Structural adjustment: damages, reparations and pathways to non-recurrence

Abstract

Beginning in the 1980s and 1990s, the International Monetary Fund (IMF) and the World Bank implemented neoliberal structural adjustment programmes (SAPs) across most countries in Asia, Africa and Latin America. SAPs imposed austerity, privatisation and economic deregulation and have been associated with severe negative impacts on human welfare, including (a) declining real wages and working-class consumption in some regions, (b) increased rates of poverty and basic-needs deprivation, (c) increased neonatal, infant, child and maternal mortality and (d) reduced health system access. Structural adjustment also created conditions for increased financial outflows and drain from the global South through unequal exchange. This paper reviews evidence of these damages and proposes possible options for reparations and distributive justice. We argue that the IMF and the World Bank should be democratised and restructured—or otherwise replaced by alternative institutions—to prevent further harm.

SUMMARY BOX

• Structural adjustment programmes, implemented by the International Monetary Fund (IMF) and World Bank across the global South from the 1980s onward, are associated with substantial negative impacts on human health and welfare.

• This analysis summarises key findings from existing studies demonstrating the human impacts of structural adjustment. It argues that the IMF and World Bank should provide reparations for damages caused, and they should be restructured or replaced by alternative financial institutions to guarantee non-recurrence.

• The proposals developed in this study can ensure that, in the future, developing countries can access necessary finance without harmful conditions.

Introduction

Beginning in the 1980s and 1990s, the International Monetary Fund (IMF) and the World Bank implemented structural adjustment programmes (SAPs) across most countries in Asia, Africa and Latin America. SAPs imposed austerity, privatisation and economic deregulation and have been associated with severe negative impacts on health outcomes and human welfare. In this brief analysis, we describe evidence of these damages and develop an argument for reparations and distributive justice.

The move to implement SAPs is best understood in the context of historical dynamics of international political economy. For most of the past 500 years, the world economy has been broadly structured such that growth and capital accumulation in the core (Western Europe and the European settler colonies of the US, Canada, Australia and New Zealand, often collectively referred to as the global North) depends on inputs of cheap labour and resources from the peripheries (Asia, Africa and Latin America, often collectively referred to as the global South).^{1 2}

This arrangement was challenged in the middle of the 20th century, as political movements across Asia, Africa and Latin America succeeded in overthrowing colonial and neo-colonial forces. Progressive governments rose to power across these regions, began dismantling the colonial economic arrangement and reorganised production more around local human needs and national development.^{3 4} They introduced land reforms, labour rights and capital controls; they invested in public healthcare and education; they nationalised key resources; and they used industrial policy and planning to build economic sovereignty. These developmentalist strategies were remarkably successful.⁵ During the 1960s and 1970s, real per capita income grew at an average of 3.2% per year across the South,⁶ and countries achieved substantial improvements in social outcomes.⁷

The success of the anti-colonial movement posed a problem for Northern powers, however, as developmentalist policies restricted their access to the cheap labour, resources and captive markets they had enjoyed under colonialism, constraining their growth and profits. They responded in two ways. First, by intervening militarily to topple progressive leaders and reverse developmentalist reforms, such as with the coups against Mossadegh in Iran, Lumumba in the Republic of the Congo, Arbenz in Guatemala, Allende in Chile, Nkrumah in Ghana and others, often installing right-wing dictatorships in their place.^{8 9} Second, they leveraged their power as lenders of the world’s reserve currencies to attach economic conditions to finance.

Global South countries are obliged to borrow or otherwise obtain core currencies—such as the US dollar and the Euro—to pay for necessary imports such as energy and producer goods. This was particularly necessary during the process of early industrial development. This makes them vulnerable to interest rate changes in currencies that they do not control. In the late 1970s, the US Federal Reserve dramatically increased interest rates, triggering a debt crisis across the global South.¹⁰ To protect US banks from the risk of Southern default, the US sought to ensure repayment by rolling over Southern debts on the condition that Southern governments implement SAPs under the IMF and the World Bank. SAPs were implemented beginning in the 1980s and tended to include three main measures:

