1. Before the IMF<\/font><\/a><\/p><\/li>\n 2. What are SAPs?<\/font><\/a><\/p><\/li>\n 3. Did S.A.P.s achieve their aims?\n<\/font><\/a><\/p><\/li>\n 4. Increase in Foreign Direct Investment\n<\/font><\/a><\/p><\/li>\n 5. The effect on growth\n<\/font><\/a><\/p><\/li>\n 6. The effect of S.A.P.s.\n<\/font><\/a><\/p><\/li>\n 7. Reduced state subsidies\n<\/font><\/a><\/p><\/li>\n 8. More exports\n<\/font><\/a><\/p><\/li>\n 9. An S.A.P. example: Vietnam\n<\/font><\/a><\/p><\/li>\n 10. Currency devaluation\n<\/font><\/a><\/p><\/li>\n 11. S.A.P.s – for the minority interest\n<\/font><\/a><\/p><\/li><\/ul>\n <\/a><\/p>\n\n\n\n The World Bank and I.M.F. are both international institutions who receive\nfunds from a number of different states, with contributions generally being\nproportionate to the size of those countries’ economies. They were set up with\nthe intention of providing finance for developing states, which were usually to\nbe in the form of loans rather than actual grants.<\/p>\n\n\n\n The I.M.F. was founded in 1945 and now involves 183 countries. Essentially it\nacts as an agency representing the interests of the world’s financial\ninstitutions. As Susan George writes:<\/p>\n\n\n\n One might … accurately describe the Fund’s role as that of a messenger,\nwatchdog, international alibi and gendarme for those who do hold financial\npower….. (The) bedrock of the world monetary system is the private banks, with\nstates (including their central banks and treasuries) acting as guarantors. The\nfund works on their behalf.” (16, p.47)<\/p>\n\n\n\n The World Bank is, as Bernard Nossiter put it, a ‘sister agency to I.M.F.’,\n(17) having similar quotas and voting structures.<\/p>\n\n\n\n The World Bank and I.M.F. have played an important role in shaping\nmacro-economic policy in the South (i.e. policy towards taxation, public\nspending and trade.) Indeed, their interventions have been important in bringing\nabout the kind of ‘free trade’ world that is embodied in the G.A.T.T.\nagreements. The World Bank and the I.M.F. have been able to influence the\neconomies of developing countries through the loans (and sometimes, in the case\nof the World Bank, grants) that they have made to states of the South.<\/p>\n\n\n\n The pattern of lending grew sharply in the 1970s when there was a steep\nincrease in World Bank loans that grew from U.S.$2.7 billion a year in the early\n1970s to $8.7 billion by 1978. (10; p13) As Bello points out, in these early\nstages, Bank policy, which was largely a reflection of U.S. interests, had\nimportant political as well as economic objectives. Strong national movements\nled by the likes of Sukarno of Indonesia and Nasser of Egypt, as well as more\ntypically Soviet-style state-run regimes that sided with the U.S.S.R. in the\nCold War, were demanding fundamental changes in North-South relations. Bello et\nal refer to this as the ‘other cold war’ in which the World Bank, led by former\nU.S. president Robert McNamara in the 1970s can be seen to have initiated\npolicies to ‘contain’ the South through a policy of increased loans. Provision\nof loans gave the North increased involvement in these states, which was taken\neven further by the I.M.F., as discussed below.<\/p>\n\n\n\n Whilst there were some loans from the World Bank to the South during the\n1970s, a larger proportion of loans were from private, commercial banks. By the\n1980s, the scale of developing states’ debts to (in particular their debt to\nthe private, commercial banks) meant that a further round of loans was need to\nmeet their repayments. The World Bank and I.M.F. stepped in at this stage to\nbail them out by greatly stepping up their supply of credit to the already\nindebted states, as Bello describes:<\/p>\n\n\n\n the flow of commercial bank credit to the Third World plummeted, while that\nof the official finance institutions increased sharply: in 1981, commercial\nbanks supplied 42 per cent of net credit flows to the Third World and official\nfinance institutions 37 per cent, but by 1988 the private banks provided only 6\nper cent of net debt flows and official finance institutions 88 per cent of the\ntotal. Most of the inflow of official money was used by debtors to service their\ndebt to the private banks. Between 1982 and 1986 Third World countries received\nU.S.