• MD usa »BVaoPE1l ..... JMPBMTt.VJS Ol? a• <J.f t.be waJ<»: funotioftt:J. ot the »tP .tf#· to prov.l«e to tte tt ··be· ttO:tU&tl that the l•s 00\11ltt!• whteh poytngo . to emba• <$ tile path <:;t tryittg t() and Qliowtb. need mre a-.sit!tam;e 4o tbo q.f toll$ p#Ol>l• La le- ·lfm4• heavy Whtle at the tim(!' i!bd)1 of on the in Wbtat u is t:h$t developino QOtmw£• sh0ul4 i'ft'tl $Oft loQfJ tn'Yb).:;;.ttag and. st.l.Cb lO&N sbQ'u14 enable them. to acbie'fte •uto:nomv lfmt .t"Uft• If'Qw :£$,t JMr· ba& £ulfi.1led the of tl\ese 4we1opiltg ol t;btt we>r14t llut., t.he tel• IMP a economic of these cannot be etrakated unleaa we w<!ertft.and their :e)laracte!fLstf.(.ts, needs of and 1ocaUQn$.· the of the wor16: 1'hetefotttt'* the .starting point has to <:ondd..- tn - the on •neve1opment EQ;)nom1«:13•• onG una. ·.mul:tiplid.t? o.f -te:ans es ·tbe
84
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• MD usa »BVaoPE1l co~tts ..... JMPBMTt.VJS Ol? V~B
a• <J.f t.be waJ<»: funotioftt:J. ot the »tP .tf#· to prov.l«e
fin~al as~1$Mnee to tte ~\'lttttl$$• tt ~y ~
··be· ttO:tU&tl that the l•s ~eloped 00\11ltt!• whteh a~r• poytngo
usually a~ . .tse and t.t;1gger off a number o£ .related seeondary
problem$~ The sharp variations in terms of trade thus have a
pX"ofoUr1dl.y 9.est.ab1lizing ~ffact on les.s developed Qountr1es
and accentuate the structural causes of und.erde'\teloprnentll!
10
73
These ctreumstahee$ force these eountrl<:!s . to go for heavy
e)tt~rnal debts.
Xt follows from abQve that the less develo~ countries
a:re ehet'acterised by low <i~gree of dE;N'elcpment. aut at. the
same ttme thes$ countr'ies aspi+e to develOp fast. On~ ·of the
essential requirements of fast groW"~ of thes.e countr,ies !s high
rate of investment whie.h could make the de'Velot:rnental ptOjeo:t.$
fee,sib~e. But the high~~ of investment would be pOssible
'Only vihen higher ~tes by sO.ving$ a~e forthcotn:t.ng (l()mest!callY.t
The savings a~e a direct function of 1ncome1 a.ceording to Keybesi'
but the income levels of these less dev-eloped countries ar~ low . and. the.refo~~ higher domestic swing$ ar~ not possible over·
11 aome fundamental theax>otical fo:rrnulations of the fc.a:eigb ·exchange constraint.., two gap analysis., and foreign capital requir~t$ a:re presented :in the following · studies'· · · · · · · ·
Mckir\nont R. ; •Fo:t:"ei.gn EXchange Const;:aints in EOonotd.¢ pev~l.Opment•., Eco.c Jo,umaf June l964t Che~ry. Hard Adelman, a .• :J ~t'Ore!gn A1~ and Ee<:>nomie Development• The Case o£_ Gree<;:e8
, .. ~~w J)t· !eon,omia ~.tudies, Februa~.· . 1966: Mac EWart" A., nQp. ·. al pe,ttern ol Gl"'l>Ttll and Ald. .t The t:a.s.~ of p!ak,istan••·. F!.k1,st,a.n P,sxeloeent. Rsvtew, sunmer 1966; Chen~ H~ and Strout., A•, nFo:relgn Aasts .... t€inee and EconoW.c oeveloprnent" American ·sc no··«:! R · w., Stapteniber 1966,. Vanek., E •• :Est.imat!n 'F rei Reso ee N s ~r Eecmo · e .D · lo · nt. New York • .l 6 1 John
·ler ~ ed• ·. ·~·· _ca: ta .. MOvr:snents an4, Economic p,evelo::rtnent, (tendon), 196 : A+Sengupta, 'lJ?oreJ.gn capital R~ir~ements fot" Economic Development••, 0~., !-'larch 19691 Bruton# H•J'•• 11'.t'Wo Gap Approach to Aid anO. Developtnent • Cortment,#' • perfGaq. Economi,c, R$,_~~.. June !969; ;t,al1 Deepak1 *'The. Fore~gn EXchange BOttYenec:k Revisited". illC£• ,July 197.2.
74
a sho~ span of time. 'l'bts creates ld.nderan<;:es .in atbanoln9
economi.G 11evelo~nt ,of these C!Qtmtties.
ln an open eqQnomy, when dotnest1e savings prove to ·he·
tnadeqtlf.tte and insufficient tn rel~t,i'on to the targ-att$d ~ate
of gml(t!h.,. then• ~hese Ciomest.te savings: tean be supplem~tecft by
many ld.nds of e~etnal assist-ance.- Tha •:oual-Gap t«>Q.el~ basi~ ....
· · ally ~'¢Pl:&.ins the rale of foreign bo~wtng in the develoPll\en.t: . . . .
·xndotne (1')
then,
Qt'
'* Q +X + J:
e + M + s "
~bus in national incorne ac~~tLng an excess of !nveet.
ment over domestic savJ.ng is equivalent to a sut""plus ~! impc:u,~,;
,
·OVft: expc>rts. 1\n ~rt surplus financed by . for:eign bo~rotd.nq
o'h sUpplement: dt.ntt~tic · stav:tngs. directly .or ~ndit'ectlV by l / -
pr~ri~g for~ign GX¢hanqe to buy impOrts which .QO\lld be $ap1t.~tt-1
g~~$ .or s\lbstitutes fer domest.$.ca1ly produced cons~ good$. ' i'f· ' .
/ k lr· It rnay be noted that in aceounttn9 terms the amount o.~
fdjetgn. · · lX>rrow,in.· 9 requi. r.ed to . s .. upplem··· · ent. dom. est1o s. wings i.s r: same wh-ether the need .ts just for more resources fo~ capital
/formation or fort imports as well.. The .4-dent: ty between the
two ~ps, the savings ·• J.b,vesttnent (s;...t,) g-ap and the ·~~
import. (X..M) · gap. follows from the ver:y nature of the eccountir,t.g
/procedure~~. Xt 1$ a mattet' of ari thmatic 'tllat if a country
tlt.les to invest more than !t save$1 a balance of pa~nt~
deficit w!ll result; or an exeet:Js of imports aver ~rts
neoes$a~ily :lntpUes an · ~ess of resotUZ"Css us&d by an economy
over ~esources aUpplled by it, that .ts. an exc:ese of investment
over savirtqs. The twq. gap~ .need not be equal ex....a.J'i't!-$• 12
·~ understand the meanantes or th~ ''Dual Gap1 analysis;.
stan w1th a .p$.~t:ieule:r ta.:rg:et. x-at.e of growth and to aehieve
~his 'target 9l'Owth rate, the savings and investment gooc:!l
imports wtll .be ~equired.,.l3 JJ.':)oking ~n t..erms of famous Ha~d-,.
