The OECS Experience with Structural Adjustment

Most developing countries in the 1980s exhibited manifestations of four major external shocks suffered in the 1970s. The oil shock in 1973 severely increased petroleum prices and initiated a domino effect in the international economy. For developing countries the consequences were drastic declines in export commodity prices; increasing world interest rates and an abrupt contraction of international capital flows. These external shocks combined with inappropriate economic policies and mismanagement of resources, caused the balance of payments to deteriorate rapidly and inflation to soar. Because the problems experienced by developing countries were not amenable to demand management or short-term stabilization policies, the international donor community was prompted to find a viable solution to the adverse economic conditions.

Most developing countries in the 1980s exhibited manifestations of four major external shocks suffered in the 1970s. The oil shock in 1973 severely increased petroleum prices and initiated a domino effect in the international economy. For developing countries the consequences were drastic declines in export commodity prices; increasing world interest rates and an abrupt contraction of international capital flows. These external shocks combined with inappropriate economic policies and mismanagement of resources, caused the balance of payments to deteriorate rapidly and inflation to soar. Because the problems experienced by developing countries were not amenable to demand management or short-term stabilization policies, the international donor community was prompted to find a viable solution to the adverse economic conditions.