Chapter 9: Problem 6

What is meant by the debt crisis of the developing world? What is being done to help resolve this crisis?

Short Answer

Expert verified

The 'debt crisis of the developing world' refers to the inability of developing countries to repay their foreign debt. This issue has been addressed by implementing strategies like debt restructuring, debt forgiveness, and economic policy reforms.

Step by step solution

Define 'Debt Crisis of the Developing World'

'Debt crisis of the developing world' refers to the situation where developing countries are unable to pay back their foreign debt, usually borrowed from international financial institutions, government, and commercial banks in developed countries. This inability can be due to several factors like poor economic performance, lack of financial discipline, high interest rates, or economic shocks.

Identify the Problem

The underlying problem in the debt crisis is that the debt keeps growing due to the compounding effect of interest. The borrowed money is often mismanaged, invested in unproductive projects, or lost due to corruption. Therefore, the country cannot generate sufficient returns from the investments to pay back the debt.

Discuss Solutions

Several strategies have been deployed to resolve the debt crisis in developing countries. These include debt restructuring, where the debt is reorganized to manageable levels, debt forgiveness, where part or whole of the debt is pardoned, and policy reforms to improve financial management and boost economic growth. International bodies like the World Bank and the International Monetary Fund often play a pivotal role in these mitigation strategies.

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What is meant by the debt crisis of the developing world? What is being done to help resolve this crisis?

Short Answer

Step by step solution

Define 'Debt Crisis of the Developing World'

Identify the Problem

Discuss Solutions

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