The
postwar liberal trading framework has become hopelessly
distorted during the past two decades by the hegemony
of the U.S. dollar, high interest rates, debt deflation,
and capital flight; the asymmetries of a world so
structured are proving intolerable. The economist
John Maynard Keynes recognized this issue with characteristic
clarity in the design of the Bretton Woods institutions--the
World Bank and International Monetary Fund--in 1944.
Keynes favored free markets and liberal trading arrangements
insofar as they could be made to work, but he was
also well aware that free markets are inherently unstable
and prone to collapse. Keynes also understood that
the characteristic structure of unregulated international
finance placed bankers and creditors in the dominant
position, and so would inevitably force adjustment
by debtors. But what was locally rational in a financial
transaction would prove disastrous for the system
as a whole. As individual debtors contracted their
economies in order to meet their interest payments,
their demand for imports would diminish, and so would
the exports of their suppliers. The entire economic
system would contract, and in the end no one would
be further forward in their ability to pay their debts.
THE INTERNATIONAL MONETARY FUND (IMF) has offered
Brazil a $30 billion loan, most of it reserved for
next year, on condition that the country continue
to run a large primary surplus in the government budget.
In this way the IMF maintains a strong arm over Brazil's
next government, almost surely to be drawn from the
left. Any significant move toward fiscal expansion
would trigger revocation of the promised loan, followed
by capital market chaos. Or so one is led to suppose.
Right now, Brazil is in the grip of recession. With
declining demand for imports, the country has a surplus
in its trade account (outflows less inflows of goods
and services). It has, nevertheless, a substantial
deficit in its current account (outflows less inflows
of financial assets), most of which must be interest
payments on external debts. These outflows are offset
by capital inflows, which are not, however, mainly
new investments--currently low, owing to the depressed
state of internal demand--but operating loans to existing
businesses and the sale of existing national assets
to foreigners. In short, Brazil's external balance
today is a matter of mortgaging or selling property
to pay interest, meanwhile hoping that things will
somehow get better.
The IMF's requirement that Brazil maintain a primary
budget surplus amounts to a prohibition against fighting
recession by increasing domestic demand, an action
that would raise domestic investment and move the
trade balance back into deficit (and the current account
even more so), which in turn would require that foreign
investors be found who are actually willing to bankroll
new activity. Of course, such investors do not exist.
If they did, the IMF would not be in the picture.
Conversely, the pressure to maintain a trade surplus
is a device for balancing the existing willingness
of foreigners to buy Brazilian assets against the
existing burden of debt service. In part because of
the political climate, that willingness is eroding
more rapidly than Brazil can manage by shrinking real
activity and curtailing imports. Panic therefore threatens
from day to day. The short-run purpose of the loan
is merely to shift the timing of panic so that it
occurs under the new government instead of the old.
A report in the New York Times on August 21, 2002,
makes this clear:
American and European banks have all been scaling
back their lending to Brazilian exporters and manufacturers
in the last six months. Most are refusing to comment
on their willingness to jump back into that market
on the heels of the fund's big loan deal.
In the medium term, if the new government respects
the conditions of the loan, the effect must be to
finance a continuing reduction in private capital
inflows, substituting debt to the IMF for exposure
to private external investors while maintaining external
debt payments to satisfy older creditors. It is probably
not accidental that the net IMF loan for next year
is roughly the same size as the present surplus on
the capital account.
Nothing here holds out any hope that Brazil's high
indebtedness and interest obligations can be reduced.
There is no amortization plan. Therefore, unless something
does turn up (for instance, massive price increases
for orange juice and coffee, which are not very likely),
the outlook is for another IMF loan, and another,
and another, into the indefinite future, until the
private foreign sector is safely divested of its Brazilian
holdings.
