16 Balance of Payments and Macroeconomic Stability Overview The balance of payments account Managing the accounts Thinking about debt The 1980s debt crisis a big case study IMF stabilisation ID: 1029908
Download Presentation The PPT/PDF document "Economic Development Lecture" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
1. Economic DevelopmentLecture 16: Balance of Payments and Macroeconomic Stability
2. OverviewThe balance of payments accountManaging the accountsThinking about debt…The 1980s debt crisis: a big case study!IMF stabilisation policiesTactics for debt relief (‘Mind the gap’!)Ongoing concerns
3. The balance of payments accountCurrent accountX, M, interest/dividends from overseas I, remittances, transfersMoney coming in: +veMoney going out: -veCapital account (‘financial account’)+ve: FDI, foreign loans, foreign aid-ve: capital flight
4. Credits and debits in the Balance of Payments Account
5. The balance of payments accountCash account (‘international reserve account’)Foreign cash reservesGoldDeposits with the IMFIMF: the world’s reserve bankActs as balancing item in balance of payments
6. Managing the accountsInternational reserves can finance deficitsImproving the current account:Increase X earningsDecrease I paymentsDevaluationMonetary and fiscal policyImproving the capital account:FDI, foreign aid, remittancesMonetary and fiscal policy (again!)
7. Thinking about debt…The personal debt analogyDebt spirals‘Good’ debt needs to be:Sustainable in the long-termFor an economically productive purposeFor liquidity purposesLiquidity v solvencyBasic transfer = net inflow/outflow of foreign exchange from servicing debt
8. The 1980s debt crisis (a big case study!)Pre-1980s:Current account deficits, capital account surplusesLeading up to the 1980s:The oil shock of 1973 – 1980
9.
10. The 1980s debt crisis (a big case study!)The oil shock:Direct effectIndirect effectPetrodollars, low interest ratesCommercial and non-concessionalThe 1980s:Situation deteriorated rapidly
11. The 1980s debt crisis (a big case study!)Why?Oil price reversal, interest rates riseTrying to finance the old growth ratesFall in price of primary productsGlobal recessions (‘81-’82, ‘91-’93)Increased protectionism in the developed worldOvervalued exchange ratesPrivate capital flight
12. The 1980s debt crisis (a big case study!)Result?Chronically large deficitsHigh inflationIMF bail-outs and…
13. IMF stabilisation policiesIMF as the ‘middleman’ for international banksConditionality as a safeguard on paymentFeatures of policy:Trade liberalisationRemoval of exchange rate controlsDevalue the exchange rate
14. IMF stabilisation policiesFeatures (cont.):Anti-inflation policies:Tightened monetary policyFiscal austerityControls on wage increasesRemoval of microeconomic policy distortions
15. IMF stabilisation policiesReception?Anti-IMF riotsA field-day for international dependence revolution theorists…!Success?Hard to call it successful – ‘the lost decade’‘Structural adjustment’ did occur, but at what cost?Case study: Mexico (Textbook p684 – 687)
16.
17. Tactics for debt relief: ‘Mind the gap!’Debtors cartel / debt repudiation?Negotiating time periods, interest ratesDebt forgiveness / Brady planLinking repayments to export earningsLobby for new special drawing rights from the IMFDebt for equity swapsDebt for nature swapsLobby for recognition of ‘odious debt’
18. Ongoing concernsSub-Saharan AfricaDeveloping country reluctance to go to the IMFLiquidity v. insolvency againThe debt trapThe US deficit:http://www.iousathemovie.com/ (whole thing)http://www.youtube.com/watch?v=O_TjBNjc9Bo (30 minute version)
19.