Political Economy of International Crisis

Economics 357L

Section VI


THE DEBT CRISIS

The debt crisis exploded into public view in August of 1982 when Mexico announced to the world that it was unable to pay what it owed to its international creditors. This was, however, as usual, merely the emergence into general view of a problem which had been festering and growing for some time. The rapid rise in large scale loans to the Third World, especially the the largest most rapidly growing countries, e.g., Mexico, Brazil and Argentina, had occurred in the 1970s under conditions of rapid inflation and, increasingly floating interest rates. In principle, as long as these loans could be repaid there was no crisis, just business as usual. The sudden onset of recession in 1980 and then again in 1981 in response to Paul Volcker and the Fed's tightening of the money supply and rapid rise in interest rates dramatically changed the situation of the debtor countries. The engineered rise in interest rates (aimed at inflation {read wages}) raised the cost of the loans and the recession, by reducing world output and trade reduced the debtor countries' ability to earn the foreign exchange necessary to repay the loans. These were the direct and obvious causes of the crisis announced by Mexico in 1982 and the subsequent defacto defaults and reschedulings by a great many other countries.

But behind this bottom line crisis lay a continuing series of social crises in both the debtor and creditor countries. The increase in interest rates and decline in output in the U.S. and other so-called developed countries were aimed at wages and the power of workers that lay behind the inflation of the 1970s -itself a continuation of the crisis that began in the 1960s. The loans taken on by what became known as the "debtor" countries were also aimed at the resolution of social problems and at least some of the reasons for the difficult of repayment derived from the failure of the employment of those resources to achieve greater control.

The continuation of the debt crisis over the last nine years, its generalization around the Third World, its appearance in the Second World and finally its emergence in the the United States, which has now become the world's greatest debtor (where once it was the world's greatest creditor) all bespeak the continuation of the crisis of the present order. Digging behind the financial veil to discover the social roots of the rise and perpetuation of the debt crisis, together with an attempt to link these roots to other aspects of the general crisis, is the object of this section of the course.

A. OVERVIEW

*Harry Cleaver, "Close the IMF, Abolish Debt and End Development: a Class Analysis of the International Debt Crisis," Capital & Class No. 39, Winter 1989.

This paper is included because it provides an interpretative overview of the debt crisis as a whole, in the Third World as well as elsewhere, and draws policy conclusions. The analysis is a sociopolitical one which interprets the financial crisis in terms of the underlying crises of political and social relations in the various countries involved. Written as an intervention into an on-going debate among radical social scientists, it both spells out the kind of analysis to be done and gives a tentative sketch of the results of such a way of looking at things.

B. EMERGENCE AND RESPONSE: AUSTERITY

William R. Cline, "Mexico's Crisis, The World's Peril," Foreign Policy, #49, Winter 1982-83.

Discussion of dangers to international monetary system of possible debt default by Mexico in reaction to weak oil prices and difficulties in imposing internal austerity. Calls for oil producers and consumers to cooperate to support oil price against fluctuations.

Pedro-Pablo Kuczynski, "Latin American Debt," Foreign Affairs, 16(2), Winter 1982-83.

"The Debt-Bomb Threat," Time, January 10, 1983, pp. 42-51. (Student Summary).

"The LDC Debt Crisis: How it Could be Resolved," BusinessWeek, January 10, 1983, pp. 78-81.

Three articles that survey the international financial crisis touched off by Mexico and Brazilian debt rescheduling in the fall of 1982.

Martin Feldstein, "The Annual Report of the Council of Economic Advisors; Chapter 3, The United States in the World Economy: Strains on the System," in The Economic Report of the President, February 1983, pp. 51-76.

An administration view that focuses on the problem of the competitiveness of American industry and while attacking workers' demands for high wages seems to accept the decline of those sectors where they are strongest -- dictated by "market pressures" -- and resists any activist policies in exchange rate intervention.

"The IMF's Dilemma on World Debt Gets Worse," BusinessWeek, July 25, 1983, pp.58-63.

"How the Debt Crisis is Battering Multinationals," BusinessWeek, July 25, 1983, pp. 64-65.

C.THE ATTACK ON IMF AUSTERITY

*Twenty-six Economists, Promoting World Recovery: A Statement on Global Economic Strategy, Institute for International Economics, Washington, D.C., December, 1982. (Student Summary)

The result of a conference held in November 1981, this report constitutes a critique of the IMF austerity programs and of the failure of the developed countries to coordinate expansionary policies to promote global economic recovery. Founded in November of 1981, the Institute brings together a number of important figures in the formulation of American foreign economic policy. Signers of the statement include: C. Fred Bergsten (director of the Institute), Richard Cooper (currently at Harvard), William Cline (a fellow at the Institute) and Lester Thurow (MIT).

"The Third World Threat to the West's Recovery," BusinessWeek, February 7, 1983.

"IMF Austerity Prescriptions Could Be Hazardous," BusinessWeek, February 21, 1983.

John Eisendrath, "How the IMF Makes the World Safe for Depression," The Washington Monthly, February 1983.

Michael Moffitt, "Global Banking Goes for Broke," The Progressive, February 1983.

These four articles all attack the IMF for seeking to impose austerity and cuts in imports without taking into account the net global effect of such policy prescriptions, namely a dramatic reduction in global demand and the problems it creates for exporters -- including both the industrial countries and the LDCs who need to export in order to earn the foreign exchange necessary to pay back their debts. They also express the fear that the governments in question may not have the domestic power to impose austerity and trying to do so could provoke rebellion serious enough to force the countries to cancel their debts thus bringing on a world financial collapse. Compare with PROMOTING WORLD RECOVERY cited above.

