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IMPLICATIONS OF CONTEMPORARY INTERNATIONAL MONETARY SYSTEM ON
DEBT CRISIS IN THE GLOBAL SOUTH
ZEKERI MOMOH
momohz@kku.edu.ng
PhD, Department of Political Science, Karl Kumm University (Nigeria).
Abstract
There is a growing concern in the global south on the unfavourable nature of the contemporary
international monetary system and international debt crisis on development in the global
south. This concern have been situated within the liberals and historical structuralist
perspectives to the study of international political economy. While both perspective have
tenaciously hold on to their postulations on the nature of present international monetary
system and the causes of the debt crisis in the global south.This study examine the
implications of contemporary international monetary system on debt crisis in the global south.
This study is situated with the context of historical research design with data collected from
various secondary sources such as journals, books and internet sources. The analysis of the
study was carried out using qualitative content analysis. Moreover, one of the implications of
the World Bank and IMF structural adjustment and conditionalities on the global south is that
its impedes the global south efforts at developing their infrastructure, health service delivery
and educational development among others. Lastly, this study recommend among other
things, good leadership, good governance and sound domestic economic system are key in
addressing the consequences of contemporary international monetary system and
international debt crisis on development in the global south.
Keywords
Debt, Liberalism, Crisis, Regime, Money, International Monetary Fund.
Resumo
Existe uma preocupação crescente no sul global quanto à natureza desfavorável do sistema
monetário internacional contemporâneo e à crise da dívida internacional sobre o
desenvolvimento no sul global. Essa preocupação tem sido enquadrada dentro das perspetivas
liberais e estruturalistas históricas para o estudo da economia política internacional. Embora
ambas as perspetivas se tenham mantido firmes nas suas postulações sobre a natureza do
atual sistema monetário internacional e as causas da crise da dívida no sul global. Este estudo
examina as implicações do sistema monetário internacional contemporâneo na crise da dívida
no sul global. Este estudo está situado no contexto de um projeto de pesquisa histórica com
dados recolhidos de várias fontes secundárias, tais como revistas, livros e fontes da Internet.
A análise do estudo foi realizada utilizando análise qualitativa de conteúdo. Além disso, uma
das implicações do ajustamento estrutural e das condicionalidades do Banco Mundial e do FMI
no sul global é que impede os esforços do sul global no desenvolvimento das suas
infraestruturas, prestação de serviços de saúde e desenvolvimento educacional, entre outros.
Por último, este estudo recomenda, entre outras coisas, que uma boa liderança, uma boa
governação e um sistema económico interno sólido são fundamentais para lidar com as
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 16, Nº. 2
November 2025-April 2026, pp. 307-328
Implications of Contemporary International Monetary System on Debt Crisis
in the Global South
Zekeri Momoh
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consequências do sistema monetário internacional contemporâneo e da crise da dívida
internacional no desenvolvimento do sul global.
Palavras-chave
Dívida, Liberalismo, Crise, Regime, Dinheiro, Fundo Monetário Internacional.
How to cite this article
Momoh, Zekeri (2025). Implications of Contemporary International Monetary System on Debt
Crisis in the Global South. Janus.net, e-journal of international relations. VOL. 16, Nº. 2, November
2025-April 2026, pp. 307-328. DOI https://doi.org/10.26619/1647-7251.16.2.17
Article submitted on 24th December 2024 and accepted for publication on 13th
September 2025.
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 16, Nº. 2
November 2025-April 2026, pp. 307-328
Implications of Contemporary International Monetary System on Debt Crisis
in the Global South
Zekeri Momoh
309
IMPLICATIONS OF CONTEMPORARY INTERNATIONAL MONETARY
SYSTEM ON DEBT CRISIS IN THE GLOBAL SOUTH
ZEKERI MOMOH
Introduction
The evolution of contemporary international monetary relations can be categorised into
the following phases: the classical gold standard era which was between 1870s to World
War I. During this period gold was the standard unit of exchange and government all
over the world were making concerted efforts at converting their domestic currency to
gold at a fixed rate. After this period, was the Bretton Woods system which lasted from
1944-1973. The Bretton Wood era was also characterised by a monetary regime that was
greatly influenced by interventionist liberalism, that allow nations to fix their exchange
rates to gold, which allowed the U.S. dollar as the international currency for conversion.
Today, there are pressure for traditional liberals for free market economy.
Consequently, the establishment of the International Monetary Fund (IMF) was
necessitated by the need for the bank to provide short-term loans to the Global South to
address their growing balance-of-payments challenges and to ensure that there was state
intervention in capital flows in order to maintain exchange rate stability among nations.
It is important note that the rising U.S. balance-of-payments deficits, as well as domestic
pressures on the United States made the US to return to traditional Liberalism. It was
against this backdrop that there was a paradigm shift from post WWI pegged currency
conversion to floating exchange rates by 1973.
However, the Bretton Woods system collapsed due to two basic problem. The first was
the United States making it difficult for countries to convert the US Dollars into gold and
second was the conscious efforts by President Charles de Gualle converting dollars into
gold. These two factors prompted the shift in international monetary relations in 1973.
Today, international monetary relations is based on the mixed regime system which
consist of the floating and fixed exchange rates that started from 1973. In 1973, the
international community began a shift from the Bretton Wood monetary system, such
that in 1976, there was a complete shift to the floating exchange rates that allow
countries not to obstruct the currency market system to allow the market forces to
determine currency values in the international monetary system (Cohen 2016).
One of the disadvances of post and present international monetary system on Global
South with reference to Africa is the rising debt crisis that has impeded the growth and
development of African countries. Besides, the debt crisis that has impeded the growth
and development of many Global South countries and have left long lasting negative
implications in Africa was the 1980 debt crisis. In the literature of International Political
Economy, a number of reasons have been advanced to be responsible for the 1980s debt
crisis such as unexpected chnages in the global economy, irresponsible behaviour of the
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creditor nations, irresponsible behaviour of the indebted Global South and dependence
of the Global South on the Global North for foreign loan (Cohen, 2000; 2016).
