Third world debt
Cancelling all 3rd world debt seems morally right, but there are good economic reasons to be cautious. Debt cancellation should help create sustained economic growth and human development. However, this may not be the case if the money goes into the hands of the rich elite or corrupt dictators. Therefore it makes sense to use debt cancellation as a lever to get changes that are essential for economic growth and the emergence of good governance. For example, every child must get an education until.
Debt cancellation should be given when it reduces poverty or brings sustained human development but not if it reinforces dualism and puts money in the hands of a corrupt or self serving elite. This is a result of the corrupt individuals wasting money on arms races or dictators using it to suppress people. This is the case in Zimbabwe where there is widespread violence and instability so debt shouldn’t be cancelled. However, bordering Zimbabwe is Mozambique. In Mozambique there is good governance which is trying to end poverty and bring sustained development.
Being one of the poorest countries should its debt be relieved? As a result it can be seen that Debt cancellation should be part of a campaign to create the preconditions and good governance needed for economic growth. Similarly a stable framework for lasting self determined growth and take-off is essential for an ldc to move away from dependency. It also allows MDCs to demand reforms to end rural isolation and also to help the modern sector grow in town as well as country to replace the informal economy.
It can be seen that debt cancellation is a very effective method of setting tough conditions to ensure micro credit reaches the poor. This gives them the power at village grass root level to create an economic framework they can use to end their own poverty rather than rely on remote and untrustworthy governments. Similarly it can be used to give power, property rights and loans to local government. This helps improve infrastructure such as roads or utilities. Our debt cancellation judgment must look at each country individually and ask whether debt cancellation can reduce poverty.
This should be far more important than the self interest of a country and banks. Similarly governments declare aid and debt cancellation but fail to carry out promises made. The conditions set must be sensitive to the obstacles and potential of each country. Therefore fixed conditions or free market ideology should not be imposed. In contrast negotiations should take place with local officials and economists as they know what’s best for a country. In order to make the best use out of debt cancellation it may be best to gradually relieve debt in a number of instalments.
However, there is an extreme position when immediate relief is essential. This occurs when debt servicing is unsustainable and repayments of capital with interest are greater than a country’s annual exports. At this it seems morally incorrect for mdcs to demand there money back. Another major issue surrounding 3rd world debt is the demand for foreign currency. Debt can only be repaid with internationally trusted foreign currencies like the pound. When an LDC runs out of foreign currency it cannot repay its debts and therefore must increase exports or cut imports to repay debts.