Just as European missionaries were the spiritual handmaidens of nineteenth-century colonialism, so has the International Monetary Fund (IMF) assumed a modern-day mission in support of world trade, finance and investment. The mission aims to convert the benighted heathen in developing countries to the enlightened religion of the free market, whose invisible hand guides self-interest toward the best possible outcome. Once expected to join world Christendom after their conversion, penitent countries today have structural adjustment programs (SAPs) to guide them to their place in the global economy. The rub is that while these processes sometimes stimulate economic growth and technology transfer, they also introduce market-based volatility into fragile “emerging” economies, undermine non-capitalist social units such as the village and the extended family and homogenize global culture, symbolized by putting a Kentucky Fried Chicken outlet in every entrepôt.
IMF case studies of four successfully converting Arab countries, Egypt, Jordan, Morocco and Tunisia, concede that an earlier model of public investment-led growth had been relatively successful until 1985.  Yet each case study invokes the same two-verse litany. Verse one bemoans the crisis conditions of the second half of the 1980s, laying the blame on heavy-handed government intervention in the economy. Verse two commends the policy changes guided by SAPs, celebrating the growing role of private capital (domestic and foreign) and the promise of an outward-looking development strategy. 
This author’s analysis of evidence from IMF and World Bank data sources for the years 1980 through 1996 (which include the pre-crisis, crisis and SAP periods) suggests that the four countries’ SAPs succeeded in some dimensions, reducing inflation, budget deficits and debt service, for example, but did not restore their 1980 (pre-crisis) rates of savings, investment and growth. Further, insufficient attention has been paid to the social problems, most notably unemployment and inequality, exacerbated by SAPs. The evidence also betrays a political motivation to designate some economies “successful,” backed by generous financial assistance to ease the pain and the political costs to the regime of the early, austerity phases of an SAP.
What developing countries need instead is a new form of “structural adjustment” that redresses the deficits in existing SAPs and puts human welfare at the core of development policy.
Implementation of Structural Adjustment
The typical SAP counsels a country experiencing fiscal and trade difficulties to undertake a standard set of measures aimed at “getting the prices right.” First, either devalue or float the currency in order to make exports more competitive on the world market, earn more foreign exchange and pay down external debt. Second, allow interest rates to rise to levels comparable in real terms to other countries’ interest rates in order to encourage increased domestic savings, prevent capital flight and attract foreign financial capital. Third, reduce the growth rate of the money supply to combat inflation and fourth, curb government budget deficits so as not to “crowd out” private borrowers from the capital funds markets.
Table 1  summarizes the reform objectives pursued by Egypt, Jordan, Morocco and Tunisia from 1980 to 1996. With 13.5 out of a possible 19 affirmative responses, they adhered relatively closely to the SAP prescription and are praised in IMF publications. It is surprising that Tunisia had only three affirmative responses out of five, because the IMF and the World Bank laud Tunisia as the most successful of economic reformers in the Arab world.
Structural Reforms. As the initial stages of structural adjustment take hold, the country is advised to undertake deeper reforms of the institutions framing the economy. Privatization of public assets and enterprises is considered essential to generate new revenue for an indebted, deficit-ridden public sector, and to stimulate productive investment by a private sector made more efficient by its singular pursuit of profit over other social and political objectives of state-owned enterprises. A shift in the tax structure toward consumption or value-added taxes, along with the streamlining of corporate and personal income taxes, encourages investment over consumption. Legal changes favoring investment by private capital, whether domestic or foreign, and the unfettered repatriation of profits to investors, are considered essential to attract and hold investment in a fiercely competitive global economy. Trade liberalization opens the economy to the bracing challenge of global competition and a more efficient use of its resources.
In the eyes of the IMF case study authors, the four countries made progress in their pursuit of these institutional changes. They are credited with starting active capital markets, Jordan’s being the oldest and best capitalized. Egypt is praised for privatizing more than one third of the public sector portfolio in 1996 and 1997, which “will help raise productivity growth and domestic savings.” Jordan is praised for passing an exemplary investment law that treats all investors alike, regardless of nationality. Tunisia and Morocco receive kudos for restructuring their tax codes, and Tunisia is especially commended for its pioneering liberalization of not only profit repatriation but also capital liquidation for foreign investors. 
