Make your work easier and more efficient installing the rrojasdatabank  toolbar ( you can customize it ) in your browser. 
Counter visits from more than 160  countries and 1400 universities (details)

The political economy of development
This academic site promotes excellence in teaching and researching economics and development, and the advancing of describing, understanding, explaining and theorizing.
About us- Castellano- Français - Dedication
Home- Themes- Reports- Statistics/Search- Lecture notes/News- People's Century- Puro Chile- Mapuche

World indicators on the environmentWorld Energy Statistics - Time SeriesEconomic inequality

Reproduced with permission from
the United Nations Research Institute for Social Development

Structural Adjustment in a Changing World
Adjustment as Stabilization: Adaptation to Crisis until the 1970s

During the first three post-war decades, stabilization programmes worked out between Third World countries and their creditors tended to focus on:

  • cutting budget deficits in countries experiencing economic crisis, through reducing public spending and/or increasing public revenue;
  • exercising monetary restraint (limiting the amount of credit and money in circulation) in order to reduce inflation;
  • improving the balance of trade of deficit countries through increasing incentives for traditional exports and developing new export activities;
  • reducing demand for imports and fighting inflation through implementing deflationary economic policies, including wage restraint;
  • ensuring that the exchange rate was set at a competitive level for exports. When change has been required, it has been more likely to involve devaluation than revaluation, although the latter could be recommended in some circumstances in order to fight inflation.

These changes in public policy, which still form the core of adjustment programmes, were generally contractionary in nature. They tended to hurt the weaker members of society more than the stronger. Nevertheless governments did have some room for manoeuvre. The burden of adjustment could be spread somewhat more broadly within the population: government budget deficits could, for example, be attacked by raising taxes on the wealthy; and the balance-of-trade deficit could be lowered by limiting imports of luxury items, rather than basic goods. Whether such measures were taken depended upon the ability of different groups within adjusting societies to promote and defend their own interests.

The precise distribution of the burden of stabilization in any particular case depended, however, not only upon the kind of political interests sustaining the government of the adjusting country itself, but also upon the bargaining power of specific deficit countries in the international economic arena, and on the internal political agenda of creditor countries at the moment when terms of stabilization agreements were being worked out. In this international sphere of bargaining, conditions for Third World countries were far more favourable in the first two post-war decades than they were to become from the 1970s onward — or than they are today.

In the first place, the 1950s and 1960s were a time of global economic expansion. Therefore while stabilization programmes implied hardship for many people within the countries concerned, it was likely that policy reform would lead to renewed growth. And, in fact, until the 1970s a period of adjustment-related recession was generally followed by an upturn of the economy.

At the same time, the international balance of power during the early Cold War period provided adjusting countries with strategic bargaining tools. The great powers were concerned with rebuilding the "free world", and international financial institutions understood the need to obtain support in Third World countries. Economic assistance flowed toward allies in the Cold War, which also increased their ability to deal with economic difficulty.

Finally, the domestic agendas being pursued in the advanced industrial countries were congruent with nation building in the developing world. Political coalitions in Europe and the United States supported the expansion of the state in order to protect and improve people's livelihoods, both at home and abroad. The reconstruction of Europe and Japan, and the improvement of welfare coverage throughout the developed market societies, implied the expansion of public programmes. For this reason, although stabilization efforts in the Third World during this period might well imply reducing some areas of government activity, or responding to pressure to open some areas of the local economy to greater international competition, they did not involve profound free-market restructuring of the national economy.

Contents Previous  Next