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4.7 The role of international debt (notes)

In the previous sections, we looked at the nature of economic growth and economic development, examined methods of measuring development and considered the role of domestic factors in economic development. We then reflected on the relationship between international trade and economic development, examined the role of FDI and described the nature of MNCs and then considered the role of foreign aid and multilateral development assistance.

In this section we look at the role of international debt and how this restricts economic development.

By the end of this section you should be able to:

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  1. Outline the meaning of foreign debt and explain why countries borrow from foreign creditors.
  2. Explain that in some cases countries have become heavily indebted, requiring rescheduling of the debt payments and/or conditional assistance from international organizations, including the IMF and the World Bank.
  3. Explain why the servicing of international debt causes balance of payments problems and has an opportunity cost in terms of foregone spending on development objectives.
  4. Explain that the burden of debt has led to pressure to cancel the debt of heavily indebted countries.