The economic reforms of the 1980s and 1990s reshaped institutional capacity in ways whose consequences are still being managed.
What Structural Adjustment Was
Structural adjustment programmes — the packages of economic reform conditions attached to IMF and World Bank lending in the 1980s and 1990s — were the dominant development policy instrument of their era. They required borrowing governments to reduce public expenditure, liberalise trade and capital flows, privatise state-owned enterprises, and deregulate product and labour markets. These reforms were designed to correct fiscal imbalances, improve allocative efficiency, and integrate developing economies into the global market economy.
The evidence on their outcomes is contested but consistent enough to support several conclusions. The fiscal adjustments they required produced sustained fiscal consolidation in many cases. The privatisations they promoted transferred assets from state to private ownership at prices that frequently undervalued the assets. The public expenditure reductions they required fell disproportionately on social services and public investment rather than on security expenditure or debt service. And the institutional capacity of the states that implemented them was systematically reduced: the public institutions whose capacity required investment to be maintained could not be maintained within the fiscal envelopes the programmes required.
The Institutional Capacity Legacy
The long shadow of structural adjustment is most visible in the institutional capacity deficit that the programmes created. The state that spent a decade reducing public sector salaries, freezing public sector hiring, and cutting public investment in training and systems lost institutional capacity that the subsequent decades of economic growth have not fully rebuilt. The public health system that was underfunded through the adjustment period entered the twenty-first century structurally weaker than it would have been without the adjustment. The regulatory capacity that was reduced to meet fiscal targets proved insufficient for the more complex regulatory demands that market liberalisation created.
The adjustment's fiscal objectives were largely met. The institutional capacity objectives were never clearly stated, and the institutional capacity costs were never clearly counted. A generation later, those costs are still being paid by the institutions and the populations that depend on them.
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