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1973 Oil Crisis
African Debt Crisis
Asian Financial Crisis
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African Debt Crisis
(In no specific order)
The Origin of the African Debt Crisis
The African debt crisis is one among a wide range of problems that the continent is facing. The origin of the African debt crisis includes many factors and causes that will be highlighted in this section such as:
the oil price shocks
rising commodity prices
the rise in public expenditure by African governments
THE OIL PRICE SHOCKS
Most countries in Africa can be considered Heavily Indebted Poor Countries (HIPC countries). Although only a small share of global GDP is accounted for by these HIPC countries and transition economies, many of them are among the most seriously affected by higher oil prices. The lack of access to private capital markets due to the absence of international assistance, will likely make the impact of higher oil prices on output relatively large. This is because it will have to be met primarily through a reduction in domestic demand. The following diagram shows the effects of an oil price increase on HIPC countries. Notice the negative millions of dollars that African countries have lost due to oil price shocks.
Selected HIPC and CIS Countries—Preliminary Estimates of First Round Effects of an Oil Price Increase and IMF Quotas
Source: INTERNATIONAL MONETARY FUND- The Impact of Higher Oil Prices on the Global Economy
RISING COMMODITY PRICES
Probably one of the financial market topics discussed so very frequently in recent years has been the remarkable and continued surge in commodity prices. This surge could be seen across a broad range of commodity groups; including precious and base metal prices, oil and energy prices, and lately agricultural produce prices (grains, softs and livestock). The oil shock and the inter-related surge in food prices are believed to unfavorably affect millions living on the tiny margin between subsistence and starvation in many African countries. Any benefits of these rising commodity prices have not reached citizens of these African countries who are suffering from AIDS, malnutrition, dehydration, infection, conflict and other preventable diseases.
A RISE IN PUBLIC EXPENDITURE BY AFRICAN GOVERNMENTS
Due to the demand for better health care, education and housing, African governments began intensely increasing their countries’ public expenditure annually. Although these expenditures greatly benefited the citizens, the government began paying huge sums of interest amounting to one billion dollars daily. The debt that Africa is in due to public expenditure has been soaring since the early 1970s, following the rising commodity prices. The public expenditure debt continues to ascend daily.
OTHER FACTS TO CONSIDER:
Approximately 46 percent of Africa’s debt is owed by the North African Nations while the remaining 54 percent of the debt is owed by the Sub Saharan African Nations.
Only ten to twelve countries account for seventy five percent of Africa’s total debt.
Over 60 percent of Africa’s debt is owed to official creditors such as the World Bank, The IMF and world leaders.
The high interest rates along side the cost to reschedule debt have forced Africa and other developing regions into a relapse of instability.
Although Africa does have an abundance of natural resources it is still the poorest continent in the world. The reason behind its poor standard of living and poor economy has a lot to do with the following issues.
Corruption in government
Since the Decolonization of Africa, Africa has had a history of corruption in the levels of government.
This map below shows the continents and its level of government corruption. As you can see Africa in most regions in African have an low control over corruption. As you may also see many corrupt regions also have a level of natural resource such as minerals or oil.
Decolonization of Africa
Africa’s greatest relative wealth was found in the 1960’s before decolonization
African countries with European leaders exported raw materials to increase wealth
When Europe withdrew from Africa they left countries with no one educated enough to maintain the political structure that has been implemented.
Africa have never been able to regain the wealth from the days of colonization
Europe withdrew after raping the land of its natural resource that has arguably increased current economic problems.
External loans from World Bank and IMF
In 1970, it owed just under $11 billion in debt
By 2002, that debt grew to approximately $295 billion
Everyday people in Africa die from curable disease, poverty and hunger. The government cannot put money into helping these people because it must pay 15 Billion dollars a year in debt repayment to places like the World Bank and IMF.
African economic advances cannot be made when it must pay a shocking 1 billion dollars a day interest fee.
