Structural Adjustment

Conditionality and application

Conditions attached to structural adjustment loans typically include stabilisation measures such as reduction of balance-of-payments deficits through currency devaluation, reduction of budget deficits through higher taxes and lower government spending (austerity), restructuring of foreign debts, removal of food subsidies, higher public-service prices and wage cuts. These are combined with longer-term adjustment measures: market liberalisation, full or partial sale of state enterprises, creation of financial institutions, stronger rights for foreign investors, reorientation of the economy toward exports and resource extraction, and cuts in government employment.

Diffusion and social results

Structural adjustment was developed by the Bretton Woods institutions, the IMF and the World Bank, advised by their senior economists. Its substantive origins lie in the global economic disasters of the late 1970s: the oil crisis, the debt crisis, multiple economic depressions and stagflation. After the dollar crisis of 1979–80, a shift in US monetary policy sharply reduced capital supply to low- and middle-income countries, and Mexico's 1982 default deepened this. Mexico was the first country to carry out adjustment in exchange for loans, and in the 1980s the IMF and the World Bank assembled loan packages for most of Latin America and much of sub-Saharan Africa. The debt crisis of the 1980s gave the IMF leverage to compel broadly similar neoliberal reforms in more than seventy developing countries, shifting them from state intervention and inward-oriented development toward export-led, private-sector-led economies open to foreign imports and foreign direct investment. As Cardoso and Faletto noted, the capitalist control of the advanced North was reproduced in this process; small non-industrial firms and agriculture suffered from reduced protection, and the rise of transnational actors weakened state control over production.

Periodisation and disputes

World Bank sources describe structural adjustment lending as introduced in the early 1980s, so the start year is set at 1980. The Mexican default of 1982 is the catalytic event that spread adjustment, not the year adjustment itself began. Adjustment operated as a standard instrument of the international financial institutions through the 1980s and 1990s; from the late 1990s Poverty Reduction Strategy Papers (PRSPs) effectively replaced structural adjustment lending, and in 2002 adjustment underwent another transition with the introduction of the PRSP. The period label '1980s–1990s' therefore marks the span in which adjustment served as that standard instrument, and no end year is fixed. When structural adjustment and the broad sense of the Washington Consensus ended is disputed, with views differing between around 2000 and the 2008 financial crisis, so no exact year can be cut off.

Assessments also diverge. According to Giovanni Arrighi, the consensus institutions used the fiscal distress of low- and middle-income countries to impose adjustment measures, which contributed heavily to redirecting flows of wealth toward the restoration of US wealth and power without improving those countries' position in the world hierarchy of wealth. Some studies, by contrast, describe adjustment as 'weakly associated' with growth and reform and credit it with lowering inflation, while others judge the results of frequent structural adjustment lending to have been 'poor'. Economists find few least developed countries that achieved real growth under adjustment, and many loans were not repaid.

The Washington Consensus is a term first used in 1989 by the British economist John Williamson for ten economic policy prescriptions that Washington-based institutions, the IMF, the World Bank and the US Treasury, presented as a standard reform package to developing countries in crisis during the 1980s and 1990s. The term later came to be used broadly for market fundamentalism or neoliberalism in general, beyond Williamson's original prescriptions, an extension he himself opposed; he is reported to have regretted that the word 'Washington' suggested the policies originated in Washington and were imposed from outside. Some authors, however, stress that Latin American policy-makers arrived at reform packages through their own analysis rather than having them imposed from outside.

Cases and questions of classification

South Korea in 1997 is treated as a leading case of adjustment. The United States and the IMF counted it among the successes and saw the country as approaching advanced-economy status, while others doubted the success and argued that the United States held the initiative in the negotiations and that the reforms rested on US interests. Critics also argue that because the IMF is shaped by the distribution of power and interests among great powers, fair and objective measures are difficult; that its lending reflects the political problem of US financial hegemony and voting rights, so that conditions ignore recipients' realities; and that its excessive emphasis on market liberalisation and financial opening produced bad long-term results for recipients.

A socialist state at war accepting the Bretton Woods adjustment template is another such case. In Mozambique wartime production fell sharply in 1981–86; unable to obtain sufficient aid from the Soviet bloc, the country joined the World Bank and IMF in 1985, and Western donors made an IMF programme a condition of continued support. The ruling FRELIMO negotiated its first structural adjustment package (SAP) with the World Bank and IMF in 1986, and the first adjustment measure, the Economic Rehabilitation Programme (PRE, Programa de Reabilitação Económica), was passed by the Mozambican parliament in January 1987. The PRE aimed to restore incentives through restraint on current spending, a large exchange-rate adjustment and tax and price reform, and from 1990 adjustment was extended to include the social sector as the Economic and Social Rehabilitation Programme (ESRP/PRES). The Mozambican programme included producer price reform, removal of subsidies, liberalisation of internal and external trade, a new foreign-exchange regime involving severe devaluation, 'cost sharing' for state services and privatisation, and later adjustment required privatisation of major industries, cuts in government spending, deregulation and trade liberalisation. More than 1,400 state enterprises were privatised in the 1980s and 1990s, at the time Africa's largest privatisation programme. The PRE clearly marked a turning point from socialist planning toward the market, and in 1989 FRELIMO quietly deleted Marxism-Leninism from its party statutes. Wealth distribution did not improve, however: growth did not trickle down, the poorest became poorer, and public education and health suffered from austerity. Sources also differ on when and under what name Mozambican adjustment began: World Bank material dates the PRE to 1987 and the ESRP to 1990, another World Bank document dates the Economic Recovery Programme (ERP) to 1986, and the African Development Bank dates the ESRP to 1991. The case shows whose diagnosis conditional lending enforces, and these conflicting periodisations are recorded rather than resolved.