BEYOND STRUCTURAL ADJUSTMENTCan there be Sustainable development?

Maudelyn R. JohnsonUniversity of California, Los Angeles

Paper presented at the 1993 Annual Caribbean Studies AssociationConference (CSA), Jamaica, The West Indies. May 24-29, 1993. Thisis only a draft. Please do not cite or quote without the authors'permission.

INTRODUCTION

As developing nations searched for strategies of

development, many adopted those which would diversify their

monocultural economies. In defiance of the theory of Comparative

Advantage, (for those whose monocultural economies consisted of

agricultural cash crops for export, or extractive minerals),

these strategies included ISI, and export-led development.

The larger, more resource-rich developing countries

succeeded with ISI strategy at various stages of their

development, for example, Brazil in the 1930's. When that was no

longer feasible, a few embarked on the second tier of ISI, and

later branched off into export-led development. Some countries,

regardless of size and resources, experimented with socialism,

(Tanzania, Ghana), others with social democracy (Jamaica under

Manley, 1972-1980). Others had an 'open-door' strategy (Egypt,

Liberia); others were avowed capitalists (Brazil, Jamaica under

Seaga). None escaped the economic crises of the 1980's.

Since 1979, the second oil shock coupled with world

recession resulted in acute financial difficulties for most

developing nations. There were external shocks and internal

shocks; there were deficits, and inflation'. Oil shocks

1 External deficits would arise from deteriorating terms oftrade, escalating foreign debt service, over valued currency.Fiscal deficits would result from heavy government investment,public enterprise deficits, public subsidies, declining revenues.All of these would be exacerbated by balance-of-payment shortfalls. Inflation would stem from increasing oil prices, and the

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(quadrupled oil prices), world recession, increased interest

rates, debt which eventually led to a debt management crisis,

increased protectionism in the markets of the developed

countries, adverse terms of trade for those goods from the

developing countries, and all contributed to the economic

difficulties experienced by the developing nations.

The growth of the debt resulted in huge losses of foreign

reserve, double figure inflation, chronic fiscal and balance of

payment crises. Some of this could of course be attributed to

the cost of earlier development policies, but it is practically

impossible to put all the blame on the developing countries.

Many countries were forced to make painful adjustments.

The International Monetary Fund (IMF), the World Bank (WB) and

major donors stepped in. It was decided that corrective actions

would restore balance and permit resumed growth, and that this

could be accomplished in three to five years, if there was

sufficient political will among the leaders of these indebted

countries. In fact, in the context of the long decade of the

1980's, over thirty African countries adopted Structural

Adjustment Programs supported by the IMF, the World Bank, and

other financial institutions. Many countries in Latin America

and the Caribbean also adopted SAPs.

The social and political costs which such severe reforms

climbing fiscal deficit which would usually be balanced byborrowing.Stephen Weissman, "Structural Adjustments: Insights from theExperiences of Ghana and Senegal," World Development Vol. 18., No.12, 1990, p. 1622.

4

would have on those countries who adopted SAPs were not seriously

considered by the debtor nations or the creditors. But there were

serious social, economic and political costs, and they were

obvious and immediate. No matter how beneficial the

stabilization and adjustment policies were for a country, the

costs would have social, economic and political implications. It

was those costs that created an outcry among the developing

nations and concerned agencies. This is what aroused my interest

in Structural Adjustment Programs.

SAP meant change, and change meant a different allocation of

costs and benefits. In light of those costs, this paper looks at

the Structural Adjustment program and analyses its consequences

today, and its impact on development possibilities for the

future. Although this is meant to be a general survey, I will

pay some attention to certain countries in the Caribbean and

Africa.

In addition to the usual research resources available here

on campus, I have used reports from live radio broadcast eye-

witness news; I have used papers presented at African Studies

Association Conferences, and American Political Science meetings.

I have also relied heavily on books and reports written by

indigenous scholars who are more familiar with the real life

situations, and who have spent many hours interviewing and

recording the views of the affected populations.

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STRUCTURAL ADJUSTMENT

A typical candidate for SAP would be a country with large

balance of payments and fiscal deficits, accompanied often, by

high inflation.

Bella Balassa defined Structural Adjustment (SA) as policy

responses to external shocks, carried out with an objective of

regaining pre-growth shock path of the national economy. 2 He

went on to say that response to these shocks necessitated the re-

ordering of policy instruments. 3

Christine Gladwin was more explicit in her definition. She

defined SA as the introduction of market-oriented policies--

liberalization of markets, more efficient use of prices, greater

openness to trade, and a bigger role for the private sector. It

demanded reduction of budget deficits and balance of payment

deficits, and all this, she said, could be done through

monetarist measures. 4 She went on to explain further that

Structural Adjustment:

meant changing the structure of production so that theadjusting economy produced more tradeables--import

2Bela Balassa, "Adjustment Policies in Developing Economies,"World Development Vol, 10, No. 1, pp. 23, 1982.

3Balassa, ibid.

4Christine H. Gladwin, editor, Structural Adjustment andAfrican Women Farmers, 1991, p. 4.

