Sen (ed ) financial fragility, debt and economic reforms (1996)

FINANCIAL FRAGILITY, DEBT AND ECONOMIC REFORMS Also by Sunanda Sen COLONIES AND THE EMPIRE: INDIA, 1890-1914 Financial Fragility, Debt and Economic Reforms Edited by Sunanda Sen Professor of Economics Jawaharlal Nehru University New Delhi First published in Great Britain 1996 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library ISBN 978-1-349-13801-2 (eBook) ISBN 978-1-349-13803-6 DOI 10.1007/978-1-349-13801-2 First published in the United States of America 1996 by ST MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y 10010 ISBN 978-0-312-16225-2 Library of Congress Cataloging-in-Publication Data Financial fragility, debt and economic reforms / edited by Sunanda Sen p cm Includes bibliographical references and index ISBN 978-0-312-16225-2 Monetary policy Structural adjustment (economic policy)-Developing countries International finance I Sen, Sunanda HG230.3.F553 1996 96-2813 332©.042-dc20 CIP Selection and editorial matter @ Sunanda Sen 1996 Text @ Macmillan Press 1996 Softcover reprint of the hardcover 1st edition 1996 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages 10 05 04 03 02 01 00 99 98 97 96 Contents vi Preface Notes on the Contributors viii Introduction viii viii Financial Globalisation, Systemic Risk and Monetary Control in OECD Countries Michel Aglietta 13 On Financial Fragility and its Global Implications Sunanda Sen 35 Financial Markets and the Real Economy Laurence Harris 60 Fluctuations in Global Economy: Income, Debt and Terms of Trade Processes Amiya Kumar Bag chi 73 10 11 Alternative Approaches to Adjustment and Stabilisation Hans W Singer 103 The Appraisal and Evaluation of Structural Adjustment Lending: Some Questions of Method John Toye 111 Trading Off Investment for Exports: African Adjustment Experiences Jean-Marc Fontaine 133 Emerging Markets, Industrialisation and Development Ajit Singh 153 Regulatory Implications of Global Financial Markets Stephany Griffith-Jones 174 External Adjustment: the Proper Role for the IMF Richard N Cooper 198 Inflation and Transition: from Soviet Experience to Russian Reality Jacques Sapir 204 237 Index v Preface The present volume concentrates on some relatively untrodden areas of research in the field of international finance Attention, in particular, is drawn to the tendencies for volatility in the international capital markets and the dominance of finance in the global economy In the process, finance of late has remained far removed from real transactions, in particular in the industrialised countries International financial flows to the developing countries, controlled by the official multilateral and private financial institutions, have been regulating the pace and pattern of the structural adjustment policies which form the core of economic policies in these debtor economies The present volume seeks to unfold and analyse the links between international finance and national economic management; the fragility of finance, the evolving pattern of developing country debt and the impact in terms of economic reforms in both the developing and the transitional economies My involvement in the present volume started in 1992 when I was requested by the Maison des Sciences de I' Hommes of Paris to organise a colloque on international debt The colloque took place in November 1992 and the practical hurdles in collecting a set of new or updated versions of papers presented by the authors in the Paris Colloque was overcome as I went back to England in 1994 with an invitation from the University of Cambridge I owe a large debt to many of my colleagues and to institutions at home and abroad in this venture of editing the present collection I would like to thank Geoff Harcourt for his initiatives and advice without which the book would never have seen the light of day Amiya Bagchi and Ajit Singh, two contributors to the present volume, have extended strategic help whenever necessary I obtained institutional support in terms of secretarial help and office facilities from the Faculty of Economics and Politics at the University of Cambridge and the South Centre at Geneva during the difficult days of editing and processing the manuscript The Maison des Sciences de I' Hommes at Paris was generous in inviting me, as a Directeur d'Etudes, to host and to lend their secretariat for organising the colloque in Paris where the authors met each other and presented their papers in a congenial atmosphere My colleagues at the Centre for Economic Studies and Planning at Jawaharlal Nehru University allowed me to be on long leave from the university which made it possible to take time off from teaching vi Preface vii The Nehru Memorial Library and Museum at New Delhi provided me a Senior Fellowship and the requisite freedom to work on this project during 1992-4 Suparna Karmakar assisted me in correcting the proofs I would like to thank all of these institutions and individuals for the help received Sunanda Sen New Delhi Notes on the Contributors Michel Aglietta is a professor at the University of Paris-X Nan terre and a scientific adviser for the Centre for International Studies and Forecasting (CEPII) He also acts as a consultant to the Banque de France Aglietta's major work is The Theory of Regulation of the Capitalist Economy ( 1974) Amiya Kumar Bagchi is currently the Director of the Centre for Studies in Social Sciences at Calcutta He has also taught in Presidency College, Calcutta and at the University of Cambridge, UK He has published Private Investment in India 1900-1939 (1972), Political Economy of Underdevelopment (1982) and Presidency Banks and the Indian Economy 1876-1914 (1989) Books edited by Bagchi include Democracy and Development (1995), UN, Journal of Development Planning (1994) (Special Issue on the