Case study: debt relief
- In August 1982, Mexico firstly declare its default
- In 2001, Argentina also defaulted
- Reasons for debt crisis:
o US political loans that does not care about the creditworthiness
o OPEC petrodollars
o WB and IMF conditionality
o Falling prices of commodities
o Natural disasters
o Corrupt leader and misuse of money of elites groups
- Julibee 2000 advocate debt cancellation to overcome injustice and poverty, rather than rescheduling, reduction or mandated policy reforms
- Breaking chain of debt: cancel the debt and eliminate the corrupt leaders
- Odious debt: debt incurring by the corrupted leaders
- Moral hazard: the attitude of the borrowing states that keep borrowing without caring about its ability to pay back since there will be debt cancellation later
- 1996 Heavily Indebted Poor Countries (HIPC)
o Created by WB and IMF
o Gather official creditors to negotiate
o Reschedule or cancel the debt
- Paris Club ( official creditors) can:
o Reschedule
o Cancel
o Negotiate the term or date of payment
o Change from loan to development aid
- There are two main issues here:
o Debt crisis for developing countries (injustice and poverty)
o Debt crisis for middle income or high income countries ( stability of global economy)
An evolving global economy
- There are four main economic models (in the past-after WWII):
o Liberal or capitalist economy
o Socialist economy (planned economy)
o Economy that colonial power has relations with colonized countries (export supply of raw material and labor; import final products)
o Mercantilist economy or statist economy
- Now, there are two extreme economy:
o Liberal economy (US, EU,…)
o Mercantilist economy (Brazil, Japan,…)
Globalization of liberal economic norms
- 18th century Adam Smith
a. Bretton Woods Institutions and the Washington Consensus
- Bretton Woods Institutions
o WB
o IMF
o GATT => International Trade Organization
- Washington Consensus:
o Only by following the economy model proposed by Bretton Woods Institution that can states achieve economic development
o Including:
§ Using public expenditures in a pro-growth, pro-poor for basic health care, education, and infrastructure
§ Fiscal discipline
§ Privatization of industry
§ Liberalization of trade and FDI
§ Government deregulation in favor of open competition
§ Tax reform
b. Roles of MNCs
- MNCs represent the most effective mechanisms for economic development and improved well-being
- They represent the idea of liberal economic order
- But they are many critiques of exploitation practices by many MNCs in developing countries
c. Critics of liberal economic norms
- Economic Commission for Latin America (ECLA)
- Developing countries dependency => Critique of ECLA => new initiatives
- 1960s UN Conference on Trade and Development (UNCTAD)
- 1970s New International Economic Order (NIEO)
- Group of 77 (G-77) sought changes in six major areas:
o Fair trade
o Regulation over MNCs => authority over natural resources and foreign investment
o Transfer of technology
o Increase foreign aid and improve term and condition
o Debt relief
o Restructure of international financial institutions
- The first fundamental and sustained challenge to the dominant liberal economic ideology is the founding of UNCTAD, and follow by the subsequent action G-77
- Another challenge to liberal economic order is Mercantilist theory or Statist theory:
o Ultimate role of state
o Subordination of all economic activities to the goal of state building
o National self-sufficiency rather than independence
- UNDP => HDI (1990) to underscore that development is about improving the quality of life for human beings, not just promoting economic growth
Pieces of global governance
a. Development and finance: WB, IMF, UN system and NGOs
- WB:
o Initial task is to facilitate reconstruction in the post WWII Europe
o Marshall Plan
o There are four organs of WB:
§ International Bank for Reconstruction and Development (IBRD): 1950s
§ International Finance Corporation (IFC): 1956; to provide loans to promote growth if private enterprise in developing countries
§ Multilateral Investment Guarantee Agency (MIGA): 1988; to insure investment against loss
§ International Development Assistance (IDA): 1960; to provide loans to poorest countries with repayment schedule of fifty years
o The area of focus of WB changes throughout time:
§ 1950s-1960s: infrastructure
§ 1970s: basic needs
§ 1980s: private sectors and sustainable development
§ 1990s: good governance
- IMF:
o Original purpose of IMF is to lend money to countries to meet short-term fluctuation in currency exchange rates, thus enabling members to establish free convertibility among their currencies and maintain stable exchange rate
o To help members recover from balance-of-payment difficulties
o Its role has changed: currency exchange convertibility => chronic balance-of-payment difficulties +> heavy debt
o Structural adjustment lending
o IMF also offers technical assistance to members whereby state officials are trained at the IMF institute and in regional training centers in data collection, management of central banks and fiscal monetary policy
- UN approach to economic development
o Two general functions:
§ Normative role: evolution of the idea of sustainable development => 1983 World Commission on Environment and Development
§ Operational role:
· Create a series of regional commissions to decentralize planning and programs
· Make a commitment to technical assistance
o Five regional commissions:
§ Commission for Western Asia
§ Economic Commission of Latin America (ECLA)
§ Central American Common Market (CACM)
§ Inter-American Development Bank (IDB)
§ Expended Programme of Technical Assistance (EPTA)
o 1965 United Nations Development Programme (UNDP) => Human development Report & HDI
- Partnership and MDGs
o MDGs was adopted in UN-sponsored Millennium Summit in September 2001
o MDGs divides into 18 specific targets, specific time frame, and 48 performance indicators, with an elaborate implementation plan involving 10 global task forces
- Bilateral aid: ODA
o Another sources of capital for developing countries
o One-half trillion dollars has been transferred since WWII
o Development Assistance Committee of OECD (DAC)
o Goal of contributing 0.7% of GNP per year
- Private international finance:
o FDI and other sources
b. Trade: from GATT to WTO
- Importance principles of GATT:
o Trade liberalization
o Non-discrimination
o Reciprocity
o Exclusive use of tariff as devices for protecting home market
- There are eight round of negotiations to reduce to trade barrier in GATT-based trading system
- 1995 GATT => WTO
- Several new procedures are introduced:
o Governing body: General Council
o One-state, one vote
o Consensus decision making
- New initiatives in WTO:
o Trade Policy Review Mechanism (TPRM)
o Disputes Settlement Unit (DSU)
§ Disputes Settlement Body (DSB)
§ Appellate Body
c. Macroeconomic Policy Coordination: the role of G-7 (G-20)
- Issues addressing:
o Employment levels
o The consequences of globalization
o Job loss
o Cross-border crimes
o Financial panic
o World poverty
Regionalization of Economic governance
a. European Union Single market
- Single European Act (1987)
- Common Agricultural Policy (CAP)
b. NAFTA
c. AFTA
d. Regional multilateral development bank
- Inter-American Development Bank (IDB)
- Asian Development Bank (ADB)
- African Development Bank (AfDB)
- European Bank for Reconstruction and Development (EBRD)
Economic globalization and Africa: a problematic case
- Economic commission for Africa
- UN Millennium Summit 2000
- New Partnership for African Development (NEPAD)
