CREDIT

AND
DEVELOPMENT
GROUP 3
 LEARNING OBJECTIVES:
• To understand the proper usage
of credit in economic
development
• To explain further the real
meaning of credit
• To differentiate foreign loan
and foreign investment 2
LEARNING OBJECTIVES:

• To give a deeper
understanding of public debt
and its effects at present and
in the future
• To develop ideas that can be
the start of a change in the
3
4
 Poor countries are rich in natural
resources and abundant in human
resources. But has a lot of reasons why
poor countries still remains in the stage
of poverty. Some of those reasons are
high birth rate and not being productive
and efficient. That's why poor countries
are needed to have credit and foreign
loans.
9
 THE
NATURE
OF
CREDIT
10
THE NATURE OF CREDIT

BUY NOW, PAY LATER

 What can you buy using
credit?
 How does buying on credit
work?
 What are the advantages and
disadvantages of using credit? 11
 THE NATURE OF CREDIT

CREDIT: THE PROMISE TO

PAY
Credit is an agreement to get
money, goods, services now in
exchange for a promise to pay in
the future.
12
THE NATURE OF CREDIT

Creditor - one who lends

money/provides credit
Debtor - one who borrows
money/uses credit
Interest - creditors charge a fee for
using their money
13
THE NATURE OF CREDIT

AMOUNT OF INTEREST
DEPENDS ON:
1. Interest Rate
2. Length of the loan
3. Amount of the loan
 “ Credit is your financial
trustworthiness “
14
THE NATURE OF CREDIT

WHO USES CREDIT?

Consumer Credit – credit used by
people for personal reasons
Commercial Credit – credit used by
businesses

15
THE NATURE OF CREDIT
ADVANTAGES:
• Convenience
• Don’t have to carry cash & worry
about it getting lost or stolen
• Don’t have to save for expensive
items
• Useful for emergencies
16
 THE NATURE OF CREDIT
ADVANTAGES:
• Pay for things over the phone/internet
• Allows you to establish a credit rating –
measure of person’s ability and
willingness to pay debts on time
• Helps you keep track of your spending
• Contributes to the growth of our
economy 17
THE NATURE OF CREDIT
DISADVANTAGES:
• Easy to misuse
• Tempting to buy things you can’t
afford
• Items cost more on credit because of
interest
• Credit limits IS MONEY YOU OWE, NO
“ CREDIT
• Late/missed
OWN! ” payments lower credit18
 FOREIGN
LOANS,
NOT
FOREIGN
FLORA@CONTOSO.COM

INVESTMENTS
 FOREIGN LOAN
• also known as external debt
• also includes obligations to
international organizations such as the
World Bank, Asian Development Bank
(ADB), and the International Monetary
Fund (IMF). Total foreign debt can be
a combination of short-term and long-
term liabilities 20
 FOREIGN LOAN

Foreign debt is money

borrowed by a government,
corporation or private household
from another country's
government or private lenders.
21
 FOREIGN LOAN
IMPACT OF RISING FOREIGN
DEBT
Excessive levels of foreign debt can
hamper countries' ability to invest in
their economic future—whether it be via
infrastructure, education, or health care
—as their limited revenue goes to
servicing their loans. This thwarts long-
term economic growth. 22
FOREIGN INVESTMENT

Foreign investment involves

capital flows from one country
to another, granting the foreign
investors extensive ownership
stakes in domestic companies
and assets.
23
FOREIGN INVESTMENT
It denotes that foreigners have an active
role in management as a part of their
investment or an equity stake large
enough to enable the foreign investor to
influence business strategy. A modern
trend leans toward globalization, where
multinational firms have investments in a
variety of countries.
24
KEY TO
DEVELOPMENT
25
 KEY TO DEVELOPMENT
PROBLEM OF LESS
DEVELOPED COUNTRIES IN
ACHIEVING ECONOMIC
1.Trapped by the Vicious Circle of
DEVELOPMENT
Poverty
a. Lacks adequate funds for massive
investments, low income,
increasing population pressure and
26
 KEY TO DEVELOPMENT
PRESCRIBED SOLUTION TO
THE PROBLEM
1.Big Push
a. Massive investments in the
economy that creates
widespread employment,
production, income and
27
 KEY TO DEVELOPMENT

