Because disparities exist on our planet and because every country is committed to trying to achieve the Millennium Development Goals, it is very important that solutions are found to try and reduce the inequalities between rich and poor, and improve the standard of living for all its citizens. The IB specification requires you to focus on five possible solutions to reducing disparities. The five possible solutions are:
Trade
Market Access
Debt Relief
Aid
Remittances
I will be looking at what each of these are, how they might help reduce disparities and whether they are currently being successful.
Trade and Market Access
Many people argue that the best way to alleviate poverty and reduce disparities is to promote global trade. This argument has grown even stronger after the forces of Capitalism effectively defeated the ideas of Communism. However, despite improvements in transport and communication, global growth and are a more cultural interconnected planet, many countries still struggle to trade freely. One of the biggest barriers to free and open trade is protectionist policies carried out by developed nations.
Trade: The exchange of goods and/or services. The exchange maybe for other goods and/or services but is normally for money.
Trading bloc: A group of countries who have joined together to promote trade. This might be through relaxing protectionist barriers or even having a common currency. Examples of trading blocs include the EU, NAFTA and ASEAN.
Exports: Goods and/or services produced within a country and then sold overseas.
Imports: Goods and/or services purchased overseas and brought into a country.
Embargo: The prohibition of trade with a particular country. An embargo might be a way of punishing a country or an attempt to force a country to change its policies. Probably the most famous embargo is the US embargo of Cuba.
Sanctions: Sanctions are restrictions placed on a country's trading. For example after Kuwait was invaded by Iraq, Iraq was not allowed to buy any military goods or weapons. This sanction was enforced by the UN.
Protectionism: Attempts to protect domestic markets by making foreign goods less competitive. This is most commonly done through tariffs and and quotas placed on foreign goods and subsidies given to domestic goods.
Tariffs: Tax/duties placed on imported products to make them more expensive and reduce demand for them.
Quotas: A limit placed on foreign goods to reduce the supply of them, therefore forcing the price up reducing the demand for them.
Subsidies: Financial help given to companies to make their production costs less. This might be through grants, or the reduction of taxes, relaxed planning control or below marked price electricity and water. The aim of subsidies is to make products cheaper and to protect them from overseas competition.
Free trade: When trade is totally free and fair - there are no protectionist policies in place. It is the aim of the WTO to promote free trade around the world.
WTO: The World Trade Organisation is an organisation aimed at protecting free global trade. It replaced GATT in 1995 and has 153 members. To join the WTO you have to demonstrate how your country promotes and practices free trade.
Fairtrade: Fairtrade does not produce goods itself, but instead lends its labels to companies that treat suppliers, host communities and the environment fairly and sustainably. For more information see: Alternatives.
Balance of trade surplus: When the value of your exports is greater than the value of your imports.
Balance of trade deficit: When the value of your imports is grater than the value of your exports.
FDI: Foreign direct investment is money invested in a foreign country by TNCs or other countries.
TNC: A transnational corporation is a company that operates in multiple countries.
Microcredit: Small loans that are given to people that normally struggle to get credit from normal banks. The pioneers of microcredit was Grameen Bank in Bangladesh. For more information see: Alternatives.
Free trade zones (Export processing zones or Enterprise zones): A zone or area where tariffs and quotas maybe waivered, taxes lowered, planning relaxed and bureaucracy eased to try and encourage investment and FDI.