These loans from organizations such as the World Bank are meant to aid the country during this economic crisis. These loans actually sabotage these African countries. Nigeria has borrowed 5 billion dollars from the World Bank. To date they have repaid 16 billion dollars. Shocking they still owe the bank 32 billion dollars in interest.
What is the IMF?
The IMF is the worlds central organization for internal monetary cooperation
It is an organization in which all the worlds countries work together towards a common good
Purpose is to ensure the stability of the stability of the international monetary system that enables countries to buy services and goods from one another
What is the World Bank?
Provides financial stability and assistance to developing nations around the world
Made of two separate institutions- IBRD and the IDA
IBRD focuses on middle income and creditworthy poor countries
IDA focuses on poorest countries in the world
Provide low interest loans and grants in developing countries for investments in education, health care, infrastructure, environment and natural resource management etc.
The Role of the World Bank and IMF in the African Debt Crisis:
11 years ago the World Bank and IMF put the HIPC initiative into action.
This initiative promised debt relief for classified low income countries if they complied with the SAPs.
When HIPC I and II failed to relieve 41 in debt countries a new initiative was applied, however this new initiative aimed at reducing poverty (Poverty Reduction graft) required that each debtor country had to follow guidelines set out by the World Bank and IMF and produce PRSPs.
The World Bank and the IMF are discretely negligent in regards to their public policy on international development and infrastructure reform.
This is because their sole motivation is that of profit apposed to alleviating the strain caused by odious debt for primarily impoverished nations.
Although the World Bank and IMF aim to help countries reduce the amount of debt that they owe, their ridiculous interest rates,
guidelines and conditions force countries to become even more heavily in debt then they were previously.
This then causes a vicious cycle of economic instability and unsustainable development.
Reverend Jesse Jackson recently stated that Africa’s debt burdens "are the new economy's chains of slavery”. Although the continent of Africa has collectively been given millions of dollars no true improvements have come to pass. In reality the World Bank and the IMF have chained down Africa’s development, making it incapable of taking steps forward. The people of the African continent have sought after assistance which aims to further development and benefit the horrifying conditions that exist—yet borrowing money from large scale institutions has only perpetuated their state of suffering and caused a heightened level of economic instability. Some have argued that Africa’s most impactful crisis is that of poverty and underdevelopment. Out of every continent in the world Africa is by far the poorest, bringing in a meager GDP, with most African citizens living on less than one dollar a day. The issue that truly exists is whether or not the debt is legitimate or whether the African people are being exploited.
Each week, Africans are forced to repay millions of dollars to excessively wealthy nations and affiliated institutions which reside in the Western part of the world. Yet, as the debt is constantly being repaid millions of Africans continue to die from famine, disease, internal and external conflict and lack of resource. All these issues arise from poverty. Each year Africa spends approximately 15 billion dollars on debt repayments to developed nations and lending institutions, yet in return they only gain 12.7 billion dollars worth of aid. Aid has almost become a burden with extensively high interest rates attached. In total Africa’s current debt amounts to 300 billion dollars. In 2002 Forbes Magazine put out an article on the burden of debt on the African people. It states that the 18 richest American’s could pay back Africa’s total debt, having several billions to spare. All developing nations in the world, including Sub-Saharan Africa must pay the excessively high interest rate of 1 billion dollars a day in debt to the World Bank. For every dollar African nations receive in grants towards development, they pay 13 dollars in interest to the World Bank. No development is ever reached and the goals that need to be met in Africa in regards to population control, economic stability, poverty and conflict cannot be dealt with due to the burden of debt.
Consider the following:
• Approximately 30 million Africans are HIV positive
• Currently 38 million Africans are in urgent need of food aid
• The infant mortality rates are 92 per 1000 live births collectively in the continent of Africa
• African countries spend up to three times more on debt repayments to wealthy countries aimed at decreasing the strains of poverty than they spend on health care, water purification, sanitation, food, education, institutions for their sick, schools for the illiterate, facilities for the orphaned, and the hungry.
