Tuesday, September 23, 2014


In teaching about the disparities in the world space-economy, I often begin the discussion with a story of a series of walks I took in Washington, D.C. with Brazilian geography students a few years ago. We were staying at a hotel in Chinatown while attending a conference at George Washington University. Of course the major highlight of such a walk is the White House, and our visitors were excited when we were ushered off a street for a motorcade -- it was only a dozen cars, though, so clearly not the president, but still exciting.

I was more interested, though, in their reaction to a rather boring, gray structure a few blocks to the north. When they noticed the World Bank (for policy nerds, the WB has nothing to do with entertainment television), they would pretend to expectorate in its general direction.

What could cause such a crude reaction among these otherwise refined young scholars, especially in regard to an institution most of their U.S. peers have never heard of? The answer: SAPs -- Structural Adjustment Programs imposed by the World Bank and International Monetary Fund (the difference between the two is a subtlety for real policy nerds) as a result of loan defaults dating back to the debt crisis of the 1980s. Yes, it was in the decade before these students were born that reckless lending officers in the private banks of the United States and Europe colluded with corrupt (or worse) governments in developing countries to create a credit bubble far greater than that created by George W. Bush in 2008.

The result of the ensuing collapse was penury for hundreds of millions of people and a significant threat to the world banking system. As I explain on my (somewhat out-of-date) International Debt Relief page, the U.S. Treasury stepped in to rescue the lenders, turning bad private loans into somewhat more stable public loans. The net result was that multilateral lending agencies ended up with immense influence on the fiscal decision making of scores of developing countries.

All of this is necessary background to understanding the importance of a new bank being formed by the BRICS nations -- Brazil, Russia, India, China, and South Africa. The financial implications in the short run may be modest, but this marks a determination on the part of these countries to ensure that their financial successes result in more policy independence.

As I prepared this post, I was reminded that it is not just the IMF that disregards the sovereignty of some nation-states -- professional soccer has done the same.

The differences between presidents Vladimir Putin and Dilma Rousseff are emblematic of the very divergent nature of the five countries that form the new bank. But economic sovereignty is a goal they all share.

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