1. Austerity: cuts to public healthcare, education, food subsidies, social security, etc.

2. Privatisation: transfer of public services, public industries and assets to private capital.

3. Deregulation: removal of industrial policy, tariffs, capital controls and labour protections.

In other words, structural adjustment was a primary mechanism by which neoliberal economic policy was implemented within the South, reversing the progressive reforms that had been so successful during the 1960s and 1970s.4,610 It re-cheapened labour and resources, forced open Southern markets and also organised Southern production around supplying Northern firms through global commodity chains.¹¹ Countries targeted by these measures had little choice in this matter; many governments considered default to be risky, on the grounds that they might be punished by financial markets. In some cases, capitalists within the global South embraced SAPs because they saw opportunities to increase their own profits, for example by taking advantage of weakened labour standards and environmental protections. Through structural adjustment, Western institutions assumed de facto control over economic policy in global South countries, shifting power over key macroeconomic decisions from national parliaments and elected representatives in Southern capitals to technocrats and bankers in Washington and New York.

Structural adjustment succeeded in restoring Northern access to cheap labour, resources and markets in the global South. It restored the North’s flagging rate of growth and led to a doubling in the rate of profit that US companies earned on foreign investment.¹⁰ But for the victims of structural adjustment, the consequences were devastating.

Damages associated with structural adjustment

Poverty and access to basic needs

During the neoliberal period there was a dramatic collapse in income and consumption in several global South regions. In Latin America, real income per adult (PPP) declined nearly 15% after 1980 and did not recover its previous levels until 2006. In Sub-Saharan Africa, incomes declined nearly 20% and did not recover their previous level until 2007 (see figure 1). Neoliberal policy decreased the consumption of the poor in order to make resources available for appropriation by core states and corporations.^{12 13} Taking the global South as a whole, per capita income growth rates collapsed from 3.2% during the developmentalist era to 0.7% during the 1980s and 1990s. It is estimated that the South lost an average of US$480 billion per year in potential national income during this period (in current US$, as of the late 1990s), compared with a continuation of the 1960–1980 growth rates. During this period, losses outstripped gains from aid by a factor of five.⁶

Figure 1. Case study: income in Sub-Saharan Africa (National income per adult, PPP, constant 2023 euros). The vertical dashed line indicates the year immediately prior to most countries' first implementation of SAPs.⁷² SAPs, structural adjustment programmes. Data obtained from the World Inequality Database (wid.world). Note this figure is provided to illustrate aggregate trends, not to demonstrate effects.

This period was in many cases also characterised by downward pressure on wages. By the end of the 1990s, the standard of living for most people in Latin America was lower than it was in the 1970s. This indicates that the working classes experienced severe constraints on consumption. At the same time, the share of wages in national income dropped by an average of 8 percentage points during the 1980s and 1990s, representing a substantial increase in inequality. In some countries, it was much worse: for instance, in Mexico, the share of wages dropped 10.6 percentage points during the 1980s alone. In Chile, it dropped 24.4 percentage points; in Ecuador, 18.8 percentage points.¹⁴ Researchers have shown that structural adjustment programmes have contributed to increasing inequality, by driving absolute income losses for the poor.¹⁵

Several empirical studies have demonstrated that structural adjustment increases poverty. A 2022 statistical analysis covering 81 developing countries from 1986 to 2016 found that ‘all IMF arrangements have a positive effect on poverty’.¹⁶ The study demonstrated that a country under average IMF conditions on trade and exchange will have a poverty rate 3.5% higher than countries without such arrangements, all else being equal. The IMF’s structural conditions have a particularly damaging effect, because they ‘tend to raise unemployment, lower government revenue, increase the costs of basic services’, etc. Another statistical analysis covering 79 countries from 2002 to 2018 demonstrated that IMF austerity conditions are ‘associated with higher poverty headcounts and poverty gaps’ at various poverty thresholds and at significant levels.¹⁷ Both studies account for possible endogeneity biases. It is important to note here that poverty is a major social determinant of health outcomes.

