Question on 'Assess the success of attempts to overcome the international debt crisis' contains a strong A* structure and good examples that can be used across multiple questions
Assess the success of attempts to overcome the international debt crisis. (20)
The international debt crisis was the result of fluctuating interest rates in the 1970s and
1980s. With strong and high commodities prices, many debtor countries looked to the
western world to borrow at low interest rates for investment in industries such as oil, as
well as agricultural industries. Many lenders were prepared to invest in countries with poor
governance, corrupt leaders and no democratic scrutiny for government borrowing such as
Guyana and Somalia. Wars in the Middle East in the 1970s led to rising oil prices. The oil-
producing countries invested in banks, in turn the banks targeted developing nations
particularly in sub-Saharan African with cheap credit. The global recession of 1979 to 1981
however, caused commodity prices to drop, which hit dependent LICs the worst, who used
lent money to invest in commodities. High interest rates acted as the final nail in the coffin,
making it difficult for debtors' countries to pay back debt from the 1980s onwards. The
Heavily Indebted Poor Countries Initiative (HIPC) was launched by the IMF and World Bank
in 1996, with the aim of ensuring that no country faces an unsustainable debt burden, such
as Somalia $4.6 billion external debt. From there, countries could apply for debt relief,
such as Somalia’s clean-up of 90% of external debt. This allowed for greater investment in
domestic needs and has seen many developing nations make development strides
forward. However, some have challenged the overall utility of the HIPC, with many
considering it was unsustainable with the ease of creating dependencies, which in turn
may hurt debtor countries in the long run. Overall, the attempts have provided great
success in the short run, but the ability for this success to be sustained throughout the
long term is in doubt.
Foremost, attempts to overcome the international debt crisis have been successful,
through providing greater investment in social needs such as healthcare and education.
Through the HIPC, governments such as Guyana have experienced an increase in
government budget allocations towards social needs. Guyana have been able to increase
social spending by over 25% a year, with thanks to reduced interest payments of $60
million a year. With an excess of $60 million being able to be invested into the domestic
economy of Guyana, education and healthcare systems have become more efficient and
modern. The importance of this in the developing world cannot be undermined, with many
not being able to afford treatment and education in the private sector, an efficient and
high-quality public sector is needed to reduce inequality and increase satisfaction across
the country. This could be said to be beneficial to Guyana in the long-run, with more
education workers and a larger workfroce thanks to better healthcare, there is now greater
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