Deck 15: Developing Countries and International Finance II: a Decade of Crises

Question 1

The Chiang Mai Initiative was a regional body

A) proposed by the Chinese as a kind of Asian Monetary Fund.
B) that was enthusiastically endorsed by East Asian governments.
C) proposed by the US but failed to attract support from China.
D) was rejected by the Japanese who were wary of American ambitions.
E) proposed by the Japanese as a kind of Asian Monetary Fund.

Answer 1

E

Question 2

East Asian economies have been able to run persistent current account surpluses because their governments

A) pegged their currencies to the dollar at overvalued exchange rates and engaged in sterilized money supply intervention.
B) pegged their currencies to the dollar at competitive exchange rates and let their money supply increase to match current account surpluses.
C) pegged their currencies to the dollar at competitive exchange rates and decrease their money supply.
D) pegged their currencies to the yen at undervalued exchange rates and engaged in currency speculation.
E) pegged their currencies to the renminbi at competitive exchange rates and engaged in sterilized intervention.

Answer 2

C

Question 3

Weaknesses in the Asian financial systems in the late 1990s was caused by

A) appreciating currencies and popping real estate bubbles.
B) depreciating currencies and popping real estate bubbles.
C) appreciating currencies and real estate booms.
D) international debt-service difficulties began to generate domestic debt-servicing difficulties.
E) foreign banks, which had loaned heavily to Asian banks, agreeing to continue to roll over existing loans.

Answer 3

A

Question 4

The financial crisis and macroeconomic stabilization precipitated deep recessions throughout Asia in 1998.The country that was the worst hit was

A) South Korea.
B) Indonesia.
C) Thailand.
D) Malaysia.
E) Taiwan.

Question 5

According to Oatley,historical evidence suggests that more volatile capital flows have been associated with

A) higher economic growth rates over the short run.
B) higher economic growth rates over the long run.
C) lower economic growth rates over the long run.
D) lower economic growth rates over the short run.
E) boom- and-bust growth rates over the long run.

Question 6

According to Oatley,Bretton Woods II arguably played a key role in the development of the global financial crisis of 2008-2009 because

A) the demand for US government debt instruments drove up interest rates.
B) high interest rates burst the real estate bubbles in US and Europe.
C) the demand for US government debt instruments drove down interest rates.
D) low interest rates drove down the values of commercial real estate in US and Europe.
E) it undermined the Asian savings glut and US economic sovereignty.

Question 7

"Moral hazard" in the field of international political economy is when

A) banks have an incentive to make safer loans than they would make in the absence of a guarantee of a government bailout.
B) banks charge higher interest rates to high risk borrowers.
C) the practice of lending heavily to high risk borrowers makes a systemic financial crisis more destructive.
D) financial institutions have close ties to governments, sometimes through personal relationships.
E) banks believe that the government will bail them out if they suffer large losses on the loans they have made.

Question 8

In absolute terms,sub-Saharan African total external debt

A) is nominally about the same as the amount of debt incurred by Latin American during the 1980s.
B) is nominally about the same as the amount of debt incurred by Asia during the 1990s.
C) measured as a share of GDP, is only a fraction of the amount of debt incurred by Latin American during the 1980s.
D) has much higher debt-service ratios than Latin American ratios in the 1980s.
E) has almost entirely been cancelled by the World Bank and IMF since 2005.

Question 9

East Asian governments drew one overarching lesson from the crisis and crisis management -

A) do not let the economy become vulnerable to IMF intervention.
B) IMF conditions reflected Japanese interests.
C) IMF conditions reflected Chinese interests.
D) IMF conditions reflected American interests.
E) IMF discipline was necessary to control political corruption.

Question 10

East Asian governments as a group accumulated more than half of global reserve holdings by then end of 2009.The country with the largest stock of foreign exchange reserves was

A) Japan with $1.4 trillion.
B) Indonesia with $1.4 trillion.
C) S. Korea with $1.4 trillion.
D) China with $2.4 trillion.
E) China with $4.4 trillion.

