New Internationalist

Debtspeak

Issue 312

new internationalist
issue 312 - May 1999

DEBTSPEAK : An NI pocket guide to the language of loans

[image, unknown]
all illustrations by BRICK

Adding-up problem: What results when many countries increase their exports of a commodity (like sugar) at once so that, when they’re all added together, they cause a glut on world markets and the price falls.

Bilateral: Government-to-government lending.

Bond: Loan repayable on fixed date with fixed rate of interest, frequently issued by governments. Compound interest: Unpaid interest charges are added to the ‘principal’ and interest is charged on both.

Conditionalities: Extra requirements other than repayment (such as ‘structural adjustment’ policies) demanded by the lender before new loans are granted.

Contagion: Crisis in one country caused by a crisis in another.

Debt/export ratio: Debt service as a proportion of export earnings.

Liquidity problem
"I think you're about to meet
our liquidity problem."

Debt service: Total payments due on loans (repayments plus interest).

Debt stock: Total of all debts.

Default: Non-repayment of loans.

Defensive lending: New loans made to repay older loans falling due, and to prevent default.

G7/8: ‘Group of Seven’ richest industrial countries – originally Canada, France, Germany, Italy, Japan, Britain and the US. Now also includes Russia.

GDP: Gross Domestic Product – national income, less remittances from abroad.

G7
What does the 'G' stand for?
...why, GREEDY !

GNP: Gross National Product – total national income.

HIPC: Heavily Indebted Poor Country Initiative. Launched by IMF and World Bank in 1996 to maximize ‘sustainable’ repayments from these countries.

IMF: International Monetary Fund, based in Washington DC and originally intended to iron out financial imbalances between nations – now the police of national economic policies.

Liquidity problem: Not enough foreign currency to meet immediate debt-service payments.

Maturity: Date by which loan is repayable.

Moral hazard: Said to be incurred when an insurance policy encourages, or fails to discourage, the risk it covers. So, for example, someone with a fire-insurance policy might not bother with fire prevention. This argument is now used against debt cancellation, on the grounds that it would lead to even worse lending and borrowing habits in future.

Multilateral: Lending by international financial institutions, principally the World Bank and IMF.

G7
"Okay, you want to reschedule payments
...let me see ...how about never.
Never looks good to me".

Overhang: Excess of a country’s external debt over its capacity to pay.

Paris Club: Forum for wealthy creditor countries (such as the US, Germany, Japan, France, Britain) to dictate terms collectively to debtor countries.

Principal: Amount of loan.

Reschedule: Revised timetable for loan repayments, usually granting longer repayment periods and often involving new loans to pay old ones.

Solvency problem: No prospect whatever of debts ever being paid.

Structural adjustment: Free-market policies imposed as a condition for new loans, mostly supervised by the IMF.

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