6

subsitutes and exports..." 5

Stephen Weissman's definition could also be included here.

He defined SA as encompassing interrelated policies to (1)

stabilize the economy through an orderly adjustment of domestic

demand, to reduce the level of external resources, and (2) to

engineer sustainable long term growth changes in relative prices

designed to make the economy more efficient, more flexible and

better able to use resources. 6

Kathy McAfee, however, defined SA as 'the state of the art

version of the free market export oriented private sector-led

development model--based on the delusion--or the pretense--that

poor nations can work their way out of debt and dependency by

continuing to emphasize their role as providers of cheap labor,

food and raw materials to the industrialized nations.'' As the

paper progresses, the reader will see how the above definitions

fit in to what is actually happening on the ground in developing

countries.

Evolution of Structural Adjustment

Structural Adjustment policies include economic

stabilization as well as liberalization and liberalism is the

31adwin, op. cit. p. 34

6Stephen Weissman, "Structural Adjustment in Africa: Insightsfrom the Experiences of Ghana and Senegal," World Development, Vol.18, No. 12, 1990. p. 1622.

7NACLA Report on the Americas, IMF, World Bank, U.S. Aid inthe Caribbean, Vol. XXIII, No. %, p. 15.

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dominant theory in today's economic system. Perhaps it can safely

be stated that the policies of Structural Adjustment are really

an evolution of Neo-classical theory as well as Liberal theory.

Neo-classical thinkers say that many problems of developing

countries could be traced, not to international systemic factors

or to structural rigidities, but to misguided government

intervention, 8 The neo-classical approach to analyzing the

performance of an economy assumes that in the face of pervasive

scarcity, individuals make choices that reflect a set of desires,

wants or preferences. 9

In the neo-classical model, there are no organizations or

institutions except for the market, and change occurs in this

framework via a change in relative prices, in an impersonal

market. N This means that the market is self-regulating and,

therefore, will adjust to any changes that occur in the economic

arena. Moreover, with regard to the role of the state, neo-

classical theory, acknowledges that the existence of the state is

essential for economic growth, but that, however, the state is

the source of man-made economic decline. ii

The liberal doctrine argues that in the ideal state, the

free market takes care of the distribution of wealth and

8Haggard, op, cit. p. 9.

9Douglas North, Structure and Change in Economic History,1981, p. 4.

NNorth, op. cit. p. 8.

"North, op. cit. p. 20.

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income. 12 The state's role is to guarantee the smooth

functioning of free enterprise.

Liberal theories argue that the existing international

market structure provides the best framework for southern

economic development. In this liberal view, the major problems

of development, lie in the domestic economy of the developing

country in the form of market imperfections, unproductive or

inadequate land, labor and capital; social and political

rigidities. The best way to improve these weaknesses is through

market-oriented domestic policies. 13

Liberal thinking rejects the proposition that trade and

investment relations between developed and developing countries

are inimical to development.' 4

The IMF and the World Bank seemed to have adopted their

recommendations for structural adjustment from both Liberal as

well as Neo-classical thought, since they insist that countries

agree to begin domestic structural reforms before they could be

eligible for loans. These reforms as outlined below, include

liberalization of market, less state intervention and other

requirements.

Structural Adjustment Policy Recommendations

An example of SAP for a country, is the IMF's agreement

12Michael Carnoy, The State and Political Theory, 1984, p. 32.

13Joan Edelman Spero, The Politics of International EconomicRelations, 1990, p. 148.

14Haggard, Stephan, Pathways from the Periphery, 1990, p. 10.

9

which was concluded with the Seaga government in Jamaica--1981.

It must be noted here that the Manley government had rejected

stiffer terms laid down by the IMF in the late 1970's.

The agreement with the Seaga government provided a loanfor $600 million under the IMF extended Fund Facility,and was to be drawn over a period of 3 years. Inreturn, the Jamaican government had to promise to:

(a) restrict and reduce the role of theState in the economy.(b) restrict the rate of increase of thereal wage--the real wage had already been cutby devaluations of 1978.(c) restore the free market as the soleregulator of the economy.(d) ensure a hospitable climate for foreigncapita1. 15

Deregulation, an important part of the SAP package means

liberalization of price controls, liberalization of exchange

controls by easing import restrictions. Deregulation basically

means that the State ceases to regulate, to exercise control over

important markets for basic commodities, housing and foreign

exchange. m It also means that the free market would assert

itself as the regulator of economic life.

Divestment, another important part of Structural Adjustment

packages, refers to the selling of several or most of the

parastatals. More commonly, this is referred to as

privatization.

Immediate restriction and reduction of state expenditures

and borrowing are also important components of SA. This usually

15Beckford, George and Michael Witter, Small Garden BitterWeed: Struggle and Change in Jamaica, 1980, 1982, p. 133.

16Beckford, op. cit. p. 134

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result in a freeze on employment and subsequent massive lay-offs,

while restrictions on borrowing resulted in the State having to

shelve many capital development projects indefinitely.

The Jamaican government had to implement several

devaluations of the currency, eventually stop all food subsidies,

and increase interest rates.

