Structural Adjustment – a Major Cause of Poverty

Last month, Sir Mekere Morauta has advised the Government to seek help from IMF who have been visiting Papua New Guinea. Sir Mekere suggests that only IMF can help Papua New Guinea in this time of Economic downturn.

Let us look at the IMF / World Bank policies on the Structural Adjustment Programme.

imf

Typical stabilization policies comprise:

  • balance of payments deficits reduction through currency devaluation
  • budget deficit reduction through higher taxes and lower government spending, also known as austerity
  • restructuring foreign debts
  • monetary policy to finance government deficits (usually in the form of loans from central banks)
  • raising food prices to cut the burden of subsidies
  • raising the price of public services
  • cutting wages
  • decrementing domestic credit.

Long-term adjustment policies usually include

  • liberalisation of markets to guarantee a price mechanism
  • privatization, or divestiture, of all or part of state-owned enterprises
  • creating new financial institutions
  • improving governance and fighting corruption
  • enhancing the rights of foreign investors vis-à-vis national laws
  • focusing economic output on direct export and resource extraction
  • increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets).
  • These conditions have also been sometimes labeled as the Washington Consensus.

————
I have found a video on the web which mirrored  the example of those policies. It’s titled “Am the luckiest NUT in the World”

The Luckiest Nut In The World is an 8 minute video (sorry, no transcript available, as far as I know), produced by Emily James. It is a cartoon animation explaining the effects of loans, structural adjustment and cashcrops, and their impacts on poorer countries. It traces how Senegal was encouraged to grow nuts for export. In summary,

  • As a poor nation without many resources, it took out loans to help develop the industry.
  • Other nations saw this was going well, so they followed suit.
  • The price of nuts started to drop and Senegal faced debt repayment problems.
  • Structural adjustment policies were put in place, cutting spending and reducing government involvement in the nut industry and elsewhere.
  • However, things got worse.
  • At the same time rich countries, such as the US, were subsidizing their own nut (and other) industries, allowing them to gain in market share around the world.
  • Rich countries have tools such as trade tariffs and the threat of sanctions at their disposal to help their industries, if needed.

    https://vimeo.com/4557989

Thus we are in a situation where the rich promote a system of free trade for everyone else to follow, while mercantilism is often practiced for themselves.

  • “Free trade” is promoted by the rich and influential as the means for all nations to achieve prosperity and development.
  • The wealth accumulated by the richer countries in the past is attributed to this policy to strengthen this idea.
  • That such immense wealth was accumulated not so much from “free” trade but from the violent and age-old mercantilism or “monopoly capitalism” is ignored.
  • Such systems are being practiced again today, and even though they are claimed to be Adam-Smith-style free trade, they are the very systems that Adam Smith himself criticized and attacked.
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