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|Challenges Posed by North-South Relations on Small and Vulnerable Economies|
The challenges facing the developing world, especially small and vulnerable developing countries are deep-rooted in the history of North-South relations. During the colonial period, colonies’ borders were artificially drawn and largely ignorant of ethnic or tribal belongings. When the independence movement gained momentum in the late 1950s, trade flows from the South to the former masters consisted primarily of raw material but the terms of trade were comparatively fair. Gradually, exploitation rather than trade started to characterize the North-South relationship and developing economies became more vocal in their calls for a new global economic order.
When the situation continued to deteriorate, import substitution was adopted by South states as a development strategy to counteract dependency on foreign manufactured and industrial goods. While it worked for some, small countries soon found that such a strategy was unsuited to their small markets and resorted to regional partnerships and agreements instead. However, closer integration was never pursued rigorously and regional commitments remained largely symbolic. In a later period, governments would learn about the benefits of closer South-South partnership that the integration process should have followed in order to make markets more viable and competitive.
The second half of the Cold War was a race among the two superpowers for winning over satellite states. Incentives for joining one or the other camp were mainly in the form of large financial transfers and tolerance for dictators in the South. Later in the 1980s and 1990s, most small developing countries experienced heavy indebtedness which further fuelled their economic deterioration. The Bretton Woods institutions then stepped in with their policies to cut down public spending and inflation in these countries. The Structural Adjustment Programme put forward by the IMF prescribed development through rapid trade liberalization, heavy lending and fiscal discipline. Due to the perceived lack of other options, smaller countries submitted to IMF prescriptions and liberalized their economies prematurely.