Structural Adjustment

Reforms

Every program of structural adjustment is nationally specific because debtors must negotiate individually, rather than as a cartel, with the key international financial institutions. Each “adjustee” is further distinguished by its own population, resources, political legacy, and cultures. Nonetheless, there are general features of reform that transcend adjustment cases.

In finance and trade, the fundamental prescription has been liberalization: the partial or complete removal of barriers to transnational capital and goods. For financial markets, there is loosening of rules for foreign participation in domestic banks and stock markets. Currencies are also primary targets, typically opened to market fluctuation to create more transparent management but sometimes pegged to another marketized currency (e.g., the Argentine peso, fixed to the U.S. dollar from 1991 to 2001). Trade, on the other hand, is affected by dropping tariffs on imported goods, which had indirectly subsidized domestic producers. Simultaneously, reduction in direct government subsidies to indigenous industries ended the official monopolies or direct ownership by the state. There have been many cases of other curtailed subsidies on basic consumer goods, particularly food—an austerity that, although considered imperative in some adjustment programs, proved an extremely volatile reform across all world regions.

For the state itself, there are usually two major forms of restructuring. The first is privatization of state-owned enterprises, which tend to be concentrated in basic utilities, from the post office to railways to water supply to telephones. There are many cases where privatization brings greater efficiency and some improvements in access to these goods, but it also can lead to steep increases in prices because these companies must operate using market logic, with demand possibly far outstripping supply and competitiveness—not well-being—taking foremost priority. Another drawback of privatization is that it can fail to break effectively with former monopoly conditions; without sufficient oversight, lucrative holdings can be distributed nepotistically at prices far below the market value. This has notably been the case with certain national airlines and phone companies (e.g., Zambia, Argentina). The possibility of extensive foreign ownership of local utilities—often considered strategic resources and part of the national heritage—is a feature of privatization that many critics also lament. The second major transformation to the state is decentralization, which shifts some functional and fiscal responsibilities away from national-level bureaucracies to provincial or urban authorities. Reductions in bloated federal governments [Page 2704]can result from this policy, but it has also backfired: Expensive redundancies can eventuate within state hierarchies, while sometimes local authorities gain new policy purviews and the right to set more independent agendas but without matching finances to realize them.

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