IMF’s Structural Adjustment Programs Slash Bureaucratic Quality in Developing Countries

Co-author Alexander Kentikelenis, Bocconi University.

Bureaucratic quality in developing countries is endangered by the structural adjustment programs imposed by international financial institutions, a paper by Bocconi University’s Alexander Kentikelenis and colleagues, published in the American Journal of Sociology, states.

In particular, the IMF’s structural reforms mandating privatization, price deregulation, and reductions in public sector employment jeopardize state capacity by compromising the healthy relationship between state and business, as in uncertain times bureaucrats are more likely to fall prey to private interests. “These conditions”, Prof. Kentikelenis says, “undermine the state capacity to foster sustainable growth and implement policies on health, education and national security”.

The article studies the effects of policy reforms promoted by the International Monetary Fund (IMF) on state capacity in 131 developing countries from 1985 to 2014.

The findings cast doubts on the IMF’s promise that structural reforms are necessary to improve the business climate, foster job creation, and support growth over the medium term. Instead, privatization, deregulation and public service retrenchment have resulted in developing country bureaucracies’ diminishing capacity to successfully regulate the economy, in a way that protects the interests of both society and business.

“For the first time, we highlight that distinct components of IMF programs have a differential impact on bureaucratic quality”, Prof. Kentikelenis concludes, “and that it’s the structural conditions seeking to rapidly overhaul domestic institutional arrangements to be counterproductive. Consequently, the IMF’s attempts to shape developing countries’ bureaucracies in the image of those in high-income countries are misguided. This is not to say that reforms may not be necessary, but that these should be implemented in accordance with national priorities and while taking care to safeguard the ability of the state to deliver effective regulation–a key requirement for economic development”.

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