U5123854 Date of submission : 23 Jan 2012

IDEC 6900- Assignment 01

Summary and Note Taking

Reference : 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 Wrong Incentive for donor and recipients : Trouble in transition. E.g. Russia in 1992 , Lending without adjustment (no 1- More poverty, more aid from market socialism/communism to free policy reform)--> higher inflation. 2- More aid disbursement, more budget in market/capitalism--> thousands of percent of e.g. Zambia ( 40% Inflation (1985the following year Inflation. 96).

3- zigzagging adjustment for loan (e.g.

Other [bad]policies : E.g. Mauritania: black market premium (currency exchange rate above official exchange rate) during 198289.

Kenya)

How to pretend to adjust (Govt create illusion of adjustment such as creative fiscal accounting, Public debt to reduce deficit--> higher payoffs of debts tomorrow.

The adjustment lending was incompatible with people response responses to incentives as did not create the right incentive for either the lenders or the recipients.

4- New loan to save old loan

Looking forward (Recommendation) Conl: Adj lending is a wrong formula for growth Tie aids to past country [policy] performance, not premise, giving the countrys government an incentive to pursue growth-creating policies. Government performance rating : deficit, corruption, inflation, financial development, and the black market premium on the foreign exchange). Aid contests: proposal from recipients for growthpromoting use of the aid money.

Some success: Eating the future (reduce expenditure today return for a future liability, a lower inflation today at the high cost of inflation tomorrow) -Stella growth: Eg. Thai (5.3%), Korean (6.7%) Slow/low growth : Ghana (1.6%)Argentina (4.7%), Peru (2.6%) 1