is there life after sovereign debt?
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ASSOCIATION FOR GOOD GOVERNMENT SEMINARJOFFRE BALCE28 APRIL 2013REDFERN NSW
Is There Life After Sovereign Debt?
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Sovereign Debt
debt that is issued, incurred or assumed by a national government Direct loans Bonds Guarantees
Lies: they are practically risk-free because government do not default
The democratic burden is on the taxpayer, despite the benefits based on privileges during good times
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It Used to be a “Third World” Problem
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That Is the Myth
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Who’s to Criticize?
Stability and Growth Pact (SGP): an agreement, among the 27 EU members to facilitate and maintain the stability of the (EMU)
Goals: competitiveness employment fiscal sustainability financial stability. tax policy coordination
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Who’s to Criticize?
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The Global Picturestrangejournal.wordpress.com
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Vicious Cycle
Low Incomes
Low Savings
Low Capital
Low Capital Productivit
y
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Interventions
Low Incomes
Low Savings
Low Capital
Low Capital Productivit
y
Long Term Loans
Capital & Technology
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Interventions
Low Incomes
Low Savings
Low Capital
Low Capital Productivit
y
Long Term Loans
Capital & Technology
Forced Savings
Capital Markets
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Interventions
Low Incomes
Low Savings
Low Capital
Low Capital Productivit
y
Long Term Loans
Capital & Technology
Forced Savings
Capital Markets
Policy: De-
Regulate Liberalise, Privatise
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Interventions
Low Incomes
Low Savings
Low Capital
Low Capital Productivit
y
Long Term Loans
Capital & Technology
Forced Savings
Capital Markets
Policy: De-
Regulate Liberalise, Privatise
Austerity Measures
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Development Chain A: Social Welfare
Human Developme
nt
School Enrollment
Ratios & Health
Services Coverage
Social & Priority Ratios
Government Revenue
& Expenditur
e Ratios
Gross Nation
al Produc
t
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
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Development Chain B: Competitiveness
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneur
s
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross Nation
al Produc
t
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
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Development Chain A
Human Developme
nt
School Enrollment
Ratios & Health
Services Coverage
Social & Priority Ratios
Government Revenue
& Expenditur
e Ratios
Gross Nationa
l Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
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Development Chain A
Human Developme
nt
School Enrollment
Ratios & Health
Services Coverage
Social & Priority Ratios
Government Revenue
& Expenditur
e Ratios
Gross National Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Social Capital
Policy Environmen
t
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Development Chain A
Human Developme
nt
School Enrollment
Ratios & Health
Services Coverage
Social & Priority Ratios
Government Revenue
& Expenditur
e Ratios
Gross National Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Social Capital
Policy Environmen
t
Debt Restructurin
g
Foreign Savings
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Development Chain A
Human Developme
nt
School Enrollment
Ratios & Health
Services Coverage
Social & Priority Ratios
Government Revenue
& Expenditur
e Ratios
Gross National Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Social Capital
Policy Environme
nt
Graft & Corruption
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Development Chain B
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneu
rs
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross Nationa
l Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
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Development Chain B
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneu
rs
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross National Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Social Capital
Policy Environmen
t
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Development Chain B
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneur
s
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross Nationa
l Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Domestic Savings
Physical Capital Stock & Contributions to IT
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Development Chain B
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneu
rs
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross Nationa
l Product
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Domestic
Savings
Physical Capital Stock & Contributions to IT
Foreign Savings
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Development Chain B
Human Developme
nt
Capabilities of Workers,
Farmers, Managers & Entrepreneu
rs
Organisation of R&D Production
, Technology, Imports
& Adaptation
Composition of
Outputs & Exports
Gross Nation
al Produc
t
Income Distribution
Household Income & Poverty Rates
Household Expenditures & HD Items & Allocation within Households
Social Capital
Policy Environme
nt
Economic Rent
Capture
A
B
C
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When Sovereign Debt Becomes a Burden
Grow Out of It ... After living beyond one’s means
Reduce Interest ... If there will be any takersAsk for a bail out ... At what cost?Fiscal austerity ... But who will/must pay?Print money ... Court inflation & depreciationNegotiate ... On what terms?
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Leakages
Graft & Corruption: Opacity; Privilege; ImmunityEconomic Rent
A. Monopoly-Monopsony Power of Land & MarketsB. Market Information Asymmetry/MarginalisationC. Policy Support for A & BD. “Exchanging a coffee bean tree for a free cup of coffee”
Subordination of Development to the Conditions of Repayment & the Preservation of Systemic Leakages
Leakages overshadow any benefits debt restructuring can hope to generate
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Redesigning the Remedy
Responsible Restructuring Accounting Sources of Savings & Uses of Funds Financial, technical & legal Audits
Deploy domestic resources that will generate benefits that will accrue to the local beneficiaries
Reduce dependence on foreign debt & resources (e.g., mutualise utilities not privatise them; democratize monetary management)
Fiscal Reform: Use funds to arrest economic rent seeking & capture & preserve the common wealth of local communities
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Inequity in Consumption
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Good News?
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Disparities in Purchasing Power
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Bad News?
An analysis of long-term trends shows the distance between the richest and poorest countries was about: 3 to 1 in 1820 11 to 1 in 1913 35 to 1 in 1950 44 to 1 in 1973 72 to 1 in 1992
1999 Human Development Report, United Nations Development Programme
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Heavily Indebted Poor Countries
The 38 states recognized as the Heavily Indebted Poor Countries (HIPC). Countries qualifying for full HIPC relief Countries qualifying for partial HIPC relief Countries eligible for HIPC relief but not yet meeting necessary conditions.
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EU: From Bad
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... To ... ?
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Quo Vadis, USA?
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Winners & Losers?