1. THE INTERNATIONAL DEBT CRISIS

2. KEY TERMS  Hard Currency  Debt service charges  World Bank  Human Development Index  Debt/export ratio  Highly indebted poor countries (HIPC)  Odious debt  Sovereign default  International Monetary Fund (IMF)  Debt relief  HIPC initiative  Poverty Reduction Strategy Paper (PRSP)  Jubilee 2000 Campaign

3. KEY QUESTIONS  How are the economies of Periphery nations negatively affected by decisions made in the Old Core?  How are the quality of life and job prospects of poor people linked to the global economy?  How did many poor countries come to have so much external debt?  Should these countries be excused of all or much of their debt? If so, how should this happen?

4. WHAT EXACTLY IS DEBT?  Debt is money that is owed.  Personal debt  Government debt

5. THE BURDEN OF INTERNATIONAL DEBT.  Let’s do some acting…go to page 215.

6. BURDEN OF INTERNATIONAL DEBT  Old core countries have huge amounts of debt.  The US is at the top of that list. The US is at the top of that list.  They choose to borrow from outside the country because it is cheaper.  Loans help the economy. They are taken to pay for things.  Their economies are strong…they can afford the interest and principal costs, so the debt does not grow.

7. BURDEN OF INTERNATIONAL DEBT  Periphery countries are not in the same situation.  Their economies have not grown as quickly as Core countries.  Debts keep increasing. Costs to pay that debt keep rising.

8. BURDEN OF INTERNATIONAL DEBT  Banks and other lenders treat some regions as “safer” than others.

9. EFFECTS OF DEBT 2004  HDI rankTotal debtDebt per capitaDebt/Export ratioDebt service %Education % Angola16195216140.710.42.6 Burundi169138519028.91.35.1 Cameroon14494965943.64.11.8 Ethiopia17065749111.01.05.0 Ghana13670353242.7 5.4 Kenya15268262042.62.36.7 Malawi16634182717.33.25.8 Mauritania15322977665.63.82.3 Niger17719501445.01.62.3 Nigeria159303152790.83.30.9 Senegal15639383452.74.45.4 Sierra Leone 17617233259.92.53.8 Sudan141193325455.11.46.0 Uganda14548221748.01.55.2 Zambia16572796334.07.92.0

10. HOW DID THE DEBT CRISIS HAPPEN? (LOANS, NOT GRANTS)  Until 1957, most governments simply gave aid in the form of grants.  The US switched to loans this year.  They wanted to make money on their loans.  Other governments followed the US.  So…poor countries needed to accept these loans if they wanted money. They had to be paid back.

11. HOW DID THE DEBT CRISIS HAPPEN? (HIGH OIL PRICES)  In 1973 and for a couple years, oil prices were extremely high (for the time).  The US dollar was high, and OPEC felt that they were losing money.  They raised the price by 70%.  There were problems and inconveniences in rich countries, but poor countries were ruined.

12. HOW DID THE DEBT CRISIS HAPPEN? (GROWTH IN PETRODOLLARS)  Because OPEC increased their prices, they made a huge amount of money in the early 1970s..  They invested the money in banks all throughout the developed world.  This meant that banks had money they had to lend.  There was a lot of cheap money to be loaned. Developed countries were very interested.  The interest rates were floating. This means that they changed with the market.  Loans were used for needs (like oil). It was a never-ending circle.

13. HOW DID THE DEBT CRISIS HAPPEN? (HIGH INFLATION)  During the 1970s and 1980s, the world economy experienced very high rates of inflation.  This meant that a loan at a rate of 5% in 1970 could be as high as 15% in 1980.

14. HOW DID THE DEBT CRISIS HAPPEN? (FALLING COMMODITY PRICES)  Most poor countries need to export goods so they can get hard currencies.  If the prices of commodities fall, they receive less money to pay off their loans.  Commodities include agricultural products, forestry products, and mining products. These all decreased during the 1970s and the 1980s.