One of the comments on the last posting on Argentina's Museum of Debt was: "The policy makers, economists all the big shots who decide on the behalf of their country must have been taking all this into account. If yes, then how do they accept to bind themselves to these "pseudo" chains of slavery?"
While, often the economic decisions do get influenced by the political "flavour of the day" ideology, there are also often the un(?)intended consequences of debt which are neglected by the policy-makers of the country...
This post is about these un(?)intended consequences of the IMF/WB loan/debt (one may even call it the Faustian Contract with Mephistopheles)...
Since there are no free lunches in the world - and so, the debt/loan from IMF/World Bank comes with certain strings attached to it - normally called "Structural Adjustment Program" (SAP) or "Country Assistance Program". These conditions call for "reforms", requires "austerity measures", suggests that the country should "open" the economy, allow "free trade", and become part of the "global economy".(now, who can argue against something which is dubbed as a "reform", "opening up", "free", "becoming part of gloabal economy", etc. - such is the power of words!!!).
The world, however, being more non-linear than what economists suggest/know, there are also the Un(?)intended Consequences of these conditions for getting the loan - leading to devastation of countries and economies.
Some examples of the conditions, their intentions, and their consequences:
PRIVATISE, REDUCE TARRIFS & OPEN THE ECONOMY/ MARKETS FOR FOREIGN OWNERSHIP OF RESOURCES AND BUSINESSES:
This is aimed to bring much needed capital into the country by making the business environment conducive for MNCs (many of which have a turnover larger than the countries GDP). Once the economy opens up, MNCs can easily purchase or start enterprises. To attract MNCs - and FDIs - countries also compete by offering tax breaks, low wages, free trade zones, etc. Often governments also offer implicit pledges not to enforce labor and environmental laws. Relaxation of tarrifs allows free-flow of foreign - often better quality - goods to domestic markets, and makes the luxury items within the reach of larger proportion of populace
CUT SOCIAL SPENDING & SUBSIDIES ON BASIC GOODS/SERVICES:
Reducing expenditures on health, education, water, farm subsidies, etc., will free up money for debt-repayment
REDUCE THE SIZE OF GOVERNMENT:
Reducing budget expense by trimming payroll and programs will free-up capital for debt servicing and for more productive purposes
RE-ORIENT ECONOMIES FROM SUBSISTENCE TO EXPORTS:
This is based on the Comparative Advantage hypothesis - i.e., do what you can do best, and access better quality of goods/services from those countries who have a natural advantage in those. For instance, if the country has that natural advantage, it should give incentives for farmers to produce cash crops (coffee, cotton, etc.) for more lucrative foreign markets; encourage manufacturing to focus on simple assembly (often clothing) for exports; encourage extraction of valuable mineral resources, etc. This will help the country to earn foreign currency, and ease in repaying the debt.
....To be fair, the conditions of IMF/WB are not all that bad for everyone. They do help the educated middle-income groups in the developing countries to live a better - consumerist, insulated - life-style, and they - the bankers, business men, MBAs... - become the local champions for these policies...