Economic Liberalization - Coursework Example

? The Thesis: Economic liberalization is an important aspect of trends in the international business set up.The World Bank and the International Monetary Fund, as agents of globalization advocate for the liberalization of the third world economies, and of the countries that operate at the International system. In fact, in the 1980s, and early 1990s, these two institutions came up with the structural adjustments policies, whose main objective was to pressurize the leaders of third world economies to liberalize their economies, and allow for competition1. These institutions attached conditions for any state, to acquire loans, either from the World Bank, or the International Monetary Fund. The most vulnerable States were the third world countries;this is because they survived on loans, to bridge the deficits in their budget allocations. They also applied for these loans for purposes of initiating development activities within their states. On this note, the two Bretton woods institutions attached these conditions to ensure that the money lent, will carry out intended purposes2. The conditions were imposed for purposes of reducing the borrowing trends of the third world countries, and they were aimed at opening up their markets for purposes of trade, and thus a nation could generate sufficient resources to take care of its budget. On this note, the main aim of the policies was to force a state to open up their economies, and concentrate on trade. They advocated for the removal of trade barriers, and the privatization of the various government parastatals3. On this note, this paper examines the notion that the structural adjustments policies helped in the growth of the third world countries. Antithesis: There are many arguments against the development of the structural adjustment policies by the World Bank, and the International Monetary Fund.Some scholars are of the opinion that these policies amount to the interference by the World Bank, and the International Monetary Fund, on the affairs of the target countries. To these authors, this is a breach to the sovereignty of the state, and a breach to the United Nations Charter, which recognizes the sovereignty of a state, and its ability to govern itself and determine its own affairs.4 Other scholars argue that the structural adjustments policies were aimed at opening up the economies of third world countries, in order to allow well established companies, a presence in their economies. This in turn will lead to unfavorable balance of trade between the third world country, and the country in which the multinational company comes from. These scholars argue that at the time, third world countries did not have companies that had the capability of competing with these huge companies from Europe and United States of America. These companies controlled numerous resources, including financial and technological resources. On this note, companies operating in Africa, and Asia could not match them in terms of skills, and the resources. These Multinational companies enjoyed economic advantage, and therefore they would make huge profits in these economies, and plough them back into their mother countries, instead of investing a portion of their profits in the host country. On this note, this paper examines whether the structural adjustments policies contributed to the decline of the economies of third world countries. Synthesis: There are many arguments for and against liberalization of an economies state. One of the arguments supporting the opening up of a countries’ economy is that it would lead to the growth of the nation’s GDP. Take for instance Brazil, China and India, these three are the world’s fastest growing economies, and this is because they took measures to liberalize their economies, allowing competition, and little government regulation in their sectors. It also needs to an exchange of the much needed foreign exchange, which is beneficial to a nation’s GDP, and for International trade5. Take India for example, the nation is known for a robust Information Technology service, and this enables various countries and multi-national organizations to outsource some administrative duties to these countries. This in in turn leads to the growth of the country’s economy, because of job creation and exchange of foreign revenue.The table below indicates India’s economic growth for the last five years.6 Year GDP 2008 5 2009 1.2 2010 1.9 2011 1.5 2012 1.2 International service providers are attracted to an economy which has poor service providers, and when they invest in such an economy, they bring skilled labor and technological innovation to ensure the citizens of the nation benefit from their services. The entry of Multinational companies in the market of a state will improve the performance of the local industries in the state. It will increase competition, and lead to innovative ideas that will spur the growth of a nation’s economy7. On this note, structural adjustments policies have led to the growth and development of the economies of third world countries. However, some Scholars8 differ on the effects of a free economy, and liberalization of trade, as part of the structural adjustments policy.They argue that the entry of multinational corporations has led to the erosion of the economy of a state. Multinational Corporation exploit the economies of these states, by controlling a larger percentage of the market, and instead of re-investing the profits back into the economy, they take them back to Europe. This leads to the depreciation of an economies currency, flight of capital and problems of money circulation. In as much as they create jobs, their disadvantages in relation to economic growths are numerous. According to those who support the IMF and World Bank measures, they argue that it is for the countries concerned to initiate laws that will prevent the notion of capital flight. These laws should set the minimum amount cooperation needs to re-invest in an economy, in case of they make profits.However, the structural adjustments policies discourage the interference of government in trade9. The following is a figure that shows a decline in the economic performance of Kenya, in the last three years, despite the presence of large multinational cooperation’s in the region. This table is significant because of the hegemonic nature of the African country in East Africa. Year GDP 2008 -3.9 2009 1 2010 -0.4 2011 1.7 The structural adjustment policies dictate a nation’s economic policy.Critics argue that, in the spirit of sovereignty, it is better for astate to enact its own policies. This is because it is knows what works best for its people, and how beneficial it is. IMF and World Bank argue that some leaders would want to seek political mileage, instead of enacting policies that are beneficial to them.For instance, in Sub Saharan countries, economic loss is a sign of political stability. This is because leaders enact poor economic policies that lead to corruption; thereby destroying the economy of the concerned state10. On this note, scholars argue that introducing structural adjustments policies