POLS209 WK4 - The rise of Neoliberalism and the Debt Crisis

What is the case of haiti?

after the revolt, france forced haiti to pay reparations to france (1825)

• 150M gold francs

plunging the country into a cycle of poverty, dependence, and violence

for more than half a century, Haiti allocated up to 80% of its income to paying off the debt

when was the final payment for Haiti’s reparations?

1947

What did President Duvalier do?

was corrupt but still recieved foreign aid, was considered an ally of the west during the cold war

today, 40% of Haiti’s debt represents loans from that period

What are some examples of successful contemporary precendents?

• US apologized and paid compensation to american japanese for internment in camps during ww2

• jewish holocaust

• australia and indigenous ppl *reparations for kidnapped ppl

• 2013 british colonial gov gave 20M for surviving Kenyans who were tortured during the Mau Mau rebellion of the 1950s

What is dependency theory?

argues that rich/poor countries aren’t that way due to a linear path, but because of their particular position in the world system

its not possible to jumpstart from aid packages to reach the wealth of rich countries

What did Andre Gunder Frank say about dependency theory?

argued that under-development was necessary to the industrialized nations, that development and under development are two faces of the same coin

What are the solutions dependency theory proposes?

need to change the system to help developing countries defend themselves against globalizing capitalism

What do Frank (1976) and Samir Amin (1990) say about dependency theory

countries have to cut off/severely limit their ties to the capitalist market. through reliance on their own strength, as well as mutual cooperation, real economic development becomes possible

what is a critique of dependency theories

tends to over simplify

failed to explain how some formerly poor countries were able to change their economic conditions

e.g.

• hong kong

• south korea

• singapore

• taiwan

what is world system theory (1960s-1970s)

in the world system, wealthy states (core) have been enriching themselves by exploiting poor countries (semi-peripheral and peripheral areas)

world economies are tied together economically in a single division of labour, where all countries go through a process of specialization

What is a critique of dependency theories

doesn’t look at local processes of exploitation and exclusion

is a revolution a workable agenda?

difficult to de-link from world capitalist system

who is Raul Prebisch?

one of the fathers of dependency theory

challenged the idea of comparative advantage given the position of the third world as periphery

who introduced the idea of comparative advantage?

Ricardo

what is the idea of comparative advantage?

an economy or individual's ability to produce a specific good or service at a lower opportunity cost than their trading partner

(why specialization is encouraged)

when were loans to developing countries first started?

1960s

What are factors towards the debt crisis?

• in 1973, oil producing countries raised oil prices - made huge sums of money - put in western banks

• interest rates decreased rapidly

  • banks faced international financial crisis

• decided to lend the money (petrodollars) at low interest rates to developing countries

• “risk free loans”

What did Mexico say during the debt crisis?

1982 - told creditors it can’t repay the debt

• thus threatening the international financial system

• the IMF and World Bank step in with new loans to help countries pay their interest

what did the US do during the debt crisis?

ensured countries that were on the edge of financial collapse did not band together

the IMF and World Bank stepped in to become the managers of world debt

if debt is the priority for spending of developing countries…

they can’t go into the development of the country itself

debt cancellation was seen as radical

How much is the debt burden?

by the 2000s, 28% of the earnings of low income countries were going to debt repayments

Where did the borrowed money go?

massive industrial projects

pay for imported goods

expand commodity production (and get hard currencies to repay the loans)

• export crops

• mining

increased military expenditures

corruption

examples of corruption

Philippines 1972-86 - Ferdinand Marcos (5bn-10bn)

Indonesia - Suharto (embezzled 35bn during his 3 decades in power)

DRC - Mobutu Sese Seko (half of 12bn of aid money from the IMF during his 32yr reign)

what is odious debt

debt resulted from loans to an illegitimate or dictatorial government that used the money to oppress the people/for personal purposes

Following the 1982 debt crisis, what did the IMF and World Bank do?

stepped in with new loans to help countries pay their interests, but with strict CONDITIONALITIES

• tackle loans with more loans but longer time to pay nack and low interest (but must obey conditions cuz ydk what ur doing)

what is neoliberalism (1980s)

to eliminate the foundations of development economics

• i.e. that developing economies represent a special case (no such thing says ronald reagan :P)

