Developing countries

Developing countries like Pakistan require a lot of resources in order to increase the pace of their economic growth , meet the demand of the rapidly growing population and improve the quality of life of its citizens. These resources can be attained internally as well as externally. Developing countries by definition are short of funds and capital therefore they have to revert to outside sources to fulfill their requirements. To acquire external inflow there are two ways, either through aid or trade. Both of these have their set of merits and demerits. Generally a country’s level of economic development determines what kind of inflow would be beneficial for it.


In certain circumstances aid seems to be the most appropriate way of covering these needs i.e emergency aid in times of disasters saves lives, helps rebuild housing and livelihood . Provision of medical trainings and equipments improves health and standard of living especially in reproductive health sector and helps combat viruses and other deadly diseases. Projects that develop clean water and sanitation can lead to improved living standards

Aid in agriculture can help increase food production and enhance quality. Specificly directed aid may lead to infrastuctural improvements and also create new jobs .

However it does bring in some long term problems . To begin with it creates a dependency syndrome The dependency theory suggests that multinational corporations and organizations such as the IMF and World Bank have contributed to making developing countries dependent on first world countries for economic survival. The theory states that this dependence is self-maintaining because the economic systems tend to benefit first world countries and corporations.

Some times aid is not a gift ( it is a consessional loan or at times even commercial loan) and poor countries have to repay ,like Pakistan, taking major portion of the bugdet in repayments of the loans. In certain cases aid may not reach the people who need it the most . Corruption may lead local politicians using aid for own means or political gain. Above all Each country has its own absorption capacity. This coupled with lack of direction leads to misuse and as a consequence opens door to corruption.

Loan/aid and debt relief are not usually determined on needs they are generally based on existing geo political influences. Though the atrocities of Sadaam Hussain is not unknown to any one yet much of the money that was poured into Iraq was at the time of Sadaam Hussin regime.
Chlorine plant Faluja A facility which the US said was a key component of Iraq's chemical weapons arsenal, was constructed by a British company 17 years earlier, a project underwritten by export credit guarantees from the British government.
Aid is also a mean of exerting political and economic pressure on the receiving country. Country may end up oweing more then the montery sum to the donor country- i.e dropping trade barriers, opening up markets, liberalisation, privatisation, cut backs in the public sector, including health and education. For instance 18 countries who have been granted the debt relief by G8 had worked up for this relief over the past years
Zambia swallowed the privatisation, liberalisation crap, dismantled the public sector. Uganda. was forced to privatise most of its state-owned companies.

“When the G8 insist on 'good governance', what they are actually asking is to micro manage the economy, to open up a country to rape and pillage by Western big businesses”

Developing countries are heavily dependent on agriculture. It is the back bone of any developing country One of the biggest drawback of aid is at times these projects do not benefit agriculture . It distorts the consumption and production patterns of the country. Local production is depressed and prices are adversely affected for the producers. PL480 wheat aid given to Pakistan over the years depressed the wheat prices thus casuing the farmers to refrain from wheat cultivation since market was not offering competitve price.

Another demerit is that Infrastructure projects sanctioned under the aid agreement may end up not being beneficial for the people, benefiting the employers more then employees. Prior year’s aid was granted to Pakistan to initiate the project of electric railways from Khanwal to multan where as at that time even electricity supply was limited and not enough to sustain such a development


Trade the other method by which foreign exchange can brought into the country to meet the requirement.

When the developed countries talk about international trade it is not an isolated term for the subjects. For now international trade is governed by WTO . WTO rules have been formulated and framed primarily to strengthen the trading activities of the industrisied nations. On the surface they seem libral and attractive but in reality have worsened the economic and financial capabilities of the developing country.

Over the past 20 years trade liberalization has cost Africa the same same amount as it received in aid. Had they not been forced to liberalise as the price of aid, loans and debt relief, sub-Saharan African countries would have had enough extra income to wipe out their debts and have sufficient for the development of health and education

On one end trade liberlization asks the developing countried to lift their tarrifs and lower the duties on the import of goods however the policy is conveniently folded to favour the developd nations. On one hand the developed nations(EU) are pushing for the open markets but on the other they will happily erect barriers if free trade looks it will hurt certain powerful members states. For instance EU and US have been quite creative with WTO to enable them to keep making large payouts to their big farmers. This causes over production and export dumping undermining poor producers overseas. As a result of these price cuts factories in the developing countries are closing down, workers are losing jobs families going hungry and are robbed of even basic nessities of life though the prices of the commodiites have come down but so has the purchsing power.

“Mexican farmers which could not compete against US products when they joined the North America free trade pact; Haiti and Honduras whose rice farmers lost their incomes when they reduced their tariffs and were faced with the influx of subsidized US rice; and Jamaica whose dairy farmers could not compete with cheap milk powder from Europe.”
Though pro market theories argues for the open market and free trade automatically leads to growth and way out of poverty has not worked in the developing countries in-fact the data has shown that trade liberalization has actually cost developing countries billion of dollars. Therefore side aid and debt trade reforms is crucial to help end poverty in the developing countries

Nevertheless resolving the problems of the third world countries like Pakistan is not just adding and subtracting existing rules and regulations defining aid and debt or redefining it again as trade liberation which under the circumstance are more or less synonymous. Truth is that there is no one single solution to the critical problem faced by the under developed countries. It involves a re-look at the export subsidies and reforms of domestic subsidies by the developed countries, which also leads to dumping. Reduce tariffs and non tariff barriers to developing country manufactured exports. Developing countries should be given special and differential treatment, a principle recognized in the WTO., they should not be asked to reduce their bound tariffs on products further, but be allowed raise the tariff levels if they are threatened by cheap imports. Technical assistance and information sharing , to an extent. Offer new trade related aid without economic policy attached and without adding to the existing debt burden.



Ultimately fighting the crisis of third world countries is about long term structural changes , political mobilization , redistribution of power, education and technology . Figuring out the root causes of perpetual poverty and not simply opening the doors to foreign investers and trade liberalization which eventually damages the countries weak industry thus collapsing them and making them easy prey for the bigger fish, dumping them with low priced imports handicapping the local manufacturing and production concerns. It does help the developed nations to strategicly get rid of the surplus and at the same time get debt repayments from the developing countried however this merchantilist trade interest should not put infront of development.

Forced trade seems an other modern version of opium wars in China where by China was forced to buy opium from english growers in India this time it is not by force but by strategic manipulation thus giving birth to a new for of colonelism.
Prosperity leads to stability and growth whereas poverty makes the country restless and in case of countries like Pakistan it becomes breeding ground for fundamentalist and other social evils. Where literacy rate might be increasing but the education is not. The true essence of development is developing human resource which in turn closely connected with the socio economic uplift of the people . With globalization and advancement in technology international trade is the road to the future. Aid and loans properly directed would lead the country out of their problems. but tying them with conditions which undermines development should be curtailed .
Bottom line is “if new aid and debt relief comes with strings attached that require countries to liberalise trade, it may well do more harm then good when they meet at Gleneagles, G8 must agree to stop demanding harmful conditions as the price or aid and debt relief”
Reference:
Economy of Pakistan - Wikipedia, the free encyclopedia
UK - Third World Debt
Submerging markets.