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. For these countries the need for industrialisation meant the need for large-scale borrowing. Since many of the African nations were excluded from being aloud to borrow until the early 1960s, the need to borrow a lot, quickly, was a common trend throughout the developing nations4. The reasons for the colossal amounts of debt cannot be simply explained for they vary from country to country. Some nations had corrupt militaristic governments who cared more for themselves than for their people5. While others struggled with failed projects and damaging economic decisions6.
By the early 70's the debt had begun to accumulate. The impoverished and debt stricken countries began to shift commodities meant for the sustenance of the people to the export sector to try and make enough money to pay off their debts. Suddenly all the indebted countries were simultaneously selling their primary commodities on the world market. The flow of coffee, coca, copper, steel, ect, had the devastating effect of lowering the commodity prices causing the developing nations to make much less than they had previously. Countries now had to sell two or three times what the used ...
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By the early 70's the debt had begun to accumulate. The impoverished and debt stricken countries began to shift commodities meant for the sustenance of the people to the export sector to try and make enough money to pay off their debts. Suddenly all the indebted countries were simultaneously selling their primary commodities on the world market. The flow of coffee, coca, copper, steel, ect, had the devastating effect of lowering the commodity prices causing the developing nations to make much less than they had previously. Countries now had to sell two or three times what the used too to make the same money7. Combined with the rising and falling of the dollar, and the rises of interest rates in the 80s, the third world debt was now even larger than before with no end in sight8.
982 as I mentioned earlier was the year the world suddenly began to wake up to this horrible crisis. 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. The key to the plan was sustainability of the indebted nation. The plan did not go far enough though12.
Jubilee 2000 exploded onto the world scene during the G-8 summit meetings in 1998. The 80,000 strong protesters gave a voice to the debt problem and reminded world leaders that the public would not stand for it. By the time of the next G-8 meeting in Cologne new debt write off schemes had been thought up. Cologne promised $100bn in debt cancellation, through the traditional way of debt cancellation, HIPC, and HIPC 213.
Have the optimistic plans been successful? From the final $111bn Cologne promised only $36.3bn was reached14, and much of this debt cancellation had already been forecasted before the summit. From these statistics we can say that the cancellation plans had only a minor success, and indeed need more initiatives to have a true impact on debt stocks. Debt service payments are another way of determining the success of the debt cancellation plans. In most of the Countries receiving debt cancellation, before the introduction of HIPC 2 and the proposals at Cologne debt service out weighed social service spending15. 1998, the average debt service spent by 10 HIPC was $979m, with only $1395m been spent on education and health16. By 2002 debt service had fallen to $620m, with $2102m being spent on the same social services17. These statistics show that HIPC is having some successes. By spending more on social services and less on debt hopefully poverty will decline and if these figures continue in the long run many of HIPC goals will be achieved.
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.
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
0 Ibid, p.144, 145
1 Ibid
2 Ibid
3 Ibid, p.149
4 Ibid, p.152
5 Ibid, p.156
6 Ibid
7 Ibid
8 Ibid, pp. 150-153