Why Developing Economies Stay Stuck in Financial Subordination

The Quiet Violence of Being Last in Line

In 1997, Thailand ran out of foreign currency. Not because the country had suddenly stopped producing anything. Not because its people had stopped working. The Thai baht collapsed because global investors, for reasons that had little to do with Thailand’s actual economy, decided to pull their money out all at once. Factories closed. Wages evaporated. The IMF arrived with loans that came with strings attached: cut public spending, raise interest rates, open your economy further. Thailand did what it was told. By the time the crisis ended, the country had lost a decade of development.

This pattern is not unique to Thailand. It repeats in Argentina, in Turkey, in Indonesia, in Nigeria. A developing economy grows for a while, attracts foreign capital, then gets crushed when that capital flees. The standard explanation from mainstream economics is that these countries simply need better institutions, more transparency, deeper financial markets. Get the fundamentals right, the logic goes, and capital will stay.

But a growing body of research suggests the problem is not that developing economies are doing something wrong. The problem is that the global financial system is structurally rigged against them.

In a landmark 2022 paper published in the Review of International Political Economy, a team of five researchers Ilias Alami, Carolina Alves, Bruno Bonizzi, and Annina Kaltenbrunner (Alami et al., 2022) synthesized decades of fragmented scholarship to name what they argue is the central problem: international financial subordination, or IFS. It is not a new word for an old problem. It is a new way of seeing why some countries stay poor even when they do everything right.

What International Financial Subordination Actually Looks Like

Alami et al. (2022) define IFS as the condition in which developing and emerging economies (DEEs) remain in a subordinate position within the global monetary and financial system regardless of their individual economic performance. The key word is "regardless." A country can grow at 7 percent for a decade, build infrastructure, educate its population, and still find itself unable to borrow in its own currency, unable to set its own interest rates without triggering capital flight, and unable to escape the judgment of credit rating agencies in New York and London.

The authors argue that IFS is not simply economic inequality. It is a form of structural power that takes what they call "a particularly violent form of expression" in developing economies (Alami et al., 2022). Violence here is not metaphorical. When a country cannot borrow in its own currency, it must borrow in dollars or euros. When the dollar strengthens, that debt becomes more expensive. When debt becomes more expensive, governments cut spending on health and education. People die.

The paper draws on three heterodox traditions that rarely speak to each other: dependency theory from Latin America, post Keynesian economics from the Anglo American world, and Marxist political economy. Each tradition identified parts of the problem. Alami and his colleagues brought them together into a single analytical framework organized around six axes of subordination.

Why Your Currency Is Not Your Own

The most tangible form of IFS is what economists call "original sin." It is a term that sounds biblical because the problem is almost impossible to escape. Most developing countries cannot borrow internationally in their own currency. They must borrow in dollars, euros, or yen. This means their debt is denominated in a currency they do not control.

The consequences are brutal. If the dollar strengthens, the real burden of debt increases automatically. The country must export more goods to earn the same amount of dollars to service its debt. If exports falter, the country risks default. This is not a problem that rich countries face. The United States borrows in dollars. Japan borrows in yen. Their currencies are considered "safe" because global investors believe those countries will always pay. Developing countries are considered "risky" because global investors can flee at any moment. The label becomes a self fulfilling prophecy.

Alami et al. (2022) argue that original sin is not a technical glitch in global finance. It is a structural expression of power relations that date back to colonialism. The global monetary system was built by and for the core economies. Developing countries entered it on terms they did not choose. Those terms have not fundamentally changed.

The State as a Debt Collector for Global Finance

One of the most surprising arguments in the paper concerns the role of the state in developing economies. Mainstream economics typically portrays the state as either a solution or a problem. Either the state should intervene to fix market failures, or the state should get out of the way. Alami et al. (2022) offer a different view. They argue that the state in developing economies often acts as a transmission belt for the demands of global finance.

When capital threatens to flee, the state raises interest rates to attract it back. This protects foreign investors but crushes domestic businesses that cannot afford to borrow. When credit rating agencies downgrade a country's debt, the state cuts spending to signal fiscal discipline. This pleases bondholders but leaves citizens without public services. The state becomes what the authors call "an agent of financial discipline" not because it wants to, but because it has no other choice (Alami et al., 2022).

This is not corruption in the usual sense. It is structural coercion. The state is not choosing to serve global finance. It is being forced to by the architecture of the international monetary system. The authors point out that even progressive governments in Latin America, elected on platforms of economic sovereignty, have found themselves implementing austerity policies because the alternative capital flight and currency collapse is worse.

The Invisible Power of Non State Actors

The paper also examines the role of non state actors in reproducing IFS. Credit rating agencies are the obvious example. Standard and Poor's, Moody's, and Fitch are private companies based in the United States and Europe. Their ratings determine how much it costs for a developing country to borrow money. A single downgrade can add billions of dollars to a country's debt servicing costs.

But the authors also point to less visible actors: international banks, asset managers, hedge funds, and even the accounting firms that certify financial statements. These actors collectively determine which countries are considered "investable." Their criteria are not neutral. They reflect the interests and assumptions of the financial centers where they are based. A country that prioritizes social spending over debt repayment is labeled risky. A country that opens its economy to foreign ownership is labeled safe. The labels become reality because investors act on them.

Alami et al. (2022) argue that these non state actors exercise what they call "disciplinary power." They do not need to coerce governments directly. They simply reward or punish based on their own criteria, and governments must adapt or face economic collapse.