$25 billion more from official creditors than they paid out to them, while\nthey paid the commercial banks $183 billion more in interest and amortization\nthan they received in new bank loans.(10; p69)<\/p>\n\n\n\n The I.M.F. had not, on the whole, been involved in the loans of the 1970s\n(supplying less than 5% of the finance to developing countries between 1974 and\n1979- 16; p48) but became an increasingly important agent in the management of\nthe debts of the South from the early 1980s. The notorious ‘structural\nadjustment’ policies that were initiated by the I.M.F. in most of the Southern\ndebtor countries, had the aim of making debtor states more profitable and so\nable to make more loan repayments in the medium to long term.<\/p>\n\n\n\n <\/a><\/p>\n\n\n\n S.A.P.s have been applied to many countries across the globe, from Chile to\nRussia and from Somalia to the Phillipines, from the 1980s onwards. Surveys of\nthese programmes, such as that of Chossudovsky(11) show that certain key policies were consistently included in each S.A.P.<\/p>\n\n\n\n \u00b7 Privatisation. State owned companies were sold to the private\n sector. Often, this would pave the way for them to be bought up by foreign\n capital. It also helped to generate revenue for the state and hence\n contributed to debt repayments.<\/p>\n\n\n\n \u00b7 Removal of subsidies. Subsidies previously granted by the state\n to various sectors of the economy were disallowed, with many local producers\n suffering as a result. Favourable loans and credit that were previously\n provided for small businesses were also curtailed.<\/p>\n\n\n\n \u00b7 Removal of tariffs. This policy was designed to encourage\n imports and exports. Goods previously produced within a country for\n consumption at home were increasingly imported. Production at home became\n more specialised and geared to the export market, with a range of cash crops\n being encouraged – examples include cocoa in Ghana, tobacco in Zimbabwe,\n prawns in the Phillipines being encouraged. (As explained above, the G.A.T.T.\n agreements had reduced protectionism which also encouraged the adoption of\n more export-orientated policies.)<\/p>\n\n\n\n \u00b7 Reduction in state expenditure. Another means for the creditors\n to ensure future loan repayments was to impose a further policy of reducing\n state expenditure.<\/p>\n\n\n\n \u00b7 Devaluation of the national currency. This was usually\n necessary to compensate for a balance of payments deficit.<\/p>\n\n\n\n Chossudovsky summarises the effect of S.A.P.s on the economy of debtor\nstates, pointing out how many industries that produced for domestic markets\nwithin the South were pushed to bankruptcy As a result of an S.A.P., he writes,\neconomies are “opened up through the concurrent displacement of a\npre-existing productive system. Small and medium-sized enterprises are pushed\ninto bankruptcy or obliged to produce for a global distributor, state\nenterprises are privatised or closed down, independent agricultural producers\nare impoverished.” (11; p16)<\/p>\n\n\n\n A widely documented outcome of S.A.P.s is the large cut in state expenditure.\nThis invariably goes far beyond the reduction in subsidies to the\ndomestically-orientated\nindustries referred to by Chossudovsky above. Public goods such as health and\neducation were drastically cut back in debtor states, as part of a policy of\n‘fiscal tightening.’ As a result, Michel Chossudovsky points out, “even the\nWorld Bank concedes that the communicable diseases control programmes of\ndeveloping countries for diarrhoea, malaria and acute respiratory infections\nhave deteriorated.” The consequences for education systems are equally\nevident, with teacher pupil\/ ratios worsening. The full scale of the impact of\nreduced public expenditure is, of course, much too great to be documented here.