[A-List] RE: Sabri's questions
Henry C.K. Liu
hliu at mindspring.com
Thu Aug 26 17:23:55 MDT 2004
Yes, Michael. But foreign currency debts can only be incurred initially
by imports. Rollover the foreign debts is then financed with more
foreign currency debts. If a country did not accpet foreign capital or
debt to start with, there would be no capital flight. Or if foreign
capital is regulated and limited to direct investment rather than stock
markets, then there will also be no serious sudden capital flight. Or
if a country suspends free exchange of its currency, capital gain can be
stopped as in the case of Malaysia. Capital flight of foreign currency
is merely a call on the central banks foreign exchange reserve. In the
case of Russia, food import was financed by foreign currency debts. The
importation of cheaper grain in order to shift capital and land
resources to high yield cash crops also financed the British industrial
revolution, which was settled by the repeal of the Corn Laws. World
Bank loans are always in hard foreign currency, which can only be repaid
by exports. IMF's job is to make sure swovereign borrowers repay their
creditors by being a lender of last resort to central banks of indebted
nations. AID programs were designed to make the recipient nation
dependent on more aid, in ways similar to domestic welfare programs.
They finance not a country really needs, but what Washington thinks the
country needs, which is an economy dependent of serving the US global
system. At any rate, trade has replaced aid after the Cold War ended.
Hudsonmi at aol.com wrote:
> Henry says: Domestically, a government borrows so that sovereign
> debt provides a benchmark for the domestic private debt market.
> Governments need never borrow for lack of money. Internationally,
> it's a different story.
> Governments borrow foreign currencies mostly to finance imports.
> Michael here: Actually, Henry, my statistics of the balance of
> payments of third world countries that many governments (especially
> Russia in the 1990s) borrow (1) to finance capital flight, and (2) to
> pay interest and amortization on foreign debts, NOT on imports.
> And, the ENTIRE trade deficit typically is in food - as a result
> mainly of countries shifting away from grain and other domestic food
> production to plantation export crops. Most of this shift has been
> subsidized by World Bank loans and pressures from the IMF and AID.
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