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Example research essay topic: Third World Countries U S Banks - 2,204 words

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Third World Debt The overwhelming debt burdens of poor countries are a major contributor to the crisis that grips the economies of most developing countries today. For the 41 most heavily indebted poor countries, total external debt rose from $ 55 billion in 1980 to $ 215 billion by 1995. (Rich, p. 189) Debt has continued to climb in most countries. African governments alone now have $ 350 billion of foreign debt and they have to spend two-fifths of their revenues to service it. As a result, governments have been forced to divert scarce resources away from spending on health, education, environmental protection and other vital social services and instead dedicate them to pay what are essentially unplayable debts.

Recognizing that debt threatened the viability of the international economic system, the world's rich governments, the World Bank and the IMF finally agreed in late 1996 to launch the Heavily Indebted Poor Countries Initiative (HIPC). However, it has been a failure due to many reasons. Inadequate funding: The IMF's (and other creditors') contribution to HIPC is insufficient. Furthermore, instead of using its own resources to provide immediate debt relief the IMF has sought bilateral sources of funding for HIPC.

By refusing to use its own funds, the IMF is abdicating its role in the debt crisis. HIPC's terms and conditions are too stringent: The debt-to-export ratios that determine eligibility for HIPC are too high and are based on export levels and national income rather than human development needs. These levels exclude many debt-ridden poor countries, and mean that any debt relief granted will be insufficient to deliver a country to economic health. Consequently, only a few countries have reached the stage where they have qualified for debt relief. Tied to SAPs: The IMF's Poverty Reduction and Growth Facility (PRGF) -- formerly known as the Enhanced Structural Adjustment Facility -- has been directly linked to the HIPC Initiative. To qualify for HIPC relief, a country must go through at least three years of PRGF structural adjustment, which is notoriously difficult to complete because of its unacceptable levels of austerity.

The IMF has linked any additional contributions it might make to HIPC to the financing of a permanent PRGF structural adjustment programme, despite its controversial record and the fact that its prescriptions are likely to wipe out any gains made through debt relief, given that they usually lead to cuts in spending on health care, food subsidies and education. Some academics and NGOs charge that the IMF and its policies are themselves creating debt. A recent study by the Development GAP found that, on average, the longer a country was undergoing structural adjustment, the higher its debt is likely to be. Attempts to address the debt crisis in the context of IMF adjustment programmes, therefore, may be counter productive. By liberalizing their economies, adjustment makes countries open themselves up to more foreign investment, which can increase their debt. Trade liberalization meanwhile means increased imports, as well as exports.

If imports increase more than exports, this can also lead to increased debts. The fact is that structural adjustment loans -- designed to relieve poor countries' debt -- have failed to do so and have probably made the debt burden worse. They were so badly designed that borrowing countries have not reaped enough income to pay them back. We thus now have a situation in which many poor countries pay more money to the World Bank and IMF each year than they receive in loans: the IMF extracted a net US $ 1 billion from Africa in 1997 and 1998 -- more than they loaned to the entire continent. To make matters worse, just as total debt in developing countries rises again, (by $ 150 billion in 1998 to a total of almost $ 2. 5 trillion), a plunge in commodity prices -- to which many developing countries have been made highly vulnerable by the IMF's policy of export-led-growth -- has further crippled the poorest countries' ability to repay foreign debts. (Danaher, p. 155) Responding to the pressure of the international NGO movement to cancel the debts of poor countries, the IMF, World Bank, and creditor governments are beginning to revise the HIPC programme by lowering eligibility thresholds and increasing financing for debt relief. However, according to Brian Smith, the efforts made to reduce the debts of the third world countries look more like political lip service than actual endeavor. (Smith, p. 147) Furthermore, total debt relief funds may be far less than promised if the US Congress pursues its threat to vote for only a fraction of the US's HIPC contribution.