<\/p>\n\n\n\n There is certainly no shortage of evidence of the suffering faced by the\nworking class in countries of the South in the wake of S.A.P.s An example could\nbe made of virtually any country where an S.A.P. has been adopted and indeed\nthey are by writers such as Walden Bello and Michel Chossudovsky. Bello writes\nabout Chile:<\/p>\n\n\n\n “While it socialized the losses of the rich, the authorities dumped the\nburden of adjustment on to the poor and the middle class via a radical cutback\nin public spending, a tough freeze on wages, and a steep devaluation of the\npeso. The 24 per cent contraction of domestic expenditure provoked a 15 per cent\ndrop in G.D.P. and triggered unemployment, which rose to embrace over 10 per\ncent of the workforce in one year and remained at over 25 per cent for three\nyears. And the 50 per cent real devaluation of the peso was translated mainly\ninto a reduction of real wages by close to 20 per cent.” (10; p45)<\/p>\n\n\n\n Bello adds that “more than 50 per cent of the unemployed received no\nsubsidy and the rest obtained only minor benefits”(10; p45)<\/p>\n\n\n\n S.A.P.s certainly caused the working class to suffer in debtor states but improvement of their welfare was not a real objective of these policies. It is, after all, the very nature of captialism that working class interests – i.e. higher wages, environmental protection and better public services will conflict with the interests of the minority, owning class. (Why Profit Gets Priority.<\/a>) To understand S.A.P.s further, we need to evaluate them against the aims that they were designed to achieve.<\/p>\n\n\n\n <\/a><\/p>\n\n\n\n Different forms of measurment are needed to determine the effectiveness of\nS.A.P.s in serving the interests for which they were designed. The main measure\nof success considered by the The World Bank and I.M.F. would have been medium to\nlong term economic growth statistics. (You need look no further than the\nliterature produced by these organisations to see that economic growth is the\nyardstick by which they guage the outcome of their policies.) They would also\nhave been paying close attention to the impact of the policies on foreign\ninvestment in the debtor states. These statistics are to do with the investment\nof capital within a country which is of course, a prerequisite for profits to\nbe made.<\/p>\n\n\n\n According to the pro-‘free market’ mantra, an improvement in growth would\neventually ‘trickle down’ to the working class majority, via wages. It is, of\ncourse, deeply questionable whether such a ‘trickle down’ occurs and there is,\nin fact, little or no evidence for such a ‘trickle down’ having taken place.\n(From Third World to First World.<\/a>) Still, we should examine the impact\nthat S.A.P.s had on investment and growth in the countries concerned.<\/p>\n\n\n\n <\/a><\/p>\n\n\n\n One objective of the policies certainly succeeded – that of increasing\nForeign Direct Investment (F.D.I.):<\/p>\n\n\n\n Between 1973 and 1991, the world stock of F.D.I. grew in current dollars from\n$211.1 billion to $1,836.5 billion, a growth rate of roughly 13 per cent per\nyear. From the perspective of the advanced capitalist countries, the origins of\nthe vast majority of F.D.I., this stock grew substantially faster than G.D.P.\namounting to about 6.7 per cent of G.D.P. in the early 1970s and rising to\nnearly 9 per cent at the beginning of the 1990s.”(13; p27)<\/p>\n\n\n\n MacEwan has calculated that this 1991 F.D.I. figure is 8.5 per cent of total\nworld output. He remarks that this could be viewed as a return to early\ntwentieth century levels, given that it was 9 % in 1913.(13; p27) Still, it is a\nsignificant rise relative to the 1960s and the economic climate of more\nliberalised trade as well as ‘structural adjusment’ in the South were important\nfactors in bringing this about.<\/p>\n\n\n\n The Multilateral Agreement on Investment (M.A.I.) drawn up by the \nO.E.C.D.\nduring the late 1990s, was an attempt to rollback still further the \nremaining\nhindrances to foreign direct investment. The M.A.I. negotiations for the\nagreement collapsed – this was held as an important victory by the \ncritics of\nglobalisation whose pressure contributed to the proposal being \nquestioned and\neventually withdrawn. However, the European Union is still pushing for a\n watered-down version of this proposal to be agreed with the hope of \npaving the way for\nan eventual agreement.<\/p>\n\n\n\n <\/a><\/p> For an explanation of what is meant by economic growth, see Where\nDo Profits Come From?