Moreover, the unexpected changes in the global economy was attributed largely to the
sharp increase in the prices of food grains (especially wheat) in the 1960s and the Middle
East War in October, 1973 that led to increase in the price of oil. Another reason was
attributed to overlending by the creditors without considering the credit worthiness of
the Global South. For instance, the assertion that debt cisis of the 1980s was attributed
to the imprudent behaviour on the part of the Global South were situated within the
context of the liberal perspective. While, the postulations that the 1980s oil crisis was
attributed to the dependence of Global South on the Global North for loans and other
credit facilities were further situated within the context of the historical structuralists
perspective to the study of International Political Economy. The historical structuralists
especially those labelled as Dependency school attributed the reliance of the Global South
on the Global North to long term structural nature of the world capitalist system.
However, the nineteenth Century witnessed widespread of debt crisis and loans defaults
in the 1930s that affected the capital flows into Southern Europe, Eastern Europe and
Latin American countries. The international debt crisis of the early 1980s was regarded
by scholars as “one of the most traumatic international disturbances” of the twentieth
century (Cline, 1995:1; Cohen, 2000:165). The 1980s international debt crisis took the
international community by suprised because many countries did not envisage the debt
crisis and the consequences of the debt crisis on the international banking system was
detrimental to significant numbers of Global South such as Mexico, Zaire, Argentina,
Peru, Sierra Leone, Sudan and Togo just to mention a few.
Prior to the 1980s there was were absence of global financial institutions to deal with
debt related challenges as sizeable numbers of countries and governments were unwilling
to intervene in debt crisis related issues as private bank lending to Global South increased
especially around the 1970s as a result of IMF advised, in a bid for Global South to change
their economic policies and programmes inline with liberal economic system. By 1982,
most indebted Global South could not pay their loans from larger commerical banks which
were key player in the global financial system. The consequences of the failure of
indebted Global South to meet their loan obligation affected the international financial
stability. It is against this background that the creditor government considered it
necessary to intervene in the debt settlement process in the 1980s Moreover, the leading
creditors that spearhead addressing the debt crisis in the 1980s were the United States,
International Monetary Funds (IMF), World Bank, the Paris Club, London Club and the
Bank for International Settlements all playing international financial supporting roles
(Cohen, 2000:165). It is pertinent to note that the debt regime became prevelent in the
1980s when compared to the 1930s because, there was the absence of global hegemon
like the United States, World Bank and IMF in the 1930s but are evident in 1980s
(Corbridge, 1993:25).
By late 1990s the Asian continent witnessed what is known today in International Political
Economy literature as the Asian Financial Crisis. It started in Thailand in July 1997, when
there high demand for its currency due to capital inflows. This capital inflow led to rise in
its current account deficit, decline in Thailand export, decline in property prices and
growing international debt of Thailand which resulted in depreciation of the Thailand baht.
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Similarly, other Asian countries such as Indonesia, South Korea, Malaysia, the
Philippines, and Singapore began to witness similar economic shock, in what was
popularly referred to as “financial contagion” because investors were afraid that just as
Thailand devalued its currency there was the tendency that other Asian countries might
do so. This led to capital outflow, currencies depreciation and a rapid fall in stock markets,
banking crises, and decline in economic growth rates. This economic challenges led to
political instability and civil disobedence in Thailand, Indonesia, South Korea, and
Philippines (Cohen 2016).
Consequently, the 2008 global financial crisis that started in the United States negatively
affected the global economy was attributed to the “financial contagion” just like the Asian
financial crisis of 1997. This “financial contagion” are often triggered by investors rush to
sell their currency. This often led to capital outflow. In the Asian financial crisis and the
2008 global financial crisis had common features, such as common stocks in real estate
bubbles, deficits in current account, and heavy reliance on large capital inflows. It is
pertinent to note that the debt crisis of 1980s and the Asian financial crisis of 1997 both
started from the Global South as a result of government debts. The implication of debt
crises that emanates from the Global Southis that it gives more power and influence to
the International Monetary Fund (IMF) and Developed Countries over the debtors
developing countries. This explains why the IMF and World Bank has continued to impose
its structural adjustment policies and programmes on Global South that continue to suffer
from economic dislocation as a result of the implementation of liberal economic reforms
that has no bearing on the wellbeing and living standard of the citizens.
On the contrary, the 1929/1930 and ended in 1933. The 2008 global financial crisis
started in the United States in December 2007 and ended in June 2009 as well as the
Euro crisis 2008 started from the developed countries as a result of European crisis. It is
pertinent to note that government debt was responsible for the Greece debt crisis while
in other European countries, government entered into debt in order to bail out banks.
The implication of the debt crisis that emanates from the developed countries is that it
lead to the emergence of developed countries especially the European Union as emerging
economies within the international system. This explains that the present international
monetary and financial system is at the disadvantage of the Global South.
On the whole, there is a call by interventionist liberals for a return to a interventionist
system that will allow for pegging of currency to gold or a standard unit of international
currency conversion. The 1997 Asian financial Crisis, 2008 global economic crisis and
European financial crisis also known Euro crisis of 2008, were all caused by the adoption
of the free market economic system without interventionist measure. On the contrary,
the liberals have argued that global financial crisis have been attributed to poor domestic
policies and weak political institutions in developing countries, not from capital outflows.
It is agains this background, that this study seeks to examine the implications of
contemporary international monetary system on debt crisis in the global south.
