Adjustment Lending

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In order to improve economic growth, most of the developing and less developed countries asked for aid and borrowed a huge amout of money from international organizations e.g. International Monetary Fund (IMF), World Bank (WB), developed countries, and other donors. However, they still did not elevate their economy. Easterly (2002), a former economist at The World Bank and a professor of economics at New York University claims that aid and lending is not effective to promote economic growth in developing countries. He also provides reasons and uses several country examples. His exposition end up with a conclusion that adjustment lending and foreign aid gives only little contribution to developing countries economy due to lack of incentives for both donors and recipients. The aim of this paper to complement and criticise Easterly’s argument that adjustment lending fails to boost developing countries economy.

In the first part of this essay will shortly summarize Easterly’s idea; while the second part will discuss its’ strengths and weaknesses. Several compliment notions to endorse Easterly’s argument are provided in this review.

Easterly (2002) noted that there were some success story for adjustment lending in some countries. However, he identified more countries were not successful. These failures are due to two main reasons. First, it was because there were no policy adjustmens from the recipient countries to decrease inflation. Second, it was because the government could not control inflation during transition period. Furthermore, the other polices which he revealed are high black market premium, budget deficit policies, and negative real interest. Easterly also recognise donors’ characteristics which triggered recipient co...

... middle of paper ... contest are not comprehensive enough and also not consistent with his pessismist view on aid. Hence, his chapter is still valuable and relevant with current situation where there are still many developing countries are highly depend on foreign aid.

Works Cited

Booth, P 2012, ‘Does foreign aid make the poor poorer?’, Economic Affairs, Wiley Online Library, Vol. 32, no. 1, p.1,


Easterly, W 2002. ‘The loans that were, the growth that wasn’t’ ,The elusive quest for growth: economists adventures and misadventures in the tropics,’ The MIT Press, Cambridge, Massachusetts, pp.101-120

Moyo, D 2009, ‘Why foreign aid is hurting Africa’, The Wall Street Journal, viewed 07 February 2012,


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