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The Structural Adjustment Programs Economics Essay

Structural adjustment programs overall known to be promoted by the Breton Woods twin institutions World Bank (WB) and International Monetary Fund (IMF) represent the neoclassical recipe of development focusing on least developed countries showing an increased need/interest for international financial support and assistance. In this case we are addressing countries “with low, stagnant and unequally distributed per capita income that have remained depended on primary commodities for their export” (WB, 2003:53) which in this context face high risks of prolonged conflict. In order to comprehend the intrinsic correlation between ‘structural adjustment programs’ (hereafter SAP) and armed conflicts when addressing development process, we will try to provide an insight into some of the SAPs compounding elements and ways they give incentives for an armed conflict to arise.

It has been argued that there is a close interrelation between development and conflict as “civil wars […] reflect not just the problem for development, but a failure of development.” (WB, 2003:9) Countries which have evolved from a conflict due pose more probability for a new conflict to reaper in future. It is projected that within a time span of 5 years typical countries reaching the end of civil war face 44% risk of reverting to conflict. (Ibid, 2003:83) Certainly, the disruptive nature of armed conflicts can heavily impact the economic growth, but there are certain restraints to believe that conflict is for most a development misfortune. If considering that the main cause of conflict is the failure of economic development, we could assume that this statement carries more contentious connotation. Usually it is easier to portray that the risk for a conflict to arise is linked to state’s weak institutional performance, poor educational system, unemployment and inequality. In this regard, Michael Brown argues that high unemployment, inflation, inequality, economic modernization could be one of the determining conditions contributing to the use of violence by some groups in a society. (Michael Brown, 1996) Nevertheless, these particular ‘conditions’ are actually the main priority of structural adjustment programs mitigate, that are centered on helping recipient countries to reach an efficient socio-economic level of development.

The main formula of structural adjustment programs is the macroeconomic policy reform that addresses the recipient country through the following measures: fiscal austerity, export-oriented growth, currency devaluation, trade liberalization, privatization, good governance reforms and granting more rights for foreign investments in respect to the national laws in force. (John Rapley, 2007: 92-104) Not surprisingly, that most of the above mentioned measures due pose a high congruency with the essential context of the Washington Consensus, which sometimes structural adjustment programs are labeled to. Despite the fact that this particular state-led development approach (SAPs) follows a constructive logic in the measures applied for boosting one state’s efficient economic reform (mainly in post-conflict setting) , there are number of concerns over the negative consequences that they invoke. As much as these programs help to stabilize the internal socio-economical matters, inevitably and continuously they lead to rising poverty level, deep concentration of income among the population, higher unemployment, undermined rural livelihoods and social upheaval most frequently portrayed in the persistent political tensions and inequality. All these issues do represent the pre-existing socio-economic difficulties that may be considered accountable factors for social unrest and eventually an armed conflict.

One of the components of structural adjustment programs is fiscal austerity which assumes the process of balancing state budgets in case of overspending. Each time the government needs to spend more, it needs to take more money out of the economy. This situation creates the following scenario “by withdrawing money from the economy, through taxes and borrowing, and by driving up interest rates, the government ‘crowds out’ the private investors” making it difficult for businesses “to attract savings and restrict investment”. (John Rapley, 2007:80) When there is less private investment, we might usually expect a decline in economic activity. Moreover, third-world countries are characterized by government spending taking place most frequently in short-transfers (spending which contributes to inflation) mostly supporting civil service and military. Once the state chooses to prioritize military expenditure, this directly reduces the economic growth as less concern is given to public infrastructure, health sector, education and social services. Therefore, we could agree that structural adjustments programs indirectly affect the reduction of government spending in social services due to prioritization of other economical concerns. This scenario eventually could lead to increase of prices and living cost for poor population, high unemployment, inequality and poverty, all in one leading to an internal domestic unrest eventually translated into a conflict. However, there is another contrasting argument, subject to further debates, portraying that “the main economic losses from civil war arise not from the waste constituted by diverting resources from production but from the damage that the diverted resources do when they are used for violence.”(WB, 2003:14)

