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The World Bank and IMF implement structural adjustment programs in developing nations to make their economies more productive, pay off debts, and sustain future growth. These programs can be controversial, as they often involve extreme free market strategies and can undermine democratic will. In recent years, the IMF and World Bank have solicited more input from borrowers, but some critics question how much leeway is given.
A structural adjustment program is a plan implemented by the World Bank and the International Monetary Fund (IMF) in a developing nation to try to make their economies more productive. The objective of said program is to help the borrowing nation to pay off its debts and have a growing economy that will sustain them in the future. One can be implemented as part of an initial agreement to lend money, or it can be incorporated later as part of the terms for the borrowing nation to receive a lower interest rate on past loans.
The idea of the structural adjustment program is one of the most controversial within the so-called Bretton Woods institutions: the IMF and the World Bank. Some people feel that since borrowing countries are generally in dire straits, they have no choice but to stick to the plans laid out to receive funds to keep their country running. This means that the IMF and the World Bank can force through policies that the government and the people themselves can strongly oppose, in many ways undermining the democratic will of the population.
In the past, the IMF and the World Bank had a fairly direct approach to the path borrowing countries took to try to pay off their debts. This all changed during the 1970s, when the world went through a rather serious period of economic hardship and many nations found themselves unable to make their payments. Then the IMF and World Bank decided they needed to take a more hands-on approach to things, and began writing SAP documents for nations that were planning to borrow, letting them know what they would have to do to get the loans.
A program usually focuses primarily on ways that the IMF and World Bank think will boost the nation’s economy. This usually takes the form of extreme free market strategies, such as deregulation of banking sectors, removal of trade barriers, privatization of natural resources and government industries, devaluation of currencies, strict adherence to balanced budgets. , the change of national legislation to make a more conducive environment for foreign investment. and building export economies. In recent years, poverty reduction has also become a cornerstone of the program, seeking not only to increase the nation’s gross domestic product (GDP), but also to help the general population raise their standard of living. out of poverty.
Also in recent years, the IMF and World Bank have begun soliciting more input from borrowers before drafting a final structural adjustment program. This input takes the form of what are called poverty reduction strategy papers and, in theory, allows borrowing countries to present their own strategies to help their populations. In practice, poverty reduction documents are often very similar to IMF and World Bank program documents, leading some critics to question how much leeway borrowing countries are really being given.
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