Government debt and wealth in the Global South

4 A very short history of government debt in the Global South

These accelerated growth processes have brought other problems, such as severe environmental deterioration, that must be balanced against the increases in income and consumption levels of their population.

capitalism

An economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labour to produce goods and services for sale on markets with the intent of making a profit. The main economic institutions in a capitalist economic system, then, are private property, markets, and firms.

globalization

A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance, and to a lesser extent, labour. The term is sometimes applied more broadly to include ideas, culture, and even the spread of epidemic diseases.

foreign portfolio investment

The acquisition of bonds or shares in a foreign country where the holdings of the foreign assets are not sufficiently great to give the owner substantial control over the owned entity. Foreign direct investment (FDI), by contrast, entails ownership and substantial control over the owned assets. See also: foreign direct investment.

foreign direct investment (FDI)

Ownership and substantial control over assets in a foreign country. See also: foreign portfolio investment.

Contemporary capitalism and globalization have generated opportunities for growth for many LMI countries. These countries have been able to elevate large proportions of their society from poverty to middle-income status. One mechanism behind these processes has been the access to markets and export opportunities that have favoured export-oriented strategies in many LMI countries. Another mechanism has been the access to global capital markets and enormous flows of foreign direct investment that have accelerated these growth processes.

Many LMI countries have used the possibility of accessing global capital markets to attempt an acceleration of their development process. There are some economic development success stories (particularly in East Asia) that have relied much less on foreign capital and much more on their own savings and surpluses, but most LMI countries across the world have intensively used international capital markets through three different mechanisms:

• public debt, which is the main subject of this Insight
• foreign portfolio investment, which is when private companies, especially large ones, contract debt themselves or issue bonds in international capital markets; this is brought about by international investors that come into a country and buy shares, bonds, and other securities
• foreign direct investment (FDI), which is the flow of capital into a country to directly buy whole companies or set up new ones; many LMI countries have used these mechanisms during the late twentieth and early twenty-first century.

Each mechanism has benefits and dangers, which you can read more about in Unit 18 of The Economy 1.0. The issue of government debt that we discuss in this Insight represents this mixture of benefits and dangers of contemporary financial globalization.

Empires, revolutions, and resolving government debt crises militarily

During most of the eighteenth and nineteenth centuries, many European powers were able to militarily and politically dominate large portions of the world. This meant that a big part of what we would now call international finance in LMI countries was actually credit operations within empires motivated by European imperial interests. For example, India’s first major railway line was built by the Madras Railway Company between 1853 and 1856, financed by capital raised in Britain. The establishment of the diamond giant De Beers in South Africa, by the infamous British imperialist politician and businessman Cecil Rhodes in 1888, was funded by the bank of the Rothschild family in London. These operations that today we would consider as capital flows to and from India, South Africa, and the United Kingdom were capital flows within the British Empire. Outside the European imperial system, there were significant international capital flows between European powers and with the United States; but government debt in the Global South outside of the empires was, in those times, principally something issued by great powers to client states or countries that lived in the periphery of these empires, usually in a state of economic, political, and military dependence. The cases of Haiti, Mexico, and Venezuela discussed later in this section illustrate this situation.

The first wave of decolonization happened in the Americas, first with the United States’s victory in the 1775–1781 Revolutionary War that allowed them to separate from the British Empire after six years of conflict, and then with Haiti separating from the French Empire in 1804 after almost a decade of bloodshed. Then came the collapse of the Spanish Empire in the Americas because of Napoleon’s invasion of the Iberian Peninsula in 1808. By the 1820s almost all of Central and South America was independent and even Brazil had become a separate empire from Portugal.

On the establishment of these republics, the issue of government debt was crucial. It was mostly associated with financing the revolutionary wars of independence. In fact, one of the key roles of the first ambassadors of these new republics was to secure loans from European banks and governments. For example, while the Revolutionary War was still ongoing, John Adams, one of the US’s founding fathers and the second president of the United States, travelled as ambassador to the Dutch Republic with the double mission of being recognized as such (which implied the existence of the new nation) and of securing a substantial loan to finance the war. The house that Adams bought in Amsterdam while he successfully negotiated the loan was the first official embassy of the United States. It seems very clear that the young American republic perceived this loan as important to their cause.

