Matakuliah
Tahun
: <<EKONOMI PEMBANGUNAN>>
: <<2009>>
Balance of payments, Third World Debt, and the
Macroeconomic stabilization controversy
Pertemuan 9
If I were the president of Third World nation…… I
would be far more frightened by a well dressed
gentleman bringing loans from the IMF or Citibank
than by a bearded guerrilla muttering threats of
revolution.
(Lewis Lapham, Imperial Masquerade, 1990)
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Material Outline
• Balance of Payments
• Financing and Reducing Payments Deficits
• The Third World Debt Crisis
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A Schematic Balance of Payment Account
Export of goods and services
A
Import of goods and services
B
Investment income
C
Debt-service payment
D
Net remittances and transfers
E
Total current account balance (A – B + C – D + E)
F
Direct private investment
G
Foreign loans (private and public), minus amortization
H
Increase of foreign assets of domestic banking system
I
Resident capital outflow
J
Total capital account balance (G + H – I - J)
K
Increase (or decrease) in cash reserve account
L
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Errors and omissions (L – F - K)
M
5
Positive and negative effects on balance of payment accounts
Positive effects (Credits)
Negative effects (Debits)
1. Any sale of goods or services
1. Any purchase of goods and
(import)
2. Any earning on an investment in a
2. Any investment in a foreign
3. Any receipt of foreign money
3. Any payment to a foreign country
4. Any gift or aid from a foreign
4. Any gift or aid given abroad
5. Any foreign sale or stocks or bonds 5. Any purchase of stocks or bonds
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Financing and Reducing Payment Detriests
• Some initial policy Issues :
- Improve the balance on current account by promoting
export expansion or limiting imports (or both)
- Encouraging more private foreign direct or portofolio
investment, borrowing from international commercial banks,
or seeking more public foreign assistance
- Seek to modify the detrimental impact of chronic balance of
payments deficits by expanding their stocks of official
monetary reserves
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The third World Debt Crisis : Dimensions of
the crisis
• External Debt
• Debt service
• Basic transfer
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A serious problem arises, when :
1. The accumulated debt becomes very large so that its rate of
increase
2. The sources of foreign capital switch from long-term “official
flows” on fixed, consessional terms to short-term
3. The country begins to experience to severe balance of
payments problems as commodity prices plummet and the
terms of trade rapidly deteriorate
4. A global recession or some other external shock, such as a
jump in oil prices
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A serious problem arises, when :
5. A loss in confidence in an LDC’s ability to repay resulting from
points 2,3, and 4 occurs, causing private international banks to
cut off their flow of new lending
6. Perhaps most important, a substantial flight of capital is
precipitated by local residents who for political or economic
reasons send great sums of money out of the country to be
invested in developed country financial securities, real estate
and bank accounts.
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Global dimensions of the LDC Debt Problem
1)
2)
3)
4)
Restructuring
Debt for equity swap
Debt for nature swap
Dept Repudiation
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