will force these leaders to account for the money that comes from donors. As of 2003, the poorest countries of the world had debts estimated at 488 billion dollars.However11, Critics argue that this is just an excuse to interfere in the economies of third world countries.To them,the structural adjustment policies result to the erosion of the sovereignty of the country concerned, and therefore a depletion of their economy.They argue that the democratic process of a nation is influenced at the Western capitals, and the policies formulated in this states, are aimed to benefit the largest donors of IMF and World Bank, who are, Japan United States of America, United Kingdom and Canada12. The figure below shows the voting percentage that top donors have, in regard to decisions by IMF and World Bank. Country Percentage Japan 6 Germany 5 United States of America 16 France 4 Canada 2 Italy 3 United Kingdom 4 Mozambique is a country that initiated the policies in the 1990s, and as a result, the economy of this state deteriorated.The currency of the country was devalued, government services placed to a limit, and there was an increase in the prices of goods and services.The health system of the state became poor, and the standard of living was increased due to poverty. On this note, the structural adjustments policies were not effective in Mozambique. This policy is about taking loans at low interest rates, in exchange for the liberalization of an economy. The question under consideration is what if the country experiences a slump in the economy because of these policies. The obvious answer is that it will be unable to pay the loans, and therefore the money borrowed will accumulate.The figure below indicates the borrowing trends of third world countries for the last six years. This is a figure provided by the World Bank Debtor reporting system, and International monetary fund13. Another requirement of the structural adjustments policies was for the State to privatize their state owned resources, and industries. According to IMF and World Bank, this policy was to increase the rates of investment within a state, and increase efficiency in the provision of services and goods. However, transferring State owned resources to foreigners, and nationals of a state has the consequences of limiting the prosperity of the public, in favor of the financial growth of individual people, or companies.14 The structural adjustments policies have negatively contributed to the fall of third world economies, in relation to the growth of their domestic industries, and provision of services. For instance, in Sub-Saharan Africa, the privatization of the health care system of the State led to the emergence of high cost hospitals, that made it difficult for the local person to access15. This is because of the high levels of poverty depicted in this State. In Bolivia, due to the requirements of the structural adjustment policies, the State privatized its crucial water supply system. This resulted to inaccessibility of clean and safe water for majority of the State’s residents. Accessing clean water was expensive, and people depended on streams and rain water, and with poor storage system, they were at risk of acquiring water borne diseases. On this note, the aims of structural adjustment policies are defeated16. This is because the sick people cannot work, and they are less educated, therefore the necessary manpower needed is not there. This will lead to a slowdown in the country’s economy, and an increase in its debts.On this note, Structural adjustment policies do not help the borrowing countries, but they promote the interests of the major donors. Another requirement of the Structural Adjustment Policies was an introduction of the austerity measures in the governance system of the borrowing country. The measures entailed a reduction of the spending characteristics of the state, for instance, initiating a cut on the social welfare programs, University Funding, job cuts and freezing new employment. According to the World Bank, and the International Monetary Fund, this was aimed at bridging the budget deficits of a state17. However, austerity measures have caused more harm than good.For instance, a cut in health care programs has resulted to an increase of diseases such as HIV AIDS. The figure below shows the HIV trends in sub-Saharan Africa for the 2009. Number Country Burkina Faso 110,000 Cameroon 610, 000 Chad 210, 000 Eritrea 25,000 Ghana 260,000 Kenya I, 500,000 This is because the government is unable to initiate health care policies that will result in preventing and treating diseases which are a threat to their economy, and people. Cuts in education for example, will affect the higher learning institution,and the nation will be unable to produce skills necessary for advancing and improving their economy18. On this note, the Structural adjustments policies that were aimed at bridging the budget deficits of a state are un-necessary, and restrictive, and in turn, they have led to the depreciation of the borrowing countries economy, leading it to accumulated debts. In conclusion, the structural adjustment policies, introduced by IMF and the World Bank have resulted to the diminishing of the borrowing country’s economy.The aim of these policies was to enforce free trade, within the borrowing countries economy. However, their timing was not adequate. This is because the economy of this State’s was not ready for a free market economy. Their industries were low, and they lacked minimal resources to compete with the emergence of the multinational companies. Bibliography: AIDS epidemic update December 2009.. Geneva: UNAIDS :, 2009. Age?nor, Pierre, Alejandro Izquierdo, and Henning Tarp Jensen. Adjustment policies , poverty, and unemployment: the IMMPA framework. Malden, MA: Blackwell Pub., 2007. Alesina, Alberto, and Carlo A. Favero. The output effect of fiscal consolidations. Cambridge, Mass.: National Bureau of Economic Research, 2012. Bandow, Doug, and Ian Va?squez. Perpetuating poverty: the World Bank, the IMF, and the developing world. Washington, D.C.: Cato Institute, 1994. Bank, World. Global Development Finance 2011 External Debt of Developing Countries.. Washington: World Bank Publications, 2010. Chossudovsky, Michel. The globalisation of poverty: impacts of IMF and World Bank reforms. London: Zed Books ;, 1997. Danaher, Kevin. 10 reasons to abolish the IMF & World Bank. A Seven Stories Press 1st ed. New York: Seven Stories Press, 2001. The World Bank. "Global Development Finance, External Debt of Developing Countries." Global Development Finance. http://data.worldbank.org/sites/default/files/gdf_2012.pdf (accessed December 3, 2012). Havnevik, Kjell J.. The IMF and the World Bank in Africa: conditionality, impact, and alternatives. Uppsala: Scandinavian Institute of African Studies ;, 1987. North, Liisa, and John D. Cameron. Rural progress, rural decay: neoliberal adjustment policies and local initiatives. Bloomfield, CT: Kumarian Press, 2003. Woods, Ngaire. The globalizers: the IMF, the World Bank, and their borrowers. Ithaca , N.Y.: Cornell University Press, 2006. Top of Form Bottom of Form Read More