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Structural adjustment in a changing world
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bp4.pdf
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Abstract
"In a complex world economy, adjustment is inevitable. The normal process of competition is periodically marked by crises which disrupt national economies, create severe balance-of-payments problems and threaten to exclude many people from international markets. Whether these crises stem fundamentally from unwise interference in the market or, on the contrary, from lack of adequate regulation is one of the central debates in economic policy-making. Although technical expertise (based upon underlying theoretical assumptions) is an important element in designing a response to crises, adjustment is above all a political process. The content of policy reform is shaped by the ability of different groups within adjusting countries to promote and defend their own interests; by the bargaining power of specific deficit countries in the international economic and political arena; and by the internal political agenda of creditor countries during the period when programmes of economic stabilization and assistance are being worked out. These elements in the political equation of adjustment have changed considerably over the past 50 years; and, in consequence, the content of adjustment programmes has also undergone modification. While stabilization programmes until the 1970s which restored monetary and fiscal order, and preserved the capacity to import were not usually followed by attempts to restructure the economy, adjustment in the 1980s and early 1990s was associated with intense pressure to abandon inward-oriented national projects of economic development and to stake the future of people in the developing world on increasingly unprotected participation in the international market. After briefly reviewing factors which contributed to the rise of the radical free-market form of adjustment, the paper considers some of the lessons which can be learned from experiences with economic reform during the 1980s. The most basic of these is simply that the power to impose solutions, conferred upon creditors through the mechanism of conditionality, can be counter-productive. Reform policies designed in the abstract and applied with little understanding of local realities, often prove unsuited to solving concrete problems in stubbornly idiosyncratic national settings. The majority of the adjustment experiences now considered relatively successful and they are a small number in relation to the total group of countries engaged in reform programmes have restored economic order through tempering free-market orthodoxy with regulation of key prices. Defending exchange rates from sharp fluctuations, imposing price controls on a few strategic goods and services, fixing interest rates within certain limits and maintaining wage stability have required a strong state, not a weak one. Success has also depended upon obtaining access to large reserves of foreign exchange (whether through state-owned export industries, foreign aid, renewed lines of international credit, or even in some cases from the drug trade)."(pg 3)
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1994-12
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With permission of the license/copyright holder