IMPACT OF STRUCTURAL ADJUSTMENT ON SOCIETY

Who Bears the Burden of Structural Adjustment

Five of the most controversial policies included in

structural adjustment packages are: wage restraint, increased

prices, reduction in employment, and privatization.

Vulnerable Groups

The burden of the adjustment programs are usually borne by

the most vulnerable and the most powerless in all adjusting

societies. These vulnerable groups that are hit the hardest by

these harsh economic policies, are children in low income

households, the aged and the young members of the labor force.

The children in low income households are vulnerable because

their homes include the unemployed and the underemployed. Many

survive because of the survival strategies they implement in the

informal sector of the economy.

The aged usually live on hand-outs from their dependents if

they have any.

The young members of the labor force are also negatively

affected. They experience either high levels of underemployment

or unemployment at a time when they should be the most productive

11

in their respective societies. In many developing countries,

where the state was the employer of last resort for secondary

school leavers, and where jobs were guaranteed to the young

university graduates, no such guarantees exist any longer.

Yet the poor and the most vulnerable are not the only ones

who bear the brunt of the adjustment programs. Barbara Geddes in

a recent survey of eleven countries (included in the list are:

Argentina, Uruguay, Greece, Venezuela, Brazil, Spain), which have

undergone structural adjustments, acknowledged that all

governments in all the countries under that survey, regardless of

their party ideology or the extent of meaningful democracy,

imposed policies injurious to the working class.''

Many managerial staff and professional personnel were not

spared either. This was inspite of many well-organized working

class associations, unions etc. She acknowledged, however, that

they have not done so without impunity. Some governments have

had to change some of their austerity measures after almost being

voted out of power by this powerful working class.

Wage restraint is used to control inflation but it reduces

the ability of families to provide adequate meals or maintain

living standards. At the same time that families must contend

with unemployment, underemployment or wage freeze, prices for

food, interest rates, mortgage rates, utilities, education, and

"Barbara Geddes, Political Institutions and Economic Policy. or How Politicians Decide Who Bears the Costs of Structural Adjustment, Presented at the American Political Science AssociationMeetings, Sept., 1991. Revised October 20, 1991. p. 14.

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basic health care, are all increased.

Reducing the rate of employment in order to improve

efficiency, and fiscal deficits, sounds good theoretically. In

actuality it reduces the states' tax base. When people are

pushed into the informal sector tax collection is almost

impossible. There is usually an increase in black market

activities as the informal sector begins to flourish."

In addition to this, not only is there increased

impoverishment of the population, but there is an accompanying

increase in unacceptable social behavior which results in an

increase in crime and violence.

Indigenous Capitalists, Small Farmers and Women

For the local merchants, and other local private

enterprises, business shrink as the domestic market shrink, for

the simple reason that people become increasingly unable to buy

the goods that are available.

Small farmers suffer when their subsidies for fertilizers

and other inputs are reduced or stopped altogether, and when

credit gets out of reach due to the high interest rates that are

""The informal economy is the result of people's spontaneousand creative response to the state's inability to satisfy the basicneeds of the impoverished masses." Hernando De Soto, The OtherPath: The Invisible Revolution in the Third World, 1989, p. xii.It involves, smuggling, black-marketeering, petty trade, streetvending of various commodities,(some stolen or contraband), andvarious other activities, some often illegal.

Victor Azarya said that, "The informal sector (economy)flourishes at the margin of the state system because of the state'sinability or unwillingness to accommodate those who wish to be partof the system." in Precarious Balance: State Society in Africa,Donald Rothchild and Naomi Chazan, editors, 1988, p. 12.

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imposed. In many cases organic substitutes are insufficient or

are not available, therefore, there is a decrease in quality and

quantity of the food produced. Moreover, small farmers loose

local markets and experience severe dislocation when locally

produced food crops and diary products cannot compete with the

food imported.

Women are negatively affected in all the above categories,

but especially in Africa, where most of the food crops are

produced by women, they are often hurt more when fertilizers and

other inputs are not available. When the market for their food

crops contricts, or when food prices are further depressed due to

imported food substitutes, they also suffer reduced incomes and

therefore, are less capable of managing their families' needs,

especially when they are heads of households.

Women are also affected when basic health care is cut, and

they do not have the necessary financial means to pay the

increased costs of medical attention and prescriptions for

themselves as well as for their sick children.

Deterioration and Reduction of Services

Not only are the jobs lost, but so are the services. When

the World Bank called for the elimination of 30% of the jobs in

Dominica's Central Water Authority, communities were already

plagued by broken sewers, and lack of piped water. This meant

that the jobs were not redundant. Almost simultaneous with the

loss of adequate services, rates were continually increased. One

government official said, "We are raising water and electricity

14

rates, but we can't even raise the rates fast enough to please

the World Bank." In the face of such draconian price increases,

the Dominican government and USIAD created a' few jobs in newly

built garment factories, where young people were supposed to work

for $1.88 a dayi lg

The social infrastructure has been eroded in all developing

countries under going structural adjustment. This has led to

deterioration of coverage and quality of services in main sector

areas--water supply, electricity, health and education.