BENEFITS OF FREE TRADE
BENEFITS OF PROTECTIONISM
Gives local companies a chance to become global companies (TNC) e.g. Pollo Campero
Countries who participate in free trade grow faster
Protectionism makes products more expensive and may stop normal citizens from buying them e.g. cars in El Salvador are very expensive because of import duties
Local companies can create pollution just as much as TNCs and may not have the money to clean up accidents e.g. BP created a huge spill but had the finances to clean up
Mexico has increased its exports since joining NAFTA
Trading can improve relationships between countries
Countries with trading relationships are less likely to go to war
Jobs are created for local workers
Workers may improve skill and education level
Infrastructure like roads and ports are improved for the whole country
Laws can be put in place to protect worker rights
More money can be made by selling to external markets rather than just domestic market
Residents have access to greater variety of products
Companies will become more competitive and should actually lower prices
It is hard for countries to be self-sufficient because they may lack fertile soils or fossil fuels - they need to trade to survive and grow
TNCs may take over local producers e.g. Walmart moving into El Salvador and taking over local supermarkets
Workers are often exploited by TNCs and paid low wages for long hours
Countries may become dependent on foreign countries imports e.g. Europe relies on Russian gas
Countries may become reliant on foreign workers e.g. UAE rely on European, South Asian and Filipino workers
Producing locally should reduce transport costs and certainly reduce air miles
Local companies will use more appropriate technology and take greater care of the environment
The most skilled jobs will be taken by foreign workers and may lead to unemployment
Much of the profits will go overseas e.g. economic leakage e.g. Hiper Piaz profits go back to Walmart in US
TNCS often don’t care about the environment of other countries and may cause pollution e.g. Union Carbide in Bhopal, India
Fast food franchises like Starbucks and Burger King may cause local traditional restaurants to close
Fast food restaurants may worsen people’s diets
TNCs may close factories during economic recessions leading to unemployment
Countries may be forced to change policies to suit TNCs e.g. lower taxes.
The European Union
The EU is the world's biggest trading bloc consisting of 27 member states. The European Economic Community was first formed in 1958 by six countries (Belgium, The Netherlands, France, Luxembourg, Italy and West Germany. The Union has slowly grown ever since with the latest two countries (Romania and Hungary) joining in 2007. The EU now covers a population of over 500 million people and accounts for over 25% of global GDP.
One aim of the EU was to create a single market where goods, money and people could travel freely between member states. Seventeen of the member states also joined in the use of a single currency, the EURO. The seventeen countries make up the an area called the Eurozone. The aim of the single market was to promote trade between member countries. Through the relaxation of protectionist policies, the free movement of labour and even the removal of exchange rates for Eurozone countries it was believed that all member states would benefit through increased job creation and income.
Despite the EU helping growth in many member countries the current global crisis has hit the EU and in particular the Eurozone hard. Massive debts held by some EU member countries (Greece, Portugal, Ireland, Italy, Spain) has forced the larger economies of Germany and France to offer financial support slowing growth across the EU. The common currency has also meant that countries can no longer set their own interest rates which have harmed countries trying to slow growth or increase growth through the use of lowering or highering interest rates
Bananas are one of the world's most popular fruits with 5.4 million tonnes of them eaten in Europe in 2008. Bananas are a tropical fruit and general grown by countries in the Caribbean, Central America, West Africa and parts of SE Asia.
Since 1975 Europe gave Caribbean countries and a couple of other former colonies generous import quotas of bananas free from tariffs. The idea was to support former colonies and reduce the need for aid, by promoting trade. However, by favouring certain countries it made Latin American bananas more expensive because they had to pay tariffs despite the fact they should be cheaper to produce on larger plantations dominated by US TNCs (Dole, Chiquita and Del Monte). Not everyone was happy about this, especially country's like Germany who had lost all its former colonies, but were still paying too much for smaller Caribbean bananas.
Because of the EUs hypocritical approach to free trade protests were made by the US and Latin American producers to the WTO. After years of failed negotiations a deal was finally struck in 2009 that would begin the slow reduction of tariffs on bananas. The agreement may hurt some Caribbean and African producers, but should see banana prices fall by up to 12% for European consumers.
Incheon is located in NW South Korea, close to the capital city Seoul. The South Korean government started its Business Hub Project in April 1992 and Incheon was one of the free economic zones that it created. The free economic zones enjoyed tax breaks and relaxed bureaucracy in an aim to attract foreign investment.
