The Problem of Financing Economic Development: The Case of Brazil's External Debt in The 1970s
Ramos, Raimundo Nonato Mendonca
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https://hdl.handle.net/2142/67680
Description
Title
The Problem of Financing Economic Development: The Case of Brazil's External Debt in The 1970s
Author(s)
Ramos, Raimundo Nonato Mendonca
Issue Date
1981
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Language
eng
Abstract
Throughout this study the main objective has been to analyze the role and the impact of LDC's indebtedness in the light of the recent Brazilian experience. The theoretical basis for this analysis was set forth in Chapter I where the moderate viewpoint was stated. The moderate viewpoint, as expressed by Kalecki, shows that the external debt is useful for a self-sustained growth process because it helps to solve the inflation problem, which appears in this process. The moderate school, therefore, is centered on the relationship between inflation and external debt.
Chapter II presented the main characteristics of the Brazilian economy in the 1822-1970 period.
The main findings of Chapter II can be reasonably explained by the theoretical apparatus developed in Chapter I. As Kalecki's model would predict, the role of the external debt in the period covered by Chapter II was to cope with the inflation problem.
Chapter III and Chapter IV covered the 1971-1979 period. The emphasis was on determining whether or not the external debt dealt with the inflation problem, according with the moderate viewpoint, which was presented in Chapter I, and confirmed by the Brazilian experience presented in Chapter II.
The evidence presented in those chapters indicated the reverse situation. The external debt was now a source of inflation, and its role contradicted Kalecki's theory and differed from the Brazilian past experience. Among the evidences brought forth to support this idea was the impact of the flexible rate of interest imposed on the debt service.
Another drawback of the moderate viewpoint for interpreting the modern Brazilian experience is due to the fact that Kalecki was not aware of the impact of the debt on the prices of financial assets, which, in turn, are transmitted to the prices of real assets in the economy.
Thus, contrary to Kalecki's prediction, the external debt caused inflation and the linkage between these two variables is provided by sterilization operations.
Another argument supporting the idea that the external debt was a source of inflation is related to the take-over phenomenon. As Chapter III showed, the external debt financed take-over operations by transnational corporations. As a result some sectors becames increasingly concentrated, which provided better conditions for increasing prices and reducing the supply as compared with a more competitive market, which had previously existed.
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