INTD Lecture 4 REview

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INTD Lecture 4 REview
2011-09-29 20:53:07
INTD Lecture International Debt Crisis SAP

INTD Midterm Review
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  1. 2 defining economic (?) periods/trends in the 1970's
    1970's - Era of surpluss capital and loan pushing

    • - B/c there was a global increase in the price of oil --> created a recession in the north but banks became very interested in providing loans. Countries (esp. developing) eager to get these loans to develop their countries ==> boom in loans to developing countries
    • -Interest rates were very low at the time (encouragement)

    • End of 70's - economic crisis
    • Economic collapse, caused interest rates to increase significantly
  2. What happened in the 1980's globally and what did this cause in some countries
    • 80's - increased interest rates
    • - the monetary system raised intrerest rates in the 1980's. This created shock in developing countries bc they borrowed a lot of money when interest was low. This lead to...

    • 1982 - Debt Crisis in South, Mexico, Brazil, Argentina, Poland (default on loan payments)
    • - Created panic among international monetary system b/c worried others would follow suit -->banks would go bankrupt and the entire monetary system would collapse --> SAP's
  3. How did the IMF/WB deal with the debt crisis

    Who was blamed with the situation
    Actually increased the amt of loans to countries that already had loans out so that countries could pay back their interest on the first loan....

    Policies emplaced by the WB focused on getting back their money from even the poorest countrys - no consideration of debt forgiveness since they were conerned about creating a domino effect for every country who behaved in this way

    • Blamed on developing coutries b/c...
    • -state interventionism
    • -large bureaucracies and inefficiencies
    • -non-competitiveness of state enterprises
    • -inappropriate policies
    • -state corruption
  4. Structural Adjustment Program

    what was the general idea

    4 main elements
    - "reversion to free market neo-liberalism, restructuring political and economic systems of the countries that borrowed money

    • 4 main elements
    • 1. Mobilization of deomestic resources - move the economy along w resources produced in that country

    2. Policy reforms ot increase economic efficiency - not so many ppl doing one job

    3. Generation of foreign exchange revenue from increased export of traditional commodities (produced by the country, and from non-traditional sources through diversification) - creating industries that would produce manufactured goods instead of raw materials

    4. Reducing economic role of the state - reducing intervention in the market --> free trade
  5. How were SAP's implemented in the short term
    Stabilization Measures:

    - Public Sector Wage Freeze

    -Reduce gov't spending on public services - reducing subsidies for basic foods, reduction in spending on health and education

    • -Currency devaluation (exports cheaper and more competitive, defer imports) (because relative mroe expensive)
    • - when they export things, its cheaper for other countries to buy them = more competitive;
    • - deters imports bc they become more expensive relative to local products
  6. How were SAP's implemented in the long term
    • -Export promotion and diversification (comparative advantage
    • - forced to export mostly primary comodities and low value-added products to pay back debt (had no other choice if wanted to pay back loans and interest)
    • - Market for these commodities become glutted (low prices)
    • -First world benefitted from low prices of goods like coffee and cotton (imported cheaply into west)

    -Downsizing civil service

    • -Economic liberalization - relaxing/removing regulations and restrictions on domestic and international economic activities
    • -removing restrictions and tarriffs on international trade so ppl could not protect their own markets
    • -free the market

    -Privatization - selling state enterprises and parasternal corporations

    -Reduce taxes for businesses coming in so businesses have more motivation to come in and set up shop

    • - these businesses often created much inequality among societies when they came in and "set up shop"
  7. Impacts of and Issues with SAP's
    • - Social impacts: rising prices of food and imports, decreased salaries and services
    • - worst hit were the urban poor/government employees
    • - hit ordinary ppl, not so much elite, or peasants who produced surplus for sale

    -Food security undermined - focus on movement to cash crops for export

    -Environmental Impacts - intensification on production and an increase inthe use of land in production

    -Movement of $ from South to North

    -Issue of Soverignty - meant governments didnt have a complete control on how to run their sates ("they were in a straightjacket")