Teaching of Economics in Developing Economies) and Political Economy: Studies in the Surplus Approach (1987) (Special Issue on East Asian Capitalism) Richard N Cooper is currently the Maurits C Boas Professor of International Economics at Harvard University He has earlier taught at Yale University and has worked with the Bank of Boston, US Department of State and the US Council of Economic Advisers His publications include The Economics of Interdependence (1968), The International Monetary System (1987), Economic Stabilization and Debt in the Developing Countries (1992) and International Finance (ed.) (1971) Jean-Marc Fontaine is Director, Centre de Recherche economique IEDES at the University of Paris I (Sorbonne) He has edited a book titled Foreign Trade Reforms and Development Strategy (1992), Reforms du Commerce Exterieur et Politiques de Developpement, ( 1992) and authored Mecanismes et Politiques de Developpement Economique (1994) Stephany Griffith-Jones is a senior fellow at the Institute of Development Studies in the University of Sussex She has worked for the Central Bank of Chile, for the ECLAC and for various international organisations Her recent books include Financial Sector Reform in Central and Eastern Europe (1994) and Surges in Capital Flows to Latin America (1995) Laurence Harris is Professor of Economics at the SOAS in the University of London He has previously taught at the LSE and Birbeck viii Notes on the Contributors ix College, London University and at the Universities of California and Zimbabwe His books include Monetary Theory (1981), Rereading Capital (1981), City of Capital (1983) and New Perspectives on the Financial System (co-edited) (1988) Jacques Sapir is a vice-professor at the Ecole des Hautes Etudes en Sciences Sociales and at the University of Paris-X Nanterre at Paris He is a specialist in the economics of the former Soviet Union and has been active in France and abroad organising research in the area He has recently authored two books on Soviet experiences and the issues of Russian transition Sunanda Sen is a professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi She has taught earlier at Jadavpur University, Calcutta and the University of Grenoble, France Her recent work includes Colonies and the Empire (1992) and India's External Economy (forthcoming 1996) Ajit Singh is currently Fellow and Director of Studies in Economics at Queens College, Cambridge University, UK He also holds a visiting Chair in Economics at the University of Notre Dame in the US His publications include Take-overs: Their Relevance to the Stockmarket and the Theory of the Firm (1971), Growth, Profitability, and Valuation (1968) (co-authored), Corporate Financial Structures in Developing Countries (1992), Economic Crisis and Third World Agriculture (1993) (co-edited) and State, Markets and Development (1994) Hans W Singer is a professorial fellow at the IDS and Emeritus Professor at the University of Sussex He has been a member of the UN Secretariat during 1947-69 Recent work includes Economic Progress and Prospects in the Third World (1993) and New Patterns of Macroeconomic Governance (1994) John Toye is currently a professor and the Director of the Institute of Development Studies at the University of Sussex He has earlier taught at the Universities of Swansea and Cambridge in the UK He has also been associated with the British Treasury and the ODA in the UK His publications include Public Expenditure and Indian Development Policy I960-70 (1981), Does Aid Work in India? (1990) (co-edited/authored) and Aid and Power (1991) Subject Index international bank credits, the market for, 36 international bond issues, three-fourths of, 87 international capital, private flow of, 9, 38; the flows of, international capital flows, 39, 54; aggregate volume of, 174; the composition and the magnitude of, 8; the geographical direction of, 5; pattern of, international capital markets, 4, 43, 55; borrowing on, 174; frequent disruptions in, l; the non-bank securitised sector of, international capital markets in the major OECD countries, 36 international capital mobility, 14 international capital movements, 85 international clearing union, 75 international community, the interests of, 200, 20 I, 203 international competitiveness, 78, 160-62, 217; forces of, 73 international coordination, of short-run policies, 95 international covariance of indexes, 65 international credit, markets of, 42 international credit flows, a boom in the level of, 37; the pattern of, 45; the second sectoral composition of, 36 international credit institutions, cartelisation of, 86 international credit market, a re-entry to, 7; the security sector of, 37 international credit ratings, international currency markets, transactions on, 169 international economic policy, any attempt at coordination of, 87 international economic trends, a misestimation of, 119 international economy, matrix multiplier for, 75; the burden of adjustment in, 79 international equity flows to LDCs, scope for, 177 249 international equity markets, 62 international equity outflows, 186 international finance, a major source of, 42; the effects of, 60 international financial conglomerates, 25 International Finance Corporation (IFC), 147, l70n international financial flows, a major part of, 4; the rapid growth of, 178 international financial institutions, 6, 117,118 international financial market 2, 61, 67; growth and transformation of, 37-45; financing of, 36; the riskprone speculatory activities in, 3; the striking growth of, 60 international financial relations, the recent pattern of, 44-45; three significant aspects of, 44-45 international gold standard, 79 international integration, 69; the desired degrees of, international interest rates, a rise in, 85; see also interest rates