Nutrition

The Caribbean Food and Nutrition Institute calculated that

the 1984 cost of a basic basket of food to feed a household of

five (two adults and three children), was $120.63 a week. That

year the minimum wage was $40.00 a week in Jamaica. This meant

that a household of five with two adults working at minimum wage

would be able to buy 50% of the basket if they spent 75% of their

income on food."

During the first decade after independence, (the 1960's to

the 1970's), almost all new nations were doing well. Food

subsidies then were only a small percentage of national

disposable income--1% in Jamaica between 1792 and 1975. When IMF

adjustment program began to be implemented after 1975, food

igKathy McAfee, "Dominica, Privatize and Pauperize," in NACLA,Hurricane, The IMF, U.S. Aid in the Caribbean, Vol. XXIII, #5,1990, pp. 36-37.

"Andrea Cornia Giovanni, et al, editors, Adjustment with aHuman Face, Vol 2, Country Case Studies, 1988, p. 137.

15

subsidies increased because they were used to cushion the impact

of the poverty which the reduction in real wages inflicted. 21 By

1980, subsidies and price controls were removed as was advised by

IMF and World Bank.

Privatize and Pauperize

Privatization is supposed to contribute to reducing

deficits, increasing efficiency, and provided needed money to the

state from the sales of its previously owned enterprises. But in

small countries, where the indigenous populations do not have the

necessary amounts of money to take over the ownership of these

firms, privatization results in foreigners purchasing key state

industries (whether they were profitable to the state or not does

not matter to the IMF. They must be sold). Ironically, these

governments are advised by the IMF to offer tax holidays to these

now foreign owned companies. In addition the free market

scenario allows them to import the necessary raw materials and

export the finished products at very low if any import or export

tax rates.

These actions certainly do not bring in any money to the to

the cash starved state. In fact, the bankrupt state in effect

subsidies rich multinational corporations and rich foreign

entrepreneurs, but it dares not subsidize food for its starving

citizens!

Privatization hurt not only the state, but the people, too.

21Andrea Cornia Giovanni, et al. editors, Adjustment with aHuman Face, Vol II, 1988, p 140.

16

Dominica was instructed by the IMF that it had to sell or

dismantle its Power Corporation DOMLEC (which provided

electricity island wide), its Water Authority Corporation, and

its Housing Development Corporation. These fairly new

institutions were created after the country's independence, in

order to provide services to the population and promote a higher

standard of living. Now they must be dismantled!

Foreign control also undermines government control of

economic resources which are vital to a countries national

security.

An ironic case worth documenting occurred in Dominica.

Banana was revived under structural adjustment to be the only

industry of importance, after the government had been attempting

to diversify the economy of the island. Conspiracy to privatize

the banana industry resulted in restructuring and transferring

control of the industry from the Dominica Banana Growers

Association (to which the small scale indigenous farmers

belonged), to the Dominica Marketing Corporation. This new

corporation was set up with the help of USAID and $1.75 million.

The new corporation is now dominated by bankers (foreign

bankers), large growers, and merchants. The indigenous farmers

bear the brunt of the cost of farming, but have no say in pricing

or marketing. Consequently, benefits do not always cover costs.

Hundreds of women were put out of work with no compensation. 22

It is ironic that after destroying marketing boards,

Kathy McAfee, NACLA, loc. cit, p. 34.

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agricultural boards and trading boards controlled by governments

in Africa and other parts of the Caribbean, that these same

institutions are set up by foreign bankers and aid donors

wherever possible within these same ailing economies. Profits

from these enterprises are no longer used within the countries to

provide services and support industrialization, as they were

under the governments. Profits are now syphoned off and

repatriated. The fact that the indigenous farmers are left as

vulnerable and as poor under these new boards are not even

discussed.

Political Costs of Adjustment

Governments have been politically capable of squeezing their

constituents, but as mentioned before, they have paid a price for

doing so. Popular protest is a growing threat to adjustment

efforts, and there have been many urban riots Egypt, Venezuela,

Brazil and many other countries.

The government in Mexico almost lost the election in 1988.

Senegal also survived near defeat in 1988. In other countries,

adjustment fatigue have resulted in the election of populist

politicians. One example was Seaga of Jamaica who was ousted

electorally in 1988 and replaced by Manley.

Where the military is already in power, for example Ghana, a

`culture of silence,' now exist. People are fearful of further

repression and hardships, therefore they hardly complain openly.

Yet although it has been acknowledged that not only

authoritarian governments are capable of putting on the squeeze,

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it must be recognized that in order to control the outbursts of

rage and violence in the form of food riots, strikes,

demonstrations, sabotage on government buildings, etc, repressive

measures had to be implemented, whether the governments were

democratic or not. Many governments now stand alienated from

their constituents.

It must also be recognized that it is rarely the poor alone

who demonstrate or riot over food prices. Protests over price

increase mobilize workers, students, the lower middle classes as

well, and temporary informal alliances are created. Political

patronage and public relations are not always useful in quelling

these dissatisfactions, hence there are increased

militarizations, police activity and general repression. The

following mini survey of the impact of structural adjustment on

the island of Jamaica and on education in Africa further

illustrate what I have said so far.