Many poor countries have

good plans and programs of
economic development and it
requires huge financial
resources to be fully and
properly implemented. 28
 KEY TO DEVELOPMENT
Credit is very important in
economic development. If it is
sufficient and is properly used,
credit benefits all users –
individuals, communities or
countries. Poverty is likely to be
reduced or even be eliminated. 29
 KEY TO DEVELOPMENT
Credit is very important in
economic development. If it is
sufficient and is properly used,
credit benefits all users –
individuals, communities or
countries. Poverty is likely to be
reduced or even be eliminated. 30
FROM
CREDIT
TO PROGRESS 31
 FROM CREDIT TO PROGRESS
MAJOR KEYS TO ECONOMIC
DEVELOPMENT OF THE
UNITED STATES AND RUSSIA
United States. The construction of
the railroad system was given high
priority during its early
development.
United States. The construction of the railroad system was given high priority during its 32
FROM CREDIT TO PROGRESS

 Involved huge amount of money:

50% of the invested capital came
from foreign resources
 Abundant natural resources and
scarce population
 Human resources: European settlers
and immigrants
33
 FROM CREDIT TO PROGRESS
MAJOR KEYS TO ECONOMIC
DEVELOPMENT OF
DIFFERENT COUNTRIES
Russia. During the reign of Peter
the Great (1682 to 1725), attempts
were made to modernize Russia. He
visited and studied the industries of
Western Europe.
United States. The construction of the railroad system was given high priority during its 34
FROM CREDIT TO PROGRESS
 With the use of government funds, he hired
foreign technicians, and initiated the
building of factories and new industries
 Construction of railroads were funded by the
government to support the program of
industrialization
 Grain production and export
 Foreign technology and technicians were
utilized
35
 THE
ROLE
OF
WORLD
BANK
 HISTORY
Conceived in 1944 at the Bretton Woods
Monetary Conference in Bretton Woods, New
Hampshire, to organize the International Bank
for Reconstruction and Development (known
as World Bank). The World Bank’s initial aim
was to help rebuild European countries
devastated by World War II. Its first loan was
to France in 1947 for post-war reconstruction.
37
OBJECTIVE

Its objective is to extend long

term loans for reconstruction and
development, especially to the less
developed countries that cannot
secure private loans at reasonably
low interests.
38
DID YOU KNOW..
It has 173 member nations
Each member subscribe to the to the $152.2
billion capital stock of the Bank in proportion
to its economic strength.
The United States has the highest quota
which is about one-fifth of the capital stock of
the World Bank.
The Bank does not only extend loans out of
its funds but also sell bonds and lends the
proceeds. 39
 DID YOU KNOW..
Its loans are limited to agricultural productions.
Many of the Bank’s loans are channeled into
development projects such 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 underdeveloped nations. It assists such
countries in discovering the avenues of growth that are
more suitable to their economic developments.
The primary thrust of the World Bank is rural
development. 40
 DID YOU KNOW..
TOP 10 LARGEST COUNTRIES BY VOTING
POWER (NUMBER OF VOTES)

41
 DID YOU KNOW..
TOP 10 LARGEST COUNTRIES BY VOTING
POWER (NUMBER OF VOTES)

42
 ASIAN Insert or Drag & Drop Your Photo

DEVELOPMENT
BANK
(AGENT OF DEVELOPMENT)
 HISTORY

The Asian Development Bank was

formed in 1966 as a financial
institution that would be Asian in
character and foster economic
growth and cooperation in one of the
poorest regions in the world.
44
WHAT IS ADB?
The Asian Development Bank (ADB) is
committed to achieving a prosperous,
inclusive, resilient, and sustainable Asia and
the Pacific, while sustaining its efforts to
eradicate extreme poverty. It assists its
members and partners by providing loans,
technical assistance, grants, and equity
investments to promote social and economic
development. 45
WHAT IS ADB?

