Structural adjustment loan

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Structural adjustment loan (SAL) is a type of loan to developing countries. It is the mechanism by which international financial institutions, such as the World Bank and International Monetary Fund, impose structural adjustment.[1] They carry (often controversial) policy conditions, which have included: (see Washington Consensus).[2]

1. Fiscal policy discipline;

2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;

3. Tax reforms which broaden the tax base and lower marginal tax rates, while minimizing dead weight loss and market distortions;

4. Interest rates that are market determined and positive (but moderate) in real terms;

5. Competitive exchange rates; devaluation of currency to stimulate exports;

6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; the conversion of import quotas to import tariffs;

7. Liberalization of inward foreign direct investment;

8. Privatization of state enterprises;

9. Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;

10. Legal security for property rights.

Structural adjustment loans are very controversial. For criticisms, see structural adjustment.

Some studies suggest that they have been "weakly associated with growth and reform did seem to reduce inflation."[3] Others have argued, however, that "the outcomes associated with frequent structural adjustment lending are poor."[4] Critics (often from the left) accuse such policies to be "not-so-thinly-disguised wedge[s] for capitalist interests." [5]

References[edit]

  1. ^ "Life and Debt" a film by Stephanie Black. See: http://www.lifeanddebt.org/
  2. ^ Peter Burnell & Vicky Randall (2005). "Development (chapter 16)". Politics in the Developing World (2nd ed.). Oxford University Press, Inc. pp. 327–328. ISBN 0-19-929608-1. 
  3. ^ Crisp, Brian; Kelly, Michael. (1999) The Socioeconomic Impacts of Structural Adjustment. International Studies Quarterly. Vol. 43. No. 3 (Sept. 1999). 533-552. http://www.jstor.org/stable/2600942
  4. ^ Easterly, William. (2006) The White Man's Burden. Penguin Books. Pages 68-72.
  5. ^ Kapur, Davesh. (1998). The IMF: A Cure of Curse? Foreign Policy. No. 111. pp. 114-129. http://www.jstor.org/stable/1149382