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Home > English > Alternatives International Journal > 2015 > August 2015 > Understanding the Greek Debt Crisis: Lessons from Structural (...)

Understanding the Greek Debt Crisis: Lessons from Structural Adjustment

Monday 3 August 2015, by Sophia Reuss

The Troika has once again tightened their debt shackles around Greece’s wrists, despite having already cut off the nation’s circulation. By forcing Alexis Tsipras to accept another round of austerity measures, the European Union and IMF have further undermined Syriza’s initial promises of debt restructuring and reform.

The terms of the recent agreements — which to many signal a point of no return — ought to provoke déjà vu. The bailouts, now in their fifth year of domination over the Greek government and populace, harken back to the Structural Adjustment Programmes (SAPs) implemented by the World Bank and IMF in African, Latin American, and Asian countries from the 1970s to the 1990s.

Structural Adjustment Programmes were the IMF and World Bank’s economic dogma and modus operandi for several decades. The institutions would disburse loans conditional on the implementation of a host of neoliberal economic policies aimed at market liberalization. These policies, dubbed the Washington Consensus, revolved around a simple motivation: to maintain developing countries and ex-colonies’ positions as pawns in the global economy, thus ensuring the West’s hegemony.

Of course, this is not how the IMF and World Bank will spell it. They describe the Washington Consensus as economic reform aimed at restructuring economies and minimizing government intervention in order to stimulate free-market growth. The four tenets of SAPs, as described in a Guardian interview with ex-World Bank economist and Nobel Prize winner Joseph Stiglitz, are: privatization, capital market liberalization, market-based pricing, and free trade. A healthy dose of each, according to the IMF and World Bank, ought to cure a stagnating economy. Neoliberal medicine.

SAPs involved a combination of short-term measures, or shock measures, and long-term policies intended to stimulate the economy. The shock measures often began with the discontinuation of government subsidies on necessary products and services, such as foodstuffs, electricity, and fuel. In turn, the prices of these vital goods and services skyrocketed, which made it difficult for populations to buy food and producers to transport their goods. Local producers were forced to increase their prices, leading to price inflation. The result? Hunger, bankruptcy, and economic destabilization.

In reaction to these cutbacks, many “anti-IMF” and “anti-hunger” riots occurred, and thousands of protesters worldwide demanded a decrease in food prices. In Venezuela, hundreds of deaths occurred during the 1989 anti-IMF riots, though unofficial sources have estimated the death toll at over 4,000. The repercussions of these cutbacks in government subsidies were felt into the early 2000s, when in 2008, a global hunger crisis erupted and hunger riots began in Cameroon, Cote d’Ivoire, Egypt, Bangladesh, Morocco, and the Philippines.

Along with cutbacks in subsidies, SAPs required governments to dramatically reduce social expenditure by slashing education, health, housing, and infrastructure budgets, and freezing the salaries of civil servants. These measures, combined with the sudden hike in prices, severely affected populations, most harshly the poor. SAPs were thus responsible for perpetuating inequalities and institutionalizing systems of structural violence, whereby governments systematically denied their populations fundamental services and basic human rights.

Long-term measures involved developing exports (usually in the form of a monoculture), eliminating customs barriers to open up markets, liberalization, and the privatization of public companies. These policies institutionalized the dependency on Western multinationals and imports. Lowering tariffs and customs barriers allowed foreign multinationals to enter markets and compete with local producers, which derailed local economies. In contrast to local producers, foreign multinationals benefitted from financial and technological strength, and since countries were no longer allowed to tax imports, products from the West often became cheaper than local items. In Jamaica, for example, SAPs have rendered powdered milk from the United States less expensive than fresh milk from Jamaican dairy farms. This continues to guarantee the United States’s ability to sell in the Jamaican market, and causes the local dairy farms to struggle financially. While the vast majority of Western countries protect their own producers with subsidies and higher taxes on imported products, SAPs forced governments to do the opposite, thus ensnaring countries in a snafu: dependency on foreign products and destabilization of the local economy.

SAPs worked to increase poverty and dependency while intensifying inequality within a population. Since eliminating custom barriers reduced tax revenue, countries were required to adopt the value-added tax (VAT), a tax on purchase price, instead of implementing a progressive taxation on income. Unlike income tax, VAT disproportionately affects the poorest members of society. In West Africa, where VAT is 18 per cent, families with higher incomes who spend, for example, 10 per cent of their total income on staple products, pay only 1.8 per cent of their total income on VAT. Lower-income families, who spend 100 per cent of their total income on staple products, effectively pay 18 per cent tax on their income. Thus, the taxation system under SAPs increased socio-economic disparity, concentrating wealth in the hands of the elite.

Along with other short- and long-term measures like currency devaluation and high interest rates, SAPs caused the cost of living to rise, purchasing power to decrease, the destabilization of local economies, the exacerbation of inequalities, and the ballooning of both public and private debts. Furthermore, leaders and government officials often embezzled the revenues gleaned from privatization, which not only worsened inequality but necessitated the acceptance of additional loans in order to pay back the original loans. SAPs thus forced countries to take on intractable debt.

A rose by any other name would smell as….catastrophic. And by any other name, SAPs are the same sort of austerity measures the European Union and IMF are enforcing in the Greek agreements. The Greek bailouts, including the recent agreement, have come with SAP-like conditions: severe austerity measures, including budget cuts on social expenditure, tax increases, and privatisation. The recent bailout includes, most notably, a reform (read: rollback) of Greece’s pension programme, an increase in the number of items covered by the highest VAT rate (23%), further liberalisation measures, potential reform of pharmacy ownership, milk marketing, and designation of bakeries, and another dose of lethal austerity. All this to simply pay back debt from the previous bailouts.

While Christine Lagarde has stated that debt restructuring is a condition for IMF participation in the new bailout deal, it is clear that, for the EU and IMF, imposing more austerity measures trumps any significant debt relief or forgiveness. As Alexis Tsipras continues to battle Christine Lagarde, Angela Merkel, and the predatory EU, the Greek population continues to suffer, and the tensions within Syriza continue to intensify.

The major difference between SAPs and the Greek crisis? While the Greek debt crisis is unfolding on western European soil, the SAP-related debt crises transpired in countries in Africa, Latin America, and Asia. The Greek crisis raises questions about the viability of the euro and European hegemony, while SAPs provoked questions about neo-colonial processes and global power dynamics. However, the broader philosophical implications of both situations remain largely the same: the Greek bailouts and the SAPs are both part of a neoliberal agenda, whereby debt is a geopolitical tool for retaining power. The incredible social consequences of this debt are largely ignored.

There has been little acknowledgement of the similarities between the terms of the Greek bailout and SAPs. This is perhaps due to a skewed international memory (the Western media rarely compares political or socio-economic situations in the ‘centre’ with those in the ‘periphery’), and because SAPs have been widely criticized for their negative consequences. An examination of the consequences of SAPs bears witness to the perils of austerity politics mandated by the IMF and international institutions. History, and debt, continue to repeat themselves.