Developing Nations around the world are FUBAR because of a particular set of fiscal policies imposed upon them by the World Bank when they borrowed money to improve infrastructure.

The particular World Bank policy to which I refer is that of devaluing a developing nations currency through [inflation. Inflation is an increase in the prices of goods, and is in turned caused by an increase in the supply of money. As the amount of money available to people becomes larger, merchants raise prices to compensate, to keep the margin between their selling price and their costs constant.

The World Bank likes devaluing currency (as the process of deliberate inflation is called) because it reduces outstanding debt. If the prices and costs of everything suddenly doubles, and you've got a million in debt outstanding, it's suddenly much easier to pay off that debt.

Devaluing a currency also makes imports more expensive, and exports cheaper, causing other nations to buy more of a countries goods. However, there are other consequences to devaluing a countries currency: It becomes possible for foreigners to buy up more and more of the capital investments in your country. This is because it has become possible for foreigners to buy up larger and larger amounts of your currency using the same amount of foreign currency.

I'm going to use "rupees" and "dollars" as an example, but in reality, it's any two currencies you could name. If I double the number of rupees in my country, that halves the value of every rupee in the country. That effectively wipes out the value of any savings anyone within my country had. All the money they had saved is now worth half as much. (Think of how hard you would cry if the price of EVERYTHING doubled tomorrow. All your savings are now only buy half as much).

This causes the relative value of assets within a country to fall. Because I can buy more and more rupees with fewer and fewer dollars, it becomes very easy to buy an asset denominated in rupees very easily. Things like factories, office buildings, etc.

Worse still, a large amount of the liquidity caused by the devaluation of the rupee does not happen within that country. Instead, the currency is bought up by foreign investors, and thus never has a chance to circulate in the economy, and cause the associated rise in prices that normally happens with inflation. This relative imbalance in purchasing power allows foreigners to buy more and more of the assets inside a country, because the assets inside a country have effectively been devalued.

Real world examples of such behavior include Russia, Argentina, Brazil, and Jamaica.

This is why half the world is now owned by Multi-National corporations. They had the money (denominated in dollars) to buy huge blocks of money from developing nations, and then used that money to buy huge chunks of assets within those countries, before the inflationary cycle resulting from the increase in the money supply had a chance to take place.

Log in or register to write something here or to contact authors.