A Mini Case Study of JamaicaManley was elected 1972, decided to implement socialdemocracy and a program of self-reliance. Jamaicaprospered for a few years then came the economiccrisis. Manley was ousted in the general election of1980.

Seaga became the new Head of State. He opened the countryto more imports; promoted Free Trade Zones--foreign run, wherewomen worked in sweat shops with no union protection, earning$15.00 a week. They produced garments and toys for foreignmarkets. Jamaican factories were closed due to competition whenthe market opened to imports. Over 10,000 jobs were lost.

Seaga accrued a massive debt under SAP--more than 1/2of the country's present $3.5 billion debt, and he didthat in the few short years between (1981 and 1988).This was because of the successive loans he had to makeunder SAP.

19

According to Manley who is now back in office, toservice the debt, Jamaicans would have to pay 1/2 ofits export earnings, plus 40% of all governmentrevenues.

By the time people were angry enough to oust Seaga in 1990,

the World Bank officials were satisfied that Jamaica was safe.

According to Roger Robinson, a World Bank official, Jamaicans

were not thinking of meeting local needs anymore" Today, the

problems facing Michael Manley are almost unsurmountable.

An agricultural sector adjustment agreement with the IMF and

Jamaica resulted in a $62 million loan. Not one penny went to

Jamaica's farmers. The money had to be used to shore up the

country's reserves on foreign exchange in order to satisfy the

same IMF.

The elimination of tariff restrictions on livestock imports,

resulted in U.S. livestock producers travelling to Jamaica to

sell beef to Jamaican hotel managers. This will destroy the

local beef industry. 24

In addition, in the short time the Manley went back into

office, the IMF demanded a further increase in the interest rates

levied by the Jamaica Agricultural Credit Bank, although it was

pointed out that farmers could hardly afford the present interest

23Roger Robinson had spurned Manley's 1970's developmentstrategy of self-reliance. When Manley wanted to provide financialsupport to Jamaican farmers, he sabotaged the plan. According tohim, Manley should not support Jamaican potato farmers. He shouldbuy potatoes from Miami. Kathy McAfee, NACLA Vol. XXIII, #5, 1990,p. 22.

24NACLA, op. cit. p. 25

20

rates. The response of the IMF officials was that if the farmers

could not afford credit at that rate, then agriculture was not

the way to go for Jamaica. 25 The bank also insisted in higher

mortgage rates even though the rates are far out of reach of

Jamaicans.

A radio report about Jamaica last month outlined the

following situation:

--"inflation was up 147% in the last three years

--"J$40 equals US$1 (From 1983 to 1985 there was a 207%devaluation of the J$ against the US$).

--"there have been increased instances of diseases, forexample typhoid, measles, chicken pox.

--"crime has increased tremendously; 561 people werekilled last year.

--"electricity and water rates have increased sodrastically that people now have to chose betweenfood and electricity.

--"oil, petroleum products and gas have increased evenmore

--"the increase in cement prices has brought theconstruction industry to a halt.

--"education is suffering from a chronic shortage ofmoney, teachers, and equipment; 50% of the studentshave been sent home and schools have to be closed.

--"the urban poor live in shanty towns; they have to`hustle for a living,' (that is, participation inthe informal sector has become the dominant form ofincome creation).

--"the rural poor live off the fruits of the land.

--"the poor will not only have to continue to suffer in

25NACLA, ibid.

21

the near future, they have already begun to die. 1126

Impact of Structural Adjustment on Education in Africa

A Mini Survey

Structural adjustment has had a devastating impact on

education, in almost every country, but apparently, the

universities in Africa has experienced the some of the most acute

impacts. The following information was provided by the Committee

for Academic Freedom in Africa.

The World Bank policies on African education resulted in the

removal of subsidies for students' food and accommodation. This

resulted in overcrowded rooms on campus and one meal a day for

many students. Daily supplies of water and electricity are

uncertain and in any case inadequate. The police or the army are

usually stationed nearby.

The educated and the middle classes now are finding it

difficult to reproduce themselves, because many cannot afford to

provide higher education for their children. Currency

devaluation inflated the cost of educational materials. The

devastating effects of SA on family incomes made it almost

impossible to continue to send some children even to primary

school.

Enrollment rates were declining in many countries. Current

rate of enrollment in Africa in higher education is 2% of the

population. If Nigeria is excluded, the statistics become 1%.

26Reported by journalist Kilo, on February 14, 1992 onCaribbean/Belie Pulze.

22

Yet governments are forced to cut funding for education, under

their structural adjustment programs."

The quality of education in Africa is now described as

unacceptably low, yet structural adjustment has proposed that to

restore quality, costs must be constrained, and cost-sharing

expanded. This means that there is increasing reduction in

education, which results in the laying off of staff and

professors. It also means reducing the number of students who

can attend, and charge higher fees to those who do attend.

Structural adjustment has become an obstacle to education for the

youth who now in millions of cases cannot hope to attend, and to

others whose primary education is at risk.