international lending, opportunities for, 18 international links between equity markets, the development of, 69 international links between stock markets, 63-66 international macroeconomic fluctuations, 166 international market, the dictates of, 69, 70 international medium of exchange, 89 International Monetary Fund, 5, 8, 74, 75, 88, 107, 109,117, 118, 119, 124, 133,134,193,195,196,199,214, 216; Compensatory Financing Facility (CFF), 105; conditionalities adopted by, 113; limited role of, 11; policies pursued by, 86; prescriptions, 213; 'scarce currency' clause, 76; stabilisation measures, 106; the basic principles of, 202; the original conception of, 200 International Monetary Fund and the World Bank, the policy 250 Subject Index conditionalities of, 129; the present timing and sequencing of, 106 International Monetary Fund-World Bank-initiated programmes, 6, 113 International Monetary Fund-World Bank-initiated loan programmes, the adverse consequences of, 11 international money market, the shock created by US policy on, 31 International Organization for Securities Commission (IOSCO), 4, 36, 192; a substantial strengthening of, 195; annual conference, 190 international payments, the network of, 93 international payments mechanism, major upsets in, 94 international policy coordination, 55 international price of ex portables, no secular decline in, 93 international price stabilisation of commodities, Keynes's scheme for, 89 international private capital flows, the question of, international security business, 35 international stock markets, an upheaval in, 37; see also stock markets international tax, a proposal for, 195 international trade, 213; internationally coordinated regulation of, 96 International Trade Organization, 75 international transactions, the dollar as the currency for, 79 international treaties, the promotion of, 194 internationally integrated capital markets, 11; see also capital market intertemporal welfare maximisation, 225 investment, a high rate of, 94, an ex ante excess of, 15; and commercial borrowings, 39; boom, 90; high, 14; productivity-enhancing, 94; productivity of, 156; the behaviour of, 133; the rate of, 62; unwanted growth of, 14 investment behaviour under adjustment, 139-40 investment demand stimulating aggregate demand, 145 see also aggregate demand investment expenditures, 15 investment flows, 79; the share of, 54 'investment pause' argument of the World Bank, 'investment pause' diagnosis, 133 investment pause or anti-investment bias, 144-45 investment ratios, the comparative drop in, 140 investment resources, efficient allocation of, 156, 167 investment-savings, balance, 15; mechanism, 15 investor protection, the level of, 185 irrevocability, the principle of, 26 Italy, the corporatist system of, 29 Japan, adopted various measure of government intervention, 73, crossborder transactions in, 65; escaped sustained contraction, 73; institutional investors in, 2; markets in, 18; narrow banking in, 25; the average ratio in, 46; the banking practices in, 43; the disarray of monetary policy in, 30; the largest jump occurred in, 20; the MOF in, 47; the pace of deregulation in, 39 Japanese stock market, 163; the large fall of, 64 joint-expenditure expansion, 79 joint reflationary policy, 78 Juglar cycle, 73 Kahn-Keynes-Kalecki income multiplier process, 74 Kaldor's commodity reserve currency, 92 'Kaldor Kink', 91 Kaleckian or Sraffian model, 67 Katsenelinboigen's theory of 'coloured markets', 205 Keynes's strictures, 154 Subject Index Keynesian, interpretation, 225; lines, 138; macroeconomics, 75, 87 King and Wadhwani's model, 65 labour, 92; mobility of, 95; the immobility of, 74; the intensification of, 91 labour-intensive methods, 91 'leads and lag game', 186 lender institutions, lender of last resort (LLR), 27, 48, 49, 84, 86, 189, 192; an effective international, 93; and monetary policy, 33; Bagehot's old classical doctrine of, 31; doctrine, 31, 33; function, 5, 29, 190; relation with monetary policy, 30; roles, liability, management, 48, side, 23; structure of firms, 49 liberalisation, 232, 233; conditionalities, 115; measures,ll6; of prices, 231; of the supply side, 112 liberalising the capital account, a pre-condition of, 116 licensing system for imports, the nature of, 113 linkage, 205, 206; effects, 141 liquidations and privatizations, the sectoral composition of, 140 liquidity, 5, 32, 162, 167, 188, 189, 219; constraint to growth, 49, 56n; crisis, 84; intraday, 183; needs, 156; problem, 183; risk, 33; the degree of, 81; the provision of, 184; trap, 80 liquidity constraints, 62; and the transmission mechanism, 66-67; the role of, 61 liquidity (credit), the role of, 48 liquidity preference, for investors, 9; theory, 82 loan conditionalities, packages of, I loans repartition by span and rates, 213 logistic links, disruption of, 209, 211; the disorganisation of, 230 London's openness, 65 long-term investment, rates of, 73; see also investment luxury imports, 113 251 Maastricht treaty, 76 macroeconomic activity, the main aspects of, 125 macroeconomic adjustment, 13, 15 macroeconomic aggregates, I 07 macroeconomic balances, 116 macroeconomic disequilibria, 15 macroeconomic, activity, 125; adjustments, 13, 15; aggregates, 107; balances, 116; disequilibria, 15; environment, 178; forces, 83; imbalance, 134, 136, 187; instability, 168, 185; model, 126; performance, 192; phenomenon, 16; stabilisation, 112, 134 marginal theories of the firm, 157 manufactured goods, demand for, 91; exports of, 145 manufactured products, 90; the prices of, 69 manufacturing, the high export growth in, manufacturing sector, 140; linkage effect potent in, 141 marker capitalisation to gross domestic product (GDP), the ratio of, 160 market, development of, 17-22, 31 market credibility of borrowers, market downturn, in periods of, 188 