There is also nothing in the loan that holds out the
prospect for economic progress in Brazil itself. Neither
increased public spending nor increased imports can
be financed from it. Hence the loan represents no
new money that would benefit Brazilians, except to
the extent that wealthy Brazilian nationals also transfer
their assets abroad, and that locals purchase durable
imports while they can. It is a standstill, not a
progressive package, whose purpose is to keep the
wheels of finance spinning, aimlessly, on the Brazilian
beach.
Who benefits? In the first place, private holders
of Brazilian assets, who have an opportunity to escape
before a severe devaluation. In the second place,
foreign bankers, whose loans will receive interest
longer than would otherwise be the case. And in the
third place, domestic political forces inside Brazil
that oppose growth in public services and social reform.
What is not clear is why a Brazilian government of
the left, elected with a mandate to rule in the interest
of the working population, should sacrifice its freedom
of maneuver to these interests. It would be one thing
if the loan held out a prospect of an early return
to net new borrowing in support of state policy and
private activity, but this is not the case. Instead,
the loan is more properly thought of as a form of
blackmail. The IMF promises, in effect, to help maintain
an illusion of business as usual, during which interval
the new government can occupy its offices in Brasilia
and enjoy the perquisites of power, but only so long
as no actual changes of policy are made. The threatened
alternative, if the terms are broken, is financial
chaos, no doubt accompanied by concerted efforts to
destabilize the new regime.
In particular, has Luiz Inacio Lula da Silva worked
for so many decades to build the Workers Party only
to govern on such diminished terms? Or is he prepared
seriously to consider an alternative strategy? If
so, of what should it consist? And although disapproval
by the U.S. government is a foregone conclusion, what
should be the attitude of the people of the United
States to such an alternative approach?
The Myth of "Sound" Financial Policies
Brazil is a large, resource-rich, industrialized developing
country with a history of interventionist policies
in several industrial areas, including aerospace,
computers, and energy. It is the economic center of
gravity in Latin America. The country's notorious
flaw lies in income and wealth inequalities higher
than virtually anywhere on earth, and a ruling elite
very much aligned with the sectarian interests of
the wealthy. A weak regulatory regime persists, particularly
with respect to newly privatized sectors. Taxes have
never been raised sufficiently to finance satisfactory
mass urbanization, and the country's vast national
resources have not been protected or developed in
a sustainable fashion. Capital, moreover, has been
free to take flight whenever policy threatened to
move in these directions.
A case could once have been made for capital market
openness in Brazil on the grounds that the country
was short of capital resources and that these could
only be acquired abroad. But that case was valid for
the extremely short period between 1973, when the
old Bretton Woods institutions were dismantled, and
1982, when the resulting explosion of private debt
culminated in economic collapse. During the oil shocks,
Brazil did manage to finance growth and its import
bill from abroad, but of course it could not do so
on a sustainable basis. Since then, Brazil and the
rest of Latin America have labored under the dead
hand of past debt, unpayable except by selling off
existing capital assets. There is no serious case
to be made that airlines, roads, power grids, and
telecommunications networks actually function better
under foreign ownership. At present the entire case
for privatization is financial: it raises resources
to permit the continued servicing of past debt.
For what purpose? The rationalizing argument behind
current IMF programs is that countries that follow
"sound" financial policies--balanced budgets,
tight money, deregulation, and privatization of capital
assets--will be rewarded with a stamp of creditworthiness.
They should then benefit by being able to borrow from
private capital markets on favorable terms, relative
to their own histories and the record of countries
who are less responsible. In principle this should
mean they can run deficits on their trade accounts,
loan-finance the purchase of capital goods imports
to support development, and maintain high levels of
economic growth and job creation. They should be able
to do all of this and still attract inflows of direct
foreign capital investment.
It has been clear for several decades, however, that
this argument is a myth, that the promised land it
envisions is a mirage. If it were not, would Brazil
be able to complain? The country has a trade surplus
and a primary surplus on the government budget. The
only source of deficits in both accounts relates to
the payment of interest on past debt. To run a surplus
on the current account--reducing imports by another
$20 billion or so--would require massive further deflation
of the real Brazilian economy. This would destroy
the tax base and greatly worsen the public budget.
