To what extent, in your opinion, structural adjustment programmes implemented in developing countries affected changes in urban and rural

poverty?

Dora Tsui

UE1 Urban Development and Economics Development Planning Unit University College London Msc Urban Economic Development

Submitted: 09/01/2012 Word Count: 1537

1.

Introduction

Since the mid of 1980s, many African and Latin American countries have been undergoing Structural Adjustment Programmes sponsored by the IMF and World Bank. These programmes were implemented as conditions for the borrowing countries to get loans from the IMF. Given the positive changes in economic growth rate, as the IMF claimed, one could expect a reduction in poverty. However, evidence from the last 30 years of adjustment operations shows the opposite trend, as sustained increases in prosperity, accompanied by dramatic increases in inequality and poverty (Easterly, 2000, p.2). Abugre (2000) even criticized the programmes as the root of the poverty issues in developing countries, indicating that the implementation of adjustment made poverty levels grow and increase the concentration of wealth. This article starts from the origins and contents of SAPs, highlights why SAPs comes into existence in developing countries and reviews the major criticisms. Then the next section briefly discusses the conception of poverty, showing the poverty trends as well as indicating the response to SAPs. The article then focuses on the impacts of adjustment on the changes in urban and rural poverty. The following section critically analyses how do such diverse adjustment policies affect poverty and finally comes to the conclusion.

2.

Overview of Structural Adjustment Programmes

To begin with, in order to understand Structural Adjustment Programmes (SAPs) better, we can look from the origins of the programmes. In the mid 1970s, many developing countries experienced serious macroeconomic problems. The major external factor was associated with the global recession in 1970s that led to a huge explosion of debt burden on developing countries (Ferraro el al., 1994). Internal factors include economic mismanagement, political instability, over-subsidized social services and urban population explosion (Konadu, 2000). For example, by the early 1980s, Ghanas inflation rate was higher than 100%, the GDP per capita had declined dramatically from $1009 of 1960s to $739. The whole country was heading towards bankruptcy and expanding poverty (ibid). Therefore over the period it seems
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that the dismal economic situations in these developing countries gave rise to the implementation of SAPs designed by the IMF and World Bank. Structural adjustment programs (SAPs) can be defined as a "package of economic and institutional measure designed to solve macroeconomic problems in developing countries by reducing government intervention in the economy, correcting the borrowing country's deficits and opening the country's economy to the global market" (AFRODAD, 2007, p.13). These programmes, including privatization, liberalization and economic stabilization measures, required countries to promote economic growth, curb inflation and increase international competitiveness (Ghatak, 2003). However, some argue that SAPs often conflict with national development policies and force theses countries to increase their exports to open market, which leads to poverty and dependency (Abugre, 2000). It is also argued that SAPs are from general economic theory and is not enough for social development such as poverty reduction (Gunter, Cohen, Lofgren, 2005). Further criticism is that policies such as cutting government expenditure in public sector would drive those vulnerable populations into further poverty. In summary, it seems that SAPs failed to achieve the poverty-related objectives.

3.

Poverty and Its Link to Structural Adjustment

It is difficult to define urban and rural poverty across developing countries as they may contain many variables. Different-income countries have different definitions of "urban" and "rural." But urban poverty is most commonly related to unemployment, low incomes, informal economy and poor living conditions, while rural poverty is always associated with the loss of land, livelihoods and diseases. In general, the poverty line for measuring global trends in poverty has in the past been $1 a day. However, it is not appropriate for measuring poverty trends at country level because of cost of living and data issues. The fact that economic growth is not enough for poverty reduction over SAPs time is illustrated by the following table:

Table 1.

The performance of the 19 highly intensively adjusting countries

(Source: cited in Rojas, 1997) It can be argued that SAPs implemented in these countries has a direct or indirect influence on poverty issues. The IMF now conceded that economic progress achieved after having adopted SAPs has not been able to reduce poverty.

4.

Effects of SAPs on Urban Poverty

In this part I will analyse the relationship between SAPs and changes in urban poverty. Structural adjustment reforms in trade and financial sector lead to mass layoffs in formal sector such as manufacturingwhere employs a large portions of labour force. In Latin America, although strong economic recovery took place in the 1990s, many domestic enterprises became bankruptcies by trade liberalization. The result has been a large growth in unemployment, especially among the poor, semi-skilled workers. Therefore the informal
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sector has expanded which led to lower incomes and changed the employment patterns. The second is through privatization programmes, the imposition of user fees and cuts in government spending that have reduced the services available to the poor. Take Mexico as an example, in 1992 alone, 1,000 public-owned enterprises were sold or transferred, and this led to a negative impact on social sectors highly financed by government. Such privatizations under the condition of borrowing loans hurt the poor most, as they depend heavily on the basic services like education and health care. Whats worse, many families who cannot afford social spending were pulled towards the poverty line. Meanwhile, the currency devaluation reform might also hurt the poor because it made essential items expensive (i.e. milk and food). In Ghana, the excessive devaluation has reduced the purchasing power of local residents and worsened income distribution in the urban areas.

5.

Effects of SAPs on Rural Poverty

To understand the SAPs in rural areas and its effects, we should look at the features and causes of rural poverty in developing countries. Compared to urban areas, the conditions of the rural poor are much worse in terms of living standards and real incomes (Khan, 2000). Furthermore, in almost all developing countries, the rural incidence of poverty is much higher than that of urban areas. The loss of land has become more problematic, causing the rise of rural poverty rapidly (ibid.). SAPs were intended to improve farmers income by increasing exports of primary goods they produce. However the agricultural reforms failed to take into account non-tradable goods, and, as a result, only those rich landowners benefit from these distorted programmes. In Ghana, the export of cocoa is the most foreign exchange-earning activity, but only 19% farmers were engaged in cocoa production. The premature trade liberalization also forced farmers to buy goods they cannot afford because of the increasing input costs, which in turn raising the poverty level. Without government regulation, the rural poor always found it difficult to raise credit
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resources from formal institutions. The loss of affordable credit driven them to borrow capital from informal agents where have a rather high cost. Hence the poor have become poorer in rural areas. Most of them have to be self-employed or seek their own forms of incomes such as working in the urban informal sector. The unequal distributions of farmland and food have generated environmental problems too. Farmland has been lost to mining, causing air pollution and climate change. Along with the lack of farmland, the rural poor have to suffer from food shortage, rising diseases and inadequate infrastructure, particularly education, health care and sanitation. In response to the deteriorating living conditions, the rural poor relied highly on natural resources and some are unable to survive.

6.

Conclusion

Generally, the developing economies have experienced high rate of growth under SAPs, but they have also experienced dramatic social damage in terms of increasing poverty, as well as the decline of basic services, education, health and environment. The effects of policies, particularly on the poor, are so profound and pervasive. However, the range of effects on poverty depends much more on the internal social economic conditions of the country undergoing SAPs and on the type of adjustment policies applied. The article has identified four ways in which SAPs have contributed to the further impoverishment. The first way is through currency devaluation, which causes the loss of purchasing power. The second relates to the promotion of exports, which associated with the displacement of the poor who grow self-contained food. Third, increases in interest rates have failed to generate employment and the poor are often unable to survive. Trade and agricultural reforms have implemented to marginalize the poor in various ways. Therefore, it can be concluded that without an explicit link to poverty-related objectives, SAPs have deepened poverty in developing countries.

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