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Who:
  • Jubilee 2000
  • Bank Information Centre (BIC)
  • United Nations (UN)
  • International Monetary Fund (IMF)
  • The Great 8 (G8)

What:
Due to the large demands of their people, many nations take loans from other nations. This could be in order to sponsor a war, build infrastructure, or supply basic needs, such as health care. The problem is that the nations that take on the higher levels of debt, find themselves trapped, forbidding them from recovering their original statuses. As of May 31st, 2008 there was an international debt of $19.4 billion (US) to 65 countries.

Where:
More than 50 countries have debts that will never be paid back. The debt burden of the poorest countries floats around 127% of their average income.
chart_world_issues.GIF
Total debt continues to rise, despite ever-increasing payments, while aid is falling. For example:
  • The developing world now spends $13 on debt repayment for every $1 it receives in grants.
  • For the poorest countries (approximately 60), $550 billion has been paid in both principal and interest over the last three decades, on $540bn of loans, and yet there is still a $523 billion dollar debt burden.
Debt kills. Some 11 million children die each year around the world, due to conditions of poverty and debt.


When:
  1. 1980s, the Lost Decade: Many Latin American nations, which were developing at the time, took on high levels of debt. This came to a halt with the global recession in the early 1980s. These countries then declared that they could no longer pay back their debt. In 1991, many of the nations experiencing these financial problem experience capital inflows that exceeded the outflows for the first time since the debt crisis.
  2. There are also many times when debt cancellation cannot happen. In places such as the Ivory Coast, or Central African Republic where there is a civil war, there is no point in elevating their debt, or providing them with more loans because it cannot be guaranteed that they will use their newfound riches wisely.

Why does it happen:
Countries accumulate high levels of debt due to poor choices, bad luck, or bad policies, among other things. Countries could find themselves in a situation where their dollar is depreciating rapidly, and as a result, making international goods and capital more expensive. It can then continue to get worse due to a lack of consumer confidence; investors would chose not to invest in the poorer nations.

Watch the Americans accumulate their $10 trillion debt!

How can anything be done:
  • Organizations such as the International Monetary Fund (IMF) provide loans to these nations already accumulating high levels of debt. This provides these nations with the ability to rebuild international reserves, stabilize their currencies, and most of all restore conditions of strong economic growth. The way the IMF goes about giving these nations with a debt that is already quite high is by having them submit a Letter of Intent that has to then be approved by the IMF board. Their loans are then applied through a phase of installments, based on a previously agreed upon program. They also provide Emergency Assistance after countries have experienced major natural disasters. These loans generally have to be repaid within 3½ to 5 years.
  • Debt cancellation is when nations essentially cancel the debt due to them from poorer nations, or nations struggling to meet their monetary needs. In the latest round of debt cancellation, in 2005-2006, 21 countries across Africa and Latin America have seen complete debt cancellation; this comes to a rough total of $40 billion of debts cancelled.

Impact:
  1. In Ghana, the money saved is being used for basic infrastructure, including rural feeder roads, as well as increased expenditure on education and health care.
  2. In Tanzania, the government is using the money saved to import vital food supplies for those affected by drought.
  3. In Burundi, elimination of school fees in 2005 allowed an additional 300,000 children to enroll.
  4. In Zambia, 4,500 new teachers have been hired and fees for rural healthcare have been abolished.
  5. In Honduras, debt relief is to be allocated to eliminate annual fees charged for primary education, which is expected to increase enrollment from low-income families

Proof of success in Tanzania

Discussion Questoins:
1.
NGO companies are giving loans to poverse countries at a low intrest rate to help them pay for their debt they already have. Do you think that the debt from the NGO companies will become a factor?




Bibliography: