Credit and Development

• A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company.

CREDIT AND DEVELOPMENT

• Inadequate funds have prevented many poor countries from accelerating the pace of their economic development. Taxes and other sources of government incomes are not enough to finance all their basic programs of development.

Poor Countries

• Since local financial resources are not enough, foreign loans are indeed to speed up the development of the poor countries.

• For an undeveloped country, more money means more investments and production. And these speed up economic activities. However, if such capital belongs to the foreigners, naturally the profits go to them.

• Society may appear affluent and progressive, but this is not real in the sense that wealth and income belong to the foreigners.

FOREIGN LOANS, NOT FOREIGN INVESMENTS

THE ROLE OF WORLD BANK• The leading nations of the

world met at Bretton Woods, New Hampshire in 1944 to organize the International Bank for Reconstruction and Development (known as World Bank).

MAIN OBJECTIVE OF WORLD BANKTo extend long-term loans for reconstruction and development, especially to the less developed countries that cannot secure private loans at reasonably low interest.

Some features of the World Bank are:

1. Its loans are limited to agricultural productions.

2. Many of the Bank’s loans are channeled into development project such as multi-purpose dams, irrigation projects, health and sanitation programs, and transportation and communication facilities.

3. The bank has been active in providing technical assistance to underdeveloped nations. It assist such countries in discovering avenues of growth that are most suitable to their economic developments.

4. The primary thrust of the World bank is rural development.

INTERNAL DEBT

• The government sells bond to acquire more funds for its various programs and projects. By selling bonds, the government becomes debtor to those who brought bonds. Bondholders will get their money back plus interest after the prescribed maturity period

MOST CREDITWORTHY COUNTRIES1. United States of America

2. China

3. Japan

4. India

5. Germany

6. Russia

7. Brazil

8. United Kingdom

9. France

10. Italy

BIGGEST DEBTOR COUNRIES1. India

2. Vietnam 3. Tanzania 4. Ethiopia5. Nigeria

6. Bangladesh 7. Kenya

8. Uganda 9. Democratic Republic of

Congo 10. Ghana

NEGATIVE SIDE OF PUBLIC DEBT1. It leads to wasteful government

spending.2. It creates inflation.3. It burdens future generation.4. It dampens production of goods and

services.5. It reduces future consumption and

saving.

ENDREPORTED BY:

LEONY G. DAISOG