Question

Typically, societal groups that benefit most from a poor country receiving foreign loans are different from those that will pay the costs of austerity when debt services costs rise. The poor and middle classes suffer disproportionately from unemployment and budget cuts for education, health, and other services. They often protest but rarely get their way -- why? What groups gain from borrowing from abroad, and what is their political influence?

Answer 1

Politicians, corrupt bureacrats and unemployed benefit the most from the loans coming in in the short term. Country with high borrowings suffer from debt trap, balance of payment problems, lower private investments and low development.

Hence it is clear that powerful politicians along woth burteaucrats decide allocation heads for these funds. Awarding of contracts goes to near and dear ones and overallocation happens. Money is invested in short term problem fixing and suppl side remains neglected. Supply side means investment in physical and human capital.

Money is often given as transfer payments and hence unemployment increases in medium to long run.