Conditionalities of International Mon etary Fund (IMF) programmes and World Bank (or simply ‘the Bank’) development policy loans have neoclassical underpinnings, which are similar to the neoliberal, and related austerity-based model.
Moreover, as pointed out and elaborated in the first part of the article, both IMF, and World Bank programmes follow structural adjustment programmes. Dismal performance of these programmes pushed both of the Bretton Woods institutions to distance themselves from using the term ‘structural adjustment’, yet this has only proved at best rhetoric since at the operational level both of them very much employ the same.
The (2008) book ‘Beyond the World Bank agenda: an institutional approach to development’ pointed out in this regard: ‘Fine [1999] is correct to point out that the Bank was under significant pressure to move away from its narrow neoliberal agenda.
READ MORE: OPINION: IMF and WB conditionalities, and domestic policy– I
Indeed, the modifications the Bank made to its rhetoric about poverty, social capital, and governance, as well as its willingness to launch new projects sponsored by members such as the Danish government have clearly been responses to some of these pressures.
Fine overemphasizes this fact, however: the Bank does not seem to have made any real changes at the operational level. Rather, its response seems to be aimed at disarming internal critics.
Despite the addition of a few new projects, there is little evidence that the Bank or the IMF has truly moved away from core neoliberal models, with their emphasis on liberalization, privatization, and stabilization.’
It is indeed a great pity, and in fact a matter of shame that authorities – among main economic institutions, including in particular ministry of finance, ministry of planning, development, and special initiatives, and State Bank of Pakistan (SBP) – have not apparently reflected upon this overall negative performance of structural adjustment programmes in general over decades and not highlighted – in either policy documents, or in public discourse – the otherwise quite visible rigidity of the Bretton Woods institutions to make meaningful revision away from the neoliberal basis of their structural adjustment programmes.
On the contrary, authorities in fact have quite vociferously emphasized the need to adopt these policies for attaining sustained macroeconomic stabilization, and economic growth.
Not only that, domestic policy in general, over the last four decades or so, has continued to remain deeply connected with the neoliberal and related austerity-based thought process, apparently under the influence of ‘Chicago boys’-styled domestic policymakers. In fact, even when mostly isolated voices, in general, are raised from among authorities highlighting structural adjustment programmes being ‘anti-growth’ the causal analysis they highlight is in a very narrow context, demanding in turn mostly somewhat more relaxed monetary and fiscal policies, but which is neither here nor there, given the overall vast neoliberal agenda that these policies bring – from market fundamentalism to over-board austerity, to massive liberalization, and privatization in the shape of ‘shock-therapy’ policies.
It is a pity that unlike these economists, who have gotten trained from elite US universities in general that continue to remain highly influenced by neoclassical, and similar neoliberal tradition and, in turn, receive apparently the backing of multilateral institutions as a natural ally in the overall otherwise onerous neoliberal project.
In doing so, there were few torchbearers who carried forward the legacy of Dr Mahbubul Haq, who through pushing forward ‘basic needs approach’ both at the Bank, and domestically, gave quite a befitting response to exposing the serious failings of the ‘trickle-down’ emphasis of neoclassical economics and, in turn, the structural adjustment programmes.
That emphasis on greater role of public sector to pursue actively not just, for instance, industrial policy for enhanced growth outcomes, but to also adopt meaningful pre- and post-distribution policies with a view to ensuring that growth is inclusive enough to appropriately serve basic human needs like proper clothing, housing, quality health and education facilities, and ample opportunities to work and prosper.
The book highlighted his efforts, and how unfortunately the Bank did not take it much forward in its policy thinking. In this regard, the book pointed out: ‘The most influential publication for the institutionalization of basic needs, however, was the United Nations Human Development Report. Mahbubul Haq, who helped push McNamara and the World Bank toward this approach in the 1970s, was instrumental in launching the Human Development Report in 1990.’
In fact, for instance, World Bank apparently (wrongly) used New Institutional Economics (NIE) and other methods like bringing in exogenous factors like ‘ethnicity’ and ‘social capital’ to failingly defend the otherwise outlandish and lopsided nature of assumptions underlying the neoclassical basis of structural adjustment programmes in an effort to support World Bank’s employment of this school of thought, especially in the face of growing criticism of their poor performance overall.
After all, in the strictest version of the structural adjustment model, the assumptions present a world where markets are clearing, resources are being fully employed, and price signals allow for reaching marginal increments, which are all the increments in production, and its allocation has space for.
The book pointed out in this regard: ‘Instead of using institutional economic theory to actually rethink its policies, which would have seemed especially appealing given the overwhelming evidence of the failures of its earlier programs, the Bank used institutional economic theory to buttress its orthodox agenda. This task has been made easier by referring to common neoclassical economic constructs that underlie both structural adjustment and new institutional economics. Overall, NIE has not had a major influence on the World Bank at the operational level.’
Here, it needs to be mentioned that neoclassical economics, and in particular the ‘Polak model’ and the ‘Swan-Salter model’ – to which the article will return in detail in the next part –form the core of the structural adjustment programmes, where neoclassical economics in general, and these two models in particular are based on highly controversial assumptions, about which the book pointed out: ‘Five subcomponents are at the heart of the neoclassical theories embedded in the structural adjustment: Homo economicus [or ‘economic man’ is totally rational about the choices an individual makes], methodological individualism [self-seeking individual maximizes welfare, by taking prices under spontaneous exchange in market], the acceptance of equilibrium as a natural state [that is, market clears on its own, and there are no imperfections in its functioning to deliver exchange], rational deductivity, and axiomatic reasoning. …The final two subcomponents of neoclassical theory relate to the manner in which the above assumptions are created… It is rational deductive thinking because the behavior of agents is predetermined by a posited set of rules. It is axiomatic because rational, predictable behavior is simply assumed to arise from a set of market signals.’
Unlike the assertion above with regard to the importance of adopting institutional economics to bolster the economic outcomes in a deep, timely, and inclusive manner on one hand, and which allows for reaching in much better way productive-, and allocative efficiencies, one of the basic problems with these assumptions is that it sees no role of transaction costs – that is ‘search and information’ related costs – and hence no role of institutions.
After all, in the strictest version of the structural adjustment model, the assumptions present a world where markets are clearing, resources are being fully employed, and price signals allow for reaching marginal increments, which are all the increments in production, and its allocation has space for.
One looks to find such place on earth while the stickiness of the Bretton Woods institutions to these thoughts continues, which means as to why they not only see very little role of institutions, and very limited role of government; for instance, judiciary overseeing that property rights are being adhered to, and central banks manage currency related matters.
Criticising these assumptions (and rightly so), the book pointed out: ‘Neoclassical theory asserts that enormous static efficiency gains can arise from liberalization, privatization, and stabilization, which remove government-produced distortions in exchange rates, interest rates, and commodity and labor prices. Instead of viewing development as a process of structural and institutional transformation, it focuses on the creation of a static equilibrium state in which rational private actors make marginal changes in reaction to undistorted prices.
The consequences of following this kind of policy advice have been particularly pernicious for resource-intense exporters [like Pakistan], which have been common among the poorer developing countries. World commodity prices have plummeted in the past two decades. Between 1980 and 2003 the price of food, including beverages fell by 73.3 percent, agriculture raw material prices declined by 60.7 percent, and prices of minerals, ores, and metals fell by 59.5 percent. Worse still, the key commodities of the least developed countries were the hardest hit. In 2003 the price of coffee was only 17 percent of its 1980 level; cotton 33 percent, and copper 42 percent…’
(To be continued…)
Copyright Business Recorder, 2026
The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7
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