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What did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans

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  • William Easterly

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Abstract

One feature of adjustment loans that has been often overlooked in their evaluation is their frequent repetition to the same country, with such extremes as the 30 IMF and World Bank adjustment loans to Argentina over 1980-99 or the 26 adjustment loans to Cote d'Ivoire and Ghana. The rate of repetition remains high and non-decreasing as cumulative adjustment loans increases. Repetition changes the nature of the selection problem, with the possible implication that new loans had to be given because earlier loans were not effective. Seventeen out of the eighteen countries that were IDA in 1980 and were in the top half of adjustment loans received became eligible for HIPC debt relief, compared to less than 50 percent of the IDA countries in the bottom half of adjustment lending -- again suggesting that previous loans were not effective at generating the growth necessary to service the debt. There were relative successes and failures, but none of the top 20 recipients of adjustment lending over 1980-99 were able to achieve reasonable growth and contain all policy distortions. Policies improved unevenly as adjustment loans accumulated, and even those policies that improved show a nonlinear satiation point after a certain number of adjustment loans is reached. An overall indicator of severe macroeconomic policy distortion does not improve as the number of adjustment loans increases in the overall sample, with about half the adjustment loan recipients showing severe distortions regardless of the number of cumulative adjustment loans. An instrumental variables regression for estimating the causal effect of repeated adjustment lending on policies shows a significant but small improvement for some macro policies, but none for others. None of the techniques in the paper is able to identify a growth effect, positive or negative, of repeated adjustment lending. The findings of this paper are in line with the foreign aid literature that shows that aid does not discriminate between good and bad policies. There's a big difference between structural adjustment lending and structural adjustment policies.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 11.

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Length: 40 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:cgd:wpaper:11

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Web page: http://www.cgdev.org

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Keywords: Structural Adjustment; Adjustment Loans; IMF; World Bank; economic growth; macroeconomic policy distortion; HIPC;

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  1. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  2. Ratha, Dilip, 2005. "Demand for World Bank lending," Economic Systems, Elsevier, vol. 29(4), pages 408-421, December.
  3. Graham Bird & Dane Rowlands, 2002. "The Pattern of IMF Lending: An Analysis of Prediction Failures," Journal of Policy Reform, Taylor and Francis Journals, vol. 5(3), pages 173-186.
  4. International Monetary Fund, 1998. "Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
  5. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  6. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
  7. Dicks-Mireaux, Louis & Mecagni, Mauro & Schadler, Susan, 2000. "Evaluating the effect of IMF lending to low-income countries," Journal of Development Economics, Elsevier, vol. 61(2), pages 495-526, April.
  8. Summers, Lawrence H & Pritchett, Lant H, 1993. "The Structural-Adjustment Debate," American Economic Review, American Economic Association, vol. 83(2), pages 383-89, May.
  9. Corbo, Vittorio & Fischer, Stanley, 1995. "Structural adjustment, stabilization and policy reform: Domestic and international finance," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 44, pages 2845-2924 Elsevier.
  10. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
  11. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
  12. Mohsin S. Khan, 1990. "The Macroeconomic Effects of Fund-Supported Adjustment Programs," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 195-231, June.
  13. Graham Bird & Dane Rowlands, 2001. "IMF lending: how is it affected by economic, political and institutional factors?," Journal of Policy Reform, Taylor and Francis Journals, vol. 4(3), pages 243-270.
  14. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
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