Debt Relief, Import Substitution and Export Industries

Debt Relief

One of the proposed ways to help poor countries that emerged during the 1980's has been debt relief. Given that many less developed nations have gotten themselves into extensive debt to banks and governments from the rich nations, and given that the interest payments on these debts are often more than a country can generate per year in profits from exports, canceling part or all of these debts to may allow poor nations "to get out of the hole". However the effectivness of debt relief is uncertain and whether or not it has lasting effect is disputed. It may not change the underlying conditions that have led to less long-term development in the first place.


Import Substitution and Export Industries

The most widely used policies of the countries of East and Southeast Asia that have been successful at reducing poverty involve import substitution and the development of export industries. Import substitution simply means attempts to discourage imported goods so that the domestic economy of the less developed country can start making the products itself. Import substitution was carried out successfully in Taiwan by the Kuomintang Party. The income gap between the top 20 percent of the Taiwan population and the bottom 20 percent dropped from 12 to 1 in 1960 to 4 to 1 by 1980.


Another example is the South Korean ban on Japanese car imports that lasted for decades. This lead to South Korea building up their own auto industry and are now selling millions of highly rated automobiles in the United States and Europe. Import substitution was also a major focus of development policies in Thailand, who has been shown by some figures to have had the best record for reducing poverty of any nation in the world.


There is also the common policy of export industries. With this policy the government helps stimulate the production of goods for exports to the rich nations to obtain a favorable balance of trade and the inflow of capital or funds for further investment. A flood of consumer goods such as televisions, radios, bicycles, and textiles into the United States, Europe, and Japan has helped fuel the economic expansion of Asian tiger economies in recent decades.