Development Economics nd interntionl debt crisis - Essay Example

Rther, it must be understood within the broder context of ntionl governnce nd economic mngement s well s the globl politicl economy, especilly the interntionl finncil rchitecture. The debt problem is intimtely relted to openness nd the cpcity or lck thereof for competitiveness nd beneficil globliztion. Those countries unble or unwilling to tke dvntge of globliztion hve the highest debt burden. In the following pper I will be discussing interntionl debt crisis tht hs been the issue for the lst decdes s well s previous yers.

I will provide techniques nd methods tht re considered to be effective in eliminting the debt, review the finncil stte of countries tht mostly suffer from the debt nd come up with conclusions nd recommendtions. To provide blnced pproch, I will briefly discuss domestic debt: wht it is, its importnce for the domestic economy, why it hs been going up for most of the poor indebted countries, nd the need to tke n integrted pproch to understnding nd mnging the ntionl debt. The prolonged debt crisis of developing countries hs lwys been ssocited with ctive serches for different strtegies for solving the crisis.

t the beginning, emphsis ws on rescheduling debt pyments to give debtor countries more time nd to provide them with dditionl finncil resources to meet their current nd future obligtions. Debt-equity swps, lso known s debt-equity conversion, refers to process or processes by which debt instrument of debtor country, denominted in foreign exchnge, is converted into n equity investment in tht country. For exmple, if Brzil borrows $100 million from n mericn bnk, the lon cn be converted into debt-equity swps whereby the mericn bnk, or other investors, converts the mrket vlue of the lon into equity shres of Brzilin compny.

The process of converting debt into equity vries from country to country. In simplified form, here re the common steps. To begin with, n investor wishing to invest in debtor country through the debt-equity swps submits proposl to the debtor government. Once the proposl is pproved, the investor purchses the debt of tht country, often owed to n interntionl bnk. The price pid is less thn the fce vlue of the debt instrument, clculted to reflect the mrket expecttions concerning the likelihood tht the debt will be serviced ccording to the originl schedule.

The more severely indebted country is, the less likely it is to service its debt ccording to schedule nd, therefore, the lower the price the investors py for the debt-equity swps. Once the sle is complete, it is presented to the centrl bnk for redemption in the locl currency. The centrl bnk pys somewhere between the fce vlue nd the secondry mrket vlue of the pper. Investors then use these funds to mke their investments. To mximize the benefits nd minimize the costs of debt-equity swps, debtor countries develop policy frmework nd detiled guidelines for their implementtion.

The guidelines generlly define the eligible investors, purpose for the investments, priority sectors or geogrphicl res for the investments, restrictions on profit remittnce nd cpitl reptrition, nd requirements for new money inflows. Regrding eligibility, n importnt issue is whether the debtor