But instead, many countries across Africa, Asia, and Latin America are saddled with so much debt that today more than 3 billion people<\/a> \u2014 over one-third of humankind \u2014 live in nations that spend more on interest<\/a> payments than they do on health care or education. This is nothing new. But it\u2019s gotten far worse<\/a> in recent years as part of a vicious cycle that will be all too familiar to most Americans who\u2019ve ever fallen behind on a credit card bill or a student loan payment.<\/p>\n You take out a new credit card to pretend you can pay the old one. No matter how much you pay off each month, somehow the amount you owe seems to grow larger each year. And if a disaster strikes at the absolute worst possible moment \u2014 be it a hurricane or a medical emergency \u2014 then forget it.<\/p>\n Low- and middle-income countries are in a lot of debt. So much debt that many now spend more on interest payments than they do on education or healthcare.Once you\u2019re stuck in a debt spiral, it\u2019s almost impossible to climb out. It\u2019s gotten even stickier in recent years as interest rates rose, climate disasters piled up, and the composition of creditors changed to include more private lenders and China.Who benefits from the debt spiral? Wall Street lenders tend to charge the highest interest rates, meaning some have gotten rich off of lending to developing countries. There\u2019s no silver bullet to fixing the global debt trap. But proposed laws in New York and London, where most sovereign debt is issued, could help prevent the worst abuses. And anything that makes restructuring debt easier could help countries escape the cycle faster.<\/p>\n For poor countries, as with people, debt twists into a financial hole with no end in sight.<\/p>\n \u201