3. Where did the debt come from?

Much of the debt of poor countries is left over from the 1970s - and often arose through reckless or self-interested lending by the rich world.

In the 1960s and 1970s, poor countries were lent large amounts of money. Many banks in rich countries had had huge sums of money (made from rising oil prices) deposited with them: they had to make money on this by lending it, and rushed to lend to poor countries. Meanwhile, many rich country governments were keen to support countries that they saw as potential allies in the cold war – so they lent them money regardless of whether that country was being ruled by a corrupt or oppressive regime.

So governments and banks in Northern industrialised countries were giving large loans – some for useful purposes, but many simply propped up dictators or went to projects that failed because of corruption or poor lender advice.

In the 1970s and 1980s, the oil crisis meant that interest rates shot up and the debts grew. From the 1980s to now, the prices of many commodities produced by poorer countries (such as coffee, cotton or cocoa) have falled, sometimes dramatically – often because of advice from rich countries. Poor countries thus have less hard currency to service their debts, and the knock-on impact on exchange rates meant that poor country debts (often counted in foreign currency like US dollars) ballooned still further in real terms for the country. The result was that many countries ended up owing huge amounts, even after repaying far more than they – or their former regimes – had previously borrowed.

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