U5123854 Review

Academic and Research Skills: Critical

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Sophea Ly IDEC 6900: Academic and research skill Kate Wilson Book Chapter Critical Review 1060 words

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U5123854 Review

Academic and Research Skills: Critical

Book Chapter Critical Review

Easterly, W 2002, The loan that were, the growth that wasnt, in The elusive quest for growth; economists adventures and misadventure in the tropics, MIT Press, Cambridge MA, pp. 101-125 In response to the economic turmoil of low-income and middle-income counties overburdened by external debt obligation, in 1980s the World Bank and IMF introduced and scaled up an adjustment loan program to promote growth in parallel with financing the recipient countries in the absence of commercial lending under the popular slogan adjustment for growth (Easterly 2001). A major chunk of these loans were shifted to policy reform, namely aid financing reforms, instead of aid financing investments. However, according to William Easterly, a former economist at the World Bank, in his book The elusive quest for growth, argues that the adjustment lending doesnt work as it is incompatible with people respond to incentives (p.103). Even if the author manages to present several examples and empirical research data on the country economic growth and thus establish a strong connection between policy reform and growth, he fails to provide succinctly the underlying reasons behind such failure. Besides, with his pessimistic view on adjustment loan from economic growth angle, Easterly overlooks other areas of success of the aid programme, and he then proposes a solution that does not seems to practically address the country development context and needs. This review summarizes and then discusses the main points in Chapter Six The loans that were, the growth that wasnt from different perspectives on development aid. The review finally concludes that Easterly research is evidenced-based with substantive information on country policy issues and growth through his insights and experiences in development aid; nevertheless, he does weaken his argument that adjustment lending is a wrong formula, by his overemphasis on policy reform, and his failure to acknowledge adequately other drivers of growth given the complexity of country development context. Easterly mainly attributes policy reforms as a necessary driver for growth success by pointing out The loans were there, but too often the adjustment was not (p.105). He further pointed out that donors failed to rigorously enforce policy reforms and ignored other important influential factors including the political transition; bad policies such as

U5123854 Review

Academic and Research Skills: Critical

black market premium and corrupted government; illusion of adjustment by using creative fiscal accounting. Easterly continues explaining How a government that eats away the future by incurring debt will also eat away at the future in others ways when donors are lacking of scrutiny of adjustment loan result. Finally, he reiterates the People respond to incentives theme and criticize that incentives were not properly checked by the donor. He offers four reasons to explain this claim. First, the poverty becomes a good reason to get more aids as he cites Svensson (1997), saying that The poor are held hostage to extract aid from the donor (Easterly 2000, p.116). Second, donor country offices feel pressured to disburse more money to sustain their country budgets for the next fiscal year. Third, recipient government play tricks of zigzagging adjustment in which the recipient government continually adjust and later on go back to their old habits. Fourth, lenders approved new loans to pay off old loan or for political reasons(Easterly . For the most part of his research, Easterly links policy reform to growth and he proves this by giving examples of countries that failed to reform, and thus failed to grow. However, he does not convincingly and adequately explain how reform positively contributes to growth, which may not be true according to some voices in aid debates. The International Encyclopedia of the Social Sciences (IESS) (2008) claims that recipient governments in crisis have little ownership on conditional loans which are subject to successful negotiation of a structured adjustment loan (SAL). The loan packages mainly carry conditions on economic reforms including a high interest rate, government expenditure budget cut, higher tax, and the abolition of various subsidies on consumption items. These policies are often seen as unpopular, and so the programs are highly controversial. Trade liberalization measures with fewer restrictions on foreign trade are often founded in SALS; furthermore, the internal market-oriented structural reforms are conductive to deregulation of domestic markets and the privatization of government enterprises (IESS, 2008). SAL draw further critics on their structural approach as Stiglitz criticizes the IMFs market fundamentalism, its one-size-fits-all approach to crisis management, and its mistakes in sequencing and pacing, and the failure to be sensitive to the broader social context (Stiglitz, p. 73). Another weakness in his argument is that Easterly does not fairly balance different country development contexts in his analysis on growth failure. Even though good policies are necessary for development, there are several factors undermining growth

U5123854 Review

Academic and Research Skills: Critical

and sometimes beyond our control. In this connection, considering the complexity of country economic system, Sachs (2005) succinctly explains why growth fails by outline eight factors: the poverty traps, physical geography, fiscal trap, governance failure, cultural barriers, geopolitics, lack of innovation, and demographic trap. Given these eight problems, Sachs further suggests that Each [country] has its own different appropriate course of treatment; therefore, a good diagnosis is crucial (p. 56). Based on his empirical researches, Easterly logically draw his conclusion on perverse incentives for both donors and recipients from adjustment lending failures; thus he jumps to the recommendation of aid reform based on country policy performance. Notwithstanding, such approach seems to further punish the poor countries who face different sets of barriers in their difficult and time-consuming reform. In addition, his recommendation is not practical by failing to meet the urgency of addressing the ongoing chronic poverty and disasters in poor countries. Besides, his definition of aid failure is far from sufficient in the sense that he ignores the other dimensions of aid effectiveness such as health, education, gender equality, environmental stability, global partnership, technology, access to markets. According to IESS (2008), there is a perceived need to move to a second generation reform with recognition that the expectations placed on lending to developing countries conditional on their policy reforms proved unrealistic. Similarly, there is a growing agreement that structural adjustment should promote growth and capacity expansion and not just efficiency. The recommendation now is for a more strategic focus, concentrating on the key barriers to growth, rather than employing a scattergun approach to abolishing all market distortions (IESS, 2008). Overall, Easterly provides useful insights on the failure of adjustment aid which bears fundamental importance for development, His research help contribute and promote further thinking on aid reform that promotes growth; however, Easterly would have come up with a more realistic solution. His analysis should have included more comprehensive thoughts in light of different barriers faced by recipient countries, and adequate knowledge on what a pro-growth policy reform look likes and how it helps poor countries to prosper. From this analysis, donors should improve their aid effectiveness by working collaboratively with recipient governments and development stakeholders in joint-country analysis and strategic programming so as to build stronger ownership and effective harmonization of development aid and responsive reform.

U5123854 Review References

Academic and Research Skills: Critical

International Encyclopedia of the Social Sciences, 2008, Structural adjustment, viewed 09 February 2012 , <http://www.encyclopedia.com/doc/1G2-3045302641.html>. Sachs, J 2005, Why some country fail to thrive, in The end of poverty, The penguin press, New York, pp. 51-73. Groff, P.S, 2011, Getting value for money: effective aid, effective development, Global Asia, viewed 19 February 2012. < http://www.globalasia.org/V6N2_Summer_2011/Stephen_P._Groff.html?w=Groff>. Stiglitz, Joseph. 2002. Globalization and Its Discontents. London: Allen Lane.