Setting Priorities: The IMF and World Bank and Structural Adjustment Programmes

Abstract

For many developing countries (LDCs) the 1980s have been a decade of great economic and political turmoil. In the early 1980s most of these countries were confronted with severe debt problems. In many cases this had an adverse impact on their economic growth. The IMF and World Bank reacted by offering financial support: heavily indebted countries received loans on the condition that they would change their economic policies from dirigism — which had prevailed in many countries from the 1950s — to liberalising markets. In this framework, the Bretton Woods institutions (bwis) IMF and World Bank drafted a Structural Adjustment Programme (SAP), which contained measures aimed at reducing inflation, budget deficits, and balance of payments deficits, devaluing the national currency, privatising public enterprises, liberalising foreign trade, reforming domestic financial markets, introducing price reforms, etc. Only when governments were able to successfully implement these measures would they become eligible to receive new loans from the BWIS in the near future. The belief was that these measures would contribute to reducing the debt burden and to regaining long-run economic growth.

The authors thank Oliver Williamson, Catrinus Jepma, Bart Nooteboom and the participants of the Williamson seminar held at the University of Twente on the 4th of October 1996 for their comments on an earlier version of this paper.