Structural adjustment loan
Encyclopedia
Structural adjustment loan (SAL) is a type of loan
to developing countries
. It is the mechanism by which international financial institutions
, such as the World Bank
and International Monetary Fund
, impose structural adjustment
. They carry (often controversial) policy conditions, which have included: (see Washington Consensus
).
1. Fiscal policy
discipline;
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education
, primary health care
and infrastructure investment;
3. Tax reform
– broadening the tax base and adopting moderate marginal tax rates; minimizing dead weight loss and market distortions
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates; devaluation
of currency to stimulate exports;
6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; the conversion of import quotas to import tariffs;
7. Liberalization
of inward foreign direct investment
;
8. Privatization
of state enterprises;
9. Deregulation
– abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
10. Legal security for property rights.
They are very controversial. For criticisms, see structural adjustment
.
Some studies suggest that they have been "weakly associated with growth and reform did seem to reduce inflation."
Others have argued, however, that "the outcomes associated with frequent structural adjustment lending are poor."
Critics (often from the left) accuse such policies to be "not-so-thinly-disguised wedge[s] for capitalist interests."
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
to developing countries
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
. It is the mechanism by which international financial institutions
International financial institutions
International financial institutions are financial institutions that have been established by more than one country, and hence are subjects of international law. Their owners or shareholders are generally national governments, although other international institutions and other organisations...
, such as the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
and International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, impose structural adjustment
Structural adjustment
Structural adjustments are the policies implemented by the International Monetary Fund and the World Bank in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund or World Bank, or for obtaining lower interest rates on existing loans...
. They carry (often controversial) policy conditions, which have included: (see Washington Consensus
Washington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
).
1. Fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
discipline;
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education
Primary education
A primary school is an institution in which children receive the first stage of compulsory education known as primary or elementary education. Primary school is the preferred term in the United Kingdom and many Commonwealth Nations, and in most publications of the United Nations Educational,...
, primary health care
Primary health care
Primary health care, often abbreviated as “PHC”, has been defined as "essential health care based on practical, scientifically sound and socially acceptable methods and technology made universally accessible to individuals and families in the community through their full participation and at a cost...
and infrastructure investment;
3. Tax reform
Tax reform
Tax reform is the process of changing the way taxes are collected or managed by the government.Tax reformers have different goals. Some seek to reduce the level of taxation of all people by the government. Some seek to make the tax system more progressive or less progressive. Some seek to simplify...
– broadening the tax base and adopting moderate marginal tax rates; minimizing dead weight loss and market distortions
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates; devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
of currency to stimulate exports;
6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; the conversion of import quotas to import tariffs;
7. Liberalization
Liberalization
In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...
of inward foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
;
8. Privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
of state enterprises;
9. Deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
– abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
10. Legal security for property rights.
They are very controversial. For criticisms, see structural adjustment
Structural adjustment
Structural adjustments are the policies implemented by the International Monetary Fund and the World Bank in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund or World Bank, or for obtaining lower interest rates on existing loans...
.
Some studies suggest that they have been "weakly associated with growth and reform did seem to reduce inflation."
Others have argued, however, that "the outcomes associated with frequent structural adjustment lending are poor."
Critics (often from the left) accuse such policies to be "not-so-thinly-disguised wedge[s] for capitalist interests."