market economy, transition to, 204 market equilibrium analysis (conventional); a subsidiary role in, 47 market mechanisms, instant action of, 231; two kinds of, 150 market price of assets, large variation in, 183 market risks, 20; three different sets of rules for measuring, 191 market segmentation, territorial, 224 market segments, the integration of, 184 Marshall Aid, the scale of, 79 Marx-Sraffa prices of production, calculation schemes of, 88 Marxist traditions, 50; the writings in, 49 Mayer's analysis of flows of funds, 156 252 Subject Index mechanism, three different kinds of, 91 mergers, 29; acquisition of, 39, 50 merging firms, the profitability of, !59 metropolitan-colonial relationship, the creation of, 88 Mexican stock market, 163 microeconomic adjustment, the spillover of, 26 microeconomic-inflationary mechanism, 224 microeconomic mechanism, 128 microeconomic relative prices-induced approach, 225 microeconomics of the credit market, 82 Military Doctrine, the new draft of, 230 mining of land and natural resources, II MIT Commission Report, on US industrial productivity, 161 modelling approach, the use of, 130 Modigliani-Miller assumptions, 62-63 monetarism, the tide of, 13 monetarist or neo-liberal doctrines and ideology, 109 monetary aggregates, 32 monetary control, 29; the traditional tools and means of, 209, 210 monetary disequilibria, 204 monetary expansion, 77, 78 monetary imbalance, the Soviet type of expression in, 205 monetary policy, 16, 30, 48, 49, 62, 118,205,219,227, 232; competitive tightening of, 90; the channels of, 18; the objectives of, 14 monetary separation, between cash and non-cash circulation, 206 monetary stabilisation, 232 money, multiple contraction of, 26; quality theory of, 205; scriptural, 205; the complexity of, 80 money and credit market, the necessary imperfection of, 81 money capital, 50, 60 money market interest rate, 25; the rise of, 24 money-led inflation, a classical process of,230 monitoring, a careful system of, 84; the frequency or stringency of, 82 monitoring and screening, the whole process of, 69 monitoring investment decisions, efficient devices for, 68 monopoloid or oligopolistic controls, over industry-finance links, I monopoly power, the degree of, 114 moral hazard, 31, 32,33; problems, 48 mortgage, 40 multi country applied general equilibrium model, 128 multicountry general equilibrium model, 130 multilateral financial institutions, 5; see also financial institutions multiperiod model, 83 multiple equilibria, 13; see also equilibria multiple regression analysis, 124 multi-region national economy, 75 mutual funds, 46 mutual savings bank, network of, 24 narrow banking, 22, 23, 27; in Japan; 25 nation state, the changing role of, 37 national accounts identities, a set of, 126 national banks, taxation and accounting standard of, 48 national economy, multi-region, 75 national financial markets, the global interlocking of, 178; see also financial markets national productive structures, the global interlocking of, 178 national real investment, global determination of, 65 national savings, the contraction of, 140 national stock markets, price movements in, 63; see also stock markets negative actual interest rates, 224 neo-classical analysis, problem with, 48 neo-classical-Keynesian synthesis assumptions, 62 Subject Index net barter, a secular decline in, 92; terms of trade of primary products, 92 net corporate new issues, 156-57 net-liquid assets, 188 netting, legally valid systems of, 183 new credit instruments, 38 new 'emerging markets', the growth of, 63 new investment resource, a greater allocation of, 157 new issues, 162; and credit financing, 164-65 New Keynesians, 48 new market instruments, 20, 21 new taxes (VAT), 213 new techniques, the discovery and use of, 73 new technology, the introduction of, 163 New York Stock Exchange, 63; a listing on, 69 nominal exchange rate, 217; see also exchange non-adjusters, 147; exports of, 137 non-bank corporate sector, 39 non-bank securities, the regulation of, 191 non-conventional banking, the emerging pattern of, 42 non-demand-induced inflation processes, 225 non-inflationary financing, a quest for, 18 non-monetary income sources, 218 non-monetary relations (barter), 209 non-policy influences, the effects of, 121 non-white colonies, 85; of European countries, 79 Nordic banking system, the collapse of, 16 nutrition, social indicators of, 120 October 1987 crash, 63; the global character of, 65 off-balance bank transactions, 45 off-balance sheet, activities, 2, 40, 41, 42; devices, 51; funding, 48; instruments, 19; items, 20 253 oligopolistic corporations, controlled, 158 oligopoly rent, 29 on and off balance sheet positions, the risk of losses in, 183 on-balance assets, 41 open-economy macro theory, 61 optimal sequencing, theory of, 116 options, 218; range of, 213 'ordinaries' of bankers' logic, 87 ordinary least squares (OLS), estimates, 64, 65 Organization for Economic Cooperation and Development (OECD), 36; document, 185; estimate, 174; governments, 74; national monetary authorities in, 46; the financial markets in, 35; policies, 5; study, 183; the stagnant growth rate of output in, 50 OECD countries, 78, 86; bank profits in, 43; domestic monetary and fiscal authorities of, 86; gross banking income for, 38; inflationary pressure in, 94; instability of financial markets in, 47; low growth rates of GDP in, 2-3; moderating inflation in, 90; national banking legislation deregulated in, 45; the financial systems of, 17, 28; the non-financial sectors in, 39; prices of manufactures exported by, 91 OECD, Development Centre, RUNS model of, 128 OECD economies, the banking sector of, 44 Organization of Petroleum Exporting Countries (OPEC), 184, 185; surpluses, orthodox approach, 109 orthodox policy makers' opinion, the trend of, 96 output