Unit 13 - Essays - Debt SIMPLE ENGLISH UPDATED Flashcards
How far do you agree that trade can solve the problems of the international debt crisis?
Paragraph 1: How Trade Can Help Countries Pay Back Debt
Topic Sentence: Trade can help countries pay back their debt by earning money from exports.
Key Points to Include:
Explanation: When countries sell more products to other nations, they earn foreign money, which can be used to pay back what they owe.
Examples and Evidence:
Vietnam: Focused on selling goods to other countries and grew its economy by about 7% every year from 2016 to 2019. This helped keep its debt under control.
Bangladesh: The garment industry earns a lot of foreign money, helping the country pay its loans.
Analysis:
Unequal Benefits: Richer countries often make rules that make it hard for poorer countries to sell their goods. This means not all countries can benefit equally from trade.
Different Scales: Big countries with many different products to sell benefit more than small countries with only a few products.
Evaluation: Trade helps countries pay debt, but only if poorer countries can sell their products fairly.
Paragraph 2: How Trade Can Help with Currency and Inflation Problems
Topic Sentence: Selling a mix of products to other countries can help keep a country’s money and prices stable, making it easier to pay back loans.
Key Points to Include:
Explanation: When a country earns money from different types of exports, its currency is less likely to lose value. Stable money means debt payments cost less.
Examples and Evidence:
Chile: Sells both copper and farm products, which helped keep its money value steady and inflation (price rises) low at about 3% in 2018.
Angola: Depends mostly on oil sales. When oil prices dropped, its money became weaker, making it harder to pay back loans.
Analysis:
Different Types of Products: Countries that sell many types of products do better than those selling just one.
Size Differences: Bigger countries find it easier to handle money problems than smaller ones.
Evaluation: Trade can help with money and price problems, but only if countries sell different kinds of products.
Paragraph 3: Why Trade Alone Cannot Fix All Debt Problems
Topic Sentence: Trade cannot solve all debt problems because some are caused by things like corruption, unfair loans, and selling low-value products.
Key Points to Include:
Explanation: Even if a country sells more products, problems like corruption and bad loans can keep debt levels high.
Examples and Evidence:
Mozambique: Its debt reached 120% of GDP in 2021 despite trading more because of hidden loans and corruption.
Low-value Exports: Many poorer countries only sell raw materials like cotton or coffee, which earn less money compared to finished products.
Analysis:
Where Problems Happen: Poorer countries are more affected by corruption and bad loans than richer ones.
Big vs Small Countries: Big countries with many industries can cope better than small ones.
Evaluation: Trade alone cannot fix debt problems caused by corruption and unfair loans. Better governance and selling higher-value products are also needed.
Paragraph 4: Short-term vs Long-term Effects of Trade on Debt
Topic Sentence: Trade can cause problems in the short term but can help reduce debt in the long term if managed well.
Key Points to Include:
Explanation: At first, trade can increase debt if imports grow faster than exports. Over time, selling more valuable products can help reduce debt.
Examples and Evidence:
Kenya: When Kenya opened its markets in the 1990s, imports increased quickly, making debt problems worse in the short term.
South Korea: Focused on selling high-value products like electronics, which helped lower its debt-to-GDP ratio from 45% in the 1980s to 35% by 2000.
Analysis:
Time Differences: Trade can make debt worse at first but better in the long run.
Big vs Small Economies: Big countries can handle the short-term problems better than small ones.
Evaluation: Trade can help reduce debt, but countries need to plan for the short-term problems first.
Paragraph 5: How Trade Works Better with Debt Relief Programs
Topic Sentence: Trade can help solve debt problems more effectively if countries also get help like debt relief programs.
Key Points to Include:
Explanation: Debt relief programs reduce what countries owe, making it easier for them to invest in products to sell.
Examples and Evidence:
Uganda: Was part of a debt relief program that cut its debt by 90%, allowing it to focus on growing its exports.
Jamaica: Relied mostly on trade without debt relief, so its debt stayed above 120% of GDP until 2015.
Analysis:
Where it Works Best: Poorer countries benefit more from debt relief combined with trade.
Big vs Small Countries: Small countries find debt relief more helpful than big ones.
Evaluation: Trade alone isn’t enough. Debt relief programs make it easier for trade to help reduce debt.
Conclusion
Summary of Key Points:
Trade can help reduce debt by bringing in money and keeping the currency stable.
However, trade alone cannot fix problems caused by corruption, unfair rules, or low-value exports.
Debt relief and better governance are also needed to solve the debt crisis.
Judgement:
Trade can solve some parts of the debt problem but not everything. The best way to fix the debt crisis is to use trade together with debt relief and better rules for trade.
