The World Bank’s Modernizer Moves On
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  • Anthony

    “How to Pick Next World Bank Leader” by Mohamed EL Erian (CEO at Pimco) in today’s Washington Post provides related context to WRM’S Quick Take.

  • “Chinese banks have provided $75 billion in loans to Latin America”

    I’d like to read more about that.

  • About those Chinese loans to Latin America, a commenter in the Financial Times had this to say:

    “Sounds like the house of cards that resulted in the Latin American Debt Crisis of the 1980s is being rebuilt with mah jong tiles this time. We may all be doomed to repeat a little history. During the 60’s and 70’s the surging economies of Latin America borrowed huge sums of $ for infrastructure and industrialization. American and European commercial banks flush with cash from the OPEC countries and looking for a place to park it were all to happy to flood feed the ravenous appetite of the region for loans. Just between 1975 and 1983 Latin American external debt quadrupled from $75billion to $315 billion (50% of the regions gdp.) Debt service went from $12 billion to $66 billion. As global recession hit there was a liquidity crunch and higher interest rates. The dollar rose against the commodity based regional national currencies increasing the pressure of such huge debt. By summer of 1982 the finance minister of Mexico declared that they would no longer be able to service their debt. New loans ceased, old debt was restructured making the region slaves to IMF terms, commercial banks went on life-support, and the people of the region suffered tremendously. Their incomes and purchasing power dropped precipitously as inflation raged and their national currencies devalued (making the IMF terms even harder), unemployment soared, growth stagnated and even went largely negative. Argentina sought the diversion of the Falklands war. This sounds all too familiar. China is as anxious to recycle its abundance of dollars as the oil exporters were during the 70s. Latin America looks promising as it is finally again growing. BUT what has really changed? The economies of the region are still largely dependent on the health of the US and world economy ( as in China, make no mistake about that.) What will happen when these loans come due and and perhaps because of recession are unpayable. Maybe Chinese bank collapse? Maybe a diversionary war in Taiwan? Who knows. The only thing we can be sure about is that the people of this region are potentially setting themselves up to suffer again. Last time they became IMF slaves. this time they may be “to big to SAVE”, plus, who will be in a big hurry to bail out China?”

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