EDITORIAL

JUST how close are we to another debt crisis facing developing countries, and in particular the smaller nations?

In recent times the possibility of another crisis continues to loom as small and vulnerable countries continue to grapple with high debt, low economic growth, high unemployment and the prospects of not having enough resources to meet debt repayments.

A debt crisis is said to exist when countries facing high debt repayment schedules decide they are unable to make loan re-payments and subsequently default on their commitments to lenders.

One of the consequence of this is that in the event the country is able to get out of the debt, no one will be willing to lend it money in a hurry because of the loan default.

This therefore forces these countries to seek out economic arrangements with the International Monetary Fund and all of what those arrangements can mean.

It is a high price some sovereign states have had to pay for not honouring their commitments.

These countries have had to take the body blows the COVID-19 pandemic has inflicted on their economies.

Economies have been disrupted as COVID took hold. Tourism and the export of goods and services have taken a beating because of falling demands.

So with high debt, onerous repayment terms and the likelihood that debt rescheduling is becoming an option, another debt crisis seems very much on the cards.

These are occurrences that affected countries would wish very much to do without.

The crisis of the 1980s was terrible for those countries that had to ensure it. Up front their economies were affected by the global economic slowdown brought on by the international recession triggered by higher oil prices.

State revenues and export earnings have had to be diverted to pay external debt, and that had to be done with foreign exchange. Governments in many instances have had to cutback on social spending because they either did not have enough funds to do so, or because of the stringencies imposed by the lenders in giving priority to debt repayments.

Usually such countries do face austere economic conditions and with the so-called fiscal consolidation they have had to undertake, this has increased the burden on them.

It is assumed therefore that if affected countries decided they are unable to repay foreign loans as was done by a number of the Latin American states in the early 1980s then another crisis will be in the making.

Last week the Secretary General of the Economic Commission for Latin America and the Caribbean (ECLAC), Ms. Alicia Barcena, called for a consensus among countries and all the players in the global financial markets, to come to an amicable agreement on the matter.

“I don’t understand what is going on,” she remarked.

The previous crisis ended with the intervention of the international financial institutions. They were able to work out agreements with the affected states on easier repayment terms, converting some of the outstanding debt into equity and where necessary write off some of it.

This to our reckoning is what is necessary at this time to prevent the current situation from deteriorating further and creating hardships for the affected countries.

The sooner this is done the better for all involved.