Volume XXII – Number 2
Scott Shane
Abstract: After receiving critical loans to develop infrastructure, expand domestic industry, and increase the quality of life for their citizens, developing states often lack the resources necessary to service these foreign debts and pay back what they owe. Typically, this happens for one of four reasons: 1) developing states lack the foreign exchange to service their debts and convert them to the currency of their creditors; 2) developing countries are unable to service their debts because debt levels often rise faster than their economic production; 3) debt service is made more difficult because developing states often lack the equity investment required to withstand project failures; and 4) developing states are unable to make debt payments as a result of reduced foreign investment. In an effort to curb reduced international loaning and bolster developing economies, states must more heavily rely on the international capital market to increase private capital flows, utilize debt service formulas built on floating rates, capitalize on balloon repayments to generate profit, collateralize loans, and much more. Ultimately, through prioritizing the many opportunities offered by the international capital market, the global community can more symbiotically establish loaning relationships with developing states.
Keywords: loans, debts, rates, capital market, economy
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