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Culture Documents
Many developing countries have very large debts, and the amount of money they ow
e is quickly increasing. Trying to pay off the debt (debt service) has become a
serious problem for these countries, and it causes great hardship for their peop
le.
Take the region of Sub-Saharan Africa, for example. This region pays $10 billion
every year in debt service. That is about 4 times as much money as the countrie
s in the region spend on health care and education.
DEBT SERVICE: The amount of borrowed money and interest that you must regularly
pay.
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How did the Debt Crisis start?
At the end of the '70's, many oil-exporting countries had large amounts of extra
money. They put this money into Western banks. The banks then loaned a lot of m
oney to Third World countries for big development projects. However, several fac
tors (a rise in world interest rates, a global recession, and low commodity pric
es) caused the size of these debts to start growing very fast; several countries
began to fall behind in their payments.
The amount of money owed by developing countries has increased dramatically sinc
e the early 1980's. These countries now owe money to commercial banks and also t
o organisations like the World Bank, the International Monetary Fund, and to Fir
st World governments.
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GLOBAL: Worldwide
A RECESSION is a time when there is much less business than usual.
A COMMODITY is a product of farming, forestry, or mining that is bought and sold
.
DRAMATICALLY: very greatly.
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Why does the debt keep growing?
It is especially difficult for developing countries to repay loans:
â ¢Loans must almost always be paid in hard currency.
Most loans to the Third World have to be repaid in hard currencies.
Hard currencies are stable currencies; that means their value does not change ve
ry much. The Japanese yen, the American dollar and the Swiss franc are examples
of hard currencies.
Developing countries have soft currencies - they go down in value. Therefore, wh
en the value of a developing country's money goes down (as it often does), the c
ost of its debt rises. It takes more of the country's own currency to pay back t
he same amount of hard currency.
A HARD CURRENCY has a very stable value. It doesn't change very much as time pa
sses. A SOFT CURRENCY goes down in value.
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What can be done?
Reschedule the debts:
This is when the terms of repaying the loan are changed and more time is allowed
to repay the loan.
To CANCEL a debt is to say that the debt does not need to be paid.
From 1983-1989 a surplus of $165 billion went FROM countries receiving aid TO th
e countries who were 'giving' it. Again in 1994, the less developed countries pa
id out $112 billion more than they received.
Of course, cancelling Third World debts now will not solve the problem in the fu
ture. To do that, we must change the present financial system, which is based on
debt and interest payments; a system that keeps control in the hands of those w
ho are rich and powerful.