Cover Image
close this bookPutting Life Before Debt (CI - CIDSE, 1998, 38 p.)
View the document(introduction...)
View the documentEXECUTIVE SUMMARY
View the documentINTRODUCTION
close this folderPART I: Debt and Jubilee
View the documentWhat is International Debt?
View the documentA Catholic Framework on Debt
View the documentWhy Now?
View the documentHow did the debt crisis come about?
View the documentImpact in the South
close this folderPART II: Reducing Debt
View the documentEarly Attempts to Reduce Debt
View the documentHeavily Indebted Poor Country (HIPC) Initiative
View the documentShortcomings of the HIPC Initiative
close this folderPART III: CIDSE/Caritas Internationalis Position on International Debt
View the document(introduction...)
View the document1. Cancel the unpayable debt by the year 2000
View the document2. Improve the HIPC Initiative
View the document3. Link debt cancellation with investment in human development
View the document4. Ensure decisions on debt relief are made in a transparent way
View the document5. Change the Structure of International Financial Relations
View the documentCONCLUSION
close this folderAPPENDICES
View the documentAppendix 1: CIDSE and Caritas Internationalis contacts
View the documentAppendix 2: Catholic Church Statements on Debt, 1987-1997 (by year)
View the documentAppendix 3: International and National Organizations on Debt
close this folderAppendix 4: Advocacy: Steps to Build a Campaign on Debt
View the document(introduction...)
View the document1. Learn more about the debt issue
View the document2. Establish clear aims and specific objectives
View the document3. Build awareness at the grassroots level and among coalitions
View the document4. Lobby decision makers
View the documentGLOSSARY
View the documentNOTES
View the documentBACK COVER

How did the debt crisis come about?

The international debt crisis became apparent in 1982 when Mexico announced it could not pay its foreign debt, sending shock waves throughout the international financial community as creditors feared that other countries would do the same. The immediate cause of the crisis occurred in 1973 when the members of the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil and invested their excess money in commercial banks. The banks, seeking investments for their new funds, made loans to developing countries, often without appropriately evaluating the loan requests or monitoring how the loans were used. In fact, due to irresponsible practices of creditor as well as debtor governments, much of the money borrowed was spent on programs that did not benefit the poor - armaments, large scale development projects, and private projects benefiting government officials and a small elite. The 1973 oil price increase also had the effect of triggering inflation in the United States and other industrialized countries.

In 1979, OPEC raised the price of oil a second time. Meanwhile, the US adopted extremely tight monetary policies to reduce inflation, producing a domestic recession. The combined impact of the rising price of fuel and rising interest rates led to a worldwide recession. Developing countries were hurt the most. Their exports declined as the domestic cost of production rose and the major importers reduced their purchase of goods from overseas. Latin American governments which had taken out loans from commercial banks at floating interest rates (rates that vary according to the current market interest rate) saw the interest on their debt skyrocket. African governments, reacting to the worldwide collapse in commodity prices, borrowed heavily from other governments and multilateral banks at both market interest rates and concessional (very low) rates. When Mexico finally announced that it could not pay its foreign debt, the international financial system appeared on the brink of collapse. The world's major creditors acted to save the commercial banks and the world economy.