The IMF and World Bank (two Bretton Woods institutions) require borrowing countries to implement certain policies in order to obtain new loans (or to lower interest rates on existing ones).
[1] SAPs are created with the stated goal of reducing the borrowing country's fiscal imbalances in the short and medium term or in order to adjust the economy to long-term growth.
[3] By requiring the implementation of free market programmes and policy, SAPs are supposedly intended to balance the government's budget, reduce inflation and stimulate economic growth.
[8][9][10][11] Structural adjustment loans are mainly distributed to developing countries, located primarily in East and South Asia, Latin America, and Africa.
[13][16] According to its stated goals, Structural Adjustment Loans (SALs) aim to achieve three main objectives: boosting economic growth, addressing balance of payments deficits, and reducing poverty.
It is claimed that with the growing need for structural adjustments in different nations, the lines between SAL and other loan types provided by the International Monetary Fund and the World Bank have become less distinct.
[4] After the run on the dollar of 1979–80, the United States adjusted its monetary policy and instituted other measures so it could begin competing aggressively for capital on a global scale.
[20] Giovanni Arrighi has observed that this scarcity of capital, which was heralded by the Mexican default of 1982, created a propitious environment for the counterrevolution in development thought and practice that the neoliberal Washington Consensus began advocating at about the same time.
During the 1980s the IMF and World Bank created loan packages for the majority of countries in Latin America and Sub-Saharan Africa as they experienced economic crises.
PRSPs were introduced as a result of the bank's beliefs that "successful economic policy programs must be founded on strong country ownership".
The United States and the International Monetary Fund evaluated South Korea as one of the successful cases of the IMF's structural adjustment.
The main reason is that the International Monetary Fund reflects the political issues of American financial hegemony and voting power to a certain extent.
[32] Comparing these inward-oriented measures to neoliberal policies demanded by the SAPs, it becomes obvious that the structuralist model was fully reversed in the course of the debt crisis of the 1980s.
The shift away from state intervention and ISI-led structuralism towards the free market and Export Led Growth opened a new development era and marked the triumph of capitalism.
For the inward-oriented economies it was therefore mandatory to switch their entire production from what was domestically eaten, worn or used towards goods that industrialized countries were interested in.
[36] The other main criticism against the compelled integration of developing countries into the global market implied that their industries were not economically or socially stable and therefore not ready to compete internationally.
The scholars Cardoso and Faletto judged this as yet another way of capitalist control of the Northern industrialized countries,[37] it also brought advantages to local elites and to larger, more profitable companies who expanded in size and influence.
However, smaller, less industrialized businesses and the agricultural sector suffered from reduced protection and the growing importance of transnational actors led to a decline in national control over production.
[17] Overall, it can be said that the debt crisis of the 1980s provided the IMF with the necessary leverage to impose very similar comprehensive neoliberal reforms in over 70 developing countries, thereby entirely restructuring these economies.
The goal was to shift them away from state intervention and inward-oriented development and to transform them into export-led, private sector-driven economies open to foreign imports and FDI.
Privatization of utilities given into by imposed structural adjustment has had negative effects on the reliability and affordability of access to water and electricity in developing countries such as Cameroon,[38] Ghana,[39] Nicaragua,[40] Pakistan[41] and others.
By minimizing a government's ability to organize and regulate its internal economy, pathways are created for multinational companies to enter states and extract their resources.
Upon independence from colonial rule, many nations that took on foreign debt were unable to repay it, limited as they were to production and exportation of cash crops, and restricted from control of their own more valuable natural resources (oil, minerals) by SAP free-trade and low-regulation requirements.
[47] Osterhammel's The Dictionary of Human Geography defines colonialism as the "enduring relationship of domination and mode of dispossession, usually (or at least initially) between an indigenous (or enslaved) majority and a minority of interlopers (colonizers), who are convinced of their own superiority, pursue their own interests, and exercise power through a mixture of coercion, persuasion, conflict and collaboration".
Investigating Immanuel Kant's conception of liberal internationalism and his opposition to commercial empires, Beate Jahn said:[49] ... private interests within liberal capitalist states continue to pursue the opening up of markets abroad, and they continue to enlist their governments' support, through multilateral and bilateral arrangements—conditional aid, International Monetary Fund (IMF), and World Trade Organization (WTO).
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it has been argued, turned the WTO into a "royalty collection agency" for the rich countries.
The Structural Adjustment Programs (SAPs) connected to IMF loans have proven singularly disastrous for the poor countries but provide huge interest payments to the rich.
Similarly, cuts to health programs have allowed[citation needed] diseases such as AIDS to devastate some areas' economies by destroying the workforce.
Authors Ikubolajeh Bernard Logan and Kidane Mengisteab make the case in their article "IMF-World Bank Adjustment and Structural Transformation on Sub-Saharan Africa" for the ineffectiveness of structural adjustment in part being attributed to the disconnect between the informal sector of the economy as generated by traditional society and the formal sector generated by a modern, urban society.
The IMF mainly lends to countries that have balance of payment problems (they cannot pay their international debts), while the World Bank offers loans to fund particular development projects.