Debt and Development

Hanlon, Joseph and Jones, Tim (2021). Debt and Development. In: Haslam, Paul; Schafer, Jessica and Beaudet, Pierre eds. Introduction to International Development: Approaches, Actors, Issues, and Practice (4th ed.). Don Mills, Canada: Oxford University Press Canada, pp. 263–281.

URL: https://global.oup.com/academic/product/introducti...

Abstract

Lending and borrowing, and regulations to control them, go back 4,000 years and international lending goes back 700 years. Loans can be a source of external resources for investment and economic development. However, lenders have their own interests, which have harmed developing countries. Banks with surplus capital have pushed inappropriate loans on countries as part of their speculation. Loans promote exports, especially of weapons. Governments sometimes want to support or to promote political allies, including dictators, regardless of what the money is spent on.

Charles Kindleberger proposed that the global economy runs in cycles of growth, mania, and panic. In the growth period lending can promote development. The mania includes loan pushing that turns to economic bust and panic. This was the case in the 1930s and in the 1980s, which led to two “lost decades of development” across much of the Global South. For two decades, the developing world gave 48 million (USD) to the rich world each day—yet every day the debt burden increased by 204 million (USD).

Similarly, the global financial crisis in 2008 was rooted in excessive lending, followed by a sudden bust. And the pattern was repeated. The North printed money through quantitative easing, and some of this surplus money was lent to the South, promoting what would become a new debt crisis.

Meanwhile, within the rich countries, wealth has been transferred from rich to poor while poorer people have been encouraged to borrow to maintain minimal levels of consumption. And the US has built up a huge foreign debt by forcing developing countries to keep US dollars as reserves, making developing countries net lenders to the US and other industrialized countries.

At the heart of lending and borrowing relationships is power. If development is about creating more equal sharing of power in the world, lending has the possibility of doing so, as it is the sharing of resources by those with more. But increasingly, debt has been used as a means of increasing imbalances, increasing wealth and power in industrialized countries, and extracting resources from the Global South and preventing genuine development from taking place.

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