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Lecture

POLB90 Lec 8.docx

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Department
Political Science
Course
POLB90H3
Professor
Matthew Hoffmann
Semester
Fall

Description
POLB90 Lecture 8 Tuesday, October 29, 2013 Franz Fanon (1925-1961) • Black psychiatrist, from Martinique • Involve in theAlgerian struggle for independence from France • Wrote o The Wretched of the Earth o Black Skin, White Masks The International Financial System • Profound impact on what global south countries could and could nto do in terms of policies. • Burdened with the colonial rules and other implications. • Ongoing mechanism of control and manipulation. • Private commercial banks o CIBC, HSBC, Bank of Montreal, etc. • The International Monetary Fund (IMF) • The World bank • Regional Development banks o Asian Development banks The World Trade Organization (WTO) • All of these are linked o Reinforce each other The Role of the IMF and World Bank • Established 1948 – Bretton Woods o IMF (short-term balance of payments lending) o Bank (project lending) • Based in Washington o Irrelevant, easily accessible to US officials for lobbying purposes, • Developed Country Dominance o Wealthiest countries have more power and control votes (US having the largest share) Influence heavily and shape its policies. What Happened? • Change in the “conventional wisdom” about what constitutes good economic policy o John Maynard Keynes  For capitalism to function well there had to be state intervention.  Slums and booms in capitalism, when there is a boom government should save money and when there is a slow-down, they should spend to stimulate employment and spending. o 1970s: the New Orthodoxy  Central role of the market  Limited government role.  Human beings operate in their own self-interest. Prices of things are not to be interfered with. Basic equilibrium model, state interference produces a misallocation, and a whole host of economic problems. Economic Events • Rise of Petroleum Prices o Many global south countries were affected • Decline in US competitiveness o Finding another way of running economy • The international Debt crisis o Crucial to pushing these forward. Borrowed extensively on the global market and bank stop lending when countries can’t pay interest. o Poverty and inequality shot up  1930, lost decade. Heightened inequality is still happening to this day. Permanent implication still found in Global South countries How did the new policy thinking become translated into policy? • Policy Conditionality o Looking at financial status and policy will be formed. Usually seen as main mechanism forcing countries into structuralized settlements. o 1982-1985, seen as short term problem, liquidity crisis. o Stabilization Agreements (IMF)  Immediately after the debt crisis, and to be signed every three years by the global south countries.  Credit restrictions  Devalue (currency)  Reduction in government spending  (Tariff reduction)  Wage freeze  To repay debts, stimulate exports  Results? o Induce recession and create social hardship  Latin countries, have been signing the agreement since the 1950s. in the assumptions that these were short-term agreements. o Structure Adjustment (SAPS) (The World Bank)  1985, realized that the agreement was not working. Realized more profound changes were needed. The Washington Consensus • Trade liberalization takes centre stage • Privatization o Selling private companies  Removing tariffs • Deregulation of Foreign Investment Regimes o Control direct foreign investment • Labour Flexibilization o Easier to fire/hire employee. • Removal of subsidies o To improve living standards • Removal of restrictions on capital flows. • Negative social consequences o Privatize companies lay off many employees Repeated Economic Crises • The Mexican peso crisis, 1995 • TheAsian crisis, 1997 • The Brazilian, 1998 • TheArgentine crisis, 2001 o These crises had spill on effects throughout the Global South. Poverty and inequality shoot up. The Role of the Private Commercial Banks • 1970s: Banks pressure Global South to borrow o Increase of petroleum prices, petroleum dollars need a place to go and be invested. Flowing from Middle East countries into the commercial banks.  If you are in Canada (bank) discover that if you lend out money in Peso, the Canadian banking regulation doesn’t apply to you. No insurance needed and no credit check for the person you’re lending to.  Many were not at all concerned that a lot of the countries were military dictatorships.  Countries had reasons to borrow, in need of petroleum • 1982: refuse further lending o Many countries had foolishly borrowed
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