DEFINITION of Structural Adjustment

A structural adjustment is a loan provided to a country by the International Monetary Fund, the World Bank, or both, in exchange for structural economic reforms.

BREAKING DOWN Structural Adjustment

The International Monetary Fund (IMF) and World Bank, two Bretton Woods institutions that date from the 1940s, have long imposed conditions on their loans, but the 1980s saw a concerted push to turn lending to crisis-stricken poor countries into springboards for reform.

Structural adjustment programs have demanded that borrowing countries introduce broadly free-market systems coupled with fiscal restraint – or occasionally outright austerity. Countries have been required to perform some combination of the following: devaluing their currencies to reduce balance of payments deficits; cutting public sector employment, subsidies, and other spending to reduce budget deficits; privatizing state-owned enterprises; and easing regulations in order to attract investment by foreign businesses.

Controversies Surrounding Structural Adjustment

To proponents, structural adjustment encourages countries to become economically self-sufficient by creating an environment that is friendly to innovation, investment and growth. Unconditional loans, according to this reasoning, would only initiate a cycle of dependence, in which countries in financial trouble borrow without fixing the systemic flaws that caused the financial trouble in the first place, inevitably leading to further borrowing down the line.

Structural adjustment programs have attracted sharp criticism, however, for imposing austerity policies on already-poor nations, the burden of which, critics argue, falls most heavily on women, children, and other vulnerable groups. Critics also portray conditional loans as a tool of neocolonialism: according to this argument, rich countries offer bailouts to poor ones – their former colonies, in many cases – in exchange for reforms that open the poor countries up to investment by multinational corporations. Since these firms' shareholders live in rich countries, the colonial dynamics are perpetuated, albeit with nominal national sovereignty for the former colonies.

Since it is impossible to know what would have occurred if a given loan had not been made – or had been made without conditions – arguments for and against structural adjustment programs are difficult to assess empirically.