Adjusting Structural Adjustment The Role of the

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Tabisa Walwema,Structural Adjustment Programs in Africa. Introduction, In 1980 the President of the World Bank Robert McNamara sought and received. approval from the World Bank Board to launch a new instrument the structural adjustment. loan 1 In his mind the World Bank would use its loans to provide finance to borrower countries. over a limited amount of years In return for the finance program the borrower country would. implement specified trade reforms and price incentives for resource allocation all in an effort to. achieve the goals of the World Bank and IMF 2 The specific objectives of the program were to. reduce a developing country s current account deficit to more manageable proportions by. supporting programs of adjustment to strengthen their balance payments while maintaining. growth and development momentum 3, This paper seeks to address two key areas of analysis the impact of trade liberalization. as an effective fiscal policy and the effect of the structural adjustment loan on government. expenditures for public services The paper argues that structural adjustment loans have. detrimentally affected the African people because trade liberalization does not comport with an. efficient African economic system The paper also argues that adherence to strict program. standards has siphoned funds from public sector services Due to lack of infrastructure. abundance in corruption and inadequate democratic institutions attempted program compliance. did not create an African middle class but rather exacerbated many of Africa s problems. For the purposes of this paper structural adjustment loan and structural adjustment program will be used. interchangeably, William Easterly What Did Structural Adjustment Adjust The Association of Policies and Growth with Repeated. IMF and World Bank adjustment loans N Y U J DEV ECON 1 2005 hereinafter Easterly citing Devesh Kapur. John P Lewis Richard Web The World Bank Its First Half Century Volume I The History The Brookings. Institution Washington DC 1997,Tabisa Walwema, Part I Structural Adjustment Programs The Purpose Structure and Effect.
The IMF and World Bank, Even though considerable factors stood in the way of Africa s economic success key. players such as the United Nations UN the International Monetary Fund IMF and the. World Bank concentrated on alleviating African poverty Policy was geared towards achieving. economic stability and the creation of an African middle class. As a result the structural adjustment program found its birth in international forums and. not in African legislatures Structural adjustment loans entail the implementation of a set. of macroeconomic and microeconomic policy reform measures to create an environment. conducive to growth and development 4 Countries utilizing a structural adjustment loans and. grants must implement policy changes based on macroeconomic reforms deregulation of. markets and prices and trade liberalization 5, While in practice structural adjustment programs appear to apply the western notions of. economic success one expert articulates that a renewed interest in development of compliant. African countries has been prompted by less than satisfactory economic performance over. the past two decades 6 In addition renewed interest in Africa s development tactic reflects. efforts to assess the adjustment strategy espoused by the IMF and the World Bank 7 Ultimately. years after structural adjustment programs has been placed within the economic framework of. Technoserve Inc Comparative Analysis of Structural Adjustment Programs in Africa with emphasis on. Agriculture and Trade Regional Trade Agenda Series 1995 available at. http www afrsd org publications 23souafr pdf comparing the implications of structural adjustment programs in a. cross border sample, Michael T Hadjimichael Dhaneshwar Shura Martin Muleisen Roger Nord and E Murat Ucer Sub Sahran. Africa Growth Savings and Investment 1986 1993 International Monetary Fund Washington D C Jan 1995 P 1. Tabisa Walwema, the world s poorest continent it is time to reassess and examine the program highlighting it s. weaknesses its strengths and evaluating possible fiscal alternatives. Loan Program Description, The World Trade Organization WTO describes structured adjustment programs as.
policies which reflect the neo liberal ideology that drives globalization 8 Even though. programs wish sought long term or accelerated economic growth in poorer countries by. restructuring the economy and reducing government intervention implementation resulted in. currency devaluation managed balance of payments reduction of government services through. public spending cuts reducing tax on high earners reducing inflation privatization lower tariffs. on imports and tighter monetary policy increased free trade cuts in social spending and. business deregulation 9 Consequently structural adjustment programs demand African countries. liberalize their trade level of development and industrial base in order to increase exports to. foreign consumers and to allow for economic gain 10 This resulted in governments surrendering. their ability to influence their own economic and political agendas. The Beginning Obtaining a Structural Adjustment Loan. The structural adjustment program is essentially a conditional loan The country in need. the borrower approaches the IMF and World Bank the lenders for a loan The lender services. the loan based on the assumption that certain fiscal policies will take place within the borrow. country The lender then requires that as a contingency 11 national policies geared towards trade. The World Trade Organization Website available at http www who int trade glossary story084 en index html. Id see also Finn Tarp Stabilization and Structural Adjustment Macroeconomic Frameworks for Analysing the. Crisis in Sub Saharan Africa 2 Taylor and Francis e library 3rd ed 2001. Elizabeth Justice The African Union Building a Dream to Facilitate Trade Development and Debt Relief 12. SUM CURRENTS INT L TRADE L J 127 2003 explaining role of structural adjustment programs play in the. regional organization development, When a country borrows from the IMF its government agrees to adjust its economic policies to overcome the. problems that led it to seek financial aid from the international community These loan conditions also serve to. ensure that the country will be able to repay the Fund so that the resources can be made available to other members. Tabisa Walwema, liberalization set the tone of the fiscal policies to be implemented by the borrower country A. borrower country s compliance also meant possible decreases to already existing interest rates. on IMF and World Bank loans VG, In practice structural adjustment loans can be implemented in numerous ways This can. be seen in the case of Cote d Ivoire and China A country may be a repetitive borrower a. selective borrow or a non borrower One of the first countries to participate in the program was. Cote d Ivoire The country also became a repetitive structural adjustment user repetitive. borrower with 26 structural adjustment loans 12 Cote d Ivoire represents the traditional. transaction for structural adjustment loan users The World Bank describes the Cote d Ivoire. Loan stating that, The loan would be in support of the Government s program of structural. adjustment The reforms envisaged by the program are designed to improve the. level of public savings and the efficiency in the use of public resources. restructure the agricultural planning system and associated development. institutions so that an expanded well designed investment program yielding. high returns can be mounted in the sector reflect the costs of providing public. services to the sector assure that rational prices and world market conditions. would guide decisions to invest and produce restructure public enterprise. management financing and accountability to ensure efficient market oriented. operations and restructure incentives to promote efficient export oriented. industrial investments 13, The language of the loan contingencies14 highlight the numerous market system.
