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Economic Disparity. Group 1 –Canada, US, England Group 2 –Poland, Thailand, Phillipines Group 3 – Ethiopia, Haiti Group 1 – How does it feel to have so much when others have so little? Group 3 – How does it feel to be in your group when you see the wealth of group 1?.
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Group 1 –Canada, US, England Group 2 –Poland, Thailand, Phillipines Group 3 – Ethiopia, Haiti Group 1 – How does it feel to have so much when others have so little? Group 3 – How does it feel to be in your group when you see the wealth of group 1? Global Wealth Distribution Activity
What are some of the reasons for the inequality? What are some of the consequences of such inequalities? Who , if anybody, is responsible to try and change this situation? Do you know people or organization that are currently trying to make this situation better? Global Wealth Activity (c0nt)
What causes such economic disparity? Impact of colonialism – countries that were controlled by another at one time were robbed of money and resources. Lack of Investment – without domestic or foreign investment economic growth is very slow. Population Growth – because of high population rates, these countries have offered very poor standards of living. (Can’t afford anything else.)
What causes such economic disparity? • Disease – Illness is a drain on the gov’t and since there is so much in the areas it is crippling. • Foreign Debt – 1977 the 60 poorest nations owed US $550B. By 2007 they paid US $540B and still owed US $523B. (Line of credit) $13 in debt repayment for every $1 they received. (Debt servicing) • War – For most of the poorest nations war and conflict has been a constant. (Some for decades) This inhibits a country’s ability to improve. Energy and money must be focused on stability. • Leadership Issues – Many of the poorest countries have had leaders with no interest in improving the situation. Often times they steal the money.
PowerPoint 2 Chapter 14:The International Debt crisis
What would you do if...you needed to borrow money to feed your family, and eventually you had borrowed so much that you were going to be in debt for the rest of your life. In fact, the interest that you have already paid on what you owe has been more than the original loan. • This is the situation many countries, especially African countries, find themselves in. A difficult dilemma
By 2006 developing countries owed 2.9 trillion USD. This amount increases at about 5% annually. Debt service charges (‘monthly payment and interest’) are about 500 billion USD per year The Burden of International debt
A measure of the quality of life in a country. • What would be measured? • Life expectancy • Literacy rate • Per-capita GDP (per person yearly income) • 2011 HDI Rankings HDI (Human development Index)
Old Text New Text International Debt Questions
NGO – Non-Governmental Organizations Debt servicing – the payment on the loan. Debt to export ratio – relationship between the amount of debt owed and the size of a country’s exports that provide hard currencies for debt repayment. Odious Debt – debt incurred by corrupt leaders. Debt and aid terminology
Debt owed by region 9% Sub-Saharan Africa 15% South Asia, Middle East, North Africa 18% Eastern Europe 58% East Asia, Latin America 9% 15% Why does Africa account for so little considering its dire circumstances? 58% 18%
private lenders 71% (Commercial banks) • bilateral (between countries) 13% • Multilateral (International agencies) 16% i.e.- World Bank • However, due to lack of confidence most developing nations get less than 25% of their loans from private lenders and rely heavily on bilateral and international agencies 3 sources of $
the UN Human Development Index (HDI)- ranks Sub-Saharan Africa in the bottom 25% (in other words it is least developed) • Total and Per Capita Debt- while total debt is important, per capita debt is more significant. • Guinea-Bissau owes 964 million which seems very manageable, but per capita debt is $803 (every person owes $803). $803 may be 2-3 times the average income of that country. Effects of Debt
Debt-to-Exports Ratio- because most debt is external, countries need hard currencies (Pound, Yen, USD)as payments must be made in these. So poorer countries are forced into exporting. (Sudan) • Debt Servicing- the more a country spends on debt payments the less money it has to spend on hospitals, education, etc.(Angola & Sudan) • Spending on Education- see how often spending on debt exceeds spending on education. Does this seem like a healthy situation?
The crisis did not occur because of a single event, rather a series of interconnected event all working against developing nations. • Loans not grants (1957)- started by the USA and picked up by other countries, it made sense to the developed world but was $$ with strings attached for the least fortunate nations. Chronology of the Debt Crisis (Causes)
Abolition of gold standard (1970s)- caused uncertainty in financial markets and caused OPEC to raise the price of oil by 70% Explosion of petrodollars (1970s)- because of this increase the OPEC nations had huge amounts of $$ which was deposited in banks, the banks than invested the money in developing nations who needed the $$ to buy oil, which left no capital to invest in infrastructure (see the cycle) Spiraling inflation (1970s & 1980s)- which drove up interest rates on these loans, increasing from 5% to 15%, a huge difference
Declining currency values- as the economies of debtor nations grew worse, their local currencies lost value (+50%) compared to the Yen and USD, this meant their loans doubled as well. Falling commodity prices- the goods that these countries could sell declined in value which meant they had to pay higher prices for imports and sell more to pay off their debts
The result was that the people of these countries experienced a decline in their standard of living. In Mexico, the average income dropped by more than 40% between 1982 and 1988. The cost of buying food for a family of 5 went from 41% of minimum wage to 161%.
