B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying The Debt Crisis Part I

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying : 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying Debt Crisis Continues:  Failure to impose IMF conditionality:  Limited access to rollover borrowing  Borrowing depended on IMF sanction  Bank consortium rolled over debt per IMF’s acceptance  IMF given leverage beyond its implied resources

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying 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

B or d er o n th e le ft s d e Border along the top side – trying to make this look professional - trying IMF Conditionality:  Always depressive, resulted in underdevelopment, lack of growth  Generated widespread opposition from businesses, economists, and workers