Structural adjustment programme
Also called: SAP · Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
A structural adjustment programme (SAP) is lending by the IMF and World Bank that comes with conditions. The borrowing country must carry out market-oriented reforms. These conditions are called conditionality. The reforms usually follow the Washington Consensus (John Williamson, 1989), which includes:
- fiscal discipline
- trade liberalisation
- openness to FDI
- privatisation
- deregulation
- a competitive exchange rate
Critics say SAPs impose austerity that hurts the poor, open up capital flows too early, and apply one model to every country.
Example
In India's 1991 balance of payments crisis, the country received about US$7 bn in loans from the IMF and World Bank. The loans came with conditions. India's New Economic Policy combined short-term stabilisation measures with long-term structural reforms, following this template.
Don't confuse with
- Stabilisation measures: short-term steps to fix the BoP and control inflation. Structural adjustment aims at long-term efficiency and competitiveness.
Related concepts
- International monetary system
- Gold standard
- Bretton Woods system
- Triffin dilemma
- Reserve currency
- IMF quota
- Reserve tranche position
- Special Drawing Rights
- Washington Consensus