Global Trends And Debt Relief For Asia, Latin America, And Africa
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International Business & Economics Research Journal – October 2007 Volume 6, Number 10
89
Global Trends And Debt Relief For Asia,
Latin America, And Africa:
A Multiple Discriminant Analysis
Farhad F.
Ghannadian, (E-mail:...
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International Business & Economics Research Journal – October 2007 Volume 6, Number 10
89
Global Trends And Debt Relief For Asia,
Latin America, And Africa:
A Multiple Discriminant Analysis
Farhad F.
Ghannadian, (E-mail: ghannadian_f@mercer.
edu), Mercer University
John R.
Miller, (E-mail: Miller_jr@mercer.
edu), Mercer University
ABSTRACT
Emerging country debt levels are at an all time high.
There seems to be a great need to find a
solution to the mounting level of external debt in the continents of Asia, South America and Africa.
Utilizing multiple discriminant analysis this study looks at whether indebted countries in the
various continents responded differently to macroeconomic factors and whether the level of debt
made those economies respond to macroeconomic measures.
This study supports the notion that
Asian countries are more affected by debt factors influencing their economies than countries in
Latin America or Africa.
The study further shows that various debt levels; e.
g.
; high, medium,
versus low have a significant influence on macroeconomic factors.
Therefore this article strongly
supports policies for country debt reduction worldwide.
INTRODUCTION
hile evidence suggests a growing trend in World debt patterns, countries in different categories
have benefited (suffered) differently.
The purpose of this study is to understand these patterns and
behaviors which may have a policy implication in countries involved in lending and receiving
these funds.
By the 1970’s sixty countries were classified as low income countries by the World Bank.
These countries
had a total debt of approximately $25 billion.
This amount had increased by twenty fold to over 523 billion by
2002.
For African countries, where a major bulk of this type of debt occurs, this amount had grown by almost thirty
fold in the same time period (1970-2002).
The three largest countries on the debt scale in the 1990’s were Brazil
with a debt of $116 billion, Mexico with over $90 billion, and Argentina with a $60 billion debt.
About a third of
these debts were owed to the IMF and the World Bank.
In the same three decades about $550 billion was paid in
principal and interest on these loans.
These loans are worth less than this amount and an equivalent amount is still
owed to the creditors.
Some of the highly indebted countries (HICs) made the situation worse by mismanagement of the funds
and many of the loans given to these countries escaped the country in the form of theft or capital flight.
In general,
sufficient funds were not invested in projects yielding enough to service the debt.
Some countries such as South
Korea with a high debt level stunned the world with their push for an export oriented economy.
With their GDP
growth rates in excess of 10%, the South Koreans were able to service and reduce their debt levels in the late 1980’s.
Solutions to remedy the debt problem have included forgiveness of the debt, debt restructuring,
repurchasing of the debt using market forces, the use of taxpayer resources to sponsor a settlement and other mixed
proposals.
The most famous of these plans became known as the Brady plan named after U.
S.
Secretary of Treasury
Nicholas Brady where the governments of creditor countries such as the U.
S.
and Europe would conduct large scale
debt reduction plans with the private banks hence subsidizing most of these loans.
In exchange the government of
these countries would engage in sound economic policies to further the growth of the country and its stability.
Some
W
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