It is evident that the majority of Kenyans are deeply annoyed by the government decisions over the past few years. The country recently secured a loan of $2.34 billion from the IMF. The loan is administered through the Structural Adjustments Programmes (SAPs). David in his tweet said, “Dear young #KOT The IMF loan Kenya has taken is called a structural adjustment loan (SAPs). It comes with austerity (tax raises, spending cuts, downsizing) to keep Kenya creditworthy so that we continue borrowing and servicing debt. IMF is not here for fun. Ask older people.“
Well, for some of us we do not really understand what these SAPs are. I am here to explain. A structural adjustment is a series of economic adjustments that a country must follow in order to be eligible for a loan from the International Monetary Fund and/or the World Bank. SAPs are usually a series of economic policies that include things like cutting government spending and opening up to free trade, among other things. Structural adjustments are commonly thought of as free-market reforms, and they are made conditional on the assumption that they will make the nation in question more competitive and encourage economic growth.
Critics to SAPs
The borrowing countries are required to do a combination of the following:
- To minimize balance of payments deficits, countries should their currencies.
- To reduce budget deficits, cut public-sector employment, subsidies, and other spending.
- Privatization of state-owned enterprises, as well as deregulation of state-controlled industries
- Relaxing regulations in order to attract foreign investment
- Closing tax loopholes and improving domestic tax collection
However, there are major controversies surrounding these SAPs in questions. According to proponents, structural adjustment encourages countries to achieve economic self-sufficiency by creating an environment conducive to innovation, investment, and growth. According to this logic, unconditional loans would only create a cycle of dependency in which countries in financial distress borrow without addressing the systemic flaws that caused the financial distress in the first place.
- By imposing these programmes on already poor nations, the structural adjustments mainly fall to women, children and the vulnerable since a free market eliminates government influence.
- Conditional loans act as a tool of neocolonialism. According to this claim, rich countries provide bailouts to poor countries—often their former colonies—in return for reforms that enable multinational companies to invest in exploitative ways. Since the majority of these companies’ shareholders are from wealthy nations, colonial dynamics are perpetuated, but with a veneer of national sovereignty for the former colonies.
- From the 1980s to the 2000s, there was enough evidence that structural adjustments frequently reduced the quality of living in countries that followed them in the short term, that the IMF publicly announced that it was reducing structural adjustments. This seemed to be the case in the early 2000s, but in 2014, structural changes were used at previously unheard-of stages. This has sparked new criticism, claiming that countries undergoing structural change have less policy flexibility to cope with economic shocks, while rich lending countries can openly pile on public debt to weather global economic storms that often originate in the markets.
Articles retrieved from:
- International Monetary Fund. “Finance & Development,” Page 39. Accessed April. 9, 2021.
- International Monetary Fund. “IMF Lending to Poor Countries—How Does the PRGF Differ From the ESAF?.” Accessed April. 8, 2021.
- Alexander E. Kentikelenis, Thomas H. Stubbs, and Lawrence P. King. “IMF Conditionality and Development Policy Space, 1985-2014.” Accessed April. 9, 2021.