Incheon free economic zone is an area of 200km2 and it is aimed to completed by 2020. It is strategically placed on the coast so has as access to the sea, has an international airport and is near the Asian giants of China and Japan. It is estimated that 2 billion people live within 3.5 hours flying time, including 61 cities with a population of over 1 million people. The scheme is expected to cost $21 billion and it is hoped that 510,000 will eventually live there.
Even though the current news stories are all about EU and US debt, in reality many of these countries are able to pay their debt and borrow more money as long as they make public sector savings. Even though these countries owe much greater amounts of money than many poor countries, it is the poorest countries who are having to spend a greater percentage of their GDP on debt repayments (debt service). Many poor countries incurred large debt burdens after decolonisation. They received loans for governments and banks flush with money from the Middle East oil boom. The borrowing of money did not lead to the expected growth and soon many countries had mountains of debt. Enforced IMF structural adjustment programmes often forced countries to sell of government assets cheaply, opened the economy to outside competition (often exploitation) and slashed spending on vital infrastructure projects and services (schools and hospitals). As interest rate payments rose many countries were unable to pay and defaulted.
The graph below show how much overall debt some countries have in relation to their GDP. Even though Japan has the highest ratio of debt to GDP, the US probably has the world's biggest debt at about 15 trillion dollars. Even though this is a massive amount of money, in terms of debt repayments (debt service), the US is spending a much smaller percentage of its GDP than many smaller poorer countries. The US currently spends around 10% of GDP on debt service, although this is expected to increase to about 15%.
For example during the 1990's Nicaragua in Central America had the largest per capita debt in the world. In the late 1990's Nicaragua had a debt of $6.1 billion, which equated to about $1,300 per capita. The government had to spend half its revenue on service debt (paying interest on debt). So even though Nicaragua's total debt was a fraction of the US's it was financially in a much worse position. Read below to find out how Nicaragua has benefited from HIPC status and debt relief.
Nicaragua External Debt as % of GDP
HIPC
The Heavily Indebted Poor Countries (HIPC) are poor countries with high levels of debt and poverty. As can be seen from the map the majority of these countries are located in Africa, with a few in SE Asia and Latin America. The HIPC programme was initiated by the IMF and World Bank in 1996 after extensive campaigning from NGOs. Countries were only admitted to the programme if they could prove that there debt was unsustainable. The majority of the debt relief is coming from the IMF and World Bank.
To remain eligible for debt relief countries had to enforce anti-corruption efforts, promote democracy and account for expenditure.
As you have read above, Nicaragua had unsustainable debt and therefore became eligible to HIPC status. In 2000 Nicaragua received debt relief of nearly $4.5 billion reducing its debt burden as a percentage of export earnings to below 150% and its annual debt service to below 9% of government expenditure.
The Jubilee 2000 campaign was a coalition of 40 countries calling for the end of third world debt. The aim of the campaign was to wipe out $90 billion in debt owed by the world's poorest countries to some of the world's richest countries and international banks.
Although the Jubilee 2000 coalition was started at the turn of the millennium they still campaign for the cancellation of debt. Most recently they have campaigned to have Haiti's debt cancelled after the devastating earthquake of 2010. Haiti was already one of the poorest nations in the western hemisphere after the earthquake it lost most of the means to service its debt.
Emergency aid: Help that is given to a country that is suffering from a natural disaster or conflict. Emergency aid may include food, water, tents, clothing or even rescue teams to look for victims of natural disasters.
Development aid: Aid that is given to benefit the country. This might be money given to build a new road or port to improve infrastructure or money given to build a new hospital or school to benefit the people of a country.
Tied aid: Aid that is given to a country with proviso that they spend it in a particularly way or follow a particular policy.
Untied aid: Aid that is given to a country with no policy or spending requirements attached.
Multilateral aid: Aid that is given by multiple donors to a specific country. Multilateral aid may be collected by an NGO or a UN organisation e.g. UNHCR or WFP.
Bilateral aid: Aid that is given by one country directly to another country.
