The effect of the debt problems of the 1980s Essay

The effect of the debt problems of the 1980s, 472 words essay example

Essay Topic:effect,problems

The debt problems of the 1980s affected all types of developing countries and all types of debt. The amount of outstanding public medium- and long-term debt held by developing countries rose from about USD 270 billion in 1977 to USD 470 billion in 1981. Short-term and non-guaranteed debts are believed to have grown even more rapidly. Countries borrowed heavily in this period as interest rates were low (even negative in real terms at some points), international private credit was readily available, and financing needs were substantial.
The build-up of external debt was premised on the assumption that interest rates and commodity prices would move within their historical range. When these assumptions proved inaccurate, the international capital market lending practically collapsed. By end-1981 the annual lending flow from banks to developing countries reached almost USD 50 billion. The change in the Banks behaviour, from anti-cyclical (continuing rolling over debt service) to pro-cyclical (stopping further rolling over of debt service due),
accelerated the crisis (E. Cosio-Pascal in Unitar, 2004).
In similar development, the history of Nigeria external debt financing dates back to 1958 when the sum of $28 million was contracted for railway construction. Prior to 1978, the Nigeria external debt was sustainable. The Central Bank of Nigeria (CBN) report in 1989 stated that 91.4% of the debt came from official sources and were the concessionary types of loans from bilateral and multilateral agencies. Then, much importance was not attached to debt management by Nigeria Government (Eyiuche, 2003), not only that the economy then had a magnificent growth following the oil boom of the 70s Nigeria foreign debt profile witnessed a dynamic change after 1978 following the world oil glut. Much pressure was then exerted on government finances and it became necessary to borrow for balance of payment support and financing of developmental project just like many other developing nations.
The first major federal government borrowing of US $1 billion from the international capital market (ICM) was referred to as "Jumbo loan" increasing her total external debt to $22 billion. The condition worsened between 1981 and 1982 as various government agencies and state governments resorted to deficit budgeting partly financed through external loans secured from private sources under stiffen conditions (CBN, 1989). The Debt Management Office (DMO) annual report and account (2001) reflected a 13.8% fall of official debt sources in favour of the private debt sources which rose again to an average of 82%. Trade arrears emerged by the end of 1982 constituting a large portion of the total external debt of the nation. The jumbo loan of 1987 was supported by the promulgation of decree No 30 of the 1978 which limited the external loans that the Nigerian government could raise to $5 billion (Ijah, 2013).
More so, Debt sustainability of developing economies is one of the major challenges at the beginning of 21st century with numerous LDCs already fallen into debt crisis. Nigeria was not exempted as at the return to civilian rule in 1999, Nigeria embarked on relentless

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