Question

Discuss the process of debt accumulation in poor countries, i.e. how loans are granted, fall behind in payment, and eventually often lead to a crisis and perhaps “debt relief.” How can a negative cycle be avoided? Should we be granting debt relief, and if so, on what terms? What does Easterly document about high-debt countries? What rich world group never seems to bear its share of losses when debts are forgiven?

Answer 1

Debt accumulation in poor countries occurs as when, loans are given to poor class of the society for example, a to a large population of the farmers who's crop cultivation depends on the season, but eventually due to abrupt climate changes the crop fails and the farmers fails to sum up the money to repay his debt. This poor financial management causes debt accumulation. Thus disability of repaying the debt from mass causes financial crises as the bank looses their funds and goes itni crises.

Thus negative cycle could be avoided if loans are given after analysing the whole situation in which it is being given and must not be given if the situation is found to be too risky. Also, loans could be given if a strong guarantor is their with the needy who will take the guarantee to repay the loan if anything bad happens.

Debt relief must not be given as it is bad for the economy and also creates a misconception in the mind if debtor that they can take loans and then further refuse to pay them, rather their term of loan repayment should be increased and help should be provided in terms to make their work get better do that they themselves could enable themselves to repay the loan.