The Third World Debt Crisis – “the Fault of the Developing Countries or “irresponsible Lending” by the Western Financial Banking Institution?”

HITESH PATEL asked:


1. The defects of crisis and loan debt IntroductionThe were a constant feature of the global economy, the current scope of the problem of debt in the world overwhelm the imagination. It is clear that countries in the third world are inherently at a disadvantage. As major exporters, are at the mercy of price and demand fluctuations in international markets. These fluctuations are beyond the control of? of? of sellers and reflect the economic health of the customer industries in the total debt of the world West.The have risen by about $ 100 billion at the beginning of the 70 U.S. dollars to nearly one billion from A $ 900 mid-80s. Time magazine stated,? of? â in history has ever so many nations owed so much money with so little promise of? of? of repayment. This paper will explain? of? the origins of? of? â crisis the problem of debt and will review in detail the causes of the problem of debt and the question of whether the crisis of Third World debt was a debt crisis (ie the failure of developing countries) or credits (ie loan irresponsible by the bank) .2. The? of? the origins of? of? â problemThere of the debt crisis of many books and articles that provide detailed descriptions to the origins of the problem of debt. However in my opinion, the problem of global debt comes from two periods:? Â ¢ In particular, the forces dating outdoor mid-70s and the first? Â ¢ the oil shock of 1973-74) (Beginning of Reagan Administration2. (A). The in the mid 70s and the first period 1974-80 the shockThe price of oil, played a huge part of the debt crisis , which can summarized as follows: First, the countries oil-esportanti more important, (they can not use at national level the financial surpluses generated by large increases in oil prices), made huge deposits in various financial institutions. Second at the same time, a good number of middle and high income oil exporting nations (particularly those with a higher degree of industrialization) crucial to accelerate their pace of expansion of the economy, not supporting the increase in prices of oil. That policy has contrasted sharply with the situation? of? of the Stagflation? of? â prevailing in OECD countries. Thirdly, to carry out their policies of economic expansion, many countries developing countries have requested huge loans from commercial banks of the OECD (in the form of the Eurodollari), and thus can do the importation of large volumes of all kinds of goods, (apart from oil: in particular chemical products, foodstuffs and investment goods). Following this point, the bank of the OECD, with great liquidity and a weak household demand for funds started a wild competition to export capital to the more dynamic of the least developed countries (LDCs). This is a very critical moment, for that very moment, decisive for the LDC apply to private international banking system to obtain the money needed to realize their expansive economic policies. In conclusion, to decrease the risks of those operations, the bank paid International decisive change? of? â the terms and conditions of displacement? of? of loans from fixed interest which had prevailed until then, under floating rates. The nations have agreed to loan these changes in the influence of aggressive sales techniques used by the bank. This attractive offers that are included seemed to be to the benefit of the loan? s? the nation, not realize that suffer serious damage in the future. What what seemed the beginning appeared as pure technical innovation that has come to be a real, because all the increase in interest rate would be applied to the total outstanding debt.2. (B). The second part of the Reagan AdministrationThe began immediately after the Reagan administration in the USA (January 1981). During this period, the situation of A mid-70s has changed completely. In addition to an economic downturn in the world, inflation has become more intense in the United States and other industrial nations and interest rates have intensified. The economic recession in the central nations caused a decrease in prices of raw materials esportarici from third world countries. This was precisely the time when the financial burden due interest payments have become heavier, and when the flow of fresh capital to the developing world has begun to decline. This was the case in autumn 1982: Mexico was an oil exporter, (or was at least self-sufficient), declared that it could not repay its debt and the crisis in Mexico caused the undivided attention of industrial nations. The crisis became universal and was followed by 30 other Latin American countries in 1983 (including Brazil and Argentina). I Latin American countries had to compress their imports in order to continue to pay their debt service and for the first time, Latin America has turned into a? important? the net exporter of capital? of ? â. The ultimate issue in 1982 is derived primarily from the effects of global recession from 1980 to 1982, together with the mental aftershocks hostile to credit markets caused by events in individual countries. To a traditional economist: the? of ? â the problem is a consequence of the development from disinflation to inflation in the global economy. The funds that were borrowed when inflation was high and rates of real interest were low or negative, are no longer cheap in an environment of lower inflation and high? of .3? the rates of interest. The causes of the crisis of debt problemHaving that have examined the development of debt during the 70s and examining the circumstances that led to the crisis Latin countries (Mexico in particular) during the beginning of the 80, the following question to be answered is? of? â why did the debt grow so fast in the 70? 