economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund since the early 1980s by the provision of loans conditional on the adoption of such policies. Structural adjustment loans are loans made by the World Bank. They are designed to encourage the structural adjustment of an economy by, for example, removing “excess” government controls and promoting market competition as part of the neo-liberal agenda followed by the Bank. The Enhanced Structural Adjustment Facility is an IMF financing mechanism to support of macroeconomic policies and SAPs in low-income countries through loans or low interest subsidies.

SAPs policies reflect the neo-liberal ideology that drives globalization. They aim to achieve long-term or accelerated economic growth in poorer countries by restructuring the economy and reducing government intervention. SAPs policies include currency devaluation, managed balance of payments, reduction of government services through public spending cuts/budget deficit cuts, reducing tax on high earners, reducing inflation, wage suppression, privatization, lower tariffs on imports and tighter monetary policy, increased free trade, cuts in social spending, and business deregulation. Governments are also encouraged or forced to reduce their role in the economy by privatizing state-owned industries, including the health sector, and opening up their economies to foreign competition.

Argument: structural adjustment program flawed because of premature financial liberalization. It is resulted from (1) the lack in governing the financial liberalization (2) lack of government role in regulating the mechanism (not jump in to the market).

Globalization and SAP what is that

Impact of SAP: Positive and Negative impact of SAP that imposed to developing countries. Which one is heavy?

One factor is the premature of economic liberalization.

One point is that its strategy by reducing the role of government through decreasing government spending, but at the same time by reducing governance and role of government, it creates imbalances. Unregulated trade and economic liberalization creates bigger problems and issues especially poverty. Cut government spending especially in health and education will reducing service for the poor.

Example: Indonesia.

Globalization

Structural Adjustment Program (SAP). While its aim is to strengthen macroeconomic policy within a country, it also creates negative impacts.

First impact that we had seen is Poverty. Despite reducing poverty through macroeconomic policy, it creates imbalances and bigger gaps. It is less effective in reducing poverty.

Government plays important role. The problems that happen is lack of ownership. Lack of government willingness to reform the policies/policies change. Promise based aid signals both a divergence preferences between recipient and donor.

SAP was inappropriate in Asian especially because they are newly industrialized countries.