The World Bank vision for education in Africa by the year

2020 would be to replace the university system with vocational

schools. The primary schools would educate the masses but would

be controlled not by governments, but by local communities,

religious institutions and private companies. The middle schools

would be replaced by private sector training and craft

organizations."

ARGUMENTS AGAINST STRUCTURAL ADJUSTMENT

A list of uncomplimentary arguments have been accumulated

against Structural adjustment policies.

27Committee for Academic Freedom in Africa, "The World Bank andAcademic Freedom in Africa," presented at the African StudiesAssociation meetings, 1991.

2 8ibid.

23

Structural adjustment has increased the indebtedness of the

countries it is supposed to help. The time required to stabilize

the economies were under-estimated, the money required to do the

jobs requested were never enough, consequently, repeated loan

agreements had to be made, and these resulted in increased

indebtedness of the already debt ridden countries.

Structural adjustment has reinforced traditional dependent

trading relations. Nations are forced back into becoming

monocultural economies, exporting one main agricultural export

cash crop, or relying on extractive mineral industries. Because

the local industries are not protected, they disappear, and

governments are forced to use scarce foreign reserves to pay for

increased imports. An import dependency has, therefore, re-

occurred.

Due to its negative impact on education and local

industries, structural adjustment has increased technological

dependence on developed countries. So not only does it not

generate economic growth, but it threatens the capacity of

societies to reproduce themselves. The policies that undermine

educational systems in the developing countries, facilitate

continued weak states. One reason for weak states is the absence

of effective technological and bureaucratic capabilities. If

education is undermined, states will continue to have inadequate

technological and bureaucratic capabilities, and they will

therefore, have to continue to depend heavily on external actors

24

for advice."

Structural adjustment has negative impacts on rural

populations as well as urban populations. It has failed to

eliminate the urban bias. It has not only failed to redistribute

incomes from urban to rural areas, but have worsened the

agricultural incomes.

Policies designed to attract investors have worked against

domestic producers and have forced indigenous owned business to

close their doors. Private sector and market-oriented rhetoric

are a farce. In the Caribbean the bulk of the private sector

include independent peasants on the one hand, and merchants who

import goods rather than produce them on the other hand. There

are relative few industrial entrepreneurs who could lead

industrialized processes. This means that privatization

translates into private foreign investment, which in turn siphons

off and repatriate profits, leaving governments still destitute

for foreign currency. This give rise to further resentful

feelings towards IMF/World Bank and the sentiment of

Irecolonization,'is alive and well among local Third World

populations.

Health care and education have declined, and there is an

increased vulnerability to diseases. Children and lactating

mothers show the worst dietary deficiencies in their countries'

histories.

"Some states like Brazil, Argentina, Chile and Mexico havehigh levels of bureaucratic capability. However, other countriesincluding some in the Caribbean and Sub-Sahara Africa do not.

25

In many countries emigration has been used as a way out,

thus increasing the brain drain of the most able who would be

needed to carry on their country's development later.

Structural adjustment often undermined the possibility of

creating regional markets and trading blocs, because its policies

pit one nation against the other, when all are trying to export

the same cash crops at the same time, thus causing a glut on the

market of some commodities, and consequently driving down the

price. 30

Adjustment with a Human Face

Many government leaders including Seaga of Jamaica met in

Seoul, South Korea in 1985, with the IMF/World Bank

representatives. Seaga argued that adjustment should have a

human pace. The cry was taken up by UNICEF and only then was

there a change in their approach to adjustment, reinforced by

UNICEF's reports on the impact of economic decline on the welfare

children in developing countries, and their consequent

impoverishment. n

30The price for cocoa decreased because several Africancountries were undergoing structural adjustment programs at thesame time. Their conditionalities included increased exportproduction of cocoa, which was their main export agricultural crop.A surplus developed on the world market and the international priceconsequently decreased.

31UNICEF's two volumes, Adjustment with a Human Face,legitimized the concerns that had been mounted by debtorgovernments, humanitarians, and concerned NCO's. One volumestudies the impact of adjustment on vulnerable groups and makessuggestions on how to participate in adjustment programs andpromote growth while protecting the most vulnerable at the sametime. The other consists of country case studies. Both areincluded in this bibliography.

26

UNICEF's books compiled by Giovanni et al, suggest that it

is essential to have policies that assist the most vulnerable.

That food security and entitlements are necessities; that there

should be special nutritional support for women and children;

that the most deprived urban and rural dwellers should also be

targeted for food programs, even work for food.

In the past few years some governments have implemented

compensation programs to relieve the worst of the pain inflicted

by structural adjustment. The Ghanian "Program Action to

Mitigate the Social Consequences of Adjustment." PAMSCAD, was set

up a few years ago, in order to compensate thousands of public

sector workers, who were trimmed from the over staffed agencies.

It was also set up to meet the basic needs of the poorest

citizens, by providing informal education, rudimentary health

projects, and feeder road construction. Other countries

scheduled to implement similar programs with the help of donor

agencies, include, Chad, Senegal, Guineau-Bissau, Guineau,

Madagascar, Guyana.

