StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Role of International Finance Institutions - Essay Example

Cite this document
Summary
The paper "Role of International Finance Institutions" highlights that despite the numerous developmental perspectives of foreign aid and grants, the highest levels of funds channeled to the developing countries are usually in terms of loans and which earn interest rates…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98% of users find it useful
Role of International Finance Institutions
Read Text Preview

Extract of sample "Role of International Finance Institutions"

Introduction: International finance s are aimed at providing financial support to developing economies to enable them to achieve higher levels of growth. Some of these financial institutions include the IMF which is the international monetary fund organisation and these institutions acts as the render of last resort to the member states, the World Bank and the world trade organisation. These are some of the institutions that offer financial aid to developing countries. Foreign aid offered to developing countries can either be inform of grants or loans, grants are usually monetary aid which need not be paid back while loans are monetary funds given and need to be repaid with interest, further there are two forms of loans, soft loans which are loan advanced in concession rates or given and need to be rapid below market interest rates. Hard loans which are loans given under the prevailing market interest rate level. Foreign aid given to developing countries is either tied aid or untied aid. Tied aid means that there are conditions while untied aid has no conditions attached to them. This paper however discusses the important and the role that international monetary institutions have played in improving the current states of the developing countries. Role of International finance institutions Developing countries are faced with the problem of low levels of economic development, high levels of poverty, low capital accumulation and high population growth. Foreign aid is one way in which the developing countries are able to come out of the current state, aid offered by the international institutions therefore play a major role in the improvement of the economic performance of developing countries. Developing countries are faced with low levels of savings and therefore low levels of investment, international institutions give aid to the developing countries to help reduce the shortage of domestic saving through the provision of capital and equipment which supplement the capital formation in these countries. Because capital accumulation is one form of achieving higher economic growth, the international institutions give aid to developing countries to encourage capital formation and accumulation in their economies. The diagram below shows the relationship that exists between savings and investment, when there is low savings then there is low investment, and bearing in mind that investment is a source of economic development then the level of economic growth will be low if there is low savings. Foreign aid is a means by which the less developing countries are able to advance in terms of technology, through aid the developing countries are in a position to achieve technological advancement as they are able to purchase machinery with the funds they receive, the less developed countries are faced by low levels of adopting modern technology which helps increase productivity in an economy, foreign aid however has enabled the improvement of technology adoption by these countries. The international institutions also offer aid to developing countries for overhead capital development, the developing countries are characterised by low social overhead capital development and funds received aid in the development of these resources which include roads, railways, air strips, dams and other developmental projects, the developing countries do not have enough funds to undertake such expensive developmental projects and therefore loans and grants are offered to enable development. The funds offered helps the developing countries to overcome the problem of balance of payment, when funds are offered they aid in improving the export levels of a developing countries and there is an increase in production levels in an economy, as a result there is improved balance of payment for the country. Most developing countries are faced with the problem of running deficit budgets which are financed by internal public debts, foreign aid helps improve these situations by financing the deficit budgets and also help resolve the problem of internal debts by governments of the day. Foreign financial institutions also tend to assist the developing countries to tap resources and utilise them, developing countries are faced with the inability to explore and make a breakthrough to discovery of economic resources, the aid provided helps aid the tapping of new resources in the countries which enable the mobilisation of resources to achieve high levels of growth. Most developing countries depend on agriculture, when funding is given it aids in the increasing of agricultural production and also diversification of agricultural production. The purchase of modern machines and inputs with the funds offered has helped in increasing agricultural production. Most of the exports in developing countries are agricultural products and if the level of agricultural production increases and diversifies then the exports will increase and as a result there will be improved balance of payment. The poverty vicious cycle is evident in the developing countries; this can be explained using the diagram below: The international funds offered to the developing countries help in the breaking of the poverty vicious circle which is represented above. Increased capital will improve the capital deficiency problem and as a result the inverse of the circle is true where there will be increased productivity, increased income, increased demand and increased investment. Conclusion: The foreign aid given to developing countries aids in the mobilisation of resources to achieve higher levels of growth in these countries, this include the improvement of the capital accumulation process, improved social overhead capital, improved infrastructure, technological advancement and solving the balance of payment problem the developing countries face. Despite the numerous developmental perspectives of foreign aid and grants, the highest levels of funds channelled to the developing countries are usually in terms of loans and which earn interest rates, these funds have contributed to other problems which include the debt problem that the developing countries are facing. High interest rates on the loans that are offered has resulted to the high levels of international debts that the developing countries are facing, for this reason the developing countries are forced to spend high levels of their GDP to service this debts and for this reason it is impossible to achieve high levels of economic development. References: Todaro M.P (2004) Economics for a Developing World, McGraw Hill Publishers, New York Todaro M. P (2002) Economics for Development, McGraw Hill Publishers, New York Philip Hardwick Et Al (2004) Introduction to Modern Economics, Pearson Education Press, London Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/miscellaneous/1543355-economics-coursework-ldcs
(Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 Words)
Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/miscellaneous/1543355-economics-coursework-ldcs.
“Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/miscellaneous/1543355-economics-coursework-ldcs.
  • Cited: 0 times

