Impact of Structural Adjustment on Poverty Alleviation Programs [Archives:1997/43/Business & Economy]

October 27 1997

Traditional economic development policies, filled with shortcomings at many levels, led to human sufferings and tragedies. Presently more than a billion people worldwide live in a state of abject poverty. In fact, the World Bank estimates that if the current trends continue, the number of poor people in the developing nations alone could explode up to 2000 million by the end of the century.
Poverty emerged due to increased foreign borrowing, debt trap pressures, lack of social justices, especially in the distribution of development benefits. Even though the GDP of a country increased, the number of jobs available is decreased. Thus, this type of growth is described as “jobless growth”. This growth widens the gap between the rich population poor at all levels, nationally and internationally.
In order to overcome the foreign debt and then the social debt (what countries owe their own people), the IMF and World Bank assisted these countries by proposing curative measures called “Economic and Social Adjustment Programs.” The World Bank emphasized that poverty reduction is consistent with true and effective adjustments. The real wealth of a country, however, lies in the quality of its manpower, not in its land and minerals. Investing in human capital by making people healthy, educated, and equal a nation can become prosperous in a sustainable manner. ý
Effect of Structural Adjustments: During the implementation of economic and structural adjustments, a new sort of poverty, “new poor,” will be created. This is constituted mostly by the vulnerable groups that bear the brunt of these adjustments. The new poor will swell up the ranks of the structural or “chronic” poor – those whose overall GDP did not rise up with economic growth.
It the short and medium terms, the economic adjustment programs have an adverse effect on the poorest group. They bear a disproportionate share of the adjustments costs. This aggravates the living conditions of the larger sectors of the population, spreads unemployment, enlarges income disparities, and lowers the general purchasing power. These negative impacts will lead to poor economic growth, since economic adjustment programmers focus mainly on stabilization measures that improves fiscal, financial and monetary situations only.
Structural adjustment programs should be enforced and implemented quickly with the main aim of improving the delivery of basic social services. At the same time, they should be used as a better mechanism to reach the poorest members of the community quickly, after identifying fairly the affected sectors of society. In order to reduce the above mentioned short-term negative impacts, the IMF & WB introduced the so- called relief packages or corrective measures such as the Social Safety Net. It consisted mainly of the Social Investment Funds (SIF), Emergency employment programs and the National Program to Limit Poverty as long-term strategies within the framework of national action plans or the so called National Program Framework (NFP).
All the above-mentioned relief packages should be managed comprehensively and in a sustainable manner. The Social Investment or Development Fund (SIF), if managed appropriately, could play a great role in reducing the adverse effects of structural adjustments. The SIF or SDF should be created under a separate and independent Board or Council. The SIF focuses mainly on easing the impacts on the poor. However, this kind of fund requires financial and technical assistance from donors, provided that it is implemented and managed according to the established and designed strategies and objectives. ý
The main motivating objective of the creation of SIF is mainly to mitigate the short-term impact of adjustment policies with emphasis on mitigating the adjustment cost for the poor, especially where the programs are strong. However, it is necessary to well address the issues before adopting any SIF mechanisms and design. Such design issues include the following:- – Rules for targeting the most vulnerable group. – Ensuring that the vulnerable group receives the allocated assistance, especially where they are unable to voice their demand. – How to insulate the program’s board of directors from political pressures. – Identification of the role of line ministries is necessary. – Who will identify the most urgent needs and the best solutions? – Role of local communities and NGOs on identifying the most needed projects, and how to insulate the NGOs from the effects of the most vocal communities, elites and the better educated. ý
Accordingly, the SIF should not be viewed as an executive agency. This will help to avoid duplicating functions of line ministries. The SIF should collaborate with the line agencies as well coordinate the solution of problems that arise during the implementation period. ý
Lessons learnt in other developing countries indicate that the SIF can be a successful mechanism for mitigating short-term impacts as well as to alleviate structural poverty. This could be achieved through the adequate financing, appraising and supervising small-scale projects. However, there are no proven records of social program implementation, cost recoverability and project executions. Hence, the SIF should not focus only on productive projects rather than as a vehicle of social welfare transfers, just because it is financed through loans rather than grants. Therefore it is preferable that the SIF should be provided as grant or, by most, as a soft loan. Thus, it is advisable that the SIF should not be used to finance credit schemes only. The recovery of loans can be time consuming and requires a lot of staff, and above all will not help to reduce poverty. In fact, many other countries preferred adopting the mechanism of creating an “Emergency Social Fund (ESF). The ESF is used to implement emergency employment schemes, to establish day-care centers, implement nutrition programs and provide school lunches. These centers enabled the poor to find work or to create new jobs for these who lost their job due to the adopted adjustments. It is important to enforce an appropriate over-all supervision scheme in the form of norms, guidelines, monitoring and auditing to ensure that funds go to the most needy. From the above outlined issues it is clear that the structural adjustments could play a major role in helping both the structural and the new poor, provided that the social services are delivered in an appropriately fast and equitable manner. Accordingly, there is an urgent necessity to formulate an integrated and comprehensive social adjustment plan to reduce the adverse impacts or effects as has been emphasized in the National Action Plan for Poverty Eradication. This should be viewed within the National Planning framework that gives priority to Social Development Sectors.
By: Abdulkadir M. Hassan Al-Ariqi Environmental / Development Consultant