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To finance development, many poor countries have to take recourse to external loans. By itself this is not bad or dangerous because the debt can be used to , f. i., invest in infrastructure, raising the output of the economy.
But if loans are taken and given without considering the economic capacity of the debtor, the repayment could become a problem. In the 1970s and 1980s this led to the so called “Third World Debt Crisis”. Today we can observe a similar trend: Poor countries in Africa, Asia and Latin America have comparatively easy access to fresh money because low interest rates in the Global North make investments in the Global South very attractive.
Rules for responsible borrowing and lending are important since they make clear, that creditor and debtor share responsibility for the success of the lending operation.
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New Analysis: Understanding IMF Debt Sustainability Analyses.
The IMF is a powerful gatekeeper for financing and debt relief and sets the macroeconomic parameters and incentives for governments on how to deal with a critical external debt situation. At the centre of this are the IMF’s debt sustainability analyses. With a de facto monopoly on these analyses comes…
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New Focus Paper: “Debt crisis not yet bad enough” – How creditors downplay the need to act
136 out of 152 countries in the Global South are at least slightly critically indebted, 40 of them very critically. Without urgently needed reforms of the international debt architecture, the latest wave of debt crises in the Global South cannot be solved. The leaders of the World Bank and the…
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