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Explain the features of structural adjustment programmes.

Explain the features of structural adjustment programmes.

Answers

Kavungya
• Reduction in Trade Barriers
SAP’s require the removal of barriers to imports, including tariffs, to facilitate integration into
the international market. In practice, these measures allow cheaper imports to flood the
country, depressing local industry and agriculture and leading to massive unemployment.

• Currency Devaluation
By making imports more expensive and exports cheaper, neo-liberal economist (such as
McKinnon (1973) and Shaw (1973)) asserts that devaluation will reduce trade imbalances,
freeing more resources for debt repayment. In practice however, devaluation makes essential
imports like medicines and oil far more costly, placing a strain on the poor countries.

• Price Liberalisation
Price controls and subsidies are removed to eliminate artificial disincentives for production.
In theory, this encourages food production. What is certain is that these measures increase
the price of food and basic services, making life difficult for the poor.

• Export promotion
Priority is given to production for export since this earns the country hard currency needed
for debt repayment. As a result, more and more land is used for cash crops and food
production falls. Pesticide use and deforestation increase, leading to ecological destruction.
Labour laws are weakened to drive down wages and increase foreign investment in assembly
plants for export products.

• Cutting government budgets
National budgets are slashed to free up resources for debt repayment. In particular,
expenditures to social services, health, and education are normally reduced drastically. As a
result, the future prospects for the poor are severely diminished. Governments must also sell
state corporations to raise money and increase efficiency. Layoffs in the civil service and
privatized enterprises however, cause more unemployment.

• Raising interest rates
Interest rates rise to depress excess demand and decrease inflation. As a result, internal
investment is restricted and farm credit disappears. Local production falls and unemployment
rises (which does, in fact, depress demand by ensuring that people can no longer buy
essentials like food, housing, and medicine).
Kavungya answered the question on April 15, 2021 at 07:30

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