Something that is owed by a person or
organization, usually money, goods, or
services. Debt usually occurs as a result of
borrowing credit. Debt servicing is the
payment of interest on a debt. The national
debt of a country is the total money owed by
the government to private individuals, banks,
and so on; international debt, the money owed
by one country to another, began on a large
scale with the investment in foreign
countries by newly industrialized countries
in the late 19th-early 20th centuries.
International debt became a global problem as
a result of the oil crisis of the 1970s. As a
result of the Bretton Woods conference in
1944, the World Bank (officially called the
International Bank for Reconstruction and
Development) was established in 1945 as an
agency of the United Nations to finance
international development, by providing loans
where private capital was not forthcoming.
Loans were made largely at prevailing market
rates (`hard loans') and therefore generally
to the developed countries, who could afford
them. In 1960 the International Development
Association (IDA) was set up as an offshoot
of the World Bank to provide interest-free
(`soft') loans over a long period to finance
the economies of developing countries and
assist their long-term development. The
resulting cash surpluses of Middle Eastern
oil-producing countries was channelled by
western banks to Third World countries.
However, a slump in the world economy, and
rises in interest rates, resulted in the
debtor countries paying an ever-increasing
share of their national output in debt
servicing (paying off the interest on a debt,
rather than paying off the debt itself). As a
result, many loans had to be rescheduled
(renegotiated so that repayments were made
over a longer term). In 1980-81 Poland ceased
making repayments on international debts.
Today, the countries most at risk include
Mexico and Brazil, both of which have a
debt-servicing ratio (proportion of export
earnings which is required to pay off the
debt) of more than 50%. vidual, company, or
country owes more to others than they can
repay or pay interest on; more specifically,
the massive indebtedness of many Third World
countries which became acute in the 1980s,
threatening the stability of the
international banking system as many debtor
countries became unable to service their
debts.