Problems of Developing Countries

http://www.imf.org/external/pubs/ft/issues/issues26/index.htm
Mahmood Hasan Khan is Professor of Economics at Simon Fraser University (Burnaby, British Columbia, Canada). When the paper was prepared on which this pamphlet is based, he was a visiting scholar at the IMF Institute.

Preface
The Economic Issues series aims to make available to a broad readership of nonspecialists some of the economic research being produced on topical issues by IMF staff. The series draws mainly from IMF Working Papers, which are technical papers produced by IMF staff members and visiting scholars, as well as from policy-related research papers.
This Economic Issue is based on IMF Working Paper 00/78 "Rural Poverty in Developing Countries: Issues and Policies." Citations for the research referred to in this shortened version are provided in the original paper which readers can purchase (for $10.00 a copy) from the IMF Publication Services, or download from www.imf.org. Paul Gleason prepared the text for this pamphlet. Rural Poverty in Developing Countries
The causes of rural poverty are complex and multidimensional. They involve, among other things, culture, climate, gender, markets, and public policy. Likewise, the rural poor are quite diverse both in the problems they face and the possible solutions to these problems. This pamphlet examines how rural poverty develops, what accounts for its persistence, and what specific measures can be taken to eliminate or reduce it.
Broad economic stability, competitive markets, and public investment in physical and social infrastructure are widely recognized as important requirements for achieving sustained economic growth and a reduction in rural poverty. In addition, because the rural poor's links to the economy vary considerably, public policy should focus on issues such as their access to land and credit, education and health care, support services, and entitlements to food through well-designed public works programs and other transfer mechanisms.
About one-fifth of the world's population is afflicted by poverty—these people live on less than $1 a day. Poverty is not only a state of existence but also a process with many dimensions and complexities. Poverty can be persistent (chronic) or transient, but transient poverty, if acute, can trap succeeding generations. The poor adopt all kinds of strategies to mitigate and cope with their poverty.
To understand poverty, it is essential to examine the economic and social context, including institutions of the state, markets, communities, and households. Poverty differences cut across gender, ethnicity, age, location (rural versus urban), and income source. In households, children and women often suffer more than men. In the community, minority ethnic or religious groups suffer more than majority groups, and the rural poor more than the urban poor; among the rural poor, landless wage workers suffer more than small landowners or tenants. These differences among the poor reflect highly complex interactions of cultures, markets, and public policies.
Rural poverty accounts for nearly 63 percent of poverty worldwide, reaching 90 percent in some countries like Bangladesh and between 65 and 90 percent in sub-Saharan Africa. (Exceptions to this pattern are several Latin American countries in which poverty is concentrated in urban areas.) In almost all countries, the conditions—in terms of personal consumption and access to education, health care, potable water and sanitation, housing, transport, and communications—faced by the rural poor are far worse than those faced by the urban poor. Persistently high levels of rural poverty, with or without overall economic growth, have contributed to rapid population growth and migration to urban areas. In fact, much urban poverty is created by the rural poor's efforts to get out of poverty by moving to cities. Distorted government policies, such as penalizing the agriculture sector and neglecting rural (social and physical) infrastructure, have been major contributors to both rural and urban poverty.
The links between poverty, economic growth, and income distribution have been studied quite extensively in recent literature on economic development. Absolute poverty can be alleviated if at least two conditions are met:
• economic growth must occur—or mean income must rise—on a sustained basis; and
• economic growth must be neutral with respect to income distribution or reduce income inequality.
Generally, poverty cannot be reduced if economic growth does not occur. In fact, the persistent poverty of a substantial portion of the population can dampen the prospects for economic growth. Also, the initial distribution of income (and wealth) can greatly affect the prospects for growth and alleviation of mass poverty. Substantial evidence suggests that a highly unequal distribution of income is not conducive to either economic growth or poverty reduction. Experience has shown that if countries put in place incentive structures and complementary investments to ensure that better health and education lead to higher incomes, the poor will benefit doubly through increased current consumption and higher future incomes.
