Global interest rates are rising. Poor countries are finding it tough to pay back money borrowed from banks in anticipation of a commodity windfall that never materialised. Stir in some dirty dealing that has seen funds stolen and what do you have? That’s right: the makings of another debt crisis.
As the interest rates rise, LEDC like Africa finds it difficult to return the money owed to the International Monetary Fund, the World Bank and individual rich nations. Even though they are aided by international aid, it isn’t enough for economic growth, therefore, they seek private-sector investments.
After the world crisis in 2008, Africa was very attractive for foreign investments. With all the investments coming in, their financial health was steady. With the low-interest rates in the MEDC, investors were investing elsewhere in the world to gain more money. China’s rapid growth meant that Africa’s export of commodity was in high demand, therefore, further making them attractive. Western banks loaned money for plans in Africa which were planned to be paid off by the money they get from the rising commodity prices.
That was the theory.
In real life, some suspicious deals were done. For example:
The money was supposed to be for a tuna fishing fleet and for a navy to protect the boats operating in Mozambique’s territorial waters. Credit Suisse and VTB trousered $200m between them in fees, but the loans were never revealed to the Mozambique parliament, the IMF, the financial markets or the Mozambique people.
The World Debt Crisis would be here soon as the rising demand for the commodity is over, China’s boom is less rapid, the cost for loaning out in foreign currencies is more expensive as the global interest rates have increased.
To prevent this world debt crisis, there should be better observing of how developing countries are vulnerable to their world debt, a campaign for a bankruptcy system that would treat countries like companies and actions should be taken against corruption.