The Global South: Politics, Policy & Development
POLS 3560 – Fall/Winter 2011/2012 – Ananya Mukherjee-Reed
Lecture 10 – Debt Crisis: Dissolution of the Nationalist Model – Nov 22
Debt: Main Questions
- What is debt?
- What is the debt crisis?
- How did it begin?
- How does it affect different groups of people?
- How does it affect ‘development’?
- What is debt forgiveness?
- Concept of Odious debt.
What is going on in Ireland?
- The poorest 48 countries have debts totalling US $168 billion, whilst for the
poorest 128 countries; it is over US $3.7 trillion.
- The total external debt of the very poorest countries was US $168 billion in 2008.
- During 2008, these countries paid over $8.3 billion in debt service (payments of
interest and principal) – over $23 million a day. If you include India and Pakistan,
the figure would be closer to $116 million.
- For all ‘developing’ countries, total external debt owed in 2008 was $3.7 trillion
and over the course of that year they paid $602 billion servicing these debts.
- Haiti ‘owes’ $891 million.
International Monetary Fund (IMF) and World Bank
- Lend poor countries money to pay interest on original loans.
- But the strict conditions are
o Reduce spending on education, health, housing.
o Increase exports to get $
o Increase taxes.
For a country to repay its debt easily, it requires:
- Low interest rates on its debt.
- None of these conditions were met by the policies of the 1990s.
1976 – 1983
- Debt crisis 1982 erupted shortly after US monetary policy raised interest rates.
So the borrowers (private and public-owned companies) failed to put the
borrowed funds to work to earn a return higher than the interest rate on the
- The solution ‘recommended’ by the IMF/WB, using its power of intimidation was
to nationalize the private debt, which means that the state = the population,
assumes the debt of the private sector. - Result: massive transferring of the burden of debt to the vast majority of the
Debt Trap during the 1990s
- Creditors imposed conditions that condemned the debtor (the population) to be
always a debtor (i.e. much higher interest rates than those of the 1980s).
- Then, the debtor needs to assume more debt just to service interests.
- The result: debt became perpetuated (in Argentina, rising 12.5% annually
between 1991 and 2000) because its servicing disables the possibility of
- Debtor becomes more