Structural Adjustment
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 economic growth.

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 environmental degradation.


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 accounting.


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 resources.

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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