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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 Campaign: Climate Justice Needs Debt Relief
Hurricane Maria swept across the Caribbean island of Dominica in 2017, completely devastating it. It was a natural, but also a financial disaster for the island nation, with the damage corresponding to 225% of its total annual economic output. Dominica is not an isolated case. Natural disasters like these will…
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Global Sovereign Debt Monitor 2020
The global debt crisis is gripping more and more countries in the Global South. It is threatening the livelihoods of millions of people. At the same time, many over-indebted countries are suffering massively from the impacts of climate change. Bone crushing debt servicing is hampering urgently needed adaptation measures. Download…
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