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The international debt crisis-causes, consequences, and remedies - Research Paper Example

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Being a financial management risks, every economy must ensure that reasonable and working policies are adopted to deal with the problem. To have an imperative discussion on the…
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The international debt crisis-causes, consequences, and remedies
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Download file to see previous pages A nation usually runs a surplus in the capital account when it runs a current account deficit. A capital account surplus is an inflow of the foreign capita; in the nation which is often advantageous to a country. The main question that is posted by critiques is where these monies go and their role in the growth and development of the economies. If it is used for consumption, it will not have any injections and therefore more debts. It will be more stress to the country as opposed to when it is invested.
It is unarguable that debt crisis is a challenge to a number of countries across the globe. In a number of economies, the crisis started during the mid-1970s when a number of the Organizations of Petroleum Exporting Countries (OPEC) managed to amass wealth and banks were willing to lend billions of dollars. A number of developing economies borrowed huge sums of money at floating and low interest rates. Due to the irresponsibility of the debtor governments and the creditors, the money borrowed was not used in the productive purposes, i.e. investment; rather it was used for immediate consumption. Consequently, these countries could not generate enough finances to repay the loans. The incidences of adjustable interest loans increased during Reagan’s administration in the United States to reduce inflation through the enforcement of stringent rules. (Madura, 2012) During this time, the prices of the raw materials collapsed, meaning that a number of poor countries did not have enough money to repay the debts. Most developing countries failed to pay their debts and have heavily relied on the International Monetary Fund and the World Bank. There was however a condition those countries were to adopt economic structural adjustments. The government of the affected countries was forced to cut costs on education, health, and other social services to be able to repay the debts. In Latin America, the per capita of most countries plummeted, the GDP stagnated and ...Download file to see next pagesRead More
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