Conceptual Review of the Contemporary International Monetary System
The contemporary international monetary system (IMS) refers to the set of institutions,
rules, practices, and instruments that govern global monetary relations, cross-border
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capital flows, and exchange rate stability. At its core, the IMS performs three functions:
providing international liquidity, ensuring adjustment mechanisms for balance-of-
payments disequilibria, and maintaining confidence in the stability of the system (IMF,
2025).
A central feature of the system is the hierarchy of currencies, where the U.S. dollar plays
a dominant role as the primary reserve, invoicing, and settlement currency. Despite
periodic discussions of multipolarity, the dollar accounts for the majority of global
reserves, trade invoicing, and cross-border financial contracts (Federal Reserve, 2025).
The euro and, increasingly, the Chinese renminbi occupy secondary positions, but dollar
dominance continues to generate spillover effects from U.S. monetary policy to the Global
South (European Parliament, 2025).
Another defining aspect is the increasing role of global capital markets in financing. Since
the liberalization of the 1980s and 1990s, private markets have replaced official flows as
the primary source of international liquidity. This evolution has increased vulnerability to
sudden stops and capital flight, especially in emerging economies that rely heavily on
foreign-currency-denominated debt (Bank for International Settlements, 2025). These
vulnerabilities are amplified by what scholars describe as the “original sin” problem,
where many developing economies are unable to borrow internationally in their domestic
currency (Eichengreen, 2019).
The global financial safety net (GFSN) forms the institutional backbone of crisis response.
It is composed of the International Monetary Fund (IMF), regional financial
arrangements, bilateral central bank swap lines, and multilateral development banks.
During the COVID-19 crisis, the IMF’s unprecedented $650 billion allocation of Special
Drawing Rights (SDRs) demonstrated the importance of unconditional reserve assets for
liquidity provision (IMF, 2023). However, critics argue that access to this safety net
remains asymmetrical, with advanced economies benefiting disproportionately from
swap lines and SDR holdings, while low-income countries face conditional lending (Boston
University GDP Center et al., 2024).
Recent reforms have sought to enhance liquidity and governance. For example, IMF
members have begun channeling SDRs to multilateral development banks (MDBs) to
expand lending capacity (Reuters, 2024). Yet governance gaps remain: the allocation of
voting power within the IMF and World Bank continues to reflect post-World War II
realities rather than contemporary global economic structures (Carnegie Endowment,
2024). This imbalance raises questions about the system’s fairness and effectiveness in
addressing the needs of the Global South.
Furthermore, scholars and policymakers emphasize the growing challenge of
fragmentation and multipolarity. Regional initiatives such as the Chiang Mai Initiative in
Asia, along with the use of alternative payment systems, suggest a gradual diversification
away from a purely dollar-centric order. However, while such fragmentation may provide
options for crisis financing, it complicates coordination in sovereign debt restructuring
and systemic responses (UNCTAD/Bretton Woods Project, 2025).
On the whole, contemporary International Monetary System is characterized by the
persistence of dollar dominance, the volatility of private capital markets, the incomplete
and uneven coverage of the global financial safety net, and persistent governance
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asymmetries. Conceptually, these features show that the IMS remains structurally
imbalanced, with implications for global stability and for the debt vulnerabilities of the
Global South.
Literature Review
There is a growing numbers of study in International Political Economy that focuses on
various aspects of international financial or monetary system. For instance, Cohen (2000)
examined the monetary governance in the international system. Cohen (2004)
investigated the future of international monetary system. Again Cohen (2015) in his
study examined competition among various currencies within the international system.
Besides, Cohen (2016) investigated the nature of international monetary relations from
inception to 2016. However, Eichengreen (2008) examined the globalization of capital
while Cohen (2008) investigated the nature of international monetary governance. James
(1996) study focus on the International Monetary Cooperation Since the inception of the
Bretton Woods system.
Nevertheless, Bootle (2013) examine the crisis associated with Euro. Verdun (2002) had
earlier examined the euro and integration theory. Porter (2005) studied the governance
of global finance. Fratianni, et al studied the governing of global finance with focus on
the new challenges of G7 and IMF Contributions. However, Prasad (2014) examined the
changing role of the US dollar. Again, Eichengreen (2011) investigated the rise and fall
of the US Dollar. Helleiner, et al (2009) studied the future of the US dollar.
However, Helleiner and Kirshner (2015) investigated China’s growing monetary power in
the International system. On the influence of domestic politics on international finance,
Broz and Frieden (2001) investigated the Political Economy of International Monetary
Relations. Webb (1995) examined the relationship between capital mobility, policy
coordination, and domestic autonomy since 1945. From the review of the above
literature, a lot of studies have been conducted on the nature of international monetary
and financial system as well as international debt crisis.
The various financial crises in the world has attracted the attention of scholars to examine
their causes and implications. For instance, Kirshner (2014) examined the United States
power after the 2008 financial crisis. On the 2008 global financial crisis, scholars who
carried out study in this area include Helleiner (2014); Blinder (2013); Rajan (2010) and
Lewis (2011) among others. On the European debt crisis scholars who have undertaken
research in this area include Marsh (2013); Berend (2013) and Pisany-Ferry, (2011). On
the controversial austerity measures adopted as a result of the EU crisis was undertaken
by Blyth (2013). On regulation and financial crises, scholars like Barth, Caprio and Levine
(2012) wrote on the, financial regulations that work. However, the 1990s Asian financial
crisis has attracted the works of Carney (2009); Pempel (1999); Thirkell-White (2005).
On international debt crises include Herman and Spiegel (2010) and Rieffel, (2003)
among others.
