INTENSIFYING GLOBAL DEPENDENCY: Foreign Debt, Structural Adjustment, and Third World Underdevelopment

Dependency-oriented arguments have not focused sufficient attention on the growing international debt crisis. This omission is unfortunate because foreign debt has introduced several important dynamics into the world capitalist system. Perhaps most important, the International Monetary Fund (IMF) has emerged as one of the most powerful transnational financial institutions, as it makes loans to and evaluates credit worthiness of Third World states. To be acceptable credit risks, underdeveloped states often must implement a number of IMF "structural adjustment" or austerity measures. Our cross-national analysis-which includes an examination of important outliers-indicates that IMF-imposed conditionality is the primary impediment to economic expansion in the Third World. Growing service payments on the external debt also inhibit economic growth, but less so. Moreover, although structural adjustment does not yet significantly impact physical quality of life, foreign investment and level of international reserves do exhibit a negative effect on this indicator. Dependency arguments should be revised and broadened given the profound impact of the global debt crisis.