Structural adjustment: Success or Failure?

1. Structural adjustment: Success or Failure? 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.

2. Case file 1: Uganda Case briefing: • 1986: After decades under the dictatorship of Amin and Milton Obote, the economy under new president YoweriMusivini 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 ESAFprogram • 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

3. 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.

4. 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.

5. 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%

6. 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