Background to and impact of structural adjustment programs
This article has been written in response to popular demand. The mid-1970s marked the end of the global economic golden age since the end of World War II which was dominated by state intervention primarily to reduce unemployment and maintain a reasonable level of inflation. The government raised enough revenue to cover welfare expenses.
From the mid-1970s the global economy experienced slow growth, high unemployment and rising inflation (stagflation). The oil crises of 1973/4 and 1979 made matters worse leading to a recession in the early 1980s. Instead of applying fiscal and monetary policies such as raising taxes or cutting expenditure which are politically sensitive, governments resorted to borrowing made easy by abundant petro-dollars at low but flexible interest rates or simply printed more money causing high inflation and external debts.
By early 1980s many countries had accumulated so much debt that they could not service. Private lenders pulled back and demanded repayment of the debts. In order to control inflation, interest rates were raised making it even more difficult to borrow on the international markets. Third World countries resorted to borrowing from the International Monetary Fund (IMF) and the World Bank to repay the debts. IMF and the Bank would provide assistance with conditions attached designed to address domestic economic distortions considered to be the main cause of the problem.