• state intervention = market distortion which is super duper bad trust

The Washington Consensus (coined by Williamson)

fiscal discipline

redirection of public expenditure towards fields offering high economic returns

tax reform

interest rate liberalization

competitive exchange rate

trade liberalization

privatization

deregulation

secure property rights

what are Structural Adjustment Programs (SAPs)?

promoting neoliberalism/free market economy

trying to generate the conditions to follow neoliberalism (revamping the economy of developing states)

1. CUT public spending

2. FREE MARKETS & DEregularization

3. PRIVATIZATION

what does cutting public spending imply

the gov must curb spending to reimburse debt and allow for private sector to take over

• less access to education and more healthcare costs for the poor; higher price for staple food if no subsidies etc

what does free markets and deregulation imply

private enterprise must be free of government’s interventions no matter how much social impacts this may have

• lesser environmental regulations

• less regulated working conditions

• higher costs of staple foods

what does privatization imply

sell state owned enterprises to private investors

this may include electricity, schools, hospitals, fresh water etc.

although done in the name of efficiency, privatization has transferred wealth to foreign companies

how many children under the age of 5 died each year in the late 1980s as a result of the debt crisis under the iMF

5,000,000 in africa and latin america

what is the thesis of Ha-Joo Chang (Kicking away the ladder)

developed countries did not get where they are through the policies that they recommend to developing countries today, in fact, they have used ‘bad’ policies!

in stopping developed countries today to use the same policies to develop, rich countries are kicking away the ladder

what did the IMF report in june 2016 admit?

instead of delivering growth, neoliberal policies of austerity+lowered regulation for capital movement have increased inequality

such inequalities might itself undercut growth

as a result, the report states that policymakers should be more open to redistribution than they are

what is the example of haiti and the effect of northern subsidies?

1986 - haiti was self sufficient in rice (staple food)

forced by donors/lenders to drop trade restrictions, country was flooded with US rice

1996 - haiti was importing 196,000 tons of foreign rice at the cost of 100M/yr

haitian rice production = negligible

after dependence of foreign rice was complete, import process began to rise

how is this kicking away the ladder?

northern business interests gain from excluding imports from the south.

• for every $1 procided by rich countries in aid and debt relief, poor countries lost $14 due to trade barriers

What is capital flight in africa

UNDP estimates that Africa lost 170B USD in illicit individual and corprate capital flows (69% of global illicit capital flows) between 1990 and 2008.

how much money has the DRC lost to illicit flows

3.5 billion dollars

how much money has the Mali lost to illicit flows

1.7 billion dollars

What did riddel (2007) say about why governments give aid

1. to help address emergency needs

2. to assist recipients to achieve their development goals

3. to show solidarity

4. because of historical ties

5. very recently, based on human rights record

6. to further their own national, political and strategic interests

7. to help promote donor country commercial interests

what are the three general reasons governments give aid

economic

political

altruism

what is an example of aid being politically motivated (australia)

australia gives 50.8% of bilateral aid to its pacific neighbors, and only 3% to relieve poverty in africa

what is the NZ public opinion on aid?

57% of kiwis agree w the provision of aid to less developed countries but 16% disagree

reason:

• want to fix new zealand first

what is an example of aid being politically/ideologically motivated (PEPFAR)

pepfar (aids) - hindered rather than supported preventive efforts to stem the spread of HIV/AIDS.

• granted legitimacy to christian fundamentalist involvement in HIV and AIDS intervention strategies

• trump has put this on hold

• over the years it has saved over 25M lives

what is an example for economic motives

for every $1 send to the poorest countries in aid, $1.30 flows back to lenders in debt service

what is debt service

the total amount a country spends (or is scheduled to spend) on its debts consisting of interest payments and repayments of principal)

what is tied aid

aid that must use goods and services from the donor country

• until very recently, more than half of ODA was tied

• in 2016, the price tag for tied aid alone was between US 1.85 billion-5.43billion

what is the case for the US (economic motives)

50% more costly than local procurement

30% higher than procurement in 3rd countries

summary of aid as economically motivated

it is used for market expansion which benefits the donor country, including its own corporations.

what does altruistic motives mean in this context

based on needs and needs alone

who is the father of the infant industry argument

Friedrich List (1789-1846)

what is the infant industry argument

the view that in the presence of more developed countries, backward countries cannot develop new industries without state intervention, especially tariff protection - List used UK as an example