Scope of the Chapter

Chapter 15 mentioned that the LDCs' persistent deficit on the balance on goods, services, and income through the 1980s and 1990s, together with a decline in loans at bankers' standards in the mid- to late 1990s, contributed to a continuing LDC debt crisis. The debt crisis for Latin America and other middle-income borrowers, primarily owed to commercial lenders, was of a different nature than that of sub-Saharan Africa, who owed its debts primarily to bilateral government and multilateral lenders. Jubilee 2000, launched by nongovernmental organizations, put pressure on the World Bank, IMF, and DC donors to relieve, write down, or forgive the debts of the highly indebted poor countries (HIPCs), largely from Africa.

The most fundamental change in the international economic system in the 1990s was the incredible rise in international capital mobility, with about $2 trillion crossing borders daily (You 2002:216), from which middle-income countries received massive capital inflows. Global foreign exchange transactions rose from a mere $15 billion per day in 1973 to $60 billion in 1983, exploding to $900 billion in 1992, and continuing to increase in the years after that. Thus, the worldwide ratio of foreign exchange transactions to world trade was 9:1 in 1973, 12:1 in 1983, and 90:1 in 1992. World GDP in 1992 was $64 billion daily compared to $10 billion exports and $900 billion foreign exchange transactions, in excess of the foreign exchange reserves of the world's central banks, $693 billion, inadequate to cope with sudden shifts in the direction of global currency flows (Nayyar 1997:3–4).