Concept in Definition ABC

Debt refers to the obligations contracted with a third party, either a natural person or a mere legal entity.. The debtor party can also be identified with a natural or legal person. Debt taking is carried out for various reasons, the most relevant being for the economy those related to investment in productive areas. In return, the debtor must repay the amount on a scheduled date, adding to the amount an interest that represents the creditor's profit.

It can be distinguished between two types of debts. One is the public debt, which is the one that states have against individuals, other states or organisms international credit; generally this consists of the issuance of securities. The other type of debt is called private debt, which consists of those obligations that individuals maintain.

A distinction can also be made between external and internal debt. The first is one that involves foreign creditors and has the advantage of avoiding the loss of national savings. The second is one that is contracted with creditors of national origin. External debt has been a marker of the

politics international economy for many developing nations, in need of periodic refinancing with the goal of avoiding financial crises. The debt crisis that characterized Argentina at the beginning of the century and that led to the largest default in world economic history is still remembered.

It is very important to state that, At present, the development of the economy without the issuance of debt is inconceivable. This allows the different entities to provide themselves with liquidity when they need it and to plan medium and long-term strategies that allow them to sustain themselves financially. However, indebtedness does not always have positive consequences. Many times, this is contracted for speculative reasons or unrelated to an investment that encourages development. The final consequence of this incorrect and almost criminal use of indebtedness is the lack of investment in critical areas for development, such as health, education, the routes of communication, technology, focus of energetic resources, housing and numerous sensitive aspects that make the economy of a region or a nation complete.

An example of misuse of credit tools can be offered by the mortgage crisis subprime that was unleashed in 2007 and the consequences that this had in the international crisis of 2008. Basically, the problem consisted of the delivery of mortgage loans with a high degree of risk; when investors saw red flags and realized that many banking institutions and mutual funds had assets involved, credit was retracted, affecting the entire economy. As a consequence of this phenomenon, a labor, financial and credit crisis was unleashed that led to the loss of hundreds of jobs in developed nations, predominantly in the United States and southern Europe. In this framework, the need for the refinancing of Debt of Greece and the need for other states, such as Spain, to take debt in unfavorable conditions to avoid a social catastrophe.

In this way, the debt in itself does not constitute a favorable or deleterious factor, but its use in an incorrect or correct way is what defines its true role. While acquiring debt to enhance growth and development will allow the correct return of those assets after verify the investment returns, the dissolution by spurious mechanisms of this financial component only leads to the generation from poverty and devastation of resources social, political, cultural and even natural.

Debt Issues