Trade liberalization, as another measure of structural adjustment programs, looks into “maximizing the free flow of goods and services” in the recipient country. The trade-openness measure presumably may lower the risk of inter-state warfare and takes place either by “reducing quantitative and quantitative restrictions on imports and devaluing overvalued currencies” or by “liberalizing domestic market through elimination of price controls and marketing boards” (John Rapley, 2007:81) Certainly, this approach does fulfills the role in cutting government overspendings and benefit state budget in terms of value–added taxes collected through privatized inefficient state-owned companies. Under such circumstances, there is a chance for a much more transparent and accountable governance that could perform a rigorous control over suspicious rents that could fund war-related activities. Unfortunately, this “picture-perfect” image is not durable. As Rapley argues that war-torn regimes usually try to limit the existent imports on consumer goods and favor industries with lower opportunity costs, abandon the expensive one and still rely on imports to fill the gap, when it comes to the allocation of hard-currency in the domestic market. The existence of hard currency in the economy dictates trade in primary commodities, which according to Tony Edison, may also include ‘conflict commodities’ (blood diamonds, timber and drugs), and “these can provide warlords with more resources than the state itself”. (Tony Edison, 2004:5) All these leading to a higher risk for war finance attempts, which could resource and perpetuate conflict.

As concerns good governance reforms promoted by structural adjustment programs, it focuses on tackling corruption by reducing the size of the state. In this regard, Rapley puts into analysis that “rather than being top-down and economic, rent seeking (in the recipient country) may be bottom-up and political”. Under this context, the author points out that once the rolling back of state takes place, it eventually will not reduce the rent-seeking, but “it will drive up the prices of the resources or positions of power being sought, because their greater scarcity will stiffen competition.” (John Rapley, 2006:109) Further authors mentions that corruption in Africa, as an opportune example, indeed might be considered bottom-up: “even if a politician wants to be honest, the pressure from his/her supporters is so great that political and physical survival does depends on using position in the government to dole out favors”. (Ibid, 2006:109) This certain setting can be indirectly related to the governance weakness in promoting efficient and peaceful resolution of conflicts, as the power in the end lies in the system, and not individual. Ballentine and Sherman state that “the weaker the state, the better the prospects of successful insurgency”, the outbreak of rebellion is more likely is to occur when the legitimacy of the state is diminished, and there is existence of “internally generated corruption and decay that impaired both the regime credibility”.(Ballentine and Sherman; 2003: 265) In addition, when it comes to dealing with structural adjustment programs, governments with weak institutional framework, due face particular tensions between donor agencies as most of times donor agencies do posses more knowledge and funding to implement required reforms, which make recipient countries to find themselves trapped in the situation of inadequately responding to the requirements of international community or even its own population”. (Eriksson et al., 1998: 60).

As we may conclude from the above mentioned, structural adjustment programs do pose a risk of perpetuating an armed conflict in the context of state’s weak institutional performance, unemployment inequality, and government’s rent-seeking behavior. Different states had to deal differently with neoclassical experiment of structural adjustment programs, and usually the success or failure of reforms highly depend on main elements of political economy existent within the country that is responsible and accountable for implementation. As Dollar and Svensson argue “the foremost key to successful adjustment lending is to find good candidates to support.” (WB DRG, 1998:4) John Rapley straightforward exemplifies in his findings that when analyzing the impact of ‘structural adjustment programs’ on the country’s internal situation, we can have different scenarios to consider as well as paths to choose, it’s either Chile’s boldest measure yielding from misery and boosting economic growth and social indicators, or Ghana’s needed multi-facet response to expand export and increase investment, or India’s shock therapy that redirected national economy from agricultural-oriented economy to opportunism of industrial sector.


World Bank Policy Research Report (2003), Breaking the Conflict Trap: Civil War and Development Policy. Available at: http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469372&piPK=64165421&menuPK=64166093&entityID=000094946_0306190405396 (visited on April 21, 2010)

Brown, M., (1996), The Causes and Regional Dimension of Internal Conflict, in M. Brown, (ed.) The International Dimensions of Internal Conflict, Cambridge, MA: Center for Science and International Affairs, John F. Kennedy School of Government.