12
- • ·.!" .. i ~· •.
Zbi~ t p~293~
76
pomar ncdel o.f e¢a:notnie growth, the relatton bet.weert growth \
nat:Lon$1 a$s:ls~~u ne<;essary fo~ .gra,fth targets to be a<:h!evad,,
· except whete- tb.~ FE .gap s't!bstantially excee!ds .the savings- gap
and !lO al.lo-nee has been ro.ade tor the pOssibility o£ substitu-
1d.n~ domest~ Jt¢SOut:'Oes for imports. Xt is unlikely in developtn9
countries that Qna 9SP n11l predomtna.te as the major coP..atraint•
~ht,rdly. 1 t has also been a'.ttgued thet in the context of d~elo~ " .
I
ment! of a less develop$! co.untry. why only talk of two gaps#
namely. fO.re.t.gn eXchang-e and s-x gaps. '·Wlty not to talk of
multiple gaps e.9~· seotora.l gaps ei:e;j, By confining to two gaps
alone, we are not able to take into account ~he othet constraints
in the economy. while 1;hose constraints ~Y be qui t:.e important.
'.~:'here e.re other models that explatn how growth rat~ of
U>Cs can be 1nct:"-eaS~tt One such model rel.at~s capital imports
' lS · Chenery Qnd st.r:eut; n.~11.
eo and growth x-ate tn less developed -countxJ.e-.,,.19 This tnOde-1
tesu1t.s fr:Qm the outcome of a debate between. Ball a11,d Masaell
em: the t.-elatj.onsldp between capi ~1 !rnpc~s and eeonond.<: growths.
· ;t. u -.h.own by this model tbat.J
(~) '.rhe rat.e of ~'Wth of output \11.11 be fas:t~r with .eapit:al
.in:tpoJ:ts provided new inflowll of for~ign capital exceed the l()S$
of <lQmestte sa.vtng to ~Y zl.nt•est.. %£, noweve:t.; 1ntertest
ehq-gQs arC~! me1t by new bolrl:~wlr!<J, <C~ap.ttel iJ\pQrts tm.tst have a
.tavo'Ul'able effeqt on the growth rate o:e out.._putJ and
. -~Q.uoti:vit.y o .• <:$:p1tal ~.ltt$ e>tQ~~da th~ rate of 111te!:'est.
(1)
whex>:e :t =. '0\ttpu.t:
20
Y ·• Income t: • Interest· .rate, an4 D a Debt
_The d$.ffetenee .hM!ween ®mest1e output and national . • +
(2)
":he mo4e1 r~su1t.s from the outcome of a debate b~een Bail and Ma$seli-.: See R-J tall, •aapi.tal zmport.s ant! Eeonomtc nevelopmemt •I ParadOxy or O:tthodo~ "~· .~:rl$Aos no.l. 1962 and :S.F.Massell1 "EXpOrts capJ.ta.1 Imports and Economi.c Growths"~ K:z14os. no.4._ ig64.
'rldrl.walt n~.12, pp-,_29~300 .•
where cs- •
ad I = p;r;roductlv£ty of ·Qapl tal
sO+~D ... srn ~-(4)
·tiy substituting equation (4) into ($) and d!vidtnq by 0
gtves an exprcesaion for outp'* growth of
Bqjl $ snows that gt:Owth ·off outpUt will ·be higher; than the .rate
obtainable i1:otn 4omestie saving alone as long as a o 7 1St"· n.t that is as l.Qng ~a new inflows of ~pltal. mcceed th$ amount oe
outJ:low c>n ,paa:t lqa.n,;; that. wuld qtherwJ.s:a haY~e been s~ved•
'lbl.s ls .a fa.ir1y ete-t,n.gen.t;. condi t.ion unlt.ut~ it. is assumed tha-t '
the J.nt:er•su paym.m.te 4ue ar~ met by .c.-~at1ng new d®t. Eq~ S
also suggests that if .xn ~. ~ n, the rat.~ of gt'OWth oil output.
with Qap'ital imports will always. ba bighe~ then without
capt tal $.tnport.s .es long a$ s (J (whieh .is a nottnal e$se) •.
tt~ therefo~~ follows that lf ittt.er(!!st paymQl'ltl on past lo&na $Jl ·be ~rrcwed ill perpetuity~ thGre !'$ a ~nen't
qa.tn to be had from r~g .au !tnpO.tt surplus;!
Xf the rate of 9t'<)wth of !r'lCQme is 40lUJ1d~l'Eid to be
~ C~ependent variable, then from equation (1)
S.i:nce Y ca o .,. rD. therefore_, eque.tion (1) ecu:l also be
. wttitbell S.SI
if (!c,t;' (8) l~ divlded ·by "! through out., .t .. t results in the %'lita
of growth ot' J.noome ·Of
and .equation (t) abows that the growth rate of .lncome w.ltb
capital tnlpQrts will be higller than that obtaine¢1 froln dbmestlc
sa.ving -alone as long as the prodtnt!vlty Qf cap!:ta1 .tmpo.J."t$
( o- ) .exceeds the tate of .f.ntet-est on fcu::eign bOrrowing b:) ,.
wtcb is a $'tandard result that t.be .:J.nvestment. is pro:fJ.table
e.s l()ng la.$ the r~te of return .egc~ the re:te of interest.