Thus, there is no way to improve Brazil's accounts
from their current position, short of an export boom--which
depends on external demand, over which Brazil has
no control--or a write-down of past debt. But of course
the very purpose of Wall Street's interest in Brazil
is to be paid as much as possible for the past loans.
The Brazilian particulars illustrate a general point.
The running of "sound" policies does not
translate into favorable treatment on Wall Street.
Instead, private investor judgments are driven largely
by considerations over which national policies in
developing countries have no influence at all. Most
notably, these considerations include conditions in
other developing countries and in the United States.
Conditions in other developing countries periodically
affect Brazil through contagion in financial markets.
Upheaval and financial crisis in Russia in 1998 directly
affected the risk exposure of many emerging markets
funds. Forced to account for the rising risk in Russia,
they reacted by reducing exposure in other "risky"
markets, such as Brazil, even though there was no
connection between the Brazilian and Russian economies
at that time. Similarly, contagion from Argentina--itself
only recently a "model country" from the
standpoint of the IMF--is affecting Brazil now. Brazil
is being punished by the financial markets because
of the failure of the IMF's sound-money prescriptions
as they were applied in Argentina--even though Brazil
did not follow the Argentine road of full acquiescence
to the IMF's neoliberal schemes. The irony is, well,
Latin American.
U.S. policies and internal conditions affect Brazil
through their influence on relative rates of return
facing investors. In the late 1990s, with a "flight
to quality" compounded by the bubble mentality
of the technology sectors, capital flowed into the
United States and away from developing economies such
as Brazil. Now that the bubble has collapsed, so has
the appetite for emerging-country risk, and perhaps
also the capacity to purchase Brazilian assets. This
too is beyond Brazilian control.
It follows that the only route available to Brazilian
policymakers acting on their own to restore growth
and expand public goods and services in the short
run must involve a reduction of debt payments. The
easiest way to achieve this is straightforwardly to
cut back on payments while imposing strict controls
over capital flight. Alongside these measures, the
real would be devalued, and interest rates reduced
to accommodate both exporters and import substitution.
This is the model followed by Russia in 1998, and
the result was, in fact, a modest revival of domestic
production after a terrible crash. Since that time,
the crisis in Russia has eased, even though the vast
damage done since the advent of shock therapy has
not been overcome.
The case against a policy of debt reduction comes
in two parts. One is specious, but the other must
be taken more seriously. The specious argument holds
that capital markets will punish Brazil for its defiance.
The difficulty with this argument is straightforward:
Brazil presently enjoys no benefit from its participation
in world capital markets. Even the IMF package serves,
from the standpoint of ordinary Brazilians, merely
to keep up appearances. It is self-evident that to
interrupt the recycling of IMF loans into debt service
would change nothing in real terms, while the effective
imposition of capital controls--if technically possible
in Brazil's case--would slow the exit of private investors,
and so the decline of domestic asset prices. It does
no harm to a bankrupt entity to declare bankruptcy.
The main effect is to halt the outflow of inside money.
Although affected investors obviously do not welcome
this sudden loss of freedom, there is no moral or
ethical basis on which they can claim a greater "right
to escape" than that of ordinary workers and
other citizens to whom the market grants no such opportunities.
The more serious objection is that Brazil's internal
political stability may be threatened by a policy
undertaken in the national interest. This is the danger
of subversion from the outside. The interests of international
finance protect themselves by the means at their disposal.
There is a long history of this in Latin America,
including Brazil in 1964 and extending to present-day
Venezuela, where the complicity of the U.S. State
Department and doubtless other services in recent
and continuing events is clear. In the Russian case,
such risks are much smaller because the government
rests on the bedrock of its security services, whose
defects are well-known but whose loyalties do not
seem to be in question. How well a new Brazilian government
may be able to meet this danger is a matter of internal
politics on which a distant observer cannot speak
with any authority. But it is there--in the "crisis
of confidence"--and not in the supposed power
of a market that the true danger lies.