<\/a> We shall now examine whether economic growth increased\nin countries where S.A.P. policies were implemented. Bello suggests that\nnumerous I.M.F. studies provide the evidence that economic growth rates have not\nbeen improved by S.A.P.s.<\/p>\n\n\n\n Bello et al write:<\/p>\n\n\n\n Comparing countries which underwent stabilization and adjustment \nprogrammes with those which did not, over the period 1973-1988, (I.M.F.)\n economist Mohsin\nKhan found that ‘the growth rate is significantly reduced in program \ncountries\nrelative to the change in non-program countries.’ He concluded that \nwhile\nbalance of payments and inflation rates are likely to improve in the \nfirst year\nof adjustment, these programmes ‘do involve some cost in terms of a \ndecline in the\ngrowth rate.’ Mohsin Khan quoted in Peter Robinson and Somsak Tambunlertchai,\n‘Africa and Asia: Can High Rates of Economic Growth Be Replicated?, Occasional\nPapers, International Center for Economic Growth, No.40 (1993), p.24.<\/em> ”\n(10; p32)<\/p>\n\n\n\n Having surveyed the various studies on the subject, Chossudovsky reaches a\nsimilar conclusion:<\/p>\n\n\n\n Although there have been a few studies on the subject over the past decade,\none cannot say with certainty whether programmes have “worked” or\nnot…. On the basis of existing studies, one certainly cannot say whether the\nadoption of programmes supported by the Fund led to an improvement in inflation\nand growth performance. In fact it is often found that programmes are associated\nwith a rise in inflation and a fall in the growth rate.(11)<\/p>\n\n\n\n Mohsin Kahn’s study appears to offer strong evidence against the use of\nS.A.P.s, even in terms of the holy grail of free market capitalism, ‘economic\ngrowth.’ It should be noted that, one important factor behind Mohsin Kahn’s\nresults was the marked success of certain\ncountries that did not undergo S.A.P.s during the 1980s, notably certain ‘tiger\neconomies’ of East Asia, such as Malaysia, South Korea, Taiwan and Hong Kong. By\ncontrast, the majority of countries in the poorest continents – South and\nCentral America and Africa have undergone adjustment programmes. There were\ncertainly other important factors behind the relative success and failures\nof these two sets of states, aside from the presence or absence of adjustment\nprogrammes, which make any such comparison a poor test of the ‘success’ of\nS.A.P.s. <\/p>\n\n\n\n An exploration of all of these factors would be an entirely separate study in\nitself but they would certainly include the relative economic starting positions\nof the states in the 1960s, prior to the involvement of World Bank\/ I.M.F. in\ntheir policies as well as the stability of their political systems. (See below\nfor further discussion of the course taken by the Asian tigers, some of which\navoided the ‘free trade’ and ‘structural adjustment’ policies encouraged by the\nNorth.)<\/p>\n\n\n\n <\/a><\/p> Rather than Mohsin Kahn’s cross-country comparison as a way of defining the\nsuccess or failure of a S.A.P., it would be more accurate to define their\nsuccess relative to how an adjusted country would have fared were no S.A.P. to\nhave taken place. This does, of course, present difficulties of it’s own, given\nthat we are asked to compare against a scenario that will never exist. No\ndefinitive conclusion can be reached about what the growth rates of adjusted\ncountries would have been without the I.M.F. Still, we can point to certain\nfactors which suggest that growth rates would have been unlikely to be much\nbetter in the absence of S.A.P.s. We shall now do this by considering the impact\nupon growth of three key elements of S.A.P.s: reduced state subsidies, the move\ntowards export-orientated industries and currency devaluation.<\/p>\n\n\n\n <\/a><\/p> The nationalised or subsidised industries in the South that S.A.P.s sought to\nprivatise or withdraw subsidies from were often inefficient and less profitable\nthan the market demanded. While, as has been pointed out, the impact on the\nworking class of reductions in state expenditure was devastating, it helped\nstates to further reduce their tax burden. This general reduction in the level\nof taxation contributed to the increased F.D.I., as pointed out above without\nwhich growth rates would have been lower in those countries which received\ninvestment.