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Hidden Dangers of Structural Adjustment Policy
Business Day (Johannesburg)
South Africa's major business-oriented daily
http://www.bday.co.za/
ANALYSIS
October 8, 2002
Posted to the web October 8, 2002
Linda Ensor
Johannesburg
Ghana once vigorously implemented IMF policies, but now it is one of the most highly indebted poor countries
A VISIT to Ghana by African National Congress MP Ben Turok has reconfirmed his view of the dangers of slavishly following International Monetary Fund (IMF) and World Bank structural adjustment policies, which have many pitfalls.
Turok, who launched a report of the United Nations Conference on Trade and Development (Unctad) last week, noted that Ghana, which 10 years ago was the darling of the IMF for having vigorously implemented its structural adjustment programme, was now one of the most highly indebted poor countries in the world.
The report highlights the dangers of these policies and notes the attempts by the World Bank and IMF to redress the negative effects of their policies by incorporating poverty reduction strategies as well.
The structural adjustment programmes, which require stringent fiscal and macroeconomic policies, have had a devastating effect on Third World countries, worsening poverty and income inequality.
Turok attended a meeting in Ghana of West African parliamentarians and was shocked by the visible signs of poverty there.
"The evidence accumulated over decades is that those countries which allowed the IMF to dictate the macroeconomic policies they should follow, and who did so blindly, have all suffered major setbacks in poverty eradication," he says.
To alleviate the effects of structural adjustment the IMF and World Bank have introduced poverty reduction strategies into the framework of conditions imposed on developing countries wishing to access financial aid.
The new approach recognises that stabilisation and adjustment policies may temporarily affect the poor by slowing growth and employment. The approach proposes safety nets and targeted spending programmes to mitigate this.
There is also a recognition that growth may not necessarily trickle down to the poor and that greater emphasis should be given to the provision of education and health care.
However, the problem is that the stringent budgets required by the structural adjustment programmes do not provide the funds for safety nets.
But Unctad says in a new study From Adjustment to Poverty Reduction: What is New? that the poverty reduction strategies show no fundamental departure from the policy advice espoused by the Washington Consensus that underpins the structural adjustment approach.
These strategies include trade liberalisation and the integration into the global economy.
Unctad has examined the effect of poverty reduction strategies in 27 countries in Africa and says the goal of increased productive investment rather than keeping inflation down should be the primary economic objective.
It warns of "quick poverty fixes" that redirect public spending to social sectors at the expense of other types of public investment.
"Rapid trade and financial liberalisation is still expected to increase the access of the poor to financial and other assets that could allow them to escape from poverty," the report says.
"But any explanation of how this happens is missing (from the poverty reduction strategies) and the record in Africa should caution against simple pronouncements," Unctad says.
Instead it proposes a sequencing of reforms, regulation of capital movements and interim protection for certain industries to allow for the development of the industrial sector.
Turok says the Unctad report has highlighted that the new emphasis on poverty reduction "must be accompanied by removing balance of payments and resource constraints on capital accumulation and growth in poor countries".
This must be accompanied by increased aid, debt relief and greater market access. Of much relevance to the New Partnership for Africa's Development, Unctad argues that "good governance cannot make up for inadequate external financial and the adverse effects of protectionism in industrial countries".
While welcoming the emphasis given to raising standards of education and health care, Unctad has questioned the requirement that these be paid for at the higher levels saying that this "suggests a misplaced faith in markets as the fairest way to deliver on these goals".
Also, the emphasis given by the World Bank and IMF to improved governance as a prerequisite for sustained growth, should not lead to the imposition of a common institutional standard on countries with different circumstances.
Finally, Unctad stresses the need for access to developed countries'
markets if African economies are to grow out of poverty. Trade barriers
remain excessive, something which Trade and Industry Minister Alec Erwin
will be fighting against during the next round of World Trade Organisation
negotiations.
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