It has 52 member countries, 18 of

whom are developed countries. Its
present capital is $24.5 billion with
Japan and the United States as the
leading contributors. European
countries constitute 40 percent of the
non-regional capital. 46
OBJECTIVE
The objective of the Asian
Development Bank is to assist
developing member countries. It
extends loans at a very low interest
payable over a long period.
Likewise, it provides technical
assistance to its members. 47
 PHILIPPINES AND ADB
The Philippines has maintained its
position as one of the fastest-growing
economies in Southeast Asia in recent
years, with average annual gross
domestic product growth at 6.3%
since 2010 against 4.5% in 2000 to
2009. 48
 PHILIPPINES AND ADB
ADB has been a strong partner in
the development of the Philippines,
the bank’s host country, and is one of
its largest sources of official
development assistance, with average
annual lending of $952 million over
the past 10 years to 2019. 49
 PHILIPPINES AND ADB
Since 1966, ADB has committed public sector
loans, grants, and technical assistance totaling $21.9
billion to the Philippines.
In 2019, ADB approved its single-biggest project
financing in Asia to date, the Malolos-Clark
Railway Project, which will use cutting-edge
technology to construct a 53-kilometer section of a
new railway line connecting Metro Manila to the
regional business center in Clark, north of Manila.
50
ECONOMICS
OF
PUBLIC
DEBT
 INTERNAL DEBT
 In addition to tax collections, the
government sells bonds to acquire more
funds for its various programs and
projects.
 By selling bonds, the government
becomes a debtor to those who bought
bonds. Bondholders will get their money
back plus interest after the prescribed
maturity period – five or ten years. 52
 INTERNAL DEBT
 Whenever a government incurs a very
large public debt, it is not very likely that
a government gets bankrupt. It can always
raise more taxes to get funds for its
operations.
 In the case of paying its large internal
debt, the government sells new bonds to
the public. The proceeds are used to pay
53
 EXTERNAL DEBT
 Refers to both government and private
foreign loans.
 Considering the worst economic crisis that
hit the country during the later part of 1983,
the Philippine government has been busy in
scouting for more foreign loans to save the
total collapse of the economy. The United
States, European countries, and Japan have
indicated their intentions to help revive our 54
 EXTERNAL DEBT
 As a policy, our debt service ratio should
not exceed 20 percent of the total foreign
exchange earnings of the country in one
year.
 A big portion of our foreign debts is in
form of long term loans – 20 or 25 years
to pay. These are being paid in installment
basis – a part of the principal plus interest.
55
FOREIGN
LOANS
ARE NOT
BURDEN
FOREIGN LOANS ARE NOT BURDEN

Payment of government foreign

debts are a burden to the present
and future generations if such
payments come from more
additional taxes. People have to
pay more taxes, and their money
go out of the country. 57
FOREIGN LOANS ARE NOT BURDEN