Rapley, J., (2007), Understanding Development: Theory and Practice in the Third World, Boulder -Lynne Rienner Publishers (latest edition), London.

Addison, T., (2004), The Global Economy, Conflict Prevention, and Post-Conflict Recovery, World Institute for Development Economics Research Helsinki, UN University, 8 November 2004.

Ballentine K., and Sherman J., (2003), The political economy of armed conflict: Beyond greed and grievance, Boulder: Lynne Rienner Publishers.

Eriksson, J., Kreimer, A., Muscat, R., Arnold, M. & Scott, C. (1996), The World Bank’s experience with post-conflict reconstruction, Washington DC: IBRD.

The World Bank Development Research Group (1998), What Explains the Success or Failure of Structural Adjustment Programs?, World Bank Policy Research Working Paper No. 1938. Available at: http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469382&piPK=64165421&menuPK=64166093&entityID=000009265_3980901093435 (visited on April 21, 2010)

Identify the main differences in industrialization policies in East Asia and in Latin America. What factors can explain these differences?

Industrialization policies promoted by the newly industrialized countries (hereafter NICs) of East Asia have recorded impressive economic strides that serve as successful lesson-learned experience for other developing countries. In contrast, though Latin American countries embarked on pursuing an industrialization-led development much earlier, they somehow ended up to be overhauled by East Asia in the course of the past decades. In this essay, I would like to explore main differences in industrialization policies pursued both by East Asia and Latin America, in the context of their individual developmental strategies.

The main logic behind ‘developmental states’ is the primary focus on fostering economic and industrial processes which in the short-run would constrain the autonomy of social actors, while in the long-run will boost their prospects of empowerment and autonomy from the government. Industrialization sought to be the key for the state to nurture the developmental social forces to gain necessary capabilities to challenge it and impose a specific measure of policy receptiveness upon the state decisions. It was essentially a process involving state being capable guiding the effective industrialization strategies, centered on questions as: “where should the initial capital come from? – exploitation of local agriculture, borrowing abroad, self-reliance; what sector should policy target for growth – agriculture or industry?; could TNCs be used as engines of growth without an late development countries losing the effects of learning by doing?; what should the country trade goal look like – a closed economy with import substation or gradually opening markets using import substitution to create export capable industry; how should labor be controlled – through repression or incorporation?”(Herman M. Schwartz, 1994:261). As unimaginable as it might seem, Chalmers Johnson even argued that a ‘developmental state’ could be described the one able to combine the market rationality of capitalist system (as such of US) with the planned economies of states similar to Soviet Union. (Chalmers Johnson, 1982: 18-19)

Cristobal Kay notes that when contrasting industrialization policies in Latin American and East Asia, one should consider that an important discrepancy between them relates to the timing of the agrarian reform, which for countries as Taiwan and South Korea resulted to be “a key ingredient in the subsequent successful industrialization process”. (Cristóbal Kay, 2002: 1076) For Latin American countries “most agrarian reforms happened after industrialization was already firmly established and were often seen as a way to revive the flagging industrialization process following what has been termed the exhaustion of the easy phase of import substitution industrialization”. (Ibid) The consistent feature of Latin American countries in terms of promoted industrialization policy could be describes as “state’s ability to withstand being swept away as a result of the consequences of the development that it itself fostered”. (Mehran Kamrava, 2007:198).