"Argentina Fires A Shot in the Debtors' Revolt," BusinessWeek, October 17, 1983, p. 47.

Article on arrest of Argentina's central bank president Julio Gonzalez del Solar for selling out the country and the resulting panic among international bankers.

F. Taylor, "Austerity Pushes Brazil to the Brink of Social Upheaval," BusinessWeek, October 17, 1983, p. 62.

Editorial, "Defusing the Debt Time Bomb," same issue. p. 220.

Worries that riots, lootings of supermarkets and bank robberies may signal the beginning of nationwide uprisings against the government's austerity program. Despite this BusinessWeek editors call for the government and the IMF to "maintain disciplined economic policies" and "not yield" to growing resistance.

S. Karene Witcher, "IMF Stifles Brazil, Economists Charge," Wall Street Journal, 5/1/84.

Deadening effects of IMF policies and likely abandonment because of internal political pressures.

"Peru's Emergency Shows Political Cost of Austerity Policy," Wall Street Journal, 6/11/84.

"The Protest against the World Bank-IMF meeting in Berlin," Common Sense, No. 6, November 1988.

Description of five days of protest against IMF and World Bank in Berlin that drew together those concerned with the Third World and those concerned with domestic German resistance to austerity.

D. DEFENDING THE IMF APPROACH

J. de Larosiere, "Current Policies of the IMF: Fact and Fiction," IMF Survey, January 9, 1984.

In a speech to the Economic Club of Chicago the IMF managing director defends the IMF against charges that its policies are too severe and are contributing to global recession.

J. de Larosiere, "Adjustment Programs Supported by the Fund: Their Logic, Objectives and Results in the Light of Recent Experience," speech given on February 6, 1984, reprinted in IMF Survey, February 6, 1984.

Speech defending the Fund that draws on success stories in Mexico, etc. The basic thrust of the talk is that IMF austerity measures have been successful in cutting balance of payments deficits, especially current account deficits.

J. de Larosiere, "Does the Fund Impose Austerity?" IMF, June 1984.

Jahangir Amuzegar, "The IMF Under Fire," Foreign Policy, 64, Fall 1986, pp. 98-119.

A spirited defense of the IMF record of handling the crisis from an ex-executive director of the Fund.

E. ALTERNATIVE STRATEGIES

Lawrence Rout, "Foreign Debt Difficulties Prompt Proposals for Drastic Restructuring," Wall Street Journal, February 8, 1983.

Felix G. Rohatyn, "A Plan for Stretching Out Global Debt," BusinessWeek, February 28, 1983.

William Quirk, "The Big Bank Bailout," The New Republic, February 21, 1983.

Three articles on bailing out the international banking community while reducing the pressures on Third World debtors. Rout's article summarizes plans by Rohatyn and Peter Kenen of Princeton. Rohatyn in BusinessWeek speaks for himself. Quirk gives an angry critique arguing that taxpayers should not have to subsidize bank mistakes.

William H. Bolin and Jorge Del Canto, "LDC Debt: Beyond Crisis Management," Foreign Affairs, Vol. 61, No. 5, Summer 1983, pp. 1099-1112.

This article by Bolin, who is vice chairman of the Bank of America (a major foreign lender), and Canto, who directed the Western Hemisphere Department of the IMF for over 20 years, assumes the desirability of expanding debt and argues for the development of new ways of mobilizing private capital for loans to LDCs. Focusing mainly on lending to the largest 15 LDC debtors, Bolin and Canto call for the creation of a new institution combining national Import-Export banks with the World Bank to mobilize floating rate Euro-dollars for medium term (8-14 year) debt. This proposal is aimed at outflanking public resistance to expanded public lending by appealing to exporters interested in maintaining foreign markets. The proposal is aimed against Rohatyn style ideas for a public take- over of private debt and is designed to keep debt (and the profits from it) in private hands while using public institutions to reduce risks and provide insurance to protect private banks -- all in all a fairly self-serving proposal.

B. Reimer and M. R. Sesit, "The IMF is less and less able to stop the bleeding," BusinessWeek, October 10, 1983, p. 28.

"How an LDC Default Would Hit the US Economy," BusinessWeek, November 7, 1983, p. 118.

Survey of studies on possible impact of moratoriums or defaults. Generally the hope is that FED intervention could limit the seriousness of the contraction in bank liquidity by expanding credit.

Pedro-Pablo Kuczynski, "Latin American Debt: Act Two," Foreign Affairs, 62(1), Fall 1983, pp. 17-38.

In this second article for Foreign Affairs on the debt crisis (for the first article see the supplementary section) Kuczynski surveys the events since Fall of 1982 when Mexico announced it could not meet payments. Kuczynski focuses on the decline in all forms of financing but especially commercial financing and calls for increased flows. There is still the possibility of default due to political pressures and continuing financial aid in support of austerity can help avoid this. Like Bolin and Del Canto, he rejects Rohatyn style plans for public takeovers and refunding of debt and calls, instead, for temporary reductions in the interest burdens to reduce need for further loans. "It may be better," this banker suggests, "at least during the immediate recovery period, for lenders to sacrifice the 50-60 cents of net after tax earnings which a dollar of added interest income provides, in exchange for not having to put up an extra dollar of lending."

Lawrence A. Fox and Stephen Cooney, "Protectionism Returns," Foreign Policy, 53, Winter 1983-84, pp. 74-90.