Payment of government foreign

debts are a burden to the present
and future generations if such
payments come from more
additional taxes. People have to
pay more taxes, and their money
go out of the country. 58
FOREIGN LOANS ARE NOT BURDEN
It is different in the case of
government internal debt. The debt of
the government is payable to its own
citizens. It is merely a temporary
transfer of funds from the people to the
government, and then back to the
people. The movement of money is
confined within the country.
59
FOREIGN LOANS ARE NOT BURDEN
External debt or foreign loans of
the government is not a burden to
the people if such loans have been
used for productive projects.
Specifically, these are the self-
liquidating projects which pay for
themselves.
60
FOREIGN LOANS ARE NOT BURDEN
FOR EXAMPLE:
A foreign loan of $1 billion was used in the
construction of a big irrigation project in
Pangasinan. As a result, thousands of small
farmers are directly benefited. In return for the
regular supply of water for their rice fields, they
have to pay a nominal irrigation fee to the
National Irrigation Administration. Such
payment can defray the amortization payments
of the foreign loan of the government.
61
FOREIGN LOANS ARE NOT BURDEN
 Clearly, the government irrigation project has
not only paid for itself but also increased the
incomes of the small farmers.
 No additional payment has been imposed on
the people for the payment of $1 billion
foreign loan which was used in the project. It
has been the incomes of the project that have
been used for the installment payment of the
foreign loan.
62
 STRINGS
ATTACHED
to
FOREIGN
LOANS
STRINGS ATTACHED TO FOREIGN LOANS
Trade preferences - the products of the creditor
are being granted in the market
Purchase of machines and materials – bigger
portion of the loan that the creditor offers is in
kind and that means that the machines and
materials are bought in the country of the
creditor
Employment of foreign consultants and
advisors – the salaries of those foreigners who
helps in planning and implementing a project is
included in the loan
64
STRINGS ATTACHED TO FOREIGN LOANS

Although the main reason why rich

countries offer loan programs to the
poor countries is for their mutual
benefits, what really happens is that
rich countries get more benefits than
the poor countries.
65
 MOST
CREDIT
WORTHY

COUNTRIES
MOST CREDITWORTHY COUNTRIES
Japan remained to be on the top of the list
of the Most Creditworthy Country with the
score of 94.6. Philippines is No. 71 in the list
during the 1988 survey.

67
 MOST CREDITWORTHY COUNTRIES
Based on March 1988 survey these are the most
creditworthy countries:

1.Japan 6. United Kingdom

2.Switzerland 7. Canada
1
3.West Germany 8. France
4.United States 9. Austria
5.Netherlands 10. Sweden
m
68
MOST CREDITWORTHY COUNTRIES

11. Norway 18. Denmark 25. Ireland

12. Finland 19. Australia
13. Italy 20. Hong Kong
14. Belgium 21. Soviet Union
15. Taiwan 22. New Zealand
16. Singapore 23. China
17. Spain 24. South Korea
69
 BIGGEST
DEBTOR

COUNTRIES
BIGGEST DEBTOR COUNTRIES
The biggest borrowers in the world are the
Latin American Countries, namely Brazil and
Mexico.

71
BIGGEST DEBTOR COUNTRIES
According to the 1988 survey, these were
the top 10 biggest borrowers of the world.
1.Brazil $ 121 billion
2.Mexico $ 100 billion
3.Iraq $ 65 billion
4.Argentina $ 56 billion
5.Egypt $ 44 billion
72
BIGGEST DEBTOR COUNTRIES

6. Indonesia $ 37 billion
7. Venezuela $ 30 billion
8. Philippines $ 29 billion
9. Nigeria $ 27 billion
10. Chile $ 18 billion
73
 the
NEGATIVE SIDES
Of
PUBLIC DEBT 74
1 THE NEGATIVE SIDE OF PUBLIC DEBT
IT LEADS TO
WASTEFUL
GOVERNMENT
- SPENDING.
Unworthy projects easily find their
way into the budget.
- Politicians wants to please their
constituents for reasons like
reelection.
75
2 THE NEGATIVE SIDE OF PUBLIC DEBT

IT CREATES
INFLATION.
- Foreign credit increases money
supply, but there is no corresponding
rise in production.
- Prices go up due to unproductivity.
76
3 THE NEGATIVE SIDE OF PUBLIC DEBT

