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The Two Phases of
Structural Adjustment
It can be argued that structural adjustment is divided into two
distinct phases. 'Short-term' macroeconomic stabilisation -
involving currency devaluation, price liberalisation and budget
austerity - is followed by the implementation of a number of more
fundamental structural reforms.
Often, however, these structural reforms are implemented at the
same time as the 'economic stabilisation'.
FIRST PHASE: SHORT-TERM ECONOMIC STABILISATION
Devaluation
Devaluation and the creation of a uniform exchange rate
(eliminating exchange controls and multiple exchange rates) are
vital tools in government policy. It is worth noting that devaluation
is explicitly carried out by the Bretton Woods institutions. The IMF
plays a central role in the decision to devalue.
The exchange rate determines both the real prices paid to the direct
producers and the real value of their earnings. These real earnings
are reduced as a result of price rises and the IMF-dictated de-indexing
of salaries.
In some cases, devaluation provides a basis for the short-term reac
tivation of the entire export-oriented commercial agriculture sector.
More often, however, profits go only to the big commercial operations
and agricultural and industrial exporters.
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