There are a number of reasons for the rise in debt levels. In some countries, the trade liberalization required under adjustment programs leads to a flood of imports and, consequently, higher trade and current-account deficits. Those deficits need to be compensated for by higher foreign investment, foreign assistance or foreign borrowing. In many countries, such as Brazil, the maintenance of high real interest rates, as often mandated by the IFIs, in order to appease nervous foreign investors, is increasing the cost of domestic debt, thus adding to the government's budget deficit, raising the specter of further devaluation, and, consequently, creating greater difficulty in servicing the foreign debt One of the central objectives of structural adjustment programs is to reorient economic activity away from production for domestic consumption and toward production for export. In making this shift, nations become exceeding vulnerable to the vagaries of the global economy.
Countries export more and more as commodity prices continue to fall.
The recent crises in Mexico, East Asia, Russia and Brazil demonstrate the hazards of countries betting their future well-being on the erratic global financial market. High foreign-debt levels are both a result and a symptom of the extreme risk that governments take in tying their economies too closely to the global market. The causes of that debt are flawed economic policies that fail to develop domestic productive capacities or raise local income levels so as to reduce the need for external financing. For this reason alone, the requirement that governments adhere to the structural adjustment programs designed by the international financial institutions is pure folly. Instead, governments should be encouraged to develop national economic plans designed democratically to expand the domestic financial resource base, incomes and markets and, consequently, reduce their extreme dependence on foreign debt.