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Monday, May 23, 2011

World Bank's Structural adjustment policies

Effect of structural adjustment policies on poor countries has been one of the most significant criticisms of the World Bank. The 1979 energy crisis plunged many countries into economic crises. The World Bank responded with structural adjustment loans which distributed aid to struggling countries while enforcing policy changes in order to reduce inflation and fiscal imbalance. Some of these policies included encouraging production, investment and labour-intensive manufacturing, changing real exchange rates and altering the distribution of government resources. Structural adjustment policies were most effective in countries with an institutional framework that allowed these policies to be implemented easily. For some countries, particularly in Sub-Saharan Africa, economic growth regressed and inflation worsened. The alleviation of poverty was not a goal of structural adjustment loans, and the circumstances of the poor often worsened, due to a reduction in social spending and an increase in the price of food, as subsidies were lifted.
By the late 1980s, international organizations began to admit that structural adjustment policies were worsening life for the world's poor. The World Bank changed structural adjustment loans, allowing for social spending to be maintained, and encouraging a slower change to policies such as transfer of subsidies and price rises. In 1999, the World Bank and the IMF introduced the Poverty Reduction Strategy Paper approach to replace structural adjustment loans. The Poverty Reduction Strategy Paper approach has been interpreted as an extension of structural adjustment policies as it continues to reinforce and legitimize global inequities. Neither approach has addressed the inherent flaws within the global economy that contribute to economic and social inequities within developing countries. By reinforcing the relationship between lending and client states, many believe that the World Bank has usurped indebted countries' power to determine their own economic policy.
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