The Effects of Structural Adjustment Programs

The Effects of Structural Adjustment Programs INTRODUCTION At independence, most African countries had their economies rely heavily on the production of primary commodities especially agriculture. However due to a sharp increase of market prices of agricultural products such as cocoa, tea, coffee and many more in the global market in the 1970s. Many economies of African countries grew significantly for example the real GDP of Kenya grew by 6.5% a year, by about 15% in Zambia in 1964-73 (Adepoju, 1993). African governments responded to their newly acquired fortune by increasing government expenditures in their respective countries thus less government savings. As the world was plunged into the oil crisis of the 1970s, when the Organization of Petroleum Exporting Countries (OPEC) increased world oil prices so as to generate more income which they invested in the banks of developed countries. As a result, these banks embarked on a mission to loan African countries so as to facilitate the purchase of products and services offered to African countries by developed industries. Therefore African countries were encouraged and manipulated into borrowing huge sums of money from western banks. However the money borrowed by African banks ended up in the pockets of corrupt government officials, unnecessary projects or on luxuries by leaders and very little was invested so as to attain sustainable economic growth (Toussaint and Comanne 1995: 15). Moreover, the loans given to African countries were accompanied with very low interest rates. However, the situation changed drastically as the United States of America and European states increased interest rates so as to stop inflation. Hence, African countries that had borrowed money from Western banks had to pay back their loans with huge amounts of interest. These culminated into inability to pay up the loans by African countries and therefore were forced to take up new loans to pay up the increased interests (George 1995: 21 cook). As a result of the need to take up new loans by developing countries, the International Monetary Fund and the World Bank developed the structural adjustment programs, economic policies as condition for the provision of loans in the late 1970s. This paper will therefore aim to give a brief overview of the Structural Adjustment Programs, by putting into focus the key components and objectives of the programs. Furthermore, the paper will highlight on Structural Adjustment Programs in Kenya, the effects of the programs in Kenya and finally draw a conclusion of the overall effects of Structural Adjustment Programs in Africa. OVERVIEW OF STRUCTURAL ADJUSTMENT PROGAMS Structural Adjustment Programs (SAPs) according to leftwitch (1996) is defined as a set of institutional and economic measures intended to solve the macroeconomic problems facing developing countries by correcting a country’s borrowing deficit, reducing the intervention of governments in the economy and opening up the state’s economy to the world market. The SAPs designed by the Bretton woods institution, the World Bank and the International Monetary Fund and later embraced by other major international financial institutions, were believed to consist of policies that would bring about reduction of poverty and sustainable economic growth. As underlined in the World health Organization website (2014), Structural Adjustment Programs echoes the neo-liberal ideology which pushes for globalization; hence was aimed at realizing a long-term economic growth in poor countries by encouraging the restructure and reduction of government intervention in the economy. Therefore, the components Structural Adjustment Programs as advocated by the IMF and the World Bank include: the devaluation of local currency, balance of payments management, government reduction of social services through cutting of public spending, social spending and budget deficit, reduction of tax on high earners, reduction of inflation, suppression of wages, lowering of import tariffs, tightened monetary policy. Governments were also encouraged or sometimes forced to lessen their role in the economy, hence privatize state-run industries, deregulate businesses and open up their economies to foreign competition so as to increase free trade. The Structural Adjustment Programs was a financing mechanism of the international monetary fund to support macroeconomic policies and reforms in low-income countries through low interest subsidizations and loans. According to (Finch 1985 cook), Structural Adjustment Programs were intended to provide long-term solutions to economic problems facing developing countries around the world by facilitating the achievement of sustained growth and economic stability. They were also designed to eliminate unsustainable external and internal imbalances of a countries economy. Finch further argues that, the champions of SAPs, believe it was a forward-looking and long-term solution to underdevelopment in Africa and Latin America, as it seek to increase the elasticity of an economy to have the ability to respond to changes, stimulate efficiency utilization and allocation of resources, elimination of trade deficits and finally balance the expenditure and revenue of the government. Therefore the prog rams were created as a result of the failures of the Band-Aid projects and programs which mostly responded to crises instead of enchanting a pre-emptive stance which would look into preventing crises before they arise. STRUCTURAL ADJUSTMENT PROGRAMS IN KENYA Kenya gained independence in 1963, a period