Biz/ed - Trade Tour - Central Bank [ Biz/ed Virtual Developing Country ]

The Central Bank of Zambia

The Debt Boomerang

Next issue - Origins of Commercial Debt >>

The impact of debt is severe on the inhabitants of Zambia. Millions of Zambians live in absolute and deteriorating poverty. Some argue that the burden of debt is the root cause of this poverty. Undoubtedly some lending and Overseas Development Assistance is given for altruistic humanitarian reasons of famine and poverty relief. However, there is an increasing acceptance that the burden of debt on LDCs has number of knock on effects which impact on the MDCs and thus should provide an incentive for the creditor countries to reschedule or cancel the debt of LDCs. These have been referred to by Susan George in her book "The Debt Boomerang". In it she highlights a number of issues that ought to be of concern to the leaders of the MDCs when considering debt relief and rescheduling. Most of the arguments are based on the view that debt exacerbates poverty and the structural adjustment and macroeconomic stabilisation programmes put into place by governments as conditions for multilateral and bilateral lending often worsen the level of poverty.

The Unemployment Argument

Unemployment and poverty in the LDCs caused by debt and debt servicing reduces the number of potential customers to purchase the exports of the MDCs. Relieving the LDCs of their debt would stimulate growth and development which would increase the markets for MDCs.

The Conflict Argument

Debt can lead to social instability and sometimes civil war. Although the latter has not happened in Zambia there have been cases of social and political instability such as the food riots in 1987. If the conflict develops into civil war the rest of the world may be dragged into the dispute for political and strategic reasons or must make contribution to peacekeeping forces.

The Tax Argument

Financing Debt relief ultimately puts a burden on the taxpayers of the creditor countries. Reducing or forgiving the LDCs of their debt burden would in the longer term reduce the need for bilateral and multilateral lending and aid and hence reduce the tax burden.

Immigration Argument

Poverty resulting from debt and stabilisation and structural adjustment policies has led to considerable amount of economic migration. Economic migrants attempt to enter the richer countries, often illegally in an attempt to make a better life.

The Environmental Argument

Debt and poverty cause people in the LDCs to exploit natural resources in the least sustainable way. Deforestation contributes to global warming and reduction in the biodiversity of the planet. Both impact on the MDCs.

Drugs Argument

Debt and poverty cause some farmers to look for higher incomes from illegal production of drugs. The consumption of drugs creates many social and economic costs to the rich consuming nations.

Next issue - Origins of Commercial Debt >>