Question 1

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.

Accepted Answer

According to the passage, the debt-reduction programs were disappointing as debt-service burdens increased for the poorest countries despite reducing foreign debt. The passage does not provide a specific number for the reduction in foreign debt, but the closest answer choice is C, which states a reduction of $60 billion.

Question 2

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.

Accepted Answer

The statement is true. The close relationships between business and government in Asia led to a moral hazard problem, where firms engaged in risky behavior with the expectation that the government would bail them out in case of failure. However, these same network of relationships also made it difficult for governments to regulate and monitor financial institutions effectively, as they were reluctant to impose strict regulations on their corporate allies.

Question 3

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

Accepted Answer

The Asian financial crisis of 1997 originated primarily in Thailand due to the collapse of the Thai baht after the government was forced to float it due to lack of foreign currency to support its currency peg, and it spread to other Asian countries like Indonesia and South Korea, but Singapore was not among the countries where the crisis originated, although it was affected by it.

Question 4

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.

Accepted Answer

The ability of the United States to run deficits depends on the overall demand for its debt, not solely on the willingness of the Chinese government to acquire and hold U.S. government debt. Other entities, including domestic investors, other foreign governments, and international investors, also play significant roles in financing U.S. deficits.

Question 5

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.

Accepted Answer

African countries owed a significant portion of their debt to official lenders such as international financial institutions and foreign governments, rather than to private creditors. As a result, the African debt crisis developed gradually over time, as these lenders continued to provide loans to African countries even as their debt burdens grew. This is in contrast to the debt crises in Latin America and Asia, where much of the debt was held by private creditors, which led to more abrupt and volatile crises.

Question 6

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

Accepted Answer

This statement is true. The large and liquid private capital flows to developing countries, often referred to as "hot money," were a contributing factor to financial crises in several developing countries during the 1990s, including Mexico, Asian countries, and Russia. These flows were often volatile and vulnerable to sudden reversals, leading to currency devaluations, bank collapses, and economic downturns.

Question 7

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

Accepted Answer

Volatile capital flows can lead to economic instability, which may negatively impact long-term economic growth rates.

Question 8

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?

Accepted Answer

The answer of Explain how policies toward private capital flows...

Question 9

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.

Accepted Answer

The Multilateral Debt Relief Initiative (MDRI) was financed through contributions to multilateral lenders such as the World Bank, International Monetary Fund (IMF), and African Development Bank (AfDB) by the advanced industrial countries. The advanced industrial countries contributed $50 billion to finance the debt cancellations under the MDRI. Therefore, choice A is the correct answer. The MDRI was aimed to reduce the debt burden of the Heavily Indebted Poor Countries (HIPCs), without reducing the resources available for new development projects. The debt cancellations were not linked to the high degree of conditionality under the HIPC initiative, as the MDRI was an additional initiative to support the debt reduction efforts of the HIPCs.

Question 10

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

Accepted Answer

Heavy dependence on short-term capital means that the foreign liabilities need to be rolled over frequently in order to continue financing operations, which can lead to instability and vulnerability in the economy.

Question 11

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

Accepted Answer

The answer of Explain how the problem of "moral hazard"...

Question 12

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%.

Accepted Answer

The HIPC (Heavily Indebted Poor Countries) initiative aimed to bring the debt burdens of the world's poorest countries to sustainable levels. After the initiative, the World Bank argued that the foreign debt of HIPC countries became comparable to other developing countries, with debt-to-export ratios at about 142% and debt to GDP ratios at about 35%. This comparison indicates a significant reduction in the debt burden, making it more manageable and comparable to the average levels seen in other developing nations.

Question 13

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

Accepted Answer

This statement is true. The economic crisis in Indonesia that started in 1997 sparked widespread opposition to corruption, nepotism, and cronyism that eventually led to the ousting of President Suharto in 1998.

Question 14

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.

Accepted Answer

A large debt burden means that a significant portion of a government's budget goes towards servicing the debt and paying interest to foreign lenders. This reduces the amount of resources that can be allocated towards economic reform, and can make governments hesitant to undertake reforms that may not immediately benefit their own society but primarily benefit foreign lenders.

Question 15

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.

Accepted Answer

The policies adopted by East Asian governments, such as building up foreign exchange reserves and implementing more stringent financial regulations, helped stabilize their economies and prevent another crisis at home. However, the large inflows of capital seeking higher yields in the region led to asset bubbles and overheating in economies such as Thailand and South Korea. When these bubbles burst, it triggered a larger financial crisis that spread to other parts of the world, including Russia and Brazil. Therefore, the policies meant to prevent a domestic crisis contributed to a larger crisis abroad.

Question 16

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

Accepted Answer

The suggestion to reintroduce controls on private capital flows in developing countries has been a topic of debate among economists and policymakers. While some argue in favor of such controls to manage volatility and prevent crises, there is no consensus that this approach has "carried the day" or been widely accepted as the best course of action. The effectiveness and desirability of capital controls remain contentious issues.

Question 17

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

Accepted Answer

The answer of Explain and discuss the dramatic financial crisis...

Question 18

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?

Accepted Answer

The answer of IMF assistance in the Asian financial crisis...

Question 19

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?

Accepted Answer

The answer of Explain and discuss suggestions for change of...

Question 20

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.

Accepted Answer

The HIPC (Heavily Indebted Poor Countries) initiative aimed to reduce the debt of eligible countries by about two-thirds and cut their debt-service ratio in half, making their debt more manageable and sustainable.

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

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