In other words, no going it alone if you're heading a weak state, mr president. You'd need, instead, to invoke very rigorous international solidarity amongst people of conscience who can put pressure on governments and multilaterals. That's underway (with Jubilee 2000), of course, though not without healthy debates over strategy/tactics.
> >... b) reflate with foreign funds instead of
> >easy-to-print local currency?
> The answer to b) is that I'd be doing both. Because I'm printing money
> domestically, I need to run a large current a/c deficit (even if the cocoa
> price rebounds, my reflationary policies will tend to create an external
> deficit.
Unless you really clamp down on luxury imports and base your reflation on a self-reliant economic restructuring that first and foremost meets basic needs, which generally doesn't require a lot of hard currency, right?
> For this, I need foreign funds, because they're the only funds
> that foreigners will accept, unless I want to get into commodity barter,
> which I probably wouldn't.
On this point, my sense is that we really need, at the end of the day, export credit agencies in the North that will give a lefty South leader like you a break, and of course that would occur ONLY because the better surgical lefty NGO types have begun to keep an eye on EximBank or KfW so that when all the other bankers decide to do a creditors' cartel, popular pressure would keep supply lines open. Again, such a "reform" process is in fact in motion, and it's got a bit of potential (far more so than "reforming" the IMF/Bank/WTO), but I fear that the good surgeons involved in this work (from EDF, ActionFinanz and Berne Declaration amongst other groups) haven't thought this far down the road -- i.e., about why trade finance can be a matter of life and death for a defaulting country. Does that make sense, Daniel? (I ask because it's very very hypothetical... the best "reform" achieved around the US EximBank was stopping loans to Pretoria, and anyone who tried to start trade finance to 1980s Nicaragua would naturally have run into serious problems!)
> South-African style dual currency regime might actually make a lot of sense
Oh dear. Our silly president Mandela took the advice of the bond traders in March 1995 and got rid of the "finrand," so we got two massive currency crises after that.
> -- I don't really know enough about the financial rand system to make any
> comment. But I really want to be able to run the current a/c deficit, and
> I think I'm prepared to give up some control over interest rates in order
> to attract the money.
I beg you to rethink, comrade president!
> I also tend to think that the economy's going to get
> kicked around by the cocoa price no matter what, so the marginal damage
> caused by floating the exchange rate is small. I'm also a central bank
> monetarist rather than a post-keynesian, so I cling to the belief that as
> long as I don't print too much of it, I can still have as much control as I
> need over the domestic money supply even with open capital markets.
That's not very realistic in Africa, is it now? Because now you are relying more and more on financial system intermediation. That's a problem, when we're seeing rapid financial shallowing all over the continent. There's just too much stuff going on outside the formal banking system for you to control anything terribly well. Better retain that printing press.
> I'm
> not hoping for a miracle; I just want to be able to run a looser monetary
> policy than would otherwise be possible. I might experiment with
> Chinese-style controls on capital *inflows*.
Into what, the mickey-mouse stock exchange? No one is going to buy your bonds, right? And if they fear your propensity to default then they'll probably fear your propensity to restrict capital gains and profit repatriation.
> > If the answer to a) is to allow your
> >elite chums the opportunity to skidaddle and to b) you'll just
> >default again (lather, rinse, repeat), I don't think you're being
> >realistic about power relations. How long can you stay in power under
> >such circumstances?
> I would guess that my elite chums would have skidaddled long ago -- as the
> first leaks started coming out about the planned default. There's very
> little you can do to stop wealthy individuals from moving their wealth to
> Switzerland, when it comes down to it; all you can do is factor it into the
> budget.
That used to be true. Now we have a few more weapons at our disposal. A few months ago some investigators got into the very revealing Swiss accounts of a naughty guy running Africa's largest public works scheme (my old friend the Lesotho Highlands Water Project, which supplies Johannesburg with whiskey-thinner at this time of the night).
> The aim of my capital controls was always to keep the assets of 1)
> the local middle classes and 2) the local banking system within the
> country. By the time I got around to lifting capital controls, I would
> have expected to have nationalised (or quasi-nationalised) most of the
> local banks,
Now we're talking. That's fine, but have you factored in London or Parisian head offices of your banks, and also local power relations in the event the banks are domestically owned? What, aside from a military coup, have you done to change those balance of forces? With all due respect, president, I think you have forgotten to mobilise the masses along the way.
> ...
> >The most interesting default in memory remains apartheid South
> >Africa, September 1985, don't you think? Brazil, February 1987, was a
> >six-month flash. Others between then and Ecuador?
> SA was fantastically interesting, and I wish I knew more about it -- know
> of any good books?
Stay tuned, we're getting this stuff dusted off and will release lots of goodies about who really owes whom in SA soon. Meantime there's some info on how to get at the Swiss/German piece of the apartheid debt "standstill" available at http://www.aidc.org
> I wonder how far the SA experience generalises though
> -- due to the mineral resources, I would guess (in an enormously
> ill-educated way) that the austerity program needed to run a capital a/c
> surplus in SA would be less due to the more advantageous terms of trade.
> But I may be talking out of my hat.
The austerity programme needed to run a capital a/c surplus in SA is more due to the fact that the ANC was given the state... with strings attached.
> The most important defaults between Brazil '87 and Ecuador would have had
> to have been Poland/Hungary/Czech Republic in 1994/5 (I count these as
> defaults because this was when the debts were finally written down under
> their Brady deals) and Russia in 1998 (first and only example of the IMF
> effectively writing off money)
True? I thought that the new money from the IMF went to pay the interest on their old loans first and foremost?
Anyhow, the May 1999 "Lusaka Declaration" of African social movements (a better term than civil society we'd agree) committed that if the African debt isn't written off by 31/12/00, then there will be a massive continental uprising that will result in a debtors' cartel. Rosemary Nyerere (Julius' daughter) made a similar statement in November at the Johannesburg meeting of the Jubilee South Summit. Stay tuned! Patrick Bond email: pbond at wn.apc.org * phone: 2711-614-8088 home: 51 Somerset Road, Kensington 2094 South Africa work: University of the Witwatersrand Graduate School of Public and Development Management PO Box 601, Wits 2050, South Africa email: bondp at zeus.mgmt.wits.ac.za phone: 2711-488-5917 * fax: 2711-484-2729