The pattern and stability of economic growth also matter. On the one hand, traditional capital-intensive, import-substituting, and urban-biased growth—induced by government policies on pricing, trade, and public expenditure—has generally not helped alleviate poverty. On the other hand, agricultural growth—where there is a low concentration of land ownership and labor-intensive technologies are used—has almost always helped reduce poverty. Finally, sharp drops in economic growth—resulting from shocks and economic adjustments—may increase the incidence of poverty. Even when growth resumes, the incidence of poverty may not improve if inequality has been worsened by the crisis. The Rural Poor: Who Are They?
The rural poor depend largely on agriculture, fishing, forestry, and related small-scale industries and services. To understand how poverty affects these individuals and households, and to delineate the policy options for poverty reduction, we first need to know who the rural poor are.
The rural poor are not a homogeneous group. One important way to classify the rural poor is according to their access to agricultural land:cultivators have access to land as small landowners and tenants, andnoncultivators are landless, unskilled workers. There is, however, much functional overlap between these groups, reflecting the poverty-mitigating strategies of the poor in response to changes in the economy and society.
Cultivators, who form the bulk of the rural poor in developing countries, are directly engaged in producing and managing crops and livestock. Since these households cannot sustain themselves on the small parcels of land they own or cultivate, they provide labor to others for both farm and nonfarm activities inside and outside their villages. Some members of these households migrate to towns or cities on either a rotational or a long-term basis. In many countries, both small landowners and tenants are under increasing pressure to get out of the agriculture sector altogether. Underlying this process of "depeasantization" are market forces and policies affecting landholdings, rents, prices, credit, inputs, and public investment in social and physical infrastructure.
Noncultivators are perhaps the poorest among the rural poor. Their numbers have been rising rapidly because of the natural increase in population and depeasantization. These workers depend on seasonal demand for labor in agriculture and in rural informal, small-scale industries and services. The landless rural workers are vulnerable to fluctuations in the demand for labor, wage rates, and food prices. They find it even more difficult than small landowners and tenants to gain access to public infrastructure and services. In addition, unlike their counterparts in urban areas, they are often excluded from public sector safety nets (food rations, for example).
Rural women tend to suffer far more than rural men. Their poverty and low social status in most societies is a major contributor to chronic poverty. Substantial evidence from many countries shows that focusing on the needs and empowerment of women is one of the keys to human development. What Do the Poor Own?
To understand poverty creation in rural areas and its effects on different groups, we need to look at the assets that the poor own or to which they have access, and their links to the economy. The economic conditions faced by the rural poor are affected by a variety of assets (and the returns on them) held at the household, community, and supra-community levels. The poor's physical assets include natural capital (private and common property rights in land, pastures, forest, and water), machines and tools and structures, stocks of domestic animals and food, and financial capital (jewelry, insurance, savings, and access to credit).
Their human assets are the labor pools—comprising workers of varying ages, genders, skills, and health—in the households and communities. Theirinfrastructural assets are publicly and privately provided transport and communications, access to schools and health centers, storage, potable water, and sanitation. Their institutional assets include their legally protected rights and freedoms and the extent of their participation in decision making in households and communities, as well as at the supra-community level. The first two categories of assets are largely regulated through formal and informal networks among individuals and communities. Most rural people, particularly women and those in landless households, are greatly handicapped by inadequate assets and the low and volatile returns on them.
The differences among the rural poor are more clearly reflected in their links to the economy, which determine how they use their assets and participate in production. All of the rural poor are engaged in the production of both tradable and nontradable goods and services. Artisans and unskilled workers provide many nontradable services and some nontradable products (such as staple foods) that small cultivators also produce. Only cultivators, however, have access to small parcels of land through ownership or (sharecropping) tenancy. They are also the only groups of poor people who own or rent physical capital such as tools, implements, and machinery. Artisans and small-scale farmers have only limited amounts of physical capital. They have only limited access to financial capital and acquire it largely through informal agents or institutions, except for tenants, who can use their landlords as conduits to formal credit. Borrowed capital is often costly and is used to maintain consumption during hard times or to buy supplies and equipment needed for farming. Households' labor is used both within the family—for work done by unpaid family members—and to earn the wages paid to landless, unskilled workers in farm and nonfarm activities.
