While studying various instruments of decolonization of the global South, I have learned about the debt regime which occurred in the Third World countries, described in Philip McMichael’s Development and Social Change. Many countries suffered from debt crisis in 1980s. It happened when they realized that they are not able to pay their debts to the creditors any more because of their earning power, which was less then a debt. Debt regime became a culmination of a debt crisis in 1980s and an instrument for decolonization. The last one meant independence for Third World countries. Some of them even obtained free association status after decolonization.
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The first country with an enormous debt was Mexico. It was in 1982 and its debt exceeded $80 billion when this country stated that it is unable to pay its debt back to international creditors. Mexicans owed this debt mostly to U.S. private banks. Jose Lopez Portillo, Mexican president, suggested nationalization of banking system in Mexico instead of implementing debt management. In my opinion, his speech to international community was shocking for the whole World and influenced international financial community a lot:
The financing plague is wreaking greater and greater havoc throughout the world. As in Medieval times, it is scourging country after country. It is transmitted by rats and its consequences are unemployment and poverty, industrial bankruptcy and speculative enrichment. The remedy of the witch doctors is to deprive the patient of food and subject him to compulsory rest. Those who protest must be purged, and those who survive bear witness to their virtue before the doctors of obsolete and prepotent dogma and of blind hegemonical egoism” (McMichael, 2004, p. 129).
As a result of Portillo’s position, Mexico refused to form a debtors’ club in the region. Moreover, to prevent capital flight, president implemented a system of exchange controls. In 1989, Stanley Fisher, an economist from the World Bank stated, that “Most of the burden has been borne by wage earners in the debtor countries” (McMichael, 2004, p. 130).
However, in my opinion debt crisis also had its advantages afterwards. It is clear that in that region, the collapse of dictatorships occurred after the debt crisis. Bureaucratic – authoritarian regime in Argentina and military regime in Brazil had failed due to the financial crisis impact. Another advantage is the decolonization of dependant countries.
The bailout programs in Mexico became demonstrative for other countries, primarily because they were implemented by government, which used very strict measures. However, debt regime changed a lot in many countries:
The debt regime reformulated the terms of economic management, relocating power within states and from stated in former Third World to global agencies. World Bank and IMF programs of adjustment substituted for a true multilateral management of a debt crisis. These conditions imposed standard rather then locally tailored remedies on indebted states” (McMichael, 2004, p. 139).
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Another solution of a debt crisis problem was proposed by the newly industrializing countries, which separated from the Third World countries after this crisis. Industrialization became export- orientated and a successful try of a free market model implementation, which happened in 1980s. NICs considered it as a solution for the debt crisis.
The main idea and a question that McMichael states in his book is a paradox of a debt regime, which finally served as a new development model in time when the effect of globalization occurred. The author compares the debt regime to a “politicized method of debt collection” (McMichael p. 134). In my opinion, this expression reflects the reality of that debt crisis and clearly shows that countries depend on political decisions of their leaders.
McMichael, Philip. (2004). Development and Social Change: A Global Perspective, Thousand Oaks: Pine Forge Press.