Debt is made when one party owes party money (Sofas, 2005). Just like people, governments of both developed and developing nations borrow money in order to function well and to maintain their economies (George, 1994). Debt is the economic mode that promotes economic activity in the global market (Lombard, 2004). The acquisition of debt comes through loans, grants and aid that are provided to developed and developing nations by multilateral creditors and bilateral lenders George, 1994).
These creditors are international institutions such as the International Monetary Fund (MIFF), the World Bank (WEB) and other banking institutions (Millet & Toasting, 2004). The international community with their neo-liberal approach and capitalist notions of eradicating poverty was through, economic growth and development (Schaeffer, 2009). Due to increased profits (petrol-dollars) made off increased oil prices developing countries were encouraged and some even coerced to borrow money from developed nations in the sass's and sass (George, 1994).
Although their profits were invested in Western banks it did not yield impressive returns thus encouraging the global South to acquire debt (George, 1994). The global South grasped the opportunity and borrowed money to advance their infrastructure (roads and dams) and also fund industrial projects in their countries Airman, 2006). Some countries even borrowed more money what they needed. So keen the developed nations were to borrow money that they disregarded any moral and ethical standards they might have had, and granted loans knowingly, to corrupt governments and military regimes (George, 1994).
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Unfortunately like everything else this spending spree did not last and came to a sudden halt in the sass's, which even left the United States economy in a recession (Study Guide, 2012). Developing countries had borrowed so much money that domestic currency and macro- economies collapsed, paralyzing everything Airman, 2006). This created the first international debt crisis of the inalienable era (George, 1994). When Mexico announced their inability to make debt repayments in 1982, it shocked the financial community (Ambition, 2004).
The impact of the debt crisis affected the entire global racket, causing interests to rise, commodity prices to fall, and income earnings to fall (Lombard, 2004). All this eventually made it difficult for developing nations to make debt repayments. The Western nations acted quickly and gained control of their economy and for them the debt crisis was soon over (George, 1994). Unfortunately the debt crisis and the nightmare for the poor developing countries were far from being.
In fact it had only Just begun when they found themselves faced with much bigger debt than they initially acquired this despite having made repayments since the sass's (George, 1994). Even though Mexico was the first to default on their debt panic (Lombard, 2004). Growing concerns for the financial stability of the lending institutions, major creditors, and international financial institutions, sought new strategies to address the lending criteria in order to bring debt relief (Millet ; Toasting, 2004).
This resulted in the implementation of the Highly Indebted Poor Countries Initiatives (HIP), and the Multilateral Debt Relief Initiatives, under the supervision of the World Bank and the International Monetary fund (Sofas, 2005). According to the MIFF and the World Bank these organizations were the answer to the bet crisis (Sofas, 2005). The notion that the debt crisis is over, is purely a myth and we will see. This essay will reveal the causes and impacts that resulted from these debt relief organizations, and incinerate the myth of the debt crisis having been addressed.
The debt crisis affected the lives and dreams of many people living in developing countries Airman, 2006). Debt is nothing new but as the debt crisis grew the gap between the rich and poor widened Airman, 2006). A country debt is not just measured by the size of their particular debt, but also clearly how it impacts or effects that nation's economy Airman, 2006). A country GAP (gross domestic product) per capita is also a clear indication of a countries capacity to not only service their debt, but to also ensure that the health and well-being of their citizens are met (George, 1994).
If this does not happen then clearly there is a problem, not Just a financial one but a humanitarian one (George, 1994). This was the result for many poor developing countries that led to the debt crisis Airman, 2006). But it was not only developing nations that had debt, United States is the world's biggest debtor tit $6 trillion being owed at 2002 Airman, 2006). The total debt owed by developing nations in the world came to 2. 5 trillion dollars in 1999 Airman, 2006). In Nicaragua (Latin America) their debt repayments in 2004 consumed 43% of their total earnings Airman, 2006).
Many commentators argued that the debt crisis was also due to irresponsible lending by the Western Nations (Millet ; Toasting, 2004). Like the Bhutan nuclear power station in the Philippines, that was built on a volcano in 1974 Airman, 2006). A clear indication where misleading advice caused poor developing overspent to make wrong decisions Airman, 2006). A nuclear power plant that had never ever been used, but a debt that was incurred with interest are expected to still be repaid Airman, 2006). What exploitation of the poor!
