Summary
- The five MENA countries discussed fell into domestic and foreign debt
during the 1970' and 80's through
a. short-term commercial bank loans that rolled over year after year
b. permissive accounting practices
c. failure in reliance as a rentier economy based upon oil revenues
and worker remittances
- As credit to GDP increased, debt increased and the debt service ratio
increases as well, which is more crucial in concern than actual amount of
debt.
- IMF's packages of reform come in two phases: stabilization and structural
reform
- Stabilization to control the "terrible twin deficits" in balance of
payments and in the government budget is addressed by:
1. putting limits upon money creation to slow inflation and reduce
government spending
2. limits to domestic credit
3. increase interest rates as to discourage borrowing and encourage savings
-Once macroeconomic stabilization is achieved, various structural programs
of financial reforms are introduced in effort to integrate local and
international markets. To do this, there needs to be creation of autonomous
and competitive banking system.
- One party regimes try to maintain control monopolies in credit allocation
as new enterprises enter the market. Financial reform is seen as a threat
to one-party regimes.
- Though there is a reluctance to change, fear of capital flight drives
financial reform.
- Companies tend to desire political pluralism as to weaken the strength of
the government's control.
- Yet financial liberalization does not necessarily lead to democratization.
- In the MENA, the key to financial reform is the central banking system.
- Henry's book focuses upon the attempts of the five MENA countries to
create more autonomous and competitive banking systems to encourage
international economic participation in each country out of the wake of the
debt crisis of the 1980's. The emphasis is put more on financial reforms
pertaining to debt rather than on the end of the Cold War.
Analysis (Comparison to Stallings' book)
-Stallings spends little time evaluating her thesis in relation to the
Middle East. The Mediterranean Debt Crescent offers a good foundation upon
which to study Stallings' framework.
-The debt crescent (Turkey, Egypt, Tunisia, Algeria, and Morocco) is most
closely linked to Europe (as a former colinizer) and therefore, its form(s)
of capitalism: "Indeed, each crescent country is so dependent upon Europe
for vital goods and services and the means of financing them that it cannot
reverse the prevailing international tides toward greater economic
interdependence" (Henry 2). However, since the debt crescent countries are
in need of financial help, they have increasingly adopted U.S./I.F.I.
policies in order to receive international funding.
-Yet, there are regional influences which also affect the crescent forms of
capitalism. One of the most noteworthy seems to be Islamization. Islamic
banks, which are a combination of "contemporary economic practice" and
Islamic beliefs/social traditions, are beginning to take a larger role in
the economies of the crescent. However, these Islamic banks are still not
as predominant as Western-model banks.
-Stallings suggests that global changes (e.g. the collapse of the Soviet
Union and the concomitant bipolar political/economic model of global
organization) have contributed to regional economic liberalization.
According to Henry, however, the debt crisis in the crescent countries was
due more to bad economic policy rather than the end of the Cold War. As a
result of this bad economic policy, economic reform in the form of
IMF-supported liberalization was necessary to save the crescent countries
from falling into further debt.
- Though the debt crescent can't help being influenced by economic
globalization and liberalization, it doesn't necessarily follow that these
factors are the direct cause of the crescent's move toward liberalization.
Liberalization, it seems, has been the result of the need for the
strengthening of the crescent's economies (and therefore, political regimes).