The Global Debt Crisis, Neoliberalism Reforms, and Their Consequences Flashcards
(8 cards)
What was the cause of the global debt crisis in the 3rd world ?
The Roots run back to 1973-1974, oil prices soared triggering expansion in international lending mainly commercial and petro dollars. Importing countries ran up huge import bills and oil exporting countries has a huge build up of deposits in international banking systems. Sparked the widespread use of neoliberal ideologies and policies promoted by IMF and WB
What is the purpose of SAPs ?
SAPs aimed to maximize the prospects for and amounts of repayments by debtor countries with little thought for national repercussions of these repayments for heavily indebted nations. They hope to reshape the economies for developing countries in favour of free markets, reducing government intervention in the economy. Often have structural reforms attached.Increase exports and free markets by deflation, devaluation, decontrol and privatization
What are the types of reforms associated with sap?
- SHORT TERM : stabilization measures are implemented with the IMF. designed to stop economic conditions from deteriorating further such as public sector, wage freezes, reduced government subsidies and currency devaluation. often result in recession and are aimed at solving the most important economic problems.
- LONG TERM : adjustment measures aimed at improving economic efficiency by changing the structures within which transactions take place ; associated with WB. economic liberalization, exports, downsizing public sector, reduction in taxes, and privatization
What are the consequences of SAP?
widening inequalities, reduced purchasing power for the poor, downsizing public sector, lowering safety net , user pays in healthcare, economic growth but stagnation is many areas, declining role of the state due to the reduced income and the consequent provision of welfare to its populations
What is the Neoliberal ideology ?
Ideology that revolves around the relationship between states and markets. Deep faith in markets as the best allocator of resources. belief that government intervention makes markets worse. Long term reliance of market forces will being prosperity, liberty, and democracy.
Describe the rise of neoliberalism
- In the late 1970s, Neo-Keynesian economics lost credibility as new classical economics and macroeconomic principles became dominant.
- There was a strong political shift in major industrial nations against “big government,” seen as both inefficient and oppressive.
- Market efficiency and individual initiative were emphasized as key to solving economic problems.
Many believed the state was more of a hindrance than a solution to economic development. - Political leaders such as Margaret Thatcher, Joe Clark, Ronald Reagan, and Helmut Kohl played pivotal roles in promoting these ideas.
- The concept of the “invisible hand” highlighted how individuals pursuing personal gain often unintentionally benefit society more effectively than intentional efforts to do so.
What does the Washington consensus prescribe as policies ?
- Reduce national budget deficits
Fiscal deficits , by raising tax revenues or cutting domestic spending - Redirect spending from politically popular areas towards neglected fields wiht high economic returns
- increases GDP without increasing levels of inequality
- Reform tax system
Broadening and simplifying taxes can promote efficiency, improve tax collection, and reduce tax evasion - Liberalize the financial sector with the goal of market determined interest rates
- Market determined interests rates promote savings and ensure that banks or financial markets determine allocation of credit
- Adopt a competitive single exchange rate
Competitive market driven exchange rate can promote export led economic growth and reduce balance off payment problems - Reduce trade restrictions
If reduced they allow domestic firms to adjust and yield revenue for the government - Abolish barriers to foreign direct investment
- Foreign investment allows a country to gain capital, create jobs, build skills while exposing domestic firms to greater competition. Foster intellectual property and innovations
- Privatize state owned enterprises
May cause some unemployment but is likely to raise the efficiency and profitability of businesses and increase national productivity and growth
Abolish policies that restrict competition - Removing regulations prevent new firms from entering the marketplace and can stimulate competition, efficiency and economic growth
- Provide secure and affordable property rights
What are the key aspects of the neoliberal globalization project ?
- Liberalization - Free markets
Deregulation of markets and business - Removal of government controls on wages, prices
- Privatization of state enterprises and functions
- A business friendly investment climate
- Elimination of tariffs and other barriers to free trade
- “Individual responsibility” rather than provision of services