when the global economy was expanding and stable. This was as a result of the high prices of primary commodities that Kenya exported for example tea and coffee, therefore the country acquired a huge sum of foreign exchange which it reserved and thus could afford to deal any instability in the economy. Consequently, it can be deduced that the first decade after Kenya gained independence was a period of high aspirations and economic prosperity (Swamy 1994). The economic sector of Kenya in the first 10 years after independence had made tremendous progress, this is depicted by the fact that the Gross Domestic Product (GDP) had grown by 6.6%. Hence investments and savings for its per capita income were relatively high, thus Kenya could provide a better life for its citizens. For instance there was a tremendous increase in the number of schools between 1963 and 1982. Health services were improved with an increase of hospitals leading to an increase of life expectancy from 44 years at independence to 68 years in the 1980s whereas infant mortality had dropped significantly from about 220 deaths per 1000 new born to 70 per 1000 new born. With the facts mentioned, it is evident that Kenya was actually doing better than most sub-Saharan countries (Swamy 1994:196). However, as the world went into recession in the 1970s with the inflating oil prices, Kenya economic problems started after an experiment in expansionary fiscal policies which brought about a severe rundown of reserves. Like other African countries, the 1973 oil crisis worsened the living conditions of Kenyans. The situation was worsened with the dropping of prices of Kenya’s main export products, poor technology, high population growth, drought, and collapse of East African Community. In a bid to cub to emerging economic problems, Kenya successfully applied for a structural adjustment loan from the World Bank in 1980. The loan was aimed at helping Kenya correct the economic imbalances of its economy; implement institutional reforms for a sustainable and balanced economic growth. As Mwega and Kabubo 1994 argue, the loan was meant to finance structural changes in the industrial sector, promote the efficient use of external assets and enhance effectiveness of public assets. Moreover, the loan was given with conditions which required Kenya to reduce budget deficit, promote exports, liberalize trade, reform interest rate regime and cut down its funding on social services. The first structural adjustment loan was followed by another loan in in 1982 which was intended to accomplish similar objectives as the first loan. In 1986, Kenya applied for its third structural adjustment loans was aimed at implementing reforms in the agriculture sector so as to improve production, provide finances for the importation of agricultural inputs, improve agricultural research institutes and support reforms of parastatals in the restructure of publics assets and expenditure programs (Rono, 2002). Another structural loan was signed in 1988 which introduced reforms in the social service sectors especially in health and education. The policy reforms agreed upon included the introduction of cost-sharing in the provision of social services. This is where beneficiaries of services such as education and health were to pay for them either partially or fully. The reforms forced the government to withdraw its funding from health and education. Furthermore the policies forced the g overnment to retrench many civil servants in a bid to cut down its expenditure on the salaries of civil servants (Rono, 2002). EFFECTS OF STRUCTURAL ADJUSTMENT PROGRAMS IN KENYA Structural adjustment programs have encompassed withdrawal or reduction of government expenditures on social services and basic needs mainly in the health, agriculture and education sectors. Competition from subsidized imported goods has been a major challenge for local products in Kenya due to the competition they bring about. As a result of this, the poor are continuously being exposed to austere socio-economic risks for instance retrenchment and unemployment. The effects of structural adjustment products cut across a number of sectors in the Kenyan society, however this paper will focus on the effects of structural adjustment programs on education, health, agriculture, and politics Education After independence, Kenya had been making remarkable progress in the education sector. This being measured by the number of education institutions, the rate of enrollment in universities, secondary and primary school, in addition to this, is also the level of literacy rate in the country. Education, at the time of independence was an inspiration to the human capital ideology, therefore was regarded as an important tool for economic and socio-political transformations for post-colonial Kenya. Hence the government took the sole responsibility of financing, controlling and providing free education to the citizens (Obamba, 2009). Education being given its due importance by the government, its key feature was the rapid growth of enrollment at every level of education institutions, leading to an increase in educational expenditure. For example, recurrent expenditure on education amplified from 15% in 1960s to about 40% in 1980s (Rono, 2002). However in the 1980s, after the Kenyan government started taking structural adjustment loans, there was significant swing in government funding of higher education arose due to the emergence of neoliberal economic policies of the structural adjustment programs that played a major role in policy-making of higher education. The government was forced to