LIFE BOAT ETHICS

Life Boat Ethics

Life Boat Ethics

Introduction

The “Bretton Woods twins,” - the Developed countries and the International Monetary Fund (IMF) - began their stabilization and structural adjustment policies purportedly to lifeboat highly indebted developing countries cope with debt servicing in the face of their serious balance-of-payments crises in the early 1980s. The original expectation was that the intervention of these international financial institutions (IFIs) would be “a finite process whereby appropriate policies, with the lifeboat of external aid flows, would permit countries to restore growth and to tackle long-term development problems” (UNCTAD, 1993, p. 95).

Discussion

Sadly, the hopedfor restoration of long-term growth remains an everreceding goal for most countries undergoing the discipline - a verdict not only of independent scholars and UN agencies, but also internal reviews by IFIs staff. Most studies find that “structural reform remains incomplete and external viability elusive, at least for the near term” (IMF, 1993, p. 40). With a few exceptions in sub-Saharan Africa and Latin America, “the balance of experience in the 1980s was undoubtedly negative” (Stewart, 1991, p. 1848; Helleiner, 1993, p. 2,059). On the whole, the impact of structural adjustment programs, in most cases, has been positive on the exports and external account but negative on investment (Mosley, Harrigan and Toye, 1991, Vol. 1, p. 301). Hard-core poverty worsened significantly even in countries implementing structural adjustment successfully (Toye, 1991, p. 169). In spite of the continuing criticisms,1 these two most powerful international financial institutions (IFIs) have not altered their course except marginally. Their power comes not so much from the financial resources they provide - regional banks such as the Inter-American Bank may now be providing more resources -but from the fact that the London Club, the informal association of international banks, and the Paris Club, collectively representing the donor countries, will not lend until a country is prepared to accept stabilization and stmctural adjustment (Cooper, 1992, p. 150; Seers, 1981, p. 139). This paper attempts to show that the outcome of stabilization and structural adjustment policies, largely based on the neoclassical economic rationale, was justifiable neither in terms of the analytical nor the historical literature. The very ideological nature and the inherent contradictions of policies inhibited successful implementation and accentuated poverty and inequity in developing countries.

On the surface, the IFIs set out to lifeboat the debt-ridden developing countries of the 1980s in solving their twin deficits, the budget and trade deficits, by stabilization (the responsibility of the IMF) and structural adjustment (the responsibility of the Developed countries). The two sets of policies together have come to be known as economic reform. While stabilization aims at controlling inflation and improving balance of payments in order to maintain a reasonable flow of debtservicing, structural adjustment stresses the opening of a country to foreign trade by reducing trade barriers (particularly nontariff barriers), changing the sectoral balance in a country's development strategy (from heavy capital goods to textiles and other consumer goods industries and toward agriculture and from import-substituting industrialization (ISI) to ...