A Brief History of Debt Crises

Between the 1940s and 1960s, countries in the Global South became independent from colonial rule. These newly independent countries were left with weak economies and needed to borrow money. Rich countries gave loans, often irresponsibly. 

In the 1970s, because of the increase in the price of oil, western banks were rich in financial deposits, and decided to invest this money in giving loans to countries of the Global South. In the late 1970s, the interest rates on these loans went up (more than doubling between 1979 and 1982). At the same time, the price of goods (commodities) that countries of the Global South trade went down. This made it more difficult to repay the loans.

In the 1980s, global recession meant rich country lenders wanted to collect debts. Countries of the Global South were unable to repay these loans to private banks and so the IMF and World Bank gave them more loans, equating to ‘borrowing from Peter to pay Paul’. The loans came with strict conditions, especially about spending less on public services like health and education. These were the ‘Structural Adjustment Programmes’ mentioned above. This had such a damaging impact that it has led the 1980s to be called the “lost decade of development”. 

In 2008, with the global financial crash, the debt crisis reached countries of the Global North.