Problems With Structural Adjustment include:
Policies of tackling inflation. Higher interest rates, higher taxes, often cause a recession and mass unemployment. They are often painful in the short term. This is perhaps the biggest reason why structural adjustment is often very unpopular in the countries where it is implemented.
- To defend structural adjustment, we could say, it is a necessary to deal with inflation. If left untackled, the inflation could just get worse – leading to a more painful future adjustment.Also, the pain is often temporary. Once tackled low inflation provides for a period of economic stability.
Spending Cuts falls on poorest section of society. Often structural adjustment has led to spending cuts on important welfare services such as education and health care. Structural adjustment has often been perceived as widening inequality.
- There is no reason spending cuts have to fall on the poorest sections of society. Spending cuts could be focused on military spending. Or the budget reduced through higher taxes on high earners. Recently, the IMF have encouraged poverty reduction to be a part of structural adjustment policies with things such as Poverty Reduction Strategy Papers (PRSPs).
- However, critics argue that despite these new targets for reducing poverty, the essential policies remain the same.
Like many general policies such as structural adjustment, it depends how it is implemented. To make sweeping statements such as Structural adjustment is good / bad, is too vague. It depends on the quality of supply side policies.
At best, structural adjustment can provide the political will to take necessary and difficult steps to deal with an economic crisis and provide a framework for long term growth and stability.
At worst, it can place too much emphasis on macro economic objectives such as low inflation, balanced budget causing an unnecessarily deep recession. It can provide an opportunity to pursue market oriented supply side policies which do little to improve productivity, but increase inequality and poverty.