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Read the following passages and answer the questions based on each.

Over the last 20 years, the Bretton Woods institutions have disbursed loans for ‘stablisation” and “structural adjustment” to more than 70 development countries. These loans carry conditions that cover a wide range of domestic policies and institutions in borrower countries. The implementation of orthodox stabilisation and structural adjustment of programmes has been disastrous for the working people and the poor at the countries in which these programmes were imposed.

In the first $20$ years of the IMF, over one-half of its resources were used by industrial countries. Over time, industrial countries stopped borrowing from the IMF, and it became a source of credit almost exclusively for developing countries. This process accelerated after the start of the debt crisis in $1982$. There is now a clear division between borrowing and non-borrowing members of the Fund, a shift associated with a gradual phasing out of low conditionally loans. By 1981, financial assistance from the IMF was, in the words of an IMF publication, "conditioned on the adoption of adjustment lending". The new types of loans and the new environment of lending associated new conditions. IMF conditionalities now pertain not just to balance-of-payments or exchange rate and price policies, but to a large number of structural features of an economy. Conditionality has become more wider-ranging and more stringent now.

A similar development occurred with respect to lending by the World Bank. Until the mid-$1970$s, the World Bank lent money primarily to finance development projects. The conditions imposed on the borrower related to performance in respect of specific projects. From the $1970$s, however, the World Bank began non-project financing. In the early $1980$s, the World Bank introduced Structural Adjustment Loans (SALS) and Sectorial Adjustment Loans (SECALs) lending has increased steadily.

This shift in the nature of lending was associated with a broadening of the conditions imposed on the borrower. The conditions attached to structural adjustment loans are economy-wide and include those on trade policy, public finance, the ownership and management of public sector enterprises and agricultural and industrial policy.

With the debt crises of the $1980$s, and with both the $IMF$ and the World Bank lending for stabilisation and structural adjustment, "cross-conditionality" came into force. The World Bank, for example, may not agree to a SAL unless the borrower country has accepted the terms of a standby agreement with the IMF. Together, the two Bretton Woods institutions are able to impose a host of conditions on the economies of developing countries. In what would have seemed a role- reversal in earlier years, the IMF can now impose conditions on specific sectors rather than on macroeconomic variables and the World Bank can impose conditions on macro- management rather than only on specific sectors and it is now difficult to distinguish between the conditionalities of the two institutions.

The need to study the effects of orthodox stabilisation and structural adjustment programmes comes from the fact that they have been implemented in large parts of developing world. The typical elements of an orthodox stabilisation and structural adjustment programme are first, fiscal austerity, monetary contraction and devaluation, and second, a set of policies at the sectoral and micro level. The second set of conditions focus on "reform" of "policies and institutions" and include privatising public sector enterprises, deregulating financial markets and agricultural prices, the labour market and removing trade barriers.

Orthodox stabilisation and structural adjustment programmes have been criticised, in India and elsewhere, on the three major grounds. The first is that they undermine the sovereignty of borrower nations. The second is that orthodox programmes have failed to stimulate social production and economic growth. The third is that these policies impose a severe burden on the poor.

Initially the role of the World Bank was to

  1. Concentrate on non-project financing.
  2. Dictating conditions which affected structural of economics.
  3. Finance developmental projects.
  4. Finance development projects and performance appraisal of those projects with respect to condition imposed.
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