Analyses Of Success And Failures Of Structural Adjustment In Tunisia Research Paper Example
Type of paper: Research Paper
Topic: Economics, Politics, Adjustment, Banking, Government, Business, Social Issues, Policy
Structural adjustment is a credit facility that aims at enhancing economic self-sufficiency in developing countries. It intends to reduce the account debt of the nation by allowing the debtor country to pay later, based on its economic stability. The World Bank introduced structural adjustments in the 20th century. The borrower instigates domestic economic growth through increased exports and economic diversity. As such, the financier adjusts the country’s payment schedule to when the country’s economy is stronger. Tunisia introduced structural adjustment in 1987. Ever since, Tunisia has seen tremendous macroeconomic reforms, economic growth and social progress over the years. Important policies led to the establishment of this economic change. Reports have shown a significant economic boost after establishment of the structural adjustment in Tunisia unlike in many other countries. Political stands and proper establishment of boards of management under President Ben Ali from 1987 led to an outstanding economic performance. This dissertation seeks to analyze the successes and failures of structural adjustment in Tunisia. The first part of this paper outlines the steps, policies and political stands that led to the reforms. The second part illustrated the successes and failures that accompanied this course.
One of the major factors that attributed to sustained structural adjustment program in Tunisia was a unified political regime. After assuming power in 1987, President Ben Ali centralized control of the government, equipping himself with committed advisers towards an economic revolution. He revitalized his political party named, Rassemblement Constitutionnel Democratique (RCD) from 1988 a focus that included the chief Trade union in Tunisia. This had a suppression effect on the opposition groups like Islamist groups that challenged government agendas . Further, international capital and finance contributed significantly to this stability. According to Dillman, the Tunisian leaders solicited resources from IMF, the World Bank among other international credit facilities. Their willingness to adhere to the terms set by these bodies brought about a continued support hence curbing the balance of payment problems in the country. The government set in place incentives for foreign investors laying down the condition to bring capital into the country’s major industries such as energy, manufacturing and tourism industries.
There was a vibrant progressive and coherent flow of reforms. The reforms set a foundation for the stability and prospect that encouraged local private sectors into the macroeconomic-based production. Dillman alludes that, policies on devaluation and privatization emerged after the 1986 economic turmoil. The policies created consistency in the economic reform.
There were major crackdowns in the economy of Tunisia in the years preceding the structural adjustment. In 1984, higher food prices riots and private sector strikes brought about a decline in labor forces, political firmness and press significance. As major political reshuffle took root, Rachid Sfar replaced Prime Minister Muhammed Mzali in 1985. The leadership restructuring experienced at the time weakened the political and economic solidity of the country. In 1987, the authority apprehended the leader of Mouvement de la Tendance Islamique (MTI) together with other Islamic leaders. Upon the rise to power in 1987, President Ben Ali instilled hope on the political mayhem that had already crippled the country’s economy. Focusing on consolidation of economic program, Ben Ali led to an establishment of several policies. First, the amendment of the constitution that changed major sections that affected the economic and political stands of the country. Secondly, the authorities formed policies that allowed the formation of political parties and resting the media restrictions that existed. Moreover, the constitution centralized the power to presidency.
Hedi Baccouche became the prime minister alongside other technocrats who assumed ministerial positions. In addition to these policies, Ben Ali condensed the size of PSD’s Political Bureau and pushed the central committee to rename the PSD as the Rassemblement Constitutional Democratique (RCD). He transformed the party into one of his supporters by introducing other members at the central committee and federal levels. This contributed to a fifty percent increase in the membership. Winning subsequent election in 1992 and later, Ben Ali was able to establish a stable political environment. Tunisian leaders launched a crackdown at an-Nahda, jailing many rebel leaders and militants . As a result, it kept labor under control thus managing the previously experienced crisis. As Dillman indicates, political instability was a major problem in the economic stability in Tunisia. As such, Ben Ali’s policies in the first few years of his regime focused on the political stability and establishment of a government that would positively enhance the economic growth. Tunisia saw a significant change in the political platform and hence benefits in the economic structure after 1987.
In the 1980s, Tunisia experienced balance of payment problems, rising debts, budget deficits and export decline. Therefore, the authorities sought to sign a standby agreement that led the International Monetary Fund (IMF) and the World Bank to enact a series of structural adjustment in the country. According to a report by the World Bank, after Ben Ali rose to power, Tunisia was involved in major trade agreements. These included a 1995 Association Agreement with the European Union; this established a free trade between the country and the European countries effective since 2008. In 2002, Tunisia set another agreement with the United States, Trade and Investment Framework Agreement (TIFA). Later in 2004, Agadir agreement and a multilateral trade agreement with Egypt, Jordan and Morocco.
There were significant changes in the macroeconomics after enactment of the structural adjustment. Prior to this, as Dillman indicates, there was a consistent decline in the economic performance of the country. In the previous years, international debts contributed to fifty percentage of the gross domestic product (GDP) in Tunisia. The GDP was then growing at an average rate of 2.8 percent yearly. Further, the salaries decreased by 30 percentages between the years 1983-1988 despite the increase in the consumer product prices by 10 percent between 1981 and 1985. In response to this economic downfall, the government adopted the structural adjustment program that focused on some critical economic reforms. The elements include Fiscal reforms, suppression of demand, reduction in government expenditure, and liberalization of imports. A successful economy turn followed this course.
