Rich World, Poor World
Dr. Rochelle Steward-Withers
18 September 2012
Word count: 2275
Debt is made when one party owes party money (Oxfam, 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 (Lomborg, 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 (IMF), the World Bank (WB) and other banking institutions (Millet & Toussaint, 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 (petro-dollars) made off increased oil prices developing countries were encouraged and some even coerced to borrow money from developed nations in the 1960’s and 1970s (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 (Jarman, 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). Unfortunately like everything else this spending spree did not last and came to a sudden halt in the 1980’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, paralysing everything (Jarman, 2006). This created the first international debt crisis of the neoliberal era (George, 1994). When Mexico announced their inability to make debt repayments in 1982, it shocked the financial community (Monbiot, 2004). The impact of the debt crisis affected the entire global market, causing interests to rise, commodity prices to fall, and income earnings to fall (Lomborg, 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 1970’s (George, 1994). Even though Mexico was the first to default on their debt repayments many other countries soon followed, leaving the financial institutions in a panic (Lomborg, 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 & Toussaint, 2004). This resulted in the implementation of the Highly Indebted Poor Countries Initiatives (HIPC), and the Multilateral Debt Relief Initiatives, under the supervision of the World Bank and the International Monetary fund (Oxfam, 2005). According to the IMF and the World Bank these organizations were the answer to the debt crisis (Oxfam, 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...
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