This article, by a vice president and director of international investment of the National Association of Manufacturers, underscores the negative impact of an overvalued Dollar on the competitiveness of American exports and thus on the viability of American industry. The authors call for an active foreign exchange rate policy as a third leg of macro policy (with fiscal and monetary policy) in coordination with major American allies, especially Japan and West Germany. They attack the 1983 CEA Report's acceptance of the decline of key industrial sectors (see above) and the Reagan Administration's benign neglect of the overvaluation of the dollar. They support the Institute for International Economic's call for a cooperative central bank approach for the management of exchange rates.

Normal Gall, "Games Bankers Play," Forbes, December 5, 1983, pp. 172-186.

This article in what its publisher calls "the capitalist's tool" describes the debt crisis in Brazil and likens it to the credit crises of the 1920s and the role of the IMF to that of the League of Nations. It concludes that default is not only probable but inevitable. But, it "can be handled" in ways that are not destructive of the international system.

"Third World Debt: It's the FED vs. the Bankers," BusinessWeek, January 9, 1984, p. 47.

Article on Volcker's push to get international bankers to soften terms of loans to reduce risks of crisis.

F. OPEC DEBT PROBLEMS

"The Debt Crisis Building Among OPEC Have-Nots," BusinessWeek, December 26, 1983, p. 24.

"Why Venezuela is the New Sick Man of Latin America," BusinessWeek, December 5, 1983, pp. 98-101.

"Nigeria's New Strongman May Enforce IMF Austerity," BusinessWeek, January 16, 1984, pp. 94-98.

Three articles about the emerging debt problems of some of the weaker OPEC countries. Two of the articles focus on Venezuela and Nigeria both of whom got into debt problems by borrowing against their oil when its price was high and are now suffering the consequences of the drop in price and cutbacks in production and thus foreign exchange earnings.

Midnight Notes, The Spy and the Assassin: On the Basic Causes of the War in the Gulf, January 1991. (This text is included in the Energy Packet.)

Another radical analysis of the Gulf War. This one argues the Gulf conflict is largely a response to growing instability in the area brought on by the struggles of the oil- producing working class [by which is meant not only those who work in the oil fields but all those who reproduce them and work in the connected economy]. "This is the real oil crisis! How to manage, and successfully exploit, a heterogeneous work force to produce this vast wealth; simultaneously both in the Arab Gulf and throughout the planet. The only way, in 1990, is through the barrel of a gun.

"

Silvia Federici, "The Debt Crisis, Africa and the New Enclosures," Midnight Notes, No. 10, Fall 1990.

G. 1984: THE CRISIS CONTINUES, ARGENTINA AS A CASE STUDY

The following collection of articles were compiled primarily in 1984 during a period of intense conflict between the government of Argentina and its people on the one hand and between the government of Argentina and the IMF on the other, over the conditions to be met for the rescheduling of Argentina's international debt. Internally in Argentina there was intense resistance to paying debt which had been accumulated by a completely illegitimate military government while at the same time the IMF was demanding the usual imposition of austerity as a condition for giving its stamp of approval to the rescheduling package. The following articles are not included in the packet but are available if you are interested.

"Banks Begin Disbursing New Loans to Argentina," Wall Street Journal, 12/1/83.

"Argentina Postpones Debt Payment for a Month," Wall Street Journal, 1/7/84.

"Argentina Posted Inflation Rate of 433.7% in 1983," Wall Street Journal, 1/9/84.

Antony Lewis, "Lessons from Argentina," Wall Street Journal, 1/26/84.

Neil Ulman, "Argentina Lists Plans to Curb Deficit, Inflation," Wall Street Journal, 1/27/84.

"Argentina's New Hope," BusinessWeek, 6 February 1984.

Background and overview of new Alfonsin regime that replaced the generals. Traces debt problem and resentment over having to pay debt run up by military under dictatorship.

Neil Ulman, "Argentina: Debt Without Destitution," Wall Street Journal, 2/22/84.

Neil Ulman, "Argentina Democracy Faces Debt Problems," Wall Street Journal, 2/24/84.

Art Pine, "Argentina, U.S. Banks Said to Be Nearing Accord," Wall Street Journal, 3/30/84.

"Argentina's 100 Days of Hope," Newsweek, 3/19/84.

Overview.

"Argentine Debt Pact Avoids Trouble Now, May Cause Pain Later," Wall Street Journal, 4/2/84.

"Bailout Revelations," Wall Street Journal, 4/13/84.

Lynda Schuster, "Unions Are Wild Card in Argentine Debt Crisis," Wall Street Journal, 6/8/84.

S. Karene Witcher, "Argentina Faces New Showdown Over Its Debts," Wall Street Journal, 6/11/84.

"Argentina Tells IMF It Won't Hurt Economy," Wall Street Journal, 6/12/84.

"Argentina's Strategy With IMF Raises Risk It Will Miss Payments Due June 30," Wall Street Journal, 6/13/84.

S. Karene Witcher, "US Banks May Post Lower Net Due to Argentina," Wall Street Journal, 6/13/84.

S. Karene Witcher, "Argentina Spoils 'Reward' Strategy," Wall Street Journal, 6/15/84.

Lynda Schuster, "Buenos Aires Defends Debt Plan," Wall Street Journal, 6/15/84.

Alan Murray, "Reagan Still Mulls Extending Loan For Argentina," Wall Street Journal, 6/15/84.

Lynda Schuster, "Argentine Mistrust of IMF's Attitude," Wall Street Journal, 6/18/84.

"Argentina Under Pressure to Agree with IMF as US Refuses to Extend Loan," Wall Street Journal, 6/18/84.

