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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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Global Sovereign Debt Monitor 2019
Currently, 122 out of 154 countries examined are critically in debt, just under 80 per cent. The situation is particularly alarming in Bhutan, Mongolia, Gambia, Cape Verde Islands, Jamaica, Bahrain and Lebanon. In almost three-quarters of the 122 critically indebted countries, the majority of debt indicators has worsened over the…
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Arguments against a Sovereign Debt Workout Mechanism
In most countries, if a person or a company is not able to repay its debt, national insolvency laws settle how much the creditors are entitled to. If necessary, the court decides this question - the judge of course has to be impartial. This is not only fair to everyone…
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