data, manipulation of, 207 outward orientation, and investment behaviour, 145-48; long-term strategy of, 136, 148 outward-oriented trade strategies, 135 254 Subject Index over the counter (OTC), arrangement, 45; operation, 40, 41; transactions, 2,20 Overseas Development Association (ODA), 112, 116; method, Ill Paris Club, negotiations, 3; rescheduling procedures at, 13 partial equilibrium analysis, 127 pas de deux; between disintegration and macroeconomic destabilisation, 208; between inflation and depression, 228 payment and settlement system, 182 payment system, breakdowns in, 16; interbank, 21; world, 89 'pecking order' pattern of finance, 157; see also finance People's Republic of China (PRC), 73 pink market, 205 plan versus realisation method, 121, 122 'pocket banks', 208 policy conditionality, 112, 113, 129, 130; the effect of, 124 'policy reaction function', l49n policy reform, 135; conditions, ll7; the agreed programme of, 119; the effects of, 130 Polish experience in shock therapy, 213 political disintegration, the economic loss of, 212 political inflation, 211 'ponzi finance', 3, 49 portfolio decisions, 45 portfolio investment, foreign, 162, 166-67; funds, 15 portfolio management scheme, 86 positive interest rates policy, the kind of, 213, 216 post-Keynesians, 3, 48,49 pre-balance of payments or exchange rate crisis situation, 186 Prebisch-Singer, hypothesis, 89, 92; propositions, 89 price elasticity of supply, 231 price fluctuations, 182 price liberalisation, 213,216,219,231, 232 price rationing region, 26 price stability, 17, 31; the pursuit of, 75 price system, multiple, 224 price volatility of LDC stock market, 186 pricing mechanism, 157-58 primary capital, subordinated debt from, 189 primary commodities, exporters of, 84; production of, 91; variations in prices of, 89 primary exportables, specialisation in, 94 primary product(s), 89, 90, 92; exporters of, 7, 85; LDC, specialising in exports of, 93; net barter terms of trade of, 92; production of, 91; the prices of, 91; the terms of trade of, 96 primary products and of manufactures, exporters of, 94 primary products prices, 91; the declinein,90 primary raw materials, a lesser input of, 91 principal-agent relationship, 10, 18 priority system, the effect of, 208 private capital, the one-way mobility of, 74 private enterprises, the spontaneous development of, 209 private financial activities, the impact of official intervention in, 50 private financial flows, the effect of, 186 private financial markets, 177 !62 private flows, new type of, 195 private hot money flows, 80 private international banks, the activities of, 38 private international credit flows, three significant developments in, I private investment, 140, 145; antonomous increase in, 77; decrease in, 145; the basic determinants of, 144; the new wave of, Subject Index private investors, the lust of capital for, 62 private portfolio flows to LDCS, 176 privatisation, 140 pro-cyclical variations in the supply of credit, 48 product market, 159; competition, 169; monopolistic positions in, 168; the competitive selection process on, 158 production and employment, an upward spiral of, 94 productive apparatus, monopolistic nature of, 214 productive capital, the operation and ownership of, 60 productive sector, a restructuring of, 213 productivity and growth, long-term improvements in, profit, an effective guarantee of, 49; non-bank sources of, 38 profit rate, previous, 223 profitability, 4, 61, 158; pre- and postmerger, 159 profitability of finance, declining, 49; the eventual decline in, 50 programme aid, 112, 113, 116, 124; final users of, 114; the combination of, 129 programme trading, 163 project appraisal and evaluation, the methods of, II l properly specified model, the cost of building of, 130 protection, effective rate of, 114, 115; the degree and variability of, 114 protectionism, 92, I 03; a large dose of, 79 prudent macroeconomic policies, the importance of, 187 prudential and supervisory regulations, a set of, 46 prudential mechanism, 32 prudential supervision, 31, 32 public enterprise reform, 140 public expenditure, the structure of, 202 public expenditure finance, 18 255 public investment, increase in, 145; the reduction in, 140 public opinion, spontaneous changes of, 66 public savings bank, network of, 24 quantity rationing regime, 26 'quasi-ponzi finance', 49; see also finance rapid switches between markets, the problems of, 18 I ratching up, a process of, 63 rates of interest, favourable, l 04; high, 103; increases in, 134; nominal, 82 rates of investment, maintenance of, 109 rational expectations in influencing economic behaviour, 81 rational profit maximisation, 157 'rationalisation investments', in domestic sector, 144 real and financial flows, a global model of, 51-55; see also financial flows real asset, 60 real capital, flows of, 60; internal mobility of, 67; the intemationalisation of, I; the operation of, 61; the stock of, 62 real capital resources, 67; the international mobility of, 68 real economy, 153, 166, 167; more emphasis on, 107; the development of, 161 real estate, lending, 46; prices, 182; transactions, real exchange rate, 80, 113; steadiness in, 199 real interest rate, general rise in, 27; high, 5, 14, long-term, 14; low, 14; the role of, 13 real investment, the cost of capital influences on, 66 real rate of exchange, 86, 139 real rate of interest, 80, 86; domestic, 145; low, 7; the increase in, 140 rent sector, a falling rate of profit in, 50; the performance of, 35 reciprocal indexation, 224 256 Subject Index redistribution of income, 91, 106, 115 'Redistribution With Growth', the development of strategy of, 109 red market, 205 re-evaluation of the rouble, 214 reforms, implementation of, 117; the optimal sequence for, 129 reforms and conditionality, the architecture of, 140-44 