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Problems of Economic Liberalisation and Development
Quick questions on The debt crisis of the developing world explained: H2 History
6short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is the lending boom?Show answer
The roots of the crisis lay in a boom in lending to developing countries. The oil shocks of the 1970s transferred enormous wealth to oil-exporting states, which deposited much of their surplus revenue in international banks. The banks, awash with these funds and seeking returns, lent freely to developing countries, which were eager to borrow to finance development, industrialisation and, for oil importers, the higher cost of energy. For a time this recycling of surplus revenue seemed to work for everyone: the banks earned interest, the oil exporters earned a return, and developing countries gained capital for investment.
What are the trap springs?Show answer
The conditions that had made the borrowing easy then reversed sharply, springing the trap. Much of the debt carried variable interest rates, and when interest rates rose steeply at the turn of the 1980s, as advanced economies fought inflation, the cost of servicing the debt soared. At the same time, the prices of the commodities that many developing countries exported fell, reducing the foreign-exchange earnings they needed to repay. Debts that had looked manageable became unpayable almost overnight.
What is apportioning responsibility?Show answer
The question of responsibility is genuinely contested. One view blames the borrowing governments: some borrowed heavily and used the funds unwisely or corruptly, leaving themselves exposed when conditions changed. The opposing view blames the system and the lenders: the banks pushed loans freely in the lending boom, and the decisive triggers, the interest-rate rise and the collapse of export prices, were global conditions entirely beyond the borrowers' control. The fairest judgement is that responsibility was shared, but that the global conditions and the easy lending were the decisive causes in timing and scale.
What is q1?Show answer
Explain how the oil shocks of the 1970s contributed to the debt crisis. [4 marks]
What is q2?Show answer
Explain why developing-country debts became unpayable around 1980. [12 marks]
What is q3?Show answer
"Responsibility for the debt crisis lay with the international system, not the borrowers." How far do you agree? [20 marks]
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