The International Debt Crisis Flashcards
When did it occur?
In the 1970s and 80s
What, briefly, is the cause?
Large commercial banks from the US, Europe and Japan, along with their governments and international agencies, made substantial international loans to LIC governments such as Mexico.
What are the reasons for the increase in loans?
- Quadrupling of oil prices in early 1970s, making oil rich countries wealthy and wanting to invest via loans.
- Willingness of LICs to borrow, soemtimes due to corruption.
- High yield on loans.
Give a stat on how much money was owed by LICs during the crisis.
By 1982, LICs owed over $500 billion.
Give a timeline of the international debt crisis.
1) Initially, interest rates were low, encouraging LICs to borrow.
2) By 1980, interest rates were twice what they were, and the dollar was deprecating.
3) This caused a worldwide recession, causing commodity markets and prices to collapse, further meaning LICs couldn’t pay back loans.
4) Many LICs couldn’t pay their debts, forcing loaners to reschedule the loans, stretching out the payment periods and lowering interest rates, however these included austerity measures.
What were some main problems with the international debt crisis?
- Lots of loans were spent on political priorities, not benefiting locals.
- Corruption of governments pocketing money eg DR Congo leader in late 1900s. Mobutu stole 4 million $ +.
- Austerity measures meant many LICs were spending 50% of income on servicing debts, not good for country in long run.
- Due to high debt, many LICs couldn’t borrow further money, so could not invest in roads, ports, schools and clinics.
Give an example of an LICs debt before the HIPCs initiative.
Mozambique, over 200%.
What does Oxfam state a large issue with international debt is?
Takes resources away, meant health centres haven’t had drugs and trained staff, and schools without teaching equipment. Aid from other countries going towards debt than benefiting people in the country.
