Debt to Equity Worksheets for Farms by aqe19014


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									Geneva – June 2000
The Effects of International Debt
on International Development
How Two-Thirds of the World Lives: Teaching
About International Development Issues

        James Hayes-Bohanan, Ph.D.
              Assistant Professor of Geography
                 Bridgewater State College
 Clark University Teachers Center for Global Studies
           Worcester, Massachusetts March 2, 2001
 Uses
 Risks
Growth of Debt
  1970      US$100,000,000,000

  1980      US$600,000,000,000

  1990     US$1,600,000,000,000

  2000     US$2,100,000,000,000
Current Debt Share
 LDC Debt       US$2,100,000,000,000

 LDC GNP        US$5,800,000,000,000

 HIPC 41 Debt        US$213,000,000

 HIPC 41 GNP         US$202,000,000
Plan for Today
      International Lending
      How a “crisis” arose
      Impacts of the crisis
      Evolution of remedies
Big Projects

     Expanding the Post-War Rebuilding Effort
 Aswan High Dam Outcomes
 Constant water         Archaeological sites
  source                 Nubian people displaced
 Flood control          Evaporation losses
 Multiple growing
                         Downstream sediment
 Expansion of arable
  land                   Downstream
 Triple farm income      phytoplankton
 Industrial             Loss for brick makers
  development            Need for fertilizer
Muang faii case – Thailand
Odious Debts by Patricia Adams

 1,000-year history         PROGRESS – 1950s
 Water managed by           Concrete barrages
  bamboo weirs               Large-scale reservoir
 Tax in form of labor       Royal Irrigation Dept.
 Priority to subsistence    Loss of local specialty
  crop over cash crop         crops
                             Dependence on
 Communal monitoring         commercial inputs
  and enforcement
                             Loss of local oversight
President for a Day Part I
Basic Economic Development Strategies

    Rural Development
    Monocrops
    Economic diversification
    Energy crisis of 1970s
    OPEC Cartel and Embargo
    Shift in production/reserve ratios
    Increased cash flow
    Problem for bankers
   Incentives for private lenders, such as
   Floating Interest Rates
   Weak projects - weak oversight
   Dictatorships
Foundations for Crisis
     Economic vulnerability
         Single Exports
         Prebisch Thesis
     Late 1970s recession
     Floating Interest Rates
Crisis Ensues
  Mexico
   August 1982

                 Brazil followed
                 Slow growth – the lost
                 Inflation and
                 Capital flight
Banking on Debt
 Part I of this documentary reviews how the
  World Bank and IMF emerged and how the
  debt crisis began
 Baker Plan - 1985
 Treasury Secretary James Baker

 Loans to cover interest payments were made with
      Privatization of state enterprises
      End to subsidies
      Opening the economies to foreign investment
 12 of 15 large debtors complied
 Soon comprised 20 percent of all WB debt

Brady Plan - 1989
Treasury Secretary Nicholas Brady

 Sought to attract investment by reforming
 Encouraged cooperating private banks to
  reduce their claims against LDCs
 Used new IMF/WB funding to collateralize
  debts in the form of new bonds - in other
  words, multilateralized the debt
 Baker and Brady Plans
 Structural Adjustment
 Liberalization
     Devalue currency
     Open markets
     Reduce government intervention
     Privatize assets
 Impact of SAPs: Where are the Beans?
 Many factors
 Minifundio/latifun
  dio land tenure
 Terra sem homen
  para homens sem
 Land consolidation
  for debt service
Migration to Rondônia
 100-hectare farms               1200

 Nutrient-poor                   1000      Urban
  soils                                     Rural

 Repeated clearing
 Succession to
 Local                            200

  urbanization                       0
                                     1960      1980   1991
Rondônia Landscape Change
Debt Connections
 Banking on Debt Part II: More examples from the
Secondary Markets
 Reduced claims
 Writing down debt
 Dimes or pennies on dollars
Debt-Equity Swaps
 Assets could be used to offset debt
 Because of discounting, the face value
  of debt forgiveness would exceed the
  value of the forfeited asset
 The lender or other redeemer of the
  debt would acquire a tangible asset at a
  discounted price
Debt-for-Nature Swaps
 Building on debt-equity concept
 Governments could cede development rights of
  environmentally valuable land in return for debt
 The amount of debt forgiven would exceed the
  market value of the land
 Part of the difference would be used for
  monitoring expenses
 Environmental groups could protect land at low
Country Comparisons
    Total Debt Stock
    PV/XGS (HIPC target < 150)
    Debt service per capita
    Debt service / grants
    GNP per capita
    Debt per capita
    Terms of trade (index = 100)
             Country Data in Excel Format
HIPC Strategy
 Begun in 1996 IMF - redirects excessive debt
  payments to domestic programs
 The 1999 IMF and G-7 review promised faster,
  deeper, and broader relief
 … for countries “that demonstrate a
  commitment to reform and poverty
 Expanded from 29 to 36 to 41
 Relief must be applied to transparent programs
  to alleviate poverty
Critiques of HIPC
 Sustainable debt loads defined on IMF terms
 Debt service targets, at 20-25 percent of
  exports, are twice what Germany paid in
  WWII reparations
 Debt relief merely removes
  UNDISCOUNTED debt from the books
 Gives IMF/WB even greater policy influence
HIPC Developments
 IMF/WB have relaxed some of their targets, such
  as a reduction in NPV/exports to 150, down from
  200 or 250
 Only 40 percent of relief can be counted as
  additional resources
 In February 2001, Isac Diwan of the World Bank
  Institute admits that “the HIPC initiative is more
  helpful to multilateral organisations than it is to
  poor countries.”
 Religious concept of the Jubilee
 Seeks debt forgiveness for
  poorest countries
 Followed by Jubilee Plus
Debt Relief Status
 As of December 2000, 17 countries have
  been granted US$11 billion in relieve,
  spread over 25 years
 In Uganda, Mozambique and Guyana ,
  significant resources have been redirected
  toward solving problems in education,
  health, agriculture, and infrastructure
 G-7 have pledged to return ALL bilateral
  payments from HIPC countries
Globalization & Resistance

What to do about the Debt
 What opportunities does the debt provide?
 Under what conditions should countries
  repay debts?
 What message would 100% debt
  forgiveness send?
 Does the Prebisch Thesis provide
  justification for SAPs - in the long run?
 What about the “rich” poor countries?
Current Debt Share
 LDC Debt       US$2,100,000,000,000

 LDC GNP        US$5,800,000,000,000

 HIPC 41 Debt        US$213,000,000

 HIPC 41 GNP         US$202,000,000

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