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Foreign Aid & International Debt

Foreign Aid & International Debt. Vocabulary to Know. World Bank: UN agency that provides loans & advice to developing nations to help advance their economy

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Foreign Aid & International Debt

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  1. Foreign Aid & International Debt

  2. Vocabulary to Know • World Bank: UN agency that provides loans & advice to developing nations to help advance their economy • International Monetary Fund (IMF): UN agency that promotes international trade & economic cooperation while stabilizing currencies & developing programs for countries that require economic adjustments & reform • Multinational corporation (MNC): a large company that produces & sells goods in more than one country • First World country: Capitalist, highly industrialized, technologically advanced & usually democratic countries with high standards of living • Third World country: a poor nation with low economic development, typically dependent on the industrialized world

  3. Causes of the Debt Crisis • Colonial powers transferred their debts to former colonies at high interest rates • Forced to repay loans accepted by corrupt governments/dictators • Poor lending practices of wealthy nations during 60s & 70s • Because large amounts of money are diverted to loan repayment, debt has crippled the economies of many poor countries

  4. Debt: Solutions • Highly indebted poor countries (HIPCs): Countries with high levels of poverty and debt are eligible for special assistance from the World Bank & IMF. • Structural Adjustment Programs (SAPs): loans given by World Bank & IMF on the condition that the country adopt more free market oriented policies • Debt reduction: Reducing the amount that needs to be repaid • Debt forgiveness: Cancelling all remaining debt payments • Foreign Aid (see next slide)

  5. Foreign Aid • multilateral aid: many governments contribute to a join organization • Example: UNICEF, World Bank • bilateral aid: one government gives aid directly to another, often in the form of tied aid • Example: CIDA • non-governmental aid: NGOs representing religious groups, non-profits and service organizations provide aid • Example: Red Cross, Doctors Without Borders, World Vision, OXFAM

  6. Foreign Aid • Corrupt governments often divert foreign aid dollars into their own pockets • In the past, foreign aid focussed on short term or one time loans • In recent years, foreign aid has: • supported more small-scale sustainable projects at the local level • focussed on helping poor nations reduce their debt and develop their economies

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