Other studies have further demonstrated that IMF adjustment conditions increase poverty rates,¹⁸ increase unemployment,¹⁹ increase child labour,²⁰ and reduce education spending.²¹

A 2024 analysis found that China experienced a dramatic increase in extreme poverty (as measured according to the basic-needs poverty line, BNPL) following its first World Bank SAP in 1990, which was part of further liberalisation that dismantled public provisioning systems and pushed the prices of food, housing and other basics out of reach for millions of working-class people.^{22 23} A similar pattern is clear in the case of Jamaica, where trade and exchange-rate liberalisation under structural adjustment in 1990-1992 brought currency depreciation and an increase in food prices.²⁴ Figure 2 shows that this was associated with an increase in BNPL poverty, reversing the progress of the previous years. Jamaica did not resume progress against extreme poverty until 2005. Similar crises occurred in many other countries, particularly in the Eastern European countries that were subjected to structural adjustment after 1990. Increased BNPL poverty means people have reduced access to basics such as food and shelter.

Figure 2. Case study: extreme poverty rate in Jamaica (basic needs poverty line, BNPL). The vertical dashed line represents the year prior to the most intensive trade and exchange rate liberalisation under structural adjustment. Data obtained from the OECD.⁷³.

Health impacts

Structural adjustment has been associated with significant damages to human welfare, which are reflected in the public health record. The neoliberal policies imposed by SAPs have long been known to negatively impact health.25,31 In a 2017 systematic review of empirical evidence, it was shown that structural adjustment imposed by the IMF, World Bank and African Development Bank has had a strong negative impact on child and maternal health.³² For instance, studies on Sub-Saharan Africa showed structural adjustment was associated with an additional 85.62 child deaths per 1000 children,^{33 34} and an additional 360 maternal deaths per 100 000 live births.^{35 36} Additional work has found that IMF programmes increase infectious disease mortality.³⁷ Structural adjustment is also associated with a reduction in the rate of improvement in adult mortality, and for the poorest quintiles an increase in mortality, compared with the 1960–1980 period.⁷ Figure 3 shows that infant mortality increased in Kenya following the implementation of structural adjustment (especially after the second round of SAPs was imposed in 1986) and did not recover its previous trend until recently. Kenya suffered 305 000 excess infant deaths between 1986 and 2010, compared with the previous mortality trend.

Figure 3. Case study: infant mortality in Kenya (per 1000 live births). The solid line represents real data, the dotted line represents the trend based on 1960–1980 values. The vertical dashed lines indicate the year Kenya’s first two rounds of SAPs began to be implemented; the first (thin) in 1980 and the second (thick) in 1986. Kenya remained under SAPs for more than 20 years. Note that while much of the increase in mortality here is attributable to mother-to-child HIV transmission, SAPs are understood to have exacerbated this pathway,⁷⁴ and increased infant mortality even after controlling for HIV.^{34 44} SAPs, structural adjustment programmes. Data obtained from World Bank (data.worldbank.org).

In the face of criticism, around the end of the 1990s the IMF and World Bank replaced SAPs with ‘poverty reduction strategy papers’ and similar instruments. And yet scholars have demonstrated that these instruments retain the core tenets of SAPs.38,43 A global review covering 1980–2014 found that IMF structural adjustment policies continued to have significant negative impacts on health system access and neonatal mortality.⁴⁴ Each additional policy reform imposed by the IMF lowers health systems access, such that countries subjected to average adjustments in 2010 would see a decline in health system access to 2002 levels. At the maximum number of conditions, the decline would fall below 1980 levels. In terms of neonatal mortality, the average IMF programme drives an additional 2.06 deaths per 1000 live births, while the maximum number of conditions drives 9.49 additional deaths.

SAPs impact health outcomes in several ways. They cut government investment in health, education, nutrition and family planning.⁴⁵ They close healthcare facilities, reduce access to supplies and limit hires of key staff like doctors and nurses.^{46 47} They require governments to devalue their currency, which increases the cost of imported drugs, medical supplies, food and fuel. Market deregulation guts health and safety laws, tariff cuts deprive governments of revenues⁴⁸ and privatisation and user fees reduce public access to essential services like health, education, water and sanitation.⁴⁹ On top of this, losses to formal employment and cuts to wages reduce people’s ability to purchase food and healthcare, rendering them more vulnerable to disease.

Several counterfactual cases illustrate what global South countries could hypothetically have achieved in terms of human development had they not been subjected to structural adjustment. For unique geopolitical reasons (and because of special military agreements with the USA), both Costa Rica and South Korea were permitted to continue using many of the social and industrial policy programmes of the progressive era, even despite formally participating in IMF and World Bank facilities.⁵⁰ Today, life expectancy in both countries exceeds 80 years, nearly 10 years higher than the average for low- and middle-income countries, and equal to the average in the global North.

