My name is Sumayah Aryan. I am in 10th grade and so are my brother and sister; were triplets. I run cross-country and track and field and some of my hobbies include painting, and baking. I am in MUN because I am a talker and I think it is a really neat class to take. I hope this gives you a quick understanding about who I am.
I. Background of Repayment of International Loans:
Lending policies in the developing world often result in more damage than benefits. The financial institutions of the world reside in developed states and operate based on developed world business models. Institutions of the developed world often attempt to find profit in the development of other nations. Unfortunately, the unreliability of developing economies often results in the loss of investments, and the developing nations are ultimately crippled by foreign debt.
The problems created by dealing with the economies of developing nations are enormous. Unstable economies have any number of factors that can shift the balance of the economy for the worse, coupled with inefficient government handling of these problems, which in turn leads to poor reporting of the overall financial data. Business investments and economic decisions based on suspect data can lead to disaster. Countries that are in different parts of the business cycle than reported or that have hidden massive faults in their economy, whether intentional or accidental, create extreme risks when accepting loans. In many cases, these countries have little choice but to play out these risky scenarios or end up receiving no money at all. Moreover, the factor of governmental inefficiency does not even include the entirely separate category of rampant corruption rooted in many developing countries. There, government officials of all levels can divert funds intended for economic development.
Not only that, but there is a much higher chance of an overall economic collapse. From a lender’s point of view, all of these risks must be factored into the interest rates in order for the lending institution to remain economically viable.
An example of this would be the East Asian financial crisis of 1997. On 2 July 1997 Thailand removed their exchange rate peg from the rising US dollar. The devaluation of the baht caused the East Asian Financial Crisis to sweep through much of Asia. The IMF and World Bank had been closely involved with Thailand dating back to the mid-1980s and viewed the country as a model of success, ignoring the inflation that accompanied Thailand’s huge amounts of growth and capital gains. The impending economic crisis in Thailand was inevitable as private investment far outstripped private savings. In addition, outside observers thought the government generating a budget surplus showed that the imbalance in private spending was not a concern. The Thais continued to liberalize their financial system through the early and mid-90s at the IMF’s urging, so when the baht began to devalue rapidly due to past IMF policies, it was the IMF’s duty to fix a situation that it had, in part, caused.
II. U.N. Involvement in Repayment of International Loans:
To try to combat this problem, the UN has established various monetary banks to loan developing nations money, such as the World Bank and the International Monetary Fund (IMF). Now many countries take out loans from these various funds, and from other countries. The idea the United Nations proposed was debt forgiveness. An idea first proposed by noted economist Jeffrey Sachs, debt forgiveness has become a popular movement that combines human rights politics with global economics. The late Pope John Paul II and notable celebrities such as U2 singer Bono first began popularly advancing the ideas of Sachs by promoting global debt forgiveness in order to benefit developing countries. The movement quickly gathered steam as almost every human rights-related NGO, including the likes of Jubilee 2000, Oxfam International, and the massive worldwide series of concerts know as Live 8, has become involved with the platform, and has begun to win the platform some successes. The IMF and World Bank have begun clearing countries for limited or full debt forgiveness in order to help them with the developmental struggles. Their ultimate goal is the forgiveness of all debt in the developing world.
III. Possible Solutions to Repayment of International Loans:
As previously states, debt forgiveness is a possible method to reducing international debt. This however, merely eliminates the problem for one party of the loan. Although this policy aids indebted countries tremendously and allows them to develop, it does not benefit the loaners of funds. An alternative solution would be to temporarily suspend the repayment international loans. This could allow crippled nations to strengthen their economies so that they could eventually repay the loans. Interest rates and adjustments for inflation could be viable topics of debate for such a solution. Another possible solution, though it is heavily debated, is foreign oversight of indebted countries. This solution calls for the monitoring of the spending of those nations who cannot repay their loans. The goal of the program is to by-step government inefficiency so that the economic potential of a country can be maximized. This way, loaners make sure for themselves that they are being repaid. This solution is an equivalent in extremity to forgiveness of international debt. Although it is viable, it is an infringement on the sovereignty of indebted nations.
IV. Bloc Positions for Repayment of International Loans:
Asian Bloc: Asia is supportive of the development of nations. Countries of this bloc should balance compassion for nations crippled by debt and the interests of loaners.
Western Bloc: Nations of the western bloc uphold that loans should be eventually repaid. But they recognizes the struggle of developing nations and are in favor of aiding countries who are rendered incapable of development due to debt.
Latin Bloc: The Latin bloc believes that stress should be relieved from developing nations as much as possible
Middle Eastern Bloc: Countries of this bloc believe that in no circumstances should the sovereignty of nations be infringed upon for the purpose of ensuring the repayment of international loans.
African Bloc: The African bloc is in full favor of debt forgiveness as well as the implementation of foreign aid in order to enable developing nations with the power to repay loans.
V. Questions to Consider for Repayment of International Loans:
1. Are the IMF and World Bank to blame for the lack of development in the developing world?
2. Are there practical solutions for improving countries financial infrastructures without burdening them with further loans?
3. Is private lending something we can regulate? Is private lending something we should regulate?
4. In the global free market is a body to regulate currency necessary?
5. If the World Bank stopped charging interest could they ensure that the money is spent prudently and is spent on the people it is intended to help?
6. Is debt forgiveness a good idea?
7. Can debt legitimately be called a form of neo-colonialism?
8. If the IMF did not exist how would countries’ economies and the world economy react to financial crises?
9. Is creating regional banks a viable solution to the current problems?
10. How do we ensure that fund lent are not diverted by government corruption? Should the IMF and World Bank knowingly lend to corrupt governments?
VI. Works Cited for Repayment of International Loans:
http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,pagePK: 50004410~piPK:36602~theSitePK:29708,00.html
http://www.imf.org/external/np/sec/memdir/members.htm
http://www.imf.org/external/np/exr/facts/glance.htm
http://cerritosmun.weebly.com/uploads/3/1/4/9/3149868/bernard_bagorio-_ecosoc.pdf
http://www.historyhaven.com/ECOFIN.pdf