Third-world Debt

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In 1957, Ghana, a promising and growing African country, had a higher gross national product than the East Asian country of South Korea.  Presently, however, South Korea is an industrial powerhouse- one of the ‘four dragons’ of Southeast Asia, while Ghana’s development is on a landslide- its gross national product is lower than it was at independence.  This sort of economic development discrepancy between Asia and Africa is unfortunately a common theme, even though the two continents became independent at roughly the same time.  Asia continues to gain steam and grow economically, while Africa remains stagnant, continually battling severe poverty and atrocious living conditions.  The horrendous economy in Africa is mainly due to impractical and illogical economic policies, government ideologies and corruption, and the legacy of colonialism.  Conversely, East Asia, although suffering from similar problems, has managed to develop various strategies that have been enormously successful in improving their economic state.

Debt control and regulation is essential in encouraging economic confidence and growth.  With high debt, the government and individuals devote their funds to merely paying interest expenses, compromising growth.  This is the case in Africa, where dictatorial governments have been ignorant to debt maintenance, resulting in a rapid escalation in debt levels.  African countries have thus been unable to invest in their economies, and are now forced to give up large amounts of funds to reducing their debt.  However, East Asia has avoided heavy external debt through successful debt control and management policies.  As a result, the extensive burden of a large debt is not of major concern to East Asian countries, allowing them to focus on economic development.  Furthermore, in terms of economics, Asia has managed to diversify its economic sectors, not relying on a single commodity or raw material.  For example, the oil rich country of Indonesia used its significant profits from the oil boom in the 1970’s to actually invest in other industries so it would not be susceptible to price shocks in oil.  The African country of Nigeria, also rich in oil, used its profits to borrow heavily, increasing their debt and oil dependency.  Nigeria’s economy is reliant on oil for 95 percent of its export earnings and 80 percent of its budget receipts.  Therefore, a price shock in oil has devastating effects on Nigeria, while Indonesia is able to reduce and possibly avoid these ramifications.  Impractical debt management and the dependency on single sectors are major reasons why Africa lags well behind Asia in economic development.

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The African-style of governing and continuing problems with corruption also greatly hinder growth.  After gaining independence, a number of African countries like Zambia and Tanzania, firmly believed in socialism, an ideology that was rather popular throughout Europe during this time.  As a result, the government owned most businesses enterprises, and there was distrust in foreign investment and the private sector.  Even in initially capitalist countries like Kenya, the government began to eventually control economic operations.  This had significant consequences to development because sole government ownership of an economy has historically been proven to be very difficult to institute and ...

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