t<so dOubt impo~ sw:plUSEJS haVe a ~-t. potential fo.t:'
a.ev-Ulpment-prooess, there are two <tanger$ in this .Lmpl!eat.S.on
of the (DI)del, J?irstly,. the ~::r:t su::pluses &anQed by foreign
captta1 lnfl.ow:s .increas$ t1n~ cap.ttal~ut.put ratio and tthereby
disoou:-ages the <.iomestJ.e $aV.ltlg. And secondly#' a fl'aetton of
cap.f.tal inflow .is. consumed x:ather ·than invested• Both thsse
faiClt.ors may redUCe ttbe gr(')Wth rate o~ may result. in .no ext.tG
9t0'Wtb .$t a11. ":hi$ argument was put fo~rd by S:r!_ff.ln~~1
(2} .rt ~ming$ fell for second ~ons~t:tve year, to a level '"below that of .1980 .... the· resul.t <;)f declining
4o11ar pJ;"ices of e;cpo~s end stagnant volume.~
42 .Korld Bank# n.2. ·pp~3-Si
43 ·~s.~: ~ pp./3··~·
44 Worl.d.Sank~.n.2# p.19•
.tr~ble l.,f>. 99' - I - . -
DEVELOPXNG OOUNl'RXES BALANCl:: "'. PAYMEN.rs.. l97~S2. (atl11ons of current dollars)
,. .-,
current Account •7.2: Resource Balane&
Workers temi.ttar.u:eab 1.4 Xnterest .paymentsO ._.2 •. 1 Other current transactions •3.5 current Aecount balance -12.0
F.inanced by net capital flows 12: .• 7 Official &:!Nelopnent asaistanc:e4 4 .. 1 Other non-eonc:essioneJ. loans 1.1. Private J.()ans 4.7 Private direct. irwestmellt · 2.2 :u$e of resatvE:fs and Othet' c:ap1t:ale ·
~emor9l'l5lutn Its Debt outstanaing of£1e1al llr!vat• R.esource gap as perc~ age ·Of GNP
--------------~------------------------------------------------------------~ Total• may not adii due to rounding. The assumed ·average annual rate of tnfla:t!on bet-ween 1975-90 i-s 7.2%
/
107
J.s a danger that inflation could be one of the factors eausing
increasing financial requirements which wiU be met by external
loans. 51
'The main forM$ of international resottt'C!·a flows to
dcwelop1ng countries consist of pt!V'ate :foreign 1nve!}tm~nt,
bilateral grants~ loans and teehn1eal a.ssist:~nce and multJ.la
'teral a•stste.nce of various qpes channelled through intetnat•
iona1 inst$o.tutione such as eba united Nations, the wcrld Bank
and its aff!l!at!on1 the Intetnat.tonalt>evelopment Assoete.tion
(XDA) and the lntet'l'~St!onel Finanee co~ration (l~C) + The
'q,rant olement • o:r • aid eomponent. 1 occUpies a place of $1g:ni f
tcanee,- in ·the total assistance, reee1ved by developing
countries from donors, The grant element or bene~1t of $1d is
mea.sur:eti as a 41 ffet:ent!al (as in cost benefi~ .analysts) beween
return to internat.!o.na.l assistance (whieh is the dif.fer«lt'!e
between the nominal value of assistance and the r.epaymQnts
discounted by t!be produetiv.ity of assistance in the ree1p1ent
country} end the benefi.t of assistanee (W'hieb is the difference
betwe$n the l'iOtninal value of assistance and repayments diaeount.cad
by the rate of interest at which the ~untry would have had ttl
borrow 1n the oapita..l market, ).52 O~iously if ~he x-ate at
which the country borrows ~m the dono.r is as high as it oould
' . 51.
. -
have borrowed i·n the free market,- t!.here is no ~ant element.
attaab$4 to the capital transfer.. The bene£,1.t of <as:s;tstanoe
may dlff~r !tom .t ts, however:; if the east stance i$ tied to
thE purchases of dono:rs• 9oods which diff~ in prtee from the
world ma.1.'."ket prtof!ht .!f tb~ was no concessionatY J.neer(irst
rut.a attaehEK! to the qap3. tal flow and t.he prices of dOnortr'
goods were higher than the world tnai'ket prices, the value of
thd. aid would ·be negat:tve.53
The developing eo\ll'ltries ha1te redeived ¢apital flowe
from e!thelt' pri~ate sources~ namely dir~ invest::ment. pOt:~
fo.lio investtnC9nt and the provision of export credits ·o~ offiCial
sourQeS which comp"'J.tie of five prin.clpal. forms e,.g,. grants
tt.neluding tecbniea1 assi!Jtan<:e) conc:essionaJrY loans (.J"epa.y-. . . I
able J.n bor.l"()\fe):s' ot lenders • currency) .; eontrtbutions in
kind~ supplie!rS credi.i!s and the repara t~on paym~ts:.
J!'CG$ ftom D~A•C• countries ~ the develOping Cduntrtes and
multilateral development agencies 11 S:hown in 'l'tiblo 3.9 .•
The total. of private flows, off;lc;.ta1 devetopmetli: a$s1st.e.nQe ·
and other official flows* n¢ .Qf emoJ."tigatton (but not of
interes~ &J1d prQfit.s)., is call~ the net flow of financial
)1!'esourc~. Of the $ 19'..iG billion total net· £lOY of f1nanoia1
reaourees from developed. to developi~g eountJ,".ies in 1972•
109
approldmately $ 9.5 billion represented private flows, $ e.G billion was ODA a.nd the remaining $ t., 5 billion was other
official flovs not primarilY for dev.elopMent purposes. Of the
tot.al oifl<U.al ass:tstanf::e 20 percent. was mul:t11ateral and the
rost was bilateral transfers.
~.able . 3.e! AN ANA%3SIS OF THE N&T FLOtf OF FINANCIAL RESOORCS:S FROM DAC .COUNTRlES TO t.tsS Ol\.1/ELOP.ED COt~N'11tXF.S ANt> Mut:r:ILATERAL AGENciES~ 197~
( $ 1 million) ,
A• Bilateral g1:ants e£ which teeind.cal assistanee
e. Bilateral loans ·on concessio. nal terms
c.., contribut1ona to multilat&ral .tnstitu~cns
2. Other Official flows
~· Bilateral
a. Mu1t11ateral.
a. Private flows
A., Direct:. Investment B. Bilateral POrtfolio c. Multilateral D. ~rt credits E• Voluntary agenoies
l)EBT SERVXCE RATIOS FOR ALL DEVELOPING COUNTRXES (1970.1992) '
_··:~_-.,- '" p?
country CJroup
. All developing oo\'llltr.tes· tbt1· ·.Income
Ast4i\· AftiG;a
Midaie·:rneome Oi 1· Imp(:)rters:
.• J~~a.~ A$ie.
~.tin A1\1~ri\::a F • or,t; ~xpg~~tff · . . .
. i970
tJ •. s 13.3' 6.5
6~7
13t0 13.9 ..
l9"eo
13.6
7.9 a~ a
14.9 7~0
':'·33.3 . 13•0
DS% 1 n f • l'§saa
16,3 20~7
s.,4 10 .. 1 ll,.t) 2e.Jb
16.0 .23,0
.15.7. 19.1 a ~: ... Es~~at~a> .b ... The· sha;p· :~i:;~e it:t i9S2 reflecr;a the ao:c'UlnUiation .of
.· l?:X'.r'~lf:artCiidoes · not allcn1 ·.£or J:esehedulings in 1992. souree• · worla··aank, ·.wor'ld i>evalopn;tent Reyrt, l9s3, ·p.2l.
