1. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 14 Balance of Payments, Developing-Country Debt, and the Macroeconomic Stabilization Controversy

2. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-2 The Balance of Payments Account n General considerations

3. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-3 Table 14.1

4. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-4 The Balance of Payments Account n General considerations n A hypothetical illustration: deficits and debts

5. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-5 Table 14.2

6. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-6 Table 14.3

7. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-7 Table 14.4

8. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-8 Financing and Reducing Payments Deficits n Some initial policy issues n Recent trends in LDC balance of payments

9. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-9 Table 14.5

10. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-10 The Debt Crisis of the 1980s n Background and analysis

11. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-11 Third World Debt Crisis Net capital inflow, F N, is Whered is percent increase in total debt D is total debt r is the average interest rate Basic transfer, BT, is (14.1) (14.2)

12. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-12 Third World Debt Crisis n Background and analysis n Dimensions of the crisis

13. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-13 Table 14.6

14. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-14 Table 14.7

15. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-15 Figure 14.1

16. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-16 Attempts at Alleviation: Macroeconomic Instability, IMF Stabilization Policies, and Their Critics n The IMF stabilization program (see appendix 14.1 for an analysis of the IMF and the World Bank) n Tactics for debt relief n Has the debt problem disappeared? Winners and losers n Conclusions

17. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-17 Concepts for Review n Amortization n Balance of payments n Basic transfer n Brady plan n Capital account n Capital flight n Cash account n Conditionality n Current account n Debt-for-equity swaps n Debt-for-nature swaps n Debtors’ cartel n Debt repudiation n Debt service n Deficit

18. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14-18 Concepts for Review (cont’d) n Euro n External debt n Hard currency n International reserve account n International reserves n IMF n Macroeconomic instability n Restructuring n Special drawing rights (SDRs) n Stabilization policies n Structural adjustment loans n Surplus n World Bank