Whether individuals, companies, or governments appreciate it or not, the reality is that economies go through periods of booms and bursts that are typically consistent with what some refer to as business cycles. Hence, the need to make minor or major adjustments to financial and economic policies on a regular basis is simply one of the rudimentary facts in the socioeconomic life of a country. And that scenario is precisely what we have been witnessing in several regional and international economies in recent history.
Given the extent to which macroeconomic policies have to be adjusted to correct perceived or real imbalances in the economy, the government of a country usually turns to the International Monetary Fund (IMF) not only for monetary assistance but also for technical support to facilitate the design and implementation of “programmes” to correct the deficiencies in certain macroeconomic variables, restore internal and external balances, and hopefully return the country to its social and economic growth and development paths. These “programmes” that typically comprise several financial and economic measures are generally labelled “structural adjustments” packages.
Structural adjustments programmes suggested by the IMF often reflect a theoretical base featuring the monetary approach to the balance of payments. In the design and execution of these programmes, there is an almost unquestioning commitment to the nexus of linking net local assets of the monetary authority or system to the net foreign assets, within a financial accounting framework. By paying close attention to the balance between the sum of these two aggregates and the level of monetary liabilities in the system, the IMF attempts to stabilise both the internal and external imbalances in the economy.
While it is important to stabilise the economy in the short run, possibly within the agenda usually suggested by the IMF, it is equally important to move the economy towards a balanced medium to long-term position. This must be done with a reasonable level of income which, by extension, can only be achievable through an expansion of economic activity within the local economy. Thus, once the economy is stabilised, the process of restructuring begins.
A basic question remains: do countries actually need structural adjustments programmes? The simple answer is yes. These programmes are necessary to cushion the effects of external shocks such as increases in oil prices, hurricanes, earthquakes, and global recessions; to address weaknesses in the structure of the local economy (for example, dependence on a single crop such as banana, or service such as tourism); and to overcome any flaws in domestic policies (for example, excessive external borrowing as is the case in most Caribbean countries at the moment).
Since Caribbean economies will always be subject to the vagaries of the international market place, it is really our responses to external shocks, which, ultimately, will determine the viability of our economies in the medium to long run. Structural adjustments programmes are designed to assist our countries in their responses to adverse economic circumstances and are consequently here to stay. The sooner we recognise and accept that fact, the better are our chances of reaping the real benefits of such programmes.
(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)