There is an excessive indebtedness of many countries to the public and private international financial institutions, and linked with this, a foreign dependency amounting to virtual total subordination to the international financial system and the forces behind it.
Since the debt crisis struck in the early 1980s, one developing country after another has succumbed to the combination of global falling interest rates and falling commodity prices. The International Monetary Fund (IMF) stepped in with short-term loans to shore up the burgeoning trade and budget deficits. Along with the loans came conditions governing money supply targets, interest rate levels and public spending, which transferred budget management to the lenders in Washington. It has meant that the IMF and the World Bank have virtually taken over the role of economic policy making for many countries, particularly those of sub-Saharan Africa. The World Bank, hitherto involved mainly in financing infrastructure projects, also entered the policy arena. Loans for long-term structural adjustment programmes (SAPs) designed to promote export-led growth, were made available to governments willing to liberalize trade. But these have served instead of recovery, a self-perpetuating cycle of deflation, disinvestment and low growth in which even "model countries", like Ghana and Nigeria, are trapped.
Indebtedness has now reached such dimensions (US$ 810 billion at the end of 1983), that the mechanism of debt service now drains the bulk of the economic surplus (that is, the portion of national income otherwise available for net investment) of many countries.
Overreliance on foreign borrowing can cause appreciating real exchange rates, widening current account deficits, unsustainable external indebtedness, and dwindling foreign exchange reserves.