In sum, these four countries have followed the SAP commandments religiously.
Table 2 summarizes changes from 1980 to 1996 in international indicators by which the external success of an SAP can be judged. While each country shows some areas in which its performance has improved as expected, no country has a consistently good performance rating.
Among the four countries, none registers an improvement in the rate of growth of exports of goods and services. None shows improvement in the trade balance (exports minus imports of goods), and only Tunisia shows consistent improvement in the current account balance. This is because income from services, such as Suez Canal fees and tourism, and net remittances, are positive for all four countries, but profits to foreign investors and other forms of property income constitute a net drain. Further, the amount of foreign direct investment shows modest improvement in Morocco and Tunisia, but declines in Egypt and Jordan.
In all cases, debt as a percent of GDP declined after 1990, but Egypt is the sole case in which it was lower in 1996 than in 1980. Jordan’s debt-to-GDP ratio was 114 percent in 1996, near the top of the range for middle income countries. Morocco and Tunisia’s debt was also larger relative to GDP in 1996 than in 1980. While all four countries faced their highest debt service burdens during their crisis years and Morocco’s rose in the 1990s (contrary to SAP expectations), Egypt and Morocco showed a lower burden in 1996 than they did in 1980, and Jordan’s and Tunisia’s were less than two percentage points higher.
In sum, these results show a weak impact on performance from SAPs. Table 2 indicates that, with 15 “yes” responses out of 32 entries, fewer than half of the international objectives were met by the group as a whole as of 1996. Tunisia performed the best, with five affirmatives out of eight entries, but the impression remains that these countries are something less than structurally well adjusted.
Trade Liberalization. An SAP encourages tariff reduction and other forms of trade liberalization  in order to promote free trade and integration into the global economy. Although the four countries’ tariff rates are still much higher than the world average, Tunisia is commended for the sharp increase in the share of manufactures in total exports and the rise in its share of world exports, with 75 percent of its exports going to the European Union. Morocco is praised for its moderate progress in increasing its manufactured exports and Jordan is lauded for diversification into exports of manufactured goods and chemicals, away from raw materials and fertilizer. In contrast, Egypt’s share of world exports and imports decreased in the 1985-1996 decade, as did its share of the European Union market. However, all are commended for signing trade agreements with the EU, and, the authors suggest, Egypt’s relatively low wages make it “a natural assembler of consumer goods for the EU.” 
External Financial Support. Substantial financial support in the form of bilateral and multilateral grants and loans from the Western countries, in addition to IMF-brokered loans and grants, influenced the “success” of each of our four countries. Political considerations loom large in these decisions, as the IMF does not operate independently of the US and its allies. Egypt has been the beneficiary of US aid and concessional loans every year since the Camp David accords were signed, and was rewarded for its contribution to the military operation against Iraq in 1991 with massive debt relief by the Gulf war allies. Jordan was similarly rewarded for retreating from its tilt toward Iraq in 1991 and for signing a peace treaty with Israel, receiving $800 million in debt reduction, of which $702 million was contributed by the US. These funds were considered critical to the success of Jordan’s structural adjustment. 
Tunisia and Morocco have long been considered friends of the West, in contrast to their less trusted neighbors, Algeria and Libya. Both have received economic aid from Europe for many years, and Morocco also receives military aid from the US. Beginning in 1986, Tunisia was the recipient of five years of IMF support and six World Bank structural adjustment loans.  For Morocco’s SAP, “massive [external] financing was required over a prolonged period,” including three reschedulings by private international banks, six by the Paris Club, several World Bank loans and nine arrangements with the IMF during the 1980-1992 period. 
Table 3 summarizes the changes from 1980 to 1996 in macroeconomic indicators by which the domestic success of an SAP may be judged. The four countries were successful in reducing the rate of price inflation. For the 1990s, Tunisia and Jordan show growth rates of real GDP and GDP per capita equal to those of the early 1980s, while Egypt and Morocco do not. (“Real GDP” is the economy’s output corrected for inflation, and “GDP per capita” is output per person, often used as an indicator of the standard of living.) Success in raising the rate of investment and the levels of savings and investment relative to GDP was limited. Jordan led the group with five affirmatives, followed by Tunisia with 3.5, but Morocco and Egypt trailed with 1.5 and one respectively. The group score of 11 “yes” out of 24 entries means that less than half of the domestic objectives of the SAPs were attained. The most serious long-term problem here is the low rate of investment, the major determinant of future growth and employment. Tunisia may be the best performer in the Arab world, but even its investment and savings rates remain well below successful developing countries in other regions.
