Developing countries in Africa and Asia have been crippled by debt. A developing country is the term applied to nations that are poor and historically backward due to a combination of being colonized under developed. This debt has occurred as these countries have been saddled with loans taken out earlier by rulers and dictators who ruled earlier. Many of these rulers were put in power by different Western nations as it suited their interests. The result is catastrophic as millions of people of these nations have become poorer and their living standards degraded.
The causes of debt of the developing nations are based on a combination of factors. Some of these factors are
Colonialism this was highly prevalent during the nineteenth and early part of the twentieth century. During this period the colonial powers namely England, France, Spain and others colonized vast areas of Asia, Africa and Latin America. This was also the period when vast assets of these lands were transferred by the colonial powers to the parent country. When Independence was granted as a result of the forces of change the result was again calamitous. The developing countries debt is partly the result of the unjust transfer to them of the debts of the colonizing states, in billions of dollars, at very high interest rates.
Odious debt. International law defines this type of debt that is incurred by a ruler or his government for purposes that are alien to the interests of its people. The doctrine was enunciated in 1927 by AN Sack a Russian legal theorist. An example is the debt incurred by King Farouk of Egypt in early fifties of the last century. This type of unjust debt is incurred as rich countries have lent money to dictators or corrupt leaders .These were given by the Western Powers with the full knowledge that the countries would not utilize the money for the purpose for which it was given. An example is of the Republic of South Africa where the Apartheid regime had been loaned vast sums by the Western powers. However after the overthrow of apartheid, the new regime had to pay debts incurred by the apartheid regime.
Mismanaged spending and lending by the West in the 1960s and 70s. During this period the western powers were haunted by the specter of Communism. Their first priority was to contain the Red menace. Thus these powers propped up corrupt leaders and dictators like Mobutu of Zaire and loaned them vast sums of money to enlist their support in the fight against communism.
With the collapse of communism in the early nineties the Western powers have redefined their goals. But the damage has already been done. In spite of ever increasing payments the debt of the third world countries continues to rise. A few statistics can be startling.
The developing world now spends $13 on debt repayment for every $1 it receives in grants.
The poorest numbering nearly 60 have been given loans of approximately $ 540 billion. On this amount nearly $550 billion has already been paid towards principal and interest over the last three decades, still $523 billion dollar debt burden remains.
Poverty and debt are also a lethal combination and nearly 11 million children die each year around the world, due to these conditions.
To help these poor countries the Heavily In-debt Poor Countries (HIPC) initiative was formed in 1996 by the rich nations with the help of the IMF and World Bank .This initiative has tried to form a plan for the reduction of external debt for the poor countries through write-offs .
The IMF and World Bank have however conceded that the HIPC initiative is backfiring. This again is for a variety of reasons. The donor countries do not wish to be hurt economically and thus formulated difficult and sometimes unfair conditions. Thus the HIPC initiative has really not taken off.
Another reason for the current debt crisis is rooted in the economic policies adopted by the Western powers in the 1970s and 1980s. This was the period of the so called oil crisis. During this period the Organization of Petroleum Exporting Countries (OPEC) like Saudi Arabia, Iran, Kuwait, Venezuela, Iraq etc raised the price of oil by four times in 1973 .OPEC nations who suddenly found themselves richer by millions of Dollars deposited a large part of their wealth in commercial banks located in Western Countries. These banks flush with funds obviously needed avenues for further investments. They thus loaned large sums of money to developing countries. In a number of cases the funds were loaned without monitoring how the loans were to be used. It is a historical fact that a large part of these loans was spent on programs that did not benefit the poor, such as armaments and some grandiose projects. Again some of the development projects also failed or the wealth was utilized by a coterie of political leaders and businessmen for their personal use. During this period inflation also rose in the U.S. This resulted in the United States adopting tight fiscal policies. These tight monetary policies soon led to a sharp rise in interest rates and resulted in worldwide recession. The irresponsible lending on the part of creditors and banks coupled with mismanagement on the part of debtors led toe worldwide recession. This was one of the factors that contributed to the debt crisis of the early 1980s.
The debt crisis hurt the developing nations much more than other countries. The world wide recession made the servicing of this debt more difficult. The high cost of fuel, high interest rates, and declining exports made it increasingly difficult for the developing countries to repay their debts. This crisis needed to solved and the problem was recognized by the devolved countries and banks. During the rest of the period leading into the nineties, commercial banks and governments notably the USA and UK have sought to address the problem by rescheduling loans. In some cases they have also provided limited debt relief by a write off of some of the loans. However despite these efforts the debt of many of the world's poorest countries remains well beyond their ability to repay. More concerted efforts are needed to solve this problem
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