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POL 4410: Week 9 • International Development
Structure • International Aid: • Debt • Aid • IMF and the World Bank • NGOs • International Inequality • Convergence • Divergence
Debt • ‘External’ or ‘foreign’ debt is the amount a country owes to foreign creditors (banks, foreign governments, IMF, World Bank) • ‘Sustainable debt’ is the relative burden of holding this debt. Measures: debt/GDP; debt/exports; debt/tax revenue • ‘Odious debt’: this is debt incurred by a regime for purposes that do not serve interests of the state. Such debts are presumed to be personal.
Who Used Debt? • Major users were ISI states (see next week). • Why? Because such states could not afford their imports of technology through currency earned from exports • Instead they had to borrow this currency. • And how would they pay back currency without future earnings? Why did banks lend?
Frieden (1) • 2 periods: era of borrowing 1970s; debt crisis 1982-84. • Two sectors of capital: liquid and specific assets. • Two types of class-conflict: weak and strong. • Weak class conflict led to sectoral policies whereas strong conflict led to free-market policies.
Frieden (2) • Chile: strong labor / capital hostility. This meant government had non-sectoral policy and consequent decline of manufacturing. Debt crisis failed to lead to political revolt. • Brazil had weak labor / capital hostility. Government used debt for sectoral policies - expansion of manufacturing. During downturn, sectors fought back against austerity and overthrew government.
Foreign Aid • Millennium goal of 0.7% of GDP as aid. US currently spends 0.15%. • Much aid goes to debt relief. Jubilee 2000 was plan to produce debt relief for HIPCs. Live 8 intended to increase this goal. Agreement to write off $40bn debt of 18 HIPCs to IMF and bank. • Problem of ‘moral hazard’ and debt forgiveness
The IMF: Aid? • Role of the IMF is to bail out states with BOP crises. • Each state must contribute annual dues proportional to national income • Countries can borrow up to 25% of dues • Further borrowing requires entering a Structural Adjustment Program (SAP) which has conditions attached - ostensibly to reduce future BOP problems • Overall funding of $215bn.
Przeworski & Vreeland • Countries enter IMF when reserves low and BOP high, when rejection costs are high, and when sovereignty costs are low. • P and V find that countries that enter IMF programs tend to have worse economic outcomes post-program than states that do not enter, even controlling for selection effects.
The World Bank • The World Bank lends developing states (under $865 per capita) money for development projects. • As with IMF, voting is tied to income. US holds 16.4% of votes: 85% supermajority needed to pass major decisions • Why loans not grants? • Has authorized capital of $184bn (10% from dues, most from borrowing)
NGOs • Gates Foundation ($32bn endowment): Global Health Program; Global Development Program; United States Program • Oxfam ($300m per annum) • Red Cross • Amnesty
International Inequality • We must try to distinguish between WITHIN-STATE inequality and BETWEEN-STATE inequality. • While former has increased in many areas, the latter is much larger. • There has been ‘divergence big time’ (Lant Pritchett, 1997)
Within-State Variation • H/O predicts this should rise in developed states and decline in developing states. Why? • The former has happened but no the latter. Why? • What would Rudra argue?
Showing Divergence • Pritchett 1997 estimates that a lower bound for income is P$250 per annum. • Purchasing Power Parity vs. Market X-rates. • For poorest countries today to have not diverged from US growth they would have to have had incomes way below P$250
Next Week • TUES: Development Strategies pre-1990sFascism, Communism, Social Democracy, ‘Embedded Liberalism’; ISI; EOI • THUR: New Winners and Losers and their development strategies: Asian Tigers; European Tigers; China and India; Sub-Saharan Africa; Latin America