The contemporary international monetary system has been widely critiqued for
entrenching structural inequalities that disproportionately affect the Global South. Recent
scholarship emphasizes that the persistence of dollar dominance, fluctuating global
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interest rates, and conditional lending practices exacerbate debt vulnerabilities in
developing economies. For instance, Ocampo and Bértola (2022) argue that the
international monetary system is inherently asymmetrical, as Global South countries face
limited access to liquidity during crises compared to advanced economies. This imbalance
was evident during the COVID-19 pandemic, when capital outflows and currency
depreciations heightened debt burdens in Africa and Latin America. Similarly, Gallagher
and Kozul-Wright (2021) highlight that reliance on dollar-denominated debt exposes
Global South economies to exchange rate volatility, thereby aggravating debt service
obligations whenever the U.S. Federal Reserve raises interest rates.
A growing body of literature underscores the role of international financial institutions
(IFIs) in perpetuating debt crises through policy conditionalities. Kentikelenis and Stubbs
(2023) observe that structural adjustment programs tied to IMF lending continue to
impose austerity measures, reducing fiscal space for social spending and development.
These dynamics deepen dependency and limit the autonomy of debtor nations in shaping
their own economic recovery paths.
Other scholars focus on the governance architecture of the international monetary
system. Acosta and Griffith-Jones (2022) maintain that the current system privileges
creditor nations and private financial markets, while debtor nations in the Global South
lack meaningful representation in global decision-making forums. This asymmetry
reproduces cycles of debt distress, as countries must borrow under unfavorable terms
with limited mechanisms for restructuring. In addition, there is increasing attention on
the debt–climate nexus. For instance, Bhattacharya and Stern (2023) contend that many
Global South economies face a “double crisis” of debt and climate vulnerability, as high
debt servicing crowds out investments in climate adaptation and mitigation. The absence
of innovative financing mechanisms such as debt-for-climate swaps illustrates how the
international monetary system is failing to address contemporary global challenges.
Overall, the literature converges on the argument that the structure of the international
monetary system systematically disadvantages the Global South. Today, US dollar
dependency, conditional lending, limited representation in global financial governance,
and inadequate mechanisms for debt restructuring combine to reinforce debt crises.
While proposals such as Special Drawing Rights (SDRs) allocation and regional financial
arrangements offer potential relief, the studies reviewed emphasize that without
systemic reform, the Global South will continue to be caught in recurrent debt traps. It
is against this background this study seeks to make contributions to the implications of
contemporary international monetary system on debt crisis in the global south.
Theoretical Framework
Theories abound in International Political economy for the study of international
monetary/financial system and foreign debt crisis such as liberal theory, historical
structural theory, hegemonic stability theory and regime theory among others. Looking
at the variables under investigation namely international monetary/financial system and
foreign debt crisis. The regime theory is appropriate in understanding the nexus between
international monetary/financial system and foreign debt crisis. The regime theory has
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Stephen D. Krasner and Robert Keohane as its leading proponents. It emerged as a
theory in the 1970s.
The Regime theory is anchored on the premise that regimes help to reduce the conflict
that characterized the nature of the international system and promote cooperation
among states. The regime theory is used to explain why in some sections of the
international system experience, orderliness while in some areas, there are conflicts.
Regimes are “sets of implicit or explicit principles, norms, rules, and decision-making
procedures around which actors’ expectations converge in a given area of international
relations.” (Feldstein, 1994:737).
Regime principles and norms are anchored on the assertion that there are universal
practices and patterns of behaviour that regulate relationships and interactions among
states. For instance, international trade are guided by certain principles such as trade
liberalization, reciprocity, and nondiscrimination principle. Hence, basic rules and
regulations tends to emanates from this broader trade principles and norms which
influence behaviours of nations in their relationship and transactions with each other.
Today, we have significant numbers of International regimes that are closely linked with
international organizations (IOs), because of their very nature as an institutions with
official roles and responsibilities, with a minimum of three member states. It is pertinent
to note that international organizations operate within formal bodies that are guided by
international regimes. For instance, the IMF, World Bank and WTO operate within the
frameworks of international financial regimes.
Robert Keohane argues that it is stress-free to uphold regimes than to construct new
ones and that there is the tendency for countries to benefit from a regime and it is ease
also for states to unilaterally preserve a regime even after there is hegemonic declines
in the international system (Birdsall, et al 2005). It equally important to note that the
regime theory has been used to study regime outcomes especially in the areas of
international debt crisis, environment issues, transportation, and communications among
others (Ffrench-Davis, 1988; Corbridge, 1993).
On the whole, to assess regime outcomes, regime theorists would investigate whether
states accept the existing regime principles, norms, and regulations; or whether the
existing regimes could successfully accomplish solve international problems; and whether
regimes actually make states to widen their views of self-interest or not. All these
questions are key in understanding regime system around the world (Feinberg, 1988).
It is against this background that this study adopted the regime theory to examine the
implications of contemporary international monetary relations on debt crisis in the global
south.
International Monetary system and Debt Crisis in the Global South
Prior to the WWII the international mechanism’s for addressing debt crisis were restricted
to either unilateral decisions taken by creditors or debtors country or a bilateral
resolutions which was a situation whereby the creditors or debtors reached a consensus
on how the can be addressed. However, after WW II the pattern of settlement of foreign
debts involve tripartite parties such as the World Bank, IMF, Paris and London Clubs.
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Though, the U.S sometimes acted as third party in Global Southaccess to loan (Lindert
et al 1989: 66-77).
The aftermath of WW II was characteried by the emergence of international debt
regimes. Some of these international debt regimes covers one or more sector of the
economy. Though the 1980’s international debt regime cover specific regime within the
framework of balance-of-payments financing regime because international debt regime
focus on specific issue. The first international debt regime that emerged was the balance-
of-payments debt regime. The principle of balance-of-payments financing was anchored
on the notion that was sufficient but not unrestricted to alternative fund and was made
available to countries for handling their balance-of-payment deficit challenges. The
principle was also based on the notion that countries proving loan may attach conditions
for the repayment of their loans, considered to be appropriate in addressing the debtors
balance- of- payment financing regime on borrowers (Cohen. 2000).
