Why just giving money to underdeveloped country won’t solve anything

Numerous articles with titles like "The following is the ranking of the richest countries in the world in 2023" occasionally pique my interest in my leisure time just to spend my time and get to know today’s world a little better. Usually, there are a lot of suggested articles at the bottom of the article that are linked to previous articles such as "The following are the rankings of the poorest countries in 2023,". After reading articles like this and realizing how wide the wealth gap between the richest and poorest nations, people often wonder why don’t the richest countries share a little bit of their good fortune to the poorest countries, which seems to be in dire need of financial assistance?

Before we had the chance to think of that, experts have thought of that idea first and of course they had put it on a test to answer that question by implementing a system of adjustment loans. Adjustment loans itself is a money lending program provided by the International Monetary Fund (IMF) and The World Bank to countries experiencing an economic crisis with the condition that efforts must be made to change policies in the recipient country that would keep growth going. The World Bank and IMF provided many adjustment loans in the 1980s and 1990s to several countries in need, with Africa being the continent that received the greatest number of adjustment loans. However, with the large number of loans extended to Africa, does this help stabilize the growth and development in Africa?

The fact that developing nations experienced zero average growth between 1980 and 1998 demonstrates that the IMF and World Bank's attempts to lend money have had the reverse effect of what was first anticipated from the adjustment loans projects. If money is the fundamental issue that prevents developments in Africa, why does development still hampered if the necessary funds are available? here are some reasons:

1. The lending was there, but the adjustment was not

Between 1980 and 1994, Zambia received 12 adjustment loans from the World Bank and IMF. At the end of that time, Zambia had significant inflation that may reach more than 40% annually rather than increased growth. So why are donors still lending to Zambia despite the yearly high inflation? This is because the large number of loans given to countries with a high inflation percentage is the same as countries with a low inflation percentage with the aim of reducing inflation. However, in this case, the lending of funds to Zambia continued and even increased even when inflation was still high and even rising.

2. Pretending to adjust, just until they got the loan

Kenya serves as an example here. Between 1979 and 1996, Kenya received 19 adjustment loans, but growth there likewise didn't seem to be good enough. This happened as a result of Kenya's good skill during the presenting to donor countries with what new policies it will do in the future if it can obtain aid funding to boost the growth in Kenya. Presentation is key as they said, after the donors were seduced by Kenya's intentions and gave them their aid money, Kenya promptly forgot all of its beautiful promises and spent the money on things that were less crucial for the development and progress of the country. This tragedy keeps happening, repeatedly.

3. Corruption

Just like how any other developing countries, countries in Africa also faces this, the big star of the show, corruption, which is also one of the reasons why the economic development and development of countries in Africa is hampered even though a lot of aid has been given. The amount of available funds that should be used to implement development projects in the field is different from the amount stated in the report. If you're wondering, where did that sum of cash go? You probably already know the answer.

Knowing the failure of their strategy, the IMF and the World Bank reviewed the adjustment loans program and made many changes in its rules. Loans that were originally given to those who had big aspirations to change policies for the betterment of the nation were changed to loans given to those who had succeeded in achieving growth first and were seen as being able to account for the funds to be lent. The IMF and the World Bank are also putting more pressure with background checks on the countries they will lend to, such as the country's history of inflation, level of corruption, financial development and others. Therefore, will this program operate smoothly in accordance with the regulatory changes imposed by the IMF and the World Bank, or will recipient nations once more outsmart this program?