Guides. (3).pdf

Current account + capital account + cash account =? Net exports paying back capital loans + net foreign loans =0 Interest rate Cost of borrowing money Concessional loans vs non concessional loans 3 features Rates Timeline Growth focus vs Profit first Brady Plan/ debt for equity swap/debt for natur...

Current account + capital account + cash account =? Net exports paying back capital loans + net foreign loans =0 Interest rate Cost of borrowing money Concessional loans vs non concessional loans 3 features Rates Timeline Growth focus vs Profit first Brady Plan/ debt for equity swap/debt for nature swap/ Brady plan means a debt restructuring plan, we would restructure your debt if we are getting returns for goods, goods means control. Mainly exchange for controls or goods such as mines or amazon forecast Hobson’s choices at third stage Raising interest rate to stop all the loans , killing all the good domestic firms, companies that needs money for grow, don’t allow currency to devalue/ 4 stage of mishkin First stage means financial liberalizations, opening up the bad banking system, lots of bad loans with high rates in the back. Investing in bad ideas Second stage means lead up! In the times of bubble creation! People over invested in over value property, one or few firms is falling. For example 中国恒大 Third stage Currency crisis suddenly stops, no more loans. Dumping in your currency, you are coming up with the hobson’s choices. Fourth stage Twin crisis, Banking collapse like in 2008. People panic, deep recession, time inflections. Bank is feeling like the SVB! FDI Foreign Direct investment, builds a company in foreign company, directly controlling the company to make profits from the local developing countries. Hard to run away and get out! FPI Foreign portfolio investment More like stock investment! One click it’s all it takes! No control of the actuarial firms but it is easy to get away with. Easy to shake down! Remittances 汇款 Money sent from developed countries with a higher wage. Stable! Easy to help your families to invest in education and many other things! Joint ventures 合资企业 Mostly partnership with domestic and foreign control 50/50 to invest and build a company in the developed countries. We both run it and we both make money on it. Case on Argentina High inflations High interest rates The IMF came in to raise interest rates and cut spending, people kicked out the IMF, and the president resigned. Case on Korea Too many Loans or bad loans, explode and failure to pay back. If I came to help them restructure debt, Korea was painfully paying back. Case on China and Venezuela (FDI control) China was very careful on growing FDI, they want the spillover of the tech. They know how to pick FDI, focusing on techs, cars, infrastructure, and locking in a high growth industry. In Venezuela, they failed to get real benefits because of no cautions, and did not get any tech spillover. 1, balance of payments What is meant by balance of payment？ How is balance achieved? Current account plus capital account plus cash account plus cash account which equals to 0 Balance is achieved when money in and out flows to the cash account. What is meant by basic transfer equations? How do we calculate it? D- amount of debt D (d-r) d = growth rate of debt IF debt is high, money is coming in, if r is higher means money is going out. r= interest rates What are the trends in balance of payments in developing countries over the last 30 years Current account mostly negative then goes to more negative Financial account really positive from foreign investment loans then it goes to little negativemuch less positive. Cash account gone way down! Had to kept paying back loans and rs. ] 经常账户大部分是负的，然后变得更负 外国投资贷款的金融账户实际上是正的，然后它就变成了负的，更少是正的。 现金账户减少了很多!不得不不断偿还贷款和现金。 Debt crisis What events led up to the debt crisis of the 1980s? Lots of borrowing and rising interest rates means it is hard to pay back. What were the factors that set up developing countries for disaster between 1974 and 1979 Oil shocks, falling commodity prices, increase protectionism in developed countries. More cautious in buying export products. Few concessional loans. What was the impact of the oil shock in 1973? What was the impact of the second oil shock in 1979? Huge taking profits from opec. Tons of lending to developed countries. 2nd oil shock raise impact bills to developing countries, increase interest rate, decrease export earnings. How could a country reduce the outflow of foreign reserves using ep/is. 一个国家如何使用ep/is来减少外汇储备的流出? More Import Subs, promote domestic productions and grow more exports. Current account would get more positive. What did Mexico do in 1982 when coming to its debt? No more growth, stopping all the capital investment, and they would only start paying back loans. Creating the contagion of fear of default, they spread the vibes of not growing and not paying back. The panic caused fear of selling and currency devaluation. Increase demand for the US dollar. What was the debt crisis of the 1980s Lots of unfeasible debt in the Latin American countries, too much concessional loans, mostly not paying back. What were the solutions to the crisis? What happened to developing countries large debt burdens? What were the stabilization measures by the imf? Restructure debt or default, more concessional terms, stabilization measures that were imposed by the IMF was using the Brady plan. Stop I.s fight inflation. What are the problems and criticisms with various solutions to the crisis? They were insulting and condescending to developing countries, people hated them, and revolted against the stablizations by the imf. They kick the IMF out. What has been a trend in crises over the past 30 years in developing countries? Why do we think this is? Rotten financial systems not equipped to handle financial liberalizations. What are the dangers of having an unstable currency? It is hard to borrow, hard to grow! Hard to plan ahead and protect the bank. Why do countries in crisis face a hobson’s choices in stage 3? Why is this so important? Need to ensure conferdence in our currency in the intl to borrow more money, or let our currency explode, interest rate stay low. But borrowing a lot useless currency is still useless. What is the IMF? Why what is the role of today? International monetary fund, it is established to stabliaze currency, the role of today it is to provide temporary financing to developing countries with bad balance of payments issues. What is the world bank? Why was it established? What is its role today? Founded rebuild europe after world war2 , now its role lead to middle income countries at market rates. Making profits from profit loans. What is the international development associations, a branch of the world bank? Non profit arm of the world bank and provides concession loans to low income countries using donations. What is the wto? Why was it established? What is its role today? World trade org Dismentle trade barriers, they seek too eleimated reduce trade barriers. What are the critiques that the world regrading these organizatons policies? More focuse on profits, they dont like to gave countries time to grow. How did the south korea manage to use imf loans in a successful manner? Painfully to paid back, door to door ask for citizens to gave them valuable to repay loans. 5, foreign capital inflows Horiazontal FDI Replicate a firm in a new countries, would be advantageous to use when there is high tariffs. Veritcal FDI Locate one stage of production in courtry lowtariffs Export platform Assamble interamedate and send out final good. Lowtariffs. How can a country attract fdi? Low Tax rate What are the advantage of disadvantage of fdi? Stable, but crowed out and overshadwn domestic production What are the advantages and disadvantages of fpi? The opposite of the FDI What are the advantages and disadvantages of remittances? Stable, go directly to poor household and help them invest into the futures. A disadvantages would be it may help human trafficking. What are the trends in fdi in the last 20 years? In remittances? Gotten way more important for development. What did the aitken and harrison 1999 find in their study of fdi in venezuela firms? Dow we see the theoretical benefits of fdi in real life? Positive tech spillovers from fdi is only happening from join ventures 6 case study. CA account, really negative because import heavy FA account because loan are surging in. Cash account is zero, bop would be at zero or above zero Type of lending would concession loans with low interest rates and long term. Unconssional loans and profit focused Stage 2 because few big firm in remy country is starting to default, interest rate is starting rising. Contagious emotions spreading, loans would be evenharder to get. Hobinson choice, it is what remy going to face, because he is sitting at edge of stage 3, Brady plan, lost of equity, and lost of control. Vouch for my currency, people now starting to believe and giving out loans again. They are offering fdi and fpi Tech spillover and stable, but it might skeptical because it is not joint venture, it is 100% own by private firms. More careful on leading on ideas, stop the amount of loans that is getting.