What are the costs of adjustment?

The costs of structural adjustment policies stretch beyond determining if a country was better off with or without these policies. Countries that choose structural adjustment policies (SAP) are already in an untenable position, the point of economic crisis. These policies are instituted alleviate elements of crisis, namely the balance of payments crisis. The scope of how these policies are applied and the indirect effects on a country is where much of the debate stems from. The IMF’s approach is economic stabilization is to alleviate short term crisis (Feinberg 1988). Opponents, however, argue that it is this narrow approach to stabilization that has indirect long-term effects to a country (Mussa 1999).

So, Who Pays?

There is considerable debate surrounding who actually pays for these adjustment policies. Much of the arguments are derived by a country-by-country analysis due mainly to the country specific application of SAP (Hutchison 2001). However, those most adversely affected by structural adjustment policies are those least likely to afford it, namely the poor (SAPRIN). Although, a county’s poor encompass a diverse population much of the research has focused on unskilled workers, women and children and rural populations.

David Barkin argues that Mexico’s structural adjustment policies have redirected the production of “socially necessary goods and services” (e.g. food and cooking fuel) towards manufacturing products for export to industrialized countries (Barkin pg 100). This leaves poor populations facing higher prices for basic necessities. In addition, this redirection of resources reduces the demand for unskilled labor leaving poor unskilled workers with fewer opportunities for jobs and lower wages (Barkin pg. 99).

Often much of the unskilled labor force exists in rural areas where structural adjustment policies focus on re-developing farming and land use practices. To this end much of the farming and resource extraction is focused towards conglomerate export industries that are highly affected by changes in world market prices. Kaimowitz (1999) suggests that in Bolivia structural adjustment policies lead to lower living standards for miners and small farm owners.

Women have been argued to be profoundly affected by the economic restructuring of SAP. Cerruti (2000) has found that in Latin America women’s increased participation in the labor force is due to the need to maintain their family’s income rather than an increase in educational opportunities. This increased participation in the labor market affects both the working conditions of female laborers as well as the social fabric of families (SAPRIN). Often under structural adjustment programs nations are required to reduce spending in public services, namely healthcare and education. Mahmood Messkoub (1992) cites rising evidence that these reductions have increased childhood malnutrition and educational opportunities in some regions. The results being immediate declines in the well-being of children and a long term decline in future generations’ abilities to enhance a nation’s productive capacity.

What's Next?

How does the IMF and international lending institutions address these adverse indirect affects on the poor? Much of the restructuring of IMF economic adjustment policies has turned towards addressing this issue. How these new policies take form within the context of existing structural adjustment policies is still being debated.

References:

Barkin, David, Distorted Development: Mexico in the world economy. Published Boulder : Westview Press, 1990.

Bird, Graham, "IMF Programs: Do They Work? Can They be Made Better?" World Development Vol. 29, No. 11, pp. 1849-1865, 2001.

Cerruti, Mascela, "Economic Reform, Structural Adjustment and Female Labor Force Participation in Buenos Aires, Argentina." World Development Vol 28, No.5, pp. 879-891, 2000.

Feinberg, Richard, "The Changing Relationship Between the World Bank and the International Monetary Fund." International Organization, Vol. 42, No. 3, Summer 1988, pp. 545-560.

Hutchison, Michael, "A Cure Worse Than the Disease? Currency Crisis and Output Costs of IMF-Supported Stabilization Programs." NBER Working Paper 8305, May 2001, http://www.nber.org/papers/w8305.

Kaimowitz, David, Graham Thiele and Pablo Pacheco, "The Effects of Structural Adjustment on Deforestation and Forest Degradation in Lowland Bolivia." World Development vol. 27, No. 3, pp. 505-520, 1999.

Mercer-Blackman, Valerie and Anna Unigovskaya, "Compliane With IMF Program Indicators and Growth in Transition Economies." IMF Working Paper 2000 WP/00/47.

Messkoub, Mahmood, Development Policy and Public Action, Oxford Press (1992).

Mussa, Michael and Miguel Stavastano, "The IMF Approach to Economic Stabilization." IMF Working Paper 1999 WP/99/104.

Structural Adjustment Participatory Review International Network (SAPRIN), "The Policy Roots of Economic Crisis and Povery."2002, http://www.saprin.org/SAPRI_Findings.pdf