The World Bank and International Monetary Fund (IMF). Why Has Essay

The World Bank and International Monetary Fund (IMF). Why Has Structural Adjustment implemented Proved so Controversial - Essay Example This has generated intense controversies on the effectiveness of the structural adjustment policies. This paper explores the controversies surrounding the effectiveness of the structural adjustments in the developing economies. Structural adjustments are measures formulated to facilitate and accelerate economic development in the targeted economies3. According Ahmed and Lipton structural adjustment polices are intended to rectify the structural imbalance in the foreign and public balances2. The policies could be initiated internally by the country concerned or external forces such the World Bank and the international monetary fund. The structural adjustments reforms endeavour to reduce and eliminate the various financial distortions, such as over valued exchange rate, huge monetary deficits and to restrict inefficient public services that hinder fair distribution of the resources in the economy of particular country1. 1I. Ahmed, and M. Lipton, â€Å"Impact of Structural Adjustment o n Sustainable Rural Livelihood: A Review of the Literature.† (1997), http://www.ids.ac.uk/files/Wp62.pdf Accessed 14 January 2012. 2 ibid., p25 3 F. Stewart, and A. Berry. â€Å"Globalisation, Liberalization and Inequality: Real Causes.† Challenge, February 2001, 45-86. In general, the structural adjustments are intended to minimise or eliminate the balance of payments and the public sector deficits, with an objective of stimulating high economic growth. In addition, the policies aim at achieving an appropriate structural change capable of sustaining a robust economic growth and a favourable monetary environment in a particular economy3. One of the major characteristic of the structural adjustments is promoting specialization where the targeted economy is influenced to produce commodities â€Å"tradable† in the global market and reducing factors that enhance production of commodities with no or little economic value especially in the public domain4. Enhancing the flexibility and adaptability of the targeted economy to the changing global economic environment is an important objective of the structural adjustments. This reduces the effects of adverse global economic changes on the economy of a particular country 3. Structural adjustment policies comprise of measures aimed at facilitating short-term economic stability and long-term adjustments3. Short-term stabilisation measures are usually intended to the improvement of macro economic balance and overall stability. In order to attain the envisaged stability, structural adjustments enforce measures aimed at reducing the cumulative demand 3. Therefore, the major segments targeted include reduction of expenditure accrued in the public sector, increasing taxes and interests rates on loans. Usually, short-term stabilisation measures combine monetary, fiscal reforms and devaluation of currency, which deflates the actual exchange rate. These measures influence the value of commodities traded in the international market in relation to those produced and consumed in the local market 3. 3 P. Agenor, P. â€Å"Macroeconomic Adjustment and the Poor: Analytical Issues and Crosscountry Evidence â€Å"(2002). www.worldbank.org accessed 14 January 2012. 4 Ibid., p 33 Measures for ensuring short-term economic stabilisation include credit restrictions or ceilings, adjustment of exchange rate, minimising expenditures in the public sector, high tax policies and reforming the pricing of commodities3. Greenaway and Morrissey argued that the short-term nature of the stabilisation measures makes such policies to rely heavily on the managing and controlling the demand of the targeted economy. Eventually, the economy adopts a tendency of monetary absorption in the