African Development Structural Adjustment Policies

¶ … African Development

Structural Adjustment Policies have only served to burden countries that are already poor and ultimately saddle these countries with overwhelming debt reducing their ability to gain a better standard of living from their earnings.

Structural adjustment policies have experienced a shift to Poverty Reduction Strategy Papers. This work intends to examine how these are similar or different and what this means to African Development.

Definition of Poverty

It is reported in the PRSP Poverty Reduction Strategy Paper for Central African Republic 2008-2010" that the PRSP participative drafting process was examined in 2005 and that the government "boosted the participative process via numerous consultations and evaluations with all the interested parties (population groups, NGOs, civil society organizations, the private sector and external partners." (Ministry of Economy, Planning and International Cooperation, 2008-2010) This is stated to have "enabled the preparation of the National Poverty Reduction Strategy to be completed, bringing it into line with institutional consultations mechanisms" which were reported to have been created at central, regional and local levels to promote participation and to ensure that all the parties adhere to the strategy and take it on board." (Ministry of Economy, Planning and International Cooperation, 2008-2010) The diagnosis of poverty is stated to be primarily based "on a monetary approach" which deems an individual as poor "when his or her income (or expenditure) is lower than a fixed threshold." (Ministry of Economy, Planning and International Cooperation, 2008-2010) It was reported at the 1999 G-24 Annual Meetings that "..all future World Bank and International Monetary Fund (IMF) concessional lending would be based on nationally owned participatory Poverty Reduction Strategy Papers (PRSPs). Furthermore, it was agreed that debt relief under the enhanced Heavily Indebted Poor Country (HIPC) Initiative would be conditional on the preparation of PRSPs. As of February 2003, 49 countries have presented PRSPs (mostly Interim-PRSPs) to the World Bank/IMF Boards. Of the 49 countries, 31 are eligible for debt relief under the enhanced HIPC Initiative." (G-24 Secretariat Briefing Paper, 2003) The work of Keith MacKay (2002) states that recent development and trends have resulted in an intensification of the priority for efforts to strengthen African countries' monitoring and evaluation systems." (2002) MacKay additionally states that financial tracking "ensures that monies spent by governments are actually spent for their intended purposes." (Mackay, 2002)

A. Three Key Strategic Pillars

The International Monetary Fund report receiving from Thierry Poulizouh, Chief of Staff for the Ministry of Economy, Planning and International Cooperation states that over the three years previous to the report that the government of the Central African Republic "has been engaged in the drafting of a poverty reduction strategy paper (PRSP) with the support of its main development partners, notably the World Bank and the UNDP." (Poulizouh, 2007) This preliminary strategy is stated to be based on three key strategic pillars stated as follows: (1) acceleration of growth including stabilizing and improving the macroeconomic and financial framework, stimulating agricultural production and growth sectors developing basic economic infrastructures, promoting employment in rural areas; (2) promoting social sectors (health, education, drinking water, HIV / AIDS, etc.; and (3) strengthening governance and institutional capacities (fiscal consolidation, poverty reduction, fighting corruption, judiciary reform, public service reform, greater transparency in natural resources management, etc.)" (Poulizouh, 2007)

B. The First PRSF Document

The first PRSF document derived from "Strategic analyses with a long-term vision focused on the Millennium Development Goals" which were conducted in various priority sectors of the PRSF and sector-strategic plans were prepared which included logical framework matrices, operational actions and cost estimates." (Poulizouh, 2007) This document was examined in 2004 by the government which proposed "that the preliminary document be reinforced to take into account some cross-cutting concerns" which were inclusive of the following: (1) employment; (2) gender issues; (3) HIV / AIDS; (4) crisis prevention and conflict management. (Poulizouh, 2007) It is reported that the entirety would be undergirded by "serious work related to the macroeconomic framework." (Poulizouh, 2007) It is reported that the World Bank and the African Development Bank both recommended "that the draft be improved to include participation, monitoring evaluation, and poverty analysis through additional surveys." (Poulizouh, 2007) It is reported that the need for a document that would guide policy dialogue with its development partners…with a view to clearing external arrears and restoring relations with donors…the government ahs decided to design an interim strategy and specifically the Economic and Social Policy Framework Document…while waiting for the PRSP to be finalized." (Poulizouh, 2007)

