Edexcel Geography B A2 Debt Crisis

1970s OPEC raised oil prices increasing members' earnings

This money was banked with western banks

Western banks lent this money to developing countries for top down development projects (Akasombo dam, Ghana) or despot regimes for weapons (Idi Amin)

1980s interest rates doubled

Debt burden increased hugely

Uganda was not able to repay its debt service

What were SAPs?

The IMF created the structural adjustment packages in the 1980s to prevent the collapse of the banking system through the unpaid debt of developing countries

Advantages of SAPs:

• re-scheduled the loans to make them more affordable
• protected the world banking system

Problems of SAPs:

• IMF imposed cuts on government spending: Neocolonalism
• Spending on health and education was reduced in Uganda, particularly during the late 80s and early 90s

SAPs were abandoned in 1996 for the HIPC initiative

Created in 1996 following pressure from NGOs to reduce the debt burden of the poorest countries.

• 38 of the least developed countries with the heaviest debts
• consolidates multilateral debt from different lenders
• reduces not just refinances debt

How does it work?

• 3 years of poverty reduction policies
• Decision point: is the remaining debt sustainable?
• If no, debt relief is given.

Uganda was the first country to benefit from the HIPC initiative

The Ugandan government had to demonstrate

• good financial management
• lack of corruption
• that the money saved was spent on poverty reduction: health and education

Out of a debt service of $2 million, the World Bank provided $1 million of debt relief