NGOs: Non-governmental organisations have no connections with national governments. They are usually charitable organisations who aim to benefit local communities and support the development of countries.
World Bank: Formed at Bretton Woods in 1944 the World Bank is charged with helping developing nations.
IMF: Also formed at Bretton Woods in 1944, the International Monetary Fund aims to stabilise currencies and support weak economies.
SAPs: Structural Adjustment Programmes were implemented by the IMF. Aid or loans was usually dependent on countries following SAPs. SAPs aimed to cut social expenditure, liberalise trade, privatise assets and reduce corruption. Unfortunately many of the policies were criticised because they ended up favouring MEDCs and TNCs who were able to obtain favourable trading terms and purchase undervalued government assets.
TRADE
AID
ADVANTAGES
Increased trade can create domestic jobs which increases tax revenue and reduces welfare costs.
A free trade economy may attract foreign direct investment (FDI) which can create new jobs, improve infrastructure, etc.
Trade ensures that countries don't become dependent on other countries or tied to other countries policies.
Trade is a long-term solution that creates jobs, income, investment and training for the foreseeable future where aid tends to be short term fixes.
Trade allows countries to compete on an equal footing with other countries around the world. Instead of being dependent on others, they are actually contributing to the global market. This increases countries and individuals self-esteem.
It allows countries to buy and access products that they don't have themselves or are unable to produce themselves.
Trade can improve relations between foreign powers.
After a natural disaster, food and medical aid can be vital in saving lives and can not always be provided by the affected government.
Aid can help build expensive infrastructure products that wouldn't normally be built e.g. new roads, ports, irrigation projects or HEP stations.
Can help build schools and hospitals that improve the health and education of local populations.
Many aid agencies employ local workers to carry out projects. This not only creates employment but teaches local new skills. This is especially true of bottom-up aid where locals are fully involved and make all key decisions.
Many charities provide education about hygiene, diet and health. These schemes are not creating dependency, because they are not necessarily giving money, but do improve the well-being of societies.
DISADVANTAGES
Many countries have protectionist policies which make it hard to compete.
Many LEDCs trade in low value primary products which may cause them to build up a large trade deficit.
Some countries lack raw materials so find it hard to trade without importing large quantities of raw materials.
Emerging markets may be flooded with cheap foreign imports, destroying local businesses.
TNCs can move into new emerging markets and exploit resources and workers.
TNCs can destroy local culture by flooding the market with foreign products e.g. Starbucks and McDonald's
During periods of economic downturn TNCs will leave foreign countries first often creating unemployment and leaving shortages of products.
If the balance of trade (imports and exports) is uneven then a large deficit may develop. Also countries may be effectively blackmailed when the exchange is uneven e.g. Russia can blackmail the Ukraine over the supply of gas.
Trade can cause environmental damage e.g. deforestation and carbon emissions from transportation can cause pollution
Countries can become dependent on money given by foreign donors instead of developing their own economy to become independent.
Aid money does not always reach the most needy and instead is taken by corrupt officials. Some aid like medicine can also get help up by bureaucracy and actually be out of date by the time it reaches the intended recipients. Kleptocratic (corrupt) governments may also take money for themselves and not give it to the people that need it.
Tied aid can force country's to carry out policies that are not necessarily beneficial to the country. Also many of the contracts might go to companies from donor countries, so the receiving country is not receiving the full benefit in terms of jobs, training and income. The IMF had structural adjustment programmes which forced countries to make harmful economic changes in order to get loans.
Food aid or worse food dumping, can force local food production to collapse. Often food is dumped when it is not needed. This undercuts the local food market and takes local farmers out of business. (US urged to stop Haiti rice subsidies - BBC article)
Aid may stop because of political changes in donor country or receiving country or because of economic downturns. However, the UK has protected its development budget in the current economic downturn
Aid might fund inappropriate and/or harmful technologies that can not be sustained after aid has been removed e.g. Nuclear power. Other projects like roads and dams can cause large scale environmental problems.
