[DEBATE] : Eric Toussaint - Differences between 1982 and 2007-2008
Riaz K Tayob
riazt at iafrica.com
Wed Feb 27 14:27:46 GMT 2008
~~~~~~~~~~~~~~~~~~~(((( T h e B u l l e t ))))~~~~~~~~~~~~~~~~~~~ A
Socialist Project e-bulletin .... No. 83 .... February 26, 2008
Differences between 1982 and 2007-2008
In 1982, the external public debt crisis of the developing countries was
triggered by the combined effects of the rise in interest rates imposed
by the United States two years earlier, and the fall in prices of raw
materials, particularly oil. The epicentre was in the South and the
first casualties were the governments of the developing countries, who
suddenly found themselves owing enormous amounts in debt repayments.
The financial crises of the 1990s practically only affected developing
countries - there was the Mexican crisis of 1994-1995, the Asian crisis of
1997-1998, the Russian crisis of 1998, the Brazilian in 1999, Turkish in
2000, Argentine in 2001-2002 and Brazilian again in 2002. Each crisis
was triggered by sudden movements of capital and speculative attacks on
the currencies of the countries concerned. Financial capital that had
been directed towards these countries before the crisis was withdrawn,
causing the crisis. It was a question of capital flight to safety, with
capital being returned to the financial centres of the North, considered
In August 2007, a financial crisis exploded in the North in the world's
leading economy, which so far has mainly affected private finance
companies in the industrialized countries, especially in North America
and in Western and Central Europe. For the moment, Japan has been spared
as its private finance sector, directly hit by a debt crisis over 15
years ago, has barely had time to get started again. The Japanese crisis
perhaps led Japanese bankers to be rather more prudent than their
North-American and European counterparts. The crisis in the financial
system of the North is such that capital flight to safety is operating
in the opposite direction to that of the past. Capital is being directed
away from the North towards the flourishing stock-exchanges of countries
like India, China and Brazil, now perceived as safe havens. The
phenomenon is so excessive that the Indian government, despite being
neoliberal, is considering ways of discouraging this inopportune capital
inflow, which will force up the value of the Indian rupee and quite
possibly flow out again shortly if more viable financial opportunities
present themselves elsewhere in the world.
The global situation has changed over the last 25 years in other ways, too:
1) History shows that between 1982 and 2004 there was a tendency for the
price of raw materials to fall and the terms of exchange between
industrialized and developing countries deteriorated. Since 2005, there
has been a renewed sharp rise in prices.
2) Most developing countries register trade surpluses, especially China
which is inundating the global markets with its manufactured goods.
3) In 1982 and the years that followed, developing countries' foreign
exchange reserves were limited. Since 2002, slowly at first and
gathering pace since 2005, they have continually increased.
4) Interconnected markets have led to an increase in private debt in
both the North and the South in the form of complex types of derivative
products which, far from ensuring greater stability, make for more
opacity and speculation. We have a vast financial system with a
considerable sector based on the accumulation of debt paper that could
collapse at any moment like a house of cards.
5) Internal public debt has reached all-time highs in the developing
countries, while the external public debt is falling. In the USA it has
increased too, although more slowly, and in Japan it remains extremely
high at 185% of the GDP, according to the IMF.
6) There is an explosion of food prices worldwide.
7) There has been a frenzied acceleration of the arms race led by the
8) South-South capital flows are on the increase.
9) China is making itself felt as never before in international economic
and financial relations.
10) A group of Latin American countries has launched the foundations of
new multilateral regional institutions, starting with a Bank of the South.
Accumulation of developing countries' foreign exchange reserves
Since 2004, the economic situation has been characterized by the high
price of raw materials and a number of agricultural products. This has
allowed a large number of developing countries to increase their export
revenues and accumulate significant foreign exchange reserves,
especially countries which export oil, natural gas and minerals. Some
agricultural exporters have also benefited from this favourable
situation. China, by exporting manufactured goods, has accumulated
impressive quantities of foreign exchange reserves, amounting to stock
of over 1,400 billion dollars in December 2007. However, not all the
developing countries are included in this scenario; some sub-Saharan
African States have seen their situation take a turn for the worse.
In 2007, the developing countries together hold over 4,600 billion
dollars in foreign exchange reserves while the industrialized
countries hold less than a third of this sum. How do the developing
countries use their reserves?
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