CHAPTER FOUR - REFORMING THE IFIS' POLICY FRAMEWORKS:
ACCENTUATING POVERTY REDUCTION AND SUSTAINABLE HUMAN DEVELOPMENT

3. FROM "STRUCTURAL ADJUSTMENT" TO SUSTAINABLE REFORMS

The requirement that borrowing countries undertake "structural adjustment programs" (SAPs) as a condition of eligibility for financial assistance ¾ notably during the 1980s as an increasing number, especially in Africa, experienced unmanageable debt servicing problems ¾ has for some time been one of the most controversial aspects of IFI activity in these countries. Critics, including the many NGOs who testified during the 1994 foreign policy review, and again those who appeared before us in this inquiry, have argued that the stringent public-sector austerity and market-liberalizing measures typically imposed by SAPs have too often had negative or perverse consequences for poor societies and vulnerable groups within them. Jacques Bertrand of the Canadian Catholic Organization for Development and Peace cited the admission of IMF Managing Director Camdessus that: "Too often in the past few years, the poorest segments of society have borne most the burden of adjustment." [16:23] In effect, those who gained the least from the accumulation of bad debts (often by corrupt and undemocratic governments) have ended up doubly victimized in paying the price of bad policies. That aspect must be remedied in reforming the implementation of better policies.

Few, if any, would disagree with the necessity for major economic policy reforms in countries which have been unable to put their economies on a sustainable footing. The debate is over the appropriate nature, scope, and sequencing of these reforms (including the question of what realistic options are available to policymakers), and over the distribution of the costs and benefits of reform measures once adopted. This debate, therefore, is not only a technical one to be sorted out among professional economists, although that is clearly important; it also raises issues of a profoundly political nature. One reason why poor and vulnerable groups tend to lose out in adjustment processes is precisely their weakness within policy-making structures. Reforming structural adjustment policies to make them "fairer" must therefore explicitly attempt to design adjustment programs which protect the interests of these groups. Paradoxically, this may mean that the IFIs need to be tougher on adjusting-country governments from the point of view of this "social conditionality".

With respect to the economic soundness of SAPs, several of the academic economists who testified were highly critical of the IFIs' record to date. Professor Manfred Bienefeld of Carleton University argued that the IFIs have pursued a blinkered ideological approach to economic development which either systematically disregards the historical experience of successful industrialization, or then claims that a certain kind of free-market model is the only correct one that is possible under present circumstances. Referring to extensive evidence from East Asia, and from the IFIs' own reports, he concluded that the truly successful examples of developing-country industrialization have entailed pragmatically interventionist strategies for developing market-based economies, contrary to the credo of the IFIs. 31 Professor John Loxley also cited examples from Africa and Latin America to illustrate the paucity of solid supporting data, especially about micro-level conditions, to underpin most IFI programs. His conclusion was that:

We ought to be designing adjustment programs with much more input from local people, the people affected by that, . . . to have a much more subtle theoretical analysis of the relationship between structural adjustment programs, poverty, and sustainability, and a good deal more empirical data on which to base our judgements. [21:7]

Therefore, the Committee recommends that, in light of the problematic evidence on the results from past IFI structural adjustment policies, the Halifax action programme call for reforms to these policies, giving close attention to the need for: making pragmatic assessments of the long-term viability of economic development approaches; taking into account the differential impacts of adjustment measures across social groups; increasing the important role of local knowledge and participation in designing more sustainable adjustment programs.