<\/p>\n\n\n\n Another significant factor in considering how Southern countries would have\nfared without S.A.P.s is remembering that these countries would still have been\nfaced with their large debt burdens. Their debt was indeed a significant factor\nin the expenditure cutbacks required by the I.M.F. and meant that there was only\nlimited government capital available for any kinds of ‘development’ project that\nmight constribute to building the right infrastructure for increasing growth.\nAny capital that was available had to be supplied by creditors who required\nfuture repayment.<\/p>\n\n\n\n The need for future repayments on debt gave rise to an important shift. The\nhuge reductions in state subsidies to industry and the breaking down of\nprotectionist barriers did cause domestic industries to suffer. Restricting the\nrole of the state in this way did, nevertheless, take precedence over short term\neconomic growth. The programmes gave priority to export-orientated industries over\nmany of the industries which primarily served domestic markets (often including\na large proportion of a states’ agriculture). This was the new path, viewed as\nthe surest route to profitability, which happily married with the T.N.C.s desire\nto expand their production and markets.<\/p>\n\n\n\n <\/a><\/p> There are many examples of states specialising in the production of a single\ngood for export: An extreme case was the copper industry in Zambia which came to\nrepresent 90% of total output. The figure for copper in Chile was 50%. Coffee in\nColombia, El Salvador, Guatemala, and Haiti became crucial to these economies,\nas did cocoa in Ghana, bauxite for Guyana and tin for Bolivia. (17; p148)<\/em>\n<\/em><\/p>\n\n\n\n The export-orientated policy has been widely criticised for forcing\ndeveloping countries to become vulnerable to shifts in the market price of these\ncash crops. Furthermore, the worldwide implementation of these policies in many\ncases caused worldwide over-production and so the push towards cash crops\nstarted to undermine itself. This happened, for example, to cocoa production,\nwhich was simultaneously expanded in numerous countries. As a consequence, there\nwas a 48 per cent decline in the world cocoa price between 1986 and 1989″\n(10; p47) and countries such as Ghana, where the I.M.F. had encouraged a greater\nreliance on this single crop, suffered as consequence. This criticism has been\ncountered by the argument (put forward by Bernard Nossiter amongst others) that\na fall in the price does not necessarily mean a reduction in profits, given that\ndemand for the good could increase. Yet the newly export-orientated economies of\nthe South did in fact suffering due to a fall in commodity prices, with\nsub-Saharan Africa being one notable example. <\/p>\n\n\n\n Much of the criticism of I.M.F.\/ World Bank policy points to the failure to\nbring long term economic stability to developing countries. The preservation of\na diversity of industries in these countries would have certainly made their\neconomies more robust in the face of the continuing, unpredictable shifts in the\nmarket. However, there was often a trade-off between having this diversity and\nachieving the kind of profitability which would satisfy the World Bank and other\ncreditors. Many of the critics of the drive towards profitable exports\nunderestimate the power of such a short term opportunity for profit within\ncapitalism. An inherent part of the capitalist system is for rival companies to\nmake higher profits in the short term, so as to be able to out-grow their\ncompetitors. For this reason the very instability that critics quite rightly\ndespair of is inherent to capitalism itself. (See Booms and Slumps – What Causes\nThem?)<\/p>\n\n\n\n There had been a tremendous economic incentive for the initial round of\nlending in the 1970s, as is borne out by the huge growth in exports from the\nSouth during this time.<\/p>\n\n\n\n GATT examined forty-six developing countries who account for most of the\nthird world’s output, apart from oil. Between 1966 and 1981, their manufactured\nexports multiplied twenty times, from $3.8 billion to $78.7 billion. Although\ninflation accounted for perhaps two thirds of this expansion, the result is\nstill remarkable. Their share of world manufacturing exports rose from 6 percent\nto 11 percent, nearly double. Raw materials exports expanded six times, from\n$14.9 billion to $92.2 billion; their share of world exports was unchanged at l2\npercent.