withdraw funding on education and further introduced tuition cost-sharing tuition fees (Obamba, 2009). The introduction of school fees led to an increased number of school dropouts, low enrollment, underdevelopment and inequality in that only the children of well off Kenyans could afford education at the expense of the poor Kenyan families. The students who failed to complete their education, failed to get employed hence the continuous degradation of standard of living in Kenya (Rono, 2002). Health Health being an important aspect of the socio-economic development of a country, Kenya after its independence embarked to address the issues of inequality brought about by the colonial development and administration. Therefore, the provision of health to all the citizens was a priority of the government. This commitment was evident with the fact that, the government provided free health services to members of the public. Moreover the public was encouraged to take part in construction of clinics, hospitals and medical training. This increased health personnel and medical structures in the country. As a result, life expectancy increased from 44 years at independence to 68 years in the 1980s whereas infant mortality dropped significantly from about 220 deaths per 1000 new born to 70 per 1000 new born (Rono, 2002). However, the economic pressures brought about in the 1980s by the structural adjustment programs placed a lot of pressure on the government’s expenditure. Subsequently, the government responded by cutting down on social services especially in health. The government introduced cost sharing whereby the beneficiaries of health services were to pay some amount of money before receiving health services for the medication and the government catering the cost of medical personnel. Thereafter medical quality has been deteriorating, thus affecting Kenyans and especially the poor and the vulnerable groups. This has led to the reduction of life expectancy rate of 68 years in the 1970s to 61 years in 2012 (Data: Life expectancy at birth, total (years), 2014) . Agriculture The structural adjustment programs on agriculture were meant to introduce reforms that would provide incentives of increased production to farmers. Although, there were improved policy reforms on implementation, agriculture and food production has been declining. SAPs were meant to remove government control and monopoly in agricultural products marketing, pricing, imports and distribution. Decontrol of prices, trade liberalization and deregulation of market encouraged the participation of the private sector in the production and distribution of agricultural products. However trade liberalization worked out to be a disadvantage of local farmers as it allowed for cheaper imports of subsidized agricultural commodities from western countries. This culminated in the collapse of certain agricultural industries in Kenya for example cotton (Nyangito, 2003). Politics Structural adjustment programs have had a mixed impact on the political arena of Kenya. It would be unfair to overlook the positive effects the programs have had on politics in the country. It is true to say that the program enforced by the World Bank and International Monetary Fund ushered in of political pluralism, greater democracy, respect for human rights and accountability of the government to the citizens. However the positive effects came accompanied with a list of negative impacts too. The programs are accused of heightening tribal tensions, polarizing communities and further increased ferocious ethnic clashes that have resulted in the death of hundreds of people and a lot being displaced as well. Moreover, the programs are said to have lessened national leaders to tribal chiefs leading to the infusion of tribalism in all sectors of development thus being an obstacle to growth and development (Rono, 2002). CONCLUSION Within the African context, the impacts of the structural adjustment programs have been a controversial issue. Presently, just about 20 years after the programs were introduced in Africa, they continue to be detested by the people because they were conveyed by a number of conditions that have worsened the living conditions of Africans. Scholars have argued that these conditions are based on economic models that are not fit for the social structure and situation of Africa. The programs were intended to improve the economy in the long run but in the short run, the social aspect of human development especially in the provision of social services has been ignored and suffered tremendously. African scholars should therefore with solutions to counter the problem brought about by structural adjustment programs rather than letting western scholars experiment programs with no reference to the social-cultural background of Africans. BIBLIOGRAPHY Adepoju, A. (1993). The Impact of Structural Adjustment on the Population of Africa. In A. Adepoju, The Impact of Structural Adjustment on the Population of Africa (pp. 1-6). London: Villiers Publication. Data: Life expectancy at birth, total (years). (2014, November 21). Retrieved from The World Bank Group : http://data.worldbank.org/indicator/SP.DYN.LE00.IN Leftwich, A. (1996). â€Å"Two Cheers for Democracy? Democracy and the Developmental State.† In Leftwich, A. (ed) Democracy and Development: Theory and Practice. Polity Press: Cambridge. Mwega, F.W. and Ndulu K. (1994). Economic Adjustment Policies. In Barkan, J.D. Beyond Capitalism verses Socialism in Kenya and Tanzania, Nairobi, East African Educational Publishers. 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