International Monetary Fund (IMF)
Inclusion of developing countries in the global market
Introduction
Nowadays globalization has helped the
world economy, making it easier for
countries to trade between themselves.
Barriers have become smaller and cheaper,
like tariffs, they have reduced themselves or
completely disappeared in some cases. The
problem is, most of the benefits only reach
developed countries, whereas developing
and the least developed countries still have
a lot of barriers. Most industrialized nations
are exchanging with other industrialized
countries, rather than giving the opportunity
to least developed and developing
countries to participate. And, if there is an
opportunity, developing countries always
find themselves in disadvantage when it
comes to trade agreements. This is not
the only reason why these countries can’t
transition into developed economies, but it
does play a big part in most cases.
Furthermore than the import-export problem,
developing and least developed countries
also have challenges to face on their own. As
said before barriers and tariffs are not the only
causes regarding this lack of participation in
the global market, most countries don’t have
access to financial services or don’t promote
the access to it. And if they want to transition
to developed countries they also have huge
jobs in their hands: educating people about
finance, making the necessary regulations
and also making developments inside the
countries so that people find these services
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useful. As well as reducing the costs financial
services may bring, given that in developing
countries only people in upper middle and
upper classes have the means to employ
these services. Again, the use of financial
services will not resolve the problem, but it
can boost the economies to have a wider
development.
(OECD)
Historical Background
Economic development has always been
present. Today, it’s called globalization, but
the development of economic growth has
always been present and has always been
approaching a dependent global market. In
1947 the General Agreement On Tariffs and
Trades (GATT) was signed, it was updated
in 1994 when the creation of the World
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Trade Organization (WTO) took place. The
purpose of the GATT was to reduce tariffs
between countries, given that each country
established its tariff without any regulation
and some taxes raised to a 22% of the goods
that were being merchandised. In 1994, the
tariff was only of 5%. The creation of the WTO
boosted developing countries’ economies.
In consequence, these countries saw
higher incomes, their participation in trade
increased, and they started to trade different
goods.
Share of developing economies in the value
of world exports: by region (1990-2009)
(WTO)
The problem arose a couple of years later
when only a few developing countries
became successful in global commerce.
Since these few countries were exporting a
lot of consumer goods all around the world,
the rest of the developing countries were
not exporting as much as they should have.
Also, some countries got involved in trade
liberalization which reduced the tariffs and
barriers even further. Making these countries
priorities to developed countries when it
came to exporting and importing. The result,
only a few countries continued growing at a
rapid pace, while the rest of the developing
countries struggled to trade in the global
market.
(WTO)
Current Relevance
Since 2010, a couple of countries took
almost all of the global exports, leaving
other developing countries with little or no
participation in the market. So, there has been
an increase in trade and globalization, but
the benefits have been unevenly distributed
as well as an asymmetric interdependence
between developed and developing
countries. Developed countries have not
Volume of exports of developed, developing and transition economies (1990-2009)
reduced their tariffs, leaving developing
countries with little to none opportunities to
export especially in the textile and agricultural
sectors. The World Bank estimated that if
tariffs and barriers were removed, by 2015
global income could increase approximately
$2.8 trillion and take 320 million people
above the poverty line, given that these
plans were never put into action, these
results were never met. Developing countries
sometimes have bigger participation than
developed countries in certain areas, the
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problem is, their general economy is still
deficient and with one highlight they can’t
bring their whole economy up, if there was
an opportunity for developing countries
to participate equally in different areas, the
transition to a developed countries could be
done.
In 2010 India had a financial crisis, the Andhra
Pradesh crisis, which was given because a
lot of people couldn’t meet the payments.
This demonstrated that a developing
country couldn’t include financial services
and technology supporting these if the
population is not educated about interest
rates, payments, credit, loans and savings.
During this crisis lot of people even
committed suicide because they didn’t
have money to pay the banks. The proper
inclusion of financial services in a country
should benefit the population and the
country’s economy.
International Actions
Treaties such as The General Agreement on
Tariffs and Trade, The North American Free
Trade Agreement, The Trade Facilitation
Agreement, The Comprehensive Economic
and Trade Agreement, The Trans-Pacific
Partnership among others are some of the
treaties that help developing countries
export to developed countries. These
agreements are significantly helpful but
most of the times they benefit developed
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countries, which are allowed to request
specific characteristics from developing
countries for the transaction to be made.
