University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Debt crisis of 1980 was quite significant in a number of ways. First it enabled the International Monetary Fund (IMF) to gain a visible role in managing its crisis. The crisis also played quite substantial role in financial crisis of Asians. IMF is criticized by many observers because of its ability to handle cases related to debt crisis but all in all this institution finally helped in resolving the acute phase of the debt crisis. The fund brought together the commercial banks, countries with debt and other issues which were involved in the crisis.
Various involvements of MIF in their development issues were also illustrated by the debt crisis. The value of existence of IMF was greatly facilitated by the debt crisis. There are quite a number of social cost which arisen as a result of debt crisis of 1980. Debt crisis during this period eventually wiped out all the efforts which were made to reduce poverty within those countries which owned debts (Carrasco R. 2008). Global managerial entails shifting of management from being managed by the national state to being managed by the global institution.
This shifting can be either absolute or not. Various institutions that are managed nationally usually embrace various global goals. The state need to adopt various procedures and policies so that they can achieve better global managerial since it entirely needs to be developed from within but not to be adopted from other countries. This usually helps in relocating producers in various global economies. This managerial basically recognizes global managerial in all parts of the world but not just in some specific parts.
The debt crisis of 1980 was basically viewed as crisis for banking which left out other national economies to give various feedbacks which could else be challenging to the state’s development. Since debt crisis was entirely treated as banking crisis brought about global fin. This time of debt crisis physically brought a lot of challenges to various state developments. This resulted to rise of the social spending and various state enterprises were finally privatized as a result of these crisis. During the debt crisis regime, two trends were incorporated in the crisis which had emerged in 1970s.
First economic growth diverged among the states which were affected by the crisis after they underwent the 3W as collective entities (Macesich 1996). Then the world economy was managed through global managerial and management strategies which were used were coordinated through procedures based on various rules which were used to solve out various management issues. During this regime various terms debts were rescheduled by most of the countries which made them not to pay for their dues as if was required. Therefore, these debts over extended and this made many countries which were being affected by the debt crisis.
The debt crisis started to grow in early 80’s which was led by growing countries which earned a lot of money earned as a result of oil that they exported to other countries. This led to these countries having extra money which brought about idea of rendering the money to other countries which did not have a lot of income. These countries which had extra money as a result of sale of oil deposited their extra money into western banks which realized that most of the countries had a lot of money which was not freely circulating but it was only invested in banks (Baird 2006).
This money was lead to the third world countries by the bank so that they could initiate various development projects which could consequently boost their status to produce more money and the banks believed that since the money was lead out for development projects, they will consequently pay with a lot of interest. Due to some factors which arose such as global recession, increased would interest rate and low prices of commodities eventually made a lot of debts to grow quite fast and therefore these countries begun to fail in the payment of their debts which made them to result in owning large amount of debts from the bank.
The money which was loaned to those developing countries increased significantly during the early 1980’s. These countries since they were unable to pay their debts, they continued to owe money from World Bank, IMF and to other first world government which had invested their money in those bank. Therefore due to these huge debts owned by developing countries, the debts crisis arose. In quite simple terms, debt crisis arose as a result of debts owned by the third world countries. These debt crises kept on growing since these countries were unable to repay the debts that they owned from the banks.
Most of the loans which are owned by the third world countries in most cases are repaid using hard currency which are quite stable and therefore their value to not keep on changing in most countries (Watkin 1995). Most developing countries usually use soft currencies which usually deteriorate the value with time and therefore it’s no very much applicable in paying the debts and therefore the debts owned by the country eventually rises. The values of debts kept growing which makes the export to decrease and the value of most of the commodities to consequently go down this has brought a lot of problems in paying back the loans they owned.
Most of the Europeans countries were involved in various debt crises which were quite huge such that they could not be waved. Various institutions such as commercial banks facilitated the adverse growth of the debt crisis. Due to rapid development of the crisis, IMF played quite a major role in helping to solve various crises. It acted as a loophole for those countries which were heavy laden by debts but it was unable to solve various problems such as economic problem, societal and also political problems.
