POLI 211 Introduction to Development Studies Session 8

POLI 211 Introduction to Development Studies Session 8 STRUCTURAL ADJUSTMENT AND POVERTY REDUCTION STRATEGIES IN THE QUEST FOR DEVELOPMENT Lecturer: Dr. Maame Adwoa A. Gyekye-Jandoh Contact Information: mgyekyej@yahoo. com College of Education School of Continuing and Distance Education 2014/2015 – 2016/2017

Session Overview – In this session, structural adjustment policies, touted as an aid in bringing economic growth and development, particularly to countries in Africa beginning in the decade of the 1980 s, will be examined. Also to be examined are poverty reduction strategies pursued in developing countries as alternatives to the costly structural adjustment programs carried out, using Ghana as an example. Slide 2

Session Outline The key topics to be covered in this session are as follows: • Topic One: Structural Adjustment Policies in Africa in the 1980 s • Topic Two: Successes and Costs of the Structural Adjustment Programme in Ghana • Topic Three: Poverty Reduction Strategies in the Quest for Development Slide 3

Reading List • Paul Streeten (1987). “Structural Adjustment: A Survey of the Issues and Options. ” In Development Studies: A Reader by Stuart Corbridge. ed. 1995. p. 368 -382. London: Arnold • Nonor, Daniel. Fighting poverty and enhancing rural development: The contribution of CBRDP. Http: //ghanaian-chronicle. com/features/fightingpoverty-and-enhancing-rural-development/ • www. africaaction. org/african-initiatives/aaf 3. htm). Slide 4

Topic One STRUCTURAL ADJUSTMENT POLICIES IN AFRICA IN THE 1980 S Slide 5

Structural Adjustment Policies in Africa in the 1980 s • Structural Adjustment Policies were proposed and implemented by the World Bank and the IMF (International Monetary Fund) in the early 1980 s in Africa due to the economic crisis that hit Africa in the 1980 s. This crisis had many causes. • 1. There was a drought in 1981/82 that resulted in one of the worst famines ever in Africa. • 2. There was a fall in prices of major commodities exported by African countries, and this led to very scarce and very expensive foreign exchange. A black market foreign exchange became the norm. Many countries could not import enough goods and also not produce enough essential goods domestically. • 3. The prices of domestic good therefore rose and there were queues everywhere. National currencies had become almost useless and the cost of living was very high. Slide 6

Structural Adjustment Policies in Africa • African countries, in a tight and desperate situation, sought financial help from the IMF and World Bank mainly because they could not get this help anywhere else. • Therefore the World Bank and IMF became primary lenders to many countries in Africa, and they made this assistance available on their own terms and conditions. Slide 7

Structural Adjustment Policies in Africa continued • To ensure that African countries pursued economic policies that were closer in line with the market economy model, the Bretton Woods institutions (World Bank and IMF) and Western donors alike decided that African countries should adopt structural adjustment programs (SAPs) in order to qualify for any type of loans. • Note that these SAPs were mainly concerned with policies that would allow African countries to reduce the deficits on their external accounts, and secondly, achieve a balanced government budget. Slide 8

Principles of Structural Adjustment • Although the actual specifics of the SAPs differed from country to country, they generally included these principles to be put in action: • 1. Cuts in government spending – especially on services crucial to the poor, the aged, and the vulnerable, such as education, health, housing, and water. • 2. Removal of import controls as well as the removal of low prices for even essential goods. Countries were to allow the free market to determine prices. • 3. Devaluation of currencies was prescribed. This was supposed to increase self-sufficiency by making the prices of imported goods more expensive and African exports cheaper in order to bring in more foreign exchange. Slide 9

Principles of Structural Adjustment • 4. Tight-fisted control of money supply and credit was encouraged. This was to get rid of inflation or lower it considerably and raise interest rates to encourage savings. • 5. The fifth and final general principle was privatization, especially of government-owned enterprises. • All in all then, it was hoped that these SAP policies would solve the economic crisis in Africa and improve governments’ capacity to service their debt obligations. • The ‘fat’ of government spending and intervention in the economy would be cut away, leaving the ‘muscle’ of a re-invigorated private sector to push development forward. Government development projects and social service initiatives would be suspended until adjustment was carried out. Africa would import less and export more” (www. africaaction. org/african-inititatives/aaf 3. htm). Slide 10

Sample Questions • What gave rise to the implementation of SAPs in Africa in the 1980 s? • Describe any three important elements or principles of the SAPs in Africa. Slide 11

The Impact of Structural Adjustment in Africa • The Impact of the SAPs in African Countries • 1. Rather than addressing the fundamental factors responsible for the persistent socioeconomic crisis in Africa, the SAPs merely addressed the symptoms. • 2. The SAPs failed to address the need for improved technological and social infrastructure and failed to engage the support, enthusiasm, and creativity of the African people and their grassroots organizations. • 3. Thus, one of the major impacts of the SAPs was that they led to the postponement or total abandonment of development programs – no new roads, hospitals, or schools could be built (if they were at all they were very few) and existing ones lacked the basic materials, such as drugs, chalk, textbooks, and writing materials. Slide 12

