Debt Crisis:
Debt Crisis Range of factors contributed to debt crisis of 1980s
Keynesianism:
Legitimate role for state in the economy
Deficit financing to overcome economic slumps
Legitimisation of indebtedness
Keynesianism as enabling factor
Developing country governments borrowed extensively to spur economic growth
Availability of loans:
Oil Shock (1973)
Huge OECD profits recycled as lending by Western banks
Latin American debt burden - $75 billion in 1975 to $315 billion in 1983
Owed to US, European and Japanese banks (top 25 US banks = 80% of lending)
Debt Crisis:
Debt Crisis Economic Structure of Developing Countries:
Dependence on primary exports – declining terms of trade
Need to borrow more at same time as less able to service debt
Debt Servicing:
1979 restrictions on US money supply; interest rate rise from 9% to 17%
Catalyst:
Iranian Revolution (1979) – rise in oil prices – fuel to fire of economic recession
Increased costs reduce profitability of DC exports
August 1982 – Mexico defaults on loans, Brazil follows
Panic among Western governments and banks – fear collapse of financial sys.
Structural Adjustment:
Structural Adjustment Bretton Woods institutions took lead in managing debt crisis
Explanation for crisis failed to recognise critical role of huge rise in interest rates, and irresponsible lending by banks
Crisis blamed on developing countries – corrupt government, inefficient bureaucracy, state interventionism, poor policy
Debt rescheduling and a small amount of debt forgiveness offered conditional upon implementation of Structural Adjustment Programme (SAP)
SAPs rooted in neoliberal discourse on markets and role of state
Two components – stabilisation and adjustment
Stabilisation:
IMF-led programme designed to halt economic decline as foundation for further reform
Fiscal austerity – wage freezes etc. to cut spending
Currency devaluation – cheaper exports
Price liberalisation – reductions in subsidies
Structural Adjustment:
Structural Adjustment Adjustment:
World Bank-led, longer-term reform of economy and state
Privatisation of state-owned enterprises, limitations on public sector investment
Liberalisation – removal of quotas, tariffs, price-fixing, restrictions on repatriation of profits etc.
Rationalisation of public sector – slashing bureaucracies, privatisation of social programmes
Structural Adjustment:
Structural Adjustment ‘Washington Consensus’ (John Williamson, 1990)
Adoption of SAP prerequisite for financial support
Essentially all developing countries underwent reforms designed to completely restructure state, society and market
Delegitimisation of state as development actor:
But state still necessary component of SAP implementation
‘Shock therapy’ – allows no time for domestic dissent to form
Why are SAPs Controversial?:
Why are SAPs Controversial? Neoliberal reform – increased opportunity
But also dramatic increases in poverty
UNICEF – Adjustment with a Human Face (1987)
Austerity (incl. privatisation) = mass unemployment
Accountability:
Key policy choices removed from the remit of developing country governments
Lasswell – politics = ‘who gets what, when, where and how’ – state can no-longer decide
How do citizens hold government accountable for externally imposed policy? What is government for?