Despite of its great effort to solve the crisis it failed in carrying out those measures. Debt crisis contributed greatly to global changes which are meant to control various economic services associated with the debt crisis and these economic policies are usually globally managed by which government is meant to adopt various policies which are usually presented by various global institution which are usually designed in regard to globe instead of national consideration which has consequently lead to erosion third world state’s sovereignty (Thedani 2006).
Most of these countries acquired debts after borrowing money in late 1970’s and faced quite a number of difficulties in repaying the debts. After the debtors who were basically the banks made various negotiations in regard to the debts condition after they were equally accepted by the global management and they also had overview of the policies in regard to national economy. The countries which owned various debts developed financial power of world wide multilateral institutions which gave them powers to have concession from the state which helped them to pay their debts (Loxley 1998).
It paying for their debts, it was required of them to adopt to move policies which were economic so that they can have strategies of repaying for their debts. During this time of debt crisis, various terms of economic managements were reformulated which enabled powers to be shifted from third world state towards various global agencies. The banking institutions which were involved in debt crisis to allocate powers onto themselves which were meant to regulate unprecedented power. In the rise of debt crisis, people believed that it rose to due to many factors.
Some of those who observed the rise of debt crisis believed that petrodollar recycling which occurred during 1970’s resulted to these debt crises. This period is known to have had high oil prices which had risen drastically. Many of the countries which exported oil such as Middle East countries had a lot of profit which made them to invest large sum of money in various banking institutions especially in European and United State banks. These banks wanted to make profit for those countries which needed loans and this facilitated to them being led large sums of money which was not consequently repaid.
Most of the developing countries by them wanted to borrow large sums of money so that they could boost their development projects. They believed that this money was relatively cheap and that they could be able to repay it without any problems. The debts kept on increasing and these people were finally unable to repay the debts which resulted to debt crisis of 1980. After this period of borrowing money from various banking institutions the export decreased and the internet rate increased significantly during the period in early 1980s.
Due to this decrease, debtors consequently defeated in paying their debts to those banking institutions and therefore the country’s owner of money felt that they needed their money due to the decreased export. Giving out of these loans and borrowing of loans by the developing countries came to an end in 1980’s with global recession. The debtor countries had experienced quite a significant drop in their exports, and at the same time dollar value increased more than the value of other currencies which were used by other countries (Effros 1989).
Interest rate globally increased foreign exchange which was reserved for debtors depleted and therefore these countries only looked upon the help from the various transactions which resulted from the international finances. Those debtor countries strained a lot in making arrangements to pay for their debts which was quite expensive for those countries since the money that they had received from these banking institutions had floating rates of interest which consequently increased with relative increase in global rates.
Those who were active participant of the debt crisis included-government from both third world countries and those from developing countries, World Bank, banking institutions such as commercial bank and the IMF (Thedani 2006). As a result of their negotiation in regards to the debt crisis they made the international finances to collapse since they did not come in terms when negotiating for the means of payment of those debts since the currency was not stable and it kept on depreciating in value.
The debt crisis caused a lot of strain on the social cost which lead to development of the lost decade those who were involved in debt crisis and also various observers and a negative attitude towards World Bank and IMF because of the way that they handled the debt crisis. Their criticism was quite similar to that of financial crisis which developed among the Asians. These banking institutions finally came up with stable way of dealing with the crisis since they came up with adjustment program by coming up with high prices in developing countries.
Most of the developing countries contributed greatly to neoliberalism as a result of debt crisis (Pascual 2006). This is because these countries had to come up with their own ways of ensuring that they repay the debts that they owned with their own companies so that they could eventually raise money to repay their debts on. Those companies which were established by the developing countries, when they were unable to repay the debts that they owned they gave shares to those countries who had given the loans so that they could be part of the shareholders and they believed that this would help them in retrieving back their money.
In conclusion, the debts owned by the third world countries cannot be repaid by those countries which are under developed loans which are rendered a fresh only increases the burden of debts in those countries and this can lead to future crisis arising and more also worsening since they will tighten the financial situation of the third world countries.