Moreover, the 1970s balance-of-payments regime faced serious challenge from private
banks that provided Global Southwith loan as significant numbers of Global Southcould
not meet the creditworthiness required for the private banks loan. This was attributed to
the harsh conditionalities attached to the loans received by most Global Southas at that
time. For instance, in 1982, Mexico declared that it would not be able to pay it loan. This
prompted private banks to immediately cut thier loan to developing countries. It was
against this background that significant numbers of Global Southto return to the
International Monetary Fund (IMF) for their loan assistance.
However, the reliance of Global Southon official financing provided the platform for the
United States and other international organisations to introduced the foreign debt regime,
which replaced the pre-1970s balance-of-payment regimes. Therefore, the foreign debt
regime was based on the principle that debt regime based on conditionality of Global
Southcompliance and commitment to the market oriented reforms. It is important to
note that the pre-1970 balance-of-payment regime differs in some area from the 1980
foreign debt regime. For instance, the foreign debt regime through the instrumentality
of th the United States of America and IMF imposed put more pressure on commercial
banks to continue granting loans to indepted poor countries. Also, the Paris and London
club were used in the 1980s and 1990s than the pre-1970s period.
Again, the World Bank and IMF became key players in the provision of structural
adjustment loan to Global Southfrom the 1980s. Moreover, the loans provided by the
World Bank and IMF to the Global Southin Africa and Estern European countries were
closely linked to their adoption of liberal economic reforms such as privatisation,
deregulation and trade liberalisation. Though, the negotiation of Paris and London Clubs
were achored on three fundamental principles of imminent default, conditionality and
burden distribution.
There are three types of negotiations that took place between the creditors (World Bank,
IMF, Paris and London Clubs as well as other commercial banks) and the debtors (Global
Southin Africa, Asia, Latin America and Eastern Europe). The first negotiation was
between the World Bank and IMF who accept to provide structural adjustment loans to
the indebted Global Southin order to implement economic policies and programmes that
would address their balance-of-payment deficit. For instance, countries that were
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formerly members of the Soviet Union that were indebted in the 1980s and those that
needed World Bank and IMF to finance their infrastructure such as Poland, People’s
Republic of China, Hungary, Romania, Albania, Croatia, Slovenia, Macedonia, Czech
Republic and Bosnia and Herzegovina among others either adopted the World Bank and
IMF economic policies or had adopted similar economic reforms such as the market
socialist system that was characterised by workers self management.
The second negotiation was between the Paris and London Clubs. This negotiation often
consist of members of the indebted countries, creditors countries, representatives from
the World Bank, IMF, Regional Development Bank and the United Nations Conference on
Trade and Development (UNCTAD). A critical assessment of the modus oparandi of the
Paris Club is that it adopted three basic principles in its debt negotiation which include:
imminent defult which constrained the debtors demand for relief to countries with
important needs to prevent unwaranted negotiation and to show the severity of the
situation or needs. Conditionality is also adopted in the Paris Club principle to show that
the debtor is creditworthy and will be able to pay thier debts based on the agreement
signed with the International Monetary Funds (IMF) (Kuhn et al 1990:7). In some
situation when the country in question is not a member of the IMF as at the time of
requesting for the loan from the Paris Club as in the case of Cuba, Poland and
Mozambique. The Paris Club usually reschedule it own conditionality programme that will
ensure that the debtor country does not default on its payments.
The third principle of negotiation was based on burden sharing. This implies that the Paris
Club ensures that it provide relief in relation to their loan accessable to the debtor
country. As stated earlier under the first negotiation, the United States and IMF were
instrumental to developing strategies to address the debt criss of the 1980s. The
objectives of the international debt strategies according to Cohen (2000:180) was “to
prevent the collapse of the international banking and financial system, to restore capital
market access for the debtor countries, and to minimize economic dislocation and restore
economic growth in the debtor countries.” This assertion shows that the goals of the
international debt strategies was to prevent pre-1930 incidence of debt crisis, ensure
that Global Southin need of loan were able to access the capital market for loan and to
ensure that Global Southensure steady economic growth.
It is important to note that the World Bank and IMF adopted a number of strategies in
addressing debt crisis since in the 1980s. For instance, the emergency measures and
involuntary leanding was launched between 1982-1985 as an international debt strategy
that invlove “firefighting” strategy. This strategy of managing the 1980 debt crisis was
designed by the United States, IMF and other creditors to provide a short-term
emergence financing to highly debted Global Southsuch as Mexico, Brazil and Venezuela
just to mention a few in order to prevent similar financial crisis to the 1930s crisis.
However, this short term measure did not brought the desired relief to the debted Global
Southas envisaged by the creditors rather the debtor countries were worst off in terms
of witnessing economic growth.
Also, the Baker plan was initiated between 1986-1988 following a meeting of G5 Finance
Minister and Central Bank Governors organised by the U.S. Secretary of the Treasury
James Baker III in New York City’s Plaza Hotel in September 1985. The Baker’s plan was
introduced in late 1985 to assist debtor countries with a solution for dealing with their
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debt crisis. The Baker plan was premised on the assumption that the postponement of
some debt payments by Global Southand the provision of new loans will help the debtor
countries to grow their way out of their debt and could improve their export and be able
to reduce their debt (Cline, 1995).
Nevertheless, the Baker plan did not do much to improve the situation of the indebted
developing countries, rather their situation got worst as IMF and creditor banks were
insisting on structural adjustment policies and programme as a top priority for developing
countries. Again, the plan failed because the focus of the creditor banks and IMF were
on Latin American countries with less emphasis on other Global Southin other regions of
the world. Besides, debtor Global Southexperience economic stagnation due to poor
economic growth that affected the United States exports in Latin American markets.