policies the IMF pushed and promoted on borrowers As mentioned before these. policies include western style trade liberalization. in need In recent years the IMF has streamlined conditionality in order to promote national ownership of strong and. effective policies International Monetary Fund Website available at. http www imf org external np exr facts conditio htm hereinafter IMF Website last updated Sept 26 2012. William Easterly IMF and World Bank Structural Adjustment Programs and Poverty National Bureau of. Economic Research Jan 2001 3 citing the World Bank 8 a. See IMF Website supra note 14,Tabisa Walwema, Another type of borrower was seen to be more successful The selective borrowers15 did. not borrow with the same frequency as repetitive borrowers In China the structural adjustment. program formed part of the reason the country established itself as a world player In 2012 it is. almost unimaginable that one of the most important world actors relied on the structural. adjustment program China has seen remarkable development and growth so much so that it is. now one of the largest owners of U S treasury bonds 16 In September of 2012 China owned. approximately 1 1 trillion in American debt 17, China is now also one of the largest international players in the African economy In July. of this year China announced it would invest 20 billion in loans to Africa 18 and African. exports to China have increased from 5 billion ten years ago to 93 billion 19 What makes. China a success and Cote d Ivoire reliant on external funding. The structural adjustment loans normally force the borrowing government to make. adjustments in a few highly visible macroeconomic indicators which primarily affect the formal. sector of the economy On the other hand a homegrown reform program such as China s over. the last 20 years as seen significant success With only three adjustment loans in the 1980s and. none in the 1990s Chinese reforms generally include a more sweeping transformation of. incentives that affect both the formal and informal20 sectors alike 21 Therefore because China. The author assigns the term selective borrowers to countries who participated in the structural adjustment loan. program three times or less, The U S Treasury indicates that China is the largest sovereign holder of U S Treasury bonds available at. http www treasury gov resource center data chart center tic Documents mfh txt. Shannon van Sant China Announces 20 Billion in Africa s Loans VOICE OF AMERICA July 29 2012. discussing China s role in African development and its reliance on African resources. The formal sector includes reported payroll items income taxes employee taxes and any other official economic. factors and the informal sector refers to parts of the economy that are not taxed regulated monitored or included. in the gross national product Often times called under the table jobs in the informal sector are not reported to the. government Definition available at http www reference com motif business difference between formal and. informal sector distinguishing the difference between formal and informal sector of the economy. Tabisa Walwema, was a selective borrower and only utilized the program three times it was able to incorporate a. more narrowly tailored fiscal reform program, In conclusion when looking to the history and purpose of the structural adjustment.
program it is important to remember that it focused not only on fiscal policy but also specified. social and political policy VG The key component of the program is that in exchange for the. loan the IMF asks borrower countries to comply with certain fiscal policies These fiscal. policies focus on trade liberalization and a market centered economic system The rest of the. paper will be dedicated to analyzing the effects of the attention to market system policies by. examining the successes and failures of the program. Structural Adjustment and Fiscal Policy The Aftermath of Structural Adjustment. in Africa s Economy,What Does Trade Liberalization Really Mean. Trade liberalization consists of the fiscal policies of the IMF encompassing the notions of. the free market system and the argument is that this type of economy ensures economic. productivity and growth for the developing country The IMF Source Book pronounces that. macroeconomic stability is defined in terms of current account and fiscal balances consistent. with low and declining debt levels inflation in the low single digits and rising per capita GDP 22. Instability on the other hand is understood to imply large current account deficits financed by. short term borrowing high and rising levels of public debt double digit inflation rates and. stagnant or declining GDP 23 Consequently African countries are macro economically described. William Easterly IMF and World Bank Structural Adjustment Programs and Poverty National Bureau of. Economic Research Jan 2001, U N CONFERENCE ON TRADE AND DEV FROM ADJUSTMENT TO POVERTY REDUCTION WHAT S NEW ECONOMIC. DEVELOPMENT IN AFRICA at 20 U N Sales No E 02 II D 18 2002. U N CONFERENCE ON TRADE AND DEV FROM ADJUSTMENT TO POVERTY REDUCTION WHAT S NEW ECONOMIC. DEVELOPMENT IN AFRICA at 20 U N Sales No E 02 II D 18 2002. Tabisa Walwema, as unstable If the IMF is dedicated to poverty reduction through macroeconomic policy then. Adjusting Structural Adjustment The Role of the Structural Adjustment Program in Africa s Development Tabisa Walwema April 1 2013 Professor Francis Ssekandi Major Writing Requirement Tabisa Walwema 1 Structural Adjustment Programs in Africa Introduction In 1980 the President of the World Bank Robert McNamara sought and received approval from the World Bank Board to launch a new

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