The situation that Argentina has to face shows the implications of the foreign debt problem to the third world countries. Argentina's spectacular economic meltdown has created a cottage industry of political pundits, economists and international financial experts who for several weeks vigorously have competed in a low-stakes blame game where the fault always is found in Buenos Aires. Argentinas external debt is not something that could be easily paid, and with every year the countrys situation looks worse. (Smith, p. 194) Defenders of the free market tend to lay all the blame for the current crisis on the Argentine people, whose political bankruptcy was much in evidence by Duhalde's selection as the country's fifth president in two weeks. Nationalist and protectionist forces, on the other hand, single out "globalization" and international financial institutions, such as the IMF, as their scapegoats for the country's current crisis. Ironically, both sides appear to ignore the critical role played by foreign banks in the sad tale of Argentina's leap into greater underdevelopment. In recent years, the role of private foreign financial institutions, particularly American and Spanish banks, has grown enormously in the Argentine market.

Today, almost one-half of the deposits in Argentina -- of a total of $ 67 billion -- are controlled by foreign banks. Citibank has one of the largest operations there of any American bank. In 1976 Henry Kissinger, secretary of state and a former Rockefeller family retainer, gave Argentina's military rulers the go-ahead to carry out a vigorous counterinsurgency campaign against Marxist terrorist groups that resulted in the kidnapping, torture and clandestine murder of at least 15, 000 people, in what was known as the "dirty war." (Danaher, p. 229) Months after Kissinger gave the generals the "green light" -- in the words of the U. S. envoy to Buenos Aires at the time, Robert Hill Kissinger's former boss, vice president Nelson Rockefeller, also voiced his support for the military regime.

In 1978, the generals -- the tenor of whose regime was captured almost a decade later when their trial in civilian courts for human-rights atrocities was dubbed a "mini-Nuremberg" -- played host to the World Cup soccer tournament, and netted as their prized international guest private-citizen Kissinger. In March 1978, David Rockefeller visited Argentina, where he praised the generals' handling of the economy, then in the throes of crisis. Rockefeller and other international bankers, mostly American and Spanish, their institutions awash in Middle Eastern petrodollars, lent money to the regime at several points above the prime interest rate. These loans helped finance the country's nearly $ 1 billion security apparatus, including the clandestine repression of the Marxist insurgency. U. S.

banks accounted for nearly $ 3 billion of these loans, of which more than one-third went to government or state companies. (Smith, p. 49) The loans made during this period were bad business, even forgetting considerations of human rights and representative government. Despite the rapid increase in foreign debt, the level of economic production remained essentially unchanged since before the 1976 coup. Democracy returned to Argentina in 1983 when center-left career politician Raul Alfonsin was elected to the presidency. Seven years of military rule had shrunk the country's industrial workforce from 1. 8 million people to 1. 3 million, while inflation galloped along at more than 450 percent. Alfonsin had campaigned on a platform of re-examining part of the $ 45 billion owed to foreign creditors -- the developing world's third-largest external debt burden -- to determine which part of that contracted by the murderous military was "illegitimate" In 1984, alone, Argentina had to pay or reschedule some $ 20 billion in foreign debt. (Smith, p. 77) Alas, say close observers of Argentina, Alfonsin's renowned preoccupation with democratic political reforms and human rights was matched by his fundamental ignorance of the functioning of the global economy and Argentina's real and potential role in it. Foreign banks -- still reeling from Mexico's 1982 financial meltdown -- initially were frightened by Argentine talk of reviewing the debt, but as time wore on the financial houses built up reserves sufficient to cushion a possible blow from Buenos Aires.

Banking insiders say that buying time might have been the reason for Kissinger's reappearance in Argentine affairs in September 1984 as an intermediary between the Alfonsin government and its foreign creditors. Alfonsin still might have staved off financial crisis by a crash program in sorely needed free-market reforms, if only to limit the damage to Argentina's financial condition caused by huge loss making state enterprises, many of which the military still controlled. However, with agriculture providing 80 percent of its export earnings and 12 percent of the gross national product, Argentina's share of the world market actually was shrinking at a time when the terms of trade between developing and developed nations was swinging heavily in favor of the latter. The crushing foreign-debt service left little money for economic reactivation. (Smith, p. 212) Kissinger reappeared once more in Argentina at the July 1989 presidential inauguration of Menem, whose heterodox coalition ranged from anti-Semitic right to radical left, and whose campaign was financed in part by international rogues Muammar Qaddafi of Libya, Manuel Noriega of Panama and Alfredo Stroessner of Paraguay. Menem quickly gained support in Washington by claiming fealty to free-market principles, while his foreign minister described Argentina's pro-U.

