External debt is that which is owed to a foreign creditor.
External debt is a word that derives from a Latin word and is made up of two terms that in themselves have a particular meaning. The concept of debt refers to the obligation that a person has to pay, repay or satisfy something to another . The concept is usually related to money . To contract a debt there must be an object that makes the transaction between both individuals necessary; It can be something real or abstract (a house or a favor).
External , meanwhile, is an adjective that allows us to mention what is manifested from a place to the outside; when this last concept is contrasted with that of internal . The exterior of a country is any territory that is outside the national limits.
The notion of external debt , in this way, is related to the debts that a country has with foreign entities, including both public debt (contracted by the State ) and private debt (contracted by individuals). It is common for external debt to be maintained with supranational organizations such as the World Bank or the International Monetary Fund . If a country has problems paying its debt (that is, returning the money along with the agreed interest), this situation has an impact on its economic development.
Contract external debt
A nation decides to contract external debt when it allows it to conserve its own resources or receive foreign resources to enhance its development. It is common, however, that the weight of the debt with its interests ends up affecting the country, which may have certain difficulties in making its payments.
Sometimes the State even requests money for a certain purpose and ends up allocating it to another. In this way it contracts external debt and does not meet its objectives, compromising its future.
In some cases, the foreign debt becomes truly unpayable for the country and creditors end up forgiving it or, at least, cutting interest. We must not forget that the money that the State allocates to pay the debt and its interests represents resources that are removed from other areas of its budget (such as health or education ).
External debt conditions the development of countries.
The crisis
There is a period in history known as the debt crisis and it has been one of the main causes of the economic disaster we are experiencing at this time.
The origin of this crisis dates back to 1973 . That year the value of oil multiplied four times and the producing countries began to earn large sums of money. Then, private banks went to these countries in search of loans since interest rates were very low there.
In 1979 , however, interests rose and the countries that had acquired these loans had to go to other States in search of more credits to help them pay those already assumed. In this way , a long chain of debt developed that led to the debt crisis that took place in 1982. At this time, all types of exports other than oil were despised; The countries most affected by these changes in the world economy were those of the Third World (which invested more money in repaying the interest on that debt than in their own development).
The consequences of this economic disaster were that the countries that had become indebted did not have the capacity for internal savings , one of the main economic needs of a territory to bet on its development.
Difficulties in paying foreign debt
To this day, countries that went into debt more than forty years ago continue trying to pay or request that their debt be forgiven , in order to be able to boost the national economy.
Unfortunately, the economic hierarchies that lead the world lead us to believe that there will continue to be a few who become rich and many, many who have to continue begging or juggling to pay the foreign debt; of course, at the cost of citizens' money . But that is what the capitalist system consists of, a version of Darwinian theory taken to the field of economics .