Debt Relief in Tanzania

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Charlie Delingpole        Debt Relief        Page  of

Debt Relief in Tanzania

a)        The economic concept of opportunity cost in Tanzania is relevant because it essentially underlines what is being lost because the country is servicing its debts.

Opportunity cost is an economic concept that states that for every resource (except free goods) that is allocated there is an opportunity cost, or in non-economic terms, something, somewhere or somebody loses out because the resources were not allocated elsewhere. The opportunity cost of a country consuming consumer goods is often investment in capital goods. In Tanzania’s case, as an economically developing country, the opportunity cost is evidently basic investment in social infrastructure. Education, Health Care, Infrastructure and other such vital things receive very little money because the money that would have been spent on them has to be spent on servicing foreign debt.

b)        Countries such as Tanzania have serious debt problems because of their attempts to develop economically. In order to gain a better quality of life, western technology is imported. Capital, Labour and Entrepreneurship are imported from the west to improve healthcare, education, infrastructure, and to develop foreign subsidiaries of western companies. This costs money, which countries such as Tanzania have very little of. Thus, they need to borrow money from Western Governments. The initial infrastructure and level of production is often low in such societies. There is often a long time lag between the initial rush for development and the break-even point, where the government can begin to pay off the debt that it has run up. To turn a country around without having the economy of the country being foreign owned is difficult, and in some cases preferable to allowing western corporations to enter and take-over the entire private economy. Thus, governments prefer to use public / private capital rather than allow the actual corporations to create their subsidiaries.

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        The rate of interest on debts is often high because of the risk associated with countries such as Tanzania, which are politically unstable. In order to compensate for the possibility of a Mugabe / Nasser type dictator seizing foreign assets, or an Islamic anti-Western government threatening the interests of the western / government corporation, higher interest rates must be charged. This effectively culminates in a vicious cycle. Because debts are so high, there is little money to be spent on developmental infrastructure, so that debts continue to grow, and more interest needs to be paid.

        Many developing countries have ...

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