1. Summary
Hierarchy in the International Political Economy And Policy Choice

2. We Started With a Question
What is the Difference Between an EM and a DM?

3. Problem 1: Development

4. Problem 2: How to Finance New Capital
Onshore US Dollar
Onshore US Dollar Credit
Offshore USD Credit
(Eurodollar/Eurobonds)
Domestic (EM’s) Money
Domestic (EM’s) Credit

5. Problem 3: FDI V.S. FPI

6. Problem 4: International Money is Unstable

7. Which Raises Your Borrowing Costs and
Causes Money to Flee

8. Problem 5: Managing Your Currency vis-à-vis
the World
Pegged Currency
Free Float
Capital Controls

9. Solution 1: Austerity

10. Solution 2: Default

11. Solution 3: Capital Controls

12. Interlude: Intervening in FX Markets

13. Solution 4: Prevention Through Permanent
Trade Surplus
• Current Account Balance + Financial Account Balance + Capital
Account = 0
• Current Account:
Exports – Imports
• Capital Account
Net change in asset values, transfers from abroad
• Financial Account
Sale of Assets – Purchase of Assets

14. Solution 4b: SWF If You Can

15. The World Continues to Be Hierarchical

16. Is There a Better Way?

17. What Is the Difference Between an EM and
DM?
Credit Risk V.S. Interest Rate Risk