The IMF and the Rise of Austerity Economics
History 300 / October 29, 2013

I. The debt crisis unfolds
            A. The “second oil shock,” 1979-80
            B. The Fed hits the brakes – hard
                        1. Paul Volcker jerks up interest rates
                           (Aug. 1979 onward)
                        2. The Europeans follow suit
            C. Third World debt explodes
                        1. Initial loans come due
                        2. Fresh loans taken to cover payments
                        3. Summer 1982: Mexico defaults
II. “Structural adjustment” under the IMF
            A. IMF demands, part I: austerity policies
                        1. Sound fiscal policies (elimination of subsidies)
                        2. Low inflation
                        3. Sustainable balance of payments
            B. IMF demands, part II: openness to globalization
                        1. Lower tariffs
                        2. Free capital flows
            C. Effects of the IMF programs
                        1. Best-case scenario
                            – a stable country that attracts investments
                        2. Worst-case scenario
                            – capital flight, outflow of talent
                        3. Winners and losers in the target societies
                        4. What impact on government?