Structural adjustment programs (SAPs) consist of loans (structural adjustment loans; SALs) provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experience economic crises. Their stated purpose is to adjust the country's economic structure, improve international competitiveness, and restore its balance of payments. The IMF and World Bank (two Bretton Woods institutions) require borrowing countries to implement certain policies in order to obtain new loans (or to lower interest rates on existing ones). These policies are typically centered around increased privatization, liberalizing trade and foreign investment, and balancing government deficit. The conditionality clauses attached to the loans have been criticized because of their effects on the social sector. SAPs are created with the stated goal of reducing the borrowing country's fiscal imbalances in the short and medium term or in order to adjust the economy to long-term growth. By requiring the implementation of free market programmes and policy, SAPs are supposedly intended to balance the government's budget, reduce inflation and stimulate economic growth. The liberalization of trade, privatization, and the reduction of barriers to foreign capital would allow for increased investment, production, and trade, boosting the recipient country's economy. Countries that fail to enact these programmes may be subject to severe fiscal discipline. Critics argue that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply. Since the late 1990s, some proponents of structural adjustments (also called structural reform), such as the World Bank, have spoken of "poverty reduction" as a goal. SAPs were often criticized for implementing generic free-market policy and for their lack of involvement from the borrowing country. To increase the borrowing country's involvement, developing countries are now encouraged to draw up Poverty Reduction Strategy Papers (PRSPs), which essentially take the place of SAPs. Some believe that the increase of the local government's participation in creating the policy will lead to greater ownership of the loan programs and thus better fiscal policy. The content of PRSPs has turned out to be similar to the original content of bank-authored SAPs. Critics argue that the similarities show that the banks and the countries that fund them are still overly involved in the policy-making process. Within the IMF, the Enhanced Structural Adjustment Facility was succeeded by the Poverty Reduction and Growth Facility, which is in turn succeeded by the Extended Credit Facility.
Regions supported Structural adjustment loans are mainly distributed to developing countries, located primarily in East and South Asia, Latin America, and Africa, including Colombia, Mexico, Turkey, Philippines, Pakistan, Nigeria, Sudan, Zimbabwe and other countries. As of 2018, India has been the largest recipient of structural adjustment program loans since 1990. Such loans cannot be spent on health, development or education programs. The largest of these have been to the banking sector ($2 billion for IBRD 77880) and for Swachh Bharat Mission ($1.5 billion for IBRD 85590).
Goals According to its stated goals, Structural Adjustment Loans (SALs) aim to achieve three main objectives: boosting economic growth, addressing balance of payments deficits, and reducing poverty. It is claimed that with the growing need for structural adjustments in different nations, the lines between SAL and other loan types provided by the International Monetary Fund and the World Bank have become less distinct. For instance, it is purported that both SALs and Enhanced Structural Adjustment Loans (ESAFs) issued by the International Monetary Fund aim to offer favorable assistance for medium-term structural reforms in low-income member countries. It is argued that ESAFs may be more beneficial in promoting growth and bolstering balance of payments. These are the stated goals of SALs and ESAFs and the actual effects on the economy might be different. Another type of loan issued by the World Bank, sector adjustment loans, differs from SAL only in that the former places more emphasis on improving one economic sector rather than the entire economy.
Financing SAL initially financed the loan by selling gold held in trust funds and accepting donations from donor countries. Subsequent loans are based on the repayment of trust funds and interest earned. The SDR is the accounting unit of the loan, and the disbursement and repayment of the loan are in US dollars. The amount of SALs issued to a country is usually proportional to its quota in the International Monetary Fund.
Conditions Typical stabilisation policies include:
balance of payments deficits reduction through currency devaluation budget deficit reduction through higher taxes and lower government spending, also known as austerity restructuring foreign debts monetary policy to finance government deficits (usually in the form of loans from central banks) eliminating food subsidies raising the price of public services cutting wages decrementing domestic credit. Long-term adjustment policies usually include:
liberalization of markets to guarantee a price mechanism privatization, or divestiture, of all or part of state-owned enterprises creating new financial institutions improving governance and fighting corruption (from the perspective of a neoliberal formulation of 'governance' and 'corruption') enhancing the rights of foreign investors vis-à-vis national laws focusing economic output on direct export and resource extraction increasing the stability of investment (by allowing foreign investors) with the opening of companies reducing government expenditure e.g. reducing government employment In the Washington Consensus the conditions are:
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