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Political Science
POLS 3560
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The Global South: Politics, Policy & Development POLS 3560 – Fall/Winter 2011/2012 – Ananya Mukherjee-Reed Lecture 10 – Debt Crisis: Dissolution of the Nationalist Model – Nov 22 Debt: Main Questions - What is debt? - What is the debt crisis? - How did it begin? - How does it affect different groups of people? - How does it affect ‘development’? - What is debt forgiveness? - Concept of Odious debt. What is going on in Ireland? - The poorest 48 countries have debts totalling US $168 billion, whilst for the poorest 128 countries; it is over US $3.7 trillion. - The total external debt of the very poorest countries was US $168 billion in 2008. - During 2008, these countries paid over $8.3 billion in debt service (payments of interest and principal) – over $23 million a day. If you include India and Pakistan, the figure would be closer to $116 million. - For all ‘developing’ countries, total external debt owed in 2008 was $3.7 trillion and over the course of that year they paid $602 billion servicing these debts. - Haiti ‘owes’ $891 million. International Monetary Fund (IMF) and World Bank - Lend poor countries money to pay interest on original loans. - But the strict conditions are o Reduce spending on education, health, housing. o Increase exports to get $ o Increase taxes. For a country to repay its debt easily, it requires: - Low interest rates on its debt. - Exports. - None of these conditions were met by the policies of the 1990s. 1976 – 1983 - Debt crisis 1982 erupted shortly after US monetary policy raised interest rates. So the borrowers (private and public-owned companies) failed to put the borrowed funds to work to earn a return higher than the interest rate on the funds. - The solution ‘recommended’ by the IMF/WB, using its power of intimidation was to nationalize the private debt, which means that the state = the population, assumes the debt of the private sector. - Result: massive transferring of the burden of debt to the vast majority of the population. Debt Trap during the 1990s - Creditors imposed conditions that condemned the debtor (the population) to be always a debtor (i.e. much higher interest rates than those of the 1980s). - Then, the debtor needs to assume more debt just to service interests. - The result: debt became perpetuated (in Argentina, rising 12.5% annually between 1991 and 2000) because its servicing disables the possibility of cancelling it. - Debtor becomes more
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