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Volume :30 Issue : 4 2002      Add To Cart                                                                    Download

The Theoretical Foundation of the Adjustment Programs Supported

Auther : Adnan Abbas Ali

The purpose of this paper is to describe the analytical framework underlying the design of adjustment programs, which is supported by the International Monetary Fund (IMF). The Fund’s approach to economic stabilization, generally referred to as ``financial programming’’, is based on ``monetarist’’ view of the transmission underlying the adjustment of the balance of payments to the change in the rate of growth of domestic credit. It follows from the monetarist nature of the fund’s approach that money and monetary policy play an important role in determining balance of payments outcomes. While the paper does not describe in detail the practice of financial programming, it deals exclusively with general issues of stabilization program in developing countries. The paper will, it is hoped, serve to dispel the notion that domestic savings in developing countries need to be reinforced by foreign savings. Our key point is the proposition that the IMF-Strategy, based on ``growth-with-debt’’, is not effective. To achieve an effective growth, the current account should be more or less balanced or even better in surplus, irrespective of foreign grants.

Key words: Structural adjustment programs, Financial programming, International monetary fund, Balance of payments, Restrictive monetary and fiscal policies, Exchange rate policies, Macroeconomic stability, Growth-with-debt, Devaluation of the domestic currency.

 

 

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