[DEBATE] : Eric Toussaint - Differences between 1982 and 2007-2008

[Riaz K Tayob]

~~~~~~~~~~~~~~~~~~~(((( 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

Eric Toussaint

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been directed towards these countries before the crisis was withdrawn, 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 
more secure.

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 
United States.

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[4] in foreign exchange reserves while the industrialized 
countries hold less than a third of this sum. How do the developing 
countries use their reserves?

Complete Bullet available on our website: 
http://www.socialistproject.ca/bullet/bullet083.html

This email was cleaned by emailStripper, available for free from 
http://www.papercut.biz/emailStripper.htm