Essential Action   >>Campaign Against the IMF, World Bank and Structural Adjustment

How Structural Adjustment Worsens Poverty

Structural adjustment -- the standard IMF/World Bank policy package which calls for slashing government spending, privatization, and opening up countries to exploitative foreign investment, among other measures -- has deepened poverty around the world. In the two regions with the most structural adjustment experience, per capita income has stagnated (Latin America) or plummeted (Africa). Structural adjustment has also contributed to rising income and wealth inequality in the developing world.

Here's how various structural adjustment policies increase poverty:

  • Privatization -- Structural adjustment policies call for the sell off of government-owned enterprises to private owners, often foreign investors. Privatization is typically associated with layoffs and pay cuts for workers in the privatized enterprises.
  • Cuts in government spending -- Reductions in government spending frequently reduce the services available to the poor, including health and education services (though the IMF and World Bank now say they preserve health and education spending).
  • Imposition of user fees -- Many IMF and World Bank loans call for the imposition of "user fees" -- charges for the use of government-provided services like schools, health clinics and clean drinking water. For very poor people, even modest charges may result in the denial of access to services.
  • Promotion of exports -- Under structural adjustment programs, countries undertake a variety of measures to promote exports, at the expense of production for domestic needs. In the rural sector, the export orientation is often associated with the displacement of poor people who grow food for their own consumption, as their land is taken over by large plantations growing crops for foreign markets.
  • Higher interest rates -- Higher interest rates exert a recessionary effect on national economies, leading to higher rates of joblessness. Small businesses, often operated by women, find it more difficult to gain access to affordable credit, and often are unable to survive.
  • Trade Liberalization -- The elimination of tariff protections for industries in developing countries often leads to mass layoffs. In Mozambique, for example, the IMF and World Bank ordered the removal of an export tax on cashew nuts. The result: 10,000 adults, mostly women, lost their jobs in cashew nut-processing factories. Most of the processing work shifted to India, where child laborers shell the nuts at home.