Structural Adjustment--A Comparative look at Small States in

Europe and Developing States in the Third World.

A close examination of the adjustment process of small

states in Europe during the 1970's, shows that they underwent

adjustment without most of the hardship that is being thrust upon

developing countries. Katzenstein's survey outlines how these

small states tailored their industrial policies to fit in the

27

world markets. 32

They implemented social-corporatists arrangements with

various sectors of their populations. They combined

international liberalization with domestic compensation for the

groups most likely to be hurt by this policy. This included

protection for domestic enterprises. To prevent high

unemployment they relied on the public sector as a critical means

of compensation, providing jobs of last resort. The also

implemented many educational and vocational job training programs

to re-train any who were layed off. They implemented wage

control and price control as well as employment subsidies.

The governments were in control all of the time, not the

market! They intervened and provided domestic compensation in

order to assert some degree of control through a variety of

domesic policies, and to counter some of the harmful effects of

liberalization. The most laissez government was the Swiss, while

the most active interventionist government was the Austrian

government. Yet the Swiss intervened in the market and in

industrial decisions whenever they thought it was necessary.

Their open economies were manipulated. They used it to check

domestic inflation. According to one government official,

political laissez faire is a luxury of large industrial

countries, a luxury which small European states cannot indulge.

The developing countries are criticized for doing all of the

above. Social corporatist arrangements are frowned on, since

32Peter J. Katzenstein, Small States in World Markets, 1985

28

unions, for instance are not allowed under some foreign

privatization schemes set up with the help of the World Bank and

the IMF. Until the outcry of humanitarian organizations, there

were no compensation programs set up to help the poor or the

unemployed. The World Bank and the IMF are the driving force

behind increasing price hikes; they discourage governments from

participating in providing social services; they discourage

protection of local industries. Their actions, on the whole

create large scale unemployment, massive bankruptcies, and they

do not favor defensive policies which would reduce adverse

effects on indigenous populations.

The European countries, on the other hand, practiced what is

now called 'embedded liberalism,' a form of political economy

which is a compromise, involving the use of state power

simultaneously in the interests of both domestic social stability

and well-being and international economic adjustment." Callaghy

admits that the compromise of embedded liberalism has not been

extended to the Third World. In fact, he continues, free market

principles have not dominated the political economies of the

industrial West since World War 11. 34 Nevertheless, developed

countries have pressed Third World countries to adopt open

economies without embedding these policies in the realities of

33Thomas M. Callaghy, "Toward State Capability and EmbeddedLiberalism in the Third World: Lessons for Adjustment," in FragileCoalitions: The Politics of Economic Adjustment, Joan Nelson et al, editors, 1989, p. 119.

loc cit p. 118,

29

domestic state-society relations

The Role of the State

The SA programs insist that the governments of developing

countries are interventionist governments and argue for a

minimalist state. Their main task, therefore, is getting the

state out! But in the smaller and poorer countries in Africa and

the Caribbean where the local bourgeoisie (farmers, planters,

merchants, industrialists) do not have the necessary resources--

financial or technical--to initiate nationalist capitalist

development, the bureaucracy within the state becomes the driving

force in society. Perhaps developing countries have indeed,

extended themselves and over indulged in ambitious investment

programmes, nevertheless, the role of the state is critical to

any development in the Third World.

The myth of the marginal role of the state is demonstrated

by the impressive economic development of the East Asian NICs.

The Latin American NICs tell the same story. These states played

very important roles in managing those market economies.

Regarding Korea, Haggard and Kaufman point out that the country

did adopt liberalization policies, but the government also

"developed a sophisticated organization for providingmarket information, assisting firms with foreign buyersand monitoring export behavior in some cases down to

35 ibid.

30

the level of the individual firm..." 36

The Koreans also created highly centralized decision-making

structures in which technocrats played the crucial role and

domestic business groups and international actors communicated

with them regularly.

The success of the East Asian and Latin American NICs was

definitely as a result of the highly interventionist role of the

state. They maintained high levels of protectionism against

imports of competing goods, as well as parastatal sectors that

included import substitution activities.

Ironically, however, it would appear that the IMF and World

Bank need the state to play strong roles in other areas. As

Callaghy points out, the IMF and World Bank do not always

practice what they preach, since much of their activities

actually reinforce the role of the state. In actual fact their

requirements could only be carried out through state apparatus.

The World Bank now finally acknowledges the fact that the

State has definite roles which are important to any economy. Its

short list include the maintenance of law and order, the

provision of human capital, the construction and repair of

physical infrastructure, the protection of the environment."

36Stephan Haggard and Robert Kaufman, "The Politics ofStabilization and Structural Adjustment," in Jeffrey Sachs, ed.Developing Country Debt and Economic Performance, Vol. 1, TheInternational System, 1989, p. 246.

37World Bank Development Report, Rethinking the State, 1991,p. 131.

31

Law and order is crucial to the smooth operation of any

society. The proponents of structural adjustment do not complain

when in response to the unpopular policies implemented by

governments--reduction in food subsidies, increased prices, end

of rent control--the poor, who are the most vulnerable to the

negative impact of these policies, participate in food riots and

other acts of violence against the state, and the latter in

response exercise strict law and order.