C. Four Primary Points of DCPES (Based upon Preliminary PRSP Work)

It is reported that the DCPES is based upon both "preliminary PRSP work and on the government's policy statement formulated in 2005" and as well it is stated that it has four primary points: (1) consolidation of peace and security; (2) promotion of transparency and good governance; (3) sustaining macroeconomic stabilization and reform; and (4) increasing the population's access to social services, rehabilitating basic infrastructures, and reviving social sectors. (Poulizouh, 2007) It is additionally reported multi-year macroeconomic projections and the annual fiscal framework will match resource allocations with PRSP objectives and programs. The ongoing modeling and macroeconomic framework design exercises carried out with World Bank support will help prepare medium term expenditure framework (MTEF) of the PRSP." (Poulizouh, 2007) This means the PRSP will be implemented in a stable macroeconomic policy framework and medium term expenditure management will focus on poverty reduction and economic recovery." (Poulizouh, 2007)

D. Macroeconomic Assumptions Adopted

Upon the basis of preliminary indications there have been macroeconomic assumptions adopted for the years to come which includes: (1) achievement of macroeconomic and financial stability (fiscal consolidation, restoring domestic and external balances), rehabilitating basic infrastructures and social services during the period covered by the PRGF; and (2) accelerating real economic growth to about 4-5% on average through 2009, thus improving per capita income by about 2% and stepping up progress towards the (MDGs)." (Poulizouh, 2007)

E. Basis of Poverty Reduction Strategy

Poverty reduction strategy preparation is reported to be upon the basis of a participatory process involving consultation with all stakeholders: population, nongovernmental organizations, civil society organizations, private sector, foreign partners, and government." (Poulizouh, 2007) It is reported that consultation between institutions were "set up at the central, regional and local levels to encourage effective participation and to ensure adherence to and ownership of the strategy by all parties involved. In this context, local and regional poverty reduction committees were created." (Poulizouh, 2007)

The primary aim of consultations is engaging dialogue with the population following long periods of conflict for the purpose of registered "their aspirations on poverty reduction, social cohesion, and solidarity within the community and among individuals, security, corruption, human rights, and the role of the State." (Poulizouh, 2007) It is reported that the PRSP thematic and sector working groups will "open up to let private sector and civil society representatives participate more in analyses and debates, including in the groups responsible for monitoring and evaluating the PRSP and MDGs." (Poulizouh, 2007) Finally it is reported that the government holds a vision of consultations with "parliamentarians, civil society, economic operators and opinion leaders…" (Poulizouh, 2007)

Poulizouh (2007) states that an assessment of PRSP needs and costs was conducted which is stated to be the first financial planning stage of PRSP based on sector requirements and not including "macro-fiscal constraints and the macroeconomic framework." (Poulizouh, 2007) The second phase is stated to be inclusive of trade-offs that are to be made by national authorities in consultations with development partners and as well the assessment of needs and costs of MDG achievements will make centrifugation to clarity in defining the PRSP sector financial needs…" (Poulizouh, 2007)

It is reported in the work of Anup Shah (2010) entitled "Structural Adjustment -- a Major Cause of Poverty" that many nations are "in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank. Their programs have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF and World Bank's claim that they will reduce poverty." (Shah, 2010) Shah states that this school of thought follows an ideology "known as neoliberalism and spearheaded by these and other institutions…Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority." (Shah, 2010) The IMF and World Bank are stated to make provision of financial assistance to countries who seek such assistance however, it is reported that they "apply a neoliberal economic ideology or agenda as a precondition to receiving the money…" (Shah, 2010) Examples of this are stated as follows: (1) They prescribe cutbacks, "liberalization" of the economy and resource extraction/export-oriented open markets as part of their structural adjustment; (2) The role of the state is minimized; (3) Privatization is encouraged as well as reduced protection of domestic industries; (4) Other adjustment policies also include currency devaluation, increased interest rates, "flexibility" of the labor market, and the elimination of subsidies such as food subsidies; and (5) To be attractive to foreign investors various regulations and standards are reduced or removed. (Shah, 2010)

