Topic International Debt

8/14/2019 Topic International Debt

1/18

TopicInternational Debt


2/18

Learning objectives To get an idea of the debt-growthinterrelationship

To examine the causes of growth of debt To get an idea of the debt relief initiatives To get a picture of the debt problem of India


3/18

Debt Growth linkDebt ,up to a certain level ,can accelerategrowth but as debt increases further growthslows and may even be negative.For eg: Brazil& Argentina,


4/18

Causes of Debt CrisisOil price hikePattern of financing

High interest rates Trade factorsBad economy management


5/18

Debt relief InitiativesDebt rescheduleDebt write off

Different debt relief initiatives by IMF& WorldBank


6/18

Debt RescheduleTraditional approachInterest payment is postponed or arrears added to

capital . Not successful

Baker plan :1. Growth oriented , development and restructuring

financial position of debtor country.2. In 1985,new loan was given to extent of $20 billion

over three years(only to western hemisphere country).3. In 1989 , new loan was set up by world bank up for$100

million to country who are eligible under IDA.


7/18

Debt write off In 1988 ,at Toronto ,nine industrialy strongcountries announced plans to help the low incomeAfrican countries either writing off or providingbilateral loans or converting loans into grants.Different plans which helped to eradicate povertyand other financial plans of debtor country are

1)Brady plan2)Trinidad Debt reduction proposals3)Paris plan


8/18

Brady PlanNamed after Nicholas brandy, US Secretary of the treasury as he and his team proposed thisthis planIt stressed on voluntary debt reduction throughincreasing the role of official lenders and throughforgiveness.IMF & World Bank were expected to providefunds for debt and debt reduction at higherlevel ,that is between US$20 and $25 billion overa three year period from 1989 to 1991.


9/18


10/18

Trinidad Debt Reduction

proposals in 1990 Two third of debt of poorest nation should bewritten off.

The repayment should be lengthened to 25years.Interest payment due in the first five yearsshould be capitalized.


11/18

Paris Plan in 1991Paris club agreed on enhanced concessionsin bilateral loan for restructuring for lowincome developing countries. This club provided even 50% in present valueof the consolidated debt-service payment.


12/18


13/18


14/18

INDEBTED POOR

COUNTRIES )2) Good record of reform and sound policies

and indication of stable economic growth.

3) Should be in eligibility list of IDA .


15/18

Remedial and Preventative

measuresForeign InvestmentInvisibles Receipts

ExportsOfficial Development AssistancePolitical and Economic Stability


16/18

Indias External DebtDebt problem became very severe by early1990s

Causes of increase in Debt are :1. Increase in Trade Deficit2. Decline in Net invisibles3. Change in the composition of the debt4. Economic policies and domestic economic

Management


17/18

Indias External DebtExternal Debt management;1. Reduction of short-term debt & controls.

2. Measures to encourage non-debt financialflow.3. Build-up of foreign exchange.4. Increase Export by providing subsidy


18/18

Indias External DebtThe 2004 Indian Ocean earthquakeWhen the 2004 Indian Ocean earthquake and tsunami hit, the G7 announced a moratorium on debts of twelve affected nations andthe Paris Club suspended loan payments of three more. By thetime the Paris Club met in January 2005, its 19 member-countrieshad pledged a total of $3.4 billion in aid to the countries affectedby the tsunami.

The debt relief for tsunami-affected nations was not universal. SriLanka was left with a debt of more than $8 billion and an annualdebt service bill of $493 million. Indonesia retained a foreign debtof more than $132 billion and debt service payments to the WorldBank amounted to $1.9 billion in 2006.

.
http://en.wikipedia.org/wiki/2004_Indian_Ocean_earthquakehttp://en.wikipedia.org/wiki/G7http://en.wikipedia.org/wiki/Paris_Clubhttp://en.wikipedia.org/wiki/Paris_Clubhttp://en.wikipedia.org/wiki/G7http://en.wikipedia.org/wiki/2004_Indian_Ocean_earthquake

Documents

Topic International Debt