Debt

23 January 2019

Many developing countries are faced with staggering, and often unpayable levels of national debt. This can have detrimental effects on their economic growth, and ability to provide much needed infrastructure and services for their populations. This debt is usually owed to developed countries, or multilateral lending institutions such as the International Monetary Fund (IMF), and the World Bank.

The current levels of debt for developing countries are, for the most part, rooted in decades of economic crises and mismanagement of domestic fiscal governance, often due to corruption or arms sales. The oil shocks in the 1970s played a massive role in causing a debt crisis for developing countries in the 1980s. As members of the Organisation of the Petroleum Exporting Countries (OPEC) raised the price of oil, oil-importing countries including newly independent African states began to borrow more from international lending institutions. The IMF and World Bank used controversial structural adjustment measures as conditions to their loans, attempting to increase the productivity of the economies. However, there was very little economic growth under these structural adjustment conditions, and many countries still struggled to service their debt, while also having to cut back on spending in health, education, and alleviating poverty.

The debt crisis was sustained into the 1990s, and it became apparent that the debt crisis was a long-term problem for the developing world. In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched by the IMF and World Bank, after much lobbying by NGOs, and this was a programme for providing debt relief and low-interest loans to the worst effected countries of the debt crisis. The HIPC initiative still faced criticism for linking loans to structural reforms, and for their definition of debt sustainability.

Many NGOs and activists have called for large-scale debt cancellation for developing countries as an alternative to the failed structural adjustment policies and strict conditionality on loan repayment.

 

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