International Political Economy

COUNTRIES, AND IMPLICATIONS FOR THE ANALYSIS OF THE INTERNATIONAL POLITICAL ECONOMY

An external deficit develops for a country when the claims of foreign entities on the country's economy exceed the claims of entities in that country on the economies of other countries. A country's external debt is comprised of loans to both government and private sector organizations in the country. Loans to government entities involve sovereign risk, while loans to all other entities involve enterprise risk.

Loans involved in a country's external debt are extended by other governments, by international organizations (primarily the International Monetary Fund and The World Bank), and by private sector lenders in other countries (primarily banks, but also by investors who buy bonds and other debt obligations). The International Monetary Fund (IMF), however, plays a special role in this loan activity, because it, for the most part, establishes the rules of the game for all parties, as well as extending loans on its own (Lipson, 1985, pp. 201202).

In the 1970s, the developing countries required capital for development, and they had populations clamoring for some of the economic benefits enjoyed by the residents of the developed countries. At that same time, commercial banks in the developed countries were awash in money (Kahler, 1985, pp. 1113). The successful strategies of the Organization of Petroleum Exporting Countries (OPEC) in

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y the IMF, refers policies that member nations are expected (by the IMF) to agree to implement and observe, as a requirement, before a balance of payments loan is extended from any of the organization's special financing facilities. Agreeing to abide by these IMFdeveloped conditions is also usually required by private sector lenders. The nature of the conditions imposed by the IMF vary from case to case. Conditions, however, are expected to provide confidence that the borrowing member will overcome its balance of payments difficulties and be able to repurchase its currency from the Fund without undue strain during the specified period. When extremely serious problems are involved, conditions may not attempt impose a return to a balance of payments surplus position during the term of the loan. More often than not, conditions established by the IMF emphasize measures which affect balance of payments through the level and composition of demand within the borrowing nation's domestic economy. Conditions may also emphasize supply factors. In recent years, conditions have also often emphasized the creation, within a borrowing nation's domestic economy, of positive interest rates, and the establishment of rational pricing for pu
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Approximate Word count = 2062
Approximate Pages = 8 (250 words per page)

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