Tied Credits —A Quantitative Analysis

The developing economies will do well to recognize that they have to live with tied credits for a long time to come.1 It is largely academic at this stage to argue that the world would have been better off if the credits were untied and if the pattern of foreign assistance was more liberal and less restrictive. Tied credits, after all, are merely a symptom of the basic maladjustments in the international balance of payments and the lack of any automatic mechanism for the correction of these maladjustments. If world trade becomes more genuinely multilateral in nature and some success is achieved in devising an international system to take care of the recurrent balance of payments crises in the developed countries, the problem of tied credits will lose much of its current significance. But the prospects for such favourable developments are hardly bright at present. Nor would it be wise to count on them. A more realistic course would be to explore carefully the adverse implications of tied credits for the recipient countries and to devise concrete institutional arrangements to overcome or minimize these implications. The intention of this paper is to offer a quantitative analysis of tied credits from the experience of Pakistan so as to present the general problem in a concrete and sharper focus.