US debt vs. the global South debt

The United States debt of $8 trillion in 2006 (financed by Chinese and Japanese) is a matter of a long-term decline especially after the 1980s, caused by several factors, many of which are a result of government's lavish war expenditure and unsound tax policy. Added by the Internet bubble burst and economic disruptions after 9/11, the US budget deficit reached $500 billion in 2004. The US indebtedness is a serious issue with international implications, undermining its role in "stabilizing international trade and monetary relations, assuring the provision of collective goods and providing capital for other world regions." Interest payments hamper the rate of domestic economic growth.

The debt of the global South of $2 trillion arouse from their heavy borrowing in the 1970s and 1980s to spur economic development by accumulating sufficient capital that was not available from other sources (state financing, foreign investment). The payments were to be made from the potential income. However, the expected growth did not materialize for many reasons: either the prices of the produce declined, or the global economy slowed down, or Western protectionist measures barred the exports, or the funds were just mismanaged. This debt still drags the economy of the region down by reducing the financial resources that might be used otherwise.

Both debts are equally serious for the respective debtors. Yet given their different sources and debtors' current positions in the international economic and power order, it seems to me that it is easier for the United States to eliminate its debt than for the global South. The United States can cut down its military empire and reform its tax policy the economy is strong enough and would be made healthier; the global South is not in the position to change its subordinate economic and financial relation with the North. Defaulting is not an option either because it undermines their credibility for future loans.

Learn more about this author, Diana Guralev.
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