CHECK THESE SAMPLES OF Role of International Finance Institutions

Why Islamic Financial Institutions in Need for Corporate Governance Legal Framework

Islamic financial institutions have been feeling the effects of the recent global financial crisis.... Why Islamic Financial institutions Need Improved Corporate Governance Legal Framework.... Islamic financial institutions have been feeling the effects of the recent global financial crisis.... Islamic finanical systems were particularly sucessful in the pre-colonial era but were methodologicaly replaced by conventional financial institutions during the colonial era....
18 Pages (4500 words) Essay

Impact of International Institutions on Developing Countries

The essay "Impact of international Institutions on Developing Countries" analyzes the positive and negative impacts of the World Bank and UNCTAD on developing nations.... International institutions such as World Bank and United Nations Conference on Trade and Development have made significant contributions, which aim at alleviating poverty and encouraging development.... The concerted efforts of these two global institutions have helped to address many problems facing developing countries....
12 Pages (3000 words) Essay

Roles of International Financial Institutions

Roles of international Financial Institutions Like business organizations, countries handle finances.... This paper will therefore analyze the roles of international financial institutions and their importance in the management of global risks.... Maintaining stable economies is an important part of international development.... Maintaining stability is an indirect role of the IFI aimed at enhancing global economic stability and development....
5 Pages (1250 words) Essay

The Analysis of the Globalization and Corruption

In addition, there is mention of the Role of International Finance Institutions and how they affect the prevalence of corruption or like of it.... It is therefore the role of this paper to look into corruption, globalization and international finance institutions, and their relation to one another in corruption.... Corruption can again be narrowly defined on the basis institutions and spontaneity, where these two become types of corruption based on their locality and nature (Balboa and Medalla, 2006)....
5 Pages (1250 words) Essay

International Trade and Finance Law: The Global Financial Crisis 2007/2008

What roles does the effectiveness of current international and national regulatory frameworks play on this vulnerability and finally, what changes are needed in the regulatory framework to prevented any future occurrence of a global financial crisis.... THE GLOBAL FINANCIAL CRISIS (2007/2008) Customer Inserts His/Her Name Customer Inserts Institution Name Customer Inserts Date: Introduction During the 2007/2008 period, the world experienced a financial crisis that rivaled the great depression experienced in the late 1920's....
8 Pages (2000 words) Essay

Financial Sustainability of Clayton County Public Library System in Georgia

Introduction Scope of operation of public institutions, such as the Clayton County Public Library System, induces needs for funds generations to meet their objectives.... This marks a significant difference from private institutions that may change operations to match financial constraints.... Public institutions however need to avail funds to ensure that they meet their objectives and demand for the legal services that they are supposed to offer....
4 Pages (1000 words) Research Paper

International Financial Institutions: Governmental Policies and Aid Effectiveness

This article discusses the degree to which given aid finance is utilized for the growth depends on the effectiveness of the recipient government's policies and institutions.... International Financial institutions like the World Bank and the IMF etc.... Apart from international institutions, some developed countries such as the USA and UK, etc.... Government institutions have also a significant role in utilizing this amount.... Foreign assistance in the form of aid plays a vital role in the development of an underdeveloped country to the extent that they are utilized properly....
10 Pages (2500 words) Article

Market Failure

Industrial Development finance institutions (IDFIs) form the backbone of the economy in both developing and developed countries.... They play the key role of injecting capital into the system.... These institutions are expected to stimulate industrial investment in both the private and public sectors in the country....
6 Pages (1500 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us