Case study: Haiti

Unfortunately, in some cases, the debt incurred by these new republics became an instrument for the imperial powers to exercise domination over them. One of the worst episodes happened in 1825 when Charles X of France sent a fleet of warships to Haiti and forced the new country to assume an enormous debt as a way of compensating France for the loss of revenues from slavery (the value of slaves lost) and colonists’ lives during the revolution.

The amount of debt was so enormous that towards the end of the nineteenth century the Haitian government was using almost two-thirds of its budget to service the debt and was trapped in a vicious circle of acquiring new and increasingly onerous credit to finance old debt. It took Haiti 122 years to pay this debt and according to some calculations it ended up transferring amounts in the range of 20 to 30 billion in 2022 US dollars, which is about the size of Haiti’s annual GDP in 2022. Haiti is the poorest nation in the western hemisphere, and it is likely that this debt played a role in stifling its development process. Excessive levels of debt, acquired during periods of duress and subject to harsh conditions, can be crippling for poorer nations.

Case study: Mexico and Venezuela

Government debt is useful but can be a dangerous tool for governments. In late 1861 and early 1862, a huge fleet of Spanish, British, and French ships seized the Mexican port of Veracruz with the objective of forcing the government of President Benito Juarez to resume payments on Mexican government bonds. The government had been forced to suspend payments because of deteriorated finances inherited from the civil war and liberal revolution that Mexicans call the Reform. The French used the debt crisis as an excuse to invade Mexico and import a European emperor of the House of Habsburg called Maximilian (brother of Franz Joseph, the emperor of Austria–Hungary). It took the Mexicans and Benito Juarez almost six years to get rid of the French and the imported emperor (who they executed). A similar situation developed in 1902 when the suspension of debt payments by the Venezuelan government was used as an excuse for a joint British, Italian, and German naval task force to blockade several ports, compelling the government to commit a third of its customs duties to the payment of the debt with the European powers.

These examples show that government debt is dangerous because when a government loses control of its finances, it can risk its sovereignty.

Using debt to accelerate modernization

Foreign debt brings with it economic and political dangers, but it may be necessary for a country that wishes to accelerate its development process. History offers some examples.

One example is the period of Mexican history known as the Porfiriato (1884–1910), in reference to the dictatorship of General Porfirio Díaz who had fought on the side of Benito Juarez during the Reform War. During Díaz’s regime, economic policy was shaped by a group of technocrats known as the Científicos (the scientists) that held most of the crucial cabinet positions. This was a group of businessmen, intellectuals, and professionals devoted to the transformation of Mexico from what they thought was an agrarian, semi-feudal, backward country to a modern capitalist industrial state.

The Porfiriato ended very badly, with the onset of the Mexican Revolution, when masses of peasants, workers, and even middle-class professionals rebelled and overthrew the government. A fair assessment of that period has to account for the fact that the dictatorship (and the Científicos) was able to hold on to power for a quarter of a century not only due to its repressive policies and brutality but also because of its capability to generate significant economic growth during its first 10 to 15 years.

The Científicos were able to keep this system going for a long time, as discussed by Leonardo Weller in ‘Government Versus Bankers: Sovereign Debt Negotiations in Porfirian Mexico, 1888–1910’ and Carlos Marichal in ‘Debt Strategies in the Porfiriato: The Conversion Loan of 1888 and the Role of BANAMEX as Government Banker’.

This growth was achieved by inviting foreign investors to build capital and own infrastructure (railways and telegraph lines) as well as to develop the emerging oil export business, but also by heavily using foreign debt to construct infrastructure (such as ports, roads, public lighting, sewers, schools, water reservoirs, and parks). The Científicos thought that these investments would generate sufficient progress and growth, and hence fiscal revenues, for Mexico to be able to pay those debts. And, in fact, during the early phases of the Porfiriato, the regime enjoyed such goodwill from international business circles that they were able to negotiate quite good conditions on the debt. Moreover, the boost in growth due to the boom in foreign investment generated an economy and a tax base that allowed the debt-based development to work.

But foreign debt is a double-edged sword: when the regime unravelled, the goodwill of international bankers disappeared and the country spiralled into a decade-long civil war and economic crisis that made its debt levels impossible to service. By 1920, when the Mexican Revolution had ended, the president of the new Mexican revolutionary republic, General Álvaro Obregón, inherited a crippling foreign debt. This forced him to negotiate with the United States and postpone any oil industry nationalization policies that some of the revolutionary parties had in mind. In fact, they would have to wait almost two decades, until 1938, when president Lázaro Cárdenas was able to nationalize the oil industry.

