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Least Developed Countries Debt Crises - Essay Example

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Least Developed Countries Debt Crises

These nations often desperately need to increase budgets for education, health care, and environmental protection, but must instead pay back loans (International Debt 2005). In 1998, the total debt stock of least developed countries (LDCs) amounted to US$154 billion. This is almost four times as high as the LDC's debt stock of 1980 (Eurodad 2001, p.11). The Harvard University Centre for the Environment's Forum on Religion and Ecology (2005) cites that a major reason governments incur debt is that they are attempting to stabilize the value of their currencies. A government borrows an amount of another, more stable currency ["hard currency"], and then sells that currency to its own domestic companies in order to keep the price of foreign currency from rising, which would make the value of the nation's own currency fall.
In its latest triennial review of the list of Least Developed Countries in 2003, the Economic and Social Council of the United Nations used the following three criteria for the identification of the least developed countries (LDCs): (1) a low-i...
Index (HAI) based on indicators of: (a) nutrition; (b) health; (c) education; and (d) adult literacy; and (3) an economic vulnerability criterion, involving a composite Economic Vulnerability Index (EVI)1.
Eurodad and the United Nations University World Institute for Development Economics Research (2001, p.1) cites that debt presents one of the main stumbling blocks to LDCs's social and economic development. Many LDCs have unsustainable debt burdens, in addition to the 31 LDCs that are classified as heavily indebted poor countries (HIPCs). At least six other LDCs have, even according to rather conservative and narrowly defined World Bank and IMF criteria, debt levels that exceed their repayment capacity. When the concept of debt sustainability is approached from a human and social development perspective-and there is no other way to approach debt sustainability in a country such as Bangladesh where 78% of the people live on US$ 2 a day-many more LDCs have an unsustainable debt level. Many of the world's least developed countries face a huge debt burden. The low productivity of investment, slow export growth and large terms-of trade shocks, together with weak state capacities (including corruption), are all key causes of the build-up of an unsustainable external debt burden (United Nations 2002, p. 150). The amount of credit issued to these countries by bilateral creditor countries, multilateral agencies, and to a lesser extent commercial banks, has led to a piling up of the debt burden and to debt service requirements that surpass by far these countries' repayment capacities (Eurodad & the UNU/WIDER 2001, p.4).
. According to Dell (1991), although small and poor countries are not likely to start a world-scale economic crisis, many of them have been faced with a ...Show more

Summary

Debt is a tool that, when used prudently, helps governments plan and pay for large public works projects. Borrowing is essential when the cost of a necessary, worthwhile capital investment is prohibitive. Where the state undertakes these types of financial obligations to fulfil needed improvements or expansions to the state's infrastructure, just as with one's personal finances, it is vital that great care be exercised to determine what the state borrows for, how much it borrows, for how long and when it borrows-all have critical importance to the state's overall economic health…
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Least Developed Countries Debt Crises essay example
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