Aid sometimes takes the forms of loans which can lead to high levels of debt. Many African countries borrowed large amounts of money off the IMF and World Bank and now have huge debt problems.
Difference Between Top-down development and Bottom-up development
Top-down Development: Development that is led by international organisations who dictate and implement policies and schemes with little local input.
Bottom-up Development: Development that is run by local communities for the benefit of the community.
Usually large scale policies or schemes
Usually carried out by governments or international organisations
Work is often carried out by outside contractors
Schemes usually have plenty of funding.
Often quick to respond after natural disasters
Local people are often not consulted in decision making
Schemes are not always appropriate and not always sustainable long term because of lack of local knowledge.
Usually small scale initiatives
Involves more local communities and local workers. The schemes are usually led by the local people themselves
Projects are often labour intensive and for the benefit of the local community e.g building a well or repairing irrigation ditches.
Funds are very limited
Teach local people new skills
Schemes are appropriate and sustainable long-term.
Increasingly bottom-up approaches are being favoured because they reduce the chances of corruption, involve, train and educate local people and are sustainable because they have been built with the support and input of local people. However, top-down aid is still very important to respond to natural disasters and conflicts where local organisations and communities don't have the technology, equipment or money to help.
Remittances
Remittances: Money that is sent back to family and friends from economic migrants, usually living abroad.
Economic migrants: People that migrate to a different location (sometimes a different country) for the purpose of finding improved job prospects.
Remittances
As can be seen from the graph to the right remittances can make a significant contribution to many countries overall income. El Salvador received the equivalent of 20% of its GDP from Salvadorians living abroad, mainly in the US. El Salvador is a Central American Country with a population of just over 6 million people and a population density of about 290 per km2 (the highest in Central America). It has a GDP per capita of about $7000 but close to 40% people live below the poverty line. Official unemployment is just over 7%, but the true figure is probably much higher. Because of the high levels of poverty an estimated two million Salvadorians have migrated abroad, mostly to the US. The exact figure is unknown because many migrants travel illegally. With its two million migrants living abroad, it is estimated that El Salvador receives about $4billion in remittances every year, but yet again this figure could be higher because of money returning through unofficial channels.
When assessing the advantages and disadvantages of remittances, I think it is also important to assess the impacts of net migration loss, because it is migrants who are sending remittances.
Advantages of Remittances and Migration
Reduces unemployment
Reduces pressure on schools and hospitals (if migrants take children)
Reduces pressure on infrastructure (houses, water , electricity, transport)
Remittances go directly to friends and family so enter economy at local level
Migrants can return with new skills (language, ICT)
Improved relations with countries (Barack Obama recently visited El Salvador)
Disadvantages of Remittances and Migration
Remittances fall during economic downturn. This is probably the time remittances are most needed
It can create dependency i.e. a family relying on one or two members living abroad
Creates family division and family pressure/conflict (the need to provide!)
Increased dependency ratio in losing country, placing pressure on government
Brain drain. Usually the youngest, most educated and skilled choose to leave.
Reduces incentive of government to invest in education and job provision
Migrants are open to extortion (family members maybe threatened for money or migrants might lose money on exchange rates/transfer fees)
Reducing Disparities
Because disparities exist on our planet and because every country is committed to trying to achieve the Millennium Development Goals, it is very important that solutions are found to try and reduce the inequalities between rich and poor, and improve the standard of living for all its citizens. The IB specification requires you to focus on five possible solutions to reducing disparities. The five possible solutions are:
I will be looking at what each of these are, how they might help reduce disparities and whether they are currently being successful.
Trade and Market Access
Many people argue that the best way to alleviate poverty and reduce disparities is to promote global trade. This argument has grown even stronger after the forces of Capitalism effectively defeated the ideas of Communism. However, despite improvements in transport and communication, global growth and are a more cultural interconnected planet, many countries still struggle to trade freely. One of the biggest barriers to free and open trade is protectionist policies carried out by developed nations.
