NITRÓGENO:

Developing countries have implemented a variety of adjustment policies as discussed in the previous sections. In part, these policies are seen as failures, with many observers acknowledging that the developing world continues to suffer widespread unemployment, inflation, and BOP difficulties. As such, IMP is not seen as a helpful institution. The main issue damaging the relations of developing countries with the IMP is its view that external disequilibria are always a consequence of excess aggregate domestic demand caused by excessive credit expansion. Consequently, demand contraction through a credit restriction has always been the centrepiece of IMP sponsored adjustment programmes.

IMP is criticized for the adverse conditions that exist in many countries and it has developed a reputation as a repressive and growth-throttling institution. In particular, Krugman and Taylor ( 1978), and Taylor ( 1979), Girvan ( 1980), Diaz­ Alejandro ( 1 98 1 ), Foxley ( 1 98 1 ), Dell ( 1 982), Bacha ( 1 983), contend that IMP is a recession-inducing growth-wrecking agent. According to Cooper ( 1 993), the IMP has made two mistakes: in the early 1 980s, it embarked upon a crusade against inflation,

and that it has come to stipulate national policy actions I n great detail, being extensively intrusive in the domestic economy, rather than leaving each country to legitimately choose such policies itself through its own democratic political process.

The IMF has challenged these views with cross-country studies of actual effects of its programmes. These studies demonstrate mixed impacts on growth rates coupled with significant success in achieving its supposed goal of BOP improvements and inflation reduction (section 4.5). This section reviews the debate on IMF policies.

Critiques such as Cooper ( 1 97 1), Krugman and Taylor ( 1 978), Diaz-Alejandro ( 198 1 ) and Van Wijnbergen ( 1 986), the so-called structuralist in the literature, propose a number of criticisms. A typical situation, from a structuralist perspective, is where the economy is at less than full employment, the price level is high with BOP in deficit, there is low productivity in agriculture, there is a reliance on primary commodity exports, and there exists an underdeveloped financial system.

The first criticism concerns the IMF policy of little or no state intervention. The argument is that market forces are inherently imperfect stabilizers and, that, if left to themselves they will not be successful in restoring internal and external balance. Specifically, this means that prices, instead of being determined by supply and demand eqUilibrium in competitive markets, are the result of mark-up pricing behaviour by individual firms. IMF policies focus on free markets, while there are sufficient grounds to argue that market imperfections are inherent in real world conditions and that development policy must contend with them. Because of the

prevailing economic and social structures, there is no automatic market adjustment in these circumstances: wages can remain at their current level even in the presence of significant unemployment, prices need not fall and BOP deficits can persist. Structuralist advocate increased controls over markets to solve the structural problems inherent in inflation. They favour income policies to overcome sectoral complementarities and trade inelasticity and industrial policies to orient microeconornic investment and decisions in face of uncertainty. In addition, they propose capital controls, to surmount the decline in lending and increased debt service payments for external debt relief, and to eliminate unemployment and reduce government expenditure.

Another point to be noted is that the macroeconomic relationships of an economy are determined not by individual decisions but by a set of key forces that govern production, financing and other economic activity (Taylor, 1983). The economic and social structures include oligopolistic industries; institutionally determined wages; and poor articulated credit and transport systems preventing full employment, price stability and viable balance of payments. Therefore, starting with these structures, it can be said that the free operation of markets will only generate more unemployment, inflation and BOP difficulties. Therefore, markets are a problem and not a solution.

The second criticism concerns the way IMF advocates exchange rate depreciation as a way of correcting BOP deficit. From structuralist perspective such

inflation and recession. However, this line of argument by structuralist is debateable. As discussed in section 3.3, devaluation is desirable as it has the expansionary effect of raising output and empirical evidence supports this effect too.

Further, according to Krugman a'ld Taylor ( 1 978) and Taylor ( 1 979), BOP problems in the third world often arise from the characteristics of the development process itself. Using this insight, these critics argue that the deterioration in the current accounts of non oil-developing countries through the 1 970s and 1 980s was due entirely to factors beyond their control. This is in sharp contrast to the IMF view that payment problems in the third world are caused by expansionary financial policies associated by the large budgetary deficits and/or a complex of cost-push factors and expectations. As such, structuralist consider that the deficits are not primarily the result of countries misbehaving, but are both endemic to the development process and aggravated mainly by external events. Given this, developing countries should not be punished for deficits with monetary contraction and other measures embodied in the program.

Again, this line of argument by the structuralist is debatable. As discussed in section 3.2, deteriorating external condition were not solely responsible to deteriorating economic position of developing countries in 1 970s and 1 980s. It was a combination of external and internal events. In fact the chances of controlling domestic internal economic policies are much greater than controlling external events.

international capitalist system involves a drain of economic surplus from the third

world (periphery) to the first world (core). Such a surplus drain through trade (unequal exchange), profit repatriation and other devices, ensures that the economy of the third world remains undeveloped for lack of excess to their own surplus. Since the IMF is a major institution of international capitalism, it is not surprising to dependency theorists that it acts to maintain foreign domination and so frustrating growth and autonomous development in the third world.

This line of argument is also debatable. For example, the drain of economic surplus takes place in developed countries where IMF' s presence is much less. The severity of the drain on economic surplus is probably more visible in a developing country compared to a developed country. However, IMF is not acting as an aid to this drain of surplus. It is the domestic econo�c policies of member countries responsible for this; for example, allowing tax free status of multinationals which obviously results in significant levels of profit repatriation.

Finally, Payer ( 1974) argues that short-run stabilisation policies have negative consequences for growth since they open the economy and, thus, effectively destroy any basis that may have been carefully laid for autonomous development along import substitution industrialisation lines. IMF's outward orientation policies reinforce dependency by locking developing economies into the vagaries of the market core. Moreover, she argues, the IMP leads peripheral economies into a so-called debt trap. Since an agreement with the IMF can open the door to official and private sources of credit, this allows third world countries to survive the BOP crisis through either

increasing debts or auctioning of domestic assets to foreign investors. In the process, the nations become "aid junkies" - lurching from crisis to crisis with infusions of private and official credit (Payer, 1 974). As a result, their economies fall increasingly under the control of multinational corporations, international banks, and core governments. The latter phenomenon maintains a surplus drain and so prevents development. Thus, in Payer' s analysis, the IMP is seen as dampening growth potential and increasing dependency. In addition, its policies have helped create the debt problem it is now attempting to manage.