S. Karene Witcher, "As Latin Debtor Nations Prepare to Meet, Political Unrest Becomes a Big Concern," Wall Street Journal, 6/19/84.

D. Hertzberg and S.K. Witcher, "Manufacturers Hanover Assesses Argentine Loans," Wall Street Journal, 6/19/84.

S. K. Witcher and R. Lowenstein, "Argentina Pays $100 Million in Back Interest," Wall Street Journal, 6/21/84.

S. K. Witcher, "Argentina Seeks Way to Pay Creditors Some Overdue Interest by Saturday," Wall Street Journal, 6/26/84.

Lynda Schuster, "Argentines Risk Credit Cutoff," Wall Street Journal, 6/26/84.

S. K. Witcher, "Banks Await Sign of Argentine Pact with IMF Officials," Wall Street Journal, 6/27/84.

"Argentine Minister Continues Talks with US and IMF," Wall Street Journal, 6/28/84.

K. Witcher and L. Schuster, "Argentina Sets Tentative Pact at Some Banks," Wall Street Journal, 6/29/84.

"Argentina Sets Payments Pact With Its Banks," Wall Street Journal, 7/2/84.

H. Anderson, et.al. "Argentina: Hard Times for Democracy," Newsweek, 7/2/84.

S. K. Witcher, "Accord With Argentina Helps Creditors In Short Term, but Problems Lie Ahead," Wall Street Journal, 7/3/84.

George Hatch, "Argentine Army Generals Lose Posts in Shake- up," Wall Street Journal, 7/6/84.

Lynda Schuster, "State Workers in Argentina May Get Raise," Wall Street Journal, 7/5/84.

Eric Gelman, et. al., "An Argentine Soap Opera," Newsweek, 7/9/84.

G. Hatch, "Argentina Grants Wage Increases In Spite of IMF," Wall Street Journal, 7/16/84.

G. Hatch, "Argentina, IMF Close to Pact, Grinspun Says," Wall Street Journal, 7/20/84.

"Argentina Expects to Reach IMF Accord by August 15, but Washington is Skeptical," Wall Street Journal, 7/25/84.

G. Hatch, "Argentina's President Reins in the Military," Wall Street Journal, 7/31/84.

L. Schuster, "Argentina Will Ask Banks for a Further $1 Billion to Meet IMF Goals," Wall Street Journal, 8/2/84.

Komal S. Sri-Kumar, "Argentine Pols Must Look to Productivity First, Deficits Later," Wall Street Journal, 8/3/84.

L. Schuster and Eduardo Lachica, "Argentina Says Progress Made in IMF Talks," Wall Street Journal, 8/13/84.

Lynda Schuster, "Misfired Argentine Strategy With Banks Forced It to Repay a $125 Million Credit," Wall Street Journal, 8/17/84.

S. K. Witcher, "Banks More Pessimistic on Argentine Debt," Wall Street Journal, 8/24/84.

"Argentine Unions Stage Walkout for Higher Pay," Wall Street Journal, 9/4/84.

G. Hatch, "Argentina Curbs Credit, Devalues Peso To Meet Some of IMF's Austerity Targets," Wall Street Journal, 9/10/84.

Lynda Schuster, "Argentina Moves Toward Accord With the IMF," Wall Street Journal, 9/17/84.

A. Pine and L. Schuster, "Argentina, IMF Agree on Plan for Austerity," Wall Street Journal, 9/26/84.

"IMF Agreement on Argentina Austerity Is Unworkable, Many Experts Contend," Wall Street Journal, 9/27/84.

"Argentina Pays Some of Its Overdue Interest," Wall Street Journal, 10/1/84.

"Bank Regulators Ease Stance on Argentine Loans," Wall Street Journal, 11/8/84.

"Argentine Unions Give Alfonsin A Breather; Brazil More Debt Woes," Wall Street Journal, 10/22/84.

S. K. Witcher, "Argentina Repays Some Back Interest, Protecting Rating," Wall Street Journal, 10/25/84.

Everett Martin, "Argentina's Prolonged Economic Slump Forces Alfonsin to quietly Abandon Populist Strategies," Wall Street Journal, 12/3/84.

S. K. Witcher, "Argentina Reaches Tentative Debt Pact with Major Banks," Wall Street Journal, 12/3/84.

S. K. Witcher, "Argentine Debt Restructuring Accord May Be Too Lenient, Some Bankers Say," Wall Street Journal, 12/4/84.

S. K. Witcher, "Argentina Presses Banks to Approve Emergency Aid," Wall Street Journal, 12/26/84.

Art Pine, "Argentina Gets Loan From IMF of $1.66 Billion," Wall Street Journal, 12/31/84.

Douglas Tweedale, "Argentina Unveils Austerity Program for Next Five Years," Wall Street Journal, 1/10/85.

D. Hertzberg and S. K. Witcher, "Two Banks Downgrade Argentine Debt, Reflecting Cautious Attitude on Loans," Wall Street Journal, 1/17/84.

"Argentina IMF Plan Jeopardized," Wall Street Journal, 2/5/85.

"Argentina Says Economy, Bank Chiefs Resigned," Wall Street Journal, 2/19/85.

G. Hatch, "Technocrat Seen Reining Argentine Economy," Wall Street Journal, 2/20/85.

H. VARIOUS "RADICAL" VIEWS ON THE DEBT CRISIS

Celso Furtado, No to Recession and Unemployment: An Examination of the Brazilian Economic Crisis, Third World Foundation, London, 1984.

