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This investigation will try to test the level of external debt and measure its impact upon the least economicly developed countries economy.

Extracts from this document...

Introduction

INTRODUCTION 1.1 The increasing burden of external debt in the least economic developed countries has been a widely discussed topic in the international community. However, some concepts are shared by most of the economists, being this a reality in third world country economies. Without a doubt, the increasing flow of external resources from rich countries to poor countries, has contributed, in some cases, to impulse economic development and accelerate economic growth. However, it is also evident that an increase in the amount of external debt and the hardening of its financial conditions has resulted in a net outflow of payments, mainly capital plus interest, which has slowed down economic development. The logical consequence has been an increase in the external debt; a problem that has worsened since these additional resources have not been used in social projects whereas in the long run, the benefits are higher than the costs (interest rate). Twenty two years later, Ecuador is still unable to adequately develop its economy, thus making it necessary to question whether its situation is caused by the high stock of external debt. With this said, does Ecuador's External hinder economic development? 1.2 On the other hand, an international market of capitals developed rapidly, represented among others by private banks, whose funds have been added to the already existing funding. Access to these funds was relatively easy for developing countries. However, these type of creditors were not interested in the use of these resources for social projects, but only expected the repayment of their debt and high yields in the short term. In October 1982, a balance of payments crisis forced Ecuador, into a suspension of debt service, mainly capital installments, while interest payments were kept current. Thus it joined other countries which had earlier set off what we now regard as a global debt crisis. From its earliest stages, Ecuador met its debt crisis by traditional refinancing arrangements - initially on an annual basis and by 1984 on a multi annual scheme - designed to buy time until normal debt service could eventually be resumed. ...read more.

Middle

GLOBAL ANALYSIS FROM 1990-2004 Stock of External Debt Although there has been a well-known progress in the handling of the external debt, some problems persist. No matter how hard the country re-negotiated the payment of its debt in 2000, the coefficient of the national debt continued to be high: a 67.39 percent of the Gross Internal Product in the 2001, and the service of the debt continued weighing in the public finances substantially. The external debt reached 13.185 million dollars in 1998 and diminished to 11.229 million dollars in 2000. The fall obeys to the re-negotiation mentioned and the diminution in 1.957million dollars of the external debt deprived by the closing of external lines of credit during the crisis. The internal national debt has stayed slightly inferior at the levels reached in 1999 that were of 3,023 million. The most significant amount of internal debt corresponds to the AGD3 funds that represent the 43 percent of the internal national debt. All of the figures mentioned above can be resumed in the following table STOCK OF THE INTERNAL AND EXTERNAL PUBLIC DEBT AND ITS RELATION WITH THE GROSS INTERNAL PRODUCT YEARS : 1990 - 2004 (APRIL) Numbers in porcentajes and U.S million dollars Year Stock of External Debt % Stock of Internal Debt % TOTAL % Gross Internal Product 1990 12.052 114,03 273 2,58 12.325 116,61 10.569 1991 12.629 109,58 240 2,08 12.869 111,66 11.525 1992 12.537 100,86 845 6,80 13.382 107,66 12.430 1993 13.025 86,51 1.213 8,06 14.238 94,56 15.057 1994 13.758 74,08 1.218 6,56 14.976 80,63 18.573 1995 12.379 61,30 1.252 6,20 13.631 67,50 20.196 1996 12.628 59,38 1.471 6,92 14.099 66,29 21.268 1997 12.579 53,22 1.322 5,59 13.901 58,81 23.636 1998 13.185 56,70 2.456 10,56 15.641 67,26 23.255 1999 13.760 82,52 3.023 18,13 16.783 100,65 16.674 2000 11.229 70,47 2.824 17,72 14.053 88,20 15.934 2001 11.367 54,07 2.801 13,32 14.168 67,39 21.024 2002 11.377 46,80 2.771 11,40 14.148 58,20 24.311 2003 11.491 42,81 3.016 11,24 14.507 54,04 26.844 2004 (april) ...read more.

Conclusion

alarming if it is taken into account that this index, for service of the debt in the public sector, will be, of 20% in 1998. It is evident that the existing legislation in Ecuador, on the administration of the indebtedness, has been a very important factor in the decisions that have been adopted in matter of policy of external financing, although the cases have not been few in which the government has made decisions from economic order moving away of the effective legal procedures, reason why the control problem of the Ecuadorian outer debt is deduced, as a lack of exact fulfillment of the law. The policy of the external indebtedness, from the economic and legal point of view, has had faults as much in its application as in its fulfillment, cause of which the external resources entered the country to finance their way, they do not have an optimal use, specific and productive, and on the contrary they have meant at certain moment a serious limiting economic growth for the country. Therefore we can firmly say: that the external debt has had an impact In Ecuador's Economic development. "Under these mentioned circumstances, the public sector confronts at the moment, serious financial problems that are not surpassing itself could occasional paralyze the initiated programs in the different levels from government and the breach of which in this Plan they are defined as high-priority for the national development"45 1 2 The dolarizaci�n is a measurement by means of which the sucre was replaced by the dollar like value reserve, unit of account and like means of payment and change. 3 AGD is an entity that was created to guaranty the deposits of the people that had money in banks. The AGD fun is a deposit insurance company, which insured deposits of people in these banks. 4 Plan Nacional de Desarrollos 1980-1984. Second part, Tome I, Chpt II Pol�tica y Programaci�n del Sector P�blico, page. 82 5 Alberto Acosta, " La Deuda Externa Ecuatoriana" 21 1 ...read more.

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