One of the differences among East Asian and Latin American countries constitutes the origin of the start-up capital required to boost the industrialization. Virtually most of the countries at that time had to rely on capital received from abroad, Latin America being a prominent actor in overseas borrowing, except countries like South Korea and Taiwan that somehow succeeded to rely on using their own agricultural sector to generate initial source of capital to give incentives for industrialization process to start. For Latin American countries the external borrowing went more toward propping up national consumption and military expenses, rather toward any development strategy, the case of Argentina. Schwartz described that “the key weakness in all of the Latin debt-led strategies was the long gestation between the contracting of foreign debt and the creation of export competence manufactures”. (Herman M. Schwartz, 1994:261) In contrast, East Asian countries had the underlying commitment to private property and market, and state intervention was firmly confined to this commitment. East Asian countries were capable to fund the early stage of industrialization drawn from the intensive and premeditated exploitation of the agricultural sector, making the overall process to occur from below. As Herman M. Schwartz notes this particular combination of constraints created different models of industrialization “export-oriented, partly debt-financed East Asian model liked to both Japan and the United States; debt-and TNC-financed, import-substitution oriented Latin American model liked to the United States alone.” (Ibid)

Another difference in industrialization policies in East Asia and in Latin America could be exemplified by the fact that Asian newly industrialized countries were moving more toward capital intensive industry, while Latin American were more oriented towards labour-intensive one. Masahiro Matsumura describes that “Asian NICs aggressively pursued transnational integration based on global securing and geographical specialization, while the Latin American NICs sought their national economy, establishing industries under highly protected domestic markets throughout their region and created an economic structure only to produce goods with higher prices and inferior qualities”. (M. Matsumura, p.29)

In terms of the effective management of the relationship existent between state and private sector, Latin America assigned MNCs with the primary role in facilitating industrial integration. This situation created for Latin America NICs a constant and direct state intervention in productive activities due to the fact that most of the industrial sector was operating on the base of capital received from abroad. On the other hand, East Asian countries sought to provide this role to the major private firms nurtured from the national capital. (Ibid) For East Asian NICs state intervention was more during the times of needed allocation and planning, as the capital they relied on was mostly from the national economy. This non-interventionist but disciplinized state strategy in East Asian allowed performance to be achieved, as high level of investments were also directed towards industries that would have occurred with the absence of government intervention.

The main characteristics associated with the developmental state, are ‘unusual degrees of bureaucratic autonomy’ and ‘public-private cooperation’ (Ziya Onis,1997:114). Once these two societal elements coexist, the state and bureaucratic elites are able to develop independent goals and translate them into national goals for an eventual efficient policy action. If the coexistence of ‘bureaucratic autonomy public-private cooperation’ seizes to exist then the national goals are reducible to private interests. This trend is typical to the period of industrialization pursued by Latin American situation, where the government-business relation cooperation “has materialized in the context of “weak states” which lack autonomy from powerful groups in society.” (Ibid) Ziya Onis argues that due to the fact that East Asian countries were able to create an institutionalized link between the elite bureaucracy and major private sector firms, it created an environment “with sufficient scope to take initiatives and operate effectively”, as she figuratively expresses “the politicians reign while the bureaucrats rule”. (Ibid, 1991:111)

In conclusion we could comprehend that both Latin American and East Asian NICs had different pre-conditions as well as faced different choices in pursuing industrialization policies: either be it state’s capacity to divert agricultural profits into industrial investments, or choose a specific type of cooperation/control model between public-private sector.


Schwartz, Herman M.,(1994), States versus Markets: History, Geography, and the Development of the International Political Economy, the Macmillan Press (second edition), London.

Chalmers, J., (1982) MITI and the Japanese Miracle, Stanford University Press, Stanford.

Kay C., (2002), Why East Asia overtook Latin America: agrarian reform, industrialisation and development, Third World Quarterly, Vol.23, No 6, pp 1073–1102, Carfax Publishing. Available at: http://www.jstor.org/pss/3993564 (visited on 21 April, 2010)

Kamrava, M. (2007), The Middle East’s Democracy Deficit in Comparative Perspective, in Perspective on Global Development and Technology, Vol.6.

Matsumura Masahiro, A comparative analysis of East Asian and Latin American industrialization strategies: implications for US-Japan relations, Andrew’s University, Bulletin of Research Institute 21(1), 27-33, 19950730. Available at: www.andrew.ac.jp/soken/sokenk95-2.pdf (visited on April 21, 2010)

Onis, Z., (1991), The Logic of the Developmental State, in Comparative Politics, Vol. 24, No 1, pp. 109-26

The new Dutch development policy report by the Scientific Council for the Government (WRR) suggests that “development aid” needs to move away from providing social services (Education, health, etc) to a more growth oriented development. What are the essential differences and similarities between these two perspectives on development and can development they be perceived as mutually exclusive?