Cuba offers another example. Cuba successfully resisted SAPs and instead built a robust system of public provisioning to ensure universal access to essential goods, including housing, healthcare and food. This system has been successful at fighting extreme poverty, hunger and premature mortality. Cuba’s death rate from malnutrition is the lowest in the global South, and lower even than that of many rich economies, even while it faces crushing sanctions. This offers an example of what other countries could have achieved, had they been allowed to continue investing in public provisioning systems. A recent non-peer-reviewed assessment based on the Global Burden of Disease Study calculated that, if other countries adopted policies like Cuba’s to ensure universal access to nutritious food, 16 million deaths could have been prevented during the period 1990–2019.⁵¹

Financial outflows and unequal exchange

There are also other damages to consider. For instance, the removal of capital controls has led to large financial outflows from the global South in the form of net outward profit repatriation by foreign companies, reaching up to US$250 billion per year (in 2020 USD).⁵² Deregulation of customs and trade rules has led to capital outflows in the form of trade misinvoicing and abusive transfer pricing, together totalling over US$1 trillion per year (in 2020 USD), mostly with the purpose of evading taxes.^{53 54} These outflows mean that surpluses generated by firms within developing countries are not available for reinvestment in public services or other forms of production for development.

SAPs had the effect of depressing wages and resource prices in the global South, which in turn enabled Northern states and corporations to appropriate wealth from the South through what scholars describe as ‘unequal exchange’ in international trade.55,57 Systematic price disparities between North and South mean that for every unit of resources and labour embodied in goods that the South imports from the North, they must export many more units to pay for it. This results in large net flows from South to the North—a ‘hidden transfer of value’ from periphery to core.

Several recent empirical studies have quantified the scale of net South-North transfers in terms of physical resources and labour embodied in traded goods, using multi-regional input-output models.58,60 In the final year of available data, these net flows included 12 billion tons of raw material equivalents, 822 million hectares of land, 22 exajoules of energy and 826 billion hours of labour. According to these studies, the large scale of these net flows cannot be explained by productivity differences, and they contribute substantially to growing consumption in the core states. Nearly 50% of all materials and embodied labour consumed in the global North are net-appropriated from the South through unequal exchange.

This dynamic means that while the North enjoys the benefits of resource extraction, the ecological costs are disproportionately suffered in the South. It also means that the South is drained of resources that could otherwise be used for human development and improving social outcomes. The quantity of energy and materials appropriated each year would be enough to build infrastructure necessary to ensure universal access to decent living standards (DLS) across the global South, including healthcare, education, modern housing, electricity, sanitation, refrigeration, heating/cooling, internet, transit, etc.^{61 62} The quantity of land appropriated each year would be enough to ensure a nutritious diet for up to 6 billion people, ending hunger and undernutrition.

Possibilities for reparations and distributive justice

The evidence cited above demonstrates that structural adjustment has been associated with substantial harms in affected countries, with a subset of quasi‑experimental and instrumental‑variable studies identifying causal effects in the case of various social indicators. Because these damages have been inflicted by programmes implemented primarily by the IMF and the World Bank, we suggest these institutions should bear primary responsibility for repair. This is the simplest and most straightforward approach, with some precedent in the demands issued in 2019 by Tunisia’s Truth and Dignity Commission.⁶³

Another possibility is to apportion responsibility to the governments of the countries that control these institutions. The USA wields veto power over all major decisions in both the IMF and World Bank, with a voting share of 16%. The countries of the global North (which represent 15% of the world population) control nearly 60% of the voting power, and generally vote as a bloc, enabling them to implement decisions against the will of the global South (which, despite having 85% of the world’s population, has a minority of the votes).⁶⁴

In theory, it may also be reasonable to consider responsibility in the case of three other key groups: (a) the commercial banks that ultimately benefitted from the debt enforcement that SAPs provided, (b) the multinational companies (and their directors and shareholders) that have benefitted from surpluses derived from the devaluation of Southern labour and resources and from the net appropriation obtained through unequal exchange and (c) the Southern ruling class factions that may have supported SAPs for their own financial gain.⁶⁵ However, this would be a more difficult approach both empirically and procedurally.

