External Debts and Economic Growth

The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustments.

Not only is humanity continuously following a natural cycle on a grand time scale, but also smaller aspects of everyday lives follow a similar pattern. This poem relates the the cyclical nature of single human life to the cyclical nature of the economy. This poem demonstrates how the progression of life follows a pattern and how a smaller aspect, the economy, also follows a patterns that can relate to each other.

ensure significant growth and development. As a result, there is usually the need to obtain the

In addition, the policies have been criticized in terms of their effectiveness in meeting the narrow objectives set by the IMF. Under half those accepting IMF loans achieve their balance of payments and inflation objectives, and only one-fifth achieve their growth targets, Hodd (1987:336) This assessment of the financial institutions shows that they do assist in Africa with their balance of payments at that time but in the long run it causes debts for the African states as they will have to pay the loan bank with interest. When the loan is paid with interest, it draws back the states and this means that they will be focusing on paying the IMF loan instead of developing their countries and the problem is that the payment period for this loan is very short which puts pressure for the states to pay back the

Today, there is a tremendous amount of literature on the relationship between aid and growth (Hudson, 2004). McGilivray provides a recent comprehensive survey of the theoretical and empirical literature on foreign aid and growth. (McGillivray, 2006)

The supply of general gross debt for advanced economies increased significantly over the past years compared to that of emerging economies, especially after the onset of the financial crisis as illustrated in the graph below:

Development assistance committee (DAC) of the Organization for Economic development Co operations and Development defines foreign aid or also know as foreign assistance as financial assistance, technical assistance and material assistance which are intended to stimulate economic development and welfare as their key objective but with exclusion of aid given to military and to other non development activities. From historical point, many aids have been provided as bilateral aid where resources are mobilized from one country to another country directly also as multilateral assistance where resources are mobilized from many donors, which may consists different countries and directed to intended countries. The whole process of resource mobilization

Foreign aid is offered for many purposes and ways and the dilemma of aid is not whether aid works or not, but how and when varied instrument can be made to work better in different country circumstances (Hansen and Tarp 2000, pp. 19-20). Another study conducted by Minoiu and Reddy argues that aid matters for economical growth and it can contribute significantly, but only specific kinds of aid have clear cut impact on growth and only in a long term. Overall, foreign aid has a significant effect in those cases when it ranks high in the aid quality index while geopolitical aid has been found with zero or negative effect on

As a developing countries Bangladesh can not meet its all demand by own economic ability so it takes foreign aid for implementing its development purposes. It has got foreign aid for its several development issues like Jamuna and Padma Bridge. Not only structural development is implemented by foreign aid but also several long term policy and projects are done by it. But the effectiveness of foreign aids to the third world developing countries like Bangladesh is a controversial issue. Liberal economists argue that aids both in the form of grants and loans can play vital role to the development of any country, if it is channeled through proper biding and use effectively to the development projects. In contrary of that, aid causes debt entrapment, dependency, domination etc. to the third world country like Bangladesh.

Using cross-country data, I examine how foreign aid affects economic growth in developing countries over the period from 1975 to 2000. I find evidence that foreign aid significantly and negatively correlates with growth in developing countries. However, foreign aid to inland countries as well as to South Asian countries during the period of 1992-2000 is found to have a positive impact on growth. In addition, a strong divergence trend is found among countries in the data set.

A well-designed aid plan can support effective institutions and governance by providing more knowledge and transferring technology and skills. It is recommended to decentralize the aid flows in recipient countries. Money aid is important but idea aid is even more important. Aid can be the midwife of good policy in recipient countries. In poor-policy countries, idea aid is especially more essential than money aid. This implies that in a good-policy environment, aid increases growth via the investment channel whereas in a poor-policy environment, it nurtures the reforms through policymakers training or knowledge and technology transfer. These non-money effects are believed even more important and viable than the money value of aid. Aid works much better where the reform is initiated or internalized by local government rather than when it is imposed by outsiders. Therefore, aid is normally more effective when it facilitates efficiently and timely reforms triggered by the local authority (World Bank, 1998).

Easterly sufficiently challenges the uncertainty of the policies and the post Washington Consensus that made by economists for development growth. Conversely, Easterly’s assumption that aid has no effects on economic development is flawed because the evidence backing up his claim is unconvincing as well as some of them are invalid. Therefore, further reading is recommended in order for readers to find more different angles of the topic to promote better

In figure 3, Cho and Rhee (2014) show the composition of capital flows for all 10 Asian Countries excluding Hong Kong and Singapore. While the FDI was quiet stable, the portfolio investment part decreased from 2.2% of GDP in 2007 to -2.9% in 2008. Also, the other investment part of capital inflows, like bank loans, declined since 2007; nevertheless, it rebounded over than the pre-crisis level and became the major source of capital inflows after GFC.

The coefficient , which gives the change in investment due to one unit change in lending rate is expected to be negative. Other slope coefficients ( are expected to have positive values since their associated variables, interest on savings, savings, and income respectively should influence investment positively. The coefficient can take positive or negative values depending on how a rising trend in exchange rates influence the level of domestic saving. The expected impact is determined by the

International banks have made risky loans all over the world because they knew that if trouble arose, the fund would step in to resolve the situation – as it has done in the past. The IMF has played a critical role in many of the epochal events in the 1990’s. The IMF lent 18 billion dollars to Mexico in 1994, after the peso collapsed. It gave Russia over 10 billion dollars in 1999. The IMF has helped drive inflation from 1,000 percent a year down to a tolerable 10 percent a year, thanks to Russia listening to what the IMF said and doing as they suggested. It has given Indonesia 10 billion dollars, and has helped Indonesia demonopolize industries. It gave 4 billion to Thailand, which was the epicenter of the East Asian Crisis. The IMF helped closed dozens of reckless banks. True, the IMF did many little things wrong, however, it did the important ones right. The Philippines is a prime example on how effectively the IMF can work. For years, Filipinos suffered the weaknesses of economic and business policies. Under the tutelage of the International Monetary Fund for nearly 30 years, and especially during the past decade, they faced up to their problems. Many sectors of their society suffered greatly, and some complained loudly. However, they persisted and, with the help of the IMF and the courage of the Philippine people, they exited from the IMF program. How did they do this? They assembled one of the best economic