The International Monetary Fund’s (“IMF”) current loan programs to support low-income countries (“LICs”) are simply Structural Adjustment Programs (“SAPs”) disguised under new names. These programs, created in response to staunch criticism of the IMF’s SAPs, have many of the same negative effects, including poor long-run economic growth, increased poverty, adverse effects on social welfare, and overall net benefits for the U.S. and other dominant countries at the expense of LICs.
Following a history of Western colonization, many countries in the global south were left unable to develop stable political and economic solutions. Years of colonization and resource depletion left these countries with little opportunity to develop their own stable political and economic governance. The IMF utilized SAPs throughout the 1980s and early 1990s to offer economic support to LICs. However, this economic support also brought certain conditionalities focused on neoliberal economic theories, including deregulation, privatization, and the opening of markets. The idea was that these conditions would ensure LICs used the financial support to achieve political and economic stability.
Criticism: SAPs Don’t Work, They Hurt
However, the SAPs had negative impacts on many countries’ social, economic, and political development, rather than leading to long-term stability. For example, SAPs led to increased poverty, decreased economic stability, and negative environmental effects in Zimbabwe. Further, studies show that SAPs did not lead to stable, long-term economic development in many African countries but rather had negative impacts on economic and social stability. Throughout the 1990s, the IMF received an onslaught of criticism from scholars and commentators alleging that SAPs had negative effects on social welfare and led to increased poverty rather than achieving their goals of long-run economic growth. Scholars in international policy further argued that the conditionalities imposed by SAPs undermined the sovereignty of borrowing governments, and that the programs benefited the United States and other dominant Western countries at LICs’ expense. While there continues to be considerable academic debate surrounding the effects of SAPs, with some scholars defending the programs, many criticized the IMF for imposing neoliberal policies on LICs without including borrowing governments in the decision-making, and for exploiting the natural resources of LICs.
SAPs offered a one-size-fits-all Western neoliberal solution to each country’s unique political and economic challenges, and this led to widely disparate effects, most of which were negative. For example, in Haiti, a country that has had an extensive borrowing relationship with the IMF, SAPs imposed standard neoliberal economic solutions that ignored the specific political, economic, and environmental realities of the country. This led to negative impacts on Haiti’s economic stability and social welfare, including decreased access to healthcare. Comparative studies show that SAPs in Argentina, which were imposed quickly and without regard for the country’s unique social and health issues, have led to poor economic, social, and health outcomes. Thus, the IMF’s one-size-fits-all approach to SAPs has exacerbated the economic and political instability of LICs.
The IMF’s Commitment to Change
Responding to this criticism, the IMF replaced SAPs with Enhanced Structural Adjustment Facilities (“ESAFs”) and later with different types of Credit Facilities offered through the Poverty Reduction and Growth Trust. In transitioning to ESAFs, the IMF directly responded to criticism by asserting that the ESAFs would focus on a more collaborative approach with LIC governments. Specifically, the IMF argued that these programs would better include borrowing governments, better support long-run economic growth, focus on poverty reduction and increased social spending, and overall reduce conditionalities. IMF reports and public announcements emphasize its response to this criticism as a commitment to change rather than a defense of SAPs.
Continued Impact of Current IMF Programs
Current IMF programs have many of the same problems as SAPs, despite the IMF’s commitment to change.. The data show that current IMF policies to support LICs are simply SAPs disguised under a new name. Numerous reports in the years since the IMF’s commitment to change in the late 1990s, have revealed that IMF loan conditions initially decreased following the IMF’s public commitment but that overall IMF loan conditions have continued to rise in the years since. Further, the IMF’s conditional loan programs since the transition from SAPs have made little progress in terms of supporting long-run economic growth and political and social stability. In fact, studies show that these conditional loan programs have led to political unrest and decreased social stability. These recent conditions have focused on issues such as labor, wages, and pensions, rather than the traditional focuses of the SAPs of the 1990s, including overall deregulation and economic liberalization. Even so the data show that the effects are similar, leading to destabilized economic growth trends and negatively impacting overall social welfare.
In the last couple of months, Argentina has struggled to maintain its debt program and conditions with the IMF, reaching a key agreement in January to allow for additional financial support from the IMF on the condition that Argentina implement certain fiscal consolidation programs and reduce monetary financing. The IMF had a dominant bargaining position in crafting the agreement as Argentina would have been unable to meet their agreed-upon payments beginning in March. The agreement continued to impose conditions on Argentina, including key fiscal and monetary policy decisions that would typically be left to sovereign governments or their designees. Admittedly, this agreement did involve input from Argentinian government officials, but these officials lacked the bargaining power to meaningfully exercise their sovereign decision-making authority in determining a cooperative solution moving forward because of the country’s economic realities and dependence on the IMF’s assistance. Given the impact of the history of the IMF’s conditional lending to Argentina, the Argentinian government lacks the autonomy to do anything other than continue to accept whatever conditions are imposed by the IMF’s next lending agreement, even if the IMF’s rhetoric characterizes the conditions as a cooperative endeavor.
Policy Recommendations
The IMF claims to be learning from the criticisms leveled at SAPs, but their continued use of conditionalities suggests that they have room to do more. This issue demands the IMF makes substantive policy changes that go beyond mere rhetoric. Meaningful change must address both the history of SAPs and the IMF’s contemporary use of loan agreements which have negative effects on borrowing countries. While the IMF’s agreements with countries like Argentina are an important step in the right direction, the IMF must include borrowing governments in conversations and decisions related to determining loan conditions. Additionally, this must be accomplished within the context of the IMF’s long history with these borrowing governments and focus on cooperative solutions rather than conditional agreements. It is important to recognize that a key problem with SAPs was their one-size-fits-all solution and the IMF should focus on reaching cooperative agreements that respond to the unique needs of each borrowing country. An effective cooperative agreement between the IMF and an LIC must respond to the unique institutional contexts of the borrowing country and reflect the local government’s ownership over the reform agenda. Further, these agreements should focus on loan conditions that benefit the social and economic needs of borrowing countries rather than the broader political goals of dominant Western countries. Lastly, the IMF should focus on increasing the transparency of loan conditions, both for borrowing governments and for the public at-large.
Author Biography: Ethan Syster is a Moderator of the International Law Society’s International Law and Policy Brief (ILPB) and a J.D. candidate at The George Washington University Law School. He has a B.A. in Political Science and Economics from The University of North Carolina at Chapel Hill.