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Theories of Development II Debt and Structural Adjustment

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International Development
INTD 200
Karen Mc Allister

Theories of Development II Debt and Structural Adjustment International Debt Crisis - How debt accumul: focus of borrowing $ to invest in devel + indusz post WWII - Lots of lending fr/World Bank + IMF to sup Keynesian model state-led econ devel  Also Import Substit Indusz (indusz w/in nats) - Also: prevent spread of Communism (very connected to Cold War)  Lots of loans used to prop up dictators who were anti-Communist  S/corruption on how these loans were distrib to diff nats  Didn’t always necess go towards benefiting ppl - 1970s: era of surplus capital + loan pushing - Growth of world econ slowed (growing based on recovery of Eur + Jap)  Less demand for commodities being exported by devel’g world (growth also slowed) - Devel’g world indusz relatively slowly - US racked up debt b/c borrowed $ to supp wars in Vietnam + other various projects - Drop in value of $1  @this point, value of $1 pinned to gold (gold standard)  E/$1 backed by certain amount of gold  US b/c of various debts, didn’t have amount gold to back up $1  Gold standard taken away + currencies float against ea/other (financial instability)  Falling in value of USD$ - OPEC increased price of oil ($2/barrel  $39/barrel by end of 70s) - Lots of $ being invested in internat banks b/c $ coming fr/increased oil prices - Banks looking for places to lend $  Reduced interest rates (very low)  focus on loan pushing  Lending $ to devel’g nats (favourable to get loans @this time) - End of 70s: econ crisis - Slowdown of growth, US debt, high oil prices, stagnation US econ - Response by US: impose Neoliberal market (free market, reduce role state, privatization) - Early 80s: increased interest rates - Imposed by Reagan: intended to end infla + net movement of $ fr/S to N - As interest rates increased, ended up w/shock in devel’g nats that borrowed lots of $  Interest rates now too much for them to pay  Ended up taking more loans to pay interest on loans they already took - 1982: debt crisis in South: Mexico, Brazil, Argentina, Poland default on loan payments - B/c banks themselves gave lots of $ to these nats, afraid that if they didn’t do anything, afraid of massive meltdown of world financial sys - Restruc of debt repayments, borrowing/lending of more $ to pay debt interest - Allowed longer repayment time H: still too much debt - Movement of capital fr/S to N  B/w 1984-1993: devel’g nats transferred ~$83 billion to developed nats  @same time, debt increased by 675 billion - IMF + World Bank took lead role in managing debt crisis  Focused more on Northern interest + protecting of internat financial sys  Defaul
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