Mosley, Harrigan, and Toye 1991 and the FAO 1991! suggest the following sequence for liberalization: (1) liberalizing imports of critical inputs; (2) devaluing domestic currency to а competitive level, while restraining financial expansion to ensure that nominal devaluation is real devaluation; (3) promoting exports through liberalizing goods markets; (4) allocating foreign exchange for restoring infrastructure for production increases; (5) removing controls to achieve positive real domestic interest rates and expanding loan agencies to include small businesses and farms; (6) reducing public sector deficits to eliminate reliance on foreign hard loans without decreasing real development spending and reforming agricultural marketing; (7) liberalizing other imports, rationalizing tariffs, and removing price controls and subsidies; and (8) abandoning external capital controls.
Bank/Fund implementation bore little relationship to this sequence. In most cases, the World Bank liberalized trade early without limiting imports.
For example, the foreign exchange requirements associated with the World Bank's 1980 SAL in Kenya, which emphasized trade liberalization, became unsustainable, so liberalization had to be abandoned. Also, recipients should implement International Monetary Fund demand reduction before the World Bank's supply increases to avert hyperinflation and an unmanageable current deficit. The International Monetary Fund cannot expect an LDC to absorb а shock similar to Zambia's kwacha depreciation of more than 90 % in six years. Zambia's money market is externally dependent, poorly organized, fragmented, and cartelized. Tanzania, Zambia, Ghana, and Nigeria lacked the ability to avoid inflation rates of more than 20 % annually during at least part of their structural adjustment programs (SAPs).
How do SAPs influence poverty rates and basic needs attainment? А UNICEF study of 18 sub-Saharan countries indicated that rising debt was accompanied by falling average GDP during 1980-85 in 13 countries, declining government spending per capita in 11, and falling shares of both health and education in 8 Pinstrup-Anderson, Jaramillo, and Stewart 1987, 74-78!. Real industrial wages dropped considerably during adjustment–in Tanzania by 40 % between 1980 and 1983, in Zambia by 33 % between 1980 and 1984, in Malawi by 24 % between 1980 and 1984, and in Kenya by 22 % between 1980 and 1985. During the same period, open unemployment increased in the same countries Ivan der Hoeven 1989, 30-31!
(Mosley, 2001 54-59) The effect of adjustment varies among the population. Civil servants and employees may be laid off because of austerity measures or production shifts. Vulnerable groups hurt by reductions in social programs or price shifts include the urban working class, small farm holders, rural landless labourers, lactating and pregnant women, infants, the disabled, and the aged, but some political leaders and bureaucrats may gain from access to resources and information on shifting opportunities, commercial and industrial business people from decontrol and privatization, and commercial farmers from higher food prices ECA/OAU 1986, 4; World Bank 1988, 47!
The World Bank's focus should be on substituting local private ownership for SOEs (state-owned enterprises) or on reforming them, rather than on wholesale privatization. Even the World Bank 1983, 50! Contended that "the key factor determining the efficiency of an enterprise is not whether it is publicly or privately owned, but how it is managed. " If entry barriers are removed, there is no presumption that the private sector has better management. Moreover, Bank/Fund analyses in the mid-1980s indicated that SOEs can perform well with competition, managerial autonomy and accountability, hard budget constraints, and firm size commensurate with technical and managerial skills.
The transition from centrally managed SOEs to а liberal, privatized economy is difficult. Prices inevitably rise. Forcing inefficient firms to close is likely to be unacceptable where labour is immobile. Pent-up demand for imports may hurt the balance of payments. Skilled people are usually lacking. Moreover, the government may require SOEs to achieve social objectives that private firms would neglect. Lastly, even where privatization is profitable, the government may desire to take further steps gradually in order to avoid the emergence of concentrated business elite from newly privatized firms. (Stephan 1995 505-34) А World Bank study 1988!
Of 54 LDCs receiving ALs during 1980-87 measures the net change in performance of AL recipients from the three years before to а three years after receiving ALs, and it compares this change to non-recipients. Among sub-Saharan countries, current-account balances and debt service ratios improved faster, but growth was slower and inflation faster among recipients than comparison groups. UNCTAD 1991, 8 maintains that Africa's overall annual GDP growth during the 1980s was only 0. 4 %, а low rate "largely influenced by the poor performance of countries with strong adjustment programs. " Moreover, the ECA's analysis of World Bank data indicated that Africa's GDP growth, investment rates, budget deficits, and debt service ratios fell after SAPs. Stewart 1990!, who uses World Bank categories, finds no difference in the negative growth during 1980-87 between sub-Saharan countries with strong and weak Bank/Fund adjustment programs. Additionally, during the period, real domestic investment and export earnings fell. (Ann 1999 1-22) Mosley et al.
1991 reject comparing World Bank AL recipients with non-recipients, because recipients are not representative of LDCs in general. Instead, they select non-recipient countries with similar characteristics to 1980-86 recipients: for example, Cote d'Ivoire was paired with Cameroon, and Kenya with Tanzania. Although both AL recipients and non-recipients grew more slowly in the early 1980s than in the late 1970s, the AL group had а significantly poorer growth experience than the control group.