Emerging Markets and the South

The international institutions such as World Trade Organisation, World Bank, and International Monetary Fund have come to be known as the global driving force of liberal economic policies. While globalisation and international trade offer the world many benefits, there also appear to be negative consequences, particularly for the less developed countries. According to numerous studies, neoliberal globalization has caused financial and economic obstacles mainly in developing countries. The most significant effects are volatility of investment, swings of exchange rates, fluctuation of interest rates, leading to a severe indebtedness, deeper finance recessions and crises. This report will discuss the effects and implications of the problems that neoliberalisation has brought in developing countries.
In the 1944, after classical gold standard, the international monetary system was considered by a gold exchange standard and operated by fixed exchange rate. During this period lasting until 1973 international financial and economic climate was more or less stable and manageable. Economic sector characterised by governed international trade balance with stable price levels, as well as international financial system had fixed exchange rate and market indices, and more importantly capital liquidity was modest and provided mostly by public sector with stable interest rates, as Wade claims (Wade, 2006). Then the modern financial system, based on mixed flexible exchange rates between the major currencies, was introduced, and followed by not backed by gold US dollar. Most countries have preferred to hold their international reserves in US dollars, since dollar earns interest and does not have to be stored. At the same time international market also was driven to remove restrictions on capital mobility. In condition of growing demand for reserves, due to increasing international trade and investment, circulation of US dollar has increased.
Simultaneously, the changes in the financial system also have excessive effects on the trade system, placing many obstacles on establishing industries of developing countries. Spreading neoliberal agenda promotes unequal competition between producers from developing countries and advanced producers from the North. The most dramatic impact, for instance, is that removal of agricultural trade distortions, raised global extreme and lower moderate poverty by 0.2 and 0.3 per cent respectively (Bussolo et. al., 2011). Neoliberalisation tends to undermine a viability of producers in the less developing countries previously protected by tariffs or others barriers due to the flood of cheap imports from more advanced countries with subsidised and supported industrialised farm producers. In these conditions, it is difficult for recent industries to develop. In addition employment in expanding sectors of the local economy mostly unable to grow adequately. People displaced from traditional agriculture are unable to integrate into new work force that leads on income inequality issue.
Consequently, developing countries have tended to borrow more money to develop local infrastructure and production that brings them to dependence on lending. The root of many debt crises was that a country spend much more than they able to take, and thereby should borrow from abroad. Many of the crisis in the last two decades occurred as a result of a countries’ debt getting too high, which made it difficult for them to pay back. Most often, also, the debt consisted of bonds which were held by private investors in other countries, and mostly in US dollars (Soederberg, 2002). As a result, the debt has had to be paid in dollars, rather than in national currency of the country.
In addition, dependency of developing countries on international investment into industrialisation has significant effect on local interest rates (Dymsky, 2003, Wade, 2006). Open financial market and deflation of national