The Impact of Structural Adjustment in Africa • By the late 1980 s, the economic turnaround sought by the SAPs had not occurred in most of the countries that had embarked on the SAPs. Many suffered further setbacks like: • Like high inflation, lower spending on health, education, water and sanitation, and housing. The policy of retrenchment or laying off people from their jobs supposedly to cut back on waste and inefficiency also led to a real suffering of many people, and real wages declined. Slide 13

Topic Two SUCCESSES AND COSTS OF THE STRUCTURAL ADJUSTMENT PROGRAMME IN GHANA Slide 14

Successes and Costs of the Structural Adjustment Programme in Ghana • This topic introduces to you the SAPs as they were implemented in Ghana specifically, and the modest successes chalked in the 1980 s. It also details the major costs associated with implementing the SAPs in Ghana. • By 1993, SAPs were being implemented in 36 African countries. Ghana adopted the SAP, which it dubbed the Economic Recovery Programme (ERP), in 1983, and it had to tackle immediately how to bring the rate of inflation down. • Note that labor bore the brunt of most ERP/SAP policies. The Provisional National Defence Council (PNDC) government, led by Flt. Lt. Jerry John Rawlings, did not dialogue with civil society initially on the economic reforms to be undertaken. In the shortrun, this enabled the government to take decisive action on some potentially controversial economic issues such as removal of subsidies for workers and cuts in social expenditure. Slide 15

Successes of Structural Adjustment in Ghana • Successes of the ERP/SAP in Ghana • 1. The ERP had a good impact on macroeconomic indicators. There was an increase in national income by 10. 34% in 1984 and a decrease in the inflation rate from 123% to 39. 5% in 1983. • 2. Export volumes also increased by 2% in 1984 compared with the decline of 27. 8% in 1983. • 3. The investment rate in the country increased by 50% between 1984 and 1985, and increased by 30% between 1986 and 1987. • 4. The total national output expanded in 1984 for the first time in four years, and GDP growth was 8. 6% in 1984. GDP growth continued at 5% for the next three years, 1985, 1986, and 1987. Slide 16

More Successes of Structural Adjustment in Ghana • 5. The ERP brought significant flows of aid into Ghana, and along with the devaluation of the cedi, contributed to the increase in the value of cocoa exports, which doubled between 1983 and 1986. Government revenues and the incomes of cocoa farmers also increased. • 6. The increase in exports and imports led to a rapid expansion in domestic transportation, retailing, and wholesaling. Imports and exports as a share of GDP together doubled from 18% in 1984 to 37% in 1992. Slide 17

More Successes of Structural Adjustment in Ghana • Note that those who benefited the most from the ERP were big local and foreign capitalists or businessmen who were engaged in gold mining and timber industries, and rural, cash crop and cocoa farmers, who benefited from the devaluations and producer price increases. • Ghana received official aid, long-term loans, and private transfers constituting 9% of GDP. It also received about $4 billion in concessional loans and grants between 1983 and 1991. Slide 18

Costs of Structural Adjustment in Ghana • Costs of the ERP/SAP in Ghana • 1. There were grave inequities in the distribution of the benefits of economic growth. Students and urban workers went on strike in the 1980 s, and nurses went on strike in 1986 regarding wages, but the PNDC government cracked down on these shows of agitation. • 2. Real wages remained low and income growth was slow, while the level of poverty was high. Between 1987 and 1988, 36% of Ghanaians lived below the poverty line. In the years 1987 -1990, poverty levels worsened. • 3. Urban unemployment rose due to PNDC retrenchment policies and withdrawal of subsidies from public services. Many public service workers were laid off, and the cost of living rose as subsidies on health and education were withdrawn. Slide 19

More Costs of Structural Adjustment in Ghana • 4. Between 1987 and 1988, the civil service lost 24, 000 people, and 12, 000 more civil servants were to be let go in 1989, a big blow to the Civil Servants Association (Nugent 1996: 184). The cost recovery policy on health, education, and public utility services led to a decline in real wages. By 1993, unemployment had risen to 13%. • 5. The Trades Union Congress (TUC) leadership consistently opposed the withdrawal of public subsidies, particularly on petroleum, and was always at odds with the PNDC over the daily minimum wage, which Bank/IMF SAP policies sought to keep down (Nugent 1996: 148). • These major woes led to the PNDC’s creation of PAMSCAD, the Programme of Action to Mitigate the Social Costs of Adjustment. Slide 20

