Presentation on theme: "In this activity, we will look at real life examples of structural adjustment programs. Then, you will decide whether you think each was a success or a."— Presentation transcript:
In this activity, we will look at real life examples of structural adjustment programs. Then, you will decide whether you think each was a success or a failure, and we’ll see how your predictions stack up to reality.
Case file 1: Uganda Case briefing: 1986: After decades under the dictatorship of Amin and Milton Obote, the economy under new president Yoweri Musivini is devastated and in need of serious attention. –Uganda seeks help through the IMF’s ESAF program and later the Paris Fund –The economy naturally begins to bounce back a little 1987: The IMF grants a loan through its Structural Adjustment Facility (SAF) 1989-1997: IMF extends its mission under the ESAF program 2000: Uganda is included in the Heavily Indebted Poor Countries (HIPC) debt relief initiative worth $1.3 billion and Paris Club debt relief worth $145 million Austerity measures explicit in the SAPs include –trade liberalization and the progressive reduction of export taxation –privatization of state-owned industries
Uganda’s SAP: The Impact Economic impact: –Real per capita GDP growth averaged 4.2% in Uganda between 1992-1997 (keep in mind that at least some of this is due to natural bounce back –Liberalization of cash crops had little impact on rural incomes -rural per capita private incomes increased just 4% from 1988-1995 (few households grow coffee –The privatization process was rushed, and as a result, some 350,000 people were retrenched and, with the private sector not expanding fast enough, unemployment sharply increased. Impact on health care and education spending: –public spending on health care increased as government spending rose overall –health care spending did not rise as a share of the recurrent budget, and its share was slightly lower in 1994 than it had been in 1989 –general health indicators did not improve. the proportion of children who are malnourished has not declined.
Case file 2: Zimbabwe Case briefing: 1980s: Zimbabwe's economy grew briskly (about 4% per year)and it experienced heightened success in many areas –Successfully diversified exports –Repaid all debts on time without needing to reschedule –Attained a reasonable degree of food security –dramatically expanded the provision of educational and health services was (due to major increases in government spending on social services) –agenda was focused around increasing public expenditures on education, health, and public sector employment. Late 80s: Enters into agreements with the World 1991: signs a stand-by arrangement with the IMF in exchange for a $484 million loan. –Unlike many of the countries that undertake IMF adjustment programs, Zimbabwe did not institute structural adjustment in response to a "crisis." Rather, after several years of economic stagnation, Zimbabwe turned to the Fund and World Bank in an effort to "jump start economic growth.“ Austerity measures the SAP required included required: –cuts in Zimbabwe's fiscal deficit –tax rate reductions –deregulation of financial markets –Dismantling of protections for the manufacturing sector and the “deregulation” of the labor market, lowering the minimum wage and eliminating certain guarantees of employment security From the IMF's point-of-view, labor market rigidity was a factor which was constraining future growth potential and keeping the fiscal deficit high in Zimbabwe.
Zimbabwe’s SAP: The Impact Economic impact: –IMF policies combined with the effects of a severe drought on agricultural production sent the Zimbabwean economy into recession in 1992 (real GDP fell by nearly 8% that year) –In Zimbabwe, economic crisis actually followed rather than preceded the implementation of structural adjustment –1991-1996: manufacturing output contracted 14% –Real GDP per capita declined by 5.8% –Total private investment declined by 9% The combination of reduced protection of the manufacturing sector, the reduction in public spending, and labor market deregulation led to higher unemployment and lower real wages food prices rose much faster than other consumer prices, disproportionately affecting the rural poor, who spend a larger share of their income on food Impact on health care and education spending: spending on health care declined as a share of the budget from 6.4% to 4.3%, and as a share of GDP from 3.1% to 2.1% As a result of wage cuts, many doctors moved to the private health sector, and the quality of public health care dropped, making health services became less accessible to the poor. Because non-wage health spending fell dramatically, shortages of prescription drugs became commonplace expenditure on education declined by 36%
Discussion Under what, if any, circumstances do you think the implementation of structural adjustment programs would be effective? How might the structural adjustment system be altered in order to