We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Examine the Role Played by Debt in Maintaining a Global Development Gap Essay Sample

essay
The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 591
  • Category: debt

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Examine the Role Played by Debt in Maintaining a Global Development Gap Essay Sample

A ‘debt trap’ arises when a country borrows money and struggles to meet debt repayments as interest rates have increased. The lending of money to less developed nations often results in these countries owing debt, creating a debt trap and leading to a cycle of poverty.

In the 1970s, OPEC members banked their earnings in Western banks, money became available to lend to developing countries for projects – often to finance conflict and to keep regimes in power. Idi Amin came to power in Uganda in 1971 with a militant regime, which was confronted by civil war, providing the need for weapons. The wealthy Asian community was expelled, meaning a loss of assets, which led to the collapse of government tax revenue. Therefore, large-scale borrowing was required to maintain government spending and finance weapons. The situation persisted until Amin was overthrown in 1979, meaning an 8-year cycle of borrowing took place. Due to the doubling of global interest rates in the 1980s, the country got into debt and was unable to meet its repayment. This unpaid interest was added to the original loan amount and by 1992, the country had $1.9 million worth of debt.

Uganda has been ridden with debt for decades and suffers a significant lack of development, illustrating the link between these factors. The land is fertile with good resources and a population of about half the UK’s within the same land area; yet Uganda’s HDI rating is 0.505 in comparison to the UK’s 0.946. Furthermore, Uganda’s GDP per capita (PPP$) in 2005 was $1454 – just 4.4% of the UK’s $33,238. Debt evidently affects a country’s development and plays a significant role in maintaining a global development gap.

The effect that a debt burden has on a country’s level of development is considerable. To prevent a collapse of the world’s banking system, the International Monetary Fund constructed Structural Adjustment Packages (SAPs). They re-scheduled loans to make them more affordable, but this was in return for cuts on government budgets and spending. Without IMF approval, no country would get further credit and therefore SAPs were effectively compulsory. The biggest government budget items in Uganda were health and education, and the imposed IMF cutbacks affected both. This particularly impacted the poor, who were most vulnerable to reduced government provision in public services.

Even today, with the cancellation of many debts on part of the Highly Indebted Poor Countries initiative, Uganda shows a clear lack of development. For the poorest 20% in Uganda, infant mortality rates are 106 per 1000 live births, and even for the wealthiest 20% this is 20 per 1000 live births – four times that of the UK. Only 60% of people have access to safe water. There are few Government secondary schools and fees are too expensive for most families, even those on a good income. Women and girls are the poorest Ugandans; unlikely to receive education because of its cost, and therefore facing a life of limited independence and less prosperity.

Debt has made it impossible for many countries to escape poverty, and therefore has limited development in these countries. Although it is not a cause of the development gap, the role of debt can be seen as maintaining the development gap in that repayments consume huge amounts of a country’s income, which limits development for the country. Whilst debt-free countries undergo development, others are held back due to their debt burdens. It is evident that factors such as debt make ‘bridging the development gap’ very challenging.

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

Debt of developing countries

Although India’s debt clock is $1. 1 trillion with an interest rate of $2,282 per second, India’s economy is rapidly advancing and as of 2015 India’s economy surpassed China becoming a fast-growing major economy. The fiscal year of 2015-16, India’s economy grew by 7. 6% which lead to India topping the World banks growth outlook for the first time. While India’s economy fell in the...

Third World Debt

Cancelling all 3rd world debt seems morally right, but there are good economic reasons to be cautious. Debt cancellation should help create sustained economic growth and human development. However, this may not be the case if the money goes into the hands of the rich elite or corrupt dictators. Therefore it makes sense to use debt cancellation as a lever to get changes that are...

The American Consumerism

What's behind American consumerism? As Americans increasingly spend more than they earn, psychological research is providing clues as to why. By Amy Novotney Monitor Staff July/August 2008, Vol 39, No. 7 Print version: page 40 Woman holding a bag and a credit card One bright spot in the midst of the country's economic downturn may be a long-overdue focus on reining in our spending. Since...

Debt and Equity Financing

In the accounting industry financing is an important concept. Many companies would not be operable without acquiring some for of financing options. Although there are many types of financing, the two that will be discussed in this paper are debt financing and equity financing. Also this paper will give two examples of each type of financing and discuss which option will be the best choice...

Micro Finance Institutions

Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.” Microfinance is not just about giving micro credit to the poor rather it is an economic development tool whose objective is to assist poor to work their way out of poverty. It covers a wide range of...

Get Access To The Full Essay
icon
300+
Materials Daily
icon
100,000+ Subjects
2000+ Topics
icon
Free Plagiarism
Checker
icon
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access
immediately?

Become a member

Your Answer Is Very Helpful For Us
Thank You A Lot!

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?

Couldn't Find What You Looking For?

Get access to our huge knowledge base which is continuously updated

Next Update Will Be About:
14 : 59 : 59
Become a Member