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The Debt Crisis

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The Debt Crisis The debt crisis of the 1980s and 1990s has been one of the largest economic disasters of the 20th Century. It has caused widespread poverty, famine and starvation across many of the third world countries it has touched. The Crisis did not go by unnoticed however. Since the mid 1990s world governments have awoken to the horrible reality that such debt causes with attempts to lighten the devastating affects with such programs as the Brady plan, HIPC and eventually HIPC 2. While these plans have had only limited success the question of weather the debt crisis can be solved in the long run is still to be answered. The debt crisis as it is now called did not occur in one single event; instead it developed as a slow moving "chronic syndrome"1. The primary crisis, which occurred in Mexico in 1982, was centred on middle-income nations2, while the second strain occurred in poorer African nations, with the effects from it still being well and truly felt today3. ...read more.


With the threatened default by Mexico the world, especially the western world where most of the debt was owed to, decided the problem could not go on. If a country with a debt as large as Mexico defaulted the reserves of Capital in many of the worlds principal banks would be absorbed in one fowl swoop. Something had to be done to curb this impending economic catastrophe. The late 80's saw the introduction of the Brady plan. The plan called for a series of debt rescheduling and recognised that all debt should be paid back9. The plan heralded limited success. It was not until the mid to late 90's however that major moves were taken to rectify the debt problem. 1996 the World Bank and IMF under pressure from many aid agencies and religious groups launched the Heavily Indebted Poor Country Initiative, or HIPC10. Under the radical new plan suddenly World Bank and IMF debts no longer had to be paid off first, and it was no longer expected that the entire amount had to be paid back, rather a percentage11. ...read more.


Success of HIPC and the debt cancellation plans of the 90's are indeed difficult to judge. If success were to be measured by how much has been paid out from the forecasted amount then HIPC could be viewed as a failure. However if success were judged on the increase of social service spending then yes HIPC would be seen as a successful initiative. The one clear success of the debt cancellation plans has been public awareness. Though the cancellation process is moving slowly and only achieving a fraction of its goals18 the general public of the world has now awoken to the horrors that debt can lead to. With public support behind the debt cancellation process the debt crisis will eventually be overcome. 1 La Trobe, Assignment Manual, p.130 2 Ibid 3 Ibid, pp.130, 131 4 Ibid, p.133 5 Ibid, p.131 6 Ibid 7 Ibid, p.137 8 Ibid 9 lecture 10 Ibid, p.144, 145 11 Ibid 12 Ibid 13 Ibid, p.149 14 Ibid, p.152 15 Ibid, p.156 16 Ibid 17 Ibid 18 Ibid, pp. 150-153 ...read more.

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