The Dutch Development Policy Report developed by the Scientific Council for the Government (hereafter WRR) is an advisory document that puts into perspective the impact, ultimate efficiency as well as organization of the development aid fostered by the Dutch government. The report concludes on the fact that significantly “three quarters of Netherlands’ development aid is spent on healthcare and education, and less than a quarter on infrastructure, agriculture and economic activity”. (WRR, 2010:1) Roger C. Riddell argues that at present aid at its simplest “is provided in the form of different, discrete projects with recognizable and explicit short-term objectives – such as to build classrooms, clinics or roads, provide basic drugs, or train teachers or nurses”. (WRR, 2009:51) Certainly the required assistance for social care is crucial from the humanitarian standpoint, nevertheless what the WRR report stresses is that this particular assistance, extremely fragmented in its nature, lacks the capacity to generate automatic changes and promote the needed growth and respectively development in the recipient country. The main reason explaining this trend is the poor quality of educational system which at the same is hardly adjusted to the local needs of the population. WRR emphasizes on the fact the main focus should be on achieving “concrete results in the short term acts as a brake on investments that will only show yields in the long term.” (WRR, 2010:1) In addition Riddell notes that “for most people today, however, the critical test of aid’s impact and effectiveness lies far less in knowing whether the aid provided has been able to achieve its more immediate short-term objectives but whether it has contributed to sustainable improvements in people’s lives – not so much whether classrooms have been built, or even whether the quality of education has improved, but the difference this has made to (poor) people’s well-being.” (WRR, 2009:51) In this regard, WRR propones that aid should be reoriented towards development of the middle-class, supported by micro-financing and crediting, which represents the intrinsic attribute to the development process. (WRR, 2010:5) Different opinions have been states concerning investment in the social sectors; it was argued that focusing on increasing health of population as well as professional skills could carry much more positive impact on the economic infrastructure and some argued that “economic growth in itself doesn’t automatically lead to development”. (Jojanneke Spoor, 2010)

Certainly the contribution of aid to economic growth and enhancement of the agricultural sector is acknowledged but mostly in Asian countries (example of South Korea, Taiwan, and India). WRR arguments that most of the provided aid is limited, especially in case of Saharan Africa which was targeted by aid programmes with geopolitical connotation. In addition WRR point out that “even today, much aid primarily aims to improve the immediate living conditions of the poor instead of creating development.” (Ibid) Furthermore, it was mentioned that the more we become increasingly depend on one another on global scale, appear a severe competition for things like “space, raw materials, energy and food”. For that reason, WRR supports the idea that ‘development aid’ constitutes the key tool in promoting a much more ‘responsible’ and ‘sustainable’ globalization. (Ibid)

Firstly, the growth-oriented development, proposed by WRR, is a subject of organizational matter. Development aid should be country-specific as each development varies from country to country and therefore in-depth country analysis/diagnosis should be performed to attest the efficiency of development programmes. In this way “recognizing that development always comes largely from the inside’ and the efficient of aid development interventions should be organized with the full-cooperation of the local actors. (WRR, 2010:6)

Secondly, aid should be professionally design; in this regard following the example of Sweden, Canada, UK, WRR addresses the formation of a specialized development aid institution, suggested to be called NLAID. WRR describes such type of institution (which would be an autonomous unit of Ministry of Foreign Affairs) as follow “A structure with branches in each country which constitute an organizational whole would make it possible to accumulate thorough knowledge of the recipient countries and enter into long-term relationships and to mobilize tailor-made expertise from the Netherlands or elsewhere”. (Ibid) By having “branches in each country” this would mean having specialized units located near embassies in the recipient countries with independent human resources capital and long-term presence and concrete expertise. NLAID’s technical role would involve in deploying the southern NGOs, leaving the western NGOs to “project their own added value more emphatically through specialization and concentration.” (Ibid) Despite the fact that government would choose to subsidized southern NGOs directly in this way enhancing the social structures existent in the recipient countries, at the same time we should not disregard the fact that this measure would probably erode the role played by the Dutch NGOs which are subject to marginalization. The report suggests that Dutch NGOs should profile added value more empathically, professionalize and specialize, as well as establish links with governments “with which the Dutch government cannot or does not wish to maintain relations because they are governed by authoritarian or failing regimes”.(WRR, 2010:10) In addition, Paul Arlman representing Plan International gives his insight on the avoidance of civil society organizations in WRR report, specifically avoidance of the “many initiatives of coordination between NGO’s on the ground”, he states that NGOs are actually the “most useful source of knowledge when it comes to building up expertise and focusing development efforts on a few countries and sectors”. (Jojanneke Spoor, 2010)