Programme of Action to Mitigate the Social Costs of Adjustment • The PAMSCAD cost US$85 million and began in 1988. • 1. It sought to create 40, 000 jobs over a two-year period. It was aimed at the poorest individuals, small-scale miners and artisans in particular, and communities were to be helped to implement labor intensive self-help projects. • 2. ¢ 10 billion was slated in the 1993 budget for the rehabilitation and development of rural and urban social infrastructure. This was organized through PAMSCAD and the new district assemblies, and was to focus on improving water supply, sanitation, primary education, and health care. • 3. An additional ¢ 51 billion was set aside for redeployment and end-of- service benefits for those who had lost their jobs in civil service and parastatal organizations. Slide 21

Programme of Action to Mitigate the Social Costs of Adjustment • Many shortcomings, including insufficient funds to finance projects, characterized the PAMSCAD and reduced its effectiveness. • Ultimately, PAMSCAD had a very limited impact and was unable to adequately address the problems faced by those who suffered due to the SAP. The PAMSCAD tried but failed to bring a human face to the effects of the adjustment policies. • Question: What were the major successes and costs of the ERP/SAP in Ghana? Slide 22

Topic Three POVERTY REDUCTION STRATEGIES IN THE QUEST FOR DEVELOPMENT Slide 23

Poverty Reduction Strategies in the Quest for Development • We examine poverty reduction strategies pursued in developing countries, using Ghana as an example, as alternative to the costly structural adjustment program carried out in Ghana. • In the late 1990 s, the World Bank and IMF began to shift to a policy that focused on Poverty Reduction Strategies that would be spelt out in Poverty Reduction Strategy Papers. • The Poverty Reduction Strategy Paper (PRSPs) describes a country's long term vision. The paper is prepared by lowincome country governments in consultation with various stakeholders such as civil society and the private sector. The paper sets out macroeconomic, structural, and social policy goals. Slide 24

Poverty Reduction Strategies in Ghana • Countries, like Ghana, have used PRSPs to address their investment climate and prescribe measures to promote private sector development, or to improve governance and reduce corruption. • The PRSPs concentrate on issues facing the agricultural sector and rural areas, and stress the need for investment in key basic services, particularly health and education in implementing their strategies. This is in stark contrast to the SAPs, which recommended cuts in health and education subsidies. Slide 25

Poverty Reduction Strategies in Ghana • Both the World Bank's International Development Association (IDA) and the International Monetary Fund (IMF) require a Poverty Reduction Strategy Paper in order for low-income countries to receive lower cost financial assistance from the Bank (through IDA) and the IMF (through its Poverty Reduction and Growth Facility). • When a government takes the lead in preparing and implementing its own strategy, development efforts are more likely to succeed. Other key factors of success include tailoring aid to particular country circumstances and coordinating aid with other donors for maximum impact. Slide 26

Poverty Reduction Strategies in Ghana continued • It is important to note that poverty is more than just lack of income – it is also lack of opportunity, security or voice in key decisions. In Ghana, the Bank's over-arching goal is to support the country's growth and poverty reduction objectives. • For example, the Bank has proposed to help Ghana sustain economic growth of at least 6% per year; surpass the 2015 Millennium Development Goal of halving poverty; and start to reduce inequalities. • Note that the Bank itself seems to have moved toward a broader conception of development, in its increased focus on the reduction of poverty and inequalities. Slide 27

The Impact of Poverty Reduction Strategies in Ghana • Ghana’s fight against poverty has involved a special focus on rural development. • In 2001, the economy was characterized by large fiscal deficits and a heavy debt burden, a combination of which placed severe limitations on the nation's capacity to address poverty. • Following Ghana’s application to the Enhanced Highly Indebted Poor Country (HIPC) facility in 2001, the government formulated the Ghana Poverty Reduction Strategy (GPRS I), which was implemented over the period 2003 -2005. The process of formulating the GPRS I was participatory. Slide 28

The Impact of Poverty Reduction Strategies in Ghana • Following the positive results achieved by the GPRS I, The Government launched a successor national development policy framework - the Growth and Poverty Reduction Strategy (GPRS II) – which was implemented over the period 2006 -2009. The strategic direction of the GPRS II was to accelerate economic growth and poverty reduction by supporting the private sector to create wealth. • Assignment: Find out more about (research) the GPRS I and GPRS II, and briefly explain the difference between the Ghana Poverty Reduction Strategy I (GPRS I) and the Growth and Poverty Reduction Strategy II (GPRS II). Slide 29

Conclusion of Session 8 • In this session, we have discussed what the SAP in Ghana entailed, why Ghana embarked on the ERP/SAP in 1983, and what some of the major successes and costs of the ERP in the 1980 s were. • We have also delved into poverty reduction strategies as an alternative to the former SAPs introduced by the World Bank and IMF. You have learned what the Bank’s PRSPs are, and how in Ghana these were implemented as GPRS I and GPRS II. Both the GPRS I and the GPRS II were quite successful at beginning to reduce poverty in Ghana. Slide 30

References • Todaro, Michael. 2000. Economic Development. England: Pearson Education Limited. • http: //digitalmedia. worldbank. org/projectsandops /strategy. htm Slide 31