Trade: The exchange of goods and/or services. The exchange maybe for other goods and/or services but is normally for money.
Trading bloc: A group of countries who have joined together to promote trade. This might be through relaxing protectionist barriers or even having a common currency. Examples of trading blocs include the EU, NAFTA and ASEAN.
Exports: Goods and/or services produced within a country and then sold overseas.
Imports: Goods and/or services purchased overseas and brought into a country.
Embargo: The prohibition of trade with a particular country. An embargo might be a way of punishing a country or an attempt to force a country to change its policies. Probably the most famous embargo is the US embargo of Cuba.
End Embargo on Cuba US is urged - BBC article
Sanctions: Sanctions are restrictions placed on a country's trading. For example after Kuwait was invaded by Iraq, Iraq was not allowed to buy any military goods or weapons. This sanction was enforced by the UN.
UN lifts sanctions against Iraq - BBC article
Protectionism: Attempts to protect domestic markets by making foreign goods less competitive. This is most commonly done through tariffs and and quotas placed on foreign goods and subsidies given to domestic goods.
Tariffs: Tax/duties placed on imported products to make them more expensive and reduce demand for them.
Quotas: A limit placed on foreign goods to reduce the supply of them, therefore forcing the price up reducing the demand for them.
Subsidies: Financial help given to companies to make their production costs less. This might be through grants, or the reduction of taxes, relaxed planning control or below marked price electricity and water. The aim of subsidies is to make products cheaper and to protect them from overseas competition.
Free trade: When trade is totally free and fair - there are no protectionist policies in place. It is the aim of the WTO to promote free trade around the world.
WTO: The World Trade Organisation is an organisation aimed at protecting free global trade. It replaced GATT in 1995 and has 153 members. To join the WTO you have to demonstrate how your country promotes and practices free trade.
Fairtrade: Fairtrade does not produce goods itself, but instead lends its labels to companies that treat suppliers, host communities and the environment fairly and sustainably. For more information see: Alternatives.
Balance of trade surplus: When the value of your exports is greater than the value of your imports.
Balance of trade deficit: When the value of your imports is grater than the value of your exports.
FDI: Foreign direct investment is money invested in a foreign country by TNCs or other countries.
TNC: A transnational corporation is a company that operates in multiple countries.
Microcredit: Small loans that are given to people that normally struggle to get credit from normal banks. The pioneers of microcredit was Grameen Bank in Bangladesh. For more information see: Alternatives.
Free trade zones (Export processing zones or Enterprise zones): A zone or area where tariffs and quotas maybe waivered, taxes lowered, planning relaxed and bureaucracy eased to try and encourage investment and FDI.
BENEFITS OF FREE TRADE
BENEFITS OF PROTECTIONISM
The European Union
The EU is the world's biggest trading bloc consisting of 27 member states. The European Economic Community was first formed in 1958 by six countries (Belgium, The Netherlands, France, Luxembourg, Italy and West Germany. The Union has slowly grown ever since with the latest two countries (Romania and Hungary) joining in 2007. The EU now covers a population of over 500 million people and accounts for over 25% of global GDP.
One aim of the EU was to create a single market where goods, money and people could travel freely between member states. Seventeen of the member states also joined in the use of a single currency, the EURO. The seventeen countries make up the an area called the Eurozone. The aim of the single market was to promote trade between member countries. Through the relaxation of protectionist policies, the free movement of labour and even the removal of exchange rates for Eurozone countries it was believed that all member states would benefit through increased job creation and income.