:::
119
and consequently the tate of debt to exports ros~ · from 16"
to 104 percent during 198M2 and wi ~h the inclusion o~ '
$h0rt-tem ~t this ratio EOC¢e~ 150 perc"nt. stnee a
large_ part of d6tleloping country debt is· denotnJ,nat:ed in
dol.lsre# the appr:ectation of dollar tn foreign exchange
msr'kets has added to their debt-.bur4en•60
' > •
:Dutting 1975-80 the medium and long tt'41!i debt of 4eve-
lopift9 economies. gt'ew by ~n artnu:al average of 2.1 percetit!•
· tt reached an estimated figute of $ 426 bil.lion in .1980, ·a
yE'Jar earliEtt J.t had been $ 7S b. 61 The Table 3,.15 shOt-rs ~·
~treordinary pace at t-.rhieh the total debt and the short . . •"
an.d medi\ln\ period debt has increased ove~t the decade 1971-so. · . ~ ,·
(1) There ba$ been enormous increase in the extemal debt.
of i:he deYt!lopinq count;"ios .in the l97l...SO decade and that
within th• total debt,., pubUc debt f.J:om private sow:'dtla ha$
grown disproponionately high .during this period. Thus- out
standing debt of third world countJ:"ies incteased from$ 18
billion (1911) to $ 426 billion in l9SO ~;tnd ~ut of this:# ' "
,
share of pr.tvat:e lenders was $ 269 (6)?4) as ~ed to $ as,, (46") tn 1911* PUblic ban!Owars tn • the developing cotU't'Ct'ies
LJl¢~;$8S<ld thelr debt to fi·ttanc.te.l markets at an average of
34 percent. a year durtnq .. 1971-eo,
60 ,J.bip,,.. p,.21.
61 ~os:;ld Devel9pment Repgr.e,, n,4o. p.21.,
!t9
(2) Mainly due to prJ.'V'Ste souree of financing~ the terms
on wbleh devE!!1op1ng countries borrowed hardened steadily
durinq the 1910s, share of offi~lal ~~nd!n9 deel!ned~ average
interest rates en cot'lt1'01tntent.s J:Ose, maturities and gr:aee
periodtJ shortced. Besides while in 1977# muoh of the
bor:toW!ng was on filled interest ratetJ but in 19tl0 1 t. was ' .
on variable ititerest rates ·and fw:thet' t:hat the interest -··- - - • - . - -- 1- -- •.•
payment rose sharply by an ·annual average of over· .40 percent
during 197S..SO, compcared to annual average rate of only 6%
during 197]...:77• The first oil crisis mark$d the begintd.ng
of the present debt problem and that o£ 1979 and 90 accentu
ated it further and bro\lght. it to a flash point artd the
.resuli! was that . the dtsbw:'sed and outstand!nq lobq and. meditun
t$:tms debt rose by 14 p~ent in l97l..SO. ay 19S2, the
interest. rates bad r:L.sen further and .fresh lending. which
further ·det~io~ated ~he eituat1on~6~
,Less DE:~Velo:gecll. count::r~es P,nd the XM;l? • 63
What emerges from the preceding analysis .ts that fot'eign
62 _ :S••• x. !;10nthiy Rem~~ pp.,230•J2.
63 Some of the important studies. on relationship bet:weat 1es& developed countries and the IMF are fOllowing& Bird, o •• "'!'he 1'nfcrmal Link between SDR AllOQation and Aid", A Note, '!'he. Jow;n~l of ~evel~t st;uales, .. no.,12 {J)" 1976• pp,268•73. Bird a., The ~~t@mat;I,oq£\1 .Mo;uaiiaa s:l!(tems and the Les:s Develo,2ed.cguntrles. Macmillan, ~Londo'ii). I978r' 'cliv·e,. w.R., xg~ernatigna,l,. ~netaEZ Rsfo,rm and the ,D,ev-alo-eing Countries, · Brooktrigs Xnstltute, hvasblngton o.c.,, 1976t Ghatak, s •• Pevelo2!!f.!nt J£eono;mi;es, Longman (London), _1978. Hellelnert G.t<:._. 'rhe Less Develop$d. Countries and the International MOnetary System•, T)le JottrnaJ.n .. of.: ~elOJ)1.l!!!n1;,,,Stud!f.ts, vo1.10(3), 1974, pp.l47-71.
: ::: : . ·: . ' :: . : : : '
Total Public & Pr.lvat.e
Official sources
120:
. DEDr OUl'STANDINQ~. COMM~S., DISSt:IRSEM.Em'S~: SERV:XCE PA'!ll-~NTS AND NET CAPITAL ltiOVEMEN'l'S OF DEVELOPING . COUN'l'Rl:F.S J t.fEDIUM AND
LOUG TERl"t. DEB!' 1977-80 ( In US 1Jollara 'billion) .
aid has been declining just. at a time when there is a greater
capacity to use aid mor-e effectively and when t~e need in
many countries has b~e ~en more urvent. Recently many
developin~ countries have app~oached Int.ernatS.onal Monetary
Fund fer iinarto!al resource$. The international monetary
$ystem ln the 1940s and 1970s has w1tneased ~amatie changes,
culminating in the collaps$ of Bretton woods sy$tem~ an
acc•ptance of the float.tng exQbang& rate• the dethronement of
United states as world Banker, the tall in 1:he value of the
dollar, and tt.s rejection as the effectiv-e numeraire of the '
system. There has betm an explosive growth of 1ntemational
capt tal marl¢ets, and radical shifts ill balance ()f payments#
d.efic!t atld surplus centres~ part!aularly with in¢rease$ in
the price of oil• The announcement by tbe Pres;ldent of
uttlted Stat~s on 15 August. 1971 that t.he monetary ~uthor1t!es
of his courttry no_ longer undertook to convert :Eoreign official
b01dinqa of u*s. dollars into gold; added :tmpetus to tbe
gr®t &f;bate about the reforms of the international monetary
system. The 1!)70$ may be seen as a. period of attempts to
write a ne\'t monetary constit~ion for the world bf a revis.ton
of XMF Art cles of Agreement and the amendment becJame
effective in April 1978• 64 It ,is at least debatable wh$ther
those cbanf}es in the international monetary system may be
64 Jennings-; A•~: ttThe :tnternatione.l Moneta~ System ond the LOCst Reforms, Change and the second Amen~ent**, in s.Ghatak, t·tonetar:z ,Economie$ J.p. pevelp;eing s;;ountries".. P•12g,. _ -
.123
regarded as reforms~ partiaularly from the view point of
developing oountr.l.e$.65 ·The Att.t.eles of Agrsem~nt o£ th$
lt4F have been emended only t:~t!de oncE! in 1961 to legit!mi.se
t.he erestion of the SDRI secondly in 1978 as a <!Ulrnination
to the chang~ .r::eali ties of the world eeonomy and the need
to redraft. the nonetaey tiOnstttution of the worl;d.66 Before
the .c:hrc>nolog!oal sequence of the refo.rms of the IMF~ lt . -
w!ll necessary to know the bas.i<: rules of t.he B*etton WOods
~ystem through which :tMF int.er.fers .in the affairs of different
eoun:tri-es when t.hey approached for financial as~istaftee to·
l:Mlr and they (Zan also shm1 how t.oday's IMP praetU .. ces are·
contrary t.o those: rules artd bow irrelSV'ant the rules were
to -the needs <>f the Third World eount!;'1es.67
(1) Each member state had to define t:he par value of its
national cur~~ncy tn terms of gold. sUbscriptiQns to IMF
(qUOtas) were to be paid up to as percent .tn qo:1d •
. (2) M~r ~;~tat.es ·eomm!tted to maintain the tates of
exchange resttlting from the qold content of 43C!Ch currency
as . defined u.pon its participation· tn the system• Changes
in par valuetl were only to be used to correct a • fundamental
disGqUillbr!um' • They were to be p:ropese(l to the ll-fP by
t.he member concerned~ Faill.lre t.o obtain the lMF 1 s approval
O·f a par value change could result in ~elusion from the
Fund•
(3) General convert1b111ty of the currenctea of member
states .f.nto eaoh other and at par value. -G oons!derE'4
essential for trade ltbera.lietlon and moneta" sta'bi1it.y.
