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Was structural adjustment necessary, and it did it work?

Answer with reference

to one country.
The inception of the structural adjustment programmes (SAPs) came about due
to the conceived ideas of underdeveloped areas of the world and the delusion
of communist ideals in President Trumans inaugural address in 1949 (Donovan,
1996). Although it was not until President Reagan and PM Margaret Thatcher
came into power in 1979 and 1981 that structural adjustment began its
implementation on the developing world (Khor, 2005). Structural adjustment was
a method in which the Bretton Woods institutions, being the IMF and the World
Bank, would give out conditional loans to indebted countries (Milward, 2000).
These conditions were the eventual privatisation of their economies, the
democratisation of government, and the removal of tariff barriers; essentially a
neoliberal approach to the opening up of these countries governments and
economies (Chong & Lpez-de-Silanes, 2004). In order to qualify for structural
adjustment, a country had to adhere to these conditions. To question the
necessity of structural adjustment is in fact subjective. This essay will discuss the
subjects and the key players involved in the structural adjustment programme
and neoliberal reform. It will discuss, using Mexico as a reference, whether or not
it was a necessity and for whom, and whether or not it worked out in the short
term and the eventual long term.
The global crisis, fuelled by the sharp rise in oil prices by OPEC in 1973, crippled
most of Mexicos private sector, and thus the state was forced into action
(Hellman, 1997). The PRIs (Institutional Revolutionary Party) response involved
extending the public sector by taking over failing private enterprises,
maintaining them as sources of employment to, as Harvey (2005) puts it, stave
off the threat of the working-class unrest. The number of state-owned
enterprises more than doubled during the 1970s, as did employment levels
(Harvey, 2005). However, these state-led businesses were losing money, which
meant the state had to borrow to keep them afloat. The Wall Street investment
banks of the United States saw the opportunity to lend to a nation with oil
discoveries, like Mexico. What subsided was an increase of Mexican debt from
6.8 billion dollars to a plummeting 58 billion dollars by 1982, what followed was
Volckers high interest rate policy which meant paying back the loans was nigh
impossible; Mexico declared bankruptcy in August 1982 (Harvey, 2005). At this
point, a macroeconomic reform seemed an inevitable necessity. In the final days

of President Portillos administration he sided with the IMF to refinance the

foreign debt. A loan of 4 billion dollars was issued, in return for an austerity
programme consisting of huge government sector cuts (Hellman, 1997). The
Bretton Woods institutions pulled together to impose neoliberal reform upon
Mexico, what followed was: privatization, reorganization of the financial system,
lowering of tariff barriers, and the opening of internal markets to foreign capital.
In 1984, under President de la Madrid assisted by US-trained technocrats, the
World Bank embarked on the first structural neoliberal reform of a country,
granting them a loan. What Judith Hellman (1997) suggests is that Mexico was
not in a position to disagree with the implementation of neoliberal reform and
structural adjustment at the time, essentially they had no choice. It has been
highlighted that structural reform and neoliberal ideologies were an unnecessary
side effect of the necessary loans that were granted to Mexico (Smith, Acuna, &
Gamarra, 1994). Whether or not neoliberal reform worked for Mexico prior to
1986, Bello (1994) posits that it certainly worked in favour of US policy, with the
opening up of internal markets to foreign capital, a variety of Mexican banks and
businesses were bought out by US businesses, and the US thrived upon this
opportunity (Watts, 1994). Mexico then joined the GATT (General Agreement on
Tariffs and Trade) in 1986, a decision that was never even contemplated prior to
Mexicos bankruptcy, potentially another factor in a scheme to benefit US foreign
business and exports (Hellman, 1997).
In the years of 1983 to 1988, Mexicos per capita income fell at a rate of 5
percent per annum. Inflation had gone up to approximately 15% by the years
that followed 1976. At the same time, government fiscal remodelling and reorientation meant state expenditure declined (Harvey, 2005); public healthcare
declined, as did education and food subsidies for the poor (Heredia & Purcell,
1995). The World Banks structural adjustment programs were said to be short
term pain, for long term gain, by the end of the 1980s, Mexico was evidently still
immersed in the short term chaos of neoliberal reform . The World Banks
presumption/syntax here is not entirely accurate. According to Riddell (1992) the
total long-term debt facing the Third World from 1982-1987 actually rose from
$568 billion to $1190 billion, SAPs therefore not only had issues reducing debt in
Mexico, but for the majority of the developing world. On the contrary, Benera
(1999) sides with the World Bank in claiming that over the long-term structural
adjustment gave way to high levels of net foreign investments among other
positive outcomes. Nevertheless, she does go on to suggest that this was at the