Is There a Better Way?
Is there a better way, for Brazil and the world, than
a complete rupture between countries in the North
and South on financial matters? And are the national
interests of the United States absolutely congruent
with those of our leading financiers, so that policy
with respect to international development can be safely
left to their judgment and in their hands? Or is it
possible that, to borrow a phrase, another world is
possible after all?
Surely it has to be. The liberal economic vision--with
multilateral clearing, relatively free and open trade,
easy flow of technology, travel, migration, and human
learning--has a core of virtues. It has helped to
create a far more open and attractive world, in many
important respects, than could ever have been achieved
under the previous regimes of colonialism and empire.
The world is today safer from global war than it was
in the first half of the last century. Trade and peace
do go hand in hand--most of the time. There are reasons
why the enduring success of such a system remains
an ideal for many intelligent and well-meaning people.
At the same time, however, the world we inhabit fails
to rise to the standard set by the liberal ideal.
Particularly over the past two decades, the postwar
trading framework has become hopelessly distorted
by the hegemony of the U.S. dollar, unsustainably
high interest rates, debt deflation, and capital flight.
The asymmetries of a world so structured are intolerable,
as they lead to unprecedented prosperity in the rich
countries and deepening crisis for the poor. It is
a minor miracle that they have not long since led
to a full-scale revolt against U.S. global leadership.
But the fact is, such a revolt may not be very far
off. There already exists widespread rejection of
American world leadership by the populations of developing
countries worldwide, and the reputation once enjoyed
by the United States as a pillar of multilateral order,
having respect for differences and fair play, has
long since been squandered. This cannot fail to translate
into political terms sooner or later.
The British economist John Maynard Keynes had already
recognized this issue with his characteristic clarity
in the design of the Bretton Woods institutions--the
World Bank and the IMF--in 1944. Keynes, as the third
volume of Robert Skidelsky's biography makes especially
clear, was an economic and a political liberal. He
favored free markets and liberal trading arrangements
insofar as they could be made to work. But he also
had not forgotten the fact, which the Depression had
driven home to all observers, that free markets are
inherently unstable and prone to collapse.
Keynes understood that the characteristic structure
of unregulated international finance placed bankers
and creditors in the dominant position, and so worked
to force adjustment by debtors. This was locally rational
in financial transactions, but disastrous for the
system as a whole. Individual debtors would be forced
to contract their economies in order to meet their
interest payments. Their demand for imports would
diminish, and so would the exports of their suppliers.
In the end, the entire economic system would contract,
and no nation would be further forward in its ability
to pay its debts.
The purpose of the Bretton Woods institutions, in
Keynes's plan, was to evade this trap. The substantial
mechanism was to be a multilateral clearing union,
with authority to issue overdrafts to debtors--in
effect, to print international money. Under Keynes's
scheme, it would be creditors who would have to adjust
by expanding their domestic economies, their employment,
and their absorption of imports until their consumption
of imports rose to match their sale of exports. Otherwise,
creditors would face legitimate discrimination against
their exports. In this way, the system would balance
at high levels of employment (and the principal economic
risk, of course, would be international inflation
rather than global slump). No member country would,
in Keynes's vision, be required to contract domestic
economic activity and forgo full employment simply
in order to meet international clearing obligations
or pay debt service to foreigners.
Keynes did not get his way in the negotiations. The
American side, led by Harry Dexter White, insisted
on a system dominated by lender interests. As a result,
the Bretton Woods institutions contributed almost
nothing to postwar reconstruction until calamity threatened
in 1948 and the Marshall Plan was put in place to
avert it. After that, development largely proceeded
under the impetus of cold and hot wars; one in Korea,
which jump-started the recovery of Japan, and one
in Vietnam, which provided a similar service for Korea
and much of southern Asia.
