Should the Wealthy Industrialized Nations Forgive All the Foreign Debts - Essay Example

Should the Wealthy Industrialized Nations Forgive All the Foreign Debts? Introduction It is an undeniable fact that the major part of the world population is debt – ridden. Economies of Africa, South America and few of the Asian nations are the largest borrowers of funds from the international market. The aid that the western nation provides basically takes two forms, one of loan and the other of grants. While grants are interest free and are generally not meant to be repaid back, it is not the case with loans and they are necessarily meant to be repaid. Again, loans can take the shape of interest free loan or loans with specified rate of interest. The in – depth study of the loan syndrome of the poor nations reveal the fact that most of the nations fail to repay the loan, not only the interest but also the principle. It has raised the burning question whether the developed countries accept such lack of repayment! In other words, should the citizens of wealthy nations bear the burden of development of the poorer countries! Though there are valid arguments in both the sides as this a topic of debate but still the general consensus and majority of the experts feel that the rich nations should bear extra responsibilities for the development in their poorer counterparts, if not full. Therefore, it is argued in the essay that not all but majority of the debts of the poorer nations should be written off. The Understanding The under – developed nations of Africa and Latin America, have been borrowing consistently from the international markets. The purpose of such borrowing includes building of infrastructure like roads, dams and bridges and contributing towards the livelihood of the people like agriculture and fisheries. Among the major lenders, the developed nations of the world like the United States, Great Britain, Germany and France are notable. Along with the individual nations, the international bodies like International Monetary Fund (IMF), World Bank (WB) are also mention worthy. The Mexican crisis in 1982 led to an international strategy on debt. The major stake holders of such strategy included the major creditor countries and the multilateral organisations. The prime motto of the strategy was to deal with the commercial bank creditors and the official creditors. The strategy evolved three fold initiatives: avoidance of a failure of the international banking and financial systems reduction of economic dislocation in debtor countries restoration of the admission of heavily indebted countries to capital markets (Martínez-Piedra & Pérez, “External Debt Problems and the Principle of Solidarity: The Cuban Case.”), The noted scholar William Easterly held the view that though the aids and donations did not reap the intended benefits in the African nations still those should not be discontinued. The economist is of the view that it is easy for one party to blame the other as the western nations did not get repaid back of majority of the debts. The one national government can blame the other, both can blame the World Bank and the Word Bank can blame the government of the developing nation who in turn can blame the entire politics. According to Easterly, such a blame game would not help. He maintains that the previously initiated measures of the World Bank like building dams or roads might not click in the present scenario. Rather, World Bank should seek extra level of commitment from the indebted governments. He fears, if the aid and donations are stopped, one can not prevent a malaria death which costs only twelve cents or the infant mortality which seeks only US $ 3. Therefore, the scholar indirectly supports the fact that the western wealthy nations should take extra load to forgive the debts of the poorer nations (Easterly, “The World Bank and Low-Income Countries: The Escalating Agenda”). The other noted researcher in this regard, Professor Sachs has tried to understand the basic reasons for poverty as he has defined the society in to various economic levels depending upon the earning. Mr. Sachs essentially presumed that the technological advancement can lead a country towards the desired level of growth and the wealthy nations should donate towards such schemes with in the under-developed nations. The point of contention of Mr Sachs is that once with sufficient aid, the country gets momentum and commences to produce goods and services, the developed nations and the creditors should have trade relations with them. So, it can be assessed that he believes in initial support to the poorer nations but is not in favour of writing off of debts entirely (Broad & Cavanagh, “How Friedman and Sachs Got It Wrong”). The Counter Argument But many of the experts hold the opposite view. According to them, why should the citizens of the developed nations bear the extra load of developing the poorer countries! As per the advocates of such beliefs, it is the sheer hard work of the citizens of the developed nations that has made them rich and only efficient market practices can really work for the indebted nations. But the truth is quite different. The debt traps laid by many of the leading nations have made the condition worse. According to the figures, the government of Uganda spends US $ 3 per person as the health related expenditure while it has to bear US $ 15 per person as the debt charges. Another instance is that of Liberia where HIV AIDS has taken shape of epidemic and already affected 8% of the population. Out of the allocation of US $ 120 million of annual budget to fight the disease, the country could afford only US $ 7 million while it has external debt of US $ 3.7 billion (Carrasco, McClellan & Ro, “Debt Forgiveness”). Such situation calls for desperate measures and it is therefore expected from the well-off nations to increase grants and forgive debts. Conclusion The above arguments put forward the requirement of effective debt relief strategy and forgiveness of debts from the Sub-Saharan and South American poor nations. Few of the similar strategies evolved by World Bank from time to time could not be of much help. The international bodies like IMF or WB or UN should initiate active measures to build up consensus among the debt providers, central banks and commercial banks and other stake holders so that most part of the debts can be written off and the new born child of a poor nation does not have to come to this beautiful world indebted by default (by birth). References Broad, Robin & Cavanagh, John, “How Friedman and Sachs Got It Wrong” 02 December, 2009. The Hijacking of the Development Debate. 2006. Carrasco, Enrique, McClellan, Charles & Ro, Jane, “Debt Forgiveness”. 02 December, 2009. Foreign Debt: Forgiveness and Repudation. No Date. Easterly, William. “The World Bank and Low-Income Countries: The Escalating Agenda”. 02 December, 2009. 17 August, 2006. New York University and Centre for Global Development.< http://faculty.washington.edu/fletschn/Easterly.pdf> Martínez-Piedra, A. & Pérez, L. L, “External Debt Problems and the Principle of Solidarity: The Cuban Case”, 02 December, 2009. 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