and the Environment:
Promoting Efficiency or Exploiting Natural Resources?
What is structural adjustment and why is it implemented?
Many countries have significant economic problems, such as
high inflation, severe indebtedness, and lack of competitiveness
in the world economy. Some of these problems are the result of
misguided government policies, corruption, and poor oversight
over the economy. A country may have to restructure its economic
policies to streamline the economy, decrease inefficiency and
waste, and provide a stable economy that will lead to sustained
The World Bank and International Monetary Fund make structural
adjustment measures a crucial component of loans they make to
struggling economies. However, the types of structural adjustment
measures that the Bank and Fund condition to low interest loans
too often fail to promote a sustainable economy, and instead lead
to increased income equality and poverty, social disruption, and
What are the structural adjustment measures that the Bank
and Fund promote? '
The Bank and Fund promote neo-liberal free market economic
policies,' such as trade investment, and exchange liberalization,
privatization and the decreased role of the state, and deregulation
of major sectors of the economy and society, such as labor, business,
and the environment. The tools the Bank and Fund utilize include
export promotion schemes such as subsidies to export industries,
the dismantling of trade and investment regulations, devaluing
the currency, cutting the government budget and slashing programs,
and privatizing major sectors of the state.
The Bank and Fund's policies open up developing country economies
to competition from large, often-subsidized, multinational corporations,
making Northern country corporations richer, and often impoverishing
or bankrupting developing country businesses and workers. The
Bank and Fund do not promote adjustment measures that might directly
target income equality and poverty, or environmental protection,
such as credit to 'the poor, or green taxes and environmental
How do these structural adjustment measures harm the environment?
Trade liberalization and export promotion
Structural adjustment Bank/Fund style requires countries to
quickly dismantle any trade barriers and become active players
in the world economy. However, poor newly-emerging developing
country businesses find it difficult, if not impossible, to compete
in the world market. Large multinationals find it easy to enter
a developing country and take over economic sectors there, exploiting
a country's natural resource base for the MNC's benefit, and polluting
the host country instead of the home.
Furthermore, to boost the competitiveness of the export sector,
with the aim of earning foreign exchange so Bank/Fund loans can
be repaid, export industries and companies often receive subsidies
and preferential treatment (ironic, given the institutions' free
trade bent). Many of these subsidies exacerbate environmental
problems. For example, agricultural exports receive subsidies
for pesticides, leading to their greater use and increased pollution
of soils and streams, as well as threats to the safety of the
workers dealing with the chemicals. Other negative environmental
effects include excess water and energy use by exporting companies.
Exchange rate devaluation
The Bank and Fund typically require developing countries to
devalue their currencies in order to make prices cheaper and boost
the country's competitiveness on the world market. Devaluation,
however, causes the rapid exploitation and destruction of a country's
natural resource base as it makes the price of natural resources
diminish, thereby sparking world demand for them. The result is
that these resources are quickly mined and extracted to earn a
quick profit and generate foreign exchange in the short term.
In the long run, the country loses valuable natural resources,
which if managed sustainably, could generate revenue for the nation
over the long term. The effect of devaluation is particularly
severe since natural resources are already underpriced as their
environmental value is not included in market prices.
Government budget cuts
Structural adjustment virtually always requires countries
to reduce state expenditures with the aim of balancing the budget.
Generally, one of the first programs cut is environmental protection
and regulation, and the Bank and Fund make little, if any, effort
to preserve spending for environmental programs. The result is
that businesses can pollute the environment and not worry about
being prosecuted for breaking the law, deforestation accelerates
beyond limits prescribed by the state, illegal dumping of pollutants
into the air and rivers increases, and endangered or threatened
species continue to be exploited. The decreased ability of the
government to regulate the environment and ensure the preservation
of a country's natural resource base and the protection of the
health of its citizens, is one of the biggest threats that Bank/Fund
structural adjustment places on the environment.
The shrinking government budget has another more indirect,
but equally pernicious, effect. Along with environmental protection,
the other sacrificial lambs are health care, education, and social
service programs, programs that most benefit the poor. The result
is that the poor often lose the state services they depend on
desperately in order to survive. The poor become poorer, and this
cycle of poverty places greater threats on the environment. As
the poor try to survive, they cut down trees to build makeshift
homes and to provide heat for their families. As they are forced
off farmland by large landowners, they turn to marginal lands
to subsist, leading to deforestation, soil erosion, and soil infertility.
The deepening of poverty is another great threat to the environment.
Privatization's effects on the environment are not always
clear. In some cases, privatization has led to increased efficiency
and other environmental improvements, such as decreased water
and energy use, and lower output of waste. However, privatization
often occurs within a large-scale dismantling of the role of the
state. More and more sectors of the economy and society are privatized
and removed from the purview of the state, including regulation
and oversight of environmental compliance. Privatization all too
often means that the state loses its ability to make and enforce
laws that protect the environment and the health of citizens.
Is structural adjustment ever good?
Structural adjustment as the Bank and Fund prescribe it leads
to poverty, unsustainable economies, and environmental degradation.
However, structural adjustment, if it promotes efficiency and
strengthens the economy so that the poor benefit, could be good
for the environment. There are several measures that the Bank
and Fund could take to promote economic efficiency and performance,
as well as benefit the environment. These include:
Train developing country officials in a system of national
income accounting and green taxes. This will allow for more accurate
pricing of natural resources and environmental assets, generating
more revenue and helping prevent over-exploitation of natural
Provide credit to the poorest sectors of society, particularly
women, who currently lack the funds to invest in themselves and
their future. Removing people from the cycle of poverty is one
of the biggest steps we can take to protect the environment.
Allow countries to retain subsidies for socially and environmentally
beneficial goods so that the value of such products is recognized.
Allow countries to tax and tariff imports that are socially
and environmentally harmful so that the social and environmental
costs are included in prices.
Strongly urge and encourage the government to preserve or
increase spending for social and environmental programs. At a
minimum, do not insist on such reduced levels of government expenditure
that environmental and social programs are cut.
from Friends of the Earth
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Years Is Enough