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Debt Management Crisis

What is a Debt Management Crisis?


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Crisis from the web:

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Typically this happens when governments borrow more to pay existing loans or to finance infrastructure projects and such big ticket items. Across the developing nations, this was felt when the US banks raised increased interest rates without warning and with utter disregard to existing agreements; many other banks followed suit and left third world countries floundering with astronomical amounts of debt and that generally starts the debt management crisis.

Such debt repayment agreements are overseen and implemented by the World Bank and the IMF; they may require raising interest rates, or liberalizing trade or increasing export oriented production, etc. But though the intentions were good, in actuality it only served to worsen the situation; it undermined local industry, increased unemployment thereby leading to more poor people and denied credit to farmers and small entrepreneurs. Is it any wonder that there is a debt management crisis looming? There may be some debt law suit or two in the works.

Though some efforts were made to refinance and reduce debt management crisis on the cash-strapped developing countries and thus avert debt management crisis, it was only for cosmetic purposes; in the years 1982-96, Latin American and Caribbean countries have paid $739 billion in interest alone, which is more than the outstanding principal!!! But these countries are still forced to borrow from these Shylocks to fund their education programs, healthcare, etc. Then the ‘Washington Consensus’ evolved which made it mandatory for wealthy northern nations to offer some debt relief to the less fortunate developing nations, in turn possibly stopping the debt management crisis.

A debt management crisis is when many countries around the world are caught in the vicious cycle of debts and the resulting skyrocketing interest payments. After a period of time the interest payment increases steadily and becomes almost half the National Foreign Currency Reserves. A debt management crisis has happened in Latin American and Caribbean countries in the past, triggering huge money problems. It could happen anywhere if the Government of the day are irresponsible in its spending policies.


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