IT BURDENS
FUTURE
GENERATIONS.
- Public debts falls on the future
generations.
- Incomes are likely not enough to
pay-off the loans, hence, taxes have
to be increased.
77
4 THE NEGATIVE SIDE OF PUBLIC DEBT
IT DAMPENS
PRODUCTION
OF GOODS AND
SERVICES.
Paying more taxes has an
unfavorable effect on jobs and
businesses, discouraging many
employees to work harder – it is not
worth the sacrifice.
78
5 THE NEGATIVE SIDE OF PUBLIC DEBT
IT REDUCES
FUTURE
CONSUMPTION AND
SAVINGS.
- Since payments of public debts will come from the
future generations, their net incomes will decline due
to a big portion of it going to taxes.
- A reduction in both consumption and savings
subsequently reduces investments, and when
investments fail, the whole economy will be ruined.
79
 the
OTHER
SIDES
80
 THE OTHER SIDE
Public debt, despite its
shortcomings, is a tool for
economic development. The
resources of the government are
not adequate to fund its
numerous programs and
projects.
81
THE OTHER SIDE
POOR COUNTRIES
1.Governments have to borrow and resort to
deficit spending – expenditures are higher
than incomes
2.Credit is a lifeblood – to change gradually
into a modern economy
Instead of avoiding the use of credit for
development, it should be the limitations of
credit that should be removed or minimized.
82
 THE OTHER SIDE
This generation, and other
generations to come will enjoy
the blessing of economic growth
planted by credit. The social and
economic foundation of
development will benefit more the
future generations.
83
 START WITH
SIMPLE PROJECTS
 
“ Slow progress is still a progress.” - Megan Auman 

84
START WITH SIMPLE PROJECTS
Less developed countries are
primarily agricultural, which is
their principal source of livelihood
in rural areas where the poorest are
found. 
Improving rural areas equates to
improving social and economic
conditions. 
85
START WITH SIMPLE PROJECTS
Internal and external credits are not
enough but still, it should be used in the
most economical and efficient way
possible. 
However, countries should start
prioritizing using their own resources,
like materials and manpower, to start
small projects that need small amounts of
capital using simple technology. 
86
 LET THE
PEOPLE CHOOSE

87
 LET THE PEOPLE CHOOSE
Simply, let people decide what projects to put
up based on available resources.
People always tend to be practical so they
choose what can help them survive today, so the
government should provide capital and technical
assistance.
Simple projects are projects of the people for
the people so they must be included from
planning to execution for greater success. 
  88
 LET THE PEOPLE CHOOSE
The government should focus on
simple projects that can help 10 000
poor families instead of doing big
inefficient projects. 
It is proven already by our
neighboring countries like China and
India that success must start from within
and not depend on others.
89
CREDIT FOR
THE MASSES
90
 CREDIT FOR THE MASSES
Wealth breeds more wealth. 
Banks and other financial institutions are
established to provide funds for people, and
loans are granted based on the capacity to pay by
the borrowers. Hence, rich people have the
privilege to avail it more than the poor masses. 
Poor masses need money for their basic
necessity but they can’t afford a loan because
they are not qualified. 
91
 CREDIT FOR THE MASSES
Loans are extended by rural banks but the
funds are always limited, that it discourages
the masses because loans don’t even meet
their needs. 
Financial institutions together with the
government should improve the financial
system that will improve the life of the
masses, so that funds will be available to
everyone regardless of class to alleviate
poverty and enhance the economy.  92
 CREDIT FOR THE MASSES
No country can truly claim economic success if its
people are still living in poverty; people are a mirror of
a nation’s progress. 
However, the power of capitalism is inevitable.
According to Dr. Ernest Feder of the United Nations,
assistance for poor farmers still favors the interest of
multinational corporations.
“ Poverty reinforced by indebtedness forces the
borrowers into a humiliating state of dependence. The
peasants are worse off than before.”
93
 THANK YOU!
CREDIT
AND MEMBERS:
DEVELOPMENT
Acuzar, Cleassie
Bantilan, Leolyn Joy
GROUP 3
Bersamina, Rose Angelique
Buena, Rica Ella
Edralin, Jon Nickson T.
Montoya, Krista Jei Anne
Saludes, Julienne
Sumabat, Patrixia Nikole Mariae