International Monetary System's Policies Support Essay

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According to Chancellor Helmut Schmidt the interest rates of the developed countries in the post1990 era were higher than they had ever been "at any time since Jesus Christ" (http://hdr.undp.org/external/HDR_papers/oc3b.htm). In 1983, in Latin America, whose devaluations were enormous, it was recorded that in one year "the effect on the individual private sector, which in [some] cases had been encouraged by the policies of the authorities to borrow, has been devastating...the amount needed in local currency to service external debt has increased three or four times" (Kuczynski,1983, p. 22). The situation in these countries is such: with the decrease of their currency value, more goods must be sold to pay back their debt plus interest, and since their export prices have been steadily declining in the post war years, their accumulated interest swells to a rate that is higher than the nominal dues stipulated in the original contract (http://hdr.undp.org/external/HDR_papers/oc3b.htm). In fact, their interest rates are sometimes more than three times higher than the comparative interest rates paid in the same era by developed countries (ibid). The fluctuating rise and fall of the international markets can, consequently, lead debtor countries into stagnation and inflation that last for much longer than they generally do in developed countries. That such was the case can be exemplified by the 1980s.

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From the viewpoint of fewer developing countries, Kahn (2009) states that the following issues need priority: (1). The implementation of decisions to ensure that world liquidity does not originate from the payment deficits of a few countries, but that these countries are equally involved in global liquidity, (2). More flexible conditions in the policies of the IMF so that developing countries can be given the chance to develop their trade and employment and efforts in constructing their country, (3) mechanisms should be explored that could result in a fair sharing of the burdened of adjustment especially in very wealthy countries; this would also diminish inflationary pressures, (4) improvement in compensatory financing institutions, (5) greater sympathy to the problems of these developing countries and greater empathy regarding their challenge in meeting repayment of debts, (6) creating new policies specially for these countries in order to assist them with financial aid and, (7) assisting developing counties with meeting the present policies of the IMF by extending policy advise, financial support and technological assistance so that their transition to the level of developed countries in regards to the international monetary policies is facilitated (Kahn, 2009)......

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