What is a Structural Adjustment?

A structural adjustment is set of economic reforms that a country must adhere to in order to secure a loan from the International Monetary Fund and/or the World Bank. Structural adjustments are often a set of economic policies, including reducing government spending, opening to free trade and so on.

Understanding Structural Adjustment

Structural adjustments are commonly thought of as free market reforms, and they are made conditional on the assumption that they will make the nation in question more competitive and encourage economic growth. The International Monetary Fund (IMF) and World Bank, two Bretton Woods institutions that date from the 1940s, have long imposed conditions on their loans. However, 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 deregulating state-controlled industries.
  • Easing regulations in order to attract investment by foreign businesses.
  • Closing tax loopholes and improving tax collection domestically.

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. This would inevitably lead to further borrowing down the line.

Structural adjustment programs have attracted sharp criticism, however, for imposing austerity policies on already-poor nations. Critics argue that the burden of structural adjustments 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 exploitative 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.

Enough evidence had built from the 1980s to the 2000s showing that structural adjustments often reduced the standard of living in the short-term within countries adhering to them, that the IMF publicly stated that it was reducing structural adjustments. This appeared to be the case through the early 2000s, but the use of structural adjustments grew to previous levels again in 2014. This has again raised criticism, particularly that countries under structural adjustments have less policy freedom to deal with economic shocks, while the rich lending nations can pile on public debt freely to ride out global economic storms that often originate in their markets.