Problem

Interaction of deficiencies in world economical systems

Nature:
The individual systems governing money, finance, trade and commodity markets which make up the overall system of trade and payments have a substantial number of important interlinkages. This means that the way one system operates may influence the efficiency with which another fulfils its task and that the weakness of one may aggravate the malfunctioning of another. The failure of the payments system to meet the financing needs of deficient countries has lead many of these countries to impose trade restrictions, thereby accentuating the failure of the trading system to fulfil its central objective of keeping markets open. Similarly, the abandonment of any kind of exchange rate regime in favour of free floating, by simultaneously increasing uncertainties regarding price competitiveness and reducing the efficacy of tariffs as a protective device, has increased the use of non-tariff restrictions. This in turn has diminished the effectiveness of exchange rate changes as a tool for balance-of payments adjustment and has thereby put more strain on the already inadequate financing system. The insufficiency of the balance-of payments financing system has itself exacerbated the problem posed by the many lacunae in the system of commodity market regulation. Thus, developing countries dependent on exports of commodities experiencing sharp price fluctuations have been obliged, because of the shortage of payments finance, to incur sometimes heavy adjustment costs in response to self-reversing earnings fluctuations which would normally call for financing and not adjustment.
Claim:
The working of the commodity, finance and trade systems has served to amplify the transmission from developed to developing countries of the deflationary impulses which have themselves strengthened because of the stance and mix of macro-economic policies adopted by the former countries. Besides, the deficiencies of the trade and payments system have tended to encourage or even enforce national policy responses which contribute further to the propagation of deflation. Consequently, an inordinate part of the adjustment process has taken the form of cutbacks in imports. When these involve either investment goods or raw materials and spare parts, they have had a direct impact on levels of current and prospective output. They also reduce the demand for other countries' exports, including those of developed countries, and therefore reinforce recessionary tendencies in those economies.
Strategies:

Values:
Deficiency
Problem Type:
F: Fuzzy exceptional problems
Related UN Sustainable Development Goals:
GOAL 1: No PovertyGOAL 8: Decent Work and Economic Growth
Date of last update
01.01.2000 – 00:00 CET