ABSTRACT
So far, the focus has been on developing countries’ external trade, and specifically their exports. Here we look at those exports in the context of ldcs’ other transactions with the rest of the world and in relation to their problems in financing trade and development. Ldcs typically import more than they export, financing their import surplus by grants or capital flows from abroad. Over time, this practice has allowed ldcs to enjoy higher levels of income and probably income growth than would otherwise have been possible. However, for a variety of reasons, ldcs have frequently experienced payments difficulties manifested in a shortage of foreign exchange. Such difficulties can, in principle, be removed or avoided by two sorts of measures which are not necessarily exclusive: first, borrowing, or begging, additional foreign exchange from abroad; second, adjusting external payments and receipts – other than financial inflows – so as to restore balance of payments equilibrium. The latter measures may cause or be accompanied by a desirable redirection of the domestic development effort, resulting in a less import-reliant, less capital-intensive, and more egalitarian mode of development. In general, however, developing countries try to avoid adjustment measures – whatever potentially desirable opportunities they may offer – since they almost certainly entail a cut-back in domestic spending, and often a curb on their current development effort. Ldcs’ ability to avoid payments adjustment is, however, limited by the financing facilities open to them.
