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Understanding International Debt Crisis and Foreign Aid Solutions

Learn about the causes of debt crisis, solutions such as debt reduction and forgiveness, and the role of foreign aid in supporting developing nations. Explore key terms like Multinational Corporation and Third World Country.

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Understanding International Debt Crisis and Foreign Aid Solutions

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  1. Foreign Aid & International Debt

  2. Vocabulary to Know • World Bank: UN agency that provides loans & advice to developing nations to help advance their economy • International Monetary Fund (IMF): UN agency that promotes international trade & economic cooperation while stabilizing currencies & developing programs for countries that require economic adjustments & reform • Multinational corporation (MNC): a large company that produces & sells goods in more than one country • First World country: Capitalist, highly industrialized, technologically advanced & usually democratic countries with high standards of living • Third World country: a poor nation with low economic development, typically dependent on the industrialized world

  3. Causes of the Debt Crisis • Colonial powers transferred their debts to former colonies at high interest rates • Forced to repay loans accepted by corrupt governments/dictators • Poor lending practices of wealthy nations during 60s & 70s • Because large amounts of money are diverted to loan repayment, debt has crippled the economies of many poor countries

  4. Debt: Solutions • Highly indebted poor countries (HIPCs): Countries with high levels of poverty and debt are eligible for special assistance from the World Bank & IMF. • Structural Adjustment Programs (SAPs): loans given by World Bank & IMF on the condition that the country adopt more free market oriented policies • Debt reduction: Reducing the amount that needs to be repaid • Debt forgiveness: Cancelling all remaining debt payments • Foreign Aid (see next slide)

  5. Foreign Aid • multilateral aid: many governments contribute to a join organization • Example: UNICEF, World Bank • bilateral aid: one government gives aid directly to another, often in the form of tied aid • Example: CIDA • non-governmental aid: NGOs representing religious groups, non-profits and service organizations provide aid • Example: Red Cross, Doctors Without Borders, World Vision, OXFAM

  6. Foreign Aid • Corrupt governments often divert foreign aid dollars into their own pockets • In the past, foreign aid focussed on short term or one time loans • In recent years, foreign aid has: • supported more small-scale sustainable projects at the local level • focussed on helping poor nations reduce their debt and develop their economies

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