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Enrichment

Should China offer debt forgiveness to the developing world? [Year 13 Enrichment Task]

Students in year 13 will have studied development economics as part of their A level syllabus, and are likely to be aware that debt and loan repayments are one of the factors which constrains growth in developing countries. Another constraint is lack of investment in infrastructure, but in the last 20 years China has helped dozens of developing countries to develop their infrastructure, by giving loans to fund that improvement. The loans are usually offered on commercial terms, and with the asset of the infrastructure, or the mines and resources that it serves, used as collateral for the loan.

As global economies shrink at a terrifying rate, commodity prices are very low and this affects the producers of those primary product commodities - often the same countries that owe, typically, 15-20% of their GDP to China. They can't afford their loan repayments, and face the risk that China will seize their assets.

Is it in China's interests to do so? The question for this week's enrichment task is this: Should China offer debt forgiveness to the developing world?

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