Case study: debt Flashcards
Intro
Organisations like the IMF and World Bank give out SAPs (Structural Adjustment Packages) or loans to LEDCs to invest in education, infrastructure, enterprise, healthcare. However the repayment is often much larger than the initial loan and means LEDCs are bogged down in development due to the very loans intended to encourage it. 21 million children will die per annum due to the efforts to repay debts.
What causes debt?
Interest rates: LEDCs took out loans from the World Bank, IMF and MEDCs in the 1960s, only to have the oil shock of 1973 and increasing inflation rates met with increased interest rates. This means the burden of debt LEDCs suddenly had were astronomical. Trade problems: primary goods cost less and less but manufactured goods cost more and more. This leaves LEDCs with a growing trade deficit, which they make up for by borrowing. Spending: in some cases loans are invested poorly in enterprises which there are little workers available to work in to make them operational.
What are the impacts?
The poorest 49 countries have debt aggregate to $375 billion, with the worlds poorest countries paying $23 billion daily to the developed world. Countries across Africa spend 4 times as much on debt repayment as they do on healthcare.For example Bangladesh owed £10 billion in 2004 and could only afford to repay £500 million (as much as healthcare). As a result 21% of citizens are expected to die before age 40.In Jamaica 46/100 spent by the government is spent on debt repayment; health and education expenditure fell.
What are the solutions
Heaven Indebted Poor Countries scheme is a debt reduction scheme set up in 1996: 33 sub-Saharan Africa countries have been partially or fully relieved Debt cancellation: some NGOs campaign to cancel debt repayments like the Jubilee Debt Campaign.
