4.7+The+role+of+international+debt

What you need to know for the exam:



More than anything else the following map should convey to you the problem that debt has posed to many countries.



That is why debt relief was instigated and debt as a % of GDP has been falling over the last 10 years. Student Task: [|Click on this link]for the brilliant Guardian interactive website on debt and the developing world. Pick a country and find out what has happened to it's debts over the last 10-15 years and why.

What else could that expenditure on debt interest payments been used for?

Should we let off the LEDC countries from their Foreign Debts? For Debt Reduction: **Facts**
 * Debts impair sustainable development and political and social stability
 * LEDCs are net payers to 418bn in repayments from 1982-1990. This is double spent on repairing Europe (but inflation also affect here).

Africa 1970 11bn US 2002 295bn US. 515bn Us repaid in last 3 decades.
 * There is an opportunity cost to debt repayments-education and healthcare spending suffers.
 * 5million may have lost lives in Sub Saharan Africa due to debt repayments. More in future (Hard to prove this-but argument has some merit to it)
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">MDG is to cut poverty in half, but can this be done with Debts
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">1970 poorest countries owed 25bn in debt-by 2002 523 bn US.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">1997 richest countries 74x richer than poorest countries.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Income Gap between rich and poor getting bigger- 1960 between rich and poor richest 20% was 32x richer than the poorest countries


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Debt and the Environment: Poorest have to have Econ Growth to pay debts-and in order to do this they create environmental damage (negative externalities) Poorest countries don’t have the resources to negate or reduce the negative externalities associated with economic growth. Examples are Brazil and Amazon rain forest. Intensive farming as opposed to subsistence (rotational) farming has a negative effect on soil sustainability.


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Promises for debt relief not always met-already criticism of G8 summit in Gleneagles 2005. Approx 50 bn US benefits in term of debt relief, but main benefits gained come from trade liberalization-freeing up of world markets-esp. agricultural markets-this would hugely benefit LEDCs


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Colonialism: Western Imperialism-previously it was political now it is Economic- The developed W world is still benefiting from its’ old colonies. (this is not necessarily economics, but it has social and political consequences)

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Mismanaged lending: Excess money supply in W was “pushed” on the LEDCs often going to W backed dictators.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Against Debt let-offs:


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Poverty is not solely caused by debt-but by other factors and solely focusing on Debt relief will not cure Poverty. Trade liberalization is probably even more important


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Cancellation of debt does not work: Uganda 1998 all debts wiped out- but Gov indulged itself by buying more weapons, building a new Parliament building and invading other countries-they couldn’t have afforded this if they still have debts


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Borrowing means repaying-if you tell people you don’t have to repay what is the incentive to borrow and use money wisely. They’ll just borrow more and get into more debt because they haven’t learnt their lessons.


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">IMF and World Bank can’t eradicate debts-much debt with private banking system. These would have to be compensated-so initiative would be with individual governments to provide this compensation. But IMF world bank could write off all their own debts.


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">There are alternatives to writing off the debt which could benefit LEDCs Eg trade liberalisation would help far more


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Debt swops-repayments swopped for healthcare and education spending-so can’t simply spend money on non productive things.


 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Reschedule debts-you still have to pay it, more time or cancel or reduce interest rates.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Debt relief: an update

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Debt Relief : recent events <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Gleneagles meeting of G8 Countries 2005

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">On 11 June, agreement was reached to write off the entire US$40 billion debt owed by 18 Highly Indebted Poor Countries to the World Bank, the International Monetary Fund and the African Development Fund.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The ministers stated that twenty more countries, with an additional US$15 billion in debt, would be eligible for debt relief if they met targets on fighting corruption and continue to fulfill [|structural adjustment] [|conditionalities] that eliminate impediments to private investment.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">However the debt relief has been slow to come and it may be that not all of the debt may in the end be written off.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Also at the Gleneagles Summit:
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">G8 members from the European Union commit to a collective foreign aid target of 0.56% of GDP by 2010, and 0.7% by 2015
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Stated “commitment” to reduce subsidies and tariffs that inhibit trade

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Another G8 Summit in June 2007 tried to deal with non implementation of the promises made at Gleneagles, as countries have been slow to keep their promises. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">An update 2010: <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">



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