Debt forgiveness refers to the act of excusing heavily indebted countries from all or part of their unsustainable debt. The last 50 years have seen external debt emerging as a long term structural problem hampering the economies of many less developed and developing countries. Latin America owes £365 billion in debts to other countries and banks (36 per cent of what it produces - its Gross National Product), while sub-Saharan Africa owes £140 billion (83 per cent of its total GNP). This means that repayments to western creditors take priority and ordinary people suffer. As such, ramifications of such contentious issue have fuelled debate deliberating cancellation as the antidote for third world prolonged undeveloped affliction. Arguments in favour of forgiveness would be examined in theoretical perspective utilizing dependency theory analysis
The world is faced with an attack of capital against labour of imperialist countries against all of the periphery populations. Dependency analysis postulates an exploitative exchange between opposing groups on the basis of maximizing capital and profits. With consideration upon this, such exploitative nature has emanated itself into the context of loans lent to undeveloped countries under the pretext of it elucidating the development problematique where it is only another mechanism of exploitation and the perpetual expansion of profits and securing of interests of core imperialist states.
One of the main supporting claims for cancellation concerns mismanaged lending. The crisis arose in part from excessive borrowing and ill-thought out economic policies. In the 1970s private banks flushed with petro dollars were eager to regel them to debtor governments disregarding a nation’s ability to repay the loan. As such governments accepted in the context of negotiable interest rates. Soon after they experienced a rise in interest