The World Bank in its 1989 report, acknowledges the

important role which states must play. The new phase of

structural adjustment with a human face now supported by the

World Bank is being implemented by the various institutions

created by states.

BEYOND STRUCTURAL ADJUSTMENT

Can developing countries return to normal all-around growth

and development after structural adjustment? It is doubtful!

Structural adjustment have increased indebtedness in all

nations that participated. This means that increasing amounts of

GNP must continually go towards serving the debt and leaving very

little for development projects, or development of human

resources, which are critical to Third World countries. What

started out as a program which they thought would last three to

five years, now has become part of an ungoing development

strategy.

Structural road blocks to development still exist as the

32

developing countries participate in the international political

economy. There is no doubt that some of the problems which the

developing countries experience are external. As small states,

they are heavily dependent on external sources for their imports

of petroleum, machinery, manufactured goods. They are also

dependent on foreign markets for exports of cocoa, coffee,

timber, diamonds, gold, bauxite, etc. They are, therefore,

linked to the powerful international capitalist economy. Their

problems, therefore, reflect the expansion and contraction that

take place in the core countries of Western Europe, North America

and the Pacific Rim. They are consequently vulnerable.

The international economy needs to be re-structured. The

World Bank and the IMF should consider backing away from neo-

classical theories, and pay attention to the arguments put

forward by the structuralists. It will be impossible to expect

to push structural adjustment within states, and do nothing about

the system within which these states operate.

Ghana has been highlighted as a structural adjustment

success. Honest observers including Rothchild, admit that it is

unclear whether Ghana's economic recovery can be sustained under

the present structural adjustment program. The country under SAP

now has increased indebtedness, and at the same time the value of

its exports are decreasing. Continued growth, depends on the

weather, (Ghana suffers from severe drought every one in three

years), the international market, and continued financial support

from aid donors as well as international lending institutions.

33

In addition to the above, The country is now dealing with high

rates of unemployment; the quality of life has improved very

little; there are still regional, class and gender inequality."

In terms of the negative impact of structural adjustment on

human resources, can there be growth and economic development in

the long term, under SAP? Again, this is doubtful! Not only has

structural adjustment programs have exacerbated the equity issue,

but the poor and the middle classes see medical facilities and

schools for their children close or deteriorate, while their

governments pay staggering sums of money to foreign bankers. Now

that the IMF and the World Bank realize that 'political will' is

not the end-all in implementing policies, they further have to

consider 'adjustment fatigue.' Adjustment fatigue have resulted

in change in governments when citizens become too over-burdened

with the austerity programs. It also results in governments

backing away in midstream from further implementation of the SAP.

Moreover, development depends heavily on development of

human resources. Developing countries cannot hope to compete in

the world in the twenty-first century under the present

circumstances. Requirements for national survival include

literate citizens, highly qualified, effective, and trained

people to do top quality research. They need to have good

decision-making capabilities, in order to formulate policies and

implement programs.

38Donald Rothchild, Ghana: The Political Economy of Recovery,1991, p. 12.

34

If today's populations in developing countries continue to

receive less than the caloric intake that they need, tomorrow's

inhabitants will be physically and mentally incapacitated.

Development of human resources, therefore, will be futile.

Some of the draconian policies of structural adjustment have

further resulted in the emigration of the most able-bodied as

well as the most educated. The countries will, consequently

continue to loose those who may be most able to help build and

the effectively manage the bureaucratic and the technocratic arms

of the state, or even help the initiate the necessary national

private sectors.

Finally, sustainable growth requires a strong state, with

increased state capabilities. State capabilities again depend on

the development of public service ethic. If half of a country's

youth remain unemployed and uneducated, where are the work ethic,

the organizational skills, the technicians, and the experienced

administrators and bureaucrats are going to come from?

35

CONCLUSION

The social and economic costs of structural adjustment

programs have made development appear almost impossible in the

long term. More economic reforms will demand more financing. In

turn, this increased indebtedness, declining earnings in the

export markets, shrinking domestic tax base, underdeveloped human

resources, all contribute to the present state of affairs.

International financial institutions like the World Bank and

the IMF have moved from trying to get the state out, to

acknowledging that the state has important roles to play in

development. Yet the state needs to be managed not only

politically but also economically, and this means investing in

the very human resource and provide the necessary services to do

so. These are the very activities which are frowned on by the

World BAnk and the IMF.

If structural adjustment is necessary in the domestic

sphere, then it is also necessary in the international economic

sphere. Unless this is done, the gap between the rich and the

poor countries will continue to widen. There will continue to be

dependencies, whether through trading relations other relations.

Any adjustments should be flexible and conditionalities

should be selective. It should not only appear to limit damage

to creditors while the most vulnerable are allowed to suffer

indefinitely. Adjustment with a human face, therefore should be

implemented by every state. Meanwhile, as the costs of

restructuring rise for the Third World, it is time to reconsider

36

restructuring the international economic arena.

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40