What is a Debt Management Crisis?
Information on Debt Management
Crisis from the web:
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
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.