Developing Countries and International Finance

1. Developing Countries and International Finance Ch. 14 & 15

2. Ch. 14: The Latin American Debt Crisis

3. Foreign Capital and Economic Development • Foreign aid • Multilaterial financial institutions • IBRD (World Bank) • Bilateral development assistance (largest share of foreign aid) • See figures 14.1 and 14.2

4. Grants versus loans • Most bilateral aid is in the form of a grant • Multilateral agencies provide aid in the form of loans • Loans • Non-concessional lending programs • Concessional lending programs

5. Private capital flows • Commercial banks • Investment in stocks • Purchase of bonds • FDI • Debt based flows versus equity flows • Fixed investment versus portfolio investment

6. Emphasis on private capital as basis of development • Developing countries import capital • Results in lower cost financing that would otherwise be possible • But this creates other difficulties • Capital does not come in a steady stream • Leads to a cycle of boom and bust

7. Capital flows in the early postwar period • Little aid was provided and private capital was also limited and dominated by FDI • But FDI was concentrated in commodities and prices in commodities were too low to sustain FDI • After push from developing countries, World Bank and other regional development banks began to offer concessional loans • World Bank created International Development Association (IDA)

8. By the end of the 1960s, official development assistance was almost twice private capital flows • Geopolitics required this shift on the part of US and developed nations • Instead of a UN development agency, US preferred the World Bank for this purpose • “Alliance for Progress”

9. Commercial Bank lending and the origins of the Latin American debt crisis • Petrodollars • Petrodollar recycling • Syndicated loans • See table 14.3 • Debt-service capacity • See table 14.4 & 14.5 • Abrupt cessation of commercial bank lending effects

10. Managing the debt crisis • Debt regime

11. Debt regime • Liquidity problem • Macroeconomic stabilization • Concerted lending • London club • Structural adjustment (not just a liquidity problem) • Current account surpluses for debt service • Net transfers • See table 14.6

12. The sources of bargaining power

13. The domestic politics of economic reform • War of attrition between interest groups • Heterodox strategies • Brady plan • Brady bonds • ECLA • New economic theory emerges

14. Conclusion

15. Ch. 15: A decade of crises

16. The Asian financial crisis • Hot money • See figure 15.1 • See table 15.1 (a chronology of crises, 1994-2002) • Exchange-rate risk • Moral hazard • Nonperforming loans • Insolvency • See table 15.2, economic growth and current account balances in Asia

17. Reforming the crisis management regime

18. Heavily Indebted Poor Countries (HIPC) • Paris club • HIPC • Multilateral Debt Relief Initiative (MDRI)

19. Conclusion