Despite the EU helping growth in many member countries the current global crisis has hit the EU and in particular the Eurozone hard. Massive debts held by some EU member countries (Greece, Portugal, Ireland, Italy, Spain) has forced the larger economies of Germany and France to offer financial support slowing growth across the EU. The common currency has also meant that countries can no longer set their own interest rates which have harmed countries trying to slow growth or increase growth through the use of lowering or highering interest rates
EU increases 2010 growth forecasts - BBC article
The Eurozone in crisis - BBC article
Eurozone interest rates raised to 1.25% by ECB - BBC article
Banana Wars
Bananas are one of the world's most popular fruits with 5.4 million tonnes of them eaten in Europe in 2008. Bananas are a tropical fruit and general grown by countries in the Caribbean, Central America, West Africa and parts of SE Asia.
Since 1975 Europe gave Caribbean countries and a couple of other former colonies generous import quotas of bananas free from tariffs. The idea was to support former colonies and reduce the need for aid, by promoting trade. However, by favouring certain countries it made Latin American bananas more expensive because they had to pay tariffs despite the fact they should be cheaper to produce on larger plantations dominated by US TNCs (Dole, Chiquita and Del Monte). Not everyone was happy about this, especially country's like Germany who had lost all its former colonies, but were still paying too much for smaller Caribbean bananas.
Because of the EUs hypocritical approach to free trade protests were made by the US and Latin American producers to the WTO. After years of failed negotiations a deal was finally struck in 2009 that would begin the slow reduction of tariffs on bananas. The agreement may hurt some Caribbean and African producers, but should see banana prices fall by up to 12% for European consumers.
Banana wars: the fruit of world trade - BBC article
EU cut import tariffs in a bid to end Banana wars - BBC article
Incheon Free Economic Zone
Incheon is located in NW South Korea, close to the capital city Seoul. The South Korean government started its Business Hub Project in April 1992 and Incheon was one of the free economic zones that it created. The free economic zones enjoyed tax breaks and relaxed bureaucracy in an aim to attract foreign investment.
Incheon free economic zone is an area of 200km2 and it is aimed to completed by 2020. It is strategically placed on the coast so has as access to the sea, has an international airport and is near the Asian giants of China and Japan. It is estimated that 2 billion people live within 3.5 hours flying time, including 61 cities with a population of over 1 million people. The scheme is expected to cost $21 billion and it is hoped that 510,000 will eventually live there.
South Korea's newest city - BBC
Debt Relief
Even though the current news stories are all about EU and US debt, in reality many of these countries are able to pay their debt and borrow more money as long as they make public sector savings. Even though these countries owe much greater amounts of money than many poor countries, it is the poorest countries who are having to spend a greater percentage of their GDP on debt repayments (debt service). Many poor countries incurred large debt burdens after decolonisation. They received loans for governments and banks flush with money from the Middle East oil boom. The borrowing of money did not lead to the expected growth and soon many countries had mountains of debt. Enforced IMF structural adjustment programmes often forced countries to sell of government assets cheaply, opened the economy to outside competition (often exploitation) and slashed spending on vital infrastructure projects and services (schools and hospitals). As interest rate payments rose many countries were unable to pay and defaulted.
HIPC
The Heavily Indebted Poor Countries (HIPC) are poor countries with high levels of debt and poverty. As can be seen from the map the majority of these countries are located in Africa, with a few in SE Asia and Latin America. The HIPC programme was initiated by the IMF and World Bank in 1996 after extensive campaigning from NGOs. Countries were only admitted to the programme if they could prove that there debt was unsustainable. The majority of the debt relief is coming from the IMF and World Bank.
To remain eligible for debt relief countries had to enforce anti-corruption efforts, promote democracy and account for expenditure.
As you have read above, Nicaragua had unsustainable debt and therefore became eligible to HIPC status. In 2000 Nicaragua received debt relief of nearly $4.5 billion reducing its debt burden as a percentage of export earnings to below 150% and its annual debt service to below 9% of government expenditure.
World Bank wipes Nicaragua debt - BBC article
Jubilee 2000
The Jubilee 2000 campaign was a coalition of 40 countries calling for the end of third world debt. The aim of the campaign was to wipe out $90 billion in debt owed by the world's poorest countries to some of the world's richest countries and international banks.