Peter Korner, Gero Maass, Thomas Siebold and Rainer Tetzlaff, The IMF and the Debt Crisis: A Guide to the Third World's Dilemmas, Zed Press, London 1986. (First published in Germany in 1984)

Cheryl Payer, "Repudiating the Past,"

Jeff Frieden, "On Borrowed Time,"

Alfred J. Watkins, "Going for Broke?" all three articles in NACLA Report on the Americas, VOL. XIX, No. 2, March/April 1985 special issue on Latin American debt.

Fidel Castro, "How Latin America's and the Third World's Unpayable Foreign Debt can and should be Canceled and the Pressing Need for The New International Economic Order," Interview with Excelsior (Mexico), 1985.

"Fidel's Out to Fire up Latin American Debtors," BusinessWeek, July 15, 1985.

Robert E. Wood, "Making Sense of the Debt Crisis," Socialist Review 81 (Vol. 15, No. 3) May-June 1985.

The Debt Crisis Network, From Debt to Development: Alternatives to the International Debt Crisis, The Institute for Policy Studies, WAshington, D.C., 1985, Chapter III: An Alternative Policy.

Jacobo Schatan, World Debt: Who Is To Pay?, Zed Press, London, 1987. (First published in Mexico in 1985)

Howard Wachtel, The Money Mandarins: The Making of a Supranational Economic Order, Pantheon Books, New York, 1986.

Alfred Watkins, Til Debt Do Us Part: Who Wins, Who Loses and Who Pays for the Internaional Debt Crisis, University Press of America, New York, 1986.

Cherl Payer, "Causes of the Debt Crisis," in Robert Cherry, et. al, (eds) The Imperiled Economy: Book I: Macroeconomics >From a Left Perspective, New York: The Union for Radical Political Economics, 1987, pp. 197-204,

Arthur MacEwan, "Imperial Decline and International Disorder: An Illustration from the Debt Crisis," in Robert Cherry, et. al, (eds) The Imperiled Economy: Book I: Macroeconomics >From a Left Perspective, New York: The Union for Radical Political Economics, 1987, pp. 205-214.

Jubilee Debt Campaign,Home Page

This on-going Campaign was an outgrowth of the early response to the debt crisis in the South when it first exploded in the early 1980s. That it still continues is the result of the continuation of debt crises both South and North. You should examine this entire website - its history, its analysis of the crises and its proposed ways of dealing with them. Much of its analysis is summarized in its pamphlet Getting Into Debt

I. THE NEVERENDING STORY

1. The Brazilian Debt Crisis

Conrad Herold, "Working Class Struggle and the Brazilian Debt Crisis," "Austere Salary Limits for High-Paid Workers Liberalized by Brazil," Wall Street Journal, 10/22/84.

S. K. Witcher, "IMF Severs Credits to Brazil Until Nation Adheres to Austere Economic Measures," Wall Street Journal, 2/14/85.

"The Generals Step Aside: Brazil gets its first civilian president in 21 years," Newsweek, 1/28/85.

S. K. Witcher, "Brazil's Bankers May Refinance Half its Debt," Wall Street Journal, 2/4/85.

Eric Berg,"Banks cool to Brazil Debt-for-Bond Plan," The New York Times, September 28, 1987.

Peter Truell, "U.S. Uses Its Muscle in a Bid to Break Impasse on Debt Between Brazil, Banks," The Wall Street Journal, October 29, 1987.

Alan Riding, "Rights Group Accuses Brazil Police of Killings," The New York Times, December 13, 1987.

Peter Truell, "Brazil Clarifies Its Conditions on Bank Debt," The Wall Street Journal, January 18, 1988.

Clyde Farnsworth, "Brazil Agrees to Renew Meetings With IMF," The New York Times, February 19, 1988.

Alan Riding, "Brazil's Reversal of Debt Strategy," The New York Times, February 22, 1988.

Alan Riding, "Brazil Debt Agreement is Reached: Halt in Payments To Foreign Banks Would Be Ended," The New York Times, February 29, 1988.

2. Other Developments

S. Frazier and S. K. Witcher, "Mexican Spat With IMF Over Austerity Could Delay Billions of Dollars in Credits," Wall Street Journal, 2/15/85.

S. K. Witcher, "Loans to Third World to be More Politicized by Mexican Debt Pact," Wall Street Journal, 10/10/84.

"Will Mexico Make It?" BusinessWeek, October 1, 1984, pp. 74-88.

Charles F. Meissner, "Debt: Reform Without Governments," Foreign Policy, 56, Fall 1984.

Art Pine, "No Change Seen in IMF Policies On Debt Crisis," Wall Street Journal, 9/14/84.

Art Pine, "Developing Nations Told to Streamline Economies Further," Wall Street Journal, 9/13/84.

International Monetary Fund, Annual Reports, Washington, D.C.

Read chapters 1 and 2.

"Easing The Third World Debt Burden," Wall Street Journal, 8/27/84.

Everett Martin, "Austerity Destabilizing Debtors Chile and Peru," Wall Street Journal, 7/13/84.

Roger Lowenstein, "Dominicans Likely to Bow to the IMF," Wall Street Journal, 6/20/84.

"Latin American Debtors are Spoiling for a Fight," BusinessWeek, May 27, 1985.

"The Latin Debtors' Rebellion Spreads North, (to Mexico)" BusinessWeek, September 16, 1985.

"Washington's Gambit to Head Off A Debtor Revolt," BusinessWeek, September 23, 1985.

