Debt is to borrow money to meet a specific need. The debtor later repay the sum received with interests or not. At the international level is much more complex than that.
A_ absolute terms
In 1980 the Third World debt was 533 billion U.S. $
In 1985 it amounted to 1010 billion U.S. $
μ Origin of the debt
o current account imbalance
o inflation and oil shock in 1970
o global recession
• The trap
The temptation was strong to go into debt because of low interest rates.
The increase in transfer payments, export and other capital movements was not sufficient to cover the balance of payments deficits.
μ Nature of Debt
In 1989, the debt amounted to 1280 billion U.S. dollars. The main creditors are commercial banks (63%), state agencies multilateral _like the Canadian Agency for International Development _ (16%), industrial companies (eg ALCAN) (10%), the World Bank and its branches ( 7%) and the International Monetary Fund (4%)
Terms related B_
• 1 / 8 of the GNP of the 24 OECD member countries (8000 U.S. $ billion)
• ½ public debts of the United States in 1986
• 1 / 3 of the annual turnover of 200 largest multinationals in the world
Viewed in this light, the third world debt _1000 billion US_ is relatively small, even derisory
C_ Why so much noise from the IMF and international opinion?
The IMF is a scapegoat. Public opinion accused him of being responsible for the evils of the Third World countries. Yet it holds only 4% of their claims_ the lowest percentage. Indeed, the IMF lends short-term and is repaid in principal and interest with strong conditionality.
In fact, the IMF plays the role among others _ of a collection agency, or a policeman serving the real owners of financial authority. The IMF uses its own means its States members share _ to protect banks against country risk and implement repayment plans. "The IMF is therefore also to channel public funds towards private banks" Susan George.
o rescheduling (usually the payment period is extended to 1 year)
o Refinancing (= rolling over): granting a new loan that repays the former.
o Cessation of payment (not recommended)
• in economic policy
o Structural Adjustment
o privatization of public enterprises for efficiency
o fight against corruption and capital flight
o opening markets to products from Third World (Real aid is Trade)
In conclusion, solving the problem of Third World debt requires cooperation between private lenders and debtor countries to increase the economic value of outstanding loans by linking debt to democracy and development.