External debt today poses one of the biggest barriers to development for many of the worlds less developed countries (LDC's). Excessive external debt is often responsible for the stagnation of economic growth given that the uncertainty it creates discourages the private sector from investing in the economy for fear about the stability of the government, and it also discourages public investment and reforms given that policy makers are aware that any benefits would be likely to be transferred abroad in the form of debt servicing. .
I will in this paper, present some arguments for and against the IMF and the World Bank possible undermining of democracy in Less Developed Countries, it is perhaps a common belief that poor countries suffer with economic policies from both institutions and the economic global order, nevertheless, one could argue that domestic political instability and policy making, can be also destructive. I will therefore try to provide points of view and answer the question, and in the process present some relevant arguments to sustain my opinion.
The debt crisis is the problem that heavily indebted countries have in servicing their debts.
Debt service is the payment of amortisation [liquidation of the principal] and accumulated interest; it is a contractually fixed charge in domestic real income and savings. (Todaro 2000, p.550).
International debt is a major obstacle to development for many of the world's heavily indebted countries. The World Bank and the International Monetary fund (IMF) are both international institutions created at the Bretton Woods Agreement of 1944 to help reconstruct Europe after the Second World War. Once it was felt that the original aim was achieved, they turned to the development of the so-called Third World.
Today, the World Bank and the IMF classify 41 countries as Heavily Indebted Poor Countries (HIPC's), which, despite various debt relief initiatives are still the most hindered by external debt because they are forced to divert to their creditors, scarce funds and resources that otherwise could have been used to provide basic services for their people.