There are several ways to calculate the scope of reparations owed. One approach would be to quantify the cuts to public services, aggregate wage reductions and losses due to capital outflows suffered by each nation, to the extent that these are attributable to structural adjustment, adjusted for inflation and increased at a historically average rate of interest. Another approach would be to quantify total losses to potential national income due to structural adjustment against a counterfactual non-adjustment scenario.⁸ Claimants could also consider reparations for ecological damages and losses due to unequal exchange, to the extent this is exacerbated by structural adjustment.

Another approach would be to focus specifically on repairing the negative welfare impacts where existing empirical studies have demonstrated SAPs played a direct causal role (eg, poverty, mortality, healthcare access).⁶⁶ Direct compensation can be provided in such a way that reverses these deprivations—eg, by ensuring access to necessary goods and public services—and restores people to the social indicators they would currently enjoy if the insult had not occurred and they had continued on a normal trajectory of improvement.

This approach is consistent with the UN Declaration of Human Rights, wherein Article 25 recognises that ‘Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family’. Similar provisions have been codified in the International Covenant on Economic, Social and Cultural Rights, which has been ratified by most states. Article 7 (the right to work under ‘just and favourable conditions’) and Article 11 (the right to an adequate standard of living) are most relevant. Reparations claims could conceivably be brought under these provisions. Claims might also be brought with reference to the principle of odious debt, on the grounds that global South nations should not have been held responsible for debts inflated by US political manoeuvres, nor forced to repay under extractive conditions not agreed to at the time of lending.

Two major challenges arise. The first is that the IMF and World Bank enjoy sovereign immunity status which may prevent them from being sued via normal channels for damages caused. The second is that the undemocratic nature of the IMF and World Bank would pose an obstacle to reparations cases being brought from within the institutions; for example, the US could simply veto such an initiative. A formal reparations programme would therefore likely require cases to be brought against liable parties under international law.

In addition to reparations for past and current damages, we argue that the IMF and World Bank must issue a guarantee of non-recurrence, abolishing structural adjustment conditions on all further lending. Furthermore, following suggestions made to the UN Human Rights Commission (A/HRC/43/45), they must be made to perform prior assessments of damages that could be caused by their lending policies. Any future programmes should also be calibrated to considerations of distributive justice, to ensure that programmes bring about a socially just allocation of resources.⁶⁷

On top of this, it is imperative to take steps to protect against future injury. We argue this should entail democratising the IMF and World Bank, so that all countries get a say when it comes to determining policy (longstanding demands from global South countries have called for a one-country-one-vote system, or various possibilities that account for population size⁶⁸; ending the sovereign immunity status of these institutions, so they can be held liable for future damages; cancelling odious or overpaid debts (for which there are existing provisions under international law); and introducing a fair, transparent mechanism for defaulting on external debts (as per the proposed Multilateral Sovereign Debt Resolution Mechanism).⁶⁹ Ultimately, global South governments should be free to use industrial policy and planning to organise production around national development objectives.⁷⁰

If the IMF and World Bank cannot be reformed from within, they should be replaced by alternative institutions that can carry out the necessary financial functions in a more democratic way. Indeed, there is evidence that such alternatives are already emerging, in the form of the BRICS New Development Bank and the Asian Infrastructure Investment Bank, which were established by and for global South countries, and which do not attach structural adjustment conditions to finance.⁷¹ Notably, voting power in the New Development Bank is substantially more balanced than in the World Bank and IMF: the original five BRICS members hold equal voting rights (totalling 55%) and no member is allowed to hold veto power. Whether these institutions will rise to provide comprehensive alternatives to the IMF and World Bank, or whether further alternatives must be established, remains to be seen.

We have provided an overview of evidence demonstrating that SAPs had negative impacts on human welfare across several key registers, and we have articulated a first argument for reparations. It would fall next to scholars of international law to assess questions of legal procedure and practical implementation. However, even in the absence of a practical way forward, we contend that the argument for reparations nevertheless establishes an important principle and can contribute to current efforts to change IMF and World Bank policy and abolish structural adjustment conditions, while underlining the need for new institutions.

Data availability statement

There are no data in this work.