QUES NO-44:-THIRD WORLD DEBT CRISIS

What is the Third World Debt Crisis?

THE THIRD WORLD: the poor, developing countries of the world.
DEBT: an amount of money you owe.
CRISIS: an emergency, a very serious situation.

Many developing countries have very large debts, and the amount of money they owe is quickly increasing. Trying to pay off the debt has become a serious problem for these countries, and it causes great hardship for their people.

For example:

Take the region of Sub-Saharan Africa.This region pays $10 billion every year in debt service. That is about 4 times as much money as the countries in the region spend on health care and education.

How did the Debt Crisis start?

The main factors that caused debts to increase were

1. Rise in INTEREST RATES

2. Global RECESSION

3. LOW COMMODITY PRICES

Why does the debt keep growing?

1. The value of the commodities that a Third World country exports can go down by large amounts. This makes it much more difficult for the country to repay its loans. In Latin America, for example, debt is growing faster than earnings from exports.

2. Refinancing is when more money is borrowed to pay off earlier loans.If this happens, the result is that countries get deeper and deeper into debt.

What can be done?

1. Reschedule the debts:
This is when the terms of repaying the loan are changed and more time is allowed to repay the loan.

2. Debt swaps:
Some organisations have thought of clever ways to help developing countries lessen their debts.For example:UNICEF’S Debt for child relief.

3. Cancel the debts:
Quite simple, the debts would no longer exist. The developing countries would not have to repay the loans and they would not have to pay the interest.

CONCLUSION:

The causes of the crisis are not limited to the above points only, but they are many other.According to me,the first two solutions of rescheduling debts and debts swaps are hepling the countries but the point of cancellation of debts will not solve the problem in future.To do that we must change the present financial system which is based on debt and interest payments;a system that keeps control in hands of those who are rich and powerful.

SUBMITTED TO:-

MR.GURDEEPAK SINGH

SUBMITTED BY:-

MONIKA

MBA(SEM 1)

Section- A