After the 1987 structural adjustment, the country experienced an Economical and financial stability. Between the years 1990 and 2000, the country has seen a growth in GDP rise to a value of 4.5 % per annum. Despite the droughts and reduced agricultural production in the country, agriculture has contributed to 12 percent of the gross domestic product in 2001. According to the statistics by the African Economic Outlook (2003), Tunisia has had an advantage in farming products such as olive oil, cereals among others leading to self-sufficiency in majority of products. In comparison to the previous decades, food trade balance had risen to 87.7 percent between the years 1990 and 2000. Additionally, fishing activities has significantly improved in the country contributing to a value of 8 percent of the exports.
Furthermore, after the structural adjustment, oil contributed to the majority share of the exports from the country. According to the African Economy Outlook statistics, about 50 oil companies operates in the country with 40 exploration permits that contributes to 55 percent of the national mineral wealth . Despite the depletion of the oil field by large number of tons, the country is self-sufficient in terms of oil. In the light of energy consumption, the country has seen a rise in consumption of natural gas from 92600 Tons of Oil Equivalent (TOE) in 1980 to 577300 in 2001. Other industries that have developed significantly are tourism, telecommunication and technology, transport and insurance sectors.
Additionally, in the effort by the government to manage the domestic demand, it tightly regulated the budget. In this light, the government strengthened its finances by the employment of Fiscal and Monetary policies. This dynamic economic turn saw better tax collection policies set in place, as African Economic Outlook indicates. The tabulated statistics are as illustrated.
Estimation based on IMF data.
Liberalization of the economy in Tunisia began after the structural adjustment, leading to management of interest rates and the banks liquidity. The government later abolished credit policies and money supply operated in the open market. For the past decades, economic stature of Tunisia significantly improved. Despite this, several aspects of failure accompanied this economy.
One of the primary effects of the structural adjustment of the 1980s in the Tunisia is a high rate of unemployment. According to Haouas et al, unemployment rate for the age groups below 30 years approached 30% in 2008, a value that is twice the overall unemployment rate in the country. Haouas et al ascribes this to the lack of nexus between the labor market expectation and the needs of the farms.. Additionally there has been a shift from public sectors to private sectors after the structural adjustment contributing significantly to unemployment as many graduates focus on public sectors in search of jobs. Approximately 19 percent is the unemployment figure in Tunisia. Estimated values of 120,000 people enter the job market every year. As a result, there exists a considerable number of unemployed persons in the country. Barrera argues that, it is due to the disconnection between the labor market and the institution offering the skills.
Apart from unemployment, regional differences in the country have been an effect. According to a report by Bank information center, there is a great social status disparity between the urban and the rural areas in Tunisia. Marginalized areas experience a high poverty rate in the country unlike in the coastal region. According to this report, Ben Ali’s regime disproportionately gave attention to the coastal area leaving out the rural areas. In 2005, the country ranked 60th worldwide in terms of inequality levels.
Further, due to the economic ties and the geographic proximity to the European countries, these countries have a pronounced influence on Tunisia. European states contribute to 6.9 million tourists and primary export destinations for Tunisia. As such, Tunisia has emerged as a subject to economic interests by these countries. These countries perpetrate this through multilateral financial institutions like European Investment Bank among others. Furthermore, this economic development has brought about a significant negative effect on climate and environment. Many parts of the country, especially the desert areas experience Scarcity of water and ecological imbalances.
After a long time crisis in the country in the years preceding 1987 in Tunisia, Ben Ali rose to power as the president who employed solicitation of funds from the international monetary fund and the World Bank. He used this as a means to stabilize the economic instability of the country that prevailed at that time. ey developments took course in the country after the structural adjustment. Gross domestic product grew intensely as the major economic pedestals of the country developed. Oil industries, agricultural, fishing and production industries played a crucial role in this economic turn. Apparently, Ben Ali’s regime that lasted from 1987 to 2011 also brought about adverse impacts as well. Privatization of industries has been a major contributor to the lack of connection between institutions of learning and the job market. Therefore, it has vastly influenced the rate of unemployment. Additionally, Inequality in the country and influence by foreign countries are among failures that emanated from the reforms. Tunisia has seen both the success and failures of structural adjustment over the past three decades.
African Economic Outlook. "Tunisia." African Economic Outlook (2003): 311-320. http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CC8QFjAC&url=http%3A%2F%2Fwww.oecd.org%2Fcountries%2Ftunisia%2F2497628.pdf&ei=MgX0VN3hEobYU7nugtgE&usg=AFQjCNGKYf6KgnxWCyGj9NWQBoRahKODdg&sig2=VoP_AeD8ijrrlcU2-7YprA&bvm=bv.87269000,d.d24
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Dillman, B. "The political economy of structural adjustment in Tunisia and Algeria." The Journal of North African Studies (2007). www.tandfonline.com/doi/pdf/10.1080/13629389808718335
Haouas, I. Sayre,E. Yagoubi, M,. "Youth Unemployment in Tunisia: Characteristics and Policy Responses." Topics in Middle Eastern and African Economies (2012): 395-415.
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