Social Justice Paper

Avery Almendariz

Reese Ancheta

Noah Carlton

Andrew Edmonds

Ms. Tomlison

English 2H

13 December 2017

Debt in Developing Nations

Sold is a novel written by Patricia McCormick, which follows the journey of a thirteen-year-old girl who was sold into sex slavery by her step-father. This is a product of her family living in a poverty-stricken town, and her step-father gambling away the small amount rupees that the family has. Many people living in third world countries and developing nations live in poverty where debt continues to grow. With debt comes the inability to support a family, which will continuously struggle, and at times may cause the family to make difficult decisions. Debt in developing nations is a product of poverty, which primarily effects the families within it, and the best possible solution to this problem would include debt forgiveness from more advanced countries.

To begin with, debt is a large issue in developing nations but has seen some successful solutions in the past. In 1982 Mexico was not able to pay of their eighty billion-dollar loan to the United States, and this caused the government to nationalize Mexico’s private banking industry to prevent bankruptcy. In the coming months all debts to private sectors were ceased, Mexico had a serious problem but The United States would come soon to help. It is not merely the problem of being in debt but that families do not have the money to pay off this debt and are provided no way to overcome these debts. Mahatma Gandhi was a social rights activist in South Africa and India who grew up poor, he describes poverty and debt as "The worst form of violence" (Mahatma Gandhi). He says this to illustrate the fact that when someone is in poverty their future is controlled by someone else, and most people who run the world's nations are wealthy, they do not always do what is best for the poor and needy. As a man who lived his early life in poverty, Gandhi illustrates to people just how dangerous debt and poverty really are. According to Allen Fredrick in the Saturday Evening Post, the first banks in the United States were opened in 1792, this leads us to assume the issue of debt has been around since around the same time period ("Too Big to Fail" Fredrick). Fifty five percent of Nepali citizens make 1.25$ or less a day. The average citizen is in debt 199$ annually, if a citizen made that much per day then an annual debt of 199$ would cover 43.6% of their income (Lok Nath 50). There are several solutions to help aid this issue the one proposed by the Bush administration was to “have the banks chose to swap 49 percent of their loans for discount bonds, 41 percent for par bonds, and 10 percent to provide new money. Commercial debt worth $48.9 billion (medium and long-term) was covered under the deal. In exchange for forgiving part of Mexico's debt, the principal and interest of the new bonds banks received were securitized by U.S. Treasury bonds, which were in turn financed by the international financial organizations” ("The Brady Plan and Market-Based Solutions to Debt Crises" Ian Vasquez). This plan greatly helped Mexico and was later used on the countries Costa Rica (1989), Venezuela (1990), Uruguay (1991), Argentina (1992), and Brazil (1992). Although many causes to debt exist, there is one major contributor that beats the rest.

Secondly, there are several major causes of debt but not much has been done to solve these problems. Some examples of why people get caught up in debt is poor money management, unexpected illnesses, loss of employment or unemployment. But the biggest reason was addressed by Carlos Garriga when he stated, "Early in life, income tends to be low, yet consumption demands can be high. This mismatch is likely to result in borrowing" (Garriga 185). Here he simply states that one of the biggest contributors to debt is having needs you cannot pay for. He later writes, "As individuals age, earnings tend to increase and consumption expenditures may increase also, but usually at a slower rate"(Garriga 185). As one gets older their income tends to increase as they have received more experience in their work field and have opportunity for pay raise. Solutions have been proposed but there has been no defined end to debt and potential debt crisis', this is because there will always be a need for more money than one has. Not just out of greed but basic necessities, one of these necessities is an education and in a country as a strong as America even it has an issue with its education system. In an article Ross Scott wrote, "A 2013 survey of 61,000 student loan borrowers showed that a four-year degree will take the average borrower twenty-one years to repay. Student loan debt is the second largest consumer debt in the nation"("DeVos, Trump Make the Student Loan Crisis Worse" Scott). As long as education is a necessity in the work field debt will continue to be an issue. Not only with students with debt is an issue but also with single parent homes and individuals who dwell below the poverty line.

In addition, debt is a major problem around the world especially with groups who dwell below the poverty line in third world countries, and Nepal (Lakshmi’s home country) has a large number of citizens below their poverty line. According to one source, 25.4% of Nepali citizens are below the poverty line and 78% of the population earns two dollars or less per day (Lok Nath 50), to put this in perspective the average household income in America is around 59,000$. This would entail a daily earning of one hundred and sixty-one dollars, that is over eighty times more than the daily income of 78% of the Nepali peoples. Debt in Nepal is different than America. In America there are programs for people to get out of debt that far easier to use. In Nepal with each citizen earning so little money it becomes difficult to rise above the poverty line and pay off their debt. Not only does debt effect the lives of individuals below the poverty line, but it effects single parent homes to a greater extent. The Hudson Valley Business journal stated "single parents with dependent children, who make up nearly 12 percent of college students, have less money to contribute to the cost of college, have much greater unmet need after receiving financial aid, and amass higher levels of student debt than other students"("Hudson Valley Business Journal" 4). Single parent homes have a harder time paying bills and things of that nature because they only have one possible income. In addition, they also have to pay for child care or take limited work hours to take care of their kids. In conclusion, there are potential actions and situations to eliminate or cutback debt.

