Now that the rise in interest rates makes underdeveloped countries’ access to foreign credit more expensive, some analysts have commented that the end of cheap money is not an absolute evil. It does, of course, reduce the ability of poor nations to carry out, at reasonable cost, projects essential to their growth. But these analysts add that it also limits the possibility of excessive indebtedness, which then weighs on public finances and deteriorates the level of domestic savings.
In this regard, there are opposing views. In particular, the one that emphasizes what is known as the discipline imposed by the market can be mentioned. In simple terms, it refers to the fact that in order to have access to loans external, for example via the issuance of sovereign bonds, the borrowing countries must submit to the scrutiny of investors, assisted by credit rating agencies, expert consultants and international organizations, whose findings, opinions and rulings are taken into account. For these purposes, the behavior of governments, monetary stability, the exchange balance and economic prospects are evaluated.
If, as a consequence of the contraction in the availability of funds, effective access to financing is restricted to the point of excluding the countries to which a higher level of risk is assigned, the favorable influence of market discipline on its actions disappears, being able to dislocate the design and application of policies in accordance with the growth objectives in the medium and long term. This is how it is postulated that erroneous price control policies emerge, unrealistic official exchange rates, state interventions in the productive sectors, inappropriate subsidies and other measures motivated by the scarcity of resources, whose final result will be to aggravate the difficulties and create conditions that will hamper further recovery.