The IMF began developing its modern regimens of debtor
adjustment--devaluation plus deflation--for imposition
in Europe in the late 1960s. There followed a brief
moment, in the aftermath of the oil shock of 1973-74,
when the IMF might have emerged as the principal conduit
for the recycling of petrodollars to the oil-importing
countries of the developing world, but the Nixon administration
blocked this. Instead, the job of financing development
was turned back to the major commercial banks, along
with their European and Japanese colleagues. They
made the necessary loans on commercial terms and at
variable interest rates keyed to the London Interbank
Offer Rate (LIBOR). Development from that point forward
was to proceed on commercial terms and "free
market" principles, at interest rates determined
after the fact by the monetary authorities of the
United States.
These arrangements were doomed from the beginning.
They collapsed even sooner than they might have otherwise,
when Paul A. Volcker and the Federal Reserve pushed
American interest rates past 20 percent in their 1981
campaign against inflation. The result was a global
crisis of debt, insolvency, and perpetual debtor adjustment
that afflicts the entire developing world (except
for India, China, and a handful of south Asian city-states)
to this day.
The original authors of the IMF and World Bank generally
supposed that the United States would remain in its
immediate postwar position as a strong surplus country
and creditor to the rest of the world. Thus dollars
could be "scarce" and, if they were, international
liquidity would have to be issued in some other medium.
This rather soon proved to be a colossal misjudgment.
Instead, the United States went into deficit and eventually
became the world's largest debtor. The world became
so awash in dollars that the proposed international
unit of account--originally the bancor and in its
etiolated modern form, the Special Drawing Right--faded
into insignificance. Today, the dollar is the world's
reserve currency, and the international position of
the United States depends on this.
So long as the world is willing to take and hold U.S.
assets, including liquid dollars, this system works--and
shamefully to the interest of Americans. The resulting
high value of the dollar means that we consume comfortably,
and in exchange for very little effort, the products
of hard labor by poor people. We live on the interest
skimmed from the meager living available to factory
workers in São Paulo, in exchange for providing
otherwise unavailable liquidity to the world system.
(Our situation is akin to that of, say, Australia
in the late 19th century when gold fields were discovered,
except that, in our case, no actual effort is required
to extract the gold.) And meanwhile, we are not obliged
to invest unduly in maintaining our own industrial
base, which has substantially eroded since the 1970s.
We could afford to splurge on new technologies and
telecommunications systems whose benefits were, to
a very great extent, figments of the imagination.
And even when the bubble burst in those sectors, life
went on, for most Americans, substantially undisturbed--at
least for now.
But for how long will the system of dollar hegemony
endure? There can be no definitive answer; the few
economists who have worried about this issue are far
from being in agreement. On one side, it is argued
that the dominant currency holds a "lock-in advantage";
that is, there are economies associated with keeping
all reserves in one basket. The United States in particular
is in a strong position to oblige foreign central
banks to absorb the dollars that private parties may
not wish to hold, at least within elastic limits.
Control of oil by U.S. allies and satellites will
require other importers to buy dollars in order to
buy oil, though it is not obvious that such control
requires anyone to hold those dollars very long, except
as a hedge against price increases or home-currency
devaluations.
Against this, the question remains: Will foreigners
be willing to add to their holdings of U.S. assets
at a rate consistent with the U.S. current account
deficit at full employment? The amount to be absorbed
is in the range of half a trillion dollars per year.
This was easily handled when asset prices were rising,
but now that they are falling, dollar assets are not
as safe as they once were. If foreigners are not willing
to absorb them at the requisite rate, and if asset
prices do not quickly fall to the point where stocks
appear cheap, dollar dumping is, sooner or later,
inevitable. Otherwise, the United States must slow
the rate at which liquidity is issued by restricting
its imports, which it can only do by holding down
economic growth and keeping incomes well below the
full-employment level. In that situation--which may
already have arrived--the United States joins Brazil
and other developing nations as a country effectively
constrained by its debts. Indeed, the world prognosis
from that point forward becomes grim, since high levels
of American demand have been just about the only motor
of growth and development (outside, perhaps, of China
and India) in recent years.
