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OPINION

Further Thoughts on Structural Advancement

R. H. Khandker
The Canadian High Conurt-•sloner Emily Qauvreaus article on Structural Adjustment In The Dally Star on January 4 Is both refreshing and opportune. It Is refreshing because It has presented a complex subject with great clarity. It is opportune as it has helped to reduce the confusion and misunderstanding with which the subject It often treated, including in Bangladesh. There arc widespread criticisms and re sentments to the World Bank's policy advice concerning structural adjustment of the Bangladesh economy. While certain aspects of the Bank policy may merit critical comments, it appears that to some critics structural adjust menl Is an unwelcome concept. High Commissioner Oauvreau's article has succeeded in advancing the point that structural adjustment is a useful, indeed necessary, path that leads forward to economic development. 1 venture to put forward some further thoughts towards the same goal.
Structural adjustment is neither a new phenomenon nor Is the debate on it now. It 1s also not confined to the Third World. Perhaps the greatest structural adjustment occurred in Europe following the Industrial revolution transforming the European economics from feudal to industrial. The High Commissioner's own country Canada Is currently lacing the challenge of structural adjustment following the decision for free trade with the United States. The Canadian economy must go through profound structural adjustments If Canadian products are to compete against U.S products in a wider market. The debate on this issue was very intense before the free trade decision was made a couple of years ago, and It Is still quite hot in the midst of a recession. Furthermore, the concern about environment, which is far deeper in Canada than in many other countries specially its soutliern neighbour, adds a new dimension to the structural adjustment challenge. The U.S. economy is also not free from this challenge as it has been facing massive deficits in Um: budgets and the balance of trade which Japan has so far acquiesced to finance.
Although conditionalities, in international assistance in support of structural adjustment. programmes in the Third World nave come into being only tn the 1980s, such conditionalities were there cven earlier in the 195Os, 196Os and even 1970* when important tndustrlahxed countries resorted to IMF financing to overcome balance of payments crises. The two Brctlon Wood instilultons-Inlernalional Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) of World Bank were created in the aftermath of the Second World War lo help resolve problem* of balance of payment* and economic development. The basic objective of the IMF was lo resolve balance of payment* constraint*. The Industrialized countries maintained convertibility of thetr currencic* al of-fie tally fixed exchange rales which were at or near the equilibrium rates determined by the market demands and supplies of the national currencies. Pressures for shortterm movements away from the fixed rates were counteracted by central bank s operations to buy or sell foreign currencies. However, occasionally an industrialized country encountered a longer-term structural disequilibrium in its bal ancc of payncnl*. Such situations called for borrowing from
/♦he IMF and a structural adjustment programme. The IMF often insisted on a devaluation of the currency and a host of other conditions, notably restrictions on public spending to demands for imports. Such conditionalities were not always popular in the borrowing country including among the leaders. I recall the outburst of President deGaulie in Uw Sixties refusing lo devalue Uto France which he proclaimed was equivalent lo devaluing France. After the fixed exchange rale system gave way to the system of floating exchange rates in the Seventies the conditionality of devaluation became unnecessary in the industrialized countries. However it remained for lliose countries including all in 11k Third World whkh maintained fixed exchange rales of nonconvertible currencies.
I have dwelt in this historical discussion io but rest the point, that, although the debate on structural adjustment started In the Third World only in the 1980a. it was much older in the Industrialized countries. In that era IMF* operation tn the Third World was limited, as those countries managed their balance of payments at fixed exchange rales by applying strict exchange control and various Import restriction*, licensing and potential duties. Commonly the national currencies were highly overvalued al the official exchange rates, which caused widespread economic distortions. However, so long as they could avoid the door* of the IMF, they could also avoid conditional ilk-* The World Bank left ihe exchange rales and balance of payments issues to Ihe IMF, and determined Its lending strategies to the Third World countries mainly on development consideration. Thi* situation changed in the 1980s when the major donors urged the World Bank to compel developing countries to relax controls and to align thetr economies to free market force*. Thu* the World Bank joined forces with the IMF, at times surpassing the latter, to lay down policy conditions. Realistic exchange rale and Structural adjustment bceamc major tools of Bank policy and operation.
We may now turn lo Bangladesh. To start with, it should be asserted that Bangladesh must accept structural adjustment as a necessary programme policy for Ils economic progress. Success In the field of external trade will determine our economic development. Whatever gains that so far have been achieved emanated from the external sector. especially the human and garment* exports. apart from large foreign aid with substantial grant* and grant elements. For future progress, Bangladesh must .a hlevc a much grater competitiveness tn external trade lor which structural adjustment poJick* and programmes in c**enUal.
I do not believe that the World Bank is agalnsl Bangladesh, or is prepared to subordinate Bangladesh » development interest - lo Jhc business interests of the donor countries, which I* often Implied in the criticism* of the Bank. This I say despite my personal witnessing during my d,iys in the Bank in the Sixties of reviews of certain large Bank projects by some Executive Directors from the angle of contract business of the countries they represented. 1 believe that tn articulating the Bank's policy advice to developing countric* including Bangladesh the members of ihe Board and staff are motivated by the development interest* of the borrowing country. I have observed this when I analysed the Bank Programme in Bangladesh last year as the convener of the Task Forec on Aid Utilisation. Why then is the misunderstanding among certain critics about Bank advice on the structural adjustment of the Bangladesh economy? Below is my view on the possible answer.
I think that the main reason is that the Bangladesh Govt docs not make its own analysis of the structural adjustment policies and programmes which it considers necessary for a viable and sustainable development of Ihe national economy. In the absence of such policy analysis, the Govt, is left only to react to Bank advice. The Govt, may have genuine restrictions to certain Bunk advice bul it locks convincing and analytic arguments. This situation and the heavy weight of the Bank as the most important donor for Bangladesh make the \
Government lo accept willy nlHy Bunk prescriptions with attached conditions. However, the reservations persists in the Govt. mind and the Bank know* It. which create* »ome veiled distrust* between the Iwo panic* Consequently. the Bank lends to put more condl lions lo bind i>k hands and feel of Ihe Government. The Government Is'In no position to say. no since It needs Bank financing desperately. Sonal Into* the Government accept* conditions knowing that 11 cannot honour them. Some conditions are beyond the reach of Uk- signatory ■* they lay In other areas over which he ha* no control.
Al ihe Bank side, there to a tendency to orcscrlbe standard policy and programmes of structural adjustment, not specifically tuned to the objective conditions In the borrowing country. As the High Commissioner has emphatically staled, the structural adjustment policy and programme" Should be designed and carried out, not according to some pre-set equation but tn the high of the country * own. individual ctrcum-■tancea". The Bank carriea out tnveatigationa on the condl-ttona In Bangladesh, but in the absence of Internal comprehensive analysis and articulation of a national position, the Bank focuses its studies with ideas which are external and standard.
If the above analysis is substantially valid, the obvious conclusion should be that, the Govt, should have a firm pollU-cal will and develop professional capacity to carry out dispassionate, comprehensive analysis of structural adjustment policy requirements, and with the policy so formulated, it should lead the negotiations with the Bank, not be led. The outside professional economists and other specialist should be Involved in such analyses bringing them from the role of critics to that of partnership in policy formulation. That should reduce the misunderstanding now prevailing about structural adjustment.
The author had held senior positions In the Planning Commissions oj earstwhtle Pakistan and later tn Bangladesh. Ue also served as Adviser tn Kuwait. World Bank and UNDP. Retiring from the latter be resides alternately In New York and Dhaka