For my first assessed essay I have chosen to ‘define neo liberalism and structural adjustment, and outline some of the impacts of these policy orientations in southern societies. Neo-liberalism is an economic policy that lays great emphasis on the free market, which has become widespread during the last 25 years. As stated by (Paul Kennedy (2000) the neo-liberalism is an economic doctrine that insists that states should never interfere with or constrain free market, competition or private enterprise.
Neo-liberalism has three main attributes which have contributed to their implementation around the globe. The first includes The Rule of Market; this is essentially total freedom of movement for capital, goods and services. This basically means neo-liberalism will allow all enterprises and private enterprises to be liberated from any constraints by the government, with no regards to the social damage it may cause.
The next being Privatisation, government owned enterprises such as Banks, Railroads, electricity being sold to private investors in the interest of better efficiency. This has lead to minorities dominating wealth and fundamentally making the pubic pay more. The third main attribute of neo-liberalism is Deregulation; this is basically the condensing of government regulation on all aspects which could diminish profits, together with protecting the environment and safety on the job. (Source: Google search)_ world debt The Malthus Factor: Population Poverty and Politics in Capitalist)
All these attributes of neo-liberalism has many implications to a countries stability and economic growth. As these policies were imposed on several countries in a form of improving economic strength, it has in fact allowed the elites to take control of capitalism, widening the gap between the poor and the rich. Overall neo-liberalism has in fact benefited the rich and smothered the poor directly as government control had been abolished allowing the influentially capable to take control. With the aid of economic Globalisation, neo-liberalism has clearly had an effect on the social world as the richer grew richer and the poorer grew poorer. Powerful financial institutions such as the International Monetary funds and the World Bank have imposed the neo-liberalism across the globe in a form of help to the southern counties.
Several southern countries today are subjected to huge amounts of debts, with involves being restricted by major financial institutions such as the IMF and the World Bank. During the seventies, many oil producing countries profited on millions on pounds, which resulted in them investing their profits into western banks which are known today as the IMF and the World Bank. IMF and the World Bank were set up in 1948 to ensure world stability, during this time; several developing counties were in need of extra money for their country and turned their eyes to the IMF and the World Bank for help.
These financial banks granted several million pounds of loans to help with development projects and construction of their countries. During this process the concept of a Structural Adjustment Programme was looked at as promising and a breakthrough in poverty reduction, however with the ideological views expressed by these financial institutions many desperate countries accepted this concept but waited the real consequences.
Many southern countries such as Brazil, Argentina loaned huge amounts of money from the Financial Banks hoping that they will use the money to their advantage. However due to global recession, a raise in world interest rates, and low commodity prices; their loans actually started to increase very rapidly resulting in these countries failing behind in their payments. During this process of rapid growth in interest rates countries began failing to keep on top of their payments, debt grew ” by 16 times from 1970-1997 and reached nearly $2.2 trillion in 1997, most of the increase in debt after 1980 was due to accumulating arrears (inability to pay back earlier debts and so the need for more loans plus the piling up of unpaid earlier debts)”( Paul Kennedy 2004) many countries till to this date have not paid back their original debt, and will continue their debt spiral.
Source:googlesearch_world debt As the debt spiral worsened for the developing countries, the increased struggle in payments forced the World Banks and the IMF to devise specific programmes to help these debt stricken countries to pay back there loans. As a solution they devised a programme called the Structural Adjustment scheme, this programme is basically economic policies which countries must follow in order to qualify for new World Bank and International Monetary Fund (IMF) loans and help them make debt repayments on the previous loans which they have requested form the IMF and the World Bank.
Before Structural Adjustment Programmes were constructed, the World Bank would provide loans freely for development programmes but with new SAP’s they could grantee a money back policy, one way or the other. This ideas over reclaiming their money was in fact more greater then moral issues which these polices imposed on the countries. Structural Adjustment Programmes were created by these financial institutions to promote efficiency and a more rational allocation of productive resources based on the market mechanism. These loans were only granted when the countries agreed to the adoption of a comprehensive programme of macro-economic stabilisation and structural economic reform (Chossudovsky 1997:52) as a result several countries decided to abide with multi-lateral prescription for political and economic reform to ensure economic growth and regular debt service to financial institutions.
As many southern countries resorted to the implications of the structural adjustment programme, they agreed to abide to specific set of polices which they must enact with. ”The set of polices enacted with Structural Adjustment Programme vary some what from country to country, but they include some combination (or sometimes all) of the following: Currency Devaluation, Monetary Discipline, Reduction of Public Spending, Price reform, Liberalisation of trade, Removal/reduction of subsidies, Privatisation of public enterprises, Holding down of wages, especially in the public sector” (Potter et.al Geographies of Development, (1999:184).
As the debt stricken countries go to considerable lengths to meet with their structural adjustment polices, they in result impose massive suffering to their countries while the financial institutions fill their pockets with millions of pounds. Currency devaluation is one of many policies imposed by the financial Institutions as it results in making countries goods economical for foreign investors to purchase, this in contrast makes foreign imports more expensive for these countries. The theory behind imposing this policy is making these countries wary of purchasing expensive imported equipment thus saving money to repay their requested loans. On the whole devaluing currency and removing price control, results generally in hiking prices by three times increasing in poverty to such an extent that it causes public unrest and disorder.
As stated by (Chossudovsky, 1998, The Globalisation of Poverty;57) ”the devaluation of the Central and West African Franc in 1994 compressed the real values of wages and government expenditure by fifty percent. The devaluation in all leads to a realignment of domestic prices at levels prevailing in the world market, causing price raises in commodities such as fuel, consumer durables, imported goods and food staples.”
Polices such as currency devaluation were created to help countries with their loan repayments but the real implications of these policies have resulted in massive amounts of innocent citizens suffering due to political errors. Even as structural adjustment policies have increased malnutrition and community instability in Sub-Saharan Africa, they have made it harder for African governments to respond to the growing AIDS crisis. Governments with overwhelming foreign debt payment obligations must cut back on what they might otherwise allocate to health care and HIV-AIDS prevention.
Another policy which is highly recommended is balancing national budgets; this is done by increasing taxes and reducing government spending. Financial institutions recommend this policy due to the fact it produces high amounts of income which can be used directly to re pay loans. The reduction of public spending on healthcare, education and all other public spending directly affects the people of the country resulting in poverty and lack of literacy. Financial institutions have forced poverty stricken countries to privatise education systems and healthcare thus charging public for what would have been free or cheaper public service. (Chossudovsky, 1998:71) reported a recent (late 1990’s) donor initiative for Sub Saharan Africa, which proposes that teachers set up their own ‘private schools’ in back gardens and urban slums
With no remorse, financial institution turned a blind eye on the increase levels of malnutrition and poverty of citizens. There greater expectations were the gathering of pounds by these governments in repaying the loans which grew three times as much as the original value. Governments have resorted to such lengths that they would sacrifice their citizens’ health, education and wealth to keep in track with the structural adjustment programme schedule.
As financial institution impose policies on these debt stricken countries, the consequences actually affects the world indirectly. Argued by Susan George like many other researchers that by no means have the third world people been the only sufferers, people in the west have suffered as a result of the implications of debt crisis. The increasing levels of environmental destruction, debt stricken countries have resorted to de-forestation which has obviously affected global warming. Finical institutions have turned their eyes away from theses crisis, which will not only affect the global society but the children of the coming generations’.