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sample chapter title 33
Whether the causes of balance-of-payments instability were domestic or 1
external, the model dictated austerity via contraction of domestic expen- 2
ditures, which would be achieved by fiscal retrenchment and credit reduc- 3
tions. The real world of developing countries, however, is replete with 4
large-scale unemployment. Employing such a model, which takes as given 5
that all resources, including labor, are fully utilized, is therefore dubious in 6
these cases. Indeed, policies based on this model have tended to contract 7
economic activity and further exacerbate the already dismal standard of 8
living. Recent empirical studies have confirmed the negative impact of 9
IMF conditionality on economic growth. Moreover, this climate of aus- 10
2
terity and credit constraint is hardly conducive to the types of investment 11
needed for altering the structures of economies—an important key to 12
development. 13
Yet this strategy of expanding exports while devaluing currency was 14
and still is strongly promoted by World Bank and IMF policies. Combined 15
with trade liberalization (discussed below), this strategy encourages coun- 16
tries to pursue their static comparative advantage, which for developing 17
countries tends to be the export of unprocessed raw materials (which is 18
not surprising given their colonial history). Thus, rather than focusing on 19
developmentally enhancing exports, which might encourage reorientation 20
of economies toward industry and manufacturing and in turn help stimu- 21
3
late their structural transformation, developing countries are locked into 22
the same problematic patterns. 23
24
jenna: Do you have an idea what sort of man you want as a husband? 25
annelise: The sort that God will send me, I will accept him. These are things of 26
God-one cannot understand them.... 27
jenna: And for the number of children that you would like? 28
annelise: You can propose, but God dispenses. So you could propose to 29
have only one child,... but in some way, it is God who gives children. If he 30
gives you one hundred, you just take them! 31
32
Other components of structural adjustment have also discouraged 33
strategies that would structurally transform developing economies. The 34
introduction of measures aimed at inducing an increase in the supply of 35
good and services via liberalization and privatization, along with the poli- 36
cies of demand constraint, have focused on improvements in static effi- 37
ciency, not structural transformation. Liberalization policies are derived 38
from standard neoclassical microeconomic models applied to areas such 39

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