A rchive Date
[ 06-04-2004 ]
Category
[ International Relations ]
sub-Categoy
[ Political Science ]
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[Politics of The Global Economy
Indices For MeasuringNational Debt and Burden
by Simon Magus
- A problem for developing countries is that their national debt has an immediate impact on economic growth and wealth
- distribution
- National debt occurs when domestic savings are insufficient to provide for or sustain desired national development and
- expenditures.
- This often leads to obtaining foreign loans to pay for development and current debt loads
Types of loans
- Long term loans, 1 – several years in length
- Short term loans, repayment periods generally less than a year and intended to cover current accounts shortfalls or interest
- on payments (like a cash advance on a c.c)
- Official loans are provided by gov’ts or international lending institutions
- Private loans involve banks, bankers, financiers and investors with commercial interests
- Bi-lateral loans occur between gov’ts
- Multi-lateral loans generally involve the World Bank, IMF, etc
- Loans can be concessional or non-concessional. Also known as soft loans where the sources, repayment periods, methods or
- currency is flexible enough so as not to incur further hardships on the borrower
- The degrees of concessions can be in the form of grants (interest-free loans) to market value rates
Measuring Degrees of Foreign Debt
National assessments are provided by World Bank, IMF, OED (Operations Evaluation Department - an independent unit within the World Bank that reports directly to the Bank's Board of Executive Directors. OED assesses what works and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development.) and non-governmental agencies, such as Moodys and various other sources of financial and economic reports about the approximate level of a nations’ foreign debt load
- In the mid-1980s global foreign debt amounted to about $920 billion U.S
- In 1990 it had risen past $1.3 trillion U.S
- In the mid-1990s it was $1.7 trillion U.S
- By year 2000 it was over $2 trillion U.S
- The former U.S.S.R accounted for 48 billion of the global foreign debt in 1983. By 1995 it had risen to $292 billion, 80+% of
- which was tied to long-term loans; the majority of which was of a concessional nature
HICs: High Indebted Countries
NICs: Newly Industrialising Countries
- In the 1980s Latin America was considered a HIC region with $340 billion U.S. By the 1990s that had risen to over $600 billion U.S
- This was supplanted by the Asian countries which went from $207 billion to $630 billion U.S during the same time frame
- During the 1990s Jamaica owed $5 billion U.S but this represented 130% of its GDP
- Guyana, $2 billion U.S – 400% of its GDP
- Nicaragua $10 billion U.S, 500% of its GDP
- Mexico $170 Billion U.S, 50% of its GDP
Indices for measuring burden of debt
- The ratio of outstanding debt to GDP divided by GNP (or what’s owed to creditors in terms of productive capacity over a period of 1 year)
- Outstanding debt to export capacity ratio
- Debt to servicing ratio: Principal divided by interest as a % of earnings from exports. A high ratio reflects debt crisis or an inability to service outstanding national foreign debts
Proposed and implemented Solutions to Debt Crises management
The Baker Plan (U.S) of 1985
- Debtor nations were to follow structural adjustments to increase savings
- A proposed 50% increase in World Bank spending
- Increase lending by commercial banks
The Paris Club Initiatives
- Proposed partial (1/3) write-off of outstanding debts and rescheduling of remainder
- Lower market rates of lending by 3.5% and increase repayment periods to 25 years
- Debt forgiveness – creditor gov’ts would agree to cancel repayment of outstanding debts
Debt for export swaps:
An exporter will buy off the debt of the outstanding debt of the importer (like a consolidation loan) at discounted rates from secondary markets, redeemable by central banks in local currencies to pay for imported goods and services
Debt for nature swaps
Buy back: debtors repurchase the debt at a reduced exchange rate from a secondary market using its monetary reserves to make the buy-back purchases
Debt Equity Swap: creditors would attempt to sell off claims on debtors at discounted rates or a percentage of the face value of national currencies]
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