All groups of the rural poor are vulnerable to serious risk owing to changes in weather, health, markets, investment, and public policy. The resulting fluctuations in the prices and quantities of their assets and of what they produce can either deepen their poverty or give them opportunities to escape from it. The main reason is that the rural poor have a very low capacity to absorb abrupt financial shocks. In addition, economic crises and natural disasters can bring about sharp increases in poverty and make it more difficult for the poor to escape it. How Rural Poverty Is Created
Numerous characteristics of a country's economy and society, as well as some external influences, create and perpetuate rural poverty:
• political instability and civil strife;
• systemic discrimination on the basis of gender, race, ethnicity, religion, or caste;
• ill-defined property rights or unfair enforcement of rights to agricultural land and other natural resources;
• high concentration of land ownership and asymmetrical tenancy arrangements;
• corrupt politicians and rent-seeking public bureaucracies;
• economic policies that discriminate against or exclude the rural poor from the development process and accentuate the effects of other poverty-creating processes;
• large and rapidly growing families with high dependency ratios;
• market imperfections owing to high concentration of land and other assets and distortionary public policies; and
• external shocks owing to changes in the state of nature (for example, climatic changes) and conditions in the international economy.
Biases in national economic and social policies can contribute to rural poverty by excluding the rural poor from the benefits of development and accentuating the effects of other poverty-creating processes. Policy biases that generally work against the rural poor include:
• urban bias in public investment for infrastructure and provision of safety nets;
• implicit taxation of agricultural products through so-called support prices and an overvalued exchange rate;
• direct taxation of agricultural exports and import subsidies;
• subsidies for capital-intensive technologies;
• favoring export crops over food crops; and
• bias in favor of large landowners and commercial producers with respect to rights of land ownership and tenancy, publicly provided extension services, and access to (subsidized) credit.
These policies can have both short- and long-term effects on the rural poor. The effects are particularly significant in the context of the structural adjustment programs that many developing countries have undertaken to restore macroeconomic stability and expand the capacity of the economy to increase production, employment, and incomes. Policies For Reducing Rural Poverty
To design policies that have a chance of effectively helping the rural poor, the focus of policy should be on four major groups:
• small landowners who cultivate their land;
• landless tenants who cultivate other people's land;
• landless laborers who depend on casual or long-term employment in the farm or nonfarm sectors; and
• women, who could also be part of any of the three preceding groups.
All of these groups will benefit from good macroeconomic management—which helps keep inflation in check and maintains unsubsidized prices—because it facilitates sustained economic growth through private investment and competitive markets. Needless to say, unfair laws or poor enforcement of existing laws, exclusion of the poor from decision making, and pervasive corruption in the public sector are no less detrimental to the well-being of the poor than they are to the country's overall economic growth.
Achieving agricultural growth by applying new technologies is one of the most important ways to reduce rural poverty. The impact of such efforts on the rural poor, however, depends on initial conditions, the structure of relevant institutions, and incentives. Research shows that agricultural stagnation has harmed the rural poor in sub-Saharan Africa by creating food shortages and higher prices that have reduced their ability to buy food and find work. Conversely, experience with the Green Revolution showed that rapid agricultural progress made a big difference in reducing rural poverty in parts of South Asia. Researchers have found that higher crop yields reduce both the number of rural poor and the severity of rural poverty. But these effects are strong only if certain conditions are met:
• land and capital markets are not distorted by a high concentration of ownership of natural resources (agricultural land), including unfair tenancy contracts, and repression in the capital markets (with restricted access to finance);
• public policy on pricing, taxes, and the exchange rate does not penalize agriculture and encourage or subsidize labor displacement;
• public investment in basic education and health care is high and used effectively; farmer literacy and good health have great influence on farm productivity;
• public sector support for agricultural research is strong and resulting improvements are made available to small farmers is effective;
• physical capital, like irrigation systems, access roads, is adequately maintained;
• safety nets and social assistance are available for the very poor, particularly the landless (casual) workers and rural women, in the form of public works programs, microfinance, and food subsidies; and
• the rural poor are directly involved in the identification, design, and implementation of programs to ensure effective use of resources and equitable distribution of benefits.
Since the rural poor are a varied group, we need to understand how macroeconomic changes and policies can affect them. The three major ways in which policies affect the rural poor are through markets,infrastructure (including public services), and transfers.
The markets in which the rural poor participate are those for products, inputs (labor and nonlabor), and finance (from formal and informal sources). Several important features of these markets can affect conditions in rural areas.
The infrastructure that directly affects the rural sector's productivity and the rural poor's quality of life includes the economic (transport, communications, extension services, and irrigation) and the social (education, health care, water, and sanitation). Given that most elements of a country's infrastructure are provided through public funding, the level of spending, cost effectiveness, quality of service, and access of the rural poor to infrastructure and public services have important effects on human capital and productivity in rural areas.
Transfers, which are both private and public, provide some insurance against anticipated and unanticipated economic shocks. Most of the rural poor depend on private transfers among households, extended families, and other kinship groups. Public transfers can take the form of redistribution of such assets as land, employment on public works projects, and targeted subsidies for inputs and some consumer products. These transfers supplement or displace private transfers, depending on the policy instrument and how it is used. But these channels—markets, infrastructure, and transfers—do not work in the same way for all of the rural poor because each group has quite different links to the economy.
Key Policy Components Needed to Reduce Rural Poverty
So, what are the key elements when crafting a policy to reduce rural poverty?
Competitive markets, macroeconomic stability, and public investment in the physical and social infrastructure are widely recognized as important requirements for sustained economic growth and reduced poverty. In addition, the first requirement of a strategy to reduce rural poverty is to provide the enabling environment and resources for those in the rural sector who are engaged in the agricultural production and distribution system.
Other policy components for national strategies—involving the government, the private (for-profit) sector, and civil society—to reduce rural poverty can include:
• Information gathering. The rural poor face many different problems and are not a homogeneous group. Therefore, a sustained effort must be made to gather information about the particular problems they face so that they can be adequately addressed.
• Focus on building assets. The government should assess what assets the poor need most to help them earn more. This could be agricultural land or other resources, access to credit, or improvements in health and education. Dependence on raw labor, without a focus on building other assets, is the single most important source of persistent poverty.
• The right to adequate land and water. A broad-based land reform program—including land titling, land redistribution, and fair and enforceable tenancy contracts—is critical for reducing rural poverty. It can make small (marginal) landowners and tenants more efficient producers and raise their standards of living.
• Basic health care and literacy. The rural poor need to build and strengthen their human capital so they can get out of poverty and contribute more to the economy and society. Basic health care (immunization, provision of clean water, and family planning) and education (literacy, schooling, and technical training)—particularly for women and children—are essential building blocks and should be accessible at reasonable cost.
• Local involvement. The infrastructure and services associated with health and education can be funded and maintained best if the target groups are involved in making decisions about the design, implementation, monitoring, and accountability.
• Providing infrastructure. The rural poor cannot make the best use of their resources, including human capital, if either the quantity or the quality of some of the key parts of the country's physical infrastructure (irrigation, transport, and communications) and support services (research and extension) is inadequate. The social and physical infrastructure and services can be funded and maintained best—that is, they will be cost-effective and of reasonable quality—if the target groups are involved in designing, implementing, and monitoring them, as well as in ensuring accountability of the government officials responsible for them.
• Targeted credit. Informal and formal sources of credit often are too costly for, or unavailable to, the rural poor. Targeted public sector rural credit programs, especially if they are subsidized, benefit the nonpoor far more than the poor. The poor want credit that is available on acceptable terms and when they need it. Recent experiments with community-based credit programs, in which the poor actively participate in the making of lending decisions that are subject to peer accountability, have been successful in reaching target groups at reasonable cost.
• Public works. A large and increasing proportion of the rural poor depends on wage labor, because they have either no asset other than raw labor or very few assets: limited quantities of land and domestic animals. A flexible public works program can greatly help the near landless and the landless smooth out household consumption and avoid transient poverty. If it is used on a sustained basis, it can also strengthen the bargaining power of the poor in rural areas.
• Decentralized food programs. Some of the rural poor, both individuals and households, suffer from inadequate nutrition most of the time. They need different kinds of support, depending on their circumstances. These may include food supplement programs; food assistance provided through schools, health care clinics, and community centers; and cash transfers. Decentralized and targeted programs seem to work best. http://issuu.com/world.bank.publications/docs/9780821386736 http://www3.pids.gov.ph/ris/pjd/pidsjpd87-1debt.pdf http://data.worldbank.org/sites/default/files/gdf_2012.pdf Debt crisis in developing countries:
INTRODUCTION:
In the 1980's the debt problem emerged whereby Argentina defaulted to pay for its international debt, this led to the emergence of a debt facilitating plan introduced by the World Bank and the international monetary fund (IMF). The paper focuses on the problem faced by these countries, the causes of high debt levels and the solutions to the debt problem in developing countries.
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Developing countries are faced with low standards of living, underdevelopment, and high poverty levels, weak and unstable currencies, low capital levels and low GDP. All the above problems faced by developing countries are caused by debts which affect not only those who acquire loans but also generations that follow.
However despite the many problems associated with developing countries it is still possible to solve the debt problem and to attain high levels of development, this can be done through well laid strategies that involves all the sectors in an economy and this will be analyzed in this paper.
Debt problem in developing countries:
Debts in developing countries have increased over the years, many factors have caused this increase in debts including unfavorable terms of trade, rising international interest rates, increasing protectionism in the international market, irresponsible lending by international finance organizations and the rescheduling of punitive terms where countries delay payment.
The above mentioned factors are external factors and that there exist internal factors that have led to the increased problem of debts include economic mismanagement, unsustainable government deficits and the maintenance of unrealistic exchange rates. All the above factors have led to the increased debt problem in developed countries.
Factors that have led to the debt problem:
Terms of trade:
As a result of unfavorable terms of trade countries are faced with the problem of balance of payment, developing countries mainly export agricultural goods and in turn import machinery and electric goods, the value of imports in most cases exceeds the value of exports and as a result the increasing debt problem, countries are faced with an increasing balance of payment which lead to rising debts.
Rising international interest rates:
Most international finance institutions will raise their interest rates which in most cases affect developing countries, for example a country may obtain funds from a financial institution but the country may face increasing interest rates on the loan which will increase the pay back value where in most cases the country may end up paying more than double it acquired from the institution, therefore this has added to the problem of debts in developing countries.
Increased protectionism in the international market:
Increasing protectionism in the international markets has led to an increase in the debt problem in the developing countries, most of the products produced in developing countries are exported to developed countries, when the products are faced with high levels of protectionism in the developed countries the developing countries will experience a reduction in exports leading to unfavorable balance of payment, this means that the country will experience debt problems.
Irresponsible lending by finance institutions:
Financial institutions will lend money to countries without taking into consideration the current state of an economy, a country may receive a lot of funds which will end up not being used for their intended purpose, finance institutions will lend the developed countries large sums of money and also they lend money even before previous payments are not yet complete leading to the increased debt problem in the developing countries.
Rescheduling of payment terms:
Financial institutions will change payment terms over time and this may end up increasing the debt problem in developing countries, such terms include the increase in interest rates, the delay of payments has also led to the increasing debt problem in developing countries where countries will not pay up debts on time and therefore increasing the debt problem to other generations who may have not been present when the funds were given.
Unstable government deficit:
Most developing countries will at many times have deficit budgets, this is caused by budgets that have high planed government spending which is higher than government revenue, this deficit in most cases is funded through international funds which are in terms of loans, this countries failure to balance spending and revenue lead to the increasing debt levels which in turn increases the debt problem in developing countries. The increased deficits over the years have led to accumulation of debts which are unsustainable.
Maintenance of unrealistic exchange rates:
Developing countries will in most cases maintain unrealistic exchange which in turn affects their trade balances, when a country is offered funds there are usually some conditions that are set, such conditions include devaluing of the currency before the funds are given, this heavily affects the developed countries in that after devaluing their currency the country receives the funds but the value of the funds in most cases is not equal to the expected value, when a country is asked to devalue its currency this means that the value of the currency will be lower than normal and it will be very weak to the hard currency, the country ends up receiving lower value of the funds given resulting to more and more debt problem.
Oil hike
The rise in oil prices over the decades has resulted to the rise in the debt problem in developing countries, developing countries are importers of crude oil and oil products and a rise in the price of oil will lender them to have unfavorable balance of trade and this results to the rise in the debt problem due to increased balance of trade.
US monetary Policy and rise of neo-liberal policies
US is one of the major importers of goods from developing countries, the monetary policies and the rise of the neo-liberal policies have greatly contributed to the rise in debt problem in developing countries, the introduction of free market has led to countries to import more and export les resulting to an increase in balance of trade and this has led to an increase in debts.
Embezzlement and capital flight
The rising debt problem in the developing countries may also be as a result of the rise in embezzlement of funds, the loans offered to these countries are not used for their intended purposes and as result the funds end up in the wrong hands through increased corruption, due to embezzlement of funds there is an increase in capital freight.
OECD protectionism
The OECD was formed to monitor trade activities among member countries, as a result it has caused a reduction in the imports from developing countries who are not members of the union, its objectives are to reduce inflationary pressure, reduce unemployment and monitor trade activities among member countries, as a result of protectionism the imports from developing countries have drastically reduced resulting to the increasing debt problem in developing countries.
Impacts of debts in developing countries:
Underdevelopment:
The reason why the developing countries are underdeveloped is because they have to repay debts, the debt problem has forced countries to channel a high percentage of their GDP to paying debts and as a result the country cannot develop due to high debt levels. High interest rates on debt have also led to the high amounts of debts which are a negative force to development due to high spending on servicing debts.
Poor living standards and increased poverty:
Developing countries are faced with poor living standards that are caused by very low government spending on social amenities, governments have very little to spend after servicing debts and this has led to the poor living standards of its citizens. The developing countries will also experience high poverty levels due to the debt burdens, this burden is shifted to generations to come and this means that they will also be poor because they will also be forced to pay debts, this causes what is known as the poverty vicious cycle which is diagrammatically demonstrated below:
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Low capital stock:
Due to high payment levels of the debts developing countries have experienced a reduction in capital stock; a large proportion of a country's GDP is spent on debt repayment, low capital stock in a country means that the level of investment is low leading to underdevelopment in these countries. High levels of capital stock promotes investment and development, therefore if a country has low capital stock it will experience low investment levels and also underdevelopment and high unemployment levels because the higher the levels of investment the higher is the level of employment.
Weak currencies:
As the developing countries repay their debts they experience a devaluation of their currency against the other hard currencies, this will result to an increase in the cost of imports which may lead to an unfavorable balance of payment and contribute to the increase in debts, therefore weak currencies will lead to an increase in the value of the debts the developing countries and therefore contribute to the debt problem.
Credit worthiness:
A country will be faced with the problem of creditworthiness whereby it may be denied funds by international finance organizations because of its solvency level, the solvency level is a measure of whether a country has the capacity to repay debts, therefore according to the solvency index a country may be denied funds which may have helped the country to develop and this is caused by high debt levels.
Inflation:
Developing countries are faced with high inflation levels which are caused by the high liquidity levels caused by the funds, the amount of money that is in supply in the economy is usually very high when the country receives the funds and this triggers inflation for a long period in the developing country.
Solutions to the debt problem:
Budget deficit:
Developing countries will reduce debt problems through maintenance of a balanced budget, in this case governments should always make sure that taxation which the source of revenue for government spending does not exceed the planned government spending, therefore governments should stop including international funding in their budgets and stop over relying on loans to finance their activity.
