Microfinance Case Study

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Register to read the introduction… The elimination of price controls, privatization of state-run enterprises, and reductions in import restraints are examples of market-oriented reforms recommended by such international agencies as the International Monetary Fund (IMF), whose primary goals are to stabilize international exchange rates and to lend money to countries that have problems financing their international transactions, and the World Bank, which lends money to a country for projects that promote economic …show more content…
Principles of Macroeconomics, 9th Edition. Pearson Custom Publishing

In the past, most development strategies were aimed at increasing the growth rate of income per capita. Many still are, based on the theory that benefits of economic growth will “trickle down” to all members of society. If this theory is correct, growth should promote development.

By the early 1970s, the relationship between growth and development was being questioned more and more. A study by the World Bank in 1974 concluded the following:

It is now clear that more than a decade of rapid growth in underdeveloped countries has been of little or no benefit to perhaps a third of their population.... Paradoxically, while growth policies have succeeded beyond the expectations of the first development decade, the very idea of aggregate growth as a social objective has increasingly been called into question.
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Although GDP per capita did rise, its benefits trickled down to a small minority of the population. This very limited success prompted new development strategies that would directly address the problems of poverty. Such new strategies favored agriculture over industry, called for domestic redistribution of income and wealth (especially land), and encouraged programs to satisfy such basic needs as food and shelter. P410 during the 1980s and 1990s, the policy focus turned 180 degrees. The World Bank and the United States began demanding “structural adjustment” in the developing countries as a prerequisite for sending aid to them. Structural adjustment programs entail reducing the size of the public sector through privatization and/or expenditure reductions, substantially cutting budget deficits, reining in inflation, and encouraging private saving and investment with tax reforms. These pro-market demands were an attempt to stimulate growth; distributional consequences took a back seat.

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