14 December 2006

HIPC

Kyrgyzstan is in an uproar again over HIPC. I talked about HIPC quite a bit with the university students earlier this year and there were few topics that got as heated as this one (see here, here, and here).

Earlier this year Kulov said that Kyrgyzstan will owe $100 million in interest payments over the next three years. $100 million is a huge number in Kyrgyzstan. So far $39,000 has been raised to cover these payments so HIPC won't be necessary. There isn't $100 million available in Kyrgyzstan over the next three years, not to mention the continuing payments after toward the $2 billion currently owed.

Even though HIPC is not an attractive option to many in Kyrgyzstan, what else is the country going to do? I understand that it is annoying to have other countries come in and tell you what to do. I know I sound like an imperialist snob for saying this. But the money was borrowed and it has to be paid back. HIPC would write off as much as half of the $2 billion in exchange for reforms that are necessary to get Kyrgyzstan's economy going. No one in Kyrgyzstan can deny that corruption has had a seriously negative impact on the economy and there seems to be no political will to reduce that corruption (including the shadow economy which every single person in Kyrgyzstan is a part of). HIPC would at least require some reforms.

And please, Kyrgyzstan does not have enough natural resources to make it an object of prey for the World Bank or the West in general. And please stop trying to blame Akaev for this. I agree he caused a lot of the problems, but blaming Akaev won't solve the problems.

HIPC is not what we should be arguing about. HIPC would neither solve Kyrgyzstan's economic problems, nor would it make those problems significantly worse. There are so many other things contributing to Kyrgyzstan's economic woes that this outcry over HIPC is masking.

End of imperialist rant. Actually what I really wish is that there were a way for all countries that qualify for HIPC to write off every penny of their debt and use that money to get their economies going. Without corruption. When I have my own world.

4 comments:

  1. I appreciated this post.

    I tried to respond to it earlier but was having all kinds of issues with blogger.

    Since I know absolutely nothing about it, I wondered.. does the cooruption still exist?

    I did try to find what K. Natural resources are.

    This was a really really interesting post.

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  2. There is corruption in every country in the world, and it's pretty bad in Central Asia. Here is a corruption index- the lower the number, the worse it is. http://www.transparency.org/news_room/in_focus/cpi_2006/cpi_table

    Kyrgyzstan has some mineral resources and potential for hydroelectric power.

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  3. What are the IMF and the World Bank really? They are pillars for crooked and soon to be bankrupt Dollar system.

    One of the crucial pillars of support for today's Dollar System is Washington's control of the International Monetary Fund, the IMF. The way this actually works is carefully disguised, behind a facade of technocrats and economic theory of free market ideology. In reality, the IMF is a modern era collection agency for the Dollar Empire. It collects its tribute, through major international banks, who use the dollars to further extend the power of American financial and corporate hegemony, in effect the driving motor of what is globalization.

    Ironically, though the IMF is a main prop of the Dollar System, it's nominally headed by a European, today a German, Horst Koehler, and before him, by a Frenchman, Michel Camdessus. The real power is carefully concealed behind the facade. Under the constitution of the IMF, no major decision is possible without 85% support of the board of directors. The United States, which drafted the original IMF charter at Bretton Woods New Hampshire in 1944, made sure it had the decisive veto control with an 18% vote share. That veto remains to today. Insiders know well that the IMF is run by Washington. It is no accident that its headquarters is also there.

    The IMF was originally created in the 1944 Bretton Woods New Hampshire international monetary conference, called by President Roosevelt to set up a postwar monetary and trade system. It was intended as a fund to support stability of currencies and trade of the postwar European allied countries. At that time Washington held the vast bulk of world gold reserves and expected to lend dollars to rebuild Europe. The original IMF idea was to pool a share of reserves of member states, which any single state could then borrow, in event of a short term payments crisis, to stabilize their currency. Ten years after the Great Depression, the major industrial nations, including the USA, were concerned with creation of a stable, growing Europe, not least as an export market for US products. The first member to borrow was Great Britain after the war. The last European state was Italy in 1977.


    The IMF is retooled in 1980s
    Since 1977, no European or G7 country has gone to the IMF to borrow. Instead they have borrowed from private banks or issued state debt. They know all too well how destructive the IMF conditions are. By the end of the 1970s some people were suggesting the IMF had outlived its role, much as some argue with NATO after the end of the Cold War. Washington had other ideas for the IMF however.

    The role of the IMF changed dramatically in the early 1980s, under US pressure. Instead of serving as a stabilizing fund for industrial countries of Europe or Japan, the IMF became the decisive agency controlling economic policy of underdeveloped countries. What evolved since the first Latin American debt crises of the early 1980s, was an entirely new role for the IMF to act as policeman to collect dollar loans for private New York and international banks. The IMF became the driving motor for what came to be called "globalization."

    After the first oil price rise of 400% in the 1970s, many developing countries such as Brazil, Argentina, or most of Africa, borrowed heavily to finance needed oil imports, or trade deficits. They borrowed dollars from major international banks operating in the London Eurodollar market. London was the center for, in effect, the recycling of the large sums of petrodollars from Arab OPEC countries to US and other major banks.

    The major banks took the new oil dollars and immediately relent them at a nice profit, to countries like Argentina or Egypt. Before the 1970s Argentina had been a fast-growing economy developing modern industry, agriculture and a rising standard of living for its people. It had almost no foreign debt. Ten years later, the country was under control of the IMF and foreign banks. The US changed the rules, in the process creating the debt crisis.

    In October 1979, a dramatic shock occurred for the debtor countries. Overnight their cheap dollar loans cost them 300% more interest charge. Paul Volcker of the Federal Reserve Bank in the US, unilaterally changed US interest policy to force the dollar higher against other currencies. The effect was to raise US interest rates 300% and rates in the London bank market by even more. The bank loans to Argentina and other countries had been made in "floating" rate agreements. If the key international rate in the London bank market, LIBOR, was low, Argentina would pay a low rate on its dollar loans. But when it suddenly rose 300% in 1979-1980, many countries suddenly faced a payments crisis.

    It took until 1982 for the crisis to reach default level. At that point, Washington demanded the IMF be brought in to police a debt collection process on developing debtor nations. This came to be called the Third World Debt Crisis. The impression was created that countries like Argentina were guilty for mismanagement. In reality, whatever political corruption may have existed in the debtor countries, the corruption of the IMF system and the petrodollar recycling was far greater. The Volcker interest rate shock completed the package of destruction of living standards on behalf of dollar debts.

    How did the IMF act in the third world debt crisis? Here is where it becomes clear that the role of the IMF was to support the dollar hegemony of the United States, and not to help poor countries get through a temporary debt problem.

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  4. Glad you got that out of your system, anonymous.

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