being attributed to the disconnect between the informal sector of the economy as generated by
traditional society and the formal sector generated by a modern, urban society. The rural and urban scales and the
different needs of each are a factor that usually goes unexamined when analyzing the effects of structural
adjustment. In some rural, traditional communities, the absence of landownership and ownership of resources,
land tenure, and labor practices due to custom and tradition provides a unique situation in regard to the structural
economic reform of a state. Kinship-based societies, for example, operate under the rule that collective group
resources are not to serve individual purposes. Gender roles and obligations, familial relations, lineage, and
household organization all play a part in the functioning of traditional society. It would then appear difficult to
formulate effective economic reform policies by considering only the formal sector of society and the economy,
leaving out more traditional societies and ways of life.[20]

Empirical evidence
There are some serious problems in measuring the empirical success of Fund programs. It is extremely difficult to
calculate the counterfactual; that is, what would have happened had the Fund not intervened. Even so, a study in
the journal World Development found that the programs "often do not work", citing "high rates of recidivism, low
rates of completion, and an insignificant catalytic effect on other capital flows".[21]

IMF SAPs versus World Bank SAPs

While both the International Monetary Fund (IMF) and World Bank loan to depressed and developing countries,
their loans are intended to address different problems. The IMF mainly lends to countries that have balance of
payment problems (they can not pay their international debts), while the World bank offers loans to fund
particular development projects. However, the World Bank also provides balance of payments support, usually
through adjustment packages jointly negotiated with the IMF.

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IMF loans focus on temporarily fixing problems that countries face as a whole. Traditionally IMF loans were meant
to be repaid in a short duration between 2½ and 4 years. Today, there are a few longer term options available,
which go up to 7 years.[22] as well as options that lend to countries in times of crises such as natural disasters or

Donor countries
The IMF is supported solely by its member states, while the World Bank funds its loans with a mix of member
contributions and corporate bonds. Currently there are 185 Members of the IMF (As Of February 2007) and 184
members of the World Bank. Members are assigned a quota to be reevaluated and paid on a rotating schedule. The
assessed quota is based upon the donor country's portion of the world economy. One of the critiques of SAPs is that
the highest donating countries hold too much influence over which countries receive the loans and the SAPs that
accompany them.

Some of the largest donors are:

United Kingdom
United States

See also
IMF Stand-By Arrangement
Washington Consensus
Bretton Woods system
International Monetary Fund
World Bank
Balcerowicz Plan

1. Lensink, Robert (1996). Structural adjustment in Sub-Saharan Africa (
sa=X&ei=1J6QU4r7JoH27AbY9IDQAg&ved=0CC0Q6AEwAA) (1st ed.). Longman. ISBN 9780582248861.
2. Lall, Sanjaya (1995). "Structural adjustment and African industry" (
/pii/0305750X9500103J). World Development. 23 (12): 2019–2031. doi:10.1016/0305-750x(95)00103-j
( Retrieved 12 June 2014.
3. Greenberg, James B. 1997. A Political Ecology of Structural-Adjustment Policies: The Case of the Dominican
Republic. Culture & Agriculture 19 (3):85-93
4. "IMF Concessional Financing through the ESAF (factsheet)" (
/esaf.htm). International Monetary Fund. April 2004. Retrieved 5 October 2015.
5. "The IMF's Enhanced Structural Adjustment Facility (ESAF): Is It Working?" (
/pubs/ft/esaf/exr/). International Monetary Fund. September 1999. Retrieved 5 October 2015.
6. "The Poverty Reduction and Growth Facility (PRGF) (factsheet)" (
/prgf.htm). International Monetary Fund. 31 July 2009. Retrieved 5 October 2015.

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7. "IMF Extended Credit Facility (factsheet)" ( International

Monetary Fund. 15 September 2015. Retrieved 5 October 2015.
8. White, Howard (1996). "Adjustment in Africa" (
/j.1467-7660.1996.tb00611.x/references). Development and Change. 27: 785–815.
doi:10.1111/j.1467-7660.1996.tb00611.x ( Retrieved
12 June 2014.
9. See IMF website on conditionality (
10. Arrighi 2010, p. 34.
11. Arrighi 2010, p. 35.
Reinhart & Rogoff 2009, p. 206 (, likewise notes
that "high and volatile interest rates in the United States contributed to a spate of banking and sovereign debt
crises in emerging economies, most famously in Latin America and then Africa."
12. See webpage on SAPs (
13. For another overview, see ('s
14. McGregor, S (2005-05-03). "Structural adjustment programmes and human well-being"
Retrieved 2016-02-10.
15. Osterhammel (1997). "The Dictionary of Human Geography" (
/1587935/mod_resource/content/1/colonialism.pdf) (PDF).
16. Jahn, Beate (2005-01-01). "Kant, Mill, and Illiberal Legacies in International Affairs"
international-affairs/C150415FC601F309B40561567077C653). International Organization. 59 (1): 177–207.
ISSN 1531-5088 ( doi:10.1017/S0020818305050046 (
17. Cardoso and Helwege, "Latin America's Economy" Cambridge, MA: MIT Press (1992)
18. McPake, Barbara. 2009. Hospital Policy in Sub-Saharan Africa and Post-Colonial Development Impasse. Soc
Hist Med 22 (2):341-360.
19. New York Times: Rise in TB Is Linked to Loans From I.M.F (
20. Bernard, Ikubolajeh Logan and Kidane Mengisteab. "IMF-World Bank Adjustment and Structural
Transformation on Sub-Saharan Africa". Economic Geography. Vol 69. No 1, African Development. 1993.
21. Bird, G. "IMF Programs: Do they Work? Can they be made to work better?" World Development vol 29, no.11
22. See the IMF website ( on lending.

Arrighi, Giovanni (2010). "The world economy and the Cold War, 1970–1985". In Melvyn P. Leffler and Odd
Arne Westad, eds., The Cambridge History of the Cold War, Volume 3: Endings (pp. 23–44). Cambridge:
Cambridge University Press. ISBN 978-0-521-83721-7.
Reinhart, Carmen M.; Rogoff, Kenneth S. (2009). This Time is Different: Eight Centuries of Financial Folly.
Princeton, NJ: Princeton University Press. ISBN 978-0-691-14216-6.

External links
IMF Factsheet on Conditionality (

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