Prepared By Prof Alvin So1 SOSC 188 Lecture 8 Dependency Theory (IV): Financial Dependency

Prepared By Prof Alvin So2 Seriousness of the debt problem The Origins: How it got started? Impacts Possible scenarios Policy Implications

Prepared By Prof Alvin So3 Seriousness of the Debt Trap Third world pays around 20% of export earning toward debt payment By 1999, third world debt was $2,060 billion BrazilMexico Early 1970sUS$ 4 billionUS$ 7 billion Late 1970sUS$ 50 billionUS$ 38 billion Early 1980sUS$104 billionUS$ 54 billion

Prepared By Prof Alvin So4 Origins of the Debt Problem Government overspending and deficit, balance of payment problem, miscalculation of oil profit Compound interest & debt addiction- keep on borrowing just to pay the interest

Prepared By Prof Alvin So5

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7 Impacts The danger of loan default - lead to more IMF controls & financial dependency IMF ’ s famous Austerity Plan Cut social spending (health, educ, welfare, food) Get more revenue (increase taxes, export earnings, sell domestic resources like mines and forests) Domestic impacts - currency devaluation, massive inflation, flight of capital, economic decline, protests and the food riot

Prepared By Prof Alvin So8 Possible Scenerios Default: Not honoring the debt Beg for mercy - ask for interest reduction and longer repayment period Generosity - The G 8 wrote off 40 billion debt in Why? Afraid of Global Economic crisis,

Prepared By Prof Alvin So9 Policy Implications Redefine development – emphasize the human side of development, not GNP Advocate de-linking, cut the links with the G 8, need a rupture (revolution) to do this