The untenable policies of the World Bank and International Monetary Fund are considered as a major cause of Third World Debt. Their policies had had induced heavily indebted countries to borrow more. Refusal to comply would mean suffering the consequences of economic and political sanctions…
Some of the conditions that third world debtors needed to fulfill were devaluing currency, import liberalization, privatisation, "cuts in government expenditure", continued debt servicing, economic development focused on exporting goods and moratorium on hiring and pay increases for both public and private sectors (Kreye and Schubert,1988, p.264).
"The structural adjustment scheme was primarily implemented to address balance of payments issues". These issues were largely generated by internal conditions such as high inflation rates, budget deficits or inefficient allocation of resources. The IMF assumed that in order to recover from the debts, third world countries must tighten its expenditures and divert them to more productive domestic investments. However, tightening the belt meant reduced government subsidies on food and services, higher interest rates, more lay-offs, higher interest rates and taxes. The scheme inadvertently affected the poorest segments of the third world country.
Ferraro and Rosser (1994) noted that instead of easing the burden debt, the policies of the IMF appeared to drive the country into further debts. The IMF's policies with exclusive emphasis on internal economic improvements failed to consider external factors such as oil price movements or global recession that might affect the fiscal positions of the third world nations. ...
emphasis on internal economic improvements failed to consider external factors such as oil price movements or global recession that might affect the fiscal positions of the third world nations. Their policies had pushed the heavily indebted countries into more desperate conditions and the future of economic growth in these countries was hampered.
The structural adjustment programmes were perceived as benefiting more the creditors than debtor countries. In addition, the foundation of the SAP framework was rooted in neoliberalisation and an emphasis on export capacities of debtor countries. The SAP also would require the poor country to be integrated into the international market economy. Most of the poor nations hardly had the right political and economic structures that would address the demands of the IMF SAP. Instead of easing the burden of debt, SAP appeared to have driven the poor countries into dire positions. The intent of the SAP was to remove any government controls over key economic sectors to induce a free market financial condition.
Socio-Economic Impact of IMF SAP
The inappropriateness of IMF structural adjustment programmes could be seen in various aspects of socio-economic structures of a debtor country. The stringent conditions imposed by the SAP on the debtor countries as a requisite to avail of the IMF financing has affected the poor nation's socio-economic fundamentals.
The currency devaluation requisite of the IMF SAP meant that the population would experience increases in basic cost of goods formerly accessible. In addition, essential items like agricultural machineries, medicines and other provisions included in the development project would be expensive (Riddell, 1992, p.57). The purchasing power of the local currency ...
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