(4) ·AQtlng as a centJtal Bank,; tbe tMF was suppesed to
help national cen_tral ba.n'ks 1n ~ling wtth t$npQt"at'Y deficits
1n balene~ .of _payments:., A membar ·~ountry ,.,as entitled to , I
~-nds for t.bis purpose upto a 11m1t related to i't.s quota
beyond this lind t" the country conc:arned was supposed to ' take appropriate meas~es to reduce its deficits and estab-. .
lish .equilibrium or surplus• mainly by tnereasinq its t«pOrts
(becoming more competitive-) conditions attached to .such
drawings became stiffer as the amount passf;ld thxough success
ive trenehes •
. (5) When ·the conventional meaaures of credit and f1$cal
pollcies fatllitdf the lMl? might agree to a deva~uation. in
order to mak~ imports mo.:re GXPensive and expo~$ more compe
·t11!1ve,. wJ.:ehout areating imbalances in internat..tonsl t.tad$
tha.t could lead to a $er1es of competitive devaluations of
other Qurrenoies.
Before ±ntt."Oduc.tng the SDRs1 the IMi' had made loans
125
fJrom ~;ta holdtngs of Ottn:'encies (which were subScribed by
merribers) to oounttte$ to help them. with financing bala.nea o£
payments def.t.ctts pending th$ tntrodwt:t.on of eorre.o-t.tve
policies_. These loans eventually had to be r~id and so
dtd not constitute a p~nent addition to world r·eserves.
Purthermore, as the si2e of the loan gtG\<11 increasingly
stringent. eon&ttions were applled so that the ~raz:y l
add! t!on to a ~1.m:try-" s res &EVes was said to be through
conditional llqutdity. .By eont.rast,. SDRs repX"esent a perma ..
nent eettl!t.1on to wor.ld reserves aad th~ir use unconditional
(subject. only to the rules t;egarding· maximum and minimum
holdings).
Both the a1l<:Jeat!on of SDRs and the QOnditional borr ..
owing facilities are tied f:o. quotas68 whose deterrunants
ar-e (a) the voting rights of a member of the Fundi (b) the
degree of a member's aeQeas to special iacillttes in t-he XMI'J
(c) the uee of a member's ordinary drawi..~g right.a with the
XM!'I (d) the amolJtlt of ~he sl.lhsc::ription o£ member to the IMF.
ThesEt quota a were not firmly based on any fiXed $et of rules~
Quotas are subject to a five-yearly review-. Also any in&.-,
vidual country could request for a review of its quota at any
time~ In 1976 the quota was raised tQ SDR 39 billion under
the StKth General Revtew~ For the oil exporting countries,
the quota. share was doubleCI from 5 percent to 10 percent. nut
126
the total share of the .other lees dev~lop~ countries X!en'tained
stable at 2o.as pera~.69 It was also <lecJ.ded in 1976
that 2S percent: .of a member't subsar.tptton which ~iously
bati had to be eontr!buted . .t.n gold $hou1d ln futw:e be paid
eith~ in SJ.)Rs or in currencies of some other cut7:ene1es
cf some othc members of the mr subjeot to thetr eon&ent or
.tn the member eountr.y• s ow eurz:~cy without any obl!ga:tt!.on
to repurchase. *''I' hie chanqe in the mode of paym-ent !s quite
significant for less <tev'eloped eountrle$ m~ers whose
cur.renoy :ts held. by the Fund 1n excess of too percent of the
relevant qUOta,. since previOU$lY the only way in wh!oh they
had been able to derive the extra oondittonal liquidity
associated with a qUOta tnereass was to sacrifice a measure
of unconditional liquid!ty1 by paying out gold ... 7°
The quota· system is made quota for the lestJ dwelcpad
countries on account of the following reason~~~ 71·
71
PfJP -~ ta sept~· 1978, p.29S. ·
Blrd o."' · Tl)~ .Int!.£national Mggetaa .. sl!!!tftm and ,th,s LUS Davalgmg Co,un;§rl;~s,. t1acirn11lan (t.onqon), 1979, P•l93•· ·. These art ticisms of the quota System are based on thQ folloltling workst .I1'fi ,S,S!f.!ez~ sept. 19, 1918, pp.294 .... 9e, 24 Jan. 1 FeB. 21 Feb,.., pp.l7-,.40,. 49.SOt a":s.t.rd. "The lnformal Link Between SOR Alloeatl.on and Aic?-# A Note*'~ -The J<rsrnai of Devalo;gment stpdf.es,. no~12(3)~ pp.26S....731 G.Bird, n. 70• ·· Clive., w.R.# Xpterna;t:Lon;al Monet9ey Refsr!M ana the D§.Vf&lopin~ .. . ~o,untri4¥§, Brookings Institute (waslUngt~::m.. o.c. ""19761 Gupta o. ~ T o erations of the Trus:t Fund • F nane !-Ulfl DENeloment., '·no.lS. 3 , pp.3'7•40., 1979; Helllner, G,.K., 1The Lese Developed Countries: and the Internet• 1one1 Monetary System,., "r,hs Jour~al o£ D!i!el~t Stwjiep, no.,10(3) 1 1974., pp.347• ~11 Leipziqer~~o. ted.).. Determin~ts of use ~f .. , s;eecial Dramna ~ights by; ,Dey,elgpiny Cpuntries. Agency f. o. r International Development washington., o.c.), 1976 •. ·
(1) The quota system ts .based on p:r:inetples wbich ·do not
