GlobalizationDebt Crisis & SAPsBrief HistoryExampleThe CrisisInterest RatesConsequences Cont.Commodity PricesEnter the World Bank & IMFSAPsSlide 11Impact on Developing CountriesImpact on Workers in “First World”Impact on LendersGlobalization & ColonizationMemmiSlide 17GlobalizationGlobalizationA political/economic relationshipA political/economic relationship Relationship between:Relationship between:nations nations governments and citizens of nations.governments and citizens of nations.Policies & PracticesPolicies & PracticesA guiding question:A guiding question:In whose interest?In whose interest?Debt Crisis Debt Crisis &&SAPsSAPsDebt Crisis (1980s)Debt Crisis (1980s)The inability of developing countries to repay The inability of developing countries to repay loans.loans.Events that Sparked the CrisisEvents that Sparked the Crisis Rising Interest RatesRising Interest Rates Falling commodity pricesFalling commodity pricesBrief HistoryBrief History1970s U.S. and Western European lenders granted 1970s U.S. and Western European lenders granted development loans.development loans.Loans considered low risk becauseLoans considered low risk because::Friendly relations between dictatorships and lendersFriendly relations between dictatorships and lendersRising commodity prices Rising commodity prices Tax citizens to repay loans.Tax citizens to repay loans.Mutual benefits of commodity exchangeMutual benefits of commodity exchangeGoods (machinery) were purchased from “first world”.Goods (machinery) were purchased from “first world”.Development provided jobs in developing countries.Development provided jobs in developing countries.ExampleExampleThe 1973 Organization of Petroleum Exporting The 1973 Organization of Petroleum Exporting Countries (OPEC) oil embargo led to rising oil Countries (OPEC) oil embargo led to rising oil prices.prices.Mexico had oil reserves.Mexico had oil reserves.Development loans helped Mexico develop oil.Development loans helped Mexico develop oil.Mexican wages rise & Mexico can repay loans.Mexican wages rise & Mexico can repay loans.The CrisisThe CrisisSparked by 2 EventsSparked by 2 EventsRising interest rates Rising interest rates Falling commodity prices for goods Falling commodity prices for goods produced in developing countries (e.g., oil, produced in developing countries (e.g., oil, food, metals)food, metals)Interest RatesInterest Rates1979: Federal Reserve Bank raised 1979: Federal Reserve Bank raised interest rates to fight inflation.interest rates to fight inflation.Consequences:Consequences:Increased interest payments on debt.Increased interest payments on debt.•Over 60% of the money that Latin America Over 60% of the money that Latin America borrowed between 1976 & 1981 went to repay borrowed between 1976 & 1981 went to repay interest on loans.interest on loans.Consequences Cont.Consequences Cont.High interest rates sparked capital flight High interest rates sparked capital flight Which,Which,•diminished investment in development projects diminished investment in development projects & eroded the tax base in developing countries.& eroded the tax base in developing countries.Commodity PricesCommodity PricesAs interest rates rose As interest rates rose commodity prices fellcommodity prices fell..Reason:Reason:High interest rates triggered a global High interest rates triggered a global recession.recession.Recession reduces the demand for goods.Recession reduces the demand for goods.Prices also fell because:Prices also fell because:Development of new commodities in “first Development of new commodities in “first world” (e.g., North Sea oil development).world” (e.g., North Sea oil development).Enter the World Bank & IMFEnter the World Bank & IMFLeaders of “first world” called on the World Leaders of “first world” called on the World Bank & IMF to manage the crisis.Bank & IMF to manage the crisis.IMF granted an expanded role.IMF granted an expanded role.Gave IMF the power to impose neo-liberal Gave IMF the power to impose neo-liberal model.model.accomplished by implementing SAPsaccomplished by implementing SAPsSAPsSAPsSAPs imposed a neo-liberal model whichSAPs imposed a neo-liberal model whichAimed to increase trade surplus and budget Aimed to increase trade surplus and budget surpluses in developing countries so surpluses in developing countries so countries can pay back debt.countries can pay back debt.Supported practices of TNCs.Supported practices of TNCs.SAPS require that developing countries:SAPS require that developing countries:Increase exportsIncrease exportsEliminate trade tariffsEliminate trade tariffsDevalue currency (makes exported goods Devalue currency (makes exported goods cheap)cheap)Problem (falling commodity prices meant that Problem (falling commodity prices meant that profits did not rise even with increase in exports)profits did not rise even with increase in exports)Eliminate subsidies Eliminate subsidies Privatize state run businesses (e.g., telephone, Privatize state run businesses (e.g., telephone, oil, airlines, banks, etc).oil, airlines, banks, etc).Liberalize investment laws (TNCs could Liberalize investment laws (TNCs could purchase state run businesses cheap)purchase state run businesses cheap)Taxing citizensTaxing citizensCut social spending Cut social spendingImpact on Developing CountriesImpact on Developing CountriesGreater environmental degradation.Greater environmental degradation.Rapid urbanization as sustainable farming is Rapid urbanization as sustainable farming is replaced by agri-business.replaced by agri-business.Reduction of sustainable farming & increased Reduction of sustainable farming & increased reliance on food imports. reliance on food imports. Rising prices (Resulting from elimination of Rising prices (Resulting from elimination of subsidies & devaluation of currency.)subsidies & devaluation of currency.)Falling wagesFalling wagesCuts to social programs (housing, education, Cuts to social programs (housing, education, health care)health care)Impact on Workers in “First World”Impact on Workers in “First World”Loss of jobs because of increased import Loss of jobs because of increased import of cheap goods to “developed countries”.of cheap goods to “developed countries”.Loss of jobs because of factory relocation Loss of jobs because of factory relocation to developing countries.to developing countries.Loss of