The Jubilee 2000 (social justice group) lobby's that debt crisis be recognized and that unjust debt like the Philippines be cancelled Airman, 2006). They argued that poor countries cannot afford to make repayments without meeting the basic needs (education, food, healthcare) of their citizens (Cheer, 2002). They maintain that debt was conducted on unfair terms and contracted illegally (Cheer, 2002). Jubilee argues that all debts be forgiven because it perpetuates a balance of power Voluble Debt Campaign, 2007).
The solution for the debt crisis was restructuring the debt of developing and developed countries (Millet & Toasting, 2004). The International Monetary Fund and the World Bank formed Structural Adjustments Programmed (SAPS), to provide debt relief and bring it to sustainable levels in order to maintain repayments (Millet & Toasting, 2004). SAP's were conditionality's set up specifically for poor developing countries to meet their debt repayment obligations (Cheer, 2002).
They squired that poor developing countries raise interest rates, cut government barriers on trade, increase their export production and even cancelled subsides on local food production and healthcare (Cheer, 2002). This was met with criticism and caused outrage in the world. Critics argued that the West used controlling measures to control the economic policies in the poor developing counters Voluble, 2000). When Jamaica signed up with the MIFF and SAP conditionality's, they experienced catastrophic impacts Airman, 2006).
Social service spending dropped 50% between 1980 and 1986, unemployment rose, living conditions deteriorated, infant illumination, poverty levels increased and even school pass rate dropped by 50% Airman, 20060) Not only poor developing countries had conditionality's imposed but even developed nations like New Zealand experienced the wrath of the Miff's Airman, 2006) SAP's were abandoned and the MIFF and World Bank launched the Highly Indebted Poor countries Initiative (HIP) in 1996 (Cheer, 2002).
The HIP was implemented to act as an international relief mechanism, in order to reduce bilateral, multilateral and commercial debt to a "sustainable level" in poor developing counties (Cannot & Mammogram, 2009). The principle objective was to reduce debt burdens and to ensure that no poor country through restructuring was compromised, that would cause them to default on their debt repayments (Cannot & Mammogram, 2009). In other words, their mission was to assist to a certain point and then ensure that the creditors and lenders still got their money!
Just like the SAP's, the Hip's initiative came with conditionality's (Cohen, 2000). The eligibility criteria required that a country be very poor, have no unsustainable debt burden and have a reformed policies track record, all under the guidance of the MIFF and the World Bank, of course (Cohen, 2000). This eligibility process was further imposed with more conditionality's until a country came to the "completion point" (George, 1994). The HIP was met with criticism because only 30 countries benefited under the HIP intuitive, and that the eligibility process took too long causing further danger to poor developing countries (Cohen, 2000).
The "one size fits all" notion was unfortunately not working, because they failed to address the real issues of the inability of countries being able to provide for the basic needs of their citizens Airman, 2006). Jubilee activists pressured the MIFF and the World Bank with a petition at the 68, with the mission to write off all debt completely (Cohen, 2000). The enhanced HIP initiative was then launched and implemented. The enhanced HIP initiative was to provide stronger, faster, deeper and broader debt relief (Cohen, 2000). The 67 and bilateral creditors promised 100% debt relief for highly indebted poor countries (Cohen, 2000).
This was unfortunately empty promises. Further protests and pressure to "drop the debt" led to Millennium Development Goals (MEG) being launched in 2000, as a benchmark for measuring the reduction of poverty (Sofas, 005). Meg's were goals set to eradicate extreme hunger and poverty, to achieve universal education, promote gender equality and empower women, reduce child mortality, improve material health, combat HIVE/AIDS, malaria and other diseases, ensure environmental sustainability and develop a global partnership for development (Sofas, 2005).
