Structural Adjustment Programe in the 1980s

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London Southbank University

JANUARY, 2011
THE EFFECT OF STRUCTURAL ADJUSTMENT PROGRAMME IN DEVELOPING COUNTRIES: CASE STUDY OF NIGERIA AND UGANDA

STUDENT NUMBER: 2720509

COURSE UNIT: IMAGES OF DEVELOPMENT
COURSE TUTOR: PROF. JOHN TAYLOR
WORD COUNT:

THE EFFECT OF STRUCTURAL ADJUSTMENT PROGRAMME IN DEVELOPING COUNTRIES: CASE STUDY OF NIGERIA AND UGANDA
INTRODUCTION
A structural adjustment program is a high-powered austerity plan imposed by the Bretton Woods Institutions, i.e. the World Bank and the International Monetary Fund (IMF), in many developing countries as conditionality for debt recovery and economic restructuring. In effect, the ultimate goal of a structural adjustment program is to help indebted countries pay off their debts and have a revitalised economy that will sustain future debt payment. This usually takes the form of extreme free-market strategies, such as deregulating banking sectors, removing trade barriers, privatizing natural resources and public industries, devaluing currencies, strictly adhering to balanced budgets, changing national laws to make an environment more conducive to foreign investment, and building up export economies. In recent years poverty reduction has become a cornerstone.

The programme may be implemented as part of an initial agreement to lend money, or it may be brought in later as part of conditions for the borrowing nations to receive better terms of payment on past loans. (Beneria 1996). The origins of the programme could be traced to the two packages adopted by Philippines in September 1980 and the more high profile one, by Mexico in August 1982 due to the excessive debt burden that had ensued as a result of certain developments between the late 1970s and early 1980s. Due to the position of Mexico as one of the largest economy in Latin American, the announcement by the government that it could not meet its debt repayment obligations sent panic waves in Northern creditor countries and financial institutions. To prevent an avalanche of eminent financial crises if other governments of developing countries were to default in their loan repayments, the governments of Europe and the US and international commercial banks in the Industrialised World tasked the IMF and World Bank with the responsibility of ensuring debt recovery. The objective was to develop stringent policies to be implemented by highly indebted developing countries as conditionality for further financial assistance that will engender economic growth and recovery, to generate resources that will support debt payment.

Subsequent Structural Adjustment Programmes were implemented extensively over one hundred countries in Latin America, Eastern Europe, Africa and Asia in the early 1980s when the economies of these countries could not sustain the high cost of debt servicing which could mainly be attributable to the oil price hike by the Oil Producing Countries (OPEC) in the 1970s and, other trade issues which worsen the deficit.

The debt crises was as a result of the Oil Producing Countries coming together as a cartel in the 1970s and using their numerical strength to increase the price of crude oil on the international market in their effort to generate more revenue. The profit generated also known as “petrol dollar” from the increases were invested with financial institutions in the advanced countries in Europe and the United States. Due to the quantum of monies lying waste in the vaults of these banks, very lax lending terms (very low interest rates) were adopted by these banks to lend monies to developing countries, most of whom were already in distress as a result of the oil crises (Toussaint and Comanne, 1995:15.

The initial idea for contracting the loans to stimulate growth and accelerate development in many of the developing countries, were economically sound, but as per the World Bank summarisation, most of the loans were diverted for ostentatious projects. Secondarily, the...
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