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Assess the ways in which third world debt can be reduced

10 marks
Raphael Georgallis
Many 3 world countries have very large debts including soaring interest rates, and the amount of money they owe is very much on the rise.Paying off the debt has become a serious problem for these countries, and it causes great hardship for their people.Sub-Saharan African countries are much more vulnerable to debt, paying $10 billion annually in debt service. That is about 4 times as much money as the countries in the region spend on health care and education. As a consummation of the g8 summit held in 2005,G8 leaders pledged to cancel the debt of the world s most indebted countries, which arises to a total of $40 billion, however, little progress has since been made. The World Bank and IMF have been forced to admit that debt relief is necessary. The ostensible goal of this multilateral debt facility is to ease the worst cases while maintaining strict criteria that will reassure the rd bankers. The advantages of cancelling 3 world debt are discernible. A country suffering from debt will be relieved of the pressure and money can be pinpointed on sectors within the country that need improving. Money may be spent on improving education healthcare provisions, transport and infrastructure and housing. This follows a top to bottom approach when the UN, World Bank or IMF will have to dictate to countries what needs to be done to tackle social, economic, political and environmental issues. The problem with simple cancellation of the debt is that it gives a reprieve to third world elites-many of them undemocratic-without requiring any reforms. There is nothing to guarantee that they won't simply get into debt all over again and continue to owe more allegiance to first world elites than to their own people. Long term solutions aimed at preventing the reoccurrence of a debt crisis should be applied in the interest of benefitting both individual countries and the international community in which a bottom up scheme is encouraged. Non-Governmental Organisations (NGO s) such as Oxfam, will have a significantly higher role to play within this scheme in which they will try to establish sustainable development within a region where they will employ there expertise in the development of education and healthcare. In conjunction with this greater rd access to trade blocs and free trade is essential in the reduction of 3 world debt. With greater access to global markets with lower tariffs, taxation and quotas and a fair price for commodities in which developing world producers will have a just return on their work. In association with this comes the increased interconnection with foreign countries, in which Foreign Direct Investment (FDI) may be filtered down to the rd 3 world countries and money generated from industry and exported may be used to pay off debt. This encourages sustainable development and helps improve many services within the country. Perhaps a disadvantage is that it could take time to pay off debt in comparison to the cancellation of it. As well as the fact that a country may become dependent on FDI and if it is removed the country would severely struggle. China is a receiver of around $50 billion FDI annually and has managed to turn its fortunes around in the last 10 years. Its economy is the fastest growing in the world today. Debt cancellation is not a plausible solution to the debt problem. A bottom up approach is needed in which the ground roots are targeted and so future generations will become more educat which will aid in the ed prevention of further debt. Debt cancellation is not an efficient solution as some countries may not learn from their mistakes and find themselves in a similar situation in the future. Building industry and enhancing trade is rd the best possible way to reduce 3 world debt.