Finance And Development by Michael DaCosta

Author:Michael DaCosta [DaCosta, Michael]
Language: eng
Format: epub
Tags: Social Science, General, Sociology
ISBN: 9780429696848
Google: KmwPEAAAQBAJ
Publisher: Routledge
Published: 2019-03-04T04:51:56+00:00

Indirect Contributions

From the borrowing country’s point of view, much of the attraction of bank finance derives from the flexibility with which it may be applied. With very few exceptions, bilateral aid is tied to specific projects using material and machinery exported from the donor country; at the present time World Bank loans are also being assigned, for the most part to projects. IMF resources may only be used for balance of payments purposes and their availability is conditional on the achievement of certain specified financial targets. By contrast, bank finance remains largely unconditional.

The availability of external finance free from conditions imposed by outside governments or agencies tends to be regarded by those agencies as not being in the interests of the recipient countries. Their preference is clearly for loans to be carefully monitored and supervised by staff of the agency concerned to ensure that the funds are placed to a project or other use approved by the donor. As Diaz-Alejandro notes:-

Distrust both of LDC ability to manage sensibly their own financial affairs and of competitive international financial markets is not far from the surface.7)

This attitude is perhaps not surprising when seen in the harsh light of retrospection and experience in some countries which embarked on an import spending spree as a result of the sudden multiplication of their international reserves caused by the commodities booms of 1971/72 and 1973/74 and failed to allocate efficiently, with a view to the uncertain future, a very scarce and valuable resource. “Failed to allocate efficiently,” of course, is putting it mildly, outright wastage of foreign-exchange and its investment in ill-advised large-scale projects were common. However, not all LDCs were wasteful, and even those which were unwise, having “burnt their fingers,” now treat foreign exchange with much more respect than previously.

The relative unconditional nature of bank finance can prove beneficial to growth in many respects. The most important of these are in the fields of reserve and external debt management. Primary-producing and mineralrich economies are subject to shocks of both natural and market origins. In the first category are drought, floods, and pests which affect harvests, and in the latter are the various demand and supply factors which result in low export prices, smaller levels of export earnings and a depletion of international reserves. Access to bank loans on these occasions can help to prevent the growth process from coming to a halt by the provision of tiding-over finance. The Compensatory Financing Facility of the IMF which was established for this purpose, provided on average SDRs 136.4 million between 1973 and 1975, and in its peak year, 1976, released SDRs 1.9 billion to the non-oil developing countries, with conditions attached. In the five-year period 1977 to 1981, the annual average was SDRs 700 million.8) The Managing Director of the Fund himself stated at UNCTAD V in Manila that the facility financed only about half of LDCs1 export shortfalls between January 1976 and February 1979.9) For those countries with access to bank finance and unwilling to

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