(G.A.T.T. – Prospects for Increasing Trade Between Developed and\nDeveloping Countries <\/em>(Geneva, Switzerland: 1984), quoted in 17; p.24)<\/p>\n\n\n\n Bello et al, who are amongst the many critics of S.A.P.s acknowledge exports\nwere an effective means of generating profits that were used to make substantial\nloan repayments to the commercial banks who had provided them with credit during\nthe 1970s:<\/p>\n\n\n\n This policy was enormously successful, effecting as it did an astounding net\ntransfer of financial resources from the Third World to the commercial banks\nthat amounted to U.S.$178 billion between 1984 and 1990; By 1992, the tenth\nanniversary of the debt crisis, the exposure of U.S. banks in the South had\ndropped from its 1987 level of 140 per cent of equity to 29 per cent. For all\nintents and purposes, the crisis was over for the creditors.(10; p69)<\/p>\n\n\n\n <\/a><\/p> 9. An S.A.P. example: Vietnam<\/a><\/strong><\/p><\/p>\n\n\n\n Vietnam provides an example of this profitability being achieved.\nChossudovsky notes that G.D.P. grew after a S.A.P. was implemented,\n“largely as a result of the rapid redirection of the economy towards\nforeign trade (development of oil and gas, natural resources, export of staple\ncommodities and cheap-labour manufacturing). Despite the wave of bankruptcies\nand the compression of the intemal market, there has been a significant growth\nin the new export-oriented joint ventures.” (11; p58)<\/p>\n\n\n\n The fact that this growth was achieved largely at the expense of Vietnam’s\nmanufacturing industry, was not a problem in the eyes of those who provided\ncredit to the country, who were solely concerned with receiving a profitable\nreturn on their loans. In fact, the dismantling of industries such as oil, gas,\nnatural resources and mining, cement and steel production presented an\nopportunity for them, in the words of Chossudovsky, “to be reorganised and\ntaken over by foreign capital with the Japanese conglomerates playing a decisive\nane dominant role ” He continues: “The most valuable state assets were\nto be transferred to joint-venture companies.” (11; p52)<\/p>\n\n\n\n Japan benefitted from the S.A.P. in Vietnam:<\/p>\n\n\n\n “The tendency is towards the reintegration of Vietnam into the Japanese\nsphere of influence, a situation reminiscent of World War II when Vietnam was\npart of Japan’s Great East Asia Co-Prosperity Sphere<\/em>. This dominant\nposition of Japanese capital was brought about through control over more than 80\nper cent of the loans for investment projects and infrastructure. These loans\nchannelled through Japan’ s Overseas Economic Cooperation Fund (O.E.O.F.) as\nwell as through the Asian Development Bank (A.D.B.) supported the expansion of\nthe large Japanese trading companies and transnationals.” (11; p57 )<\/p>\n\n\n\n Vietnam was not the only such example – many of the ‘adjusted’ countries\ndeveloped export sectors that were highly profitable, at least for a certain\ntime. Yet, even for the capitalist interests of the North, there is little or no\npositive result that can be drawn from several of the world’s poorest states.\nZambia is a case in point, having been forced to request eleven reschedulings of\ndebt between 1975 and 1987 (16; p117)<\/p>\n\n\n\n <\/a> A pre-condition of I.M.F. loans was often a devaluation of borrower nation\u2019s\ncurrency. This was usually done by linking the currency to a more widely used\ncurrency (this would usually have been the U.S. dollar) and setting the value\nlower than the previous level. On other occasions, a devaluation simply meant\nallowing the value of the currency float to a free market level, given that the\ndebtor state had been artificially ‘propping it up’ on the foreign exchange\nmarkets, so as to reduce the cost of imported goods.<\/p>\n\n\n\n Devaluations were often introduced by the I.M.F. to counter policies of\n‘overvaluation’ that were adopted by numerous governments in the South prior to\nthe arrival of the I.M.F. This overvaluation policy is described by an O.E.C.D.