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The D-cycle: deficit, debt and default in developing countries under the current global economic order

Publication date: 
Mar 2015
Francisco Mango y Enrique Aschieri
This article aims at investigating the reasons why, with few exceptions, debts accumulated by developing countries could not be paid off during the second half of the 20th century, at least in the sense given by Keynes referred to the fact that they are effectively cancelled as long as they are repaid with countries’ resources. In a fiduciary international monetary system where developed countries’ currency units act as reserves, developing countries’ own resources are basically constituted by positive results in their balance of trade. Nevertheless, the global economic order prevailing, with some shades, as an aftermath of war, succeeded in consolidating developed countries’ protectionist schemes, whose import expenditures are the main means through which developing countries can effectively cancel their debt commitments, in Keynes’ sense. Within this framework, the current global economic order promotes the formation of a recurrent medium-term cycle in the dynamics of growth of developing countries, which in the present work will be defined as the D-cycle: deficit, debt and default. Given the protectionism present in developed countries, this cycle begins with a first stage where developing countries must become indebted so as to be able to cover the demand for imports that are vital for their economic growth. The cycle follows with a second stage, in which indebtedness persists but it is directed towards financing mainly the repayment of the debt previously accumulated and, to a lesser degree, essential imports, thus resigning economic growth. In the last stage, suffocated by the burden of foreign debt services and the need to resume growth, developing countries incur default of one part of their obligations, which implies more than simply default on payment.

Argentine trade by region in the period 1990–2011

Carlos D’Elía - Daniel Berrettoni
Over the last three decades, Latin America doubled its share in Argentine exports, soaring from 20% to 40% of total Argentine exports to the world. Apart from this expansion of Latin America as market for Argentine products, qualitative aspects such as the composition and diversification of Argentine exports to the region play a very significant role in Argentine foreign trade. In the Argentine exports that are destined to ALADI countries there is a greater share of industrial goods and the products have a higher technological content as compared to exports to the rest of the world. In particular, the exports to the regional market of medium-technology manufactures, such as motor vehicles, stand out, accounting for 25% of total exports. In contrast, primary products and natural-resource-based manufactures stand out in the composition of exports to the rest of the world, accounting for 83% of total exports and for only 50% of exports to ALADI countries. On the other hand, exports to ALADI countries have a much greater level of product diversification than that shown by exports to the rest of the world, and the quantity of products destined to Latin America is also greater. There is a considerable number of products dependent on the region (either because they are only sold to said market or because the greater amount of exports to the world are destined to that region). Among these products, some high-technology manufactures stand out. Within ALADI countries, significant differences in Argentine exports can be observed. Some destinations show a higher level of diversification and a relatively low share of natural-resource-based products (MERCOSUR countries, Mexico and Bolivia), whereas others (such as Peru and Colombia) show a profile which is more similar to extraregional markets, with greater concentration and a high share of natural-resource-based products. Lastly, the analysis of the main products exported to ALADI markets show that Argentina has high relative preferences in the Brazilian market in relation to its competitors. In contrast, in countries such as Uruguay and Paraguay, in spite of the high preferences, Argentina has a preferential access which is very similar to that of products originating in other countries. In turn, in markets such as Chile, Mexico and Peru, Argentine products compete on an equal footing with their competitors in terms of tariff preferences.
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