Purposes and Impacts of Structural Adjustment Programs (SAPs)

The purposes and impacts of structural adjustment programs (SAPs) are various in number. Structural Adjustment Programs (SAPs) are economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund (IMF) since the early 1980s by the provision of loans conditional on the adoption of such policies.

Structural Adjustment Programs (SAPS)

Structural adjustment loans are loans made by the World Bank. They are designed to encourage the structural adjustment of an economy by, for example, removing “excess” government controls and promoting market competition as part of the neo-liberal. The Enhanced Structural Adjustment Facility is an IMF financing mechanism to support of macroeconomic policies and SAPS in low-income countries through loans or low-interest subsidies.

SAPS policies reflect the neo-liberal ideology that drives globalization. They aim to achieve long-term or accelerated economic growth in poorer countries by restructuring the economy and reducing government intervention.

One important criticism of SAPs, which emerged shortly after they were first adopted and has continued since concerns their impact on the social sector.

In health, SAPs affect both the supply of health services and the demand for health services.

Structural Adjustment Policies

Since their inception, SAPs were inspired by the neoliberal model associated with the Washington Consensus,” that is, an emphasis on the market as the main allocator of economic resources and a corresponding decrease in the role of government.

Although some details might have varied from country to country, the basic characteristics can be summarized as falling into four major policy areas:

First, a common starting point is an adjustment in the area of foreign exchange, beginning with currency devaluation in order to deal with normally overvalued currencies.

Second, drastic cuts in government spending are used not only to reduce deficits in the public sector but also to shift resources and economic activity from the public to the private sector.

Third, SAPs have been used to stimulate deep economic restructuring through market deregulation, including labor and capital markets. This in turn creates strong pressures to restructure production, which leads to the introduction of new technologies, reorganization of labor processes, and an emphasis on efficiency and “modernization.”

Fourth, this process is reinforced by trade liberalization and the easing of rules regulating foreign investment, increasing the degree of globalization of the economy and emphasizing the production of tradable over non-tradable.

To sum up, orthodox SAPS represent deep economic and social changes amounting to:

  • Increasing productivity levels even though, at least during the initial stages, at lower real wages.
  • Eliminating waste and inefficiency while “rationalizing” the economy according to the signals dictated by an expanding market.
  • Achieving a higher degree of openness to foreign competition and integration in the global economy through trade and financial liberalization.
  • Altering economic and social relations and shifting the distribution of resources, rights, and privileges towards social groups benefiting from the market
  • Responding to the needs and interests of international capital and powerful global and domestic interests, including the large financial institutions, transnational corporations, and international organizations such as the World Bank and the IMF and
  • Reaching the final objective of returning to acceptable levels of economic growth and stability.

Impact and Critiques of Structural Adjustment Programs (SAPS)

Almost two decades after the initial SAPs were adopted, have these goals been achieved? In the short run, the impact of SAPS is felt strongly throughout the economy and among all social groups.

Higher import prices affect producers and consumers although trade liberalization may result in cheaper prices for some imports.

At the same time, those linked to exports and the financial sector see their fortunes grow.

Government budget cuts and foreign competition generate unemployment in some sectors and often force many domestic producers out of the market, with subsequent multiplier effects.

All of these can result in negative rates of growth.

Pakistan and SAPS

World Bank assistance for Pakistan traces back to 1971 when the country received $25 million IDA assistance for cyclone-devastated East Pakistan.

World Bank Resident Mission in Pakistan started in 1979 and Pakistan became a member of the IMF in 1988.

The IMF restructuring agreement for Pakistan was introduced in 1991 when the Privatization commission was formally established.

It is to be noted that the ruling authorities, the politicians, the bureaucracy as well as the establishment were not well versed in the tricks of the trade, and a major role was played by SBP Governors who were either former World Bank employees or directly associated with IMF in the past.

IMF Control on Monetary and Economics Policies

The Pakistani Rupee was pegged to the Pound sterling until 1982, when the government of General Zia-ul-Haq, changed it to a managed float.

It is a general perception in the country that all the Central Bank SBP governors who worked at their posts during the period starting from 1988 till 2009, were direct employees of either IMF or the World Bank.

In the past, and have played key roles in defining the economic, financial, and monetary policies for the country for more than two decades.

It is a matter of common sense to question why Dr. Yaqub, Dr. Ishrat Hussain, and Dr. Shamshad Akhtar left their lucrative jobs at the IMF or World Bank and joined the Central Bank of Pakistan as governors.

This question can also be rephrased as to why these Governors were imported from IMF or World Bank to run the financial affairs of Pakistan.

A careful analysis of the country’s monetary and economic policies in the last 20 years, will answer the question.

During the last two decades, IMF loans have been an important source for managing the financial problems of Pakistan. Such as the balance of payment deficits, stabilization of currency, rebuilding international reserves, and managing liquidity problems.

Impact of IMF on Pakistan

It is totally unnecessary to know who was sitting in the seat of the president, prime minister, or finance minister during that period (1988 to 2014) and who replaced the former one.

What’s more important to see is that the national assets have been stripped away in the name of privatization and our politicians have made billions out of it in form of commissions received for selling those assets at cheaper prices.

These two factors have triggered the third step i.e. market pricing or steep rise in prices of oil, electricity, gas, water, and other utilities. Riots are now quite prominent in the country.

Violent mobs protesting against electricity and gas shortages, excessive billing, and rising prices of commodities can be seen throughout the country and these protests are becoming routine.

Market liberalization is already in place and a selective group has control of the broad money supply. This group is bringing in cash for real estate and currency speculation and sending, it out without any restriction whatsoever.

Recent sit-in protests in the country’s capital Islamabad by two opposition parties are linked with the same factors.

Flight of Capital due to liberal market policies is in progress and the nation is almost on the verge of getting dragged into free trade by the rules of the World Trade Organization and the World Bank.

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