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    Repiglican Roast

    A spirited discussion of public policy and current issues

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    I'm furious about my squandered nation.

    Monday, August 04, 2008

    Structural Adjustment

    A Spiraling Race to the Bottom

    As detailed further below, the IMF and World Bank provide financial assistance to countries seeking it, but apply a neoliberal economic ideology or agenda as a precondition to receiving the money. For example:

    • They prescribe cutbacks, “liberalization” of the economy and resource extraction/export-oriented open markets as part of their structural adjustment.
    • The role of the state is minimized.
    • Privatization is encouraged as well as reduced protection of domestic industries.
    • Other adjustment policies also include currency devaluation, increased interest rates, “flexibility” of the labor market, and the elimination of subsidies such as food subsidies.
    • To be attractive to foreign investors various regulations and standards are reduced or removed.

    The impact of these preconditions on poorer countries can be devastating. Factors such as the following lead to further misery for the developing nations and keep them dependent on developed nations:

    • Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
    • Because there are so many nations being asked or forced into the global market place—before they are economically and socially stable and ready—and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
    • Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
    • Governments then need to increase exports just to keep their currencies stable (which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
    • Governments therefore must:
      • spend less
      • reduce consumption
      • remove or decrease financial regulations
      • and so on.
    • Over time then:
    • These nations are then told to peg their currencies to the dollar. But keeping the exchange rate stable is costly due to measures such as increased interest rates.
    • Investors obviously concerned about their assets and interests can then pull out very easily if things get tough
      • In the worst cases, capital flight can lead to economic collapse, such as we saw in the Asian/global finacial crises of 1997/98/99, or in Mexico, Brazil, and many other places. During and after a crisis, the mainstream media and free trade economists lay the blame on emerging markets and their governments’ restrictive or inefficient policies, crony capitalism, etc., which is a cruel irony.
    • When IMF donors keep the exchange rates in their favor, it often means that the poor nations remain poor, or get even poorer. Even the 1997/98/99 global financial crisis cam be partly blamed on structural adjustment and early, overly aggressive deregulation for emerging economies.
    • Millions of children end up dying each year.

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