Reflections on the political economy of north-south relations at the turn of the century. Net flows to developing countries remain high, averaging almost 5.5 percent of gross domestic product in the mid- to late-1990s, using the definitions in Table 1 of the Introduction. Most importantly, in 1999 Habibie lost the democratic elections to the combined opposition candidate, Wahid.
This book examines the implications of one aspect of the first trend—changes in the forms of international flows facilitated by financial globalization—for the second: democratization. Mary Ann Haley focuses on the increased volatility of the new portfolio's capital flows, noting that many commentators, including Armia, are concerned. Each of the authors considers the consequences of foreign capital flows for democratic development in the country they are analyzing.
Carlos Elizondo Mayer-Serra considers the political implications for Mexican democracy of the international financial crisis. While Indonesia is a dictatorship of the right, Communist Vietnam is one of the left, which is currently undergoing an unusually rapid opening to large-scale foreign capital inflows.
Democracy and the Evolution of Global Capital Markets
In the 1970s, the share of medium- and long-term bank loans increased dramatically, providing about half of net resource flows by the end of the decade. I define six types of capital flows based on answers to three questions: Is the source of capital in the advanced industrial country the public or private sector. Is the recipient of foreign capital in the emerging market country the public or private sector?
Their characteristic is that the collected funds become the responsibility of the government of the emerging country. Capital inflows mean the confidence of the outside world in the economic management ability of the ruling team. 1993) "Vision and Politics in the Transformation of Global Political Economy: Lessons from the Second and Third Worlds," in Robert O.
Working Papers of the Southern California Seminar (Los Angeles: Center for International Studies, University of Southern California). First, developing countries (including colonies) were usually net borrowers from the rest of the world. Official development assistance (ODA), foreign direct investment (FDI) and export credits were the main components of the flow at the beginning of the decade.
Existing regulations and controls had already been largely overcome by the emergence of the Euro currency market in the 1960s. An important conceptual distinction is between the systemic and the country-specific features of the flows. Section two above showed that the characteristics of the new wave of capital inflows to developing countries differ radically from the flows of the 1970s.
In the near future, 90 percent of the capital flowing to developing countries may be from private investment (IFC 1995, p. 6). In 1993, portfolio equity accounted for 31 percent of total net resource flows to developing countries (see also Chapters 1 and 2 in this volume). Mark Mobius, manager of the various Templeton emerging market funds, had a huge presence in the emerging field.
Garber (1990) argues that in the case of the tulip mania, the market as a whole did not exhibit unreasonable prices. In addition, significantly strengthening the dispute settlement process at the WTO (shifting to a request for unanimity injunctions instead of initiating a complaint, establishing shorter and more clearly defined timetables, and creating a quasi-appellate body -court to hear complaints) will benefit financial sector participants affected by violations of WTO rules (Shell, 1995; Young, 1995). A similar process was seen in the discussion of banking regulation and the role of the Basel Committee.
These brief descriptions of the activities of these private international institutions show that they can play an important role in politics.
Country Cases
This discussion examines factors that led to the devaluation, considers why it surprised the markets, and addresses financial market behavior in the wake of the devaluation. In the early stages of the program, capital inflows finance the excess of consumption and investment relative to domestic production, allowing a boom to follow. The exchange rate moved towards the weak edge of the band, but remained within it.
First, the peso's controlled rate of depreciation has been inconsistent with the persistent inflation differential between the United States and Mexico. Mexican government officials spoke and acted as if they expected the devaluation to have a stabilizing impact. For a more detailed development of the link between the Mexican banking problems and the subsequent currency crisis, see Calvo and Mendoza (1995).
At the time of the 1994 elections, most big businessmen openly supported the PRI presidential candidates in a more explicit alliance than before. But such a large influx also made investors more aware of the threats to Mexico's political stability. As a consequence of the greater amounts of foreign capital that came to Mexico in the early 1990s, domestic political conflicts had to be resolved not only effectively, but without reference to.
Most of these polls showed the advantage of the PRI and a distant third place of the PRD. On the other hand, in the absence of a strong and reliable central bank, the economic risks of losing the PRI became stronger. Foreign direct investment was critical to Brazil's growth in the 1950s through its boom years of the 1960s and 1970s.
In the absence of strong institutions that could mediate conflict, each of the regimes fell quickly. Others such as O'Donnell (1972) or Cardoso (1973) find its causes in the structural requirements of the economy. In the course of the crisis in the early 1980s, a large number of banks became reluctant to lend further to Brazil.
The potential for conflict with this group, which represents at least a large number of Brazilians, lies in the possibility of a return of inflation. See Stepan (ed.) (1989) for descriptions of the political, economic, and moral crisis that befell the military in the 1980s.
