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Abstract

This structured assignment is to accompany the case ''206-043-1''. The abstract of the case is as follows: Sub-Saharan Africa (SSA) is by far the most indebted and aid-dependent region in the world. The total of its external debt stock being around 52.5% of its gross domestic product (GDP) in 2004. It was revealed by the United Nations Conference on Trade and Development (UNCTAD) report, that African countries together received around US$540 billion of debt between 1970 and 2002. Though they repaid close to US$550 billion in principal and interest, the debt stock outstanding at the end of 2002 was US$295 billion (at the end of 2005, it was over US$300 billion). Economists traced these cascading debts to a number of causes. Some attribute the crisis to loans that had been given by creditors without much consideration as to how countries could pay them back, while others blame it on rich countries that extended loans under conditions that served their own interests. Moreover, loans were often given to inefficient governments or military regimes that were no longer in existence. Rising interest rates and flawed economic policies had served to multiply these debts manifold. The situation in the region posed a dilemma for the world. On one hand, it was clear that these countries were not in a position to repay their debts without starving entire generations. The incidence of AIDS had increased the medical expenditure in the region to alarming proportions and thousands of children died of malnutrition and related diseases each year. Many of the countries in the region were spending more on servicing debt annually than on health care and education combined. In such a situation, cancellation of 100% of debt for these countries seemed the only feasible option. On the other hand, many of the least developed African countries had squandered and misused the loans extended to them in non-productive expenditure, instead of investing them in growth generating and developmental initiatives. They had opted for further loans to pay off the old ones, creating a spiral. This raised questions about accountability of both debtors and creditors. Many economists felt that the inherent social structure of these countries promoted economic inequality and the benefits of loan cancellation would not trickle down to the lowest strata of society. This case investigates the causes and dimensions of this debt crisis and explores whether, in the absence of radical changes in the political and social structure in the region, debt cancellation would be a tangible long-term solution to the problem.
Location:
Other setting(s):
2006

About

Abstract

This structured assignment is to accompany the case ''206-043-1''. The abstract of the case is as follows: Sub-Saharan Africa (SSA) is by far the most indebted and aid-dependent region in the world. The total of its external debt stock being around 52.5% of its gross domestic product (GDP) in 2004. It was revealed by the United Nations Conference on Trade and Development (UNCTAD) report, that African countries together received around US$540 billion of debt between 1970 and 2002. Though they repaid close to US$550 billion in principal and interest, the debt stock outstanding at the end of 2002 was US$295 billion (at the end of 2005, it was over US$300 billion). Economists traced these cascading debts to a number of causes. Some attribute the crisis to loans that had been given by creditors without much consideration as to how countries could pay them back, while others blame it on rich countries that extended loans under conditions that served their own interests. Moreover, loans were often given to inefficient governments or military regimes that were no longer in existence. Rising interest rates and flawed economic policies had served to multiply these debts manifold. The situation in the region posed a dilemma for the world. On one hand, it was clear that these countries were not in a position to repay their debts without starving entire generations. The incidence of AIDS had increased the medical expenditure in the region to alarming proportions and thousands of children died of malnutrition and related diseases each year. Many of the countries in the region were spending more on servicing debt annually than on health care and education combined. In such a situation, cancellation of 100% of debt for these countries seemed the only feasible option. On the other hand, many of the least developed African countries had squandered and misused the loans extended to them in non-productive expenditure, instead of investing them in growth generating and developmental initiatives. They had opted for further loans to pay off the old ones, creating a spiral. This raised questions about accountability of both debtors and creditors. Many economists felt that the inherent social structure of these countries promoted economic inequality and the benefits of loan cancellation would not trickle down to the lowest strata of society. This case investigates the causes and dimensions of this debt crisis and explores whether, in the absence of radical changes in the political and social structure in the region, debt cancellation would be a tangible long-term solution to the problem.

Settings

Location:
Other setting(s):
2006

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