CHARACTERISTICS AND EFFECTS OF SAPS


Although SAPs differ somewhat from country to country, they typically have the following features:

        • Reduction in Trade Barriers

SAP’s require the removal of barriers to imports, including tariffs, to facilitate integration into the international market. In practice, these measures allow cheaper imports to flood the country, depressing local industry and agriculture and leading to massive unemployment.

        • Currency Devaluation

By making imports more expensive and exports cheaper, neo-liberal economist (such as McKinnon (1973) and Shaw (1973)) asserts that devaluation will reduce trade imbalances, freeing more resources for debt repayment. In practice however, devaluation makes essential imports like medicines and oil far more costly, placing a strain on the poor countries.

        • Price Liberalisation

Price controls and subsidies are removed to eliminate artificial disincentives for production. In theory, this encourages food production. What is certain is that these measures increase the price of food and basic services, making life difficult for the poor.

        • Export promotion

Priority is given to production for export since this earns the country hard currency needed for debt repayment. As a result, more and more land is used for cash crops and food production falls. Pesticide use and deforestation increase, leading to ecological destruction. Labour laws are weakened to drive down wages and increase foreign investment in assembly plants for export products.

        • Cutting government budgets

National budgets are slashed to free up resources for debt repayment. In particular, expenditures to social services, health, and education are normally reduced drastically. As a result, the future prospects for the poor are severely diminished. Governments must also sell state corporations to raise money and increase efficiency. Layoffs in the civil service and privatized enterprises however, cause more unemployment.

        • Raising interest rates

Interest rates rise to depress excess demand and decrease inflation. As a result, internal investment is restricted and farm credit disappears. Local production falls and unemployment rises (which does, in fact, depress demand by ensuring that people can no longer buy essentials like food, housing, and medicine).