What is an international debt crisis
Debt crisis refers to a country’s inability to repay its foreign debts on time, including sovereign debt and Private debt refers to the inability of a large number of public or private sectors to repay maturing foreign debt, and a country is forced to request debt rescheduling and international assistance.
The outbreak of the international debt crisis is the result of the joint action of domestic and international factors, but external factors are often uncontrollable, and external factors always work through internal factors. Therefore, fundamentally speaking, the direct cause of the debt crisis is internal, which is the result of blind borrowing, improper use and mismanagement of international capital.
The specific manifestations of the international debt crisis include
(1) Expansion of the scale of foreign debt
If foreign debt is regarded as a source of construction funds, an appropriate borrowing scale needs to be determined. Because capital accumulation mainly relies on domestic savings, foreign capital can only play a supporting role; moreover, excessive borrowing without corresponding domestic funds and other conditions will not improve the macroeconomic benefits as it should, which may Debt crisis due to heavy debt burden. Nowadays, the international community generally regards the debt service ratio as the standard for controlling debt. Because the repayment of foreign debt ultimately depends on a country's ability to earn foreign exchange through exports, the scale of foreign debt borrowing must be subject to future repayment capabilities, that is, the ability to expand exports to earn foreign exchange. If the debt growth rate continues to be higher than the export growth rate, it means that there are serious problems in the use and repayment of international capital movements. Theoretically, a country should control the ratio of its current year's principal and interest repayments to its export revenue below 20%. If it exceeds this limit, the borrowing country should attach great importance to it.(2) The external debt structure is unreasonable
Under other conditions being equal, the external debt structure is Changes in debt play an important role. The main manifestations of the unreasonable external debt structure are:
1. The proportion of commercial loans is too large
The proportion of commercial loans The period is generally shorter, inWhen the economy is good or all parties are unanimously optimistic about economic development, international banks are willing to continue lending, so these countries can continue to "roll" development by borrowing new debt to repay old debt. However, once certain unstable factors appear in economic development, such as government fiscal deficits, huge trade deficits, or political instability, which cause market participants to lose confidence and foreign exchange reserves are insufficient to repay maturing foreign debts, the exchange rate will inevitably fall sharply. . At this time, banks are no longer willing to lend new loans when they expire. In order to repay maturing foreign debts, foreign exchange funds that were already in short supply were flowing out on a large scale, triggering a crisis.
2. Foreign debt currencies are too concentrated
If a country’s foreign debt is concentrated in one or two currencies , the exchange rate risk will become greater. Once the foreign currency appreciates, the foreign debt will increase, making repayment more difficult.
3. The term structure is unreasonable
If the proportion of short-term external debt is too large and exceeds the international warning line, Or failure to reasonably arrange debt repayment periods will result in a concentration of debt repayment time. If liquidity is insufficient to pay mature external debts, a crisis will erupt.
(3) Improper use of foreign debt
After the debt scale and structure are determined, how to invest it appropriately department and maximize its use efficiency, which is the ultimate guarantee for repaying debts. In the long term, solvency depends on a country's economic growth rate, and in the short term, its export rate. So what people are really worried about is not the size of the debt, but the productivity and foreign exchange earning capacity of the debt. After borrowing heavily, many debtor countries fail to formulate foreign debt usage and debt repayment strategies based on comprehensive considerations such as investment amount, debt repayment period, project exchange rate, macroeconomic development speed and goals, regardless of the country's financial, material and human resources. Due to the limitations of other factors, we blindly engage in large-scale project construction. Since such projects consume money and have a long construction period, it is difficult to build production capacity and create sufficient foreign exchange in the short term, resulting in accelerated debt accumulation. At the same time, not only is the efficiency of using foreign debt for projects low, but a considerable part of the foreign debt does not flow into the production field or is used for the import of capital goods at all, but blindly and excessively imports durable consumer goods and luxury goods; this will inevitably lead to investment The decline in interest rates and the weakening of debt repayment capabilities. Unreasonable consumer demand is also the reason for the reduction in the savings rate, which makes the internal accumulation capacity unable to keep up with the growth of funds, thus promoting the further increase of external debt. Some countries borrow large amounts of short-term loans to make long-term investments domestically, and the investments are mainly in real estate and stock markets, thus forming a bubble economy. Once the bubble bursts, a crisis will come.
（4) Lack of macro-level unified management and control of foreign debt
Foreign debt management requires the state to implement technical and institutional management of external debt and assets to increase the returns from international borrowing , reduce the risk of foreign debt and achieve the most perfect combination of risk and return. This effective management is key to avoiding debt crises. The scope of its management is quite broad, involving all aspects of borrowing, using and repaying foreign debt, and requires policy coordination among various government departments. If the management of borrowed foreign debt is chaotic, long-term borrowing, and uncontrolled introduction of foreign capital will often cause the debt scale to be out of control and the debt structure to become irrational, it will prevent the government from making timely adjustments to policies based on the actual changed debt situation. Once the government discovers that its policies deviate too much from planned goals, debt repayment difficulties have often already occurred.
(5) The foreign trade situation deteriorated and export revenue dropped sharply
The ability to earn foreign exchange through export determines the Once a country fails to adjust its export product structure in a timely manner to adapt to changes in the international market, its export revenue will be significantly reduced and its current account deficit will expand, seriously affecting its ability to repay principal and interest. At the same time, the huge current account deficit has further caused dependence on foreign capital. Once international investors have greatly reduced their confidence in the economic prospects of the debtor country and stop lending to it or refuse to extend it, a debt crisis will break out. The debt crisis seriously interferes with international economic relations. The normal order of development is a major hidden danger in the disorder of the international financial system. It has a huge impact especially on the countries where the crisis broke out, and will have serious consequences for economic and social development.
The above content is the editor's answer to the question "What is the international debt crisis". If readers need legal help, they are welcome to go to the Legal Savior Network for legal consultation. .
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