Evaluate the view that it is the lenders who are responsible for the international debt crisis.
Paragraph 1: Lenders Give Out Too Many Risky Loans
Point: Lenders give out loans too easily, even when it is clear that some countries cannot afford to pay them back.
Examples:
1970s oil money crisis: After 1973, oil-rich countries put their money in Western banks. These banks lent too much money to developing countries, without checking if they could pay it back.
Mexico (1980s debt crisis): Borrowed too much; debt grew from $57 billion (1978) to $80 billion (1982).
IMF & World Bank loans: They give loans but force governments to cut public services like healthcare and education.
Example: Zambia (1980–1995): Had to cut healthcare spending by 50% because of IMF rules.
Analysis:
Lenders should have been more careful before giving out loans.
Instead, they encouraged too much borrowing and then demanded repayment, making countries suffer.
Link to question: Lenders made bad decisions, making them responsible for the debt crisis.
Paragraph 2: High-Interest Rates and Unfair Loan Conditions
Point: Lenders charge high-interest rates and set unfair loan rules, which make it difficult for countries to escape debt.
Examples:
Interest rates that increase over time:
Latin America (1980s crisis): The U.S. increased interest rates, so loan repayments tripled in cost.
Brazil (1987): Had to spend 40% of its export money just to pay loan interest.
Poor countries pay more: LICs (Low-Income Countries) pay 10%+ interest, while rich countries pay less than 2%.
Example: Sub-Saharan Africa: Debt repayments take up a big part of government money, so they cannot spend on development.
Analysis:
Unfair interest rates keep poor countries in debt.
Lenders make more money when countries struggle to repay, which shows that they care more about profits than helping.
Link to question: Lenders make escaping debt almost impossible, meaning they are mostly to blame.
Paragraph 3: Debt Relief and Loan Restructuring – A Fake Solution?
Point: Lenders claim to help by giving more time for countries to repay loans, but this usually does not fix the problem.
Examples:
Debt restructuring delays payment but does not reduce debt.
Example: Argentina (2000s): Restructured loans many times, but in 2020 still owed $323 billion (90% of its economy’s value).
Debt relief comes with bad conditions.
Example: Ghana (HIPC program): Some debt was canceled, but Ghana had to remove subsidies (help for poor people), making food and fuel more expensive.
Analysis:
Lenders say they are helping, but they still control poor countries.
Instead of solving the problem, they just extend it, so countries stay in debt.
Link to question: Lenders pretend to help, but really, they keep countries weak and dependent on debt.
Paragraph 4: Borrowers’ Mistakes – Corruption & Mismanagement
Point: Some borrowing countries also cause debt crises by misusing money, borrowing too much, or bad financial planning.
Examples:
Bad planning – borrowing too much based on wrong assumptions.
Example: Venezuela: Borrowed too much, thinking oil prices would stay high. When prices dropped, they could not repay their $150 billion debt.
Corruption – money is stolen instead of being used properly.
Example: Nigeria: $400 billion stolen from oil money (1960–1999), leaving huge debt but little progress.
Example: Democratic Republic of Congo: Took huge loans under dictator Mobutu, but the money was stolen.
Analysis:
Some countries borrow irresponsibly and do not use loans wisely.
Corruption means money does not reach the people, making debt repayment even harder.
Link to question: Borrowers share some blame, but lenders still give loans to corrupt governments, so they are not innocent either.
Paragraph 5: Debt Crisis in Different Countries & Time Periods
Point: Debt crises happen for different reasons in different places and at different times.
Examples:
Latin America (1980s & 2000s): Debt mostly caused by bad loans from banks & high interest rates.
Sub-Saharan Africa: Debt crisis worsened by IMF conditions & reliance on foreign aid.
Asia (1997 Financial Crisis): Banks gave too many loans to private companies, causing a crisis when the economy slowed.
2008 Global Financial Crisis: Western banks sold risky loans to developing nations, making them suffer when the economy crashed.
Analysis:
Some crises are mostly lender-driven (e.g., Latin America, 1980s).
Some crises happen because of borrower mistakes (e.g., Venezuela).
Most crises happen because both lenders and borrowers make mistakes.
Link to question: Debt crises happen for different reasons, but lenders are often the ones who start the problem.
Conclusion
Lenders are mostly to blame because they encourage borrowing, charge high-interest rates, set unfair conditions, and fail to solve the problem properly.
Borrowing countries also make mistakes, like corruption and bad planning, but lenders allow these problems by giving risky loans anyway.
The biggest issue is that lenders profit from debt, so they do not actually want to help countries escape it.
If lenders were more responsible, many countries would not be in a debt crisis today.