The United States as a Debtor Nation
There are economists who advocate dollar devaluation,
believing that the richer countries of the world would
quickly rally to purchase increasing quantities of
made-in-America exports, thus reversing the manufacturing
decline of the past 20 years. But this is very unlikely.
Exports to the rich regions may not be very price-sensitive.
And exports to the developing regions are very sensitive
to income and credit conditions, which would get worse.
At least in the short and medium term, there is no
foolproof adjustment process to be had by these means.
Where a high dollar provides U.S. consumers with cheap
imports and capital inflows to finance domestic activity,
a falling dollar would have opposite effects. A falling
dollar would raise the price of imports into the United
States, especially from the richer countries.
Meanwhile, a declining dollar would hit at the value
of developing countries' reserves, and so work, on
that account, to diminish their demand for our exports.
The most likely outcome from a dollar devaluation
is therefore a general deepening of the world slump,
combined with pressure on American financial institutions
as global investors seek safer havens in Europe.
This "elasticity pessimism" (very much shared
by Keynes in his day) and the specter of financial
vulnerability mean that for the United States, the
combination of falling internal demand, falling asset
prices, and a falling dollar represents a threat that
can best be described as millennial. (My colleague
Randall Wray has called it the "perfect fiscal
storm.") The consequences at home would include
deepening unemployment. There would be little recovery
of privately financed investment, amid a continued
unraveling of plans--both corporate and personal--that
had been based on the delirious stock market valuations
of the late 1990s. The center of the world banking
industry would move, presumably to continental Europe.
Over time, the United States could lose both its position
as the principal world beneficiary of the financial
order and its margin of maneuver on the domestic scene.
This would be not unlike what happened to the United
Kingdom from 1914 to 1950.
It is not obvious that senior financial policymakers
in the United States have yet grasped this threat,
or that there is any serious planning under way to
cope with it--apart from a simpleminded view among
certain strategic thinkers about the financial advantages
of the control of oil. Instead it appears that the
responsible officials are confining themselves to
a very narrow range of debt management proposals,
whose premises minimize the gravity of the issue and
whose purpose is to keep the existing bonds of debt
peonage in place as long as possible.
A paper issued this year by the Derivatives Study
Center, a Washington-based study group, outlines three
major proposals for dealing with the problems of sovereign
debt. One of these is the work of Anne Krueger of
the IMF; the second, Treasury Undersecretary John
B. Taylor; and a third, a group of private economists
associated with the global debt relief campaign headed
by Kunibert Raffer.
The IMF and Taylor proposals provide alternative ways
of addressing a very narrow issue in debt negotiations,
namely the incentive for renegade creditors to resist
a write-down of their own assets and so to hold out
for full payment. This is a classic free-rider issue,
since the possibility of paying off any one creditor
at face value rises as other creditors accept smaller
payments. The IMF would deal with this problem via
a new formal restructuring mechanism that would bind
all creditors to terms acceptable to a majority. The
Taylor proposal would accomplish much the same thing
(though in a much more distant future) by providing
that new debt contracts carry a collective action
clause permitting the will of the majority of creditors
to bind the entire group.
Neither the IMF nor the Taylor proposal addresses
the systemic problem of excess and unpayable debt.
Their thrust is merely to prolong the present prebankruptcy
stage of financial relations for as long as possible--shaving
and stretching out debt repayments so as to match
the ability to pay to the willingness of foreign capital
to acquire developing-country assets through liberalization
and privatization. In this way, they implicitly assume
what has already proven to be impossible, namely,
that private capital markets will eventually produce
"development" to which poor countries aspire.
