Structural Adjustment: Belling the Foreign Exchange Cat(-astrophe) Part 2

Part 2:  Structural Adjustment, Growth and the IMF 

First it must be clear that structural adjustment is not to be confused with Structural Adjustment Programmes which are IMF-led programmes designed essentially to bring about short-term stability and specific long-term economic changes.  The much maligned programmes of “privatization” are just one of several measures the IMF might impose to help a government divest itself of burdensome expenditure and /or liquidate certain assets (that is, turn them into cash) e.g. sale of BNB. IMF structural adjustment programmes have been heavily criticized and the interested reader can follow one of the analyses here:  http://www.imf.org/external/pubs/ft/esaf/exr/index.htm.

IMF
IMF in Session

In theory, a country can undertake voluntary structural adjustment, that is, without involving the IMF. That would call for both insight as well as strong political will on the part of the leaders of the country. Needless to say, we in Barbados have not made any serious attempt to do any “voluntary structural adjustment” over the last fifteen to twenty years; some would argue that it is far longer.

My proposition is that whatever adjustments are made to achieve long-term stability, the balancing of foreign exchange must be the primary goal simply because we are heavy users of foreign exchange and will continue to be for the foreseeable future.

Some economists and business people believe that growth is the prized economic goal. Therefore, much effort is expended on citing and comparing growth statistics.  Economic growth is the change in the total market value of all final goods and services produced in a country from period to period ( e.g. year to year). It is measured in dollars and one way to obtain it is to sum consumer, investment and government spending, the value of exports and subtract the value of imports (Adapted from http://www.investorwords.com/2153/GDP.html#ixzz2ovK1xFla).

To illustrate: If the GDP in 2010 was $200M and in 2011 it became $210M then there would be a 5% increase in GDP ($210-$200/$200M x 100%) and therefore, a 5% increase in economic growth. On the other hand, if the GDP in 2011 had become $195M then there would be a decline in growth of 2.5% ($195-$200/$200); in other words negative growth. In an economy the size of Barbados growth rates such as 0.4% or -0.2% tell a story immediately.

One of the reasons why economic growth is relied upon so much in discussions dealing with crises such as ours in Barbados is because, all other things being equal, when growth occurs, that is, when the production of goods and services increases, government’s revenue, at least theoretically, should be higher because of the increased taxes occasioned by the higher GDP.  In many cases this does not hold.

Not surprisingly, the notion of economic growth, like IMF Structural Adjustment Programmes, has been roundly criticized. See for example, http://www.oecdobserver.org/news/archivestory.php/aid/1518/Is_GDP_a_satisfactory_measure_of_growth_.html. My proposition, if I may reiterate, is that given the problems inherent in measuring economic growth, the issue of structural adjustment needs to be linked to the management of foreign exchange.

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COMMENTS

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