regressive distribution policies, 150n regulation, global perspective in, 195 regulation and supervision, coverage of, 187-93; for microefficiencies, Regulation K, 4; amendments of, 40 Regulation S, the dropping of, regulation system, a twin-fold, 208 regulators, the conceptual differences between, 192 regulatory and technological environment, the fundamental changes in, 178 regulatory arbitrage, 185 regulatory framework, reforms of, 135 regulatory measures, in the security market, 11; national, regulatory reforms, the delays in implementing, 144 relative intensity of shortage, 208 relative international prices, 77 relative price, a brutal change of, 223; of commodities, 74; stabilisation, 227 relative prices-induced approach, 225 relative profitability of different projects, 82 relative shortage matrix, 10 Remenola's attempts, 64 rentier, 80; effect, 54 Report of the Radcliffe Committee(l959), the authors of, 81 repressed inflation, 205, 209 Repurchase Agreements (or the Repos), 39 re-regulation, a certain measure of, 46; a need for, 193 reserve currency, the international exchange rate of, 89 resource allocation, the main process of, 205 resource utilisation following mergers, 159 restructuring, 233; as means of, 232 retail trade, liberalisation of, 213 'retained earnings', 156, 157 risk, the scale of, 183; the transfer of, 20; underpricing of, 16 risk-adjusted, rate of return, 48; return, 47 risk and uncertainty, perceptions of, 81 risk assessment, 14 risk avertion, degree of, 83 risk management, the techniques of, 20 risk-prone, speculatory activities 3; transactions, risk segregation, the key issue of, 190 risk-sharing procedures, 22 Robinson's pessimism, 76 Rostow's 'non-communist manifesto', notion of take-off, 14 rouble actual value, revaluation of, 227 rouble devaluation, 224 Rule 144 in US, the dropping of, run on deposits, 16, 26, 30 RUNS model, 128 Russian inflation, 219-25; see also inflation safety net, 107, 189, 190; devices, 49; of state regulatory system, 3; the multilevel organisation of, 32-33 savings, domestic, 148; institutionalisation of, 181, savings and investments, encouragement of, 167; growth of, 156 Savings and Loan Associations (S&L), 4, 5; raising the insurance premium of,46 savings institution's portfolios, international diversification of, 63 savings instruments, the efficiency of, 157 school enrolment, 120 second-round multiplier effects, 'second best', theory of, 115 sectoral model, 127 Subject Index sectoral policies, contents of, 141-142; non-interventionist, 135 securities, coordinated supervision of, 193; primary issues of, 38 securities and derivative markets, the rapid development of, 183 securities market, 18, 19, 40; intermediaries in, 193 securities regulators, 194; the perception of, 190 securitisation, 83, 87; of investment, 96; process, 88 securitised credit market, the channels of, security-related capital, the flow of, 37 security sector, capital adequacy norms for, selective credit control, the stringency of, 83 sequencing, the relevance of, 232 settlement systems, organised, 183; the organisation of, 194 shareholder-management relation, 69 shareholders, reducing the role of, 169 share ownership, 22 share prices, the concepts of, 157; volatility of, 167 Shiller's excess volatility hypothesis, 64 short term, balance of payments, 11; bank credit, 37; cross-border equity flows, 181; gains, 154; profit maximisation, 5; stabilisation, 136 short-termism, 9, 69, 168, 169; the influence of, 158; the phenomenon of, 154 shortage economy, 229 shortageflation, 208, 209, 214; an accentuation of, 211 silver standard, 79 simulation method, intuition-based, 126 simulation model, 125 single-country model, 128, 130 single reserve currency (such as dollar), 89 slippage, 117, 118, 119; and weighting, 119; in implementation, 130 snowball effects, 220, 223, 227 social indicators, 6, 108, 120 257 social welfare, the functional relations of, 130 socialist economy, the role of stock markets in, 170n socioeconomic changes, a valid method of measuring, 119 soft budget constraint, 205 sovereign lending, the earlier pattern of, 38; the pattern of, 60 Soviet financial system, 207 Soviet paternalism and patrimonialism, 230 Soviet-type economies (STE); identification of inflationary phenomena in, 205; some clarification to inflationary process in, 204 Soviet-type economies enterprise, a simple model of, 208 Soviet-type economies (traditional), money matter in 204-208 specie How-price mechanism, 84 speculation, 96, 168, 209; in gold and real estate, 165; on rouble exchange rates, 213 spill over, 16, 26; effects, 206 spin-off effects, of the US, 79 stabilisation, a new round of, 217; in Russia, 219; initial contractionary impact of 144; IMP approaches to, 103; the first contractionary phase of, 136; the initial phase of, 144; the main tool of 214 stabilisation and adjustment; the two phases of, 136 stabilisation and adjustment programmes, conditionality of, 105; the monitoring of performance in, 108; the social impact of, 105 stabilisation and deflationary adjustment, stabilisation measures, 104, 107 Stabilisation of Exports (STABEX) 105, 107 stabilisation policy, assessment, 219; macroeconomic, 55 stabilisation programme, 199; a significant dimension of, 21; launched by Russian Government, 216 258 Subject Index stagflationary situation, 83 stagnation, the kind of, 78 stakeholders, 160; enhancing the role of, 169 standard approach, 109, 110 'standard method', reliance on, 216 standard neo-classical market approach, 47 Standstill Agreement, 85 state, 50; role assumed by, 36 state and financial markets, 45-47 state-controlled sector, price stickiness in, 205 state regulatory system, safety net of, stock exchange, 19, 154; competitive reforms of, 63 stock index futures, 181 stock market (s), 16, 18, 61, 154; credit allocated