strategy

Facilitating economic structural adjustment

Synonyms:

Advocating reform of the international economic system
Modernizing world economic system
Promoting economic structural adjustment
Restructuring world economy
Implementing structural economic reforms

Description:

Structural adjustment reforms are intended to restore financial stability and promote economic growth. Typical reforms are privatizing state-owned organizations, increasing exports, removing subsidies and price controls for farmers, reducing government spending on education and health and devaluing currencies.

Context:

Structural economic adjustment cannot happen alongside major macroeconomic imbalances. At the same time stabilization without structural measures to support growth may itself prove unsustainable. Stabilization and structural adjustment must therefore be coordinated to avoid inconsistency in policy. Adjustment that relies on lowered tariffs and import barriers, unified exchange rates and deregulated financial markets can be destabilizing because of its fiscal implications. Adjustment should therefore allow for complementary fiscal reform to replace any lost revenue. Conversely, stabilization that relies on higher tariffs, restricted imports and reduced public and private investment can stifle structural reform and growth.

Implementation:

The Commission on Sustainable Development of the International Council of Voluntary Agencies has as a priority programme to promote durable solutions which address the root causes in the international economic system that create poverty and marginalization, with special attention to structural adjustment, debt and international trade.

Together with the World Bank and the International Monetary Fund, the United Nations has helped many countries improve their economic management, offered training for government finance officials, and provided financial assistance to countries experiencing temporary balance of payment difficulties.

Since the mid 1980s, the European Commission has diverted money into its poorest countries in order that their economic development should catch up with the rest. By 1999, the four countries in question -- Spain, Portugal, Greece and Ireland -- have all raised their per capita income to an average 77 percent of the EU mean, from 65 percent in 1986.

Claim:

The IMF's main recipe for badly performing economies is increases in interest rates, together with cuts in budget deficits and currency devaluation. The resulting short-term growth crunch usually does squeeze out inflation and reduces a country's payments short-fall with the rest of the world. At the moment two-thirds of indebted countries fail to meet the IMF's reform targets, often through circumstances outside their control. The IMF claims that that countries which do heed to its programme perform better than those which don't.

Counter Claim:

1. The UK Overseas Development Institute, argues that there is little evidence that structural adjustment programmes either stimulate or retard growth. Converesly, 'what is clear is that they widen existing inequalities and that the burden falls particularly hard on the poor'.

2. An Oxfam development expert says that the IMF agreements are now like a Christmas tree on which the US Treasury can hang whatever it likes, from reform of a country's civil service to slashing its trade tariffs.

Broader:

Coping with economic cycles
Forming transnational economy
Promoting solutions to poverty
Extending accession to regional unions
Developing sustainable economic systems
Mobilizing resources for economic development

Narrower: