Trade deficit exists when a country imports a greater value of goods than it exports, meaning it spends more than it earns. This process is unsustainable unless: individuals decrease spending or increase income, which can be achieved by allowing private industry to flourish. However, few politicians respect the dynamics and power of the free enterprise system. Their world is built upon political programs where the role of the free market is manipulated to achieve politically popular goals. While they may desire increased productivity, their political agenda often prevents this from happening.
Another way to address a trade deficit is by obtaining extra money from savings, but governments typically have no savings. Their debts and liabilities exceed their assets by large margins, similar to their citizens and industries. Government savings have already been consumed. Selling assets is another option, but the only tangible assets are gold, of which few countries have significant stock.
The counterfeiting option can only happen if the country’s currency has greater value in international trade, such as the US dollar. The US can finance its trade deficit through fiat money, allowing it to spend more than it earns. The problem arises when the currency’s value declines, leading to inflation because the trade was financed using fiat money.
Borrowing is often presented as a solution to overcoming trade deficits. However, these loans usually do not go to private enterprises where they could potentially turn a profit. Instead, they go to state-owned and operated industries, which are often stifled by bureaucracy and corruption. The World Bank and the IMF provide these loans. Funding for these loans comes from member states in the form of a small amount of cash plus promises to deliver much more if the banks encounter trouble. Based on this small amount of seed money and the greater amount of credits and promises from industrialized countries’ governments, the World Bank can approach commercial loan markets and borrow large sums at extremely low-interest rates. It then relends these funds to underdeveloped countries at a slightly higher rate.
While the aim is to help underdeveloped countries, the reality is different. There are sectoral loans and structural adjustment loans. In the first category, only part of the money is used for the cost of developing projects; other funds are directed towards policy changes, often building socialism, though this term is not used. For example, the Kenyan government’s housing levy requires all employed people to pay, regardless of home ownership. Loans are issued for government projects like dams, hydroelectric power, and roads. The funds pass from politicians to bureaucrats and back to politicians, leading to government expansion. One condition is that the state must be omnipotent, making major decisions without regard for citizens’ welfare.
Economic life in less developed countries is already politicized. One important feature of structural adjustment loans is that the money need not be applied to any specific development project; it can be spent on anything the recipient wants. Austerity measures are mere rhetoric, as borrowing nations often ignore these conditions with impunity, yet the World Bank keeps the money coming anyway.
The hidden agenda of the World Bank and IMF in funding third-world countries often perpetuates corruption and despotism. The loans fund government projects that are inefficiently managed and fail to spur genuine development. As a result, the economies of third-world countries remain politicized and heavily dependent on further loans, creating a cycle of dependency rather than fostering true economic independence and growth.
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