and income. The process of economic growth involves better utilisation of natural and human resources, which results in a change in the social, political, and economic structures.
In our own developing country; it seems the monetary policy is less effective as compared to developed economies, what are the possible options available for the developing economies that will help our country to improve the monetary policy effectiveness?
First, let us determine our measure of effectiveness - use of various monetary instruments (money supply, interest rates, credit to the private sector, etc) to achieve stable prices, high and accelerated economic growth, low unemployment or low income inequality?
Then estimate the impact of the monetary measure on the target variable, adding other complementary explanatory variables in accordance with theoretical and empirical literature. On that basis and through the transmission mechanism, you would be able to determine which monetary policy is ineffective.
Recommendations would then flow from the results, taking into account the structure and operations of the economy in question. In doing this, proper coordination of monetary policy with fiscal and debt policies would be important.
As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years.
Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.
Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt.
The debt of our developing country refers to the external debt incurred by government of the country at the moment; generally in accumulated quantities reaching to the tune of Tzs.21 Trillion beyond the government’s ability to repay as required.
The "Unpayable debt" is external debt with interest that also exceeds what the country's politicians think they can collect from taxpayers who many of them (evade paying their legitimate taxes), based on the nation's gross domestic product, thus preventing it from ever being repaid.
The causes of debt are a result of many factors. Some of the current levels of debt were amassed following the 1973 oil crisis. Increases in oil prices forced many poorer nations' governments to borrow heavily to purchase politically essential supplies such as medicine and pharmaceuticals.
At the same time, OPEC funds deposited in western banks provided a ready source of funds for loans. While a proportion of borrowed funds went towards infrastructure and economic development financed by central governments, a proportion thereof, we are assured was lost to corruption and about one-fifth was spent on armaments during the Idd Amin War in Uganda.
A country is classified as a Least Developed Country if it meets three criteria: “Poverty – adjustable criterion based on GNI per capita averaged over three years. As of 2015 a country must have GNI per capita less than US $1,035 to be included on the list, and over $1,242 to graduate from it.”
Human resource weakness (based on indicators of nutrition, health, education and adult literacy) and Economic vulnerability (based on instability of agricultural production, instability of exports of goods and services, economic importance of non-traditional activities, merchandise export concentration, handicap of economic smallness, and the percentage of population displaced by natural disasters). Excessive importation of various commodities.
There is much debate about whether the richer countries should be asked for money which has to be repaid. Let us consider a silent reason why the third world debts should be cancelled. Firstly, several governments want to spend more money on poverty reduction but they lose that money in paying off their debts.
We concur with this stance on the basis that the money could have been used for basic human needs and say is Odious Debt. Secondly, some the lenders knew that they gave to dictators or oppressive regimes and thus, they are responsible for their actions, not the people living in the countries of those regimes. For example, South Africa has been paying off $ 22 billion which was lent to stimulate the apartheid regime.
In the meantime, we may assume that when a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state.
This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime.
The reason why these odious debts cannot attach to the territory of the state is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State.
Odious debts, contracted and utilized for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded.
The lenders have committed a hostile act against the people; they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.
There are many examples of similar debt repudiation. Also, many lenders knew that a great proportion of the money would sometime be stolen through corruption.
Next, the developing projects that some loans would support were often unwisely led and failed because of the lender's incompetence. Also, many of the debts were signed with unfair terms, several of the loan takers have to pay the debts in foreign currency such as dollars, which make them vulnerable to world market changes.
The Bank of Tanzania (BoT) is very much knowledgeable about the unfair terms can make a loan extremely expensive, many of the loan takers have already paid the sum they loaned several times, but the debt grows faster than they can repay it. Finally, some of the loans were contracted illegally, not following proper processes.
Another reason for canceling out some debts is that the money loaned by banks is generally created out of thin air, sometimes subject to a small capital adequacy requirement imposed by such institutions and it is in place to state that the ‘miracles’ performed by credit are fundamentally comparable to the ‘miracles’ an association of counterfeiters could perform for its benefit by lending its forged banknotes in return for interest.
In both cases, the stimulus to the economy would be the same, and the only difference is who benefits!
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