Thirdly, as the report notes, the development aid should target investment in knowledge and support of accountability frameworks that reflect the opinion of local stakeholders in the recipient country. WRR reports that at present the Dutch “knowledge infrastructure in the field of development aid is inadequate and is starting to fall behind internationally.” (Ibid) As immediate proposed solution is ‘organizing development aid into learning systems’, that means investing in knowledge infrastructure (which would comprise of Dutch and foreign knowledge institutes) having the main role in performing systemic research and development. (Ibid) Moreover, Maarten Brouwer opinionated that there is sufficient knowledge on technical aspects of agriculture for example, what he suggested is that a “broker role” is needed “being able to communicate well to government structures, having networks available, being able to scan the real problems, to see and enter at the right moment in negotiation processes.” (Jojanneke Spoor, 2010)

Fourthly, development aid requires to be specialized in areas which Netherlands could provide a substantial expertise and knowledge or wishes to expand on – “agriculture, water, the constitutional state and the fight against HIV/AIDS are obvious choices, but other possibilities include reinforcing civil society or supporting the development of regional ties.” (WRR, 2010) Therefore, WRR concludes that concentration on 10 countries would provide sufficient grasp as well focus when implementing development programmes. “Making-a-choice” approach would diffuse the “throwing confetti” attitude, as Netherlands currently directs aid to 36 countries. Peter van Lieshout notes that “in fact you have to try and get as clear a picture of it as possible. And you need sound argumentation, as to why you think the positive aspects of your aid ultimately outweigh the negative ones”. (Perro de Jong, 2010)

The African continent is given most of the attention due to the lack of efficiency in the provided development aid and responsible globalization takes place in small incremental steps. WRR puts emphasizes on an important issue as the establishment of a good knowledge network on global issues achievement which could take place by setting-up “a separate organisational form for these issues and translating them into a Dutch globalization strategy – which should also be reflected in adjustment of the Minister for Development Cooperation’s portfolio” and creation of “much more emphatic links between the line ministries and the Ministry of Foreign Affairs, to ensure that the latter does not become an anomaly in a world in which the distinction between national and foreign policy issues is becoming increasingly blurred” (Ibid)

An interesting point that WRR notes concerning ‘growth oriented development’ aid that it has the potential to be provided entirely on indirect basis (improving conditions for trade or migration policies) as well as on direct basis (transfer of expertise, knowledge and funds through government or users of service). The main gist about it is that it could go along with the “removal of the annual pressure to spend the money available and making financial resources available for a longer period of time in the form of a fund”. (Ibid) The main challenge of Dutch government would be align the development aid in an intelligent way that could facilitate the right development paths, considering specifics and dynamics of the receipt country. By invoking just the “image of neo-patrimonial structures, with excessive corruption and local elites with a glaring lack of a sense of responsibility” is not a viable solution anymore. (WRR: 2010: 3)

To conclude, ‘growth oriented development’ aid is an achievable objective, the impact of which could be enhanced tremendously. WRR proposes concrete measures that could be regarded viable to challenge the unworkable conditions where aid outflows/inflows. Knowing most of the constraints impeding aid impact in the recipient country makes it already much easier for the donors to address them implicitly. It is a matter of perceiving ‘genuine commitment to change’ coming from both sides of the camp.

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