The name of the emperor was originally Mutsuhito, but he was honoured posthumously as Meiji, which means ‘enlightened rule’.

The story of debt being used by a modernizing government (usually authoritarian) with the objective of transitioning a country towards a modern capitalist economy is by no means limited to the Mexican Porfiriato. At approximately the same time (1868–1912), the Empire of Japan went through the Meiji Restoration, named after the emperor that re-established centralized monarchical rule in that country after 250 years of the feudal, highly decentralized, agrarian, and military-oriented Tokugawa shogunate.

An interesting difference from the Mexican case was that the technocrats that conducted the process were not Japanese. Rather, the Japanese government hired between 2,000 and 3,000 extremely well paid and very powerful foreign advisers and experts, known as oyatoi gaikokujin (hired foreigners), to reform every aspect of the economy and the state. At one point, almost one-third of the national budget was spent on the remuneration of these advisers. The objective was the same as in Mexico: an accelerated modernization. Hence, the Meiji period was one of enormous investment in railways, telegraph lines, electricity, ports, roads, and urban infrastructure that was achieved through a combination of foreign investment and substantial foreign debt that was floated in international capital markets by the Japanese government. Economists Nathan Sussman and Yishay Yafeh argue that it was favourable financial conditions (low interest rates and abundant availability of credit) in international capital markets that allowed Japan to access so much debt, rather than any goodwill or valuation of the reforms being implemented.¹ In any case, the debt was issued, the investments were made, and the accelerated transformation of Japan into an industrial power was achieved.

Resolving government debt crises peacefully: The Paris Club

The second great wave of decolonization happened after the Second World War and was centred first in Southeast Asia and then in Africa and the Middle East. A major component of this process was the end and partition of the British Raj in 1948, and the birth of what today is India, Pakistan, Bangladesh, Myanmar, and Sri Lanka. As was the case with the first wave of decolonization, after some time government debt became a problem for many young countries that had issued it during the first postwar decades. The political reality after the Second World War did not allow for military interventions by creditor states like the ones seen during the nineteenth century, so when problems started, the world had to find a new mechanism for solving the disputes. The new institutional framework for dealing with debt crises had, once again, a Latin American country as its protagonist.

In 1955 there was a military coup in Argentina that toppled the presidency of general Juan Domingo Perón, the founder of a pivotal Argentine political movement known as justicialismo or peronismo which has won most of the elections since then, sometimes with left-wing platforms and sometimes with right-wing agendas.

Thanks to very favourable economic conditions faced by Argentina in the early postwar period, Perón achieved an amazing feat during the first years of his presidency: paying off the debt and even managing to accumulate a significant sovereign wealth fund (savings held by the government in international currencies and assets). The boom in agricultural exports to a restored world economy and the increases in productivity due to a large flow of educated workers that had immigrated from Europe in the war years generated the conditions for fast growth and elevated fiscal incomes. The postwar stability in Europe and the United States sustained by the Bretton Woods accords, among other things, significantly lowered interest rates in international capital markets.

However, from then onwards the favourable conditions slowly deteriorated at the same time as the government was unable to control its spending and keep it within sustainable levels. Inflation spiked and wages lost their value until, finally, the government was forced to cut expenditure, generating social and political unrest. This allowed conservative forces to plan and execute a very violent military coup in September 1955 that sent Perón into exile (though he would, eventually, return).

When General Pedro Eugenio Aramburu assumed his dictatorial powers, he found out that the country still had some of its sovereign wealth fund in reserves although it was less than 10% of what the peronists had accrued in 1952. The new administration needed funds to reactivate the economy and not be forced to continue cutting social spending, so it immediately negotiated a large international debt contract with several European banks. By 1956 it was clear that Argentina had spent all its reserves and could not service the debt. So, the French Minister of Finance Paul Remadier set up a meeting of the 11 countries which had banks involved in the debt crisis with Argentina. The conference convened on 16 May 1956. There was a prolonged negotiation that gave Argentina more time in exchange for assurances that they would honour a proportion of their debt.

This is the origin of the ‘Paris Club’ that continues to exist and, to this day, has settled 478 debt disputes among 102 countries. In recent decades most of the cases have involved African and Middle Eastern countries. So, while similar debt crises have occurred across the Global South since the Argentine crisis of 1955, the basic problem remains the same: changing international and/or local circumstances that make debt levels spiral out of control and become impossible to service.

structural adjustment programme (SAP)

A set of policy reforms and budget cuts that a country must promise in order to access a loan from the International Monetary Fund.