Whereas when developed countries export
to developing countries, they can ship
any goods without any interference from
the other country about the quality of the
product. Also, in some cases the treaties are
not even helpful because even though there
are no tariffs, developed countries may
import from other nations that may have
lower costs of fabrication, making the goods
cheaper and the incomes higher.
Organizations such as The World Trade
Organization, The World Bank, The
International Monetary Fund, The G20,
The G7, the G8, The European Free Trade
Association, The International Finance
Institutions,
The
International
Trade
Organizations and The BRICS also have the
global market on the agenda. Most of this
organizations not only focus on global trade
but in different economic aspects, with the
recovery of a financial crisis and another
one arising, the time for trade and global
market on the agenda is limited. As well as
the fact that in some of these organizations,
like the G7 and G8, developing countries
don’t meet the requirements to be included,
and may not be able to bring this topic to
the agenda. Also, the BRICS which includes
Brazil, Russia, India, China and South Africa is
a little organization which excludes the rest
of the developing countries. The BRICS are
considered to be the strongest developing
countries making it easier for these to
develop and harder for the rest.
UN Actions / National Actions
In 1996 the IMF created the Special Drawing
Rights (SDR) which is an international reserve
asset to supplement countries’ official
reserves. It was originally composed of
American Dollars (USD), German Marks
(DEM), French Francs (FRF), Japan’s Yen (JPY),
and Great Britain Pounds (GBP). Divided in:
42%, 19%, 13%, 13% and 13% respectively. In
1999 when the Euro was introduced, the SDR
took out the German Marks and included
the Euro in the SDR. It remained the same
until 2016 when the IMF decided to add
the Chinese Renminbi to the international
reserve currency. It was the first time a
developing country was included in the SDR.
(Goldbroker.com)
In 2015, the IMF released “The Role of the
IMF in supporting the implementation of
the post-2015 development agenda” in
which they focused in global development
and different initiatives to be taken for
development in the next 15 years. These
paper included from macroeconomic
aspects, international tax cooperation to
balancing financial deepening with financial
stability. The principal objective is “to boost
economic resilience in member economies
and sustain development in crucial ways”
(IMF, 2015). Including also key Financing for
Development (Ffd) AND SDG issues, such
as strong revenue generating capacity for
developing countries, the addressment of
infrastructure gaps to fill development lacks,
increase in lending facilities by the IMF in the
case any developing country has a problem
with the balance of payments, among others.
Many developing countries such as China
have devalued its currency. So it’s easier
for the to make import/export transactions
with countries such as United States and
it’s also cheaper for the United States but
remains beneficial for the other part. The
problem remains in the fact that tariffs are
still existent and are paid in the currency the
country receiving the goods, so tariffs may
sometimes be expensive. Other countries
have focused on developing in technology
and transportation. With the same purpose
of improving and increasing import/export
with developed countries. But, developed
countries are improving technology as well,
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so as developing countries take one step
forward, developed countries are already
two ahead.
Bullet Point To Be Tackled
-How can we benefit both parts in a free
trade market, so that developed countries
are open to removing barriers?
-What can make it easier for developing
countries to educate about finance and
financial services?
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References
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financialinclusion
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World Bank Group. (n.d). Andhra Pradesh 2010: Global Implications of the Crisis in Indian Microfinance. Retrieved:
July 25th, 2016. From: https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Andhra-Pradesh-2010-GlobalImplications-of-the-Crisis-in-Indian-Microfinance-Nov-2010.pdf
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Mason, P. February 4, 2015. Do banks matter in developing countries?. The Guardian. Retrieved: July 11th, 2016.
From:
https://www.theguardian.com/global-development-professionals-network/2015/feb/04/do-banksmatter-financial-inclusion
Kynge, J and Wheatley, J. (August 3rd, 2015). Emerging markets: Redrawing the world map. Financial Times.
Retrieved July 25th, 2016. From: www.ft.com/cms/s/2/4a915716-39dc-11e5-8613-07d16aad2152.html?ft_
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From:https://www.goldbroker.com/news/gold-special-drawing-rights-sdr-458
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