Structural Adjustment Programs (SAPs) are loans given to developing countries that are in the midst of economic crises by the International Monetary Fund (IMF) and the World Bank (WB). The loans come with many conditions attached for reforming the country's economy. The conditions attached to the loans all follow neoliberal principles of economic reform. The IMF and the World Bank began giving loans to developing countries in the 1950s, in order to encourage development, retard the spread of communism, and to encourage foreign direct investment (FDI) in the developing states. Many of the loans were given specifically to create or improve infrastructure and industry in the countries, such as roads and airports, mining and other industries.
SAPs are most often given to countries that are struggling with overwhelming foreign debt. During the oil crisis of the 1970s, many OPEC (Organization of the Petroleum Exporting Countries) countries had a lot of money to invest, due to the high price of oil. They began offering loans to developing countries in need, which accepted the loans. After the oil crisis resolved, lending countries raised interest rates on loans, and the struggling developing countries had difficulty making payments. This resulted in an economic crisis for many developing countries in the 1980s. The IMF and World Bank stepped in to offer SAPs, which would consolidate the debt these countries had and attempt to balance trade imbalances.
The SAP loans come with many structural adjustment conditions the receiving country must make to their economy. All of these conditions follow neoliberal, "free market" economic policy. Some common conditions are:
- Devaluing the national currency in order to eliminate deficits in payments
- Austerity measures: reducing government spending and raising taxes in order to eliminate governmental budget deficits
- Restructuring/refinancing foreign debt
- Financing government debts via various types of monetary policy
- Raising food prices and eliminating agricultural subsidies
- Raising the price of government-provided (public) services
- Cutting wages, particularly wages paid to government employees
- Enacting laws that favor foreign investors
- Fighting government corruption, improving and professionalizing state governance
- Privatizing state-owned enterprises (many states own certain enterprises, such as copper mining in Chile. This measure requires that the state-owned enterprises be sold off to private companies/investors.)
- Focusing the economy on exports and natural resource extraction
- Opening domestic stock markets
SAPs are highly controversial, due to several factors. First, the infrastructure projects in the developing states allowed developed countries to promote foreign direct investment by their domestic businesses in the developing states. Thus, Western industrialized countries profited via FDI, as their domestic businesses invested in mining, agriculture, infrastructure projects, and other natural resource extraction activities in the developing states. Western states gained great economic benefits from these activities as a result. Second, SAPs strictly follow neoliberal economic policies, which have not been proven to result in long-term economic growth and stability. Third, SAPs greatly reduce the autonomy of a state, rendering the government powerless to enact its own economic policies. Critics say that this threatens the sovereignty of states, as they are unable to control their own policies, and instead delegate that power to an outside international organization. Fourth, the austerity policies prescribed by the IMF and the World Bank have not resulted in economic growth in the affected countries. Rather, economic stagnation has been the norm in most of the countries using SAPs. Because SAPs overemphasize balancing a government's budget, they often prescribe cutting services that, while not directly beneficial to the economy in the short term, are crucial for economic growth in the long term. Government-provided services, such as education, public health, and welfare programs are crucial for long-term economic growth. If a state has a poor education system, it cannot adequately prepare its citizens for the workforce, and will not have valuable contributors to the economy in the long term. Cuts to public health programs can result in the spread of deadly diseases, and dealing with the spread of and effects of these diseases may cost governments more than providing the initial public health services to begin with. Fifth, criticisms of the "one size fits all" nature of SAPs note that policies are often the same with regard to rural and urban areas, which need distinct and separate policies, due to the differing nature of rural and urban economies. Sixth, and most important, SAPs have not been proven to work. Often, the results promised by the SAPs do not materialize, and the economies of the borrowing states stagnate. There is not much empirical evidence to date to support the implementation of SAPs. (Bird, G. "IMF Programs: Do they Work? Can they be made to work better?" World Development vol 29, no.11 (2001))