Question 11

During the Asian financial crisis in 1997-1998,the IMF granted South Korea,Indonesia,Thailand and Malaysia

A) $ 17 billion.
B) $ 57 billion.
C) $ 77 billion.
D) $ 117 billion.
E) $ 157 billion.

Question 12

Financial crises became all too common during the 1990s.Each crisis was distinctive but shared the similarities that they

A) involved some form of fixed exchange rate and a heavily reliance on short-term foreign capital.
B) involved some form of floating exchange rate and a heavily reliance on short-term foreign capital.
C) involved some form of fixed exchange rate and a heavily reliance on long-term foreign capital.
D) involved some form of floating exchange rate and a heavily reliance on long-term foreign capital.
E) involved foreign investors losing confidence in governmental commitment to exchange rate stability and less reliance on short-term foreign capital.

Question 13

"Hot money" refers to

A) bond and derivative funds.
B) private capital that can be withdrawn at the first hint of trouble.
C) public capital that cannot be easily withdrawn.
D) money obtained through drugs and illegal activities.
E) money hidden in secret foreign bank accounts.

Question 14

According to Oatley,private capital flows in the early 1990s were radically different because it was

A) much more difficult to move capital into and out of emerging markets and financial liberalization in advanced industrial countries had increased the importance of securities.
B) much easier to move capital into and out of emerging markets and financial liberalization in advanced industrial countries had increased the importance of securities.
C) much more difficult to move capital into and out of emerging markets and financial liberalization in advanced industrial countries had decreased the importance of securities.
D) much easier to move capital into and out of emerging markets and financial liberalization in advanced industrial countries had decreased the importance of securities.
E) the importance of commercial bank lending increased and financial liberalization in advanced industrial countries had increased the importance of securities.

Question 15

Which of the following conditionality agreements was not required by the IMF as part of the assistance packages in 1997-98?

A) Tightening of monetary policy to stem depreciation
B) Regulation of agricultural enterprises
C) Elimination of domestic monopolies
D) Privatization of state-owned enterprises
E) Trade liberalization

Question 16

Asia was the largest recipient of capital inflows,accounting for almost _____ of total flows to all developing countries in the first half of the 1990s.

A) 10%
B) 30%
C) 50%
D) 70%
E) 90%

Question 17

Together the world's poorest countries,mostly in Africa,owe foreign creditors about

A) $50 billion.
B) $200 billion.
C) $500 billion.
D) $750 billion.
E) $1.0 trillion.

Question 18

The system that resulted from the arrangements that came from the IMF intervention in the East Asian financial crisis in the late 1990s has come to be called "Bretton Woods II" because

A) US trade surpluses currently drive growth in East Asia, just as they drove early postwar growth in Europe.
B) the system is stable as long as East Asian countries are willing to accumulate US government securities like Europeans did with U.S. gold.
C) US trade deficit drives growth in East Asia, and floating exchange rate stabilize the value of the dollar.
D) the system is stable as long as East Asian countries are willing to accumulate US gold like Europeans did.
E) the system is still based on fixed exchange rates and IMF interventions.

Question 19

East Asian governments peg to the dollar because

A) the United States is the largest economy in the world.
B) the United States is their most important trade partner.
C) the dollar is the international reserve currency.
D) the dollar is undervalued.
E) the dollar is overvalued.

Question 20

Most of the debt of the world's poorest countries is owed to

A) official lenders like IMF & World Bank.
B) resource-exporting MNCs.
C) East Asian governments.
D) East Asian export companies.
E) oil exporting governments.

Question 21

The results from the initial debt-reduction programs were disappointing.Debt-service burdens actually increased for the poorest countries in spite of reducing foreign debt by around

A) $10 billion.
B) $30 billion.
C) $60 billion.
D) $90 billion.
E) $150 billion.

Question 22

The same network of business-government relations in Asia that created the moral hazard problem in the first place also weakened the incentives that governments had to develop and enforce effective prudential regulations.

Question 23

The Asian financial crisis of 1997 originated in political and economic dynamics in Thailand,Indonesia,South Korea and Singapore.

Question 24

The ability for the United States to run deficits does not depend,in part,on the continued willingness of the Chinese government to acquire and hold U.S.government debt.

