prepared by prof alvin so1 sosc 188 lecture 8 dependency theory (iv): financial dependency
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Prepared By Prof Alvin So 1
SOSC 188
Lecture 8Dependency Theory (IV): Financial Dependency
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Seriousness of the debt problem
The Origins: How it got started?
Impacts
Possible scenarios
Policy Implications
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Seriousness of the Debt Trap
Third world pays around 20% of export earning toward debt payment
By 1999, third world debt was $2,060 billionBrazil Mexico
Early 1970s US$ 4 billion US$ 7 billion
Late 1970s US$ 50 billion US$ 38 billion
Early 1980s US$104 billion US$ 54 billion
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Origins of the Debt Problem
Government overspending and deficit, balance of payment problem, miscalculation of oil profit
Compound interest & debt addiction-keep on borrowing just to pay the interest
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Impacts The danger of loan default -
lead to more IMF controls & financial dependency
IMF’s famous Austerity Plan Cut social spending (health, educ, welfare, food)Get more revenue (increase taxes, export earnings, sell domestic resources like mines and forests)
Domestic impacts - currency devaluation, massive inflation, flight of
capital, economic decline, protests and the food riot
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Possible Scenerios
Default: Not honoring the debt
Beg for mercy - ask for interest reduction and longer repayment period
Generosity - The G 8 wrote off 40 billion debt in 2005. Why? Afraid of Global Economic crisis,
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Policy Implications
Redefine development – emphasize the human side of development, not GNP
Advocate de-linking, cut the links with the G 8, need a rupture (revolution) to do this
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