\nreport, cited by Nossiter:<\/p>\n\n\n\n governments discovered another device to make life in the capital more\nagreeable. They maintain overvalued currencies. They demand more francs or\ndollars for their nairas and cedis than these currencies would fetch in a free\nmarket. This discourages farmers from producing crops for export, from investing\ntheir own labor on irrigation works or buying seed and fertilizer. The return\nfrom export crops in cedis, nairas, and the rest is painfully small. For the\nperiod 1976 to 1980, the World Bank calculated that Ghana paid its cocoa farmers\n40 percent of what they would have received in world markets; Tanzania gave its\ncoffee producers 23 percent; Mali made cotton growers accept 43 percent, and\nMalawi its tea planters 28 percent. Conversely, the overvalued currencies make\nimports a bargain in the cities. Elites can enjoy cheap Audis or a\nMercedes-Benz, inexpensive air conditioners, television sets, and even food from\nabroad.(Zambian Mismanagement (1965-80) – OECD, Development Cooperation, 1983,\np.20 – quoted in 17; p109)<\/p>\n\n\n\n As discussed below, S.A.P.s shifted the emphasis of Southern economies\ntowards exports and a devaluation made them more competitive. Devaluations also\naimed to counter what were often high rates of inflation in the South and ensure\nmonetary stability that, from the point of view of thier creditors, was\nessential for managing their debt.<\/p>\n\n\n\n Devaluations had a drastic effect on domestics prices in many of the\ncountries that underwent an adjustment programme. One extreme (but not unique)\nexample was Peru, where the impact was dubbed the ‘Fujishock’ (named after\nPresident Alberto Fujimori who agreed to implement the programme in August\n1990.) Chossudovsky notes that, in Peru, “fuel prices increased 3l times\novernight whereas the price of bread increased 12 times. The real minimum wage\nhad declined by more than 90 per cent in relation to its level in the\nmid-1970s” (11; p38)<\/p>\n\n\n\n Critics of globalisation often focus upon particular policies such as\ndevaluation. Whilst the short term impact of the resulting price rises was\ndevastating, it needs to be acknowledged that this social impact was not the\nprimary concern to the I.M.F. and the banks they represent. It was a necessary\npart of the re-negotiation of loan agreements to ensure that the future\nrepayments would be forthcoming, in so far as was possible.<\/p>\n\n\n\n Indeed the O.E.C.D. report cited above points out that the pre-I.M.F. policy\nof overvaluation conflicted with the interests of peasant farmers, who were\nunable to sell the produce on export markets and were forced to settle for a\nmuch lower income as a result. In the case of Zambia, “Farm prices were\nheld so low that peasant buying power dropped 65 percent.” On the other\nhand, due to overvaluation reducing the cost of imports: “The system, in\nother words, drains incomes from poor farmers to the better-off\ncity-dwellers” (quoted in 17;109)<\/p>\n\n\n\n Overvaluation of a currency, as shown, also holds disadvantages. More\nrecently, the I.M.F. intervened in the Russian economy as it appeared to be on\nthe verge of collapse and sought to prop up the Russian ruble at what critics\ndescribed as an ‘overvalued’ level. Third World Network criticise this policy:<\/p>\n\n\n\n In Russia, the IMF insisted on maintaining an overvalued fixed exchange rate,\nrequiring that country to raise interest rates as high as 150 percent – leading\nnot only to excessive foreign debt burdens, but maintaining a speculative bubble\nin the financial sphere, and drained the real economy of investment capital. The\novervalued ruble kept imports artificially cheap, hobbling domestic production,\nand exports overly expensive – until the currency collapsed in 1998. A similar\npolicy was supported in Brazil – with the government raising interest rates more\nthan 50% and borrowing billions from the Fund to stabilize its overvalued\ncurrency, only to have it collapse just a few months later.(24)<\/p>\n\n\n\n That overvaluations, as well as devaluations, have disadvantages, suggests\nthat capitalism offers no straightforward solution to the question of fixing\ncurrency values. Criticisms of devaluation policies point out the problems that\narise from it but not the reasons why the I.M.F. enforce them.