Given the failure of the Baker’s plan, the Brandy plan was introduced between 1989-
1994 by the United States Secretary of the Treasury, Nicholas J.Brandy in March 1989.
Under the Brandy plan each debtor country negotiate independently with the creditor.
The debtor country is expected to accept the IMF and World Bank structural adjustment
or liberal economic reforms. However, the Brandy plan differs from the Baker plan with
its emphasis on debt reduction, or partial debt forgiveness of existing debt. Inspite of the
recommendations of the Brandy plan, the economic situation of debtor Global Southdid
not improved as envisaged that the adoption of the liberal economic policies and
programme will trun around the debt crisis in developing countries.
The outcome of the Baker plan requested that the value of other currencies should be
increased through synchronized market interference and the US on the other hand will
reduce it government expenditure. The outcome of this monetary arrangement led to
significant decline in the dollar. This triggered any meeting of the G5 at Louvre, Paris in
February 1987 to avert the declining state of the dollar. It was against this backdrop that
the Plaza and Louvre agreements set the pace for a shift to managed floating, in which
governments mediated to address the volatility and ineptitude of current. It is pertinent
to note that current international monetary regime have remained more rickety as critics
have envisaged and have been advocating for a paradigm shift to the old pegging order
that allow for fixed exchange regime (49).
A critical analysis of the International debt crisis strategies adopted between 1982-1992
shows that 17 of the highly indebted countries listed under the Baker plan fell from 130%
of the banks capital and reserves to only 27% in the United States Banks. In the British
banks, the 17 countries fell from 85% of capital to 12%, and loan exposure of German
and French banks fell from 31% to 19% and from 135 to 23% respectively (Cline,
1995:94). Again, most of the debtor Global Southwere able to return to the international
financial markets far more rapidly after the 1980, debt crisis than they had after the
1930, debt crisis. Studies have also shown that scholars and policy makers who were
inclined to liberal economic orientation sees that first and second objectives of
international debt strategies as “successful’ to have achieve it goals.
However, scholars and policy makers inclined to the Instrumentalist orientation are of
the opinion that the objectives of the international debt strategies should be to restore
economic growth to Global Southof the world rather the debt strategies have failed to
achieve its objectives. For instance, Davis (n.d: 60) have argued that “ the major
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creditors immediate payment capacity of the debtor nations are not their development”
Again, IMF and World Bank emphasis is on Global Southadoption of structural adjustment
programmes and repayments of their loans rather than on the promotion of development
in the developing countries.
It can be argued that any effort at ensuring a return to the old pegging exchange order
will not be encouraged especially from the beneficiaries of present international monetary
regime. The European Community developed the “snake agreement” which had limited
exchange-rate fluctuations among nations with a constricted band of +2.25 to −2.25
percent (Cohen, 2016:205). Nevertheless, the “snake agreement” failed to achieve its
goals because some European nations such as Italy, France, Ireland, and Britain national
currency were weaker when compared to “snake agreement” band. Again, there was
rising capital mobility and different macroeconomic policies among European Union
member states, oil price increase of 1973-1974 that was triggered by war in the Middle
East and the global economic crisis of 1975 (Cohen, 2016:205).
With the introduction of the European Monetary System (EMS), that only for individual
EU member states to give up their currency for the Euro help to promote monetary
stability in Europe. However, the European Union is faced with the challenge of the
European sovereign debt crisis which has arguably is affecting its monetary stability.
However, the future of the US dollars have been subjected to intense debate among
scholars in the literature of International Political economy today. One perspective argues
that the lingering United States deficits and the rising United State external debt
challenge is likely to affect the confidence of the international community in the dollar.
Another perspective has it that the given the economy of the United States in terms of
its size, political stability of the United State Democracy, liberal economic system of the
United States and the strength of the United States financial markets will ensure the
sustainability of the US dollar as an international currency.
It important to note that the Japanese Yen became an international currency in the
1970s–1980s. During this period Japan witnessed remarkable economic growth making
Japan the second largest economy in the world in 1968 and the largest creditor country
in the world by the 1980s. However, the absence of financial system openness and a
regulated capital market system till the 1990s impeded Japan competition at the
international system. The aftermath of the global financial crisis of 2008 made some
analysts to predict that the Euro will replace the US dollar as an international currency
for conversion. Despite the successes recorded by the Euro that were triggered by
political stability, low inflation and increasing foreign direct investment among others.
Without any form of obscurantism, the Euro is gaining ground in terms of its usage in
international currency for conversion. The US dollars has remained a viable international
currency for conversion within the international system.
A comparative analysis of the US dollar and Euro according to Cohen (2016:209-2010)
noted that:
In 2007, the dollar was used as a medium of exchange in 86 percent of all
foreign exchange transactions, compared with 37 and 16.5 percent for the
euro and Japanese yen, respectively. Almost two-thirds of all countries that
peg their currencies peg them to the U.S. dollar as a unit of account,
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compared with one-third to the euro. The share of dollars as a store of value
in central bank holdings declined from 70.9 percent in 1999 to 64 percent in
2007, while the share of euros rose from 17.9 to 26.5 percent. Although the
dollar continued to be the key international currency, the euro had made
impressive gains since its creation in 1999.
From the forgoing assertion, it is obvious that despite the successes recorded by the Euro
as international currency for conversion between 1999 and 2007 due to its financial
market stability. However, the existence of divergent Euro zone has impeded the success
of the Euro against the US dollars. Today, the US dollars remain elegant as international
currency for conversion among many countries in the world. On the contrary the
continuous United States external debt is giving the increasing numbers of countries
around the world using Euro, Yen and renminbi for internation transations, is presently
put the US dollar in contention with other curreny, thereby paving way for a multipolar
international currency regime.
