Debts, loans, and managing money
Let's suppose you want to buy a special toy. When you get to the store, however, you find that while you have $20 in your wallet or purse, the actual cost of the toy is $25.Skip to next paragraph
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You would not be able to purchase the item, unless somebody loaned you the extra $5 to make up the difference.
That is what is meant by a debt - money borrowed from someone who must eventually be repaid. When people regularly fail to pay their monthly bills, we say they're running up debts. They're spending money they don't really have. Many people try to avoid that unpleasant situation by managing their money so carefully that they do not spend more money than they know will be coming in. That kind of money managing is called budgeting.
Of course what happens to individuals also happens to countries. They can also spend more money than they can really afford. The result is that they, too, go into debt. These debts are often so huge they run into billions of dollars.
Sometimes debts take countries by surprise. The countries didn't intend to go into debt. World financial conditions can so change and affect the value of goods we buy or sell that the amount of money a country has from year to year - or even from month to month - can go up and down quite rapidly.
That is what happened recently to a number of countries. For example, Mexico, which has one of the biggest debts in the world - more than $80 billion - was expecting the price of oil to stay high.
Mexico is so rich in oil that it counted on getting vast sums of money from it to pay for most of its bills as well as a number of expensive new projects it was planning. But when the price of oil fell quite drastically, Mexico suddenly found it was getting much less money from oil than it had anticipated, and it quickly went into debt.
The same thing happened to another oil-producing country, Nigeria, in West Africa. One big reason that between 1 million and 2 million West African workers have been forced to leave Nigeria this month is that Nigeria is in financial trouble. It, too, has debts, although they're not nearly as big as Mexico's.
Because the amount of money Nigeria had counted on getting from its oil revenues dropped, business started to slow down. Whenever that happens, people are in danger of losing their jobs. As a kind of safety measure, the Nigerians thought it would be wise to rid the country of people who were not citizens, so that it didn't appear they were taking jobs away from Nigerians.
Some other countries that have very large debts include Brazil, Poland, Venezuela, Argentina, South Korea, Israel. Each of these countries is more than
There are also a string of other countries that have significant debt problems. Many of them are countries that went into debt because they had to pay much higher bills for importing oil after it went up in price - four times as high in 1973-74 and double again in 1979. This caused a heavy drain on their money supplies.
When countries like Mexico and Brazil get into debt, international bankers and political leaders meet to draw up a plan to prevent these countries from falling even deeper into debt. What usually happens is that still more money is loaned to nations to help them pay back their debts and to keep them running. In exchange, national governments have to find ways to budget more closely so they can cut down existing expenses without taking on too many new ones.