t:ake into aceount some important probleme faced .j:;y· most le•s
T~ ?t.tn4, eta. tc tide fiVer the balance of pa:~t$ pmbl~
m they~ 1~90 IMr fae• 4 eituation of $-ntem&ttonal
rncnetGa:y &eo~ et'l4 ~%\U.ng to some it has: lottt lts
foun4e.tJ.ons,70 some r(!1evant f1~es80 wuld be t11~attnq t.n th!a Jl'ega~ 'the us t:ra4e <kftcits of$ so.,g ~111ton tn 1917 and $ 34.2 bill~ lb 197St the dollar depreclatlon
(1970 w $'ld 1978) of between 4S and so percent agail'lSt tho
mart tm4 the ~ ~ vs ' aoo billion held bf noq-US cc.mtml
bna.'ktt'- dOllars awash .ln th~ Em'Ottlflt''lcet ., around -.the--clcck
facillty a~ the 4l$posel of transnational banks anti corporatlons-
II H'r.f Ul' i't:il PN! . . 4 -__ ,_It -u I _ Jl 1 Htt "li I:L
113
~; t;tpto 100 b!Uton an4 Third t~ror14 ind~es•
~tad au$ 4:00 billion a good ~~n of wl'tlch in pmvJ.W
by tr'«~•ional betiktJ &G oinaicat..S loeu,. These aJl4 otlhet'
fi9n1"es of the tmn» ~ .tntiwste tho apoealypt;lc. dli.1.wtnnloll•
goes to XMP., AS en iDstltut!o.n, the JMV· hao ~ butl'tc ill
tea~ ~ set:'\'e 1:» ~Wn this tGhaviour.. In tl1o Une
· t~e. tme edj.cU.ve iate.t1'ltltioft01 1ft the~ of the
th.1114 tn -.al~q. 81 Jt doe• not. havo t.he G$liW ~l'l\l as
When eppU.S, w ~le~ to the unitea sat.t.ons Or~atJ.Ooo,
wit,h Vhich the fund h&s a i::GfttlQwa .l'eltltionsbtp•. 1'bl8 ls
~uso ~· !10Cia1iafe eounutee u-e I:\O't. ~rs of the ••
~· 9~-e.l df!Jfce u tho olig&~tehic ~:- at~\11"G·
of th• :Dfrf. t1o a&Cfl• ~· leavu 1\s m!me\al'f policY to
be sbapet4 t.ty-tb~ e~1~ of e bantt. Yet in the nw. ~ wttng ~ te 4~ed er:om quai»•• the •Jolr' lAve t.lb&JtGh0148J's (USA, \14 nc,. '*'anco an4 Japan) ~= 4o.t· "
of tho voto&, which they ~U. t.bZ"OUgb dh'eetly appO:tntecS
excessive d.epen.dence on foreign capital or self-reliance.
stnte1 ' p:t:ivate Qr forei9D enterpri:elef!l rad!eal agrat"ian
refOrms or not, a:re some of the debat$ble t.h~es whioh hJ;I.ve
attrected the .ai4tention of MeXican eeonomie planners and
policy--makers since the S$Cet:td w~ld wa~ years~ .
. Th~re is no do~ that. Men!® has made aPf'reciable
economic ed.vanee/~wth bat.ween 1935 and 1965 w~s a~t time$.
From 1970 to 1979 it has been about.2 percent yearly~99 The
Mexican eoonomy has however. bec:ome moa:-e complex and. pe.srhaps
dtf£ieult to l(:!Orttrol. And w.tth it nf!W basis of pOlitical
conflict bave artseth There 1s about 60 percent of M~co 1 s
trade w1. th the USA. 90 Thts bas 1 ts. own logic of acaommo®tion.
Mexico bad ·to pe.ntltt vast. .inflow of us c:~ap! tal~ A;l,d Mlt:Qd.co
also bol:'roweel beav1:1Y from the 601 s tnatnl:Y fJrOm t.)le USA whtcb
tied it ·Olo~er to the uattad states. The disqovety of
bydr<)c=arbons has led to wild ~ectations, The USA saw itt
this tb& poss.tb1l:tty of seoure supp.Ues Qf oil and gas as
it$ doorstep,. This has added a new 'Utlprec.ed.ented cU.mension
to Me)d..eo1 s futtUre~ 91 And this too will call for a bargain
DA'l• . COtnmESS.iO kt:erioz.: de .Mex:ie'Ct (Mexico CitY) # vo1.22, no,..l.,.. August li7a ..
"Mexico • The Polities of Accommodation"• national .~ez:a!d (Delhi) • 20 OCtober 1982,;
1.38
or deal with the northern neighbour. for the.t'e can be no
stability unlese the ·northern neighbour is a~sed~ This
fo::c.ed. appeasement in faet began J.n the forties,. Mexieo
suppo.rts the t1SA on all fundamenta.l 1$Slles. though it bas A.t .i.A i1 h . 1 . . 91 u.~.S<lltc'eV<&.on •n ow t does so.
The emex-gence of larlile $m0\lflt of us prt~tei inVestment
1n Mexico and heavy borrowings by Mexico from thf!! US!t J.n
lOGo"$ created finsnata1 <ttis1.s in 1916"'93 Thf.s was the
result of SY$teur• s $truct.ural defects. The eount:ty was under
e heavy debt• The oil bubble had now burst,, and from Wng
the darling of the fore.tqn bankers, WhiCh tutnt;ld th~ country
int.o the world's biggest 'bo.t"r()wer 1 Me)doo has $Uddenly becatrte
a dubious .customer whieh may have to res•hedule its debt. and.
'11 . ~ -~ 94 ~a . . 9n tue .u"¥; ,. ··
After the 1976 finanatel. critd.s. oil 't1GS seen aQ a
quiok end easy alternative to the Hercnllean task of «oahecU~ the eystems structural defeot.s. so in 1977. Jo;cge Pia•
Serrano, newly appo.int.ed head of the $tate oil~, Pemox,
se't about $Xp8nding the cotlt1.trY' s oil production at a frenetic
peoe.. Although nominally under the control of the Ministry
;c.f Natural Resources; Oiaa Serrano used his person111l lJ.nks
·wt th the Presidtult to set. up a V'irtual1y in~ent 1 f£e:fd0ta*
94
Ibid.
"Why Oil has been a Disaster For Mtxieo•·, Q~r$U«:ln. (London) 4 August, 1982.
lbids.
