We are always hearing, reading about, and watching, financial news regarding various countries going bankrupt or overspending, and borrowing money from the world bank /IMF. To briefly explain. Countries are run just like any business. They make money by raising taxes, selling goods and services (tourism for example) to other countries. They use the money they receive to provide services for the citizens of the country. That was the simplified version .Like some businesses, countries can spend more than they receive in income. So in this event, they borrow.
The money borrowed comes from organisations such as the IMF (International Monetary Fund), the world bank, or other wealthier countries.
The above link provides an overview of the situation described in this article.
This system sounds all well and good until you begin to look at the logistics of borrowing. When money is borrowed from the IMF, it comes with interest payments added, just like a loan you and I would receive from our local bank for example. Just like you or I, if a country defaults on its loan, all future borrowing would be refused. Additionally, all investment in the country would be stopped, basically ruining the economy. This is why all countries essentially have to repay an IMF debt.Borrowing from wealthier countries on the other hand, brings an entirely new set of conditions. These terms are often the result of negotiations between the 2 countries involved.Countries rich in natural resources (Oil, gas, precious metals, etc…,) often use these resources to facilitate borrowing from wealthier countries. The problems arise when the terms and conditions are drawn up. More often than not, the lending country, ask for the borrowing country to provide access to their resources at a reduced cost. In effect, the lending country takes control of the resources. The borrowing country knows that to raise capital they need to agree to the terms. The problem with this is that the resources are used to enrich the lenders further, while placing the borrower in a position of ‘a resource slave’ This is how the state of a ‘perpetual loan’ comes into being.As long as the wealthier country gets continued access to the resources in question, they will continue to provide capital to the borrowing nation (in part, the profits from the resource are used as the continued loan). With projections as to the ‘exhaustion of the resource'(fossil fuel for example) measured in 10’s to 100’ of years, this situation continues, to the detriment of the borrower, who can no longer rely on their ‘own resources’ to increase their wealth.This has been the foundation of reasons why so many resource rich countries are performing badly economically. To raise cash , they are simply selling, or allowing easy access to their main assets, but are using the capital raised to prop up their economies, and pay off their debt. Many 3rd world countries are rich in natural resources, but lack the finances to extract and manage their precious commodity. From the perspective of the wealthier nations, long may this continue. From the perspective of the poorer nations, this will, in effect continue ad infinitum.