Limited infrastructure also hampers development prospects. For example when transportation and road systems are poor many people would not be able to gain education.
A next key barrier to growth and development is international financial barriers and one of the major problems to growth and development in developing countries is ‘Indebtedness’ in other words it is the amount of debt repayments the LEDC countries have to make on money that was borrowed in the past. In general many commercial banks do not lend money to most of the developing nations but somehow the banks have loaned large amounts of money to the developing nations and mainly this was caused by the 1973 oil crisis. In 1973, the OPEC countries steeply increased their oil prices (after failing negotiations with the ‘Seven Sisters’, and some diplomatic problems) which suddenly led to a huge increase in oil revenues. These revenues known as ‘Petro dollars’ were deposited in Western commercial banks and suddenly interest rates started to fall because of the large amount of the available funds. So in order for the banks to make profit for themselves, they lent the OPEC money to some developing nations. The developing nations started to borrow money from the Western banks but they had to pay their borrowed money in hard currencies such as USD, British Pound, YEN etc…
When the banks lent huge amounts of money to these developing nations they did not ask the nations what the money was going to be used for. The developing countries should have used the borrowed money wisely but unfortunately the money was used very little for development purposes. Some of the money went into large infrastructure projects that failed, some were spent on military, and large amounts went into the private bank accounts of dictators, generals and immoral politicians. In the early years the developing countries were able to keep up their payments but from 1979 (when the OPEC brought another huge increase in oil price) the countries started to feel the pressure (The rise of oil prices has resulted a lot of harsh consequences including a fall in the demand for commodities, so developing countries found it hard to repay their loan and interest.). In 1982 Mexico said that they could not pay back the loan and interest and later several other developing countries came to a similar result as Mexico. So basically when the nation cannot use the money wisely than it is obvious that the chance of seeing rapid growth and development is zero and also they would have an increase in debt every day until they return back their loan and interest.
DEBT OF DEVELOPING COUNTRIES2
By looking at the graph more than 50% of the total outstanding debt is accounted by Argentina, Brazil, and Indonesia but also countries like Venezuela and Nigeria got hit badly with the debt. In general if Venezuela would have had a different government than probably they would not exist in the list above, and they could be considered as a developed nation. The country tends to have lots of natural resources and they are known to be the 5th largest oil producer in the world but because of their dictator the country is facing debt crisis. Even though Brazil and Argentina are suffering the most in terms of total debt, other countries like Sudan and Sierra Leone are also suffering too (by looking at their total debt which is expressed as a ratio to GNI and to total exports.).
Poverty cycle is also another barrier that is important especially to development in poor countries. In those developing countries poor people can only have a little education and nearly non-existent of health-care. Also the inequality of income 3distribution is considerable in poverty cycle. Since there is a huge gap between the incomes of rich and poor in developing countries, it is hard for these nations to gain sustainable growth. To develop investment is very important and in order to invest it requires funding and funding requires savings. However most of the people from the developing nations have low amount of incomes and this means that they have low amounts of savings which results that investing is quite impossible and it leads to lower incomes. In order to have economic development, poverty cycle must be destroyed.
POVERTY CYCLE4
As there is low income it automatically leads low investment because with small amount of income it is impossible to have savings so therefore low real incomes means low investment.
One of the developing countries that is having a major effect on poverty cycle is China. By 2005 it was known that 85 million Chinese citizens (mainly living in the less developed rural areas) were illiterate. That is because they were not able to afford to go to school and today the situation is similar for some students who are from a poor family. Without knowledge it is quite impossible to have a better life in the future so what the Chinese economic specialists came up with is that the government should pay for everything for school including uniform fees, transportation fees, lunch fees etc… They believe that this plan (education) will break up the poverty cycle also such a move will help bridge the education gap giving equal access to all children.
In order for developing countries to gain economic growth and economic development their main focus should be strategies to reduce the barriers of growth and development. In general when the government focuses on the institutional barrier (‘Lack of infrastructure’) they should examine the developed countries first and then start planning for their country. Countries like Mali where they have a poor infrastructure should take South Korea as their model. South Korea was also a very poor nation during the 1960s but as they started get aid from the US (money) the government automatically spent it first on the infrastructure (motor way) and after they were all accomplished the nation was able to export products much faster. So in general rapid growth and development all happens depending on how much effort the government is putting. Poverty cycle and international financial barriers are also key barriers which the government has to reduce and as one of the articles had said before, the way to break the poverty cycle is to focus a lot on education (In China). For international financial barriers (Indebtedness) government should erase their selfish feelings on keeping the borrowed money for their wealth because later it can cause the country to suffer over debt (like Mexico and African nations.).
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2 World Bank, World Development Indicators, 2001.