Creditors face the prospect of losing all the money they lent and the debtor countries face an economic and political situation that requires some financial breathing space. In one way or another the negotiation ends up dividing the costs and pushing the debt forward. Usually, the creditors accept a reduction in the debt stock (economists sometimes call this ‘taking a haircut’) in exchange for some sort of guarantees and assurances that make future payments more certain. Often, this has involved the intervention and support of the larger world economic powers or multilateral agencies like the IMF, the World Bank, or regional development banks, like the Inter-American Development Bank (IADB), the African Development Bank (AfDB), the Asia Development Bank (ADB), or the Islamic Development Bank (IsDB). ‘Multilateral’ means that these banks are formed by large groups of countries that pool some significant capital (usually leveraged by the World Bank) and use it to help economies in distress within their region. These large multilateral agencies promise creditors that they will guarantee the loans (they will pay if the country does not) and then negotiate (sometimes force) conditions on the country that essentially consist of budget cuts that prioritize paying the debt. This is in fact the origin of what would later become the standard system of debt renegotiation: structural adjustment programmes or SAPs.

Using structural adjustment programmes to address government debt crises: The Brady Plan

The other institution that has played an important role in debt renegotiations since its creation in 1945 is the International Monetary Fund (IMF), established as part of the Bretton Woods system. The objective of the IMF is to stabilize international money and exchange markets. To do this the IMF offers low-interest loans to governments that need them to face macroeconomic contingencies and financial difficulties.

Since the 1970s and 1980s, the IMF has adopted the policy of making loans conditional on reforms agreed to by the country receiving the funds, a process known as structural adjustment programmes (SAPs). Usually this involves some spending cuts and sometimes more substantial reforms, such as opening markets to international trade by reducing tariffs and, in some extreme cases, the privatization of state-owned enterprises and/or public utilities. The way that SAPs work is that the country in trouble solicits support from the IMF, and once the institution decides to provide help (which is usually the case) they send a ‘mission’ of economists with political experience that design but also negotiate a programme in exchange for the loans and the guarantees. The reason that the country ends up accepting is that they rarely have many options. If they do not receive the support, they may end up facing an even more severe scenario of economic collapse. These situations illustrate the double-edged sword aspect of debt: it can help countries boost their growth strategies but when circumstances drive a country to insolvency it may lose control of its policy agenda and political sovereignty, because whoever helps to write off the debt will impose their conditions.

Many countries throughout the Global South have had to use these loans and engage in SAPs in the late twentieth and early twenty-first centuries. In many cases the harsh adjustments required have been very difficult for local political systems to manage. And in some cases, social and political actors within the countries have felt that SAPs are a mechanism that diminishes their national sovereignty and allows the international business community to force certain policies on them, replicating the dynamics of debt crises of the nineteenth century, only without warships.

Not all debt restructuring stories are bad; in some cases, these mechanisms have been successful in allowing countries to overcome a financial shock and move forward. One of these cases is the ‘Brady Plan’, named after Nicholas Brady, Secretary of the Treasury of the United States, who proposed it as a way forward for LMI countries hit by the financial and commercial effects of the 1979 oil shock (caused by the Iranian Revolution).

One of the most affected countries was Mexico, an oil producer but also an economy traditionally dependent on the United States. When the oil shock hit the United States and drove it to recession, all the non-oil exports of the Mexican economy collapsed and the Mexican peso started losing value in international markets. Hence, the size of the Mexican debt relative to the economy and the budget exploded, driving the country to insolvency.

By 1982, Mexico’s monthly interest payments on the debt were larger than its dollar incomes from exports. The country entered a process of contracting new loans to try to refinance the debt but was not able to stop it from growing. Moreover, as the debt burden grew, it became harder and harder for the country to get loans and the ones that it was able to get were more expensive. This vicious cycle drove the country’s debt from around 30% of GNI before the oil shock, to a peak of around 150% of GNI. Towards 1989 it became clear that the refinancing strategy was not working. Mexico was on the verge of default and something else was needed.

