Cambridge International as and a level Economics Ebook

The impact of external debt
External debt can be a major obstacle to future economic 
development. As mentioned earlier, repaying the debt 
can divert funds away from improving the welfare of the 
population and increasing the economy’s growth potential.
A high level of external debt can make it diffi
cult and 
expensive for a developing economy to attract more funds 
for development.
Some governments reduce their ability to borrow more 
in the future by defaulting on past loans. Th
ese governments 
may consider that, for instance, avoiding cutting spending 
on education and health care may be more important than 
meeting their obligations to repay loans.
The role of the International 
Monetary Fund and the 
World Bank
The International Monetary Fund
Th
e International Monetary Fund (IMF) was set up in 
1945 aft er the Bretton Woods Conference, to help promote 
the health of the world economy aft er World War II. With 
headquarters in Washington, DC, it currently has 188 
members. Non-members include Cuba and North Korea.
Th
e purposes and responsibilities of the IMF include:
■ 
to promote international monetary cooperation
■ 
to facilitate the expansion and balanced growth of 
international trade
■ 
to provide exchange rate stability
■ 
to assist in setting up a multinational system of payments
■ 
to make resources available to members experiencing 
balance of payments diff iculties, on condition that 
adequate safeguards are provided.
China’s expansion into other 
economies
Although China’s outward FDI is growing fast, it is still 
less than inward FDI. China’s FDI first grew largely 
because of its search for energy, minerals and land in 
African economies. It is now moving into richer markets 
in a bid to get more recognition for its products and to 
take advantage of advanced technology.
Its investment in the Caribbean is relatively low 
but may increase in the future, partly because its 
location makes it an appropriate base to export to 
the USA and Canada. The region does, however, 
have relatively high wages and modest resources.
Read the feature below and then answer the 
questions that follow.