2.  Why do we have international financial crises? How do these crises influence economy and politics in each country?  AN ASSESSMENT OF THE IPE STRUCTURES THAT ALLOW FREE FLOW OF MONEY AND FINANCE

3.  The Beginnings of the Issue of International Debt  The Washington Consensus  From Debt to Financial Crisis:  The Mexican Crisis, 1994-5  The Asian Crisis, 1998  The Argentina Crisis, 2001-2  The Global Financial Crisis, 2007

4. Debt and Development Debt and Political Stability Debt and Economic Stability

5.  1970s: Increasing volume of international debt › Increasing financial capabilities in the Northern countries › High inflation and high interest rates in the South › Exponential growth of debt and new problems

6.  1980s: Commercial banks with debt faced a crisis and had to decide between two alternatives › Provide additional loans and incur the risk of default of new as well as older loans › Reject the request for additional funds and cause default

7.  1985: The Baker Plan › Creation of a $ 20 billion new loans for the debtor countries with the help of Japan and other countries and private banks (Aim: To fix their economies to get the debts back). › Increased demand reduced the prices of the exported goods of the debtor states › Several negotiations over the issue of international debt

8.  1989: The Brady Plan › The US refinances debts of Latin American countries.  The lenders would contribute by  Interest rate cuts  Payment rescheduling  Partial forgiveness  The lenders would exchange their debt with the US government securities DISCUSS: Why did the US refinance the debt of Latin American countries?

9.  In the 1980s IMF and World Bank became more concerned with international debt payments  The IMF became a major lender  The IMF assistance was contingent on debtors agreeing to implement structural adjustment policies,  austerity measures as currency devaluation,  price stabilization,  fiscal austerity,  tariff liberalization DISCUSS: What are the political costs of IMF policies for the debtor governments?

10. DisplacementExpansionEuphoriaDistress RevulsionTorsschlusspanikContagion An external shock shifting expectations concerning future profits in some significant way A sharp shift in actions and expectations caused by new information Insiders begin to sell off their holdings and the crisis starts The international spread of the crisis The stage where the boom is fed by an increase in liquidity The purpose of buying becomes to sell and take a capital gain as the price rises higher and higher There is concern that the strength of the market may be fragile

11. DisplacementExpansionEuphoriaDistress RevulsionTorsschlusspanikContagion http://www.pbs.org/wgbh/commandingheights/shared/video/wmp/mini_p03_07_220.html

12. DisplacementExpansionEuphoriaDistress RevulsionTorsschlusspanikContagion http://www.pbs.org/wgbh/commandingheights/shared/video/wmp/mini_p03_11_220.html http://www.pbs.org/wgbh/commandingheights/shared/video/wmp/mini_p03_12_220.html

13. DisplacementExpansionEuphoriaDistress RevulsionTorsschlusspanikContagion http://www.pbs.org/wnet/wideangle/episodes/the-empty-atm/interview-joseph-stiglitz/3069/

14. DisplacementExpansionEuphoriaDistress RevulsionTorsschlusspanikContagion http://www.pbs.org/wnet/wideangle/episodes/the-empty-atm/interview-joseph-stiglitz/3069/

15.  Many HIPCs suffer from odius debt or obligations incurred by a former corrupt regime that leaves a new government owing billions to outside agencies.  Debt relief for the poorest nations is one of the most pressing international economic policy issues today.  Beginning in the early 1980s, the stock of international debt became so large that many developing nations could no longer make all of their debt service payments.  DISCUSSION: Should the Northern countries forgive the debt of the HIPCs (the question of moral hazards)?