Kregel 6 12 PPT
Kregel 6 12 PPT
Kregel 6 12 PPT
• Conclusions
• Global
investors
raise
their
returns
by
investing
in
Developing
Countries
• Developing
Countries
develop
more
rapidly
by
Borrowing
Capital
from
Developed
Countries
• Global
rate
of
Growth
and
Wealth
Formation
Maximised
• Provides
Pensions
for
Old
Developed
Country
Codgers
Cambridge
Capital
Theory
Debate:
• There
is
NO
Theoretical
Support
for
Mainstream
Assumptions
• Impossible
to
establish
an
inverse
relation
between
capital
scarcity
and
rate
of
return
• Not
even
possible
to
measure
capital
productivity
and
thus
scarcity
Assumptions
Cannot
Be
Supported
by
the
Stylised
Facts
15
What
Led
to
AFP?
• Reduce
level
of
activity
to
free
resources
to
meet
debt
service
• External
surplus
is
produced
via
fiscal
surplus
• Fiscal
surplus
created
by
cutting
investment
in
education,
health,
social
expenditures,
government
wages
• Fiscal
surplus
reduces
domestic
absorption
and
domestic
resource
utilisation
I
• Creates
unemployment
and
lost
potential
output
• Absence
of
Social
Safety
Net
creates
economics
and
social
marginalisation
–
informal
labour
markets
The
Bretton
Woods
Constraint:
• Bretton Woods designed to
produce stable exchange rates"
• This was only possible if Current Accounts balanced over
time across member states "
• The Adjustment mechanism: Impose an External
Constraint"
– Contractionary fiscal policies, reinforced by exchange
depreciation if recession not sufficient"
44
IMF
exchange
rate
policy
•
Kaldor
notes,
“the
periodic
efforts
of
...
the
I.M.F.
to
secure
an
alleviation
of
the
balance
of
payments
problems
of
particular
under-‐developed
countries
by
the
introduction
of
more
“realistic”
exchange
rates,
...
have
proved
so
misguided.
• In
most
of
these
cases
...
devaluation
has
been
followed
by
a
new
wave
of
inflation
which
has
swallowed
up
the
stimulus
to
exports
afforded
by
the
devaluation,
within
a
relative
short
period.
• The
diagnosis
that
has
led
to
such
recommendations
has
been
based
on
the
false
analogy
from
the
situation
of
industrialised
countries
whose
export
prices
are
cost-‐determined
to
that
of
primary
producers
whose
export
costs
are
price-‐determined.”
45
IMF
and
Alternative
Exchange
Rate
Policy
• Domestic
recommendations
• Employment
the
objective
rather
than
investment
and
GDP
growth
• Consumption
not
investment
led
growth
of
employment
• You
don’t
need
foreign
borrowing
• Also
carries
over
to
the
international
sphere
• Employ
Domestic
Resources
• Restrict
Foreign
financing
• Restrict
Foreign
Direct
Investment
• BUT:
Build
Domestic
Manufacturing
and
Export
Sector
to
buttress
Cash
inflows
Return
to
the
Development
Pioneers:
How
to
lift
Development
Constraints?
• “It
is,
therefore,
a
serious
question
whether
it
is
right
to
adopt
an
international
standard,
which
will
allow
an
extreme
mobility
and
sensitiveness
of
foreign
lending,
while
the
remaining
elements
of
the
economic
complex
remain
exceedingly
rigid.
• If
it
were
as
easy
to
put
wages
up
and
down
as
it
is
to
put
bank
rate
up
and
down,
well
and
good.
But
this
is
not
the
actual
situation.
• A
change
in
international
financial
conditions
or
in
the
wind
and
weather
of
speculative
sentiment
may
alter
the
volume
of
foreign
lending,
if
nothing
is
done
to
counteract
it,
by
tens
of
millions
in
a
few
weeks.”
Keynes
had
already
warned
about
the
false
illusion
of
externally
borrowed
National
Policy
Space