through, I 0; herd- and casino-like aspects of, 66; negative influences of, 168; take-overs and international competitiveness, 160-62; the functioning of, 9; the negative features of, 169; the role of, 155; the savings contribution of, 157; the supposed positive contributions of, 167; the very fast expansion of, 153 stock market and economic and industrial development, 155-60 stock market-based, economies, 154; financial system, 155; systems, 168 stock market boom, 165; the prospects of, 11 stock market capitalisation, 177 stock market crash of 1987, 183 stock market crashes of 1987 and 1989, the global nature of, 181 stock market, international links between, 63-66 stock market pricing, the efficiency of, 159 stock market system, a central analytical weakness of, 162 stock market valuation, 158 stock market volatility, 166 167; the disruptive effects of, II strategic behaviour, the need for, 207 structural adjustments, 5, 6; rejection of, 126; the inflows of 119; the second phase of, 144 Structural Adjustment Facility (SAF), 134 Structural Adjustment Lending (SAL) finance, Ill, 113, 125, 126 Structural Adjustment Loans, conditionality, 119,122,124-26 Structural Adjustment Loans, effectiveness of, 119-22 Structural Adjustment Loan, evaluation, methodological and empirical problems of, 114 Structural Adjustment Loan finance, the methodological problems of evaluating, 116 Structural Adjustment Loan group, the formation of, 123 structural adjustment implementation, the evaluation of, 116-19 structural adjustment Loan policy changes, 129; the impact of, 123; the implementation of, 121 Structural Adjustment Loan programmes, the appraisal of, 111-16, 129; the evaluation of, 129-30 Structural Adjustment Loan-related policies, the implementation of, 125 structural adjustment measures, 106 structural adjustment package, 115; a general description of 133 structural adjustment policies, 88; domestic components of, 133; the first phase of, 144 Structural Adjustment Programmes, evaluation of results, 136-39; the generalisation of, 134; the impact of, 116 structural changes, 13, 17, 119, 120; the process of, 177, 231 structural reforms, 144; long-term programme, 136 sub-Saharan Africa, SAL in, 6; the purchasing power of exports in, 147; the results of structural adjustment programmes in, 133 Subject Index SSA countries, 'crowding in' prevails in 140, investment performance in, 148 subsidies, 212; the run for, 213; the structure of, 114 subsidised risk taking, the problems of, 190 supervision, 33; the role of, 32 supervisory legislation, harmonisation of, 193 Supervisory Treatment of Market Risks, 184 supplier to consumer routes, 206 supply side reforms, 116 supply side growth oriented policies, 135 sustainability, the concept of, 120 sustainable growth with distributional equality, 130; a process of, 120 switching policies, 135, 144 symmetrical adjustment, 109 syndicated loans, 216 systemic risk, 2-4, 11, 13, 14, 17, 25, 29, 189, 196; a third source of potential increase in, 184; an independent source of, 183; an upsurge of, 16-17; and financial structure, 25-29; low degree of, 24; the changing nature and possible increase of, 187; the externalities inherent in, 30; the issue of, 185; the main dynamics of, 26-27; the nature and transmission of, 182; the third process of, 30-31 take-over mechanism, 156, 158-60; selection process, 158, 167 tariff structures, the nature of, 114 tax (VAT) introduction, 217 taxation and accounting, 46; schemes of, 168; system, 212, 218; the structure of, 202 technology, convergence of 68; transfer of, 79 terms of commodities, specification in, 92 terms of trade, a secular decline in, 92; a sudden break in, 94; deteriorating, I 03; losses, 5, 7, 11; net double 259 factoral, 92; of LDCs, 93; systematic changes in, 74; the movements of, 124 Third World, II; debt, 43; debtors, 5; stock markets, 154, 162-63, 164, 166; see also stock market(s) Tobin's proposal to levy an international uniform tax, 196 Tobin's q, 62 Tokyo's stock market, 45 'too big to fail' principle, 31 Tract on Monetary Reform by Keynes, 80 trade, deterioration, 145; liberalisation, 106, 116, 196; movements, 79; segmentation, 14 trade-off, 6, 115, 209 tradition Soviet economic behaviour, 232 transaction costs, 157, 158, 162, 205, 211; a massive rise in, 232; formal and informal, 209; the massive surge of, 232 transfer payments, 75, in the external account, 93 transmission mechanism, 61-63, 68, and liquidity constraints, 66-67; different elements of, 69; linking international financial markets, 67; the international, 65; the weakness of, 70 transmission theories, the channels of, 155-60 transnational, bank, 38, 76; corporations, 74 true market economy, the development of, 213 UK, Bingham Report, 185; the secondary banking crisis in, 16; the severe drop in employment and income in, 73; the universal banking in, uncertainties, 10, SO, 96, 104, 121, 219, 225; factors, 6; market based, 36; of the environment, 209; on the supply system, 209, 211; profiting from, 51 uncertainty-prone ennvironment, 207 260 Subject Index uncertainty-related activities, zones of, 47-80 UNCTAD, 89, 149n; Commodity Trade Handbook (1992), 147 underemployment equilibria, the generality of, 82; see also equilibria underwriting, 22; mortgage-backed securities, 46 unemployment, 20 I unequal exchanges and terms of trade variations, 88-96, see also terms of trade United Nations, 141, 147 universal banking, 22, 23, 24, 25, 27, 28, 29; the homogenous principle of, 24 urban poverty, 106 urban property tax rates, 20 I US, crossborder transactionism, 65; the decline in profit rates in, 43; the disarray in monetary policy in, 30; the near-hegemonic pressure of, 87; the particular history of nearhegemonic dominance of, 93; the savings and loan disaster in, 16; the thrift industry in 49; the