Human Development. SAPs do not assume responsibility for the promotion of employment or social development. These matters are relegated to marginal commentary in the country studies or they are ignored altogether — unemployment data are never included in tables of “economic indicators,” for example. In fact, SAPs in their early stages (the “stabilization” phase) always exacerbate unemployment and poverty because reductions in public spending and anti-inflation efforts (such as raising interest rates) induce economic recessions. For example, the Moroccan case study claims that structural reforms contributed to the provision of “substantial employment of a growing population.” But data in the appendix of the same document indicate that Morocco’s labor force shrank during the period of the most intensive adjustment (1988-1992), while unemployment first increased by three percentage points and then decreased by just one point. In terms of employment, Morocco in 1992 was exactly where it had been in 1989. 
Each country study contains a section on the social aspects of structural adjustment, stressing the importance of a “social safety net” to soften the unequal impact of SAPs. So, while the SAP removes general subsidies for commodities like basic foods, fuel and transportation, making low-income families worse off, it proposes the less costly “targeting” of income supports, food coupons and health care subsidies only to those who need it. Critics claim that the difficulty of targeting in developing countries lies in identifying all those who need the help. Jordan is praised for its safety net programs and also for providing UNRWA (a United Nations agency for Palestinian refugee relief) income-generating employment projects, a program that has existed for 50 years and is unconnected to SAPs or Jordanian public policy.  Apparently, if UNRWA is doing it, the SAP does not have to address it.
Table 4 comes from the sole IMF case study in our group to provide information on unemployment and poverty. In that study, Egypt is described as a still-low-income country with significant poverty, but the magnitude of its poverty is gravely understated. The definition of “poverty” used in the table is an income of less than one dollar per person per day (adjusted for local purchasing power). In Egypt, less than 8 percent of the population are abjectly poor using this definition. However, an independent analysis of consumption surveys from 1990-1991 and 1995-1996 (the SAP period) found that the overall poverty rate, defined as the ability to purchase a minimally nutritious diet, rose from 21 percent to 44 percent of the population. 
Unlike the poverty data, the unemployment data presented in Table 4 are alarming, especially for 1995, far into the structural adjustment process. Furthermore, the rates at which labor forces are growing, combined with the levels of adult illiteracy, render the unemployment problem intractable. SAP logic expects the problem to solve itself gradually as economic reforms stimulate private investment, growth and new job opportunities. Following this logic, the one program in Egypt that actually created jobs in public works was drastically cut back after the SAP was in full swing.  The IMF’s approach is captured in this press release from June 1998:
Executive Directors commended the Tunisian authorities for continuing in 1997 prudent fiscal and monetary policies while implementing structural reforms…. Directors emphasized, however, that continued high unemployment underscored the need for a shift to a higher growth path, as planned under the Sixth Economic Development Plan. Directors stressed that this would require continued prudent macroeconomics and income policies, and an acceleration of structural reforms, to help achieve the needed increases in national savings and investment and to strengthen the role of the private sector. They placed emphasis on the importance of privatization and price decontrol, the further strengthening of the banking system and the easing of labor market rigidities to facilitate the movement of labor toward more dynamic sectors. 
In sum, the IMF Directors recommend intensification of the now familiar SAP formula to tackle the newly discovered unemployment problem.
Feats and Deficits of Structural Adjustment
Given the slide into debt crises and recession in the 1980s, it is indisputable that the relatively successful state-dominated economic systems of an earlier era had run their course and that these economies were in need of reform. The structural adjustment programs promoted by the IMF met this need in some ways, although to a limited extent, even by the IMF’s own standards. Budget deficits were reduced and inflation was curbed. Production for export was stimulated and external account deficits and debt service were reduced, at least relative to the crisis years. While the austerity programs accompanying the earlier, stabilization, phase of structural adjustment intensified recessionary conditions, macroeconomic growth and investment were eventually restored, although generally at rates lower than those of the pre-crisis era.
