Costs of Development
Origins of the International Debt Crisis:
During the 1960s, many countries began to borrow
large sums of money to pay for their development plans.
Governments of developing nations borrowed heavily in
order to carry out ambitious infrastructure development.
Much of this money was borrowed from the World Bank and,
like individuals, countries must repay their loans with
interest.
There was no particular problem with this borrowing
until the 70s, however problems began to occur as the price
of oil, as well as interest rates, increased and developing
nations were hard hit. By the mid 80s, the debt load of many
developing nations had become unmanageable. This
marked the beginning of the present debt crisis. The value of
the exports of the developing countries declined while
interest rates and inflation made their local currencies
worthless. Most developing nations depended on imported
oil, the price of which rose nearly 10 times. Those
developing nations that possessed oil reserves borrowed on
the strength of that resource, however when prices fell in the
early 80s, these nations too owed huge sums as their oil was
now worth very little on the world market. To compensate for
these developments, the developing countries borrowed
even more heavily, both to continue development and to
keep making payments of money already borrowed.
Consequence of the Debt:
At present the developing nations owe more than $2
trillion to banks in the developed world. Some countries owe
more than their yearly income in debt. What are the
consequences of these massive debts? Examine the case of
Brazil:
Brazil: 1999
 External debt: $222 billion (U.S.)
 Total debt service: $74 billion (U.S.)
In order to make these payments, Brazil must try to export
huge amounts of goods just to pay the interest.
By 1987, Brazil, Mexico, Argentina, and other debtor
nations had announced that they could no longer make
payments on their loans. Panic spread among the bankers of
developed nations, however the IMF managed to find a way
for developing countries to restructure their economies so
that they could continue to pay their debts. This restructuring
often involved cutting back or eliminating social programmes
which affected the poor.
Debt Impact on Poor Countries:
It’s evident that the existence of debt has both financial
and social costs. A lack of money results in cutbacks in such
areas as health and education. According to the United
Nations Development Programme (UNDP), heavily indebted
poor countries have higher rates of infant mortality, disease,
illiteracy, and malnutrition than other countries in the
developing world not as heavily in debt. In 1997, the UNDP
estimated that sub-Saharan African countries paid four times
as much in debt servicing as they spent on the health of their
people (most of the world’s least developed nations are
found here).
Solutions Needed:
Various approaches have been tried in order to find a
way out of the debt crisis including the following:
 Privatization: Governments of developing nations have
hoped that the privatization of government programmes
or services would bring an influx of capital from
investors which would help solve the problem of foreign
debt. This approach has shown some promise in
countries such as Brazil and India when accompanied
by other economic reforms.
 Establishment of a pool of money by the World Bank to
help the poorest 40 countries pay their interest charges.
 Refinancing loans.
 Economic reforms and improved economic
management by the debtor countries.
 The cancellation of debts: Lenders may agree to cancel
a debt if the debtor country fulfills certain commitments
(i.e. holding democratic elections).
It is obvious that a new approach to the problem is
needed. The developing countries, under existing conditions,
cannot pay these debts, however the developed world
cannot simply accept its losses and “walk away.” It is a
measure of how interdependent our world economy is. The
developed nations depend heavily on developing nations as
a source of resources, products, as well as markets for
goods produced in the developed world. No one wants an
economic collapse in developing nations; it’s in everyone’s
interest to find a way out of this debt crisis.
The Global Food Industry
Desert and rich farmland, drought and plenty – all are
typical of the world food situation, but where does food
supply on the planet stand? One might be tempted to
answer that food is in low supply throughout the world,
however, although there are regional famines, there is
generally enough food available to feed an additional 1.5
billion people more than the current 6.5 billion people on
earth today. Why then are so many people undernourished?
The problem is the allocation of food.
Allocation of Food:
One of the main causes of hunger is that not enough
food reaches those who need it most. This is particularly true
in less developed countries. In some cases food may not be
available because of the lack of fertile soils or because of
natural disasters such as droughts or flooding. In other
cases the reasons are political: wars, such as the conflict
between Eritrea and Ethiopia in the first years of the 21st
Century interrupted food distribution and production causing
shortages. More often, though, the reasons are economic.
Economic factors that contribute to this situation include
landownership and cash crops.
Landownership and Land Reform:
One of the first problems of food supply in the world is
related to the ownership of the world’s agricultural land. In
Brazil, less than 10% of the people own 90% of the land. In
other words, a few wealthy landowners control huge areas of
farmland. The same inequalities exist throughout most of
Latin America and Africa. These larger farms more often
have the resources to use complex farm machinery and
fertilizers which help to increase production. As well, these
farms are usually on better land.
Poor farmers with their own land grow food as their own
needs. Landowners of large farms in less developed
countries usually find it more profitable to grow cash crops
than to produce food that is needed locally. Furthermore,
rich landowners are often encouraged by their own
governments to grow cash crops for export in order to supply
the country with needed foreign revenue.