Question 25

Because African debt was owed to official rather than private creditors,the African debt crisis emerged slowly unlike the crises in Latin America and Asia.

Question 26

The emergence of large and liquid private capital flows to developing countries contributed to a rash of financial crises during the 1990s.

Question 27

Historical evidence suggests that more volatile capital flows have not been associated with lower economic growth rates over the long run.

Question 28

Explain how policies toward private capital flows to developing countries were radically different in the 1990s.How did these changes combine to alter the composition,as well as the scale,of private capital flows to the developing world?

Question 29

Under the Multilateral Debt Relief Initiative (2006)the cost of debt cancellations ($50 billion)

A) was financed through contributions to multilateral lenders by the advanced industrial countries.
B) was financed through contributions to advanced industrial countries by the multilateral lenders.
C) was financed by taking away resources from new development projects.
D) was entirely financed by the IMF and the African Development Fund (ADF).
E) was not linked to the high degree of conditionality under the HIPC initiative.

Question 30

Heavy dependence on short-term capital required the continual rollover of foreign liabilities.

Question 31

Explain how the problem of "moral hazard" made it especially difficult for Asian banks to intermediate safely between international and domestic financial markets.

Question 32

As a result of the HIPC initiative,the World Bank argues the foreign debt of the HIPC countries were comparable to foreign debt burdens in other developing countries at

A) debt-to-export ratios at about 142% and debt to GDP ratios at about 35%.
B) debt-to-export ratios at about 130% and debt to GDP ratios at about 30%.
C) debt-to-export ratios at about 122% and debt to GDP ratios at about 25%.
D) debt-to-export ratios at about 112% and debt to GDP ratios at about 35%.
E) debt-to-export ratios at about 102% and debt to GDP ratios at about 25%.

Question 33

In Indonesia,the economic crisis sparked large-scale opposition to corruption,nepotism,and cronyism that forced Suharto out of office.

Question 34

The large debt burden reduced the incentive that governments have to undertake economic reform because

A) many of the economic gains from reform accrue to foreign lenders.
B) these societies suffer from geographical isolation.
C) these societies have adverse ecologies.
D) these societies have high fertility rates.
E) these societies have a recent history of civil or international war.

Question 35

Policies that East Asia governments adopted to reduce the likelihood that they would experience another crisis at home contributed to the development of an even larger crisis abroad.

Question 36

The suggestion that developing countries should reintroduce controls to limit the volume of private capital flows ultimately carried the day.

Question 37

Explain and discuss the dramatic financial crisis in Argentina in 2001 and 2002.How could have the government avoided this crisis?

Question 38

IMF assistance in the Asian financial crisis of the 1990s was conditional upon economic reform.What were these reforms and how did they affect Thailand and Indonesia differently?

Question 39

Explain and discuss suggestions for change of the debt management regime established in the 1980s in the wake of the financial crises of the 1990s.Which of these ideas was ultimately adopted?

Question 40

Eligibility for the HIPC initiative was launched in 1996 with the goal to reduce foreign debt to sustainable levels.The IMF and World Bank estimated that the typical country that completed the program would see

A) its debt reduced by one quarter and its debt-service ratio cut by one third.
B) its debt reduced by one half and its debt-service ratio cut in half.
C) its debt reduced by one third and its debt-service ratio cut by one third.
D) its debt reduced by two thirds and its debt-service ratio cut in half.
E) its debt reduced by three quarters and its debt-service ratio cut by two thirds.

Question 41

Discuss the pros and cons of China's status as a large lender to the United States.What can the United Sates do to reduce its vulnerability?

Question 42

Discuss and analyze how the large debt burdens in sub-Saharan Africa were accumulated in response to internal and external dynamics.

Question 43

Explain how the roots of the 2008-2009 global financial crises lie in East Asia's governments' responses to the 1997 crisis.

Question 44

Explain the conditions under which the HIPC initiative developed and changed in response to the debt reduction challenges of the world's poorest countries.Does debt cancellation encourage moral hazard dilemmas by both lenders and governments?

Question 45

Discuss and analyze how the African debt crisis was similar or different from the debt crises in Latin America and Asia? Did the IMF and World Bank manage it differently?