S. diplomatic tilt as so pronounced that the countries enjoyed "carnal relations. " (Smith, p. 148) During Menem's 10 -year reign, however, an estimated $ 10 billion was looted from the national treasury in bribes, payoffs and other practices. Argentina became a major center for money laundering, much of it by U. S. and Spanish banks working in concert with Menem's minions, his enemies now say. In particular, Menem's privatization scheme, while in itself unobjectionable in market terms, became a cesspool of corruption.

At the same time, government expenditures rose by 150 percent while the economy grew by only 50 percent. The 1 - 1 parity between the dollar and the Argentine peso, claimed by Menem to be his greatest achievement, actually camouflaged a gaping public deficit and was financed by the privatizations and seeming endless opportunities to take on more international credit. Despite the warning signs, the foreign bankers and bondholders kept lending until late 2000. Among large numbers of Argentines, free enterprise -- now needed more than ever to right the country's structural imbalances -- became associated with an acute form of crony capitalism that fed from a profoundly deepened culture of political racketeering in Buenos Aires.

U. S. banks worked with their Argentine counterparts to block adoption of effective anti laundering laws. Citibank was singled out for criticism as domestic drug consumption in Buenos Aires and other major cities of Argentina skyrocketed. Careful reading of the current crisis -- as opposed to the flip commentary of the punditocracy -- shows that the losses in Argentina were well-earned by the banks, whose lending practices have contributed in no small way to the collapse of Latin America's third-largest economy.

The system, if it works at all, will do so to protect creditors' interests and ensure a steady flow of repayments, rather than freeing up vast amounts of resources that could be dedicated for health, education, rural support, and environmental protection. If the IMF is counting on debt relief to make them and their policies more palatable, they will have a very long wait. Meanwhile, it will be the poor, once again, who will pay. Words Count: 1, 978. Bibliography: Adams, Patrica. Odious Debts: Loose Lending, Corruption, and the Third World's Environmental Legacy.

London: Earthscan, 1991. Cavanagh, John & Daphne Wysham & Marcos Arruda (eds. ) Beyond Bretton Woods: Alternatives to the Global Economic Order. Boulder, CO: Pluto Press, 1994. Danaher, Kevin (ed. ) 50 Years Is Enough: The Case Against the World Bank. Boston: South End Press, 2001. George, Susan & Fabrizio Sabelli.

Faith and Credit: The World Bank's Secular Empire. Boulder: Westview, 1994. Korean, Eleonore & Gillian Youngs. Globalization: Theory and Practice.

London: Pinter, 1996. Leland, John; Hirsh, Michael; Kosova, Weston. "Can Bono Save the Third World?" Newsweek, January 24, 2000, Vol. 135 Issue 4, p 58. O'Cleireacain, Seamus. Third World debt and international public policy. New York: Praeger, 1990. Rich, Bruce.

Mortgaging the Earth: The World Bank, Environmental Impoverishment, and the Crisis of Development. Boston: Beacon Press, 1997. Smith, William C. & Carlos H. Acura & Eduardo A.

Gamarra. Democracy, Markets, and Structural Reform in Latin America: Argentina, Bolivia, Brazil, Chile and Mexico. New Brunswick, NJ: Transaction Publishers, 1994. Smith, Brian, C. Understanding Third World Politics.

Theories of Political Change and Development, Bloomington and Indianapolis: Indiana University Press, 1996.


Free research essays on topics related to: third world countries, structural adjustment, buenos aires, poor countries, u s banks

Research essay sample on Third World Countries U S Banks

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