The International Monetary Fund (IMF) has established a role for itself in the development of third world countries. The IMF is the world's largest lending institute and lays out specific economic plans for countries in which it implements structural adjustment programs. Structural adjustment programs are 3-5 years of economic restructuring.
In order for a country to get loans from the IMF, there are certain terms (called "conditionalities") that they agree upon. There are three types of structural adjustment policies:
1). Expenditure reducing policies-- Exports must be increased and imports must be decreased. The currency value must also be lowered. In addition, the state has to reduce public outlays which means spending on things such as healthcare, welfare, education, and other programs are cut dramatically.
2). Expenditure switching policies-- Money has to be invested in expanding production.
3). Institutional Reform-- The focus here is on the market. This means the privitization of state run industries and the opening up of the country for foreign investment. The laws are altered to make it easier for foreign companies to invest.
Effects of structural adjustment
As mentioned earlier, African countries have traditionally been import oriented. Largely because of colonialism, african countries did not develop industries of their own, since they exported raw materials to the mother country where the technology was applied. The raw materials were shipped to Europe and the finished products were bought back at much higher prices because of the value added to the finished products. Taking this into consideration, decreasing the currencies was not logical, since the imported goods would be more expensive. In addition, cutting social programs in the continent that needs it most worsens the situation.
The lassiez-faire or hands-off attitude (promoted by capitalist countries and the IMF) of some governments in the economy has made exports decrease. In developing nations the state cannot successfully stay out of the economy. This is not to say that socialism should be adopted either. In third world countries the state can help the economy by protecting their markets from the influx of certain foreign goods which cause too much competion.
As a result of the previously mentioned policies some of the problems are the following: debts of African countries have risen, exports are down by 30%, export prices have fallen, income has decreased, food prices are rising, currency values are fluctuating, infant mortality rates are increasing, and educational standards are decreasing.
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