Furthermore, there are many ways to decrease and possibly eliminate all debt in developing countries. Out of the numerous solutions being implemented in poor countries, debt forgiveness from more advanced countries, the setting up of the three debt informational offices, and making foundations in which people may swap their debts for natural materials are the most efficient and realistic ways to demolish debt. To further explain, in the article “Debt Relief is Cheap” in Foreign Policy the author explains the efficiency and cost of debt forgiveness. Debt forgiveness would increase the worth of the developing countries currency and would allow the developing country to pay for other things that they are in need of ("Debt Relief Is Cheap" 142). Debt forgiveness has a greater effect on a country as whole rather than focusing on decreasing debt of individual families. To continue, in the article “The New Face of Developing Country Debt” by Roy Culpeper he introduces the idea of setting up three debt informational offices in a government, being the Front, Middle, and Back offices. Each office has its own role in reducing debt in a developing country (Culpeper 958). The three offices will work together to create a better and easier system for the citizens of developing countries to use and develop skills to get out of debt. Lastly, in the article “Debt for Nature Swaps and the Need for Alternatives” by Allen Patterson, the author introduces a solution where countries can pay off their debts in raw materials and goods rather than with currency. Patterson explains the benefits of this process by demonstrating, “money raised through the swaps are often spent on parks and wild lands” (Patterson 8). This quote reveals that through trading raw materials, the developing country is given the opportunity to build parks. These parks could provide the poor countries with more raw materials in which they could make profits from. To conclude, these solutions could all essentially work to reduce debt in a developing country, but there is only one solution that will truly vanquish debt.

Finally, the best way to extinguish debt in developing countries is through debt forgiveness from more advanced countries. Debt forgiveness is when a more advanced country disregards the debt that has built up over the past century from developing nations that are extremely poor. Many developing countries have built up an amount of debt that will be impossible for them to ever pay off. Some countries are still paying off debts from over one hundred years ago. In the article, “Debt Relief is Cheap” in Foreign policy the author tells of the millions of dollars that Mexico is in debt to America. Specifically, the author explains, “reducing Mexico's debt would improve its growth prospects... and this would enhance the value of the money still owed after a debt reduction package had been put in place. So, the value to creditors of the last ten billion dollars in overall Mexican debt should be quite small. It may even be negative. If the vicious circle of high debt and low growth is strong enough, reducing debt may enhance a country’s prospects enough to actually increase the total expected debt repayment” ("Debt Relief Is Cheap 142). This data shows that in developing countries, their currency has a lot less worth than currency in a more advanced country, meaning that the nations that forgive the debts will not lose much or any of their money. When there is extremely high debt in developing countries and no money gained, then forgiving the debt could allow the worth of their money to increase, which in turn could benefit the forgiving nation in the future. The primary benefits that developing countries will receive from debt forgiveness is having extra money that they can use to make better education systems and implement institutions like the Three Informational Offices of Debt Reduction. Without debt forgiveness, developing countries could not afford such influential programs. Despite the many benefits of debt forgiveness, government leaders are against giving developing countries forgiveness because there is corruption in those nations that is causing the debt to occur. P.L wrote an article called "Clarke Tackles Multilateral Debt Problem of Poorest Countries" where the chancellor of the Exchequer noticed how this conflict could be easily fixed when he declared, “I shall continue to press other Pads Club members for immediate stock of debt reductions for countries with a good track record of economic reform--which includes several countries in the Commonwealth” (P.L 115). This statement displays how governments can forgive debts as a reward to those countries who are not corrupt. This could also motivate nations that have corruption in their government to adjust their ways in order to receive debt forgiveness. In summary, debt forgiveness is a simple solution that can open doors to many other opportunities for developing countries to expand and develop a strong government.

In developing nations, debt is a major problem due to the fact that it roots from a much bigger problem, poverty. Without the proper amount of income or financial aid, families are forced to make tough decisions to try and better their own situations. To better the nation's situation, the surrounding countries that are more advanced must forgive them of all the debts that they were required to pay. With that, the nation in development will be able to start fresh and better both the nation as a whole and the people within it. In order to make this possible, people must come together and help by volunteering and donating to trustworthy associations that help suffering families in developing nations. As that goes on, the developing nations will grow and eventually flourish into a great advanced country.

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