ASSOCIATION FOR GOOD GOVERNMENT SEMINARJOFFRE BALCE28 APRIL 2013REDFERN NSW

Is There Life After Sovereign Debt?

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

It Used to be a “Third World” Problem

That Is the Myth

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

Who’s to Criticize?

The Global Picturestrangejournal.wordpress.com

Vicious Cycle

Low Incomes

Low Savings

Low Capital

Low Capital Productivit

y

Interventions

Low Incomes

Low Savings

Low Capital

Low Capital Productivit

y

Long Term Loans

Capital & Technology

Interventions

Low Incomes

Low Savings

Low Capital

Low Capital Productivit

y

Long Term Loans

Capital & Technology

Forced Savings

Capital Markets

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

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

Inequity in Consumption

Good News?

Disparities in Purchasing Power

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

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.

EU: From Bad

... To ... ?

Quo Vadis, USA?

Winners & Losers?