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Discussion: Thread: 7.1 The Impact of Debt & International Organizations on Nation State Underdevelopment
8.1 The Impact of Debt & International Organizations on Nation State Underdevelopment
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Q1: Sustainable development demands that states have significant financial resources available to them on a consistent basis. In developed countries these financial resources usually come from company profits and government taxes. In developing states that suffer from political instability and weak currencies, any profits that may be earned and any savings quickly fall victim to "capital flight" and are moved into more stable Western currencies and banks for safekeeping. As a result, developing states suffer from a chronic scarcity of investment funds to meet development needs internally. Therefore, developing states are left to borrow development funds, often accumulating large amounts of private and sovereign government debt.
Q2: As we learned in Chapter 8, there are a wide variety of international institutions (IOs) and bilateral country-to-country sources out there available to acquire these kinds of funds through loans or grants. But some of these sources carry with them strings attached and sometimes burdensome debt service payments.
q3: Based upon what you have learned in Chapter 8 and the Instructor notes, what is the likely impact on the developing state of accumulating large amounts of private and sovereign government debt? Does this help or hurt a developing economy? Do states have other alternatives?
Q4: And finally, what is the role, function and impact of IOs in filling the need for development funds? Is IO assistance a two edged sword for the poorer countries? Do IOs make matters worse?
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Running Head: DEBT
Debt and International Organization Impact
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DEBT
Debt and International Organization Impact
Question 1: Developing Countries Development Funds Borrowing
Due to the capital flight and the scarcity of investment funds internally, the developing
countries tend to borrow resources from a stable market and various international financing
institutions. Some of the available financing institutions to the developing countries include the
World Bank, International Monetary Fund, and regional development banks (Pease, 2019).
World Bank provides financing support to developing countries in two ways through its
International Bank of Reconstruction and Development and also through the International
Development Association. International Bank of Reconstruction and Development is financial
funding institution that targets reconstructing developing countries in Europe. IBRD makes private
loans to governments at a lower interest rate than commercial banks. International Development
Association, on the other hand, provides financial assistance to developing countries through loans
and grants programs that aim at improving economic growth and inequalities reduction (Pease,
2019).
International Monetary Fund promotes the economic development of developing countries
by ensuring international monetary system stability and foreign currency exchange through the
balance of payments. IMF financing is termed as the lender of last resort since it gives loans to
developing countries that are considered uncreditworthy by private and public lenders (Pease,...
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