Syllabus: GS2/IR
Context
- In the 1980s, the IMF and World Bank put conditions on financing the global South.
- Decades later, many countries in the region struggle with weak public health systems and high levels of poverty.
About
- In a recent paper published in BMJ Global Health argued that the institutions that implemented these programmes now owe reparations.
- Global South in 1970s: Between 1960 and 1980, real per capita income grew across Asia, Africa, and Latin America.
- Countries that had recently thrown off colonial rule were investing in public healthcare and education.
- 1980s: In the 1980s, the International Monetary Fund (IMF) and the World Bank began structural adjustment programmes across Asia, Africa and Latin America.
- Decades later, many countries continue to struggle with weak public health systems, stagnant incomes and high levels of poverty.
Global South
- The term “Global South” was coined by Carl Oglesby, an American political activist, in 1969.
- He used the term to describe countries suffering from political and economic exploitation by developed nations of the Global North.
- In the simplest sense, Global South refers to the countries of Asia, Africa, Latin America, and Oceania.
- Most of these countries, where about 85% of the world population lives, experienced colonial rule and historically lagged in achieving substantial levels of industrialisation.
- According to the United Nations Conference on Trade and Development, Global South countries typically exhibit lower levels of development, higher income inequality, rapid population growth, agrarian-dominant economies, lower quality of life, shorter life expectancy, and significant external dependence.
Structural Adjustment Programmes (SAPs)
- SAPs were economic reform measures imposed mainly by the International Monetary Fund and the World Bank on developing countries facing debt crises during the 1980s and 1990s.
- SAPs generally demanded three major reforms:
- Austerity Measures: Reduction in public expenditure on healthcare, education, food subsidies, and social welfare. Aim was to divert savings towards repayment of external debt and creditors.
- Privatisation: Transfer of public sector enterprises and services into private hands. Included privatisation of utilities, transport, banking, and other state-owned industries.
- Economic Liberalisation and Deregulation: Removal of industrial regulations, tariffs, labour protections, and capital controls. Opening domestic markets to foreign trade and investment.
- Countries had very limited bargaining power because defaulting on international loans could isolate them from global financial markets.
Social and Economic Impact of SAPs
- Slowdown in Economic Growth: Before SAPs, the global South recorded average annual growth of around 3.2%.
- During the structural adjustment era of the 1980s–1990s, growth declined sharply to nearly 0.7% annually.
- The South collectively lost an average of $480 billion per year in potential national income during this period.
- Decline in Incomes: In Latin America, real income per adult declined significantly after 1980 and recovered only decades later.
- Sub-Saharan Africa experienced prolonged income decline and stagnation.
- Rise in Poverty and Food Insecurity: Trade liberalisation and currency devaluation increased prices of essential commodities.
- Adverse Health Outcomes: SAPs severely affected public health systems because:
- Government spending on healthcare was reduced,
- Hospitals and clinics were closed,
- Recruitment of doctors and nurses declined,
- Imported medicines became expensive due to currency devaluation,
- Studies linked SAPs to higher child mortality, increased maternal deaths, deterioration in nutrition and disease control.
- Capital Flight and Financial Outflows: Removal of capital controls enabled multinational corporations to repatriate profits abroad.
- Trade deregulation and weak financial controls facilitated tax evasion and illicit outflows.
- This reduced funds available for domestic development and welfare.
Criticism of SAPs
- It prioritised debt repayment over human development.
- Increased inequality and poverty.
- Weakened state capacity.
- Reduced policy sovereignty of developing countries.
- Favoured interests of developed countries and multinational corporations.
- The governance structure of the IMF and World Bank is also criticised because:
- Developed countries hold disproportionate voting power.
- The Global North dominates decision-making.
- The United States has veto influence in the IMF.
Debate on Accountability
- Recent debates argue that the IMF and World Bank should acknowledge responsibility for the economic and social damage caused by SAPs.
- Suggested measures include:
- Compensation for lost income and welfare,
- Restoring investments in healthcare and education,
- Estimating losses caused by austerity and capital outflows,
- Democratising global financial institutions.
- However, legal accountability remains difficult because these institutions enjoy sovereign immunity protections.
Conclusion
- Structural Adjustment Programmes marked a major shift in the development trajectory of many countries in the Global South.
- While intended to stabilize economies and ensure debt repayment, SAPs often produced long-term social and economic hardships through austerity, privatisation, and deregulation.
- The debate today increasingly focuses on reforming global financial governance, ensuring policy autonomy for developing countries, and creating a more equitable international economic order.
Source: TH
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