Academic journal article The Western Journal of Black Studies

The Journey So Far: The Effect of Structural Adjustment Programme (SAP), Sustainable Growth, and Development in the Caribbean Region

Academic journal article The Western Journal of Black Studies

The Journey So Far: The Effect of Structural Adjustment Programme (SAP), Sustainable Growth, and Development in the Caribbean Region

Article excerpt

Introduction

The economic stagnation of the Caribbean islands in the eighties could be attributed to the general slow growth of Latin American countries in the eighties. The significant drop in the aggregate rate of growth from 5.9% in the seventies to 1.1 in the eighties was a major concern (Economic and Social Progress in Latin America, 1997). In order to address the economic distortion (in terms of external debt and declining GDP) and macro imbalances, most of the Latin American countries including the Caribbean Community and Caribbean Common Market (CARICOM)(1) decided to seek assistance from the World Bank/IMF. The centerpiece of IMF policy prescription to developing indebted countries in the Baker and Brady plan lies on the structural adjustment programmes (SAP). A SAP may be defined as a complex set of multilevel organizational and inter-organizational interventions with multiple goals and objectives, a wide range of public and private sector organizations and organizational actors, with many intended and unintended consequences (Jamal Khan, 1991). The intent of SAP is to address both exogenous and endogenous shocks confronted by these countries and restore the economy to a steady growth path if recommended policies were adequately and correctly implemented. In the case of an exogenous shock, current account deficits are offset by sustainable private and official capital flows; while the endogenous shocks, are the responsibility of the participating country government through fiscal responsibility. Some of the tenets of SAP include national currency devaluation, full trade liberalization, contractionary fiscal policy, market-determined exchange rate, and removal of all excise taxes. Using the neoclassical model as a point of reference, the market mechanism is supposed to ensure efficiency in resource allocation and promote growth with no disequilibrium or imbalances in the economy. SAP recommendations fall under this model, and if participating countries loyally implement these policies, then the free market would ensure growth and development for them. This is consistent with the World Trade Organization (WTO) ideology, whose philosophy is based on requiring member countries to use trade policies that are nondiscriminatory and allow trade flows in the host market (World Development Report, 1997).

CARICOM as participating members of the GATT/ WTO have been encouraged to seek assistance from the IMF. But the feasibility of SAP for countries adopting it leaves much to be desired. The economic benefits of adjustment in most cases have been modest or lacking(2). Studies have also indicated that very few reform programs have actually achieved the targeted growth rate, increased per capita income in the export sector, improved current accounts balances and external debt (Ravenhill, 1988; Mosley and Smith, 1989).

The question becomes why are developing countries interested in the adjustment program? Countries seeking assistance from World Bank/IMF had to go through this program if they intend to promote growth and development through export led growth and external aid. Many of the Less Developed Countries (LCD's) as well as CARICOM countries that adapt SAP are usually small and poor, and the implementation of SAP has become a nightmare for them due to the austerity measures imposed by the World Bank/IMF. The economic hardship in terms of declining real income due to devaluation has not only led to social problems but also raises other questions of tradeoff between human suffering and economic growth and development. The objective of SAP is to assist countries by providing loans that would translate from short term to medium term growth, and eventually promote long term sustainable growth and development. Under the program, trade liberalization was suppose to foster export-led growth for these countries by increasing export and discouraging import.

The purpose of this paper is to theoretically analyze (using Stylized fact) the growth path and development of CARICOM countries that adapted SAP given the structure and nature of their economy. …

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