If we could sort out the issue of debt, we could get on with development. Discuss this view of the crisis facing the world’s poorest countries.

Third world countries are in billions of pounds of debt, and spend more repaying this, than on important services like healthcare. African nations spend approximately $13.5 billion per year repaying debts – more than double the amount they spend on healthcare, and roughly equal to the amount needed to combat AIDS/HIV each year. They are never going to be able to pay off their debts, especially with the rising interest – therefore it will be extremely hard for the countries to develop any further.

The key areas I will look at in this piece of coursework are:

Development – What is it? How is it measured? Why are some countries less developed than others?
Debt – How did the crisis start? Other reasons why countries are poor.
Dropping the debt – “Jubilee 2000” and “Drop the Debt” schemes. Why it would help development to drop the debt. What problems dropping the debt would cause.
My opinion – Do I think the debts should be dropped? Why/why not? Would it help the countries to get on with development if the debts were dropped?

The world’s poorest countries are identified by having a GDP (Gross Domestic Product) of less than US $2000 per person per year. Countries included are Angola, Ethiopia, Zambia, Nicaragua and around 50 others. Development can be measured economically or socially. The economic measure would be the countries’ GDPs – the total of a country’s output per year, GNP – the value of all the production in the country (GDP) plus the net income from abroad, and other things like the number of telephones per 1000 people. The social measures include the number of people per doctor, life expectation, percentage of children enrolled in school, etc. The Human Development Index (HDI) was introduced to measure the development for each country as a whole, and not just economically. Three key indicators used are Life Expectancy, Education and Standard of Living. The index averages these data for each country, and combines them into a single figure – the HDI – whose maximum possible value is 1. Using the HDI in 1995, Canada came first with a HDI of 0.96, and Sierra Leone came last with 0.185. Purchasing Power Parity $ (PPP$), (sometimes referred to as “real” GDP per person), is another measure of development. It assesses the value of a currency in its own country. It uses exchange rates which have been adjusted to give accurate comparisons of purchasing power (the real value of a given sum of money in terms of what it will buy).

The table below shows the Quality of Life Indicators from the late 1990s, comparing the UK with Malawi, an LEDC (Less Economically Developed Country) in Africa, including human development indicators and PPP$.

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The debt problem began in the 1960s, when the US government spent more money than it earned. More dollars were printed, so it then fell in value, and as oil was priced in dollars, oil producing countries earned less. In 1973/4 oil prices quadrupled and huge profits were made, which were deposited in Western Banks. Interest rates plummeted, and the banks were faced with an international financial crisis. The banks then decided that they would lend money, to try and solve this crisis, without thinking how it would be used or paid back. Third World Governments took advantage of loans at low interest rates. When Western economies recovered from the crisis, oil prices and interest rates rose. As a result, Third World countries earned less than ever for their exports of coffee, tea, sugar, copper, etc. Coffee fell from 3,000 pounds per ton in 1976 to 600 pounds per ton in 1986. They were also paying more than ever on their loans. The International Monetary Fund and the World Bank then stepped in with new loans to help pay the interest, however, this action has increased the debt burden of some of the poorest countries in the world, essentially making them bankrupt.

Apart from being in debt, these countries are also being prevented from developing, as many of them have a lack of infrastructure – such as weak communication links and poor telecommunications. Issues to do with the population also prevents development and keeping the countries poor, as only a small amount of people are of working age (see population age-sex diagram – Fig.6). Other reasons are to do with health issues in LEDCs – the AIDS epidemic kills 5,500 people each day in Africa – half of them being children. LEDCs also tend to get more natural disasters than MEDCs -–which cost a great amount to manage, so they have to get further loans out.

Dropping the Third World debts would give these poor countries a second chance, and free up money for them to be able to get on with improving essential services, such as health care and education. Although many countries give international aid, they do not tackle the issues that would solve the worldwide problem of debt once and for all. Schemes like “Jubilee 2000” and “Drop the Debt” are trying to do this, by asking for cancellation of unpayable debt of the poorest countries. They have so far been successful, getting rich nations to cancel some debt and promise to write off the rest completely – they now just need to act upon these promises.

A firm of accountants in Washington revealed that the International Monetary Fund and the World Bank can afford to cancel 100% of the debts they are owed by the poorest countries, and still have enough money to carry out their usual tasks. However, doing this is not that simple. MEDCs’ companies and governments would loose money, causing major global economic damage, similar to the Wall Street Crash. It can be looked at, to see which MEDCs have got a very strong economy – these countries can cancel the debts that they are owed, and those MEDCs with a not so strong economy can afford to drop the interest on the debts that they are owed, which would also be a great help, as for every 1 pound the Third World borrows, it has to pay back 3 pounds in debt.

I believe that Third World debt should definitely be abolished as the future of the whole planet depends on the economic success of every country. Until the crisis is sorted out, technological, scientific and social development cannot take place. The development of cures for disease and availability for cures for diseases are not available to Third World countries as they are in debt. When Third World debt has been cleared the world can develop a global community and advances can take place. Basic needs, although essential, can be met, for example, giving access to clean water to everyone, educating the population, and more money can be spent on healthcare to help stop the problem of AIDS. More complicated needs can also be met, for example, wars can be stopped, disease can be halted and explorations of the planet and humans can go forward without any problems.

I also believe that some money should be given to those countries which are also very poor who do not have debts – as this is unfair if these countries have borrowed wisely, but only the countries in debt are getting help. It would give all the Third World countries a second chance. Development will never be able to take place, unless all the countries of the developed world think of others by abolishing all debt.