Maintaining realistic exchange rates:
Overvaluing of a currency will tend to reduce the price of imports but at the same time because the exports tend to more expensive then the less a country will export. Overvalued currency will also raise expectations for devaluation and this will lead to capital freight, on the other hand if currency depreciates it raises the value of external debts, increases the level of exports and at the same time reduces imports because imports become more expensive, therefore a country should at all times maintain proper and realistic exchange rates in order to solve the problem of debts.
Better terms of trade:
Countries should join regional integrations that offer favorable terms of trade, this will lead to increased export value and quantity leading to sustainable development which will enable them to pay up their debt, and favorable terms of trade will offer favorable balance of payment which will lead to reduced debts. Countries should also aim at reducing balance of payment through import substitution strategies and also export producing strategies, the import substitution strategies will involve the initiation of industries that produce goods that were previously imported while the export producing strategy will involve the production of goods for exports.
Through research and discovery:
Many developing countries have not involved themselves in research and discovery, these countries have not tapped all the resources in their countries and bearing in mind that resources are not they become then the countries should explore and discover new resources which will help them to come out of their miserable state, many developing countries are importers of crude oil but they have done very little to discovering crude oil deposits in their countries due to lack of research and discovery. Research will also help them to discover better crops and ways of farming because these countries mostly depend on agriculture for sustainability.
The Paris Club
The Paris club was formed by 19 member countries and its objectives is to provide financial support to indebted countries, their activities include such efforts as restructuring of debts, debt relief and debt cancellation, this efforts are aimed at reducing the debt problem and can act as a resolution to the debt problems.
The Baker plan
This was a plan by the treasury secretary of the United States in 1985, this plan by James baker was known as the bakers plan and was aimed at resolving the issue of international debts, this plan was inspired by Japan when it used its trade surpluses to help indebted countries, therefore the bakers plan can be termed as a solution to the debt problem in developing countries.
Conclusion:
Developing countries are faced with the debt problem, however these problem can be solved through international trade, high levels of export will lead to reduced reliance on international aid and loans, the high levels of exports can be achieved through the import substitution strategy and the export production strategy, this two strategies will improve the balance of payment leading to a reduction of debt burden and also the country will use the gains from trade to service the debts.
Governments should also avoid deficit budgets and the reliance on foreign aid, governments should therefore collect enough revenue through taxation that will finance its spending and that the spending side should always be equal or less than the revenue side of the budget.
Countries should also look forward in engaging themselves in research and discovery which will help them discover new resources that will help them to develop and discover better crop breeds that yield more, also new ways of farming that will help them yield more, most developed countries are well known for their research and discovery of new resources and that is why they developed, because they are highly mechanized and have the resources to finance research and discovery.
The international finance institutions could also aid the developing countries through debt relief, this would involve the writing off all debt owed to by the developing countries, this will assist the countries in terms of development bearing in mind that most countries will spend a high percentage level of GDP to service debts.
However despite the assistance through debt relief developing countries should formulate good and sound governance whereby policy makers and top government officials make good decisions that aid them to develop and solve the debt problem.
References:
Willem H. and Richard M. (1985) International Economic Policy Coordination, Cambridge University press, UK
Matthew B. and D. Henderson (1991) Monetary Policy in Interdependent Economy, MIT press, UK
Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, UK
Stratton (1999) Economics: A New Introduction, McGraw Hill Publishers, US
Wikipedia the free encyclopedia (2007) developing countries, retrieved on 21st May, available atwww.en.wikipedia.org
Todaro M.P (2004) Economics for a Developing World, McGraw Hill Publishers, US
Todaro M. P (2002) Economics for Development, McGraw Hill Publishers, US
Philip Hardwick Et Al (2004) Introduction to Modern Economics, Pearson Education Press, UK

http://www.articlesbase.com/debt-consolidation-articles/debt-crisis-in-developing-countries-2125255.html

http://www.guardian.co.uk/global-development/poverty-matters/2012/may/15/developing-world-of-debt

Data in the World Bank's global development finance 2012 report (pdf) shows total external debt stocks owed by developing countries increased by $437bn over 12 months to stand at $4tn at the end of 2010, the latest period for which data is available