Problem of Debt in Developing Countries and Debt Relief as a Probable Solution

The Growing Problem of Debt in Developing Economies:
The Analysis of Debt Relief as a Probable Solution
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Abstract
In this paper, we look into the definition of a developing country and the standard, macro-economic characteristics prevalent in these countries that differentiate them from developed countries. Some of these characteristics include, but are not limited to, low per capita income, high population growth rate, high unemployment rate and the excessive dependence on agriculture as the primary source of livelihood. Understanding that external debt is one of the significant prevailing factors that ail the economies of such countries and slow their economic growth, we look into examples of developing countries that have struggled with debt servicing and loan repayment. We then analyze the methods and controls that have been put in place by the International Monetary Fund in partnership with the World Bank to ease the debt burden and evaluate the actual effectiveness of these methods in solving the debt crisis.
Keywords: developing country, loan repayment, low per capita income, debt crisis.
The Problem of Debt in Developing Economies
One major factor prevalent in almost all of the developing countries is the high reliance on debt and foreign aid to alleviate some of the financial pressure and sustain their economies. Ideally, debt is a good way for governments of developing countries to obtain extra funds for their projects and enable foreign and much more developed governments to invest in a company's growth by buying treasury bonds. However, debt at high levels can be detrimental to the developing economies and is an impediment to economic growth in many of the world's least developed countries.
Definitions
The term developing countries, often used interchangeably with Third World or less developed countries, is applied loosely to countries with lower economic progress and depend almost wholly on agriculture for its subsistence. On the other hand, the term 'developed country' refers to countries that, compared to others, have more matured and sophisticated economic backgrounds and a well-developed industrialization base.
Toussaint and Millet (2010) opine that the term 'developing' is somewhat vague. It suggests that the less developed countries strive to achieve some form of ideal economic level. The term implicitly infers that the more developed countries are some benchmark for economic perfection, far from accurate (Toussaint & Millet, 2010). However, these words are mainly a means for classification. They are in no way intended as a depreciative label on the less developed economies according to the United Nations World Economic Situation & Prospects (UN, 2014).
According to the UN (2014), the classification of developing and developed countries based on their economic development level shows that most developed nations lie in Europe and a few selected countries, such as Australia, Japan, New Zealand, and the United States of America. Most developing nations lie majorly in parts of Africa, Asia, Latin America and the Caribbean (UN, 2014).
Developing nations are bound together by several common, homogenous macroeconomic charac...