How the Research Was Done

The paper is not an empirical study in the usual sense. Alami et al. (2022) did not run regressions or conduct experiments. They performed what is called a critical synthesis of existing literature across multiple disciplines. They reviewed work from international political economy, dependency theory, post Keynesian economics, and Marxist political economy. They identified common themes and contradictions. They then proposed a unified framework to guide future research.

This methodology has strengths and weaknesses. The strength is that it reveals patterns that individual studies miss. The weakness is that the authors are interpreting other people's interpretations. They acknowledge this limitation explicitly, calling for more empirical work to test their framework. The paper is best understood as a map of a problem, not a proof of a solution.

What the Research Does Not Prove

The paper makes a strong case that IFS is a real and persistent feature of the global economy. But it does not prove that IFS is the only or even the primary cause of underdevelopment. Developing countries face many problems: corruption, weak institutions, geographic disadvantages, climate vulnerability. The authors are careful not to claim that IFS explains everything.

There is also an open question about agency. If the system is as rigid as the authors suggest, what can developing countries actually do? The paper offers some hints but no clear prescriptions. It calls for "cumulative theory building" rather than policy recommendations. This is intellectually honest but politically unsatisfying. A reader in a finance ministry in Accra or Jakarta might ask: what do we do on Monday morning? The paper does not fully answer that question.

Another limitation is that the framework is better at explaining persistence than change. Some developing countries have managed to reduce their subordination. China has built enough reserves and industrial capacity to insulate itself from capital flight. India has developed domestic bond markets that reduce reliance on foreign currency debt. These cases suggest that IFS is not immutable. The paper acknowledges this but does not fully theorize the conditions under which subordination can be overcome.

The Six Axes of Subordination

Alami et al. (2022) organize their research agenda around six analytical axes. Each axis represents a dimension of IFS that deserves further study.

• ▸Historical analysis of financial relations. The authors argue that contemporary IFS cannot be understood without tracing its roots in colonialism and the post war Bretton Woods system. The global financial architecture was designed by and for the core economies. Developing countries were incorporated on terms that preserved their subordination.

• ▸Relations between financial and productive subordination. Financial subordination is not separate from the real economy. When a country cannot control its own currency, its ability to invest in productive capacity is constrained. Financial subordination reinforces productive subordination and vice versa.

• ▸Monetary relations as expressions of power. The global hierarchy of currencies is not a natural outcome of market forces. It is a political construction maintained by the military and diplomatic power of the United States and its allies. The dollar's dominance is backed by aircraft carriers, not just economic fundamentals.

• ▸The role of the state. As discussed above, the state in developing economies is caught between domestic demands and external constraints. The authors call for more research on how states navigate this tension and whether some strategies are more effective than others.

• ▸Actions and practices of non state actors. Credit rating agencies, international banks, and asset managers are not passive observers of IFS. They actively reproduce it through their decisions and criteria. The authors argue that these actors should be studied as political agents, not neutral intermediaries.

• ▸Spatial relations of financial subordination. IFS is not uniform across space. Some regions are more subordinated than others. Some cities within developing countries are integrated into global finance while their hinterlands are excluded. The authors call for research that takes geography seriously.

Why This Framework Matters

The concept of IFS matters because it changes the target of critique. Mainstream economics tends to blame developing countries for their own problems. If only they had better governance, stronger institutions, more transparent markets, they would attract stable capital and grow. The IFS framework says this is backwards. The problem is not that developing countries are insufficiently integrated into global finance. The problem is that they are integrated on terms that systematically disadvantage them.

This is not a marginal view. The paper has already accumulated over 200 citations in just two years, which is unusually high for a theoretical synthesis. It is being read by scholars in economics, political science, sociology, and geography. It is also being discussed in policy circles, particularly in the Global South, where officials have long suspected that the rules of the game are stacked against them.

The paper also matters because it gives a name to something that has been hard to articulate. Activists and policymakers in developing countries have often described their frustration in moral terms: the system is unfair, the rich countries are hypocrites. The IFS framework translates that moral intuition into analytical language. It says: here is the mechanism by which subordination is reproduced. Here are the actors involved. Here are the historical roots. This makes the problem legible in a way that moral critique alone cannot achieve.

What This Actually Means

• ▸If you are a policymaker in a developing economy, stop assuming that deeper financial integration will solve your problems. The evidence suggests it may entrench your subordination. Focus on building domestic financial capacity and reducing dependence on foreign currency debt.

• ▸If you are a researcher, study the specific mechanisms by which non state actors like credit rating agencies reproduce IFS. The paper identifies these actors as key but under researched. There is real work to be done on how their criteria and practices create self fulfilling prophecies.

• ▸If you are an activist, use the IFS framework to shift the debate from individual country failures to systemic design. The problem is not that your country is corrupt or incompetent. The problem is that the global financial system was built to keep it subordinate.

• ▸If you are a student of economics, question the assumption that free capital flows are always beneficial. The paper shows that capital mobility can be a source of discipline and constraint, not just opportunity. The textbooks do not tell you this.

• ▸If you are a citizen in a rich country, understand that your financial stability is built on the instability of others. The dollar's dominance allows the United States to borrow cheaply and run deficits that would be impossible for a developing country. This is not because Americans are more virtuous. It is because the system was designed that way.