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Rutgers Model United Nations - Institute for Domestic and ...

Rutgers Model United Nations - Institute for Domestic and ...

Rutgers

Rutgers Model United Nations 15 was codified in the late 1970s and is officially under the direction of the French finance ministry. Member countries send financial officers to meetings every six weeks. These countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The Paris Group aids developing countries in debt relief and debt restructuring with the recommendation of the IMF. Some examples of their work include absolving Iraq of its debts and absolving the debts of countries hit by the Indian Ocean tsunami in 2004 26 . When making loans under the purview of the Paris Club, creditor countries are not allowed to benefit from the loan. In addition to their quasi-official duties as members of the Paris Group, these countries are also the governments that often loan to developing countries unilaterally or multilaterally among themselves for a variety of purposes. The Paris Group members are all members of the IMF and World Bank, but often they make loans to developing countries independently. They sometimes make these loans either to strengthen a key ally or to develop foreign markets for the benefit of their own economy, and at times they make loans not expecting repayment, simply calling it a loan for political reasons. 27 They set their loan terms independently and without international regulation, and as such, significantly contribute to the prevalence of irresponsible lending in the developing world. Their motivations and goals are at times impossible to guess, but that does not make addressing the state of their loans to the developing world any less pressing, because loans can, at times, do more harm than good to a developing country. Private Lenders in Developing Countries These financial institutions have one goal in mind: profit. In the unstable economic environment of the developing world, making profit often means charging high 26 Brendan I. Koerner, What is the Paris Club? Slate Magazine, May 5, 2003, Date Accessed 4/21/08http://slate.msn.com/id/2082575/ 27 Ibid.

Rutgers Model United Nations 16 interest rates to accommodate for the risk of loaning in such an environment. An example of this is the London Club, the private lending counterpart to the Paris Club, except their aim is solely to make money. The London Club began in 1976 in response to Zaire’s financial crisis, and members have been meeting informally ever since. The Club continues to make international loans to developing countries, but members do not have the same stipulation as the Paris Group – the London Group exists to make money 28 . The problem with private lending to countries is creating internal debt, which in turn causes problems in the micro economies of countries, problems that then resonate through the country’s macro-economy, and through that, the world economy. This actor in particular is a large perpetrator of irresponsible lending in the developing world, but the members are the hardest part of the problem to strictly codify into a system of wrongdoing. The motivation of this actor is to make money the way all financial institutions make money, charging interest on loans. Another reason this actor is particularly dangerous to financial situations in the global community is that these fledgling financial institutions are the basis of a future financial infrastructure, so trying to shut them down could be even more harmful than allowing them to continue their operations. 29 Developing Countries Developing countries in general are very skeptical of the IMF and World Bank, seeing the institutions as tools of the developed world, and therefore ill-equipped to deal with the problems of the developing world. Rapidly accumulating debt, highly structured bailout loans, and the World Bank’s propensity for loans as opposed to grants are all concerns for the developing world. South America in particular is extremely critical of the IMF, after the Argentinean financial crisis. Ecuador and Venezuela have considered 28 The Institute of International Finance, The London Club, Date accessed 4/21/08,http://www.iif.com/404.php 29 A. Roe, Internal Debt Management in Africa, Warwick Development Economics Research Centre, Paper 98, 49pps, 1989. Date Accessed 4/2/08,

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