:m.aktnq his. own policy and spending money, as t-tell a• bQ~r ....
owinq !1: as lavishly as he thOught f.tt; 95 Paemex soon
slipped outside even the Presid$!1t's eonttol~ ~ nd.$led
the Prestdt."mt. .tnt:o beUtWit'lg that M~n refitu:~riet~ 40ul.d
handle uhe heavy oS..l in the offshore Gulf reserves """"" which
t.hay could not... Petnex was auth0r1se4 to· deVelop offshore
oi1, whteh ·coul<l not be useu in the home market $nd whi-c:;h l
·no one wan-ted ttrnch anywhere Ellae e~tllelt• But t~se offshoare
oil· platf¢rms had to be imported and were finaneoo by borrow
ing.. ln feet, Pemei(, more then any other .single entity~
was ~eeponstble fo# the enotmOus growth of Mexteq' s fOreign
debt dtu:"itH1 President Portillo* s term. of office. 96 This
·was liilt'gely dUe to the speed with whi<:h. oil ana. gas pro~
ti<>n was i.ne~eased~
By 1979-90 the oil bOom. was in full swing an<i GNP
was growtng: at. more ~han a ~cent a yeaTJ,.91 M~~ went
on a 1t!ld spend.!nq spr~e .... though little money found it~r
w~y down to urban t:itld t'W:'al poor ...,. and foreign bankers .f.ell
over thetUJelves to lend money to such an oil ricth country.
Mexi·CO could pick and (l!hoOee and enfo~e J.ts OWtt' 'borrowing
terms. 99 . %nf1a:tion, how~. remained ~h higher than in
95
96
97
99
qua.t;dia,a (London);· n~:9 3~
lb"d : 'a6·.•_
1m' P':m:!:!X•c· IMP~ 1.0 Jan~. 19831 · p-.1,.·
•R$Sp.tte 0¥: way out ;Of Red"• 'rJle HindU (Ma.(tras ) " 3 August l9Sl.' · · ·
140
t.be W but the gavsmment: sav no need to devalue again.
Manufacturing industry had no spare oepaetty for sellinq
abroad while t:he oil and oOl'ttl'riodities wh1oh MexieO' e)tpOtted
were priced in dollars~ Agri~ult.ure wa$ flagging and large
quantities of grains had to be imported. lf the peso had
been devalued, the effect would have been bi9hly inflat!o.
nery. With u.nexpeoted.ly ~gh oil revenues as the world
p~iee soared in 1979-801 Meldcc had no u1ff!oul;ty i.n defena
!nq an inc:rea.sinqly tu'U!'eal. e:cohange rete. 99 But ever1 before . .
the oil pr:tce br:o'ke last year: trouble W8$ building up~ Xnfl-
ation was 30 l)$roent in 19eo. Tourist 1nqome fe,_l steadily
because Mexteo became too ~nsive.-1°0
M~oo• s borrowing soared dtee!ngly .after 191&101 to
meet molmttnq balance of ,payment deficit wh!oh was caused
by huge .tn<:rease in pUb~c ~pendlture J.nitiated that year.
Tha over: valuat:ton of the currency_, the peso, simultaneously
aggravat(:td the .balance of pa.fmenta _and with it. th& debt
problem ¢f the colll'l'try"l02 Bp l9Sl. the country's public
sector debt had reacthed $ $.3 billion maktng a 56 percent
'100 ,~be 'itn(\q• n~ 9S:t . . ~ . • .. : ·."
101 'Rfi! .survel~, n~t7~. p-,1,
102 Ibi4,,
141
increa•-tn the year before.· Short-tetm bot'li0\-t.1n9 as a pet•
oen-tage of the Mexican publ!o debt ro$e that year ftom 4
percent to 20 percent. The Government WQke up wh&n the flow
of fOreign advances was deytnq up.103 %n Vebruary 1982:, peso
was devalued by 40 percent and the government raised· wagas
by the same arnowt;; thereby 1 to(ip.il'ig otlt any bene£! ts arising
out of !t.104 Public spenp.tng 1-ncrea:;t&d from 14.5 pe~ent: to 16. S perceilt• In Jun~ 1962 MeJd.co obta1ned a. ;:lynd!cated
loan with co.nsidet'al:>l.e &ffieulty and in August 1992 Gov~
men-t W$ forced ·to devalue !urtheli~ At tlhat $~ge, us
.mounted its rescue <Jpetat.ions prOviding more than $ 3 bi1l,i.on
in loans to enable Mexico to meat immediate demands and
goaded by usA~>" The Mexl<.:$ns announced that. they wculd start
talking to nw about. e restruct-llring of the eountry•s debt.
On NoV'enlber 10• 1992 MexiCO had, signed e. letter of intent!
with ZMt?· allowing it to draw on credit of SOI'tiQ • 3.9 billion
extenaea by thE! Fund.105 This poised tha way for e .:POstpQll""'
ement in repayment of e.bout $ 20 biUion of debt; follotd.ng
due t!his and next year and to a $ 5 billion fresh commercial.
oredl1! whicm was tied down next March.
10.3
104
105
106
The col)dit.ions attached to IMF 1Qan t-tere so st!fi10G
Ib!g •.. I -.
ttta
.. , iiDtt comtn mey uot fi.Da it ~sy to comply with. 'I'M . . . . 107 mal.ft cQndltlons ent
(1) ~ ~--meat will e~~ ~ a-J.esb the pubUc
eoct.or aefidt, fJtom :se.,s percent of t;bG. 91'0•• dOmatJ.o
J>I'Oduet. to s.s pGrCont 1.8 J.ita3#' s.s percent. An l9e4, .m 3.,5
~e= 1u· 10891·
(2) 'rl» COW'ttV'• tt!lple ~-o tteto ~ w.I.U be
phalle4 0~
(3) ln~ J,tates •11 be el~ tc riso to toa~
ktvel.,
(4) The oowts.y \Qo'UJ.d ~V'Q'Ur to ecbieVo a t~e4e ~:tl4
of t a-to Mll~
(S) Tbe laiU'lidon JtOto 1411 bet bt'o~ do\m ~ M$1'lY
t.OO percent, t.O ltHJs ebao 1D ~
~ Wi.ll ~, f1ft4 it (4Bsy· to fUlfill t'J\eSO ~t.t.omJ#
wbtch itt l~'tat\ b? ~ fact. tb$~ the gova~ ~
!n the ~ flvo ttOnthtl o! the teat;·~:~ b7 1.6 perrcunt · total~ ·
~ to e-/ l~t1e o~ s' ~ to gov~ •w..-, ttbicb wtil lKIC~o ~· defie.t• ra~ thnft zoG6uGlft9'
it.. tlcdas o •esive cut! in publio J.nvatmcte J#Oqn;1rae·
Au ~lt'eedy ~ way· but. An tho ~· Pn•~ oS MfDtl.eo
118-tt a.keacSy felt:. :foree4 to tntcoctuae, a· b111lon cio11at-·
143 "\ . " •nationa.l emerg~noy pt"ogramme• to create s .. ·? lakh jobs,. In
spite of th1s1 lMF has tmpressed .tts sat!s£aetion w! t.h the
proQress made by the country and allowed to draw Sin\$ 300
il!llion second trenehe of the Ftmd • s loan to it.
