CREDIT

AND
DEVELOPMENT
CREDIT
A contractual agreement in which a
borrower receives something of value now
and agrees to repay the lender at some
date in the future, generally with interest.
The term also refers to the borrowing
capacity of an individual or company.
CREDIT AND DEVELOPMENT
• Inadequate funds have prevented many poor
countries from accelerating the pace of their
economic development. Taxes and other sources of
government incomes are not enough to finance all
their basic programs of development.
 Poor
Countries
• Since local financial resources are not
enough, foreign loans are indeed to
speed up the development of the poor
countries.

•Most poor countries are rich in natural

resources and abudant in human
resources.
 NATURE OF CREDIT

1 Ability to obtain a thing of value

2 A promise to pay

3 Definite sum of money

4 Payable on demand
 Credit means also debt. Both refer to the same
money or loan taken from two different sides. To the
borrower, it is called debt but to the lender, it is called
credit.
Foreign Loans,
Not Foreign Investments
• For an undeveloped country, more money means more
investments and production. And these speed up
economic activities. However, if such capital belongs to
the foreigners, naturally the profits go to them.

• Society may appear affluent and progressive, but this is

not real in the sense that wealth and income belong to
the foreigners.
 KEY TO DEVELOPMENT
● Development economists prescribe a solution called
"big push" as a breakthrough to the vicious circle of
poverty. This means massive investment in the economy
in other to create widespread employment, production,
income, and consumption. Such development process has
both multiplier and accelerator effect on the whole
economy.
UNITED STATE

• Lucky in its early bid for the economic development. Aside from
its abudant natural resources and scare population, European
settlers bought with them thier rich culture, knowledge, skills and
other valuable experiences. The need for human resources was not a
problem. Immigrants from various European countries who were
imbued with parable values greatly helped the fast development of
the American economy and society.
RUSSIA
•During the reign of Peter the Great (1682-1725),
attempts were made to modernize Russia. He visited
and studied the industrial of Western Europe. With the
use of the government funds, Peter hired foreign
technicians, initiated the building of factories and new
industries. Nonetheless, Russia remained an
underdevelopment economy until 1928.
THE ROLE OF WORLD BANK
• The leading nations of
the world met at Bretton
Woods, New Hampshire
in 1944 to organize the
International Bank for
Reconstruction and
Development (known as
World Bank).
MAIN OBJECTIVE OF WORLD BANK

To extend long-term loans for reconstruction

and development, especially to the less
developed countries that cannot secure
private loans at reasonably low interest.
Some features of the World Bank are:

1 Its loans are limited to agricultural productions.

Many of the Bank’s loans are channeled into development project such
2 as multi- purpose dams, irrigation projects, health and sanitation
programs, and transportation and communication facilities.

The bank has been active in providing technical assistance to

3 underdeveloped nations. It assist such countries in discovering avenues
of growth that are most suitable to their economic developments.

4 The primary thrust of the World bank is rural development.

 ASIAN DEVELOPMENT BANK
•The Asian Development Bank was formed in 1966.

•Assists its members, and partners, by providing loans, technical

assistance, grants, and equity investments to promote social and
economic development.

•Maximizes the development impact of its assistance by

facilitating policy dialogues, providing advisory services, and
mobilizing financial resources through cofinancing operations that
tap official, commercial, and export credit sources.
 EXTERNAL DEBT

• The portion of a country's debt that is

borrowed from foreign lenders,
ECONOMIC including commercial banks,

OF PUBLIC governments, or international financial

institutions. These loans, including
DEBT interest, must usually be paid in the
currency in which the loan was made.
To earn the needed currency, the
borrowing country may sell and export
goods to the lending country.
 INTERNAL DEBT

• The government sells bond to

ECONOMIC acquire more funds for its

various programs and projects.
OF PUBLIC By selling bonds, the government
becomes debtor to those who
DEBT brought bonds. Bondholders will
get their money back plus
interest after the prescribed
maturity period
LATIN AMERICAN TOTAL DISBURSED
EXTERNAL DEBT
1988 DISBURSED
EXTERNAL
DEBT IN LATIN
AMERICA
MOST CREDITWORTHY COUNTRIES
The top 25 countries in credit ratings were:
1. Japan 14. Belgium
2. Switzerland 15. Taiwan
3. West Germany 16. Singapore
4. United State 17. Spain
5. Netherland 18. Denmark
6. United Kingdom 19. Australia
7. Canada 20. Hongkong
8. France 21. Soviet Union
9. Austria 22. New Zealand
10. sweden 23. China
11. Norway 24. South Korea
12. Finland 25. Ireland
13. Italy
 THE BIGGEST DEBTOR COUNTRIES
Based on 1988 statistics the top 10 biggest borrowers in the world
were
1. Brazil $121 billion
2. Mexico $100 billion
3. Iraq $65 billion
4. Argentina $56 billion
5. Egypt $44 billion
6. Indonesia $37 billion
7. Venezuela $30 billion
8. Philippines $29 billion
9. Nigeria $27 billion
10. Chile $18 billion
NEGATIVE SIDE OF PUBLIC DEBT

1 It leads to wasteful government spending.

2 It creates inflation.

It burdens future generation.

3
4 It dampens production of goods and services.

5 It reduces future consumption and saving.

THE OTHER SIDE:

Public debt, despite its shortcoming, is a tool for economic

development. The resources of government are not adequate to
fund its numerous programs and project. And the problem is
more critical in the case of the poor countries. They have to
borrow and resort to deficit spending. This means government
expenditures are highger than government incomes
Thank you!