The causes and consequences of the global debt crisis is one which should be a source of worry for most people. However most of us are either oblivious or unaware of it, although it has now reached massive proportions.
Debts to Third World Countries grew dramatically during the seventies. At that time it was felt that these countries were about to go through a period of rapid growth, and banks were very interested in getting in on the ground floor and lend money to these developing countries. A prominent banker of the era proudly pronounced that lending to governments is safe banking because sovereign nations do not default on their debts. He was later proved to be seriously wrong on his estimation
Twenty years later the world’s poor and developing countries owed more than $1.3 trillion to industrialized countries. By 1997 it had grown to $2.3 trillion, and estimates are that by end of 3007, it will have reached $3.3 trillion.
Of the total developing-country debt, roughly half is owed to private creditors, mainly commercial banks.
The rest consists of obligations to international lending organizations such as the International Monetary Fund (IMF) and the World Bank, and to governments and government agencies—export-import banks, for example. Of the private bank debt, the bulk has been incurred by middle-income countries, especially in Latin America. The world’s poorest countries, mostly in Africa and South Asia, were never able to borrow substantial sums from the private sector and most of their debts are to the IMF, World Bank, and other governments.
The debate that has been raging since it became obvious that most of these countries, and especially the poorer ones are experiencing major difficulties balancing their budgets, is on the legitimacy of writing of the debts of Third Word countries, and what would be the implications for the future.
World bankers have now reached the conclusions that the economic debts of the developing world cannot ever be made good. Situations in African and far eastern countries will continue to deteriorate, global warming is taking its toll. Scientists estimate that natural disasters such as the tsunami of late 2004 will occur on a semi-regular basis and the people’s plight will only gradually worsen.
These nations should be looked upon by the global financial community as being need of charity, instead of loans, Any debts that they have outstanding should be written off, and they should instead regular financial assistance in the form of grants to help them survive the difficult times ahead.