What is a Structural Adjustment Program?

Brendan McGuigan

A structural adjustment program is a plan implemented by the World Bank and the International Monetary Fund (IMF) in a developing nation to try to get their economies to be more productive. The goal of such a program is to help the borrowing nation pay off its debts and have a growing economy that will sustain them into the future. One may be implemented as part of an initial agreement to lend money, or it may be brought in later as part of terms for the borrowing nation to receive a lower interest rate on past loans.

World Bank and the IMF implement structural adjustment programs.
World Bank and the IMF implement structural adjustment programs.

The idea of the structural adjustment program is one of most contentious within the so-called Bretton Woods institutions: the IMF and the World Bank. Some people feel that, since borrowing nations are usually in dire straits, they have no choice but to comply with whatever plans are laid out in order to receive funds to keep their country functioning. This means that the IMF and the World Bank can force through policies that the government and the people themselves may oppose strongly, in many ways undermining the democratic will of the populace.

Structural adjustment programs are efforts by the World Bank and other multilateral funders to help impoverished nations pay back foreign debt.
Structural adjustment programs are efforts by the World Bank and other multilateral funders to help impoverished nations pay back foreign debt.

In the past, the IMF and the World Bank had a fairly hands-off approach to the path borrowing nations took to trying to repay their debts. This all changed during the 1970s, when the world underwent a fairly serious period of economic hardship and many nations found themselves unable to make their repayments. The IMF and World Bank then decided that they needed to take a more hands-on approach to things, and began to draft structural adjustment program papers to nations that were planning on borrowing, letting them know what they would have to do in order to get the loans.

A program usually focuses primarily on ways the IMF and the World Bank thinks will jump-start the nation’s economy. This usually takes the form of extreme free-market strategies, such as deregulating banking sectors, removing trade barriers, privatizing natural resources and government industries, devaluing currencies, strictly adhering to balanced budgets, changing national law to make an environment more conducive to foreign investment, and building up export economies. In recent years, poverty reduction has become a cornerstone of the program as well, seeking not only to increase the nation’s gross domestic product (GDP), but also to help the populace as a whole raise their standard of living out of poverty.

Also in the past few years, the IMF and the World Bank have begun soliciting more input from the borrowers before drafting a final structural adjustment program. This input takes the form of what are called poverty reduction strategy papers and, in theory, allow the borrowing nations to come up with their own strategies to help out their populations. In practice, poverty reduction papers are often very similar to the IMF and World Bank’s program papers, leading some critics to question just how much leeway the borrowing nations are actually being given.

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Discussion Comments

anon92168

The article should include the adverse effects of SAPs and PRSPs on highly indebted developing countries and their people. The application of SAPs in a dozens of developing countries results to the people deterioration in their standards of living, reduced access to public services, devastated environments, plummeting employment prospects, and even it was the source of grievances in some African countries and etc., so it is better to watch the other side of it!

anon87109

the article is so comprehensive in such a way that it can easily be understood but the article should include the conditions of SAPs in relation with the increase level of poverty in the periphery of the world core. otherwise it is academically sound.

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