The Brady Plan gave creditors three options: reduce the debt level, reduce the interest rate, or provide new loans. The conditions for this renegotiation were guaranteed and collateralized by the US government, the IMF, the World Bank, and the reserves of the country receiving the debt relief. If creditors did not accept the plan then they faced a scenario where the debt that they held was not given those conditions and guarantees. Without these guarantees, creditors would face a scenario of collapsing fiscal conditions, which could ultimately lead to a run against the troubled debt stock. The political and economic weight of the United States also played a role in ‘convincing’ creditors. Most lenders opted for a reduction of the interest rate or the debt and Mexico was able, after a couple of years, to lower the size of the debt to around 50% of GNI. The success of the Brady Plan was that it allowed the country to move out of bankruptcy but also allowed lenders to recover some of their money in an orderly fashion. It was later applied in Brazil, Nigeria, Venezuela, the Philippines, and many other LMI countries during the early 1990s.

Private-sector resolution of government debt crises: The London Club and the International Institute of Finance

From the late 1970s onwards, government debt started to change substantially. It has become increasingly a private matter rather than a diplomatic problem. A big change was caused by events in the middle of Africa.

The year 1976 was a terrible one in Zaire (today called the Democratic Republic of the Congo or DRC). They had an economic crisis and the outbreak of Ebola. The country had gained independence from Belgium in 1960 as part of the second wave of postwar decolonization. Overcoming a particularly brutal colonial past, the country had managed to elect Prime Minister Patrice Lumumba, who became an international symbol of African independence. But in 1961, only seven months into his administration, a military coup by General Mobutu Sese Seko removed him from power and handed him to separatist forces backed by European interests trying to secure mineral resources of the copper-rich province of Katanga. Lumumba was executed and a chaotic civil war started. In late 1961, the Secretary General of the United Nations, Dag Hammarskjöld, who was trying to negotiate a ceasefire, died when his plane crashed. To this date most people think that the plane was shot down. General Mobutu slowly took power by force and established a dictatorship that ended in 1997 when he died.

During its first 15 years as an independent nation, the DRC (Zaire) struggled with a continuous state of internal armed conflict and difficulty in controlling its mineral wealth. The government went through several cycles of high fiscal revenues when prices were high and its military forces were successful, and fiscal collapses and insolvency when the opposite happened. Starting in 1972, however, the situation seemed to improve. Between September 1972 and April 1974, copper prices more than tripled, going from 0.48 to 1.36 USD per pound.

With this inflow of resources, the country immediately embarked on substantial infrastructure projects and spending programmes that it financed with private credit from European banks. They were banking on the price of copper staying high. Unfortunately, a substantial proportion of the revenue was diverted to the personal accounts of the ruling military elite. The 100 million USD ‘African Versailles’ constructed by General Mobutu in his home village of Gbadolite, which included a special runway so that Air France’s Concorde could collect and drop him at his home, are conspicuous signs of the levels of corruption and debauchery of this dictatorship.

By early 1975 copper prices were back down to 0.58 USD per pound and the country was broke and could not pay its debt. In 1976, twenty years after the foundation of the Paris Club (the debt settlement institution discussed earlier in this section), the Zaire debt crisis prompted the creation of the ‘London Club’. The difference between the two is that the London Club hosts groups of private lenders (mostly banks) and although it operates similarly to the original Paris Club, it is not based on an international treaty, does not have a formal institutional structure, and operates in an ad hoc way.

syndicated loan

A loan that is provided by a group of banks or financial institutions instead of just one of them. It usually involves a governance agreement between them that is embedded in the contract.

The reason for the appearance of the ‘London Club’ is that in the late 1970s, like Zaire, many LMI nations had started contracting loans with groups of commercial banks that extended credit together (syndicated loans) without the support, guarantees, or backing of world economic powers and multilateral organizations. The group met in London to renegotiate Zaire’s private debt, and since then, the mechanism has been repeated for other debt crises.

Following the rescheduling of the Zaire debt, the London Club hosted renegotiations of the debt of Peru, Turkey, and Sudan during the next five years. The name ‘London Club’ has stuck although the negotiations are not necessarily conducted in that city anymore.

One of the major developments of international debt restructuring institutions happened in the 1980s as a result of the Latin American debt crisis. From the mid-1970s to the mid-1980s the deterioration of international economic conditions (mostly because of global oil shocks) drove many Latin American countries to insolvency. Devaluations of currencies, usually related to high inflation levels, and increased global interest rates worsened the situation. Total Latin American debt more than quadrupled, reaching more than 50% of regional GNI and debt service sextupled, reaching over 10% of regional GNI. As a result, almost all Latin American countries went through some sort of debt restructuring and, in the process, had to agree to restrictive spending policies and economic restructuring (including privatizations), which became contentious political issues.