In conjunction to this the Multilateral Debt Relief Initiative (MIDI) was launched in 2005 at the "Make Poverty History campaign in the UK (Sofas, 2005). MIDI was about granting debt relief and their requirement was Although many countries benefited from debt relief, only 23 countries reached implosion point and 10 reached the decision point. The HIP initially promised to cancel $63. 4 billion, but only $45. 4 billion delivered in April 2008 Airman, 2006). In April 2008 MIDI promised $50 billion cancellation, but cancellation delivered only $42. Billion Airman, 2006). All this structures and organizations that were set in place only looked to help poor developing countries on a superficial level (Cheer, 2002). The impacts of the debt crisis led to devaluation of local county currencies as inflation increased. Import costs rose, debts increased proportionally and there were he rise in export (Cheer, 2002). Employment opportunities were not enough to offset these losses. Poor developing countries made loans on the notion that their export taxes would be able to repay or maintain their loans (Cheer, 2002).
Government's commitment to pay their debt came with conditionality's that exhausted their economies, unemployment increased due to income and living standards declined. When health care and food subsidies were cancelled by international creditors it forced food prices to soar causing families not able to feed themselves. This led to malnutrition and poor health. According to Jubilee Campaign (2000) Just like debt, Aids is a 'killer" and although sickness and diseases adversely affected men, it hurt both women and children (Cheer, 2002).
The burden of meeting their debt repayments caused some to compromise on the health status of their citizens (Cheer, 2002). South Africa has the largest HIVE/Lads infected population 4. 2 million) more than 12% of its people and this affects their employment market (Cheer, 2002). A health crisis that caused the health of lawyers, doctors, ordinary workers and teachers unable to be active in their Job market, further affecting the countries social economy (Cheer, 2002). Teachers that had HIVE/AIDS are unable to work, then unable to buy medication which ultimately leads to ill-health and even death (Cheer, 2002).
Disease, epidemics and pandemics places a huge burden on a countries health sector (Cheer, 2002). Children from these families suffered too because when one parent was affected some were kept home so the other could go work. If both suffered from Hides it often left children orphaned (Cheer, 2002). Girls in unemployed families were often kept home, while boys were sent to school because the cost of education was too dear. This increases the gender inequality in developing countries (Cheer, 2002).
Due to unemployment, rise in prices and taxes most people in developing countries were living well below the poverty line (Thrall, 2008). According to Thrall (2008), the economic and social development of the world's poorest countries is perhaps the greatest challenge facing society at the present moment (Thrall, 2008). Over 1 billion of the 6 billion populations live in absolute poverty and suffering malnutrition (Cheer, 2002). The MIFF and the World Bank entrapped highly indebted poor countries with foreign debt that far exceeded heir entire national yearly income (Cheer, 2002).
In 2000, the debt repayments of sub-Sahara African countries were about 38% of their individual country budgets (Cheer, 2002). This is unreal and even immoral, that a country earnings through import and export, is overshadowed by an unbearable burden of debt repayments (Cheer, 2002). When debt repayments affects the basic needs of any country, and a country is unable to maintain their social obligations of providing health, education by the window society survival is really slim. Hughes (1999) argues that debts hooked not be forgiven because the debt crisis is the developing nations own fault.
Corrupt governments caused their countries to be in this situations and conditionality's are they only way to maintain control (Hughes, 1999). There are too many flaws in the so called economic model, and we have created a society where material gain supersedes moral and ethical commitments and standards. I believe an erosion of trust erupted, because of the exploitation of the poor by the rich colonists. The fallacy of promoting poverty reduction and debt relief had surfaced, ND exposed that the Western strategies was built on greed and power.
So has the debt crisis been addressed, unfortunately not? If the international community is serious about the Hip and the MIDI initiatives then their design needs to be improved in favor of developing countries. The focus should be less on filling the coffers of the West but, instead maximize burden sharing. Have a heart and share in the burden of the developing nations by ensuring that projections are more realistic. The HIP and the MIDI could maybe become responsible for ensuring that the international community commit to reducing poverty and reach their millennium goals.
The mission to transform societies, improve the lives of the poor, eradicate poverty, encourage and enforce the right to healthcare, education and economic growth, is what true development is all about. By completely writing off, deleting all foreign debt gives all countries an opportunity to start afresh. This then could be the start of bridging the gap between the wealthy West and the poor South. The creation of a new world order where there is no suffering and the right to live is not questioned, but encouraged, the way it should be.
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