’s debt is unsustainable. Africa cannot manage to spend billions servicing its debt while millions of Africans continue to lose their lives to AIDS, malnutrition, dehydration, infection, conflict and other preventable diseases. A large majority of Africa’s debt is illegitimate and odious. Many feel that creditors should accept responsibility for their part in creating the debt crisis in the continent of Africa. The World Bank only perpetuates Africa’s suffering, due to its stingy institutionalized corporate policies. People who are already impoverished should not be forced to pay debts that did not benefit them in full and that were, for the most part, used to suppress. At times the loans seemed to hold some benefit yet in reality the interest rates are only pushing Africa further away from development. The nation of Nigeria borrowed 5 billion dollars, and has paid more than 16 billion dollars to date. Yet, Nigeria still owes approximately 32 billion dollars on that same debt because of inflated interest rates. The answer to the economic crisis in Africa is freezing interest and dissolving all existent debt. The possibility of completely canceling African Debt was discussed heavily by some of the most significant world leaders, economists and millionaires at the 2007 World Economic Forum Conference.
The World Bank, the International Monetary Fund and other significant nations which provided credit to the third world identified the seriousness of the conditions and the crisis in the developing world in 1996. They decided that significant action needed to be taken into to insure that economic stability would remain sustainable in continents like Africa. They launched the HIPC Initiative (heavily Indebted Poor Countries initiative). It was a substantial move on the part of the Banks and Funds. It was finally recognized that the crisis that existed would not be eradicated without some form of intervention. Thus, the Banks realized that a substantial amount of the odious debt would need to be eliminated or cancelled, including the debt owed to multilateral institutions themselves. This amounted to approximately one third of Africa’s debt being cancelled. It was essentially agreed that eighty percent of external debt could be effectively disregarded and then cancelled for the benefit of the people. Yet, like any policy or infrastructure reform that looks amazing on the surface, the HIPC Initiative too held specific conditions. Nations had to comply with these specific policy agreements before they would qualify for the economic adjustment program to be implemented. In September of 1998 only eight countries worldwide were found to qualify for this debt relief. Such packages added up to six and half billion dollars America. Five nations out of the eight were African. The only nation that officially reached the “completion point” by late 1998 was Uganda, which received a total of six hundred and fifty million dollars in debt reduction. The World Bank and IMF were supplemented by 15 nations that had pledged three hundred million dollars by late 1998. Yet, these are not nearly enough to meet the needs of the African people for debt cancellation.
The main highlights of the 2005 G8 Initiative included the following:
The G8 agreed on devoting a 50 billion aid and EU members pledge to reach a collective aid target of 0.56 percent of GDP by 2010, and 0.7 percent by 2015
Stalemate on climate change as US position barely budges
All G8 nations agree to full debt cancellation for the poorest 18 countries in the world,
African countries call for debt relief for all of Africa
A “signal” for a new deal on trade
Universal access to anti-HIV drugs in Africa is set to be reached by the year 2010
More money is put towards for addressing and stabilizing those affected by malaria
Intentions to help improve education for all in Africa are also displayed.
The goals of the summit appear to be excessively promising, yet like most initiatives this one held positives and negative outcomes. Some of which include:
No progress on trade, a disaster for a continent where 60 percent of employment comes from small scale farming.
The aid increase ends up being far too little and is received far too late. This resulting in the deaths of 50 million children over the span of 5 years.
Over this span of time the G8 will do very little to improve the effectiveness of their aid.
The aid which was pronounced to be sufficient proves to be insufficient to meet the G8’s AIDS treatment target.
The “deal” established by the G8 to alleviate the strain of debt for the impoverished and highly poor offers only 10 percent of what is needed and comes with harmful conditions, limiting many nations who are in fact in desperate need.
The World Bank : About US
. 14 October 2008. The World bank. 16 Nov 2008 <
"About the IMF."
International Monetary Fund : About Us
. International Monetary Fund. 16 Nov 2008 <
Shah, Anup. " Causes of the Debt Crisis - Global Issues". Sunday June 3, 2007. Viewed November 12th 2008. <
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