Debt Crisis In Egypt

Debt Crisis In Egypt
By Sally Hahn

NOTE: This article was originally intended for publication in September 2012.
Recently, the debt of developing countries received international attention after the shocks of Syria and Egypt shook off. With the millennium goal of reducing poverty and economic gap in the industrialized world, much focus was shifted into developing nations that are struggling to catch up.

Developing countries face a debt crisis with liabilities beyond what countries are capable of paying. The figures have been multiplied with several years of accumulated interest rates, some of which have unfairly been imposed on developing countries despite its having been used in military oppression of the citizens by the government. The world now faces an ironic situation in which poorer countries are paying back almost double the original debt, yet still are not free from financial debt burdens.

During colonization, unjust transfers were commonly made from the colonizing states to the colonized states. The more powerful countries had spent big sums of money on "modernizing" the countries, and all the financial burden was imposed on the colonized. In fact, $59 billion of debt was forced in total to all nations which attained independence in the 1960's. The interest rate at that time was 14%. Compare that to when the LEDCs started borrowing, in which the interest rate was less than the inflation rate.

Mismanagement of lending also contributes greatly into the severe problem. In the 1960's, the United States had lent more than it had. The Federal Reserve ended up printing more dollars, depreciating the dollar value. The problem was that oil was priced in US dollar values. The major oil companies and countries found that they earned less purchasing power than they had before. Therefore, they raised the oil prices to regain their profits. Then, they started investing most of that money into Western banks. At that time the inflation rate was overwhelming. It was more disadvantageous for them to keep it; at least the bank gives interests.

The Western banks were then engulfed with money, and desperate to loan, they turned their eyes on developing countries. These countries had just become independent and craved for money to finance their newly built systems. The banks lent money carelessly and recklessly, with no consideration of whether the countries will be able to pay it back. (Back then, the interest rate was lower than the inflation rate now.)

As time goes on, the calamity is only getting worse. Most of the countries are still in debt, merely providing financial assets for developed countries each year, while the poor are subsidizing the rich. Today, the UN and other international bodies are continuing to solve this detrimental phenomenon. International attention is to be needed to solve the matter at hand.