Aid—a lever to impose Structural Adjustment on Third World

With kind permission from Peter Rosset of the Institute for Food and Development Policy (or FoodFirst.org as it is also known), chapter 10 of World Hunger: 12 Myths, 2nd Edition, by Frances Moore Lappé, Joseph Collins and Peter Rosset, with Luis Esparza (fully revised and updated, Grove/Atlantic and Food First Books, Oct. 1998) has been reproduced and posted here. Due to the length of the chapter, it has been split into sub pages on this site.

Second, aid is used as a lever to impose structural adjustment packages on the third world. Since the 1980s U.S. foreign assistance worldwide has been conditioned on the adoption of structural adjustment packages designed by the World Bank and the International Monetary Fund,¹¹ policies that we described in chapters 7 and 8.

Making a grant or loan conditional on some action being taken by the recipient is called conditionality. Conditionality works by tranching economic assistance packages-that is, dividing the total sum to be donated or loaned to a recipient country into a series of smaller disbursements to be made over time, called tranches. Before each disbursement is made, the recipient must make policy changes spelled out in the covenants of the aid agreement that they must sign with USAID.¹²

Between 1982 and 1990 nine U.S. economic assistance packages provided to the Costa Rican government contained a total of 357 covenants that made disbursement conditional on more than twenty structural changes in the domestic economy. These included eliminating a grain marketing board that assisted small farmers; slashing support prices for locally grown corn, beans, and rice; allowing more imports from the United States; easing regulations on foreign investment and capital flows; and complying with specific clauses in similar agreements signed with the World Bank and the IMF.¹³

Such conditionality works in a carrot-and-stick fashion. When the Costa Rican congress balked at approving an outrageous new law demanded by the United States that would allow aid to bypass the government and go directly to the private sector, USAID suspended a $23 million disbursement.¹⁴ Ironically, this came at the very moment at which the Costa Rican Central Bank had exhausted the foreign exchange reserves needed for the daily operation of the economy. An internal USAID memo written several months before the incident occurred-which we obtained access to years later-showed just how cynical the United States can be. A top USAID administrator predicted the month in which the reserves would run dry and recommended timing a key disbursement to take advantage of that moment as leverage to guarantee that the desired law would be passed.¹⁵

It was precisely the replication of changes like this-and of structural adjustment-throughout the third world that produced rising inequalities in the 1980s and 1990s. For most of the third world the 1980s were a lost decade, during which living standards of impoverished majorities fell to pre-1960s levels. Not surprisingly, this became a period of widespread economic, social, and ecological crisis. Millions of the rural and urban poor were cut out from opportunities for progress. Credit, extension, subsidies, and technical education all fell by the wayside as budgets were slashed, and the lifting of tariffs flooded local economies with imported foodstuffs often placed on the world market at prices below local costs of production. As a consequence, poor farmers were caught in a squeeze between the high price of chemicals and other farm inputs and low crop prices, often losing their lands and moving to cities.¹⁶