Jeffery E. Garten, "Gunboat Economics," Foreign Affairs, Vol. 63, No. 3, 1985. (This article is included in Diplomacy Packet)

Critique of Reagan policy as one which by being totally focused on domestic economic issues, ignored and harmed the rest of the world and America's relations with it. Also critiqued for being unilateral, inconsistent, too protectionist, unable to grasp interdependence, and "mesmerized by its own rhetoric."

Eric Berg, "Dark Cloud of Acrimony Over World Debt Crisis," The New York Times, May 21, 1987.

Leslie Wayne, "Wall Street's Newest Magic Show: Investment Bankers are trying to turn third world debt into bonds and other securities that will lure investors," The New York Times, September 13, 1987.

Peter Truell, "Academic Solution: Teach 'Debt Reflief," The Wall Street Journal, September 24, 1987.

Robin Broad, "How About A Real Solution to Third World Debt?" The New York Times, September 28, 1987.

Peter Truell, "Baker Outlines Proposals to Aid Debt Strategy," The Wall Street Journal, October 1, 1987.

Roger S. Leeds, "'Default ' Is Not in Bankers' Stars," The New York Times, October 12, 1987.

Robert Bennett, "New Way Offered to Resolve Crisis in 3D World Debt," The New York Time, December 30, 1987.

David Pearson and E. Lachica, "IMF Creates $8.4 billion Facility For Poorest Nations, Marking Shift," The Wall Street Journal, December 30, 1987.

Clyde Farnsworth, "New Debt Relief Policy: US, by Role in Mexican Aid, Acknowledges That Part of 3d-World Loans Won't be Paid," The New York Times, December 31, 1987.

Jeff Bailey, "First Bank System Places Nearly All Its Latin Debt on Non-performing Status," The Wall Street Journal, January 7, 1988.

Clyde Farnsworth, "3d World's Prospects Called Poor: World Bank Asserts Debt Burden Has Cut Incomes Sharply," The New York Times, January 19, 1988.

Walter Mossberg, "World Bank Says Debtor Nation's Tab Stands at $1.9 Trillion...and Growing," The Wall Street Journal, January 19, 1988.

Clyde Farnsworth, "IMF Trying to Be More Flexible: Lender Hopes to Set Less-Harsh Terms," The New York Times, February 1, 1988.

NYT Editorial, "It's America's Debt Crisis, Too," The New York Times, February 29, 1988.

J. THE BAKER AND BRADLEY PLANS

Christine A. Bogdanowicz-Bindert, "World Debt: The United States Reconsiders," Foreign Affairs, Vol. 64, No. 2, Winter 1985-86.

"Ideology has, at last, given way to pragmatism." Recounts successes of recent years in dealing with debt crisis, but also notes limits: stagnation and "social powder keg." Assesses Baker Plan and needs for more credit and easier terms to avoid explosion.

"Facing Reality on Latin Debt," BusinessWeek, October 21, 1985.

Report on Baker Plan to deal with debt: more money for growth.

B. Riemer, "Bakers New Debt Plan: Really Sick Countries Need Not Apply," BusinessWeek, November 18, 1985.

Report on choice of Argentina over Mexico for Baker Plan aid when Mexico needs it much worse.

The Debt Crisis Network, From Debt to Development: Alternatives to the International Debt Crisis, The Institute for Policy Studies, Washington, D.C., 1985, Appendix II: Baker, Bradley and the U.S. Debate on Debt.

K. DEBT AND AUSTERITY IN THE UNITED STATES

Gerald Epstein,"The Triple Debt Crisis," World Policy, Vol. II, No. 4, Fall 1985.
Examination of interrelations of budget deficit financed with growing debt, trade deficits financed with debt (much foreign) and international debt of Third World. Offers new program of decreased role for dollar, and economic democracy, especially democratic control of the Fed.

*Peter G. Peterson, "The Morning After," The Atlantic, October 1987.

Supply-side call for austerity in the United States by an establishment policy maker. The Analysis: too much consumption, too much debt (especially foreign), too little investment and lower productivity growth, e.g., "Americans" have had a "national preference for consumption over investment" (p. 44); there was a "wage binge [in] the seventies" (p.47), there has been a "consumption bacchanalia" (p.48), a "torrid consumption boom" (p. 49), "blind and self-indulgent gusto" (p. 69); "the most lobpsided imbalance between saving (foreign) and spending (American) ever witnessed . . . we have transformed ourselves from the world's largest creditor into the world's largest debtor" (p. 44), "still feebler productivity growth" (p. 44), "weakest net investment effort in postwar history" (p. 44), "rate of growth of real net output per worker . . . has averaged about 0.4 percent a year" (p. 49). The Solution: less consumption, more investment to raise productivity, more exports, fix government deficit. "Correcting the current imbalance assumes that America can embark on an enormous shift from consumption to savings" (p. 46), "our level of consumption must slow its climb, or even fall, while our level of production catches up" (p. 48), "the arithmetic is cruel and inescapable . . .to further increase investment at home we may have to undergo further decline in consumption" (p. 52), "America must soon change its habits, including its fixation on creative consumption" (p. 55), [we need] "declining per-worker consumption through most of the rest of this century" (p. 55), "we must act decisively to put a lid on America's excessive and wasteful consumption of health care," (p. 69), "we must reduce our foreign borrowing stream by $20 billion yearly" (p. 50), "the single most important step . . . will be for America to generate steady, large and predictable increases in its net national savings rate over the next several years." (p. 64), "we must overcome the low-investment heritage we have received from thirty years of postwar preoccupation with 'demand management'" (p. 68), "we should encourage higher private sector savings rates by trading off increases in consumption-based taxes for reductions in investment- based taxes," (p. 69), "we must tame the federal budget deficit . . .we must above all slow the growth in non-means-tested entitlements" (pp. 68-69), "we must increase federal revenue . . .some form of a consumption based tax" (p. 69). Peterson has since published a booklength version of this essay as Peter G. Peterson, Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream, New York: Simon & Schuster, 1993.