Nevertheless, the use of US dollar as bases for international conversion has continued to
put the global south at disadvantage position within the International monetary system.
Today, payment for international transactions and debt repayment are carried out using
the US dollars. This has perpetually put the global south in debt crisis. It is pertinent to
note that the modus operandi of the IMF and World Bank has arguably towards the global
south has not changed remarkably since the 1980s and 1990s debt crises that weaken
the capital based of the global south. The push for structural adjustment anchored on
liberal economic reforms such as subsidy removal, currency devaluation or adjustments
and austerity measures have remained unchanged over the years as the insistence of
the IMF and World Bank is arguably more harder on the global south despite the negative
effects of these liberal economic reforms that has further worsen the existing states of
poverty and underdevelopment in the global south.
The relationship between exchange rate regimes and debt accumulation in the Global
South remains one of the most contested issues in international political economy.
Exchange rate systems not only influence domestic macroeconomic stability but also
determine countries’ exposure to external shocks, capital flows, and the capacity to
manage sovereign debt. The contrasting realities of flexible regimes in advanced
economies and pegged or managed regimes in developing ones reveal deep structural
asymmetries in the global monetary system.
Flexible exchange rate regimes in the Global North, particularly in the United States, the
eurozone, and Japan, are sustained by strong institutional credibility, deep capital
markets, and the privileged position of their currencies as international reserves. These
economies are able to borrow externally in their own currencies, insulating them from
the exchange-rate-induced debt crises that plague the Global South (Ocampo, 2017).
Conversely, when developing economies adopt flexible exchange rate regimes, their
currencies often face volatility, depreciation, and capital flight during global financial
shocks. Because most of their debt is denominated in foreign currencies such as the U.S.
dollar, currency depreciation directly increases debt-servicing costs, thereby worsening
the risk of debt distress (Obstfeld & Taylor, 2017).
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Managed exchange rate systems, such as China’s tightly controlled yuan regime, aim to
stabilize the currency, promote exports, and mitigate volatility. Although not a classical
currency board, China’s managed peg demonstrates the advantages of state control in
shielding the domestic economy from currency crises. However, when Global South
countries attempt similar arrangements, the results are often destabilizing. Argentina’s
currency board experiment in the 1990s initially attracted foreign capital by promising
exchange rate stability but ultimately collapsed under external imbalances, reserve
depletion, and unsustainable borrowing. The breakdown of such systems frequently
triggers abrupt devaluations and debt explosions (Eichengreen, 2008).
A key structural constraint faced by the Global South is the so-called “original sin”—the
inability to borrow internationally in domestic currencies (Hausmann & Panizza, 2011).
This forces developing countries to issue sovereign debt in foreign denominations,
typically dollars or euros. Under flexible regimes, depreciation raises the local-currency
cost of debt repayment. Under fixed or pegged regimes, governments are often
compelled to borrow more heavily or implement austerity to defend the exchange rate,
which in turn worsens debt sustainability when confidence wanes. Thus, exchange rate
arrangements condition the trajectory of debt by magnifying the exposure of developing
economies to foreign currency risks.
Besides, debt growth in the Global South is shaped not only by domestic policy choices
but also by the asymmetries of the international monetary system. The dominance of
Northern currencies means that monetary policies in the United States and Europe, such
as interest rate hikes, reverberate through developing economies, leading to capital
outflows, currency depreciation, and rising debt burdens (Obstfeld & Taylor, 2017). This
structural imbalance highlights the debt trap faced by the Global South: while Northern
countries enjoy monetary sovereignty, Southern economies remain vulnerable to
exchange rate fluctuations, external shocks, and dependence on foreign-currency
borrowing.
Existing exchange rate systems whether flexible in the North or managed/pegged in the
South condition the growth of debt in the Global South by mediating access to capital,
vulnerability to shocks, and the costs of debt servicing. Whereas Northern economies
benefit from reserve currency status and relative insulation, developing economies face
a structural debt trap embedded within the asymmetries of the global monetary order.
Nevertheless, the accumulation of debt in the Global South is a multidimensional
phenomenon shaped by domestic, regional, and international factors. Exchange rate
regimes play a critical role by influencing borrowing conditions, external vulnerability,
and exposure to global financial shocks. However, they operate alongside, and often
interact with, other variables such as economic policy errors, corruption, mismanagement
of public assets, and external interference. Understanding the relative importance of
exchange rate systems requires situating them within this broader political economy of
debt.
Exchange rate regimes condition the cost and sustainability of sovereign borrowing.
Flexible regimes often expose developing economies to exchange rate volatility, with
depreciations inflating the burden of foreign-currency denominated debt (Ocampo,
2017). Pegged or currency board arrangements, while promising stability, frequently
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collapse under speculative attacks or reserve depletion, leading to sharp devaluations
and debt explosions as illustrated by Argentina in 2001 (Eichengreen, 2008). Thus,
exchange rate frameworks are structural variables that directly shape debt outcomes by
linking domestic economies to international capital markets.
Policy missteps, such as procyclical fiscal spending, overreliance on external borrowing,
and poorly sequenced liberalization, have been central to many debt crises. The Latin
American debt crisis of the 1980s, for example, was partly driven by governments
borrowing excessively during periods of low interest rates without adequate provisions
for repayment when conditions tightened (Pastor, 1989). In many African states
excessive dependence on commodity exports and failure to diversify magnified exposure
to price shocks, thereby fueling debt accumulation (Iyoha, 1999). In these contexts,
exchange rate regimes mattered, but policy mismanagement often amplified
vulnerabilities.