Nothing in either protocol would protect the populations
or the public programs of any developing country.
The Raffer proposal makes an effort along these lines
by proposing the creation of an international adjustment
mechanism akin to the municipal bankruptcy proceedings
available under Chapter 9 of the U.S. bankruptcy code.
This proposal for "restructuring with a human
face" would give citizens of debtor countries
a legal right to be heard in debt negotiations, and
so would permit countries to protect some of their
social services and core infrastructure investments
from disruption in the restructuring process. This
proposal has an undoubted claim to enlightened sympathy,
and would very materially ease the burdens of adjustment
on poor countries in debt restructurings. But no more
than the other proposals does it address the larger
problem facing the world economy today, namely, the
breakdown of a functional finance in support of the
development process.
But if, as a result of a widespread diversification
away from the dollar as a reserve asset, the United
States runs a risk within, say, a decade or two, of
joining those countries for whom the discipline of
the international monetary order means continuous
debtor adjustment, a new element will enter the picture.
It would become part of the national interest of the
United States, if not necessarily that of its financial
industry, to collaborate in the reconstruction of
a global order that serves the interests of debtors
at least as well as creditors. It will become the
American interest to switch sides in the debt wars
and join forces with the developing countries whose
interests lie in rebuilding a multilateral international
monetary structure, thus providing a safe path to
the orderly liquidation of the dollar overhang and
the restoration of autonomy to growth-oriented national
development policies.
What would this mean in practice? In broad terms,
it would mean that the negotiations antecedent to
Bretton Woods, so admirably recounted by Skidelsky,
would have to be recreated. But this time, the United
States would have to take the role that Britain, anxious
to protect its national autonomy in difficult financial
conditions, took in 1944. (In that environment, Britain
spoke for all the habitually indebted nations of the
world in favor of a global order that would force
creditors to bear the burden of adjustment.) The role
played by the United States would be taken on by the
world's emerging creditor power, the European Union.
There is every good reason to think that the outcome
of such a revisited negotiation would be more favorable
to the world's beleaguered debtors than was the case
in 1944. The United States remains today a dominant
diplomatic and military force, which the European
Union is not. And the U.S. economy is far more globalized,
with more natural links of trade and investment to
the developing countries, than are the Europeans.
Should the United States one day switch sides in the
global financial struggles, remarkable things might
happen in a fairly short time.
Such a change is difficult to imagine today. The political
processes of the United States would first have to
be thoroughly overhauled--the money changers once
again would have to flee their positions in the temple.
But circumstances have a way of dictating political
position, sooner or later. It has only been a bit
more than a century since the U.S. did in fact stand
as the world's premier representative of debtor nations.
It was only some 70 years ago that Franklin Roosevelt
inaugurated the Good Neighbor Policy, acknowledging
the sovereign right of Latin American countries to
escape from the burden of unpayable debts. It may
not take that long before we come full circle once
again, if motivated by practical necessity in the
pursuit of full employment. Perhaps the oncoming clash
between Brazil's people and the global financial order
will help motivate ordinary Americans to rethink on
which side we should now stand.
References
Andrews, Edmund L. 2002. "Fears That Lending
to Brazil May Dry Up." New York Times, August
21: C2.
Derivatives Study Center. 2002. Sovereign
Debt Restructuring. Primer. Washington, D.C.: Derivatives
Study Center, Economic Strategy Institute. www.econstrat.org/dsc%20sovdebt.htm
Krueger, Anne O. 2002. A New Approach
to Sovereign Debt Restructuring. Washington, D.C.:
International Monetary Fund. http://www.imf.org/external/pubs/ft/exrp/sdrm/eng/index.htm
Raffer, Kunibert. 1990. "Applying Chapter 9
Insolvency to International Debts: An Economically
Efficient Solution with a Human Face." World
Development 18:2: 301-311.
January 22, 2003.
[Source : www.levy.org]
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