What is important to note is that !MV lends funds to·
its member-country for o,ercoming shore... term balance of
payments deficits,. Howe.ve~. in case ot MeXico, the loan was
"given not for thJ.s purpose b'ut for improving the qeneral
economic oonaitions of the eountrr1°9 a.tld. this was done
precisely at the tnstance of USA, ·109 Se$ides:.. duo to heavy
debt on Menco and its inability to pt\y t.hemf the er$dlt
worthl~ss of M~eo bad become veey weak both for the eomm
<4"·0ial borrowings as tttell as from the borrowings from the
'international agencies l!ka IMI? and the World Batlk etc.1l0
%t ts for these reasons t.hat loan con<UttoM !mp(>se<l on Mendo
were tough.. But J.t is also important t'Q· see how XMF has
wo.rked at the instance .Qf vn!ted states in case of M$Xico.
.108
109
110
'
~Mextco•s ouandery"1 ~ni!an !XB£ess, 11 Sepi:.,l9133t "l.fexico on Verge o.f eo .. 1~ pse", .~und~f, 0Att.e~ar(.l:Qndon) 17 Ap;t:il 1983. In fact Madrid, Pres dent o ·. Mexit:O declare$ that the balance-of'"'!'payments deficit bas been converted into a. healthy surplus. The f~deral .deficit for the first su months of ,1983 was in the range of $ 2.G billion, well. within the $ 7~& htll.ion tarqet for the whole year, Pox- this statement of the Pres1dent se(a . BMextco No LOnver Panieky on Eeenomy" but la. Crts.1s continues'*, rierni;ltiogal 1jf! ... alg T.,t~bune (Parts} 1 24 AuqtJ.St l EJ "
SY&r<!,ian, n.936 l~;:;ioAAl. aera~d., n,91J "From Riches to Ragsa, The Hindu (Madras) 6 September 1982.
First o'f all M~ico did not acek loan £or short tettm -------
balance c;,£ payttrent prices but:, to OV'ercome general ~~c:
crisis as ihdicated above. Xn tl1e second plece,· :even J.n$pite
·of IMF' s .tns1staMe on Meld.Qan 9QV~ent to meet J. ts back
obligations~ Mex1¢e.n gov.ernment refussd tQ abide by i-t.111 ~
Subsequently, the Ir·1F was xath~..r pet"suad~d by a. panicked us
'freas\lt'Y Departmen~ to soft® :S.ts Une tOtv-ards Mex1co.,112
MexiCO'$ ar.tttons were the focus o:f the To:t·onto nw meeting
hel4 in August 1982. ~ -,:hG.re ia spectre of similar aotions
by other 4w~1oping nat.tons113• In fact, at the tMF meeting,
Meld~n Finanoe Mtaist-er dalled for ~ th~ y(!f;ar morotorium
on 11\terest pa~nts by the entire developing wor).d and since
·t septetnber 1982. Mext-eo suspended ·al.l debt pa.ym~ts for 90
days beCause. on t:b1s dat·e the Mexican cgovernment. announced.
the natiionaltsat:ton of the private l.1anld.ng eystsn and the . ~sit.ion of t.ht! strict f¢reign exchange <eontrolo.114 'this
waa an aet!on aimed at the IMF•s attempt to seek full control
of t-!e.."deo' s ec;onom!c pol!Q!es~ th4! nationaltzation of! t;)r.tvat~
banks was an anti-t.bes:t.s of DU?•s prttseriptions. HoWWEt:r,
st.tll stteh aotions of t-textcan gove:tr.nnent were tolerated. What.
111
112
113
114
Patriot. Xbid.
pajQ!;;Ao,t1 ' n.lOG, The liJ.nd,H., n.9s. Xb!d,. ·l.f __ ,..
145
The basic force was the USA which !s one of the most
powerful oouni:ties in t:he tMJ?" ':he us interest tn Mexico
was clearly the ,.oil dipl.omacytt. Bei:ore the oil, resetves
were discovered in Me;W:;o, t.h~ us intetast in M~1eo ~•
very 11 ttle ~ept that us citizens set up their farms and
indusuies on the US.Mexieo border ana used cheap Mexl.cen
labcn~.r. The us private foreign investment W$$ ma~e in Mexieb!5
- Bowev•r• after the oil reserves were discovered us developed
a keen ·interest in Menc;o. Lergt'! amount oi: priva-te investment:
B'tart.ed pour1ng tn Me&too,. Private banks started g!ving
lOans to governments because the prtvate secto~ J.n Mexico
had tbe.u influence frCJm private businessmen ill Ame:d.ca-.
Me:Jd.oo oil suited the US the most:. becatlSe of prox.tmity and
this oil diplomacy made the t.JS to change its ~ttitude towardS
Mextc.o.- Us started pla~tnq gJreater ~hasis on Me)dao in
its fore.tqn pol1¢y., !t was for this reason that us helped
Mexico • .s debt rescheduUnq an4 a.l® made IMl? to gt"allt. e. loan
to Me:dco inaptte of heavy debts o.f commercial ·~u:rowittqt~
on Mt»ti® already.
Tbus we Gan conc::lude that yesteltday• s pxo$pel'Outt Mexico
is today deep in -the ttad, This oil rich Latin Amer.lcan
nation baa accumulat-ed a debt totalling 81 biUio.n tbllars
115 For this part of dlsaus$10n. X owe to Mt'.Chawla who worked for his M.Phil dissertation frOm Centre f.or Latin American studies. School of Interna1d.onal Studies., JNU.
and finds it has little loose ehange to meet 1ntE!"rest
payments and ntaturing principl%i as much as 60 percent of
1t.s ~rt earn.t.ngs are &stitnated to be s~t on debt ser~
viatnq. Even after devalUing· its cw:reney by 70 perccent
against the us dollar Mscieo COl').tinues to feel the fin.an
atal crunch a.s its Oil fa~hes less a.nd less~ Inflation
is. running at. an annual pace of about 90 percent; 40 pere~nt
of the work force is· un~loyed, Motivat.~ by a desire to
end poben:t!ally dieast.~us currency a~lation, President
P0"111C. had nC!tionalieed M-.teen baftks.t The President fGels,
~hat the banks •.toot-ed.• the nation by provtdiug ways and
means ·of massive outflow of eapJ.t:al. Mmd.co•s pUgh~ is as
much its own mald.ngs as e. by-product of global recession.'
Xf Me:d.oo wants to recover~ then, aa Qou.ntry will have to rely
.on generostty and fol:'esight of pr.tvat& intemet!~nal bank~
1n the short run but in the long run the government will
have to turn t.o -the IMF and will have to aeeept standud
prescrJ.pUons the agency is suggesting ·to borrowing couni:ries.
What has been shown aboVe ts the relatton$b!p of !MF
and Mmdco in terms of Me)d~o• s reoent transaction with the
.IMF • Sinee India has also borrowed $ bill1o.n SMs from IMF
recently, it will be interesting to examine what kind cf
tole XMF has p.layed .ln the eont.~xt of rni!U.a.~,