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What is Structural Adjustment and the IMF?

Almost all sovereign nations take on national debt to finance spending. While properly managed debt can be a boon, nations that are unable to maintain their debt have to take extraordinary measures to avoid default, which means failing to meet their debt obligations.


Countries gain and lose foreign currency through economic transactions in the global economy. If more foreign currency is consistently flowing out of a country than is entering it, this can cause a balance of payment crisis. If unresolved, a balance of payments crisis can force a country to reduce its purchases of goods on the international market to import due to a lack of foreign currency.


If a country encounters debt or balance of payment issues, it often turns to the International Monetary Fund (IMF) for a bailout. The IMF is a UN agency charged with combating international financial crises. The IMF offers emergency loans to cover immediate needs. However, IMF bailouts are conditional on accepting a structural adjustment package, a set of government policies the borrowing country must implement as economic reforms. 


Generally, IMF structural adjustment policies emphasize neoliberal policies, like economic liberalization, austerity or currency devaluation. The IMF’s economic philosophy is individualist and free market and so sees reducing state intervention and control in the economy as the path to economic progress. Whether structural adjustment policies are economically beneficial or counterproductive is a serious controversy among economists and the long-term impact of IMF intervention in many countries is hotly debated.


Structural adjustment policies often call for vast cuts to welfare, education and healthcare spending in the name of austerity and large layoffs of public sector employees. Unsurprisingly, structural adjustment is often deeply unpopular among local populations. For that reason, some have viewed structural adjustment packages as undemocratic and akin to neocolonialism, especially since the wealthiest member countries disproportionately hold power in the IMF. 


Given that IMF structural adjustment policies affect millions of people in countries around the world and that the United States contributes over a hundred billion dollars to the IMF on an annual basis. Americans should pay attention to the IMF and scrutinize its actions.


Sources:

Chen, Joyce. “Neocolonialism and the IMF.” Harvard Political Review, 21 Oct. 2021, harvardpolitics.com/neocolonialism-imf/.

Gray, Gordon, and Thomas Kingsley. “U.S. Participation in the International Monetary Fund (IMF): A Primer - AAF.” AAF, 2015, www.americanactionforum.org/insight/u-s-participation-in-the-international-monetary-fund-imf-a-primer/.

S. Charusheela. Structuralism and Individualism in Economic Analysis. Routledge, 13 Sept. 2013.

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