[...] OPEC states suddenly found themselves awash with excess cash worth more than $450 billion. The only problem was that they didn't know what to do with all that money. Because there was nowhere to invest it internally, Saudi Arabia and other OPEC nations decided to circulate or 'recycle' the money through Wall Street banks, probably to some extent under the pressure of US compulsion, as part of the negotiated settlement.

[...] in 1981, when US Federal Reserve Chairman Paul Volcker jacked interest rates up as high as 21 per cent. Poor countries found that they simply could not repay their loans at such high rates. In 1982, Mexico took the inevitable step and defaulted on part of its $80 billion debt. This move spurred other heavily indebted countries--such as Brazil and Argentina--to do the same, and set off what became known as the Third World Debt Crisis.

[...] First, developing countries had to redirect all their existing cash flows and assets towards debt service. They had to cut spending on public services like healthcare and education and on subsidies for things like farming, food and infant industries; they also had to privatise public assets by selling off state companies like telecoms and railways. In other words, they had to reverse their developmentalist reforms. The savings gleaned from spending cuts and the proceeds of privatisation would then be funnelled back into Wall Street to repay debts. [...]

The second mechanism was slightly less direct. Countries that were subject to structural adjustment programmes were forced to radically deregulate their economies. They had to cut trade tariffs, open their markets to foreign competitors, abolish capital controls, abandon price controls and curb regulations on labour and the environment in order to 'attract foreign direct investment' and make their economies more 'efficient'. The claim was that these free-market reforms would increase the rate of economic growth and therefore enable quicker debt repayment. As the bankers put it, countries would be able to 'grow their way out of debt'. Debtor countries were also forced to orient their economies towards exports, to get more hard currency to repay their loans. This meant abandoning the import-substitution programmes they had used to such good effect during the developmentalist era. In addition, structural adjustment programmes required debtors to keep inflation low--a kind of monetary austerity--because the bankers feared they would use inflation to depreciate the value of their debt. This was a big blow to global South countries, not only because it prevented them from inflating away their debt, but also because it barred them from using monetary expansion to spur growth and create employment.

[...] Major decisions require 85 per cent of the vote. Not incidentally, the United States holds about 16 per cent of the shares in both institutions, and therefore wields de facto veto power. The next largest shareholders are France, Germany, Japan and the UK--all members of the G7. Middle- and low-income countries, which together constitute some 85 per cent of the world's population, have only about 40 per cent of the world. [...]

When capitalism hits these limits, investors find themselves with fewer options for investing their capital, since nothing gives an acceptably high return. They can't just put it into savings because interest rates on savings accounts are typically lower than inflation, and that means losing money. This is what economists call a crisis of over-accumulation. In a crisis of over-accumulation, capital begins to lose its value--and according to the driving logic of capitalism, this cannot be allowed to happen. In order for capitalism to carry on, crises of over-accumulation have to be solved, someone needs to step in to provide a way to mop up the excess capital, to funnel it into some kind of profitable investment. It is an iron law.

a 'temporal fix'. Capital can be invested in long-term projects like infrastructure, education and research that will improve the future productivity of capital.

To avoid having to confront domestic resistance, which can be politically costly, policymakers might solve a crisis of over-accumulation by resorting to a 'spatial fix'--in other words, by opening up new consumer markets, labour markets and investment markets abroad.

[...] given that structural adjustment destroyed growth rates, we can conclude that much of it came instead from the appropriation of already existing wealth. By requiring debtor countries to privatise public assets, the World Bank ad the IMF created opportunities for foreign companies to buy up telecoms, railroads, banks, hospitals, schools and every conceivable public utility at a handsome discount, and then either run them for private gain or strip them down and sell off the parts at a profit. The privatisation of public assets releases a tremendous asset into the market that was previously inaccessible to capital, creating new opportunities for profit. The World Bank alone privatised more than $2 trillion of assets in developing countries between 1984 and 2012. That amounts to an average of $72 billion per year of profitable opportunities for Western investors in addition to the $58 billion of high-interest bonds that the Bank sells on Wall Street each year.

[...] debt stocks have not reduced much at all. In fact, they have increased. External debt as a percentage of gross national income in the global South was 25 per cent in 1980, when the debt crisis struck. At the end of the first decade of structural adjustment, it was up to 38 per cent. By the end of the second decade, it was 39 per cent. In other words, structural adjustment failed even on its own putative terms. [...]