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There has been much made recently of the proposals for debt relief in the less developed world. The impression you would get in much of the press was that president Clinton had simply wiped out debt. This was not strictly the case.
- If it happens it will probably be the biggest step ever in tackling the problems of the developing world.
- The announcement has led to much debate between world leaders with the purpose of reducing world debt.
- A reduction in world debt will allow these countries to address their problems such as water supply, health care and education.
- Gordon Brown's proposals to link speedier debt relief to those countries that abandon war and conflict has been well received by most world leaders.
Whilst most must see this as a great opportunity there are criticisms:
- People are questioning the speed with which action is being taken. In fact every day that goes buy see those in debt paying about £60 million pounds in debt payments.
- Little has so far been done. Ironically when the world leaders met again in Japan to discuss the progress £500million was spent hosting the conference. This is more than Japan's contribution to reducing developing world debt! (The Guardian 21/07/2000.)
This is just a brief introduction to the possibilities of debt relief and implications. It is worth reading around this subject as it is a huge world development and therefore a possible exam question. One good source is:
The International Monetary Fund and World Bank are already involved in 'Debt management'. Often if a country responds to certain repayment plans then some of its debt will be wiped out. What has happened in Guyana is a cautionary tale:
Debt Relief, IMF (International Monetary Fund)
As mentioned earlier, there are already processes of debt relief in place but these have received considerable criticism. The IMF (International Monetary Fund) is often criticised for the way in which it offers help to indebted countries.
In Guyana, for example, the IMF insisted that they sell off their natural resources to cover debts. These included wood, gold and bauxite - this of course greatly hinders the countries chances of generating future wealth.
The country was told it could just pay off the interest on its debts and if necessary borrow more to do this! In a great struggle to meet repayment targets and have some debt written off, the country has suffered greatly.
Forty-five percent of all earnings go to pay off debt.
This means that the country can barely afford to pay teachers or doctors. As a consequence, the country has fewer than 250 doctors and untrained teachers staff schools. Trained nurses are emigrating because the wages are so terrible. In fact, just 15% of public expenditure goes on education, health and welfare.
In many areas, such as Tiger Bay, residents live in complete squalor. Water supplies are available for just a few hours a day, there is no sewage system and drug abuse and prostitution are common.
The situation for many is getting worse and all they are doing is paying off the interest and a little of their debt!
Many people often ask why we don't simply give these poor countries more money in aid payments. The reality is not as simple. Firstly, it is difficult to make sure that the money is going to the needy not the corrupt. Alternatively, if we were to provide food aid, we may jeopardise local market stalls and farmers who have to sell their food.
There are three main ways to give aid:
A country can give directly to another. This is called bilateral aid.
Alternatively, multi-lateral aid is that which is given to several countries from an international organisation like the World Bank.
Finally, there are non-governmental organisations that we refer to as charities. These try to direct the money generated by charity at the needs of the poor, local communities or environment.
Each of these has advantages and disadvantages that are outlined in the table:
|Type of aid:||Advantages:||Disadvantages:|
|Bilateral:||The recipient country can get a substantial sum of money to invest in their country.||Can be used to set up exploitative trade deals. For example the UK insists that several of the countries we give aid to purchase our arms.|
|Can set up advantages for the industries in both countries as the donor becomes a market place for products from the recipient.||Alternatively encouraging the developing country to purchase machinery creates future demand for spares or experts which the country would have to purchase from the donor.|
|Multi-lateral:||Can lead to the establishment of stable industry. For example India's dairy industry that supplies most of the country was set up using powdered milk donations from the European Union.||Governments in some developing countries tamper with their indicators of development to make them appear poorer than they are so they receive extra aid payments.|
|Money can and has been used to improve schools, health care and the economy.||Projects encouraged are often inappropriate to the needs of the most needy e.g. a new international airport.|
|The amount of money is substantial and can be used to finance development the country could otherwise not afford.||Debt repayments can massively outweigh any aid received.|
|Donating food is not always a good idea. If you donate a substantial quantity of any food to a country you will massively reduce that foods market value which could destroy farming economies making the country even more dependant on aid.|
|Non-governmental:||More responsive to the immediate needs of the population. Work at a smaller scale using technology more appropriate to the skills and needs of the locals.||There are concerns about countries becoming too dependant on aid handouts rather than looking to establish their own economies.|
|Are very quick to response during times of crisis (e.g. Famine or natural disasters) getting aid quickly to many of the most needy.||Unless they can have a greater influence on the policy makers then they will only ever provide 'stop-gap' measures.|
|Good at setting up initiatives at local levels so that the community can develop their own industries - see 'Appropriate technology'.|
Appropriate technology refers to the industries that have grown up (or are being encouraged) in developing world countries where local people use local materials and skills to make a product for local people. Examples include making roof tiles, cooking stoves and pots and, batik clothing. On occasion, the success of this local small-scale industry can be such that it is expanded and uses new machinery and technology. This is called intermediate technology.
The advantages of these two are that it is the local people who are making the decisions, benefiting from employment, purchasing cheap products that they actually need, they are using local resources and skills. If the machinery or tools of production break down they will be able to fix it. In addition, it is unlikely that they will have accrued much - if any - debt.
Over the past few years several trading partnerships have been established which promote fair trade with less developed countries. The "Fair Trade" organisation imports chocolate, tea, coffee, and gives the farmers/workers a much fairer price for their product. This is often more than double what they used to receive.
In other instances, shops have developed unique relationships with villages in the less developed world selling local arts and crafts to a Western market and encouraging the development of appropriate and intermediate technology.