The%20Debt%20Crisis%20Part%20I

1
The Debt CrisisPart I
2
Socio-Political Overview

• Readings
• Close the IMF, Abolish Debt and End
  Development A Class Analysis of the
  International Debt Crisis
• - Harry Cleaver
• They Call it Democracy
• - Bruce Cockburn

3
Debt Origins

• Overseas demand for large sums of borrowed money
• Demand derived from
• Lack of internal savings no investment money
• Lack of investment/development
• Diversion of money capital flight
• Widespread poverty
• Troubling citizenry workers, peasants, students
• Need for repression tools police, military,
  equipment, training
• Need for consumption subsidies for part of the
  income hierarchy

4
Sources for Borrowed Money

• 1970s OPEC petrodollars
• Most placed in Western banks
• Resulted from dramatic oil price increases
• Meant an international transfer of value
• Increased OPEC countries development and
  repression needs
• Development a function of modernization needed
  money to cope with workers demands
• Repression in the form of local police and
  regional military power

5

Sources for Borrowed Money

• Petrodollars Continued
• Oil price increases allowed by Western Powers
  even though intervention used in the past
• Europe blamed America American seeking
  competitive advantage
• United States policy makers viewed situation as
  an opportunity to resolve supposed problem of
  capital scarcity in the US

6
Source of Crisis Higher Interest Rates

• 1970s IMF called for anti-inflationary (also
  anti-wage) offensive
• Carter and Volcker tightened money and raised
  interest rates
• Required financial deregulation, removal of usury
  caps on interest rates, attack on consumer credit
• International loans floating rate loans
• Interest rate increases raised debt load of
  international loans

7
Source of Crisis Collapse in Exports

• Increase in interest rates led to a severe cut in
  investment and consumption expenditure
• Precipitated first a US and then a global
  depression
• Global depression resulted in a dramatic drop for
  import demand overall depression for exporters

8
Debt Crisis Continues

• Failure to repay debt led to crisis
• Costs/debt increased reduced possibilities of
  earning foreign exchange debt left unpaid
• Crisis initially averted
• Debt rolled over borrowed more to pay off older
  debt

9
Debt Crisis Continues

• Failure to impose IMF conditionality
• Limited access to rollover borrowing
• Borrowing depended on IMF sanction
• Bank consortium rolled over debt per IMFs
  acceptance
• IMF given leverage beyond its implied resources

10
New IMF Leverage

• IMF imposed its own conditionality
• Wanted participating countries to cut imports,
  budget deficits, consumption and wages
• Creditor countries/businesses found it difficult
  to impose these conditions
• Countries continued to fail to achieve goals
  agreed to with the IMF
• Ultimately led to a constant renegotiating of debt

11
IMF Conditionality

• Always depressive, resulted in underdevelopment,
  lack of growth
• Generated widespread opposition from businesses,
  economists, and workers