I.F. Stone, "Binge: End of a Profligate Era," The Nation, October 1987.

Call for austerity in the United States by a liberal social critic. "The United States, the worldís number one debtor nation, may be heading for historyís biggest bankruptcy. It that occurs, it will drag the world down with it,. . . The whole country is in hock . . . the savings rate . . . has been cut by more than half . . . This is reflected in the biggest consumer binge of all time, based increasingly on credit. . . The United States needs a dose of austerity as surely as do Argentina, Brazil and Mexico. . . if the two parties in Congress . . reached agreement on a really radical cut in the deficit. It could begin to restore confidence worldwide. True it would mean some bitter medicine at home, but that may be the way to avoid a crash recalling 1929.

"

"Wake Up America," BusinessWeek, November 16, 1987.

Three articles that make up the cover story calling for austerity.

Nina Easton, "An Economic Agenda in Search of a President,: Can 'Rebuild America' replace the supply side in 1988?" BusinessWeek, March 28, 1988.

Report on a group pushing austerity policies for the U.S.

*Jeff Faux, "The Austerity Trap and the Growth Alternative," World Policy Review, summer 1988, pp. 387-413.

Response to Petersonís demand for austerity (see above) recommending growth instead -similar to Latin American demands for growing out of debt instead of depressing demand.

Patrick Bond, "The New U.S. Class Struggle: Financial Industry vs. Grassroots Populism," Capital & Class, No. 40, Spring 1990.

Analysis of growing grassroots resistance to austerity and the power of financial capital in the United States.

Norman S. Fieleke, "The United States in Debt," New England Economic Review (Federal Reserve Bank of Boston) September-October 1990, pp. 34-54.

Bankerís overview of the U.S. debt situation.

Simon Johnson, "The Quiet Coup," The Atlantic Monthly, May 2009.

Midnight Notes and Friends, Promissary Notes: From Crisis to Commons, April 2009.

L. The Debt Crisis in Venezuela and the US Shift in Policy

Because the New York times is now charging an arm and a leg for reprinting its articles, the following collection is not included in the packet, but copies will be available in the PCL Reserves where you can read them. The upheaval in Venezuela caused a major shift in creditor policy from intransigent insistence on full repayment to an acceptance of debt relief or debt reduction. The shift was brought about by the poor of Caracas -at a cost of several hundred lives!

"Venezuelaís Perez: A Populist With A Master Plan for Latin Debt," BusinessWeek, December 5, 1988, p. 52.

"Dozens of Venezuelans Killed in Riots Over Price Increases," The New York Times, March 1, 1989.

Alan Riding, "Rumblings in Venezuela," The New York Times, March 2, 1989.

Mark A. Uhlig, "Venezuela is Mostly Quiet in Wake of Protests," The New York Times, March 2, 1989.

Mark A. Uhlig, "Violence Ebbs in Venezuela, but Crisis Burns On," The New York Times, March 3, 1989.

NYT editorial, "Caracas Seethes, Washington Snoozes, "The New York Times, March 3, 1989.

Peter Kilborn, "US Ready to Join a $2 Billion Loan to Aid Venezuela," The New York Times, March 4, 1989.

Mark A. Uhlig, "Venezuela May Halt Debt Payments," The New York Times, March 4, 1989.

Mark A. Uhlig, "Venezuela Unrest: Lesson for Leader," The New York Times, March 6, 1989.

Clyde H. Farnsworth, "IMF: Under Fire, as Usual, From the Third World, "The New York Times, March 8, 1989.

Peter T. Kilborn, "Shift Is Seen in US Policy to Ease Repayment Costs for Third World," The New York Times, March 9, 1989.

"IMF Position on Venezuela," The New York Times, March 9, 1989.

Bill Bradley, "Urgent Relief for Mexico," The New York Times, (op-ed) March 10, 1989.

Peter T. Kilborn, "Fed Seen as Likely to Slow Bush Shift on 3rd World Debt," The New York Times, March 10, 1989.

Peter T. Kilborn, "Debt-Policy Shift Set on 3rd World Debt," The New York Times, March 11, 1989.

"Excerpts from Brady Remarks on Debt," The New York Times, March 11, 1989.

"Caracas Inquiry Urged on Rights Abuses in Riots," The New York Times, March 12, 1989.

Jesse Trevino, "Latin Debt Plan Burdens US Taxpayers," Austin American Statesman, March 12, 1989.

"Latin America Optimistic About Debt Relief Plan,"The New York Times, March 12, 1989.

"Official Finds No Ethics Violation By Baker Over Brazil Debt Issue," The New York Times, March 13, 1989.

Larry Rohter, "Debt Plan Faces Test in Mexico," The New York Times, March 13, 1989.

Michael Quint, "Bankers Wary on Plan to Shrink Foreign Debt," The New York Times, March 13, 1989.

NYT editorial, "Relief for Foreign Debtors, At Last," The New York Times, March 14, 1989.

Art Pine, "Administration ends Banking Impasse: Latin American Resources Extended," Austin American Statesman, March 16, 1989.

Peter Kilborn, "Administration Seeking To Explain Debt Policy," The New York Times, March 15, 1989.

