CEDS UNPAD

Determinants of Short-Term Lending to Developing Countries

History shows that development and economic growth in a developing country, is always the role of sources of funds and capital from abroad. Since the end of the Second World War, many developing countries continue to debt. For four decades after the Second World War, the loan of borrower countries (creditors) has been increased sharply.

According to data from the Jubilee Debt Campaign, an advocacy network to remove the foreign debt developing countries, in 2006, total foreign debt developing countries is 2.9 trillion USD, and the same year they pay the 573 billion USD. While the poorest countries in the world, the same year to pay 34 billion dollars to the rich countries, meaning that poor countries pay 94 million USD per day to the resource-rich countries. Another calculation shows that developing countries pay 13 USD to pay back 1 USD, and approximately 60 poorest countries have paid 550 billion USD for the loan principal and interest, during the last 30 years, but still owes 523 billion USD. Since the beginning of the loan crisis, many developing countries (especially countries with low income) had depend on official creditors to meet the financial needs of their medium-and long-term, because commercial banks are reducing their involvement to countries like and divert the sources of their funds to the industrial countries. The situation is different with the short-term financial system. A general condition in developing countries is always on the government budget deficit. A deficit can be financed with a variety of alternatives in which one of them is by attracting foreign capital in the form of the loan. In the short run, foreign debt is very helpful in the effort to close the budget deficit and spending state revenue, due to finance routine expenditures and development expenditures are quite large. Thus, the rate of economic growth can be stimulated in accordance with a predetermined target. With a background like that, the paper tries to do an analysis of the factors that influence the willingness of foreign parties to provide loans to developing countries, which is more in focus to short term loans.

Discussant: Achmad Kemal Hidayat

 

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Center for Economics and Development Studies is a research center under the Department of Economics, Padjadjaran University, Indonesia. A leading research institute in Indonesia in the area of economics and development studies.
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