Corruption and poor governance contribute to debt accumulation by diverting borrowed
funds from productive investments into private hands. According to Ndikumana and
Boyce (2011), “illicit financial outflows” from Africa frequently exceed inflows of
development loans, creating a paradox where external borrowing actually undermines
development. Mismanagement of public enterprises, overvalued contracts, and non-
transparent procurement practices weaken debt sustainability by preventing external
loans from generating adequate returns. In such cases, debt crises are less about
exchange rate regimes per se and more about domestic governance failures.
External interference also plays a critical role. Structural Adjustment Programs (SAPs)
imposed by the International Monetary Fund (IMF) and World Bank in the 1980s and
1990s promoted liberalization and austerity, which often deepened debt burdens rather
than alleviating them (Stiglitz, 2002). Similarly, shifts in U.S. monetary policy such as
interest rate hikes in the early 1980s and post-2020 pandemic tightening triggered
widespread debt crises in the Global South (Obstfeld & Taylor, 2017). These external
shocks interact with exchange rate regimes by precipitating capital outflows, currency
depreciations, and higher debt-servicing costs.
While exchange rate regimes are undeniably important, they are not the sole or
necessarily the dominant factor in debt accumulation. Instead, their impact is mediated
by policy choices, governance quality, and the global economic environment. For
instance, a flexible exchange rate regime may be sustainable if accompanied by prudent
fiscal management and effective institutions. Conversely, even a stable exchange rate
system may fail if loans are misappropriated or if external shocks overwhelm domestic
resilience. Thus, exchange rate regimes should be seen as one component within a
broader constellation of variables influencing debt.
The degree of importance of exchange rate regimes in shaping debt in the Global South
is significant but not absolute. They condition the external vulnerabilities of economies,
especially given the prevalence of foreign-currency denominated debt. Yet, domestic
policy errors, corruption, mismanagement, and external interference frequently play
equal or greater roles in driving indebtedness. Debt crises in the Global South are best
understood as outcomes of the interaction between structural exchange rate
vulnerabilities and broader political-economic factors, both internal and external.
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Further, the implications of the World Bank and IMF’s structural adjustment programmes
(SAPs) and conditionalities on the Global South are profound, particularly in undermining
long-term development capacity. A growing body of evidence demonstrates that these
programmes, rather than fostering growth, often impeded investments in infrastructure,
health service delivery, and education. Empirical studies show that conditionalities, which
emphasized fiscal austerity, currency devaluation, and privatization, frequently resulted
in reduced public spending on social services. For instance, in sub-Saharan Africa, health
expenditure declined sharply under SAPs, with governments cutting subsidies for
hospitals, introducing user fees, and reducing the availability of essential medicines. This
worsened health outcomes, contributing to rising infant and maternal mortality in
countries such as Ghana, Zambia, and Nigeria during the 1980s and 1990s (El-Said &
Harrigan, 2006).
In education, SAP-related austerity measures led to reduced teacher salaries, increased
student-teacher ratios, and the introduction of tuition fees in previously free primary
education systems. A World Bank study itself admitted that these reforms created
barriers to access for the poor, especially girls, thereby exacerbating inequalities in
educational attainment (Cornia, Jolly, & Stewart, 1987).
On infrastructure, SAP-driven fiscal contraction limited governments’ ability to invest in
public works, transport networks, and power generation. Instead, privatization
conditionalities often transferred control of key sectors to foreign corporations,
sometimes resulting in higher prices and lower accessibility rather than improved
efficiency (Mosley, Harrigan, & Toye, 1995). In Nigeria, for example, World Bank-backed
privatization of utilities in the 1990s failed to expand access to electricity and water for
poorer communities, but generated significant rents for political elites (Biersteker, 1990).
Finally, scholars have argued that these conditionalities constrained state capacity. By
forcing governments to prioritize debt repayment and balance-of-payments stabilization
over domestic investment, SAPs entrenched dependence rather than building self-
sustaining development (Stiglitz, 2002). This explains why many Global South states
emerged from decades of adjustment with weaker health and education systems than
before the reforms, despite billions in loans.
Conclusion
The international monetary/financial system has been structured in a way that outcomes
of various transactions are at the detriment of the global south. This study examine the
implications of contemporary international monetary system and international debt crisis
on development in the global south. This study argues that, begining from the 1929/30s
global financial crisis, 1980s debt crisis, 1990s Asian debt crisis, the 2008/2009 global
financial crisis and the 2008 Euro financial crisis has produced various outcomes that has
had negative implications on the growth and development of the global south within the
international political economy. This study further argues that the both past and present
international monetary systems are designed to work in favour of the global north at
then detriment of the global south. Today, liberals blames the global south for faulty
domestic policies and institutioins while the historical structuralists blames it on the
dependency relationships that long existed between the global north and south that is
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characterised by exploitation of the global south at the development of the global north.
Nevertheless, the regime theorists have argued that the internstional monetary system
exist within the frameworks of various international regimes. It was argued here that
existing international regimes especially trade and monetary/financial regimes are
designed to promote the interest of the global north and in most cases where these
frameworks are discussed and are to be implemented, using the global representative
will not be invloved. This has created a serious gap in the present internation monetary
system. Hence, this study make the following suggestions as a measure to address the
rising incidence of debt crisis in the global south.
Recommendations
a. Good governance and sound domestic economic policies are key in addressing the
challenges pose by contemporary international monetary system and international
debt crisis in the global south.
b. The global south must combat the rising incidence of corruption that has eroded the
culture of transparency, accountability and integrity in the country.
c. The global south leaders must develop the political will and be committed in ensuring
that issues of development are taken seriously and should be considered a top
priority for engagement.
d. Government in the global south should diversify their economy to ensure that focus
of the country is shifted from a monocultural economy to multisectoral economy.
This will help to ensure that a fall in the price of one commodity will not affect other
sectors of the economy.
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