Removal of state subsidies and tariff barriers may have adversely affected the standard of living of workers and the growth prospects of certain industrial sectors in the periphery, but they were needed medicine in order to get the prices right.
Western development institutions, notably the IMF, the World Bank and their major members attributed poor records to the prevailing policies and strategies of development which had been pursued in the post-war era. The major flaw, they argued, had been the degree of state involvement in economic affair and the curtailment of free markets and liberal trade regimes. Reducing the economic power and role of the state therefore became a central strategic objective. The means adopted by the West for achieving this in the 1980s was to develop a new breed of policy-based loans, "structural adjustment lending" as it came to be known, which involved a high degree of conditionality.
2.Structural Adjustment is the generic term used to describe a package of measures which the IMF, the World Bank and individual Western aid donors persuaded many developing countries to adopt during the 1980s, in return for a new wave of loans. As Adrian Leftwich notes, the aim of adjustment was to shutter the dominant post-war, state-led development paradigm and overcome the problems of developmental stagnation by promoting open and free competitive market economies, supervised by minimal states. Between 1980 and 1990, World Bank structural adjustment loans increased from seven to 187 in sixty countries.
SAPs usually include several basic components geared toward reducing inflation, promoting export, meeting debt-payment schedules, and decreasing budget deficits. They generally entail sever reductions in government spending and employment, higher interest rates, currency devaluation, lower real wages, sale of government enterprises, reduced tariffs, and liberalization of foreign investment regulations.