An Atheoretic Evaluation of Success in Structural Adjustment

Abstract

Successful structural adjustment programs are a stated goal of many developing country governments. International financial institutions such as the World Bank and the International Monetary Fund have made structural adjustment a major target of lending policy. The U.S. government enshrined structural adjustment as the centerpiece of its recommendations to indebted countries in the Baker and Brady plans. Despite its importance, however, there is not yet a consensus on a definition of structural adjustment or on an appropriate measure of success in structural adjustment.' In this study I propose a definition and measurement of structural adjustment, suggest a methodology for identifying those policies conducive to successful structural adjustment, and implement these measures and methodologies for a panel of 74 developing countries over an 11-year period. Structural adjustment is often put forward in the rhetoric of free markets. However, as with its predecessor, the stabilization program, its roots are more likely found in the integration of developing countries in the world economy. Stabilization programs arose because of inconsistency between internal policies and external balance in developing countries. In external balance, current account deficits are offset by sustainable private and official capital flows. As documented by W. Cline and S. Weintraub and by J. Williamson, stabilization programs were implemented in countries characterized by nonsustainable capital flows and were designed to reestablish external balance in the short run through demand management even at the cost of economic growth.2 Structural adjustment programs, by contrast, are based on the mediumand long-run need to maintain external balance and, in addition, to achieve positive economic growth and development.3 Structural adjustment is thus a reallocation of resources to compete best in and take