Those obstacles are, in short, the continuing decline of prices of commodities, the heavy debt burden and debt servicing, negative net financial flows and strengthened protectionism.

Financial flows were suspended to many capital importing developing countries experiencing external debt difficulties and many of them faced a reversal in the net flows of financial resources.

Debt cancellation did not necessarily lead to net flows.

In that study, the net present value of debt servicing was examined under different debt restructuring options.

Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

Japan is a net creditor and largely finances its debt domestically.

Debt Management and Financial Analysis System

Figure II. Aggregate net long term financial transfers

This reflects the fact that the multilateral financial institutions are no longer providing net financial resources to developing countries, but are currently net recipients of financial resources.

For in our financial system money is debt, and debt is money.

Figure 2 shows the breakdown between new (net) transfers and debt forgiveness.

Legal aspects of debt and financial management

II. TRENDS IN THE NET FINANCIAL TRANSFER TO DEVELOPING

11 The net transfer on financial resources is defined as the difference between net capital inflows and net international payments to capital.

According to this definition net transfer is disbursements minus total debt service payments.

The increase in net financial outflows from that group of countries and the fact that the multilateral financial institutions had become net financial transfer recipients were a cause of grave concern.

In 2007, the mortgage and consumer debt to GDP ratio was more than 90 , compared to 24 for net foreign debt.

II. TRENDS IN THE NET FINANCIAL TRANSFER TO DEVELOPING COUNTRIES

These terms treat the debt owed by lower middle income countries and do not involve any write off of debt or reduction in net present value of debt servicing.

These debt restructurings and individual country buy backs of debt (in part using grants for that purpose from donor Governments) have generally led to modest net reductions in debt.

Financial booms provide collateral that supports debt financed spending.

Confidence in these major debt problem countries improved correspondingly, and the net transfer was reversed.

Even though the situation had changed markedly in recent times, in a number of developing countries net financial outflows persisted and, in many countries, the debt overhang continued to constrain development.

Debt sustainability indicators for Haiti are mixed. It is estimated that the debt export ratio in net present value terms is high (187 per cent), suggesting that Haiti's debt is unsustainable.

Table 3 Selected multilateral financial institutions net transfers of resources, 1990 2004a

Perversely, some developing countries have now become net exporters of financial resources.

Economic development involves financial flows and the buildup of debt.

Financial markets in fact owe French Socialists a great debt.

Most of this debt is owed to multilateral financial institutions.

Two main options are offered for the treatment of non concessional debt, both of which reduce the net present value of the debt by half.

The other option lets creditors restructure the debt at concessional interest rates so that the net present value of the debt servicing payments due on the debt will be reduced by half.

This means that the multilateral financial institutions are no longer providing net financial resources to developing countries, but are currently net recipients of financial resources that are needed by these countries to achieve the Millennium Development Goals.3

This suggests that net private borrowing using debt instruments has been rather small over this recent period.

MACROECONOMIC POLICY QUESTIONS EXTERNAL DEBT CRISIS AND DEVELOPMENT NET TRANSFER OF RESOURCES BETWEEN DEVELOPING AND DEVELOPED COUNTRIES

The eurozone debt crisis has worsened, and financial strains are rising.

Group of 77 (core groups on debt and international financial systems)

An international debt strategy should incorporate measures to reduce debt and reschedule debt servicing and increase financial flows to low income and severely indebted countries.

China s non financial corporate debt accounts for roughly 62 of total debt 30 40 higher than in other countries.

Construction fund earnings would be applied to the annual debt service requirement, thereby reducing the net annual debt service to be met by the set aside procedure.

2. Impact of alternative rescheduling terms on the net present value of the debt of selected countries 14

The improvement in net private flows, while substantial, was not sufficient to offset the net outflows due to debt service payments, the rising trade surpluses and negative official flows.

Net outflows of financial resources were paradoxically in favour of developed countries but developing countries were forced to disburse huge amounts in debt repayment that could otherwise have been used for urgently needed social spending.

The net financial transfer of a country is thus the financial counterpart to the balance of trade in goods and services.

However, the net debt service burden depends on changes not only in interest rates, but also in export performance, in prices of exports, in the volume of debt, and in the rate of amortization of debt.

In the mid 1980 s, the US became a net debtor, relying increasingly on foreigners to finance its debt.