3rd (A) ? â The increase in pricesOne of the most important cause of development of debt was the increase in oil prices in 1973-4 and 1979-80. only some of the debtor countries, as Mexico 's Indonesia, Venezuela and Ecuador, have been benefiting from the price of oil. The table below shows the difference between what was paid for oil and what would have been paid for oil, its price had not increased more than the rate Inflation in the United States. The effect of oil prices on the debt countries1973-1982 (billions of U.S. dollars) for the development of oil does not AB A-B1973 4.8 4.8 0.01974 16.1 5.3 10.81975 17.3 5.7 11.61976 21.3 6.8 14.51977 23.8 7.5 16.31978 26.0 8.6 17.41979 39.0 10.9 28.11980 63.2 11.9 51.31981 66.7 12.1 54.61982 66.7 11.9 54.8TOTAL 344.9 85.5 the actual cost of 259.5A = = OILB cost of oil if its price had not increased beyond the additional cost Rateče = inflation in the United States cost rising oilThe additional oil during the decade was $ 260 billion. This massive transfer of resources from third world countries could not happen without massive borrowing equally from banks.3 West. (B) The commercial banks western Western BanksThe also should take some of the blame and were only too happy to lend to sovereign states of which the export performance seemed promising. This loan was more beneficial loan in the first world markets developed. The Third World was regarded as a development zone for the new loan from the West Bank. The almost unlimited availability of bank loans has persauso often a process of de-industrialization. Debt principal payments plus interest increased, that (if the loans are not invested properly), has led to further borrowing. Through these changes, many Third World countries have become more vulnerable to developments in the global economy. If this debate is concerned, then the western commercial banks themselves are responsible for five reasons: (i). The bank found that countries could not fail and that no real insolvency crisis might occur. (ii). Many of the loans were held with trade unions and many of the banks participating bank need not have warned of their own? of? assessments of risk? of? â. (iii). The competition for part of the market has changed a lot in the bank? virtual? loan-pushers of? of? â. The two main players that are the Bank of City (U.S.) and Natwest Bank (UK). (iv). The loan to a variable interest rates has allowed the bank transfer the risk associated with inflation borrowers. (v). The absence of effective bodies in the international financial market has made it easier for the bank to follow their own interests and instincts in their short-term loan policy and ignore the medium and long term for their actions. It must be remembered that in the financial market of money loan, loans are part of a huge commercial market, where the bank battle for a share of the market. This is capitalism in practice socially constructed. The intention of lending money to third world was? of? of concept? of? â a new, in which the bank relied on a handful of? of? of â? simple? indicators of solvency, which was not useful in predicting the likelihood of crisis. Some banks even have begun to push their customers to accept higher loans, by offering more money to customers who had asked for and facilitating their accreditation status. Another point to note is that, the bank also needed to buy time to strengthen their capital base. The banks have begun to accept the rolling over of debts, the postponement of repayments of debt and the provision of new money. As agreed to delay the repayment of loans, the bank has the opposite the entire reduction of the loan. This was the structural weakness of the financial system. Once committed, it was virtually impossible for the bank withdrawals market.3. (C) Oil prices higher rates and RecessionIf interest have set the stage for heavy debt for many countries over 70 years, the global recession and high interest rates of 1980-82 added to the indiscreetly enough difficulty. I borrowers have been accustomed to real interest rates low in the years 70, meaning it had borrowed in such circumstances. In 1979-80, the nominal interest rates were high, (the? of? â interbank offered rate for London? of? of â LIBOR has been on average 13.2%). Approximately two thirds of the national debt of development are moved incrementally to LIBOR. However, by 1981-82, inflation has fallen sharply, but nominal interest