To paraphrase the Bard, What's in a name? That which we call [austerity] by any other name would [taste] as [bitter]. In a bygone era it was fashionable to call austerity by another name, i.e. SAPs, or Structural Adjustment Programs. In the 1980s and 1990s international lenders, particularly the International Monetary Fund and the World Bank, imposed such programs on a number of African countries.
Like Greece
and Italy, many developing countries have high debt-to-GDP ratios: some in
part because of the demands of the IMF and the World Bank. The purpose of SAPs is
not to encourage economic growth in indebted countries; rather, it is to impose neoliberal thinking on indebted countries to ensure debt repayment and economic restructuring. The
IMF and the World Bank are prepared to help financially distressed countries, but
they have preconditions for this assistance. Some of the preconditions include:
liberalization of the economy for resource extraction and export-oriented open markets; cutbacks; smaller government; privatization; currency
devaluation; higher interest rates; and a reduction in regulations.
The consequences of such preconditions have been quite negative. Poor countries, for example, must raise money through more exports to pay off their debts. The impact of this is that the prices of African exports have declined--making them cheaper to buyers in developed countries. As a corollary effect, industrial goods from developed countries have become relatively more expensive to poor African countries. The SAPs have promoted poverty, not economic growth, in Africa, because, in order to increase exports, African governments have had to spend less, thereby reducing financial regulation and consumption, among other things.
A quick
Google search including key words such as "Africa" and "structural adjustment"
summons a plethora of links to papers on Africa and Structural Adjustment
Programs. In eyeballing the list, you can see that a disproportionate number of
pieces argue that SAPs have been invidious, not helpful, to Africa. (In fairness, I should mention that one paper from USAID documented a
positive narrative.)
I can imagine goods things can come from asking poor countries to change the way they do things--after which they may grow and repay their loans, even if they remain mired in poverty. When the dust from the SAPs had settled, African countries collectively had technically repaid their original debt. But, because of the SAPs, they had incurred a debt more than twice as great as what they owed before, because of arrears and new loans.
There is certainly no
dearth of ideas for reducing poverty in Africa through various economic
policies. However, based on the evidence, Structural Adjustment Programs (a.k.a "austerity" and a.k.a "sequestration") should surely not be included among them. Yet, these programs are precisely the prescription that neoliberals wish to impose on the unwary in the U.S.
Austerity Is Still in the Driver's Seat and More Punitive Than Ever
Analysts at the IMF, and policymakers at the ECB and in the U.S., have been trying--quite convincingly--to promote the idea that high public debt, as a percent of GDP, inevitably slows economic growth. Advocates of SAPs in their present incarnation--i.e. austerity--still want loans repaid, even if the rest of the economy fails to grow. The kicker now, though, is that what lenders do these days, among other things, is to raid assets such as checking deposits, thereby making depositors feel the pain and take the financial hit first.
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