Debt Default Debt rescheduling Debt forgiveness CIDA – Canadian Aid Development Agency Discuss
Foreign Aid is given through a number of agencies both governmental and private (NGO‘s) • What are some Aid agencies? • Doctors without borders • Red Cross • UN Foreign Aid/Debt Relief
Bilateral – this is the most common, money is sent directly from one country to another country. Tied Aid - tied aid is Bilateral aid with conditions (strings) attached. Example, materials given to help must be purchased from donor country. Types of Foreign Aid
What would be issues around Tied Aid? • Disadvantages to tied aid: • materials may be able to be purchased cheaper from other countries. • Equipment used in one country may not be effective in another. (Water pump commercial.) • Can be inefficient since it requires paperwork and transportation time. • Advantages to tied Aid: • High levels of technology sent to LDCs. • Usually more acceptable in donor countries. Pros and Cons of Tied Aid
Multilateral – Transfer of aid from several countries to another through international agencies. (Red Cross, UNICEF, FAO, WHO, World Bank) • World bank is the biggest most powerful force in development. In single years handing out close to $20 billion. • The world bank receives money from wealthier countries France, Canada, Germany, and the US. • Most of the money has been put into very large projects rather than smaller ones. Types of Foreign Aid (cont.)
Example of work: • fixing deteriorating environments in Brazil after clearing a rain forest. • Sewage tunnels in Shanghai • fixing major ports in Madagascar. • Electrical generating plants in Indonesia • loans to farmers struggling from drought or floods. Examples of large projects
In the last part of the 1990's it became clear that most developing countries would not be able to pay off their debt. • Debt relief seemed to be the only option. • Debt relief being the reduction or elimination of a debt. • Some people are pushing for a complete elimination others are pushing for a decline to the point of possible repayment. Debt Relief for Dev’ing Countries
Developed by the World Bank and IMF and was agreed upon by world governments in '96 and again in '99. • It applied to the 41 poorest whose debt added up to more than $201 US. • Debtor nations had to meet specific criteria and set up a new economic plan (Structural Adjustment Plan) which totally changes the focus of a countries spending. • This HIPC did not work to great success by 1999 only 3B in debt relief and 10 countries had qualified. HIPC Initiative (Highly Indebted Poor Countries)
Based on the premise that with the coming of the new millennium all $230 billion owed by the 50 poorest nations would be forgiven. • debt relief should occur so that the poor countries can use their limited wealth to fund their economic & social growth • Three beliefs: • The debt of developing nations is ruinous. (hopeless) • Debtor nations have already paid a fair amount for loans forced on them. (Between 1980-1992 $1.6 trillion but their indebtedness did not change.) • Not fair to make current citizens pay for debts of former citizens. Decades old debts. Jubilee 2000
as a member of the G8 we do play a small but significant role (1.2 billion owed to us) • most of our loans allowed poorer nations to purchase Canadian goods • in 1989 we forgave $672 million that was owed to CIDA (Canadian international development agency) • In 2010 Canada forgave Haiti debt of 2.3 million • Called on all dev’d nations to follow suit. • Canada has adopted a “broader, quicker, deeper” approach to the HIPC initiative Canada and Foreign Aid
MANDATE • CIDA’s aim is to reduce poverty, promote human rights, and support sustainable development. • CIDA was established in 1968 to administer the bulk of Canada’s official development assistance (ODA) program in Africa, the Middle East, the Americas, and Asia. • In 1995, started administering Canada's assistance (OA) programs in Central and Eastern Europe, and the former Soviet Union by supporting democratic development and economic liberalization. CIDA (Canadian International Development Agency)
Sub-Saharan Africa: $1.3 billion – 46.74%North Africa and the Middle East: $129 million – 4.6%Americas: $459 million – 16.5%Asia: $780 million – 28.1%Eastern Europe: $114 million – 4.1% Distribution of CIDA Funding 2005-2006
Progress has been made in getting more children into school in the developing world. Enrolment in primary education grew from 80 percent in 1991 to 88 percent in 2005. Most of this progress has taken place since 1999. • Child mortality has declined globally, and it is becoming clear that the right lifesaving interventions are proving effective in reducing the number of deaths due to the main child killers, such as measles. • In addition, thanks to CIDA's contribution, Ghana, a country of 22 million people, is well on the way to achieving the first Millennium Development Goal. . In 1991–2006, this African country nearly halved its poverty rate (from 51.7 percent to 28.5 percent). The absolute number of the poor declined from 7.9 million in 1991–1992 to 6.2 million in 2005–2006. In Tanzania, the net primary school enrolment rate rose from 59 percent in 2000 to 96 percent in 2006. One in two pupils is a girl. In 2003, CIDA and UNICEF started up a three-year joint project that reduced infant mortality by 20 percent in 11 West African countries. CIDA Achievements
Private Sector Development Launched by the Government of Afghanistan in June 2003, the Microfinance Investment Support Facility (MISFA) has far exceeded expectations, granting more than $70 million in loans to some 300,000 urban and rural poor in Afghanistan. While traditional banks would not likely have shown confidence in the poor, 98 percent of these clients have repaid both capital and interest. Their word is literally money in the bank. Canada, through CIDA, is the largest donor to this program. Education CIDA’s support to this sector contributed to 6.8 million more children being enrolled in school since 2000 in a number of African countries, such as Tanzania. In Mozambique, more than 3.5 million schoolchildren received textbooks. Humanitarian Aid The aid supplied to victims of the tsunami that ravaged coasts around the Indian Ocean helped provide 1.3 million people with food from the World Food Programme and the inter-national community. Environment A project to supply sustainable water and sanitation (PASOS) in Honduras has enabled 61,000 individuals to have access to running water and sanitation services. Equality Between Women and Men According to an assessment by the United Nations Development Programme, CIDA is the only donor in Egypt to have successfully integrated equality between women and men into all its activities. Health Vitamin A supplements were distributed, saving the lives of more than 300,000 children under the age of 5.
eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality, improve maternal health, combat HIV/AIDS, malaria and other diseases, ensure environmental sustainability, and develop a global partnership for development—all by 2015. UN Millennium Development Goals
