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Debt Relief in Tanzania

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Introduction

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. ...read more.

Middle

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 tended either to follow a path of Import Substitution industrialisation or the creation of an outward-looking economy so that foreign capital could be earned and spent. Because the former has sometimes collapsed through a lack of resources or expertise, and the latter has suffered from inelastic demand curves and sudden shifts in demand and supply with changing harvests and commodity price movements, countries have often been forced to borrow to adjust to another strategy. c) Arguments for the cancellation of debt hinge on the notion that HIPC's should be given a chance to develop. Backers of such a case see HIPC's as being essentially constrained by debt, not by a historical inability to develop by an innate sociological aversion to such a process. ...read more.

Conclusion

Arguments against the cancellation of debt focus on the notion that cancelling debt would send the wrong signal to HIPC's. Many African countries such as Tanzania have been given ample opportunity to develop. In 1960, Zaire and South Korea were in roughly the same situation. Both had economic support and backing, from Belgium and America respectively. However, in contrast to South Korea, Zaire has actually gone backwards in terms of per capita GDP. If debt were to be cancelled, then this would not lead to development. It would merely lead to more money being given back to the developing countries, who would borrow even more, safe in the knowledge that they can borrow as much as they like, without the need to repay it, and without the need to restructure the economy, society or government so that the money was used effectively. Not only would debt cancellation threaten the fundamental basis of loans, but it would also threaten the fabric of the international banking system, as many banks have large liabilities abroad. Charlie Delingpole Debt Relief Page 2 of 2 ...read more.

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