cost of high social inequality and the widening of the income gap (Benera,
In March 1990 NAFTA was formed. This was followed by another structural
adjustment programme, along broad neoliberal lines, known as the Salinas
Revolution (Harvey, 2005). President Salinas privatized Mexicos banks, and
employment in the state sector was cut in half (between 1988 and 1994). By the
year 2000, the number of state-owned firms had been reduced to 200, from
1,100 in 1982 (Chong & Lpez-de-Silanes, 2004). Furthermore, Mexico would be
less likely to fall into bankruptcy as employment was no longer dependent upon
the state, arguably a necessary austerity measure (Ros, 1997). The subsequent
lowering of import barriers, and the passing of the permission of foreign
ownership and privatization of ejido indigenous lands by Salinas in 1991, allowed
the United States to drive down prices of corn and other products to export to
Mexico, which meant only the most efficient Mexican farmers could compete
(Harvey, 2005). Essentially, the indigenous farmers that were protected by the
1917 Constitution, enshrining them with legal rights to own and collectively use
land in the ejido system, were close to starvation and forced to join the already
overcrowded cities, which at the time were riddled with unemployment (Ros,
1997). As Harvey (2005) critiques the Salinas revolution, he implies that it may
have been necessary for reform to avoid state-dependency and another crisis ,
but the outcome of rigorous privatization and foreign competition is seen not to
have worked for Mexico socially with the indigenous farmers, and the
consequential urban unemployment.
Mexicos neoliberal reform policy may have been a conditionality of loan
payments received from the Bretton Woods institutions and thus a necessity, but
it failed to work with the lower income population of Mexico, which eventually led
to riots and the uprising of the Zapatista rebellion in Chiapas, 1994 (Watts,
1994). The Zapatista rebellion is a perfect example of how the structural
adjustment program, delving further into neoliberal ideals, didnt work. In terms
of political ideology reflecting the views of its people, Mexico and the PRI
government was very much out of touch, as Bouillon et al (1999) suggests, they
were governing a country against the will of the majority of the population. What
this led to was a host of riots in southern Mexico that were quickly controlled by
state army forces. Although the Zapatista rebellion had no true economic or,
much to its dismay, political effect, it showed the underlying social unrest and

incompatibility with structural adjustment reform and the people of Mexico

(Hellman, 1997).
The 1995 tequila crisis was caused by, as it happened in 1982, the US Federal
Reserve raising interest rates putting speculative pressure on the peso, which
was eventually devalued. Mexico could no longer mobilize enough dollars to pay
off their dollar-denominated debt, which then no longer encouraged foreign
investment. Clinton, exercising executive powers managed to pull together a
47.5 billion dollar rescue package. It is essential here to note that without the
close relations Mexico had with the US in terms of geography and trade
partnerships such as NAFTA, it may have delved even further into a deep
recession, and we may have witnessed the failure and irrelevancy of the SAP. In
order to save American firms operating within, and exporting to Mexico, and to
keep the legitimacy of neoliberalisation, Clinton was obliged to act as he did
(Harvey, 2005). If anything, the further neoliberal ideals put forward by IMF
pressures and Salinas may have had its share of necessity, but it is clear to see
at this time, that for Mexico structural adjustment was failing, but not for the US.
The tequila crisis allowed US capital to buy up all assets at fire-sale prices.
While before the crisis only one Mexican bank was foreign owned, by 2000, 24 of
the 30 Mexican banks were foreign owned; so for the US, the SAP in Mexico was
a great success (Dollar & Svensson, 1998).
The SAP produced over 24 billionaires according to Forbes Magazine (1994), and
the 24th, coincidentally, richest man in the world Carlos Slim (Hellman, 1997).
Carlos Slims annual salary equates to the poorest 17 million Mexicans salary
per annum (Hellman, 1997), even at this point, it is still hard to argue Mexican
adjustment worked. In 1995, based on a study by Heredia (1995) over 50% of
the Mexican population lived in poverty. This did not change, in 2010, the World
Banks data on population at the national poverty line was 51.3%(World Bank,
2011). In 1980, before structural adjustment, Mexicos GDP was $134 billion
dollars (World Bank, 2011), the privatization and opening up of trade to global
markets eventually paid off for the countrys overall GDP (Adelman & Taylor,
1990). Aside from the 1982 crisis and the 1995 tequila crisis, where Mexicos
GDP plummeted, by the end of the 20th century Mexicos GDP reached 481.2
Billion dollars. In 2011 Mexicos GDP had reached 1.1 trillion dollars. So in terms
of actual wealth accumulation i.e. GDP, structural adjustment worked for Mexico
(Adelman & Taylor, 1990).

To conclude, it is evident to see that the success and necessity of Mexicos SAP
was completely subjective. In the case of Mexicos relationship with the US,
structural adjustment allowed for stabilized benefactors and debt relievers in the
form of the Bretton Woods institutions (Heredia & Purcell, 1995). The loans
themselves were a necessity for Mexico, as they helped the country re-establish
itself in the global economy; whether the neoliberalisation conditionality that
ensued was a necessity is seen differently. The lowering of state expenditure on
public services had huge social impacts on the Mexican people. A necessity
economically, but whether it worked in anyones favour other than the United
States and Mexicos upper classes is contested. Structural adjustment allowed
Mexico as a country to establish itself in the global economy. It fit into US-based
neoliberal ideals and global trading schemes, creating growth of wealth with
rising billionaires and national GDP levels, but it most certainly carved a larger
crevasse between the rich and the poor. The tickle-down effect is yet to take its
toll to this day in Mexico, as over 50% of Mexicans live below the poverty line
(World Bank, 2011). Structural adjustment led to the amalgamation of foreign
investment and the private sector and worked well in that respect, but
conversely a large part of the Mexican population was and still is marginalised
today, an unnecessary repercussion (Harvey, 2005). Unemployment soared for
the working classes after the SAP, and it arguably alienated the state from its
people, leading to civil unrest (Bouillon, Legovini, & Lustig, 1999). Structural
adjustment was necessary for Mexico to connect with the global economy, this
worked for Mexicos GDP overall. On the contrary, for the Mexican working class,
and the severe income gap that resulted from neoliberal reform, it didnt work
out at all, nor was it necessary.

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