Last week we learned about developing countries and how they can get stuck in the poverty cycle.
When a poor country is stuck in the poverty cycle one of the only ways to get out is to get a loan to be able to build infrastructure and improve the economy. Developing countries use to take out loans from privately owned banks in other countries. The only problem with this is that the banks could charge high interest on their loans and eventually the country would be in constant debt, not being able to pay back in full and in the long run paying way over or not being able to pay back at all. After the market crash in the U.S.A people were worried that these countries currency could become 0 so, the UN created the World Bank (WB) which took on all these countries debt with no interest. The only catch was that in order for the country to take out a loan they would have to follow some Structural Adjustment Programs (SAPs) given to them by the International Monetary Fund (IMF) that helped the countries gain money.
Some of these SAPs would tell the countries to use a certain piece of land for growing a cash crop and exporting it or let in Multi National Corporations (MNCs) to set up shop in their country and produce and export their goods. Another example of a SAP is devaluing their own currency. This would in theory make other countries want to purchase their currency raising their currency value.
Now at first I thought this was a good system until Mr.Chan showed us a documentary about Jamaica. When Jamaica took out money from the WB the SAPs told them to make a ‘free zone’ where the Jamaican laws don’t apply. This is so companies can produce products that are legally not made in Jamaica and operate without the restrictions of laws. With this they are not liable to any taxes and they can pay their workers as low as $30 US dollars a week. In theory this would raise the economy because the Jamaican people can go to work and then buy things back in Jamaica. But this was not the case. The company got away with taking lots of deductions off their pay check that actually weren’t given to the government (even though they were suppose to) and because the end product was exported out of Jamaica it didn’t help the economy much.
In the end all of the Jamaican workers were fired after going on strike and they were replaced with Chinese workers making it not beneficial at all for Jamaica. Later the companies shut down and Jamaica was left with debt and an empty factory.
What actually works to help developing countries in the poverty cycle is micro-finance loans. These are loans to individuals so they can start up their own business in their country that doesn’t rely on MNCs exporting the goods out of the country. This way their business can help the country’s economy and have their product staying in the country. One way we can help with micro-finance loans is donating to https://www.kiva.org/ and loaning as low as $25 with no interest rate to someone in need.