IDSB06 Lecture 2.pdf

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Rise of development
At the end of WWII, Europe suffered in an unprecedented financial way
Colonial empire collapsed; handed power over to US
Members of British government sent a memo to Secretary of State Marshall saying that Britain couldn't bail out smaller European
nations (especially Greece and Turkey)
Shift in power dynamics --> Britain could not provide the aid
We're not just trying to build Europe: we want to promote the security of the US and protect Western civilization
Aid was always given but it was not an instrument --> now it has an agenda
Foreign aid becomes an instrument of foreign policy
Marshall plan (1948- 1952): 13 billion dollars
Southern hemisphere is for the first time is an "underdeveloped" region
We're spreading the light of capitalism and freedom to these regions
4th point: we must help underdeveloped areas. More than half the people in the world are living in poverty.
Truman's 4 points
President Truman gives his inauguration speech: foreign policy and aid was going to spread American interests in the world: capitalism
and freedom
US Treasury Secretary (Morgantheau), Chief Economic Advisor (Dexter), British economist (Keynes) lead the move towards a new
economic order
It becomes a moral argument
In the old order, there was no macroeconomic faciliation of trade --> result was social ills, chaos, fascism, etc.
Bretton Woods conference in 1944 --> new international monetary regime
IMF- aid
Bank- lends money to impoverished countries for development projects
IMF and World Bank
Western countries advance in economic growth
Poverty in most western countries is crushed
3d world saw some growth but declining terms of trade for raw materials
Results
Bretton Woods Era (1944- 1971)
Development's beginnings
US prints more money
OPEC raises oil price
OPEC puts money in US private banks
Interest rates go plummeting down
Private bank lending increases from 2% to 33%
Private banks lend money to 3d world dictators
Oil crisis
Brazil- 73 billion
Mexico- 36.7 billion
1973 - 1982: Loans skyrocket from 295 billion to 1, 689 billion
Essentially, bad lending creates tremendous debt
1982 --> Mexico defaults on debts
Money goes to fuel conflicts and war
You have to start trading raw materials
Austerity measures: urged state to rollback (spending) and make people pay for services
Devalue your own national currency and remove subsidies
Promote privatization of industries and deregulation
3 conditions:
This is only from debt repayment
Kofi Anan (UN): In 2002, the net transfer from poor to rich countries was 200 billion (more money is coming out of a 3d
world country than into it)
Transfer includes debt repayment, unfair trade profits
Action Aid from poor to rich countries 710 billion (2003)
Debt and development are thus tied together
SAPs (Structural Adjustment Programs) are the result --> restructure national economies so that the debted country earns foreign
currency to repay its debt (neo- liberal)
Debt- Chomsky argues that debt is an ideological issue, not an economic fact
Non- commercial
Concessional (repayment is not as stringent as commercial)
Transfer of money, goods resources and services from rich to poor countries. Foreign aid meets these 2 criteria:
International development aid (IDA)
Terms
Lecture 2
Tuesday, January 18, 2011
11:08 AM
IDSB06 Page 1
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