F. Impact of Structural Adjustment Policy Preconditions

According to Shah the preconditions impact poorer countries in a devastating manner and it is reported that the following factors result in "further misery for the developing nations" and ultimately keep these countries dependent on nations that are developed: (1) Poor countries must export more in order to raise enough money to pay off their debts in a timely manner; (2) Because there are so many nations being asked or forced into the global market place -- before they are economically and socially stable and ready -- and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war; (3) Then, the resources from the poorer regions become even cheaper, which favors consumers in the West; (4) Governments then need to increase exports just to keep their currencies stable (which may not be sustainable, either) and earn foreign exchange with which to help pay off debts. (Shah, 2010) Required in these cases is that governments: (1) spend less; (2) reduce consumption; 93) remove or decrease financial regulations. (Shah, 2010) The result is that over time: (1) the value of labor decreases; (2) capital flows become more volatile; (3) a spiraling race to the bottom then begins, which generates social unrest, which in turn leads to IMF riots and protests around the world. (Shah, 2010)

The work of the World Bank entitled "Poverty Reduction Strategy Papers" reports that the PRSPs are "one of the most tangible outcomes of the new approach to development defined in the Bank's Comprehensive Development Framework." (The World Bank, nd) It is reported that the World Bank ahs based its Country Assistance Strategies, its plans for assistance to countries that are low-income on PRSPs which are produced in alignment with five principles as follows: (1) They are country-driven, involving broad-based participation by civil society and the private sector as they are produced; (2) They are directed toward achieving results and focused on outcomes that would benefit the poor; (3) They recognize that tackling poverty requires a comprehensive approach because poverty is more than just a lack of income but that poor people also suffer from a lack of opportunity, security, and voice in decisions that affect their lives; (4) They are partnership-oriented in that they encourage the coordinated involvement of bi-lateral, multilateral and non-government organizations in the country's poverty reduction program; (5Z) They are based on a long-term perspective for poverty reduction. PRSPs foster greater openness in policymaking. Governments have sought increasingly to include traditionally marginalized groups, the private sector and civil society in developing them and because of this, poverty-reduction strategies developed through this process tend to have broader community and stakeholder support and are "owned" by the government. (The World Bank, nd) It is reported that these five principles include the following examples and specifics: (1) Country-driven: Country-ownership of a poverty reduction strategy is paramount. Broad-based participation of civil society in the adoption and monitoring of the poverty reduction strategy tailored to country circumstances will enhance its sustained implementation' (2) Results-oriented: (a) An understanding of the nature and determinants of poverty, and the public actions that can help reduce it, is required for the formulation of an effective strategy; and (b) Medium- and long-term goals for poverty reduction, including key outcome and intermediate indicators, are needed to ensure that policies are well designed, effectively implemented and carefully monitored' (3) Comprehensive: (a) Sustained poverty reduction will not be possible without rapid economic growth; macroeconomic stability, structural reforms and social stability are required to move countries to a higher path of sustainable growth; (b) Poverty is multidimensional; specific actions are needed to enable the poor to share in the benefits from growth, increase their capabilities and well being, and reduce their vulnerabilities to risks; and (c) A poverty reduction strategy should integrate institutional, structural and sectoral interventions into a consistent macroeconomic framework; (4) Partnerships: Government development of a strategy can provide the context for improved coordination of the work of the Bank and the Fund, as well as that of regional development banks and other multilaterals, bilateral assistance agencies, NGOs, academia, think tanks, and private sector organizations; and (5) Long-term Perspective: (a) A medium- and long-term perspective is needed, recognizing that poverty reduction will require institutional changes and capacity building -- including efforts to strengthen governance and accountability -- and is therefore a long-term process; and (b) National and international partners' willingness to make medium-term commitments will enhance the effectiveness of their support for a poverty reduction strategy. (International Monetary Fund, 1999)