Peter Kilborn, "Greenspan Backs Shift on Debt," The New York Times, March 17, 1989.

Robert Lenzner, "Banks Selling Short on Third World Debt," Austin American Statesman, March 19, 1989.

Exchange of letters between Venezuelan President Perez and IMF head Camdessus, IMF Survey, March 20, 1989.

M. And Once Again in the East! Poland.

John Tagliabue, "To His Volatile Young Allies, Walesa Preaches Conciliation," The New York Times, March 2, 1989.

"The aggressive young workers he is now seeking to rein in are the very ones who carried out the strikes last spring and summer that catapulted Solidarity and its leader back into the political arena. . . . the [old] government moved [to legalize Solidarity] not out of altruism but rther in an attempt to co-opt Solidarity and induce the union to help hease the nationís economic crisis."

John Tagliabue, "Solidarity Plans to Join Regime in Asking Debt Aid," The New York Times, March 3, 1989.

"Negotiators for the Government and the Solidarity union have agreed in principle to issue a joint appeal for relief of Polandís crushing foreign debt. . such an appeal might contain requiests for relief on interest payments on the debt, the renewal of Western guarantees for comercial bank loans and more favorable conditions for relief under a standby program of the IMF. . With an estimated foreign debt of $37.9 billion, the lowest per capita export earnings in Europe and eteriorating industrial plants, Poland is in dire need of new loans and investment. . . . The yearly interest is about $3.7 billion, while Polandís ability to pay -that is, hard currency earnings minus the cost of imports- is about $1.5 billion."

John Burns, "Soviets Praise Walesa, Printing First Interview," The New York Times, March 3, 1989.

"One development that was thought to have troubled the Kremlin, in part because of the example it might set for Soviet workers, were the strikes that Solidarity supporters led in several plants las year before the unionís agreement to discuss Polandís future with the government."

John Tagliabue, "Poland is Tying Political Reform to Western Economic Assistance," The New York Times, March 19, 1989.

"Wildcat strikes over wages are rippling across the country and have become as much a fact of life as the endless communiques, news conferences and televised discussions. . Amid a stagnating economy and an inflation rate that experts predict will enter tiple digits this year, Poland in recent months has devalued the zloty, the national currency, raised prices for many goods including food, and moved to give wider freedoms to small private businesses and joint ventures between Polish and foreign companies."

Jeffrey Sachs, "The Economist Heard Round the World, Part I" World Monitor, Vol. 3, No. 10, October 1989.

Sachs on dealing with the Debt.

Janine R. Wedel, "The Economist Heard Round the World, Part II," World Monitor, Vol. 3, No. 10, October 1989.

Wedel on Sachs.

Jeffery Sachs & David Lipton, "Polandís Economic Reform," Foreign Affairs, Vol. 69, No. 3, Summer 1990, pp.47- 66.

Charles Gati, "East-Central Europe: ĎThe Morning After," Foreign Affairs, Vol. 69, No. 5, Winter 1990-1991, pp. 129-145.

Steven Greenhouse, "Poland is Granted Large Cut in Debt," The New York Times, March 16, 1991.

"Western governments have agreed to forgive about half the $33 billion that Poland owes them . . offering what they called Ďextraordinary termsí to help ease Polandís transition to a market economy. Western Officials said the debt-relief package was the most generous treatment that the creditor nations, meeting in an informal group known as the Paris Club, had ever given a debtor nation. . . Poland owes $48.5 billion in all, including about $11 billion to commercial banks.. . . David Mulford, Under Secretary of the Treasury, who was Washingtonís chief negotiator on Polish debt, said in a telephone interview, ĎWe see this as a historic event similar to the reduction in debt in Germany in 1953, which we hope will put Poland on the path of sustained economic recovery. . .the debt burden had hurt [Polandís] reform efforts by making it hard for the nation to afford to import much-needed consumer goods and capital equipment. . . the plan, which has two stages, is intended to cut interest payments by 80 percent over the next three years. Maximizing relief at the planís start is a recognition that repaying debt will be especially hard during the early years of economic reform.The package will reduce Polandís annual interest payments on its government-to-government debt from an estimated $3.3 billion to $660 million. . Paris Club creditors expect comparable treatment from Polandís commercial bank creditors. . .The first stage is contingent upon Poland's signing an agreement with the International Monetary Fund to restructure its economy. Such accords often call for privatizing businesses and holding down public spending and inflation. The second stage is contingent upon fulfillment of the terms of the IMF agreement.

"Bush Greets Walesa With Debt Relief," The New York Times, March 21, 1991.

"Welcoming Lech Walesa to the White House . . . President Bush forgave an additional $800 million in Polish debt payments today. With that decesion the United States has now agreed to wipe clean 70 percent of Polandís $3.8 billion debt to Washington. . .Administration officials said the debt reduction was intended to encourage the American business community to invest in Poland. . . [Bush] noted that by moving to eliminate 70 percent of Polandís debt, the United States was going beyhond the 50 percent reduction set last week by the Paris Club, the consortium of Western creditor countries who among them hold $33 billion dollars of Polandís debts . . . Obviously concerned that the generosity shown Poland not raise the hopes and appeals of other debtors, a State Department official said the action taken was "a very rare step" and that that scale of forgiveness would be limited to only Poland and Egypt. The administration last year cancelled Cairoís $7.1 billion debt for sales of military hardware in gratitude for its role in the gulf crisis."

DEBT RELIEF?

M.A. Thomas, "Getting Debt Relief Right," Foreign Affairs, September - October 2001.