Although the Jubilee 2000 coalition was started at the turn of the millennium they still campaign for the cancellation of debt. Most recently they have campaigned to have Haiti's debt cancelled after the devastating earthquake of 2010. Haiti was already one of the poorest nations in the western hemisphere after the earthquake it lost most of the means to service its debt.
G7 nations pledge debt relief for quake hit Haiti - BBC article
Forgiveness for Haiti? We should be begging theirs - Guardian article
G8 reach deal for third world debt - BBC article
Aid
Emergency aid: Help that is given to a country that is suffering from a natural disaster or conflict. Emergency aid may include food, water, tents, clothing or even rescue teams to look for victims of natural disasters.
Development aid: Aid that is given to benefit the country. This might be money given to build a new road or port to improve infrastructure or money given to build a new hospital or school to benefit the people of a country.
Tied aid: Aid that is given to a country with proviso that they spend it in a particularly way or follow a particular policy.
US Ties North Korea Food Aid to Nuclear Progress - BBC article
Untied aid: Aid that is given to a country with no policy or spending requirements attached.
Multilateral aid: Aid that is given by multiple donors to a specific country. Multilateral aid may be collected by an NGO or a UN organisation e.g. UNHCR or WFP.
Bilateral aid: Aid that is given by one country directly to another country.
NGOs: Non-governmental organisations have no connections with national governments. They are usually charitable organisations who aim to benefit local communities and support the development of countries.
World Bank: Formed at Bretton Woods in 1944 the World Bank is charged with helping developing nations.
IMF: Also formed at Bretton Woods in 1944, the International Monetary Fund aims to stabilise currencies and support weak economies.
SAPs: Structural Adjustment Programmes were implemented by the IMF. Aid or loans was usually dependent on countries following SAPs. SAPs aimed to cut social expenditure, liberalise trade, privatise assets and reduce corruption. Unfortunately many of the policies were criticised because they ended up favouring MEDCs and TNCs who were able to obtain favourable trading terms and purchase undervalued government assets.
TRADE
AID
ADVANTAGES
DISADVANTAGES
Can aid bring an aid to poverty? - BBC article
Germany suspends AIDS payments because of corruption - BBC article
MPs query 1.85 million of development money spent on Pope's visit - BBC article
World Bank urges rethink aid - BBC article
US South Korea Free Trade Deal Win Win - BBC article
US Senate Backs Debate on Currency Law Amid Yuan Row - BBC article
Sarkozy and Brown Attack US Over Protectionism - BBC article
Sending Money Home to Africa - ADBG Article
All Boom But No Progress? - BBC article
Difference Between Top-down development and Bottom-up development
Remittances
Remittances: Money that is sent back to family and friends from economic migrants, usually living abroad.
Economic migrants: People that migrate to a different location (sometimes a different country) for the purpose of finding improved job prospects.
Remittances
As can be seen from the graph to the right remittances can make a significant contribution to many countries overall income. El Salvador received the equivalent of 20% of its GDP from Salvadorians living abroad, mainly in the US. El Salvador is a Central American Country with a population of just over 6 million people and a population density of about 290 per km2 (the highest in Central America). It has a GDP per capita of about $7000 but close to 40% people live below the poverty line. Official unemployment is just over 7%, but the true figure is probably much higher. Because of the high levels of poverty an estimated two million Salvadorians have migrated abroad, mostly to the US. The exact figure is unknown because many migrants travel illegally. With its two million migrants living abroad, it is estimated that El Salvador receives about $4billion in remittances every year, but yet again this figure could be higher because of money returning through unofficial channels.
When assessing the advantages and disadvantages of remittances, I think it is also important to assess the impacts of net migration loss, because it is migrants who are sending remittances.
Advantages of Remittances and Migration
Disadvantages of Remittances and Migration
US woes slows migrant remittances - BBC article
Filipino Remittances hit $12.8 billion - BBC article
Remittance cash tops world aid lists - BBC article
Slowdown hits Mexican remittances - BBC article
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