<\/p>\n\n\n\n <\/a><\/p> As with the question of the motives behind capitalism’s move towards free\ntrade, the policies imposed upon the South by the I.M.F. through Structural\nAdjustment Programmes can only be understood in terms of the economic interests\nof certain sections of the global capitalist class. Among these interested\nparties were the financial institutions who lent money to the South during the\n1970s, the multinational and other companies looking to exploit the resources\n(both labour power and natural resources) of the South, as well as sections of\nthe capitalist class within the states of the South themselves, who owned some\nof the export orientated industries within those countries.<\/p>\n\n\n\n The banks (most significantly U.S. banks who supplied the South with the\nmajority of their loans during the 1970s) needed to ensure that the countries of\nthe South were making enough profit to be able to repay their debts. This\nexplains why S.A.P.s shifted the emphasis of Southern economies towards\nproduction for export. Such industries were widely viewed as where the\n‘comparative advantage’ (and hence largest profits) of these countries lay. The\nI.M.F. are often targetted by the anti-globalisation lobby, yet they were simply\nthe agency who conducted a policy that was necessary for the major Northern\nbanks. (It should also be noted that Southern debt originates from the 1970s\nbefore the I.M.F took on this role.)<\/p>\n\n\n\n Besides the banks, other multinational companies of the North were themselves\ninterested in gaining from such industries by setting up operations there\nthemselves. Examples of this include the U.S. multinationals who moved into\nCentral and South America to exploit the primary resources there, such as fruit\nand timber. To maximise their profits in these countries, such companies needed\nto ensure that the state took on the most minimal role when it came to taxing\nand regulating them. Here, S.A.P.s and the G.A.T.T. can be viewed very much\nwithin the same context – that of providing a profitable climate for the\nbusinesses operating within a ‘developing’ country. The G.A.T.T. guaranteed only\nminimal regulation of the activity of transnational corporations. Similarly,\nS.A.P.s were a globally recognised assurance that there will be no\n‘unnecessarily’ high levels of pulic spending and hence a lower tax burden.<\/p>\n\n\n\n Another parallel can be drawn with the supposedly ‘free trade’ policies of\nthe North, when we consider how far S.A.P.s sought to impose a ‘free market’\nmodel upon the South. Again, when we look beyond the free market rhetoric with\nwhich these policies are often introduced, it can be seen that this is not\nexactly the classic ‘free market’ model of economic textbooks. To characterise\nit as such ignores, as has been observed by many critics of globalisation, the\ncommon practice of I.M.F. loans being used to subsidise export-orientated\nindustries. These subsidies were important in the establishment of many of the\nexport orientated industries of the South. Critics of globalisation have often\nsuggested that the development of Southern economies could have been quite\ndifferent had these subsidies been granted to the industries within these\ncountries that produced for domestic markets. Such a policy is one of the\nsuggested ways that the worst effects of globalisation could be avoided. These\nsuggestions for reforming the global economy are considered below.<\/p>\n\n\n\n Author: DG<\/p>\n\n\n\n Next: Globalisation – what are the alternatives?<\/a> <\/p>\n\n\n\n
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\n\n\n\n1. Before the IMF<\/a><\/h3>\n\n\n\n
2. What are SAPs?<\/a><\/h3>\n\n\n\n
3. Did S.A.P.s achieve their aims?<\/a><\/h3>\n\n\n\n
4. Increase in Foreign Direct Investment<\/a><\/h3>\n\n\n\n
5. The effect on growth<\/a><\/h3>\n\n\n\n
6. The effect of S.A.P.s.<\/a><\/h3>\n\n\n\n
7. Reduced state subsidies<\/a><\/h3>\n\n\n\n
8. More exports<\/a><\/h3>\n\n\n\n
10. Currency devaluation<\/a><\/h3>\n\n\n\n
11. S.A.P.s – for the minority interest<\/a><\/h3>\n\n\n\n
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