International Debt Crisis
The International Debt Crisis
What is International Debt?
Like individuals and families who borrow money to pay for a house or an education, countries borrow money from private capital markets, international financial institutions, and governments to pay for infrastructure such as roads, public services, and health clinics; to run a government ministry; or even to purchase weapons. Also like individuals, countries must pay back the principal and interest on the loans they take out. But there are important differences between individuals and countries. If a person borrows money, he or she receives the money directly and can use it for purposes benefiting the borrower. But if a country borrows money, the citizens are not necessarily notified or informed of the purpose of the loan or its terms and conditions. In practice, some governments have used loans for projects that do not meet minimum standards of social, ecological, or even economic viability. At times, these loans have been used to enrich a small group of people.
In other cases, although the money was used for legitimate purposes, financial conditions beyond the government's control made loan repayment impossible. Another difference between individuals and countries is that a business or a person who falls on hard times and cannot meet his or her financial obligations over time goes bankrupt. A court is appointed to assess the debtor's situation and banks acknowledge that the debtor cannot fully pay his or her debts. But countries cannot file for bankruptcy. There is no such procedure, no arbitrator. At the international level, the creditors, not a court, decide whether and under what conditions to require a country to pay its debt.
How Did the Debt Crisis Come About?
The causes of the current debt crisis are complex, rooted in economic policies and development choices going back to the 1970s and 1980s. When the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil in 1973,
What is International Debt?
Like individuals and families who borrow money to pay for a house or an education, countries borrow money from private capital markets, international financial institutions, and governments to pay for infrastructure such as roads, public services, and health clinics; to run a government ministry; or even to purchase weapons. Also like individuals, countries must pay back the principal and interest on the loans they take out. But there are important differences between individuals and countries. If a person borrows money, he or she receives the money directly and can use it for purposes benefiting the borrower. But if a country borrows money, the citizens are not necessarily notified or informed of the purpose of the loan or its terms and conditions. In practice, some governments have used loans for projects that do not meet minimum standards of social, ecological, or even economic viability. At times, these loans have been used to enrich a small group of people.
In other cases, although the money was used for legitimate purposes, financial conditions beyond the government's control made loan repayment impossible. Another difference between individuals and countries is that a business or a person who falls on hard times and cannot meet his or her financial obligations over time goes bankrupt. A court is appointed to assess the debtor's situation and banks acknowledge that the debtor cannot fully pay his or her debts. But countries cannot file for bankruptcy. There is no such procedure, no arbitrator. At the international level, the creditors, not a court, decide whether and under what conditions to require a country to pay its debt.
How Did the Debt Crisis Come About?
The causes of the current debt crisis are complex, rooted in economic policies and development choices going back to the 1970s and 1980s. When the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil in 1973,