9 pages/≈2475 words
Mathematics & Economics
International Debt Crisis (Research Paper Sample)
This is International Economics class, and this is my final Research Paper. source..
International Debt Crisis
International Debt Crisis
To begin with international debit occur when countries borrow funds from other governments, international financial institutions private capital markets the same way as individuals, friends or families borrow money from each other for various purposes. Usually countries borrow money for the purpose of development. This includes infrastructure development like roads, hospitals, and public amenities. At times countries also borrow in other to furnish its army with proper weapons. The borrowed funds are a debt owed and the country needs to return it together with some interest after a period of time elapses. This is the same case scenario as with individuals borrowing money from each other. The only difference is that an individual borrows money for their own benefit whereas a country can borrow money without the knowledge or approval of its citizen. On the con side at times such funds are misused and end up benefiting only a few individuals. At times the funds may be engaged on constructive activities but owing to the financial conditions such as the economic crisis it is unable to repay its debt. This sets another difference between and individual and country in terms of debt (Calvo 2002). An individual who fails to repay their debt is declared bankrupt through a judiciary process. Countries on the other hand cannot file for bankruptcy. It is the obligation of the creditors and not court to determine whether or not a certain financial condition will deter the country from paying its debt.
Economists over time have come up with probable reasons for the emergence of the international debt crisis. These include; macroeconomic policies that are unreasonable, hitches in the contacts involving creditors and debtors transactions across the borders, poor creditor and debtor relationships involving the borrower countries, unreasonable interactions with the creditors across the borders and flawed global structures that hinder cross border financial interactions. Out of these proposed reasons the main dilemma is what needs to be fixed first. Taking an example of Latin American debt crisis, the first two probabilities and solutions were considered by economists who sympathize with the market structures. The fifth remained as the option to those economists who were skeptical of the market structure. In developing nations, the international debt crisis is progressive and not intermittent (Cline 1996).
However, the root course of the international debt lies in complexity. It is based on the economic policies and development choices that can be traced back to the 1970s and 1980s. It started with the quadrupling of the oil price by the Organization of Petroleum Exporting countries (OPEC) back in 1973. This saw OPEC nations depositing much of its acquired wealth in commercial banks. The banks in a quest to invest the deposited money issued out loans to develo...
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