One development that resulted from these debt restructuring processes was the creation of the International Institute of Finance (IIF) in 1983 by 38 global commercial banks that were involved in the Latin American debt crisis. The objective was to coordinate an industry-wide policy to debt restructuring processes. The IIF is not directly involved in debt restructuring; they only are involved in setting standards for the industry. These standards, moreover, are not legally binding but are considered ‘best practices’ of the financial industry. The IIF has since expanded its scope substantially and today groups more than 400 financial intermediaries from over 60 countries, but debt restructuring in LMI countries remains one of its central focuses.

Issuing government debt in private capital markets

From the late 1990s onwards, government debt underwent a new metamorphosis. It is very common nowadays for governments of LMI nations to issue government bonds in private capital markets. For example, according to the IIF, comparing 2022 to 2017, syndicated loans (by groups of banks) to LMI countries were at similar levels while bond issues had doubled. These bonds are traded in capital markets, so the institutions and investors that end up holding these instruments are not necessarily the same entities that bought them when they were originally issued. These sovereign debt bonds are traded in international capital markets in the same way as stocks or commodities and are sometimes bought by financial intermediaries that have no relation or direct knowledge of the issuing country. Many times the sovereign debt bonds are bought as part of a more general investment policy with the objective of constructing an investment portfolio of which they form part and providing certain financial statistical properties (expected returns and/or levels of risk exposure). So, when debt crises eventually come, the problem is no longer mainly between sovereign states, international multilateral institutions, or bank syndicates but rather a complex negotiation with many bondholders that sometimes involves lawsuits, collective actions by groups of bondholders, courts, and international civil disputes.

The mechanism for renegotiating debt that is used today is called ‘bondholder committees’, which are ad hoc groupings of bondholders that are convened and asked to vote on and approve debt restructuring proposals. The way that the debt restructuring is operated is through government bond exchanges (markets where these securities are traded, set up especially for these processes). This mechanism is even more informal and ad hoc than the Paris and London clubs. But there is a difficulty with this mechanism: it treats a problem that is inherently political (a debt crisis in an LMI nation) as a financial negotiation between private agents.

Nations are more complicated than firms, and political crises related to debt renegotiation can have severe social and international consequences. There have been some efforts to address this issue. In 2004 the IIF adopted the ‘Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets’, which were revised in 2010 and 2012. As recently as October 2020 the IIF published a report on implementation of the principles that tried to set out best practices and transparency standards for debt renegotiations. The principles, for example, emphasize that these processes should be conducted in an environment of transparency and without arbitrary discrimination among creditors. They also state that the involved parties should prioritize dialogue and cooperation to avoid forced restructuring through legal processes. One particular aspect of the principles is that it highly recommends creditors to support debtor reform efforts including extending financial conditions for the debt and providing consulting and technical recommendations. Finally, the principles emphasize the importance of good faith among the parties so that all assume part of the costs of the process with the knowledge that their interests will be equally protected. However, the IIF is an association of global commercial banks and financial services intermediaries and does not necessarily represent the political will of governments.

Government debt remains a central issue of LMI economic policy. The next section will introduce a model that we can use to understand why.

Exercise 2 Government wealth funds (sovereign wealth funds)

Investigate whether your country has a government (or sovereign) wealth fund. If not, find the closest country that has one. Research the answers to the following questions.

1. When was the fund established?
2. Why was it established?
3. How much money does it currently hold?
4. What is the fund supposed to be for?
5. What is its governance structure?
6. What are the rules for adding revenues to the fund?
7. What are the rules for spending from the fund?

Exercise 3 A government debt crisis

Investigate the most recent debt crisis and restructuring process that happened in your country. If your country has never experienced this event, find the most recent debt crisis in a country near to yours. For this event, research the answers to the following questions.

1. Why did it happen?
2. What consequences did it have for its citizens?
3. What political consequences did it produce?
4. How was it resolved?
5. What international institutions were involved in the solution?
6. Did the solution work? Why or why not?

Exercise 4 Government debt crises in history

Find a government debt crisis case from before the twentieth century not discussed in this section of the Insight and research the answers to the following questions.

1. What country was involved and why did it happen?
2. What world economic powers were involved and in what way?
3. What political and/or military consequences did it produce?
4. How was it resolved?
5. What political, social, and historical consequences did it have for the country involved?