These achievements were modest and uneven, and, for Egypt, Jordan, Morocco and Tunisia, their pursuit was repeatedly and generously lubricated by external grants and concessionary loans laden with political considerations. The deepest, most long-lasting changes induced by structural adjustment are the shift from public to private centrality in investment decisions, and the reorientation from an import-substitution to an export-promotion “development” strategy. So far, this development has been characterized by a disproportionate growth in financial markets and trade activity relative to real investment and production. Structural adjustment’s most devastating negative impacts were the constricting of public investment as government budgets shrank and the failure to address directly the problems of unemployment, poverty and stagnant standards of living. These features impede the long-term development of the economy and society because their effects are cumulative and self-perpetuating. IMF authors stress the importance of investment in physical and human capital for future economic growth, yet their own statistics show a dearth of such investment among our four successful adjusters.
The time has come to implement a different set of policies that will combine active public investment in social goods (such as telecommunications and water systems) with a stable macroeconomic environment and socially responsible incentives for private investment. Employment and human development, along with investment, belong at the center of economic policy. The citizens of countries undergoing or having undergone structural adjustment need a new, active conception of economic reform to replace a religious precept that requires them to wait faithfully and passively for the beneficent workings of the invisible hand to redeem them.
 Howard Handy and Staff Team, Egypt: Beyond Stabilization, Toward a Dynamic Market Economy (Washington, DC: International Monetary Fund, 1998), pp. 7-8; Edouard Maciejewski and Ahsan Mansur, eds., Jordan: Strategy for Adjustment and Growth (Occasional Paper 136) (Washington, DC: International Monetary Fund 1996.) pp. 2, 14; Saleh M. Nsouli, Sena Eken, Klaus Enders, Van-Can Thai, Jorg Decressin and Filippo Cartiglia, Resilience and Growth Through Sustained Adjustment: The Moroccan Experience (Occasional Paper 117); (Washington, DC: International Monetary Fund 1995), pp. 42-43; Saleh M. Nsouli, Sena Eken, Paul Duran, Gerwin Bell, Zuhtu Yucelik, The Path to Convertibility and Growth: The Tunisian Experience (Occasional Paper 109) (Washington, DC: International Monetary Fund, 1993), p. 3.
 Handy, op cit., p. 1; Maciejewski, op cit., pp. 8-9; Nsouli, op cit., pp. 42-43; Nsouli, p. 3.
 Tables 1, 2 and 3 are based on data from the International Monetary Fund, International Financial Statistics Yearbook, 1998; the World Bank, Global Development Finance, 1998, “Country Debt Tables;” and the World Bank, World Development Report, 1998. The author’s detailed data tables are available upon request.
 Handy, 1998, op cit., pp. 4, 27 (Table 11), 30, 45; Maciejewski, 1996, op cit., pp. 11-12, 40 (Table 5.1); Nsouli, 1993, op cit., pp. 5-9, 28-29; Nsouli, 1995, op cit., p. 55.
 Trade liberalization entails reducing or eliminating import bans and non-tariff barriers, as well as reducing and unifying tariffs (Handy, 1998, p. 65).
 Handy, 1998, op cit., pp. 65-66 (Table 32), 69; Maciejewski, 1996, op cit., pp. 53-57; Nsouli, 1993, op cit., pp. 33-41; Nsouli, 1995, op cit., pp. 42-52.
 Maciejewski, 1996, op. cit., pp. 11, 16-17, 21, 52.
 Nsouli, 1993, op cit., pp. 2, 41, 67, Table 33.
 Nsouli, 1995, op cit., p. 9.
 Ibid., pp. 18-19, 83 (Table A30).
 Maciejewski, 1996, op cit., pp. 61, 65.
 Handy, 1998, op cit., p. 42. This analysis was done by Patrick Cardiff, “Poverty and Inequality in Egypt,” Research in Middle East Economics, vol. 2 (Stamford, CT: Middle East Economic Association, 1997), pp 3-38.
 Handy, 1998, op cit., pp. 61, 65.
 International Monetary Fund, “Press Information Notice 98/45,” in IMF Economics Review 2 (May-August 1998), pp. 130-133.