Promoting structural adjustment in debtor countries

It has been recognized, notably by the World Bank, that economic adjustment alone is not sufficient to place countries on a sustained, poverty-reducing growth path, seen as the long-term development challenge. Investment is also required in human capital, infrastructure and institution-building, and better governance.

There are a number of dilemmas inherent in structural adjustment policies: provisions derived from mainstream policy theory sometimes furnish an inappropriate response, yet the donor community is constrained in making it more appropriate; the design of effective economic policies is a highly complex matter and heavily dependent on the specifics of the economy in question, yet there is a strong institutional imperative for standard solutions and recipes; the measures contained in the conditionality agreements are undermined by their externally-driven nature and the fact that they are usually undertaken in crisis conditions further reduces the likelihood of successful implementation; the adjustment, which is the objective of conditionality, is most needed where it is most difficult to achieve.

In the absence of compatibility with, or adaptation to, local intellectual, political, socio-cultural and resource conditions, structural adjustment efforts may subvert their own intended purpose. Such economic solutions may be socio-culturally, politically, environmentally and intellectually unsustainable.

There are serious defects in the conceptualization and implementation of structural adjustment. African post-colonial states, for example, tend to have a a narrow production base of one or two export products that are sensitive to fluctuations in the unstable international commodity markets. This leads to a vicious circle in which African states face unpredictable earnings from exports, inability to pay for desirable imports to soften the effects of structural adjustment, and the associated problems of debt servicing.

Structural adjustment is geared to growth but has failed to address the distribution side of the economic process. Over-emphasis on efficiency of resource allocation to the exclusion of all other considerations is not the panacea that it may seem to donor countries.