Liberal International Economic Order
Most countries development is often recorded through the use of debts. With just the countries income which is collected from taxation, at times the expenditure is often too much and in order for the government to implement projects they get to borrow money from other countries or international organization such as the International Monetary fund. However, art times when the borrowing is too much the country may enter inti debt crisis. Debt crisis came in two major ways: through private sector lending as well as lending by international financial situation. This paper examines role of international institutions in helping a country recover from financial crisis specifically Liberal International Economic Order (LIEO).
In 1882, international debt crisis became apparent as Mexico announced that it was unable to pay its foreign debt. This announcement sent chills among international financial community as they thought that other countries too would do the same. The crisis was partially blamed on irresponsible practices of creditors and the debtor government as the money that was borrowed was not used on beneficial projects instead projects such as armaments, large scale projects, and projects that seemed to only benefit the government officials were implanted. During this period although even the developing countries were hurting, it was the third world countries that had suffered the most because of inflation (Pirages). After World War II, LIEO was created in order to promote monetary stability and to reduce trade barriers on the free trade among countries.
When countries become heavily indebted and they face huge amount of pressure to generate foreign exchange that may help them pay debt service as well as get to purchase imports they may need. International financial institutions often offer financial assistance to these countries. The assistance does not come without a price as most of these countries are forced into accepting stabilization as well as adjacent policies. Structural adjustment policies (SAPs) have severe economic impacts on most of these countries and these effect may be felt for a while. SAPS work by stabilizing economies and also result in economic growth by ensuring the economy is more efficient and productive. However, to achieve this certain social expenditures including education and health are cut in order to reduce fiscal debts. It may also have led to down0-sizing of employees by government and local companies may not flourish well
LIEO serves roles including creating as well as implementation of free trade agreements. These agreements may include Word Bank offering structural adjustment loans to countries especially in the Third World and the conditions may include these countries opening up their market to Western businesses. LIEO believes in liberal trade as well as free market as one key way that can be used in stabilizing of the economy (Lal, 503). When global trade is much more efficient, the people’s needs in that country are better met this results in a decline in poverty promoting stability and peace which are important factors in ensuring there is economic growth thus countries can be able to pay the debts. At times debt forgiveness occurs when countries especially developing countries are deeply plunged in debt crisis through the Multilateral Debt Relief Initiative
Lal, Deepak. “Threat to Economic Liberty from International Organizations.” Cato J. 25 (2005): 503.
Pirages, Dennis Clark, Christine Sylvester, and Dennis C. Piraces, eds. Transformations in the global political economy. Springer, 2016.