ETYM Old Eng. dette, French dette, Late Lat. debita, from Latin debitus owed, p. p. of debere to owe, prop., to have on loan; de- + habere to have. Related to Habit, Debit, Due.
1. The amount that is owed.
2. The state of owing money.
Something that is owed by a person or organization, usually money, goods, or services, usually as a result of borrowing. Debt servicing is the payment of interest on a debt. The national debt of a country is the total money owed by the national government to private individuals, banks, and so on; international debt, the money owed by one country to another, began on a large scale with the investment in foreign countries by newly industrialized countries in the late 19th–early 20th centuries. International debt became a global problem as a result of the oil crisis of the 1970s.
As a result of the Bretton Woods conference in 1944, the World Bank (officially called the International Bank for Reconstruction and Development) was established 1945 as an agency of the United Nations to finance international development by providing loans where private capital was not forthcoming. Loans were made largely at prevailing market rates (“hard loans”) and therefore generally to the developed countries, who could afford them.
In 1960 the International Development Association (IDA) was set up as an offshoot of the World Bank to provide interest-free (“soft”) loans over a long period to finance the economies of developing countries and assist their long-term development. The cash surpluses of Middle Eastern oil-producing countries were channeled by Western banks to Third World countries. However, a slump in both the world economy and in increases in interest rates have resulted in the debtor countries paying an ever-increasing percentage share of their national output in debt-servicing (paying off the interest on a debt, rather than paying off the debt itself). As a result, many loans had to be rescheduled (renegotiated so that repayments were made over a longer term).
During the early 1980s, Poland and Brazil suspended some payments on their debt, and others threatened to follow suit. With debt-servicing ratios (proportion of export earnings required to pay debt obligations) of more than 50% in some countries, the debt crisis threatened the stability of governments and the international, especially US, banking system. In 1987, one US bank announced that it was writing off $3 billion of international loans. The banks and the borrowing countries both recognized the need for relief, as debtor states could only pay the interest on existing loans by securing new loans.
Disagreement over who should bear the cost of debt relief has delayed any real reform. Austerity measures imposed by the International Monetary Fund (IMF) in exchange for loans have provoked riots and an increase in nationalist sentiment, but Brazil began making payments on its debt in 1988, and the US and Mexico have negotiated reduction plans. Poland received substantial loans 1990 from the US and W Europe to assist its transition to a market-based economy.