universal banking in, 2, US and UK versus West Germany and Japan, the financial systems in, 160-62 US Federal Reserve Bank, 39 UK financial system, various aspects of, 155 vertical integration, 209 volatility, 10, 20, 162, 163-4, 168, 230; longer term, 181 ; of asset prices, 22; of individual markets, 64; short term, 181 voluntary debt reductions, 43 wage, compensation, 228; inflation, 91 wage stickiness, nominal, 205 'Wall Street' 63 'war of budget', 211 'War of Laws', 211 'Washington Consensus', 47 wealth effect, 186; transfer, 227 weighting system, 119 Western economies, inflation processes in, 230; see also inflation wholesale barter trade between enterprises, 206 'with and without' 126; method of, 122, 124 withholding tax, the repeal of, 45 World Bank, 5, 74, 75, 86, 107, 109, 117, 118, 119, 123, 124, 140, 144, 147, 176, 195, 196, 199; conditionalities, 113; method of, Ill; Report, 145;SALs, 134;study, 138; World Food programme, 108 World Institute for Development Economics Research (WIDER), study group, 154 Ye Gaider stabilisation policy, 204 Author Index Aglietta, Michel, II, 34 Akyiiz, Yilmaz, 149n Ardeni, P G and Wright, G., 92 Asselain, J C., 204 Bagchi, Amiya Kumar, v, II, 79, 87, 93,94,96,97 Balassa, B and Schydlowsky, D M., 115 Bauer, T., 204 Beckerman, W and Jenkinson, T., 90 Benjamin, N.C., 145 Benz, Daimler, 69 Berg, E and Shirley, M M., 140 Bernanke, Ben, 81; and Blinder, Alan, 83 Blinder, Alan, 81, 83 Bhaduri, A and Marglin, S., 150n Bharadwaj, K., 89 Breur, R., 88, 193 Burnham, 16 Cagan, P., 230 Cameron, R E., 161 Chandra, N K., 89 Charkham, J., 159 Chenery H B et al., 149 Chipman, J S., 74, 75 Clarke, P., 87 Cooper, Richard, 11, 203 Corbett, J., 96 Corbo, V et al., 136 Corden, W M., 115 Cuddington, J T and Urzua, C M., 92 Currie, D., 90 Dale, 178, 189 Darity, W Jr, 85 Davies, Rob, 149n De Rosa, D and Greene, J., 128 Dick, T J and Floyd, J E., 85 Dobb, M., 88 Dornbusch, R., 96; and Fischer, S., 78 Drexell, 16 Drummond, I M., 84 Duchene, G., 204 Eichengreen, B., and Portes, R., 85, 86 Elbadawi, 1., 135, 138, 140 Emmanuel, A., 88 Evans, D et al., 128 Fazzari, S M., 66 Feldman R A and Kumar, M S., l69n Fischer, S., 87 Fisher, 1., 78, 81, 97n Fontaine, J M., 11, l50n, 151; and Geronimi, V., 140 Ford, A G and Triffin, R., 84 Fyodorov, B., 217,218 Gaider, Ye, 204, 217, 232 Gaiha, R., 120, 128 Geourjon, A.M., 144 Geronimi, V., 140 Gerschenkron, A., 161 Gilbert, C L., 93 Glazev, S., 231,232 Goldman, Marshall I., 231 Goodwin, R M., 74, 75 Grachev, P., 230 Greenaway, D and Milner, C., 116 Greene, J and Villenueva, D., 140 Greenspan, Alan, 46, 87 Griffith-Jones, Stephany, 11 Gros, D and Steinherr, A., 208 Grossman, G., 204 Gueraschenko, Victor, 217 Guillaumont, P S and Plane, P., 140, 150n Gulati, I S., 91n Halevi, Joseph, 149n Harcourt, Geoff, v Hardt, J.P., 204 Harris, Laurence, 11, 58, 149n 261 262 Author Index Harrod, R F., 71, 74, 75, 76 Hart, A G and Tinbergen, J., 92 Harvey, Charles., 131n Haubrich, J G., 84 Hawtrey, R G., 97n Hicks, J., 84 Hilferding, 60 Hubbard, R G and Peterson, B C., 66 Hughes, A., 159 Hume, 80 Hutchings, R., 204 Mitra, P., 144 Moggridge, D., 87 Mosley,P.etal., 116,117,129 Mullins, M and Wadhwani, S., 96 Myers, S., 157 Myrdal, G., 95 lnukai, Ike, 131n Okun, A., 85 Jaffee, D and Russell, T., 82 Jean Marc, F., II Jensen, M C., 159 Pagano, M., 157 Pavlov, V., 211 Porter, Michael (Professor), 155 Platt, 85 Podolsky, T M., 204 Putman, R D., and Henning, C R., 87 Kahn, R., 74 Kahn, R F., 74, 75, 80, 81, 82 Kaldor, N., 81, 89,92, 94,95 Kalecki, M., 82, 84, 94, 138 Katsenelinboigen, A., 205 Kennedy,95 Keynes, J M., 32, 66, 76, 80, 84, 89, 158, 161, 162, 169; and Fisher, 1., 80 King, M A and Wadhwani, S., 65 Konig, W., 97n Komar, J., 204, 205 Kuh, E and Meyer, J., 66 Kunz, D B., 87 Kuznets, Simon, 85, 149 Lambert and Herstatt, 16 Lavigne, M., 204 Leenhardt, B and L'Heriteau, M F., 138, 140, 150n Lewis, Arthur, 149 Lewis, W A., 88 Luxemburg, R., 88 Mankiw, N Gregory, 81,83 Marcel, M and Palma, J G., 85, 86, 88 Martinez, Alberto, 149n Marx, K., 60, 88 Mayer, C P., 157 Meade, 80 Metzler, L A., 74, 75 Minsky, Hyman, 81,82 Ndulu, B., 140, 147 Nukazawa, Kazuo (Mr), 160 Nurkse, Ragnar, 149 Nuti, D M., 205, 207 Ramos, Maria, 149n Ray, A., Ill Redish, A., 85 Rich, G., 81,85 Riddell, R., 141 Robinson, J., 81, 88 Rybczynski, T., 86 Sachs, J., 219, 220 Sakamato, Kohiti, 131 n Sapir, Jacques, 12 Sapsford, D., 92 Sarkar, P., 92, 93 Saul, S B., 73 Sayers, R S., 86 Scaramozzino, P., 66 Schumpeter, 80 Schwert, G W., 163 Sen,Sunanda, 11,58,88 Serven, L and Solimano, A., 140 Seurot, F., 204 Shiller, Robert, 66 Singer, Hans, II, 79, 89, 92; and Roy, S., 149 Singh, A., v, 163, 166, 169, 172; and Hamid, J., 164-65 Skidelsky, R., 87 Smith, L D and Spooner, N.J., 116 Author Index Soos, A., 204 Stern, N., 13ln Stiglitz, J E., 81; and Weiss, A., 82 Sweezy, Paul, 50 Treml, V., 204 Tagino, John, 162 Tardos, M., 204 Taylor, Lance, 150n, 232 Tew, 76 Thirwall, A P., 91 Thomson, B P., 116 Tirole, J., 164 Tobin, James, 81, 157, 169, 196 Townsend, R M., 83 Toye, John, II Weber, F., 85, 86 Weiss, A., 81 Weisskopf, 79 Whale, P B., 84 Williamson, J., 75 Veblen, T., 97n Voleker, Paul, 46 Yeltsin, B N., 230 Zautman, Alain, l49n Zhao Zhi Yang, 154, 155 263 .. .FINANCIAL FRAGILITY, DEBT AND ECONOMIC REFORMS Also by Sunanda Sen COLONIES AND THE EMPIRE: INDIA, 1890-1914 Financial Fragility, Debt and Economic Reforms Edited by Sunanda Sen Professor... (196 8) (co-authored), Corporate Financial Structures in Developing Countries (199 2), Economic Crisis and Third World Agriculture (199 3) (co-edited) and State, Markets and Development (199 4) Hans... Data Financial fragility, debt and economic reforms / edited by Sunanda Sen p cm Includes bibliographical references and index ISBN 978-0-312-16225-2 Monetary policy Structural adjustment (economic