Richard Kerschagl · 1961
Richard Kerschagl’s article compares Eastern and Western development finance, arguing that nominal credit terms cannot establish the real cost or developmental value of assistance. These depend on prices, repayment arrangements, trade relations, supervision, and recipients’ productive capacities. The comparison principally concerns 1955–1960, with the qualification that official agreements cannot reveal potentially important confidential arrangements.
The opening challenges any simple identification of underdevelopment with agriculture and development with industrialization:
Der Begriff der Unterentwicklung läßt sich eindeutig tatsächlich nicht definieren und ist von den verschiedensten Seiten verschieden definiert worden.
English translation: The concept of underdevelopment cannot in fact be unambiguously defined and has been defined differently from the most diverse quarters.
This uncertainty has practical consequences. Agricultural improvement, resource extraction, transport, and marketing institutions may offer greater benefits than protected industries unable to compete internationally. Full employment and higher living standards provide evaluative criteria, but do not prescribe a universal investment program:
Alles andere, insbesondere aber der zweckmäßigste Einsatz, wird sich kaum in einem einheitlichen Sinn beurteilen lassen, sondern nur nach der spezifischen Lage des Landes und den spezifischen Gegebenheiten beurteilt werden können.
English translation: Everything else, but especially the most expedient deployment, will hardly admit of being judged in any uniform sense, but can be judged only according to the specific situation of the country and the specific circumstances.
Repayment schedules must similarly reflect the time investments require to generate returns. Premature deadlines can discredit sound projects, while repeated extensions can conceal failures.
Kerschagl distinguishes Eastern credits from politically motivated transfers, whose breadth complicates a narrowly financial comparison:
Hierher gehört zum Beispiel die Gewährung von Finanzhilfen zur Errichtung von Hochschulen oder anderen Schulen, die Errichtung von Spitälern oder die Gratislieferungen von Waffen.
English translation: To this belong, for example, the granting of financial aid for the establishment of universities or other schools, the establishment of hospitals, or the free delivery of weapons.
His credit analysis emphasizes the combination of long maturities, low nominal interest, tied deliveries, and commodity repayment. Repayment in goods can spare borrowers the difficulty of obtaining hard currency. Favorable stated terms, however, may conceal inflated equipment prices, depressed prices for borrowers’ exports, and costly technical personnel. Nominal interest must therefore be distinguished from effective financing costs. Likewise, the formal absence of supervision does not necessarily preserve autonomy when specified deliveries and advisory personnel shape implementation. Lenders may gain strategic materials and political influence alongside financial returns.
Western lending generally involves convertible currency, hard-currency repayment, interest, and explicit supervision. Kerschagl interprets World Bank requirements concerning defined projects, profitability, transferable earnings, and guarantees as responses to costly experience. His discussion of Marshall Plan grants and counterpart funds also qualifies the expectation that assistance will become a self-renewing investment resource: unrealistic exchange rates, unsuccessful investments, and delayed repayments can erode revolving funds.
His principal criticism of Western practice is its insufficient coordination of lending with borrowers’ opportunities to sell goods. Debt service requires viable commodity flows, not merely enforceable financial obligations. Eventual trade liberalization does not remove the immediate need for commercial arrangements that make repayment possible.
The proposed reforms consequently connect credit policy with trade policy. Western lenders should consider commodity repayment supported by long-term agreements; otherwise, borrowers may resort to distress sales that disrupt world markets. Kerschagl distinguishes goods-based from currency-based lending and stresses that associated trade should be genuinely additional. Equipment should suit local conditions rather than simply embody the newest technology. International institutions or recipient participation can reconcile supervision with sovereignty, while arbitration should consider economic circumstances as well as contractual wording.
Appraisal must also extend beyond individual projects. A locally successful undertaking can damage wider economic relationships or renew dependence on the lender. Skills and institutions cannot be treated as incidental inputs, although Kerschagl’s discussion of newly independent societies includes paternalistic assumptions about work habits and political autonomy.
The conclusion considers loans whose repayment was never seriously expected. Such transfers may seek allies, sustain donor employment, or mobilize foreign labor resources. Kerschagl doubts that generosity reliably purchases political loyalty and urges restraint in competitive East–West aid bidding. Nevertheless, he credits Eastern assistance with strategic attention to roads, broadcasting, and education. His governing argument thus connects effective financing costs and repayment capacity with trade, political dependence, and the institutional foundations of development.
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