Neo-Conservatism and the Growth of Global Disequilibrium

Abstract

The immediate consequences of the ideological ascendancy of monetarism and its simultaneous adoption as policy in most major capitalist countries was, of course, the depression of demand in the North and a rise in real interest rates to record levels. This found expression in huge balance of payments deficits for countries of the South as their export earnings fell and as interest payments on foreign debt rose. It was this combination of factors which precipitated the debt crisis, as the current account deficit of the fifteen most heavily indebted nations rose to $50 billion in 1981 (Table 3.1). From 1981 to 1983 real per capita incomes of Third World countries fell (by 1.8%), and fell especially sharply in Sub-Saharan Africa (11%) and Latin America (10%) as exports fell, as debt servicing costs rose dramatically and as real flows of official assistance also declined (IMF, WEO, October 1989, p. 79). Only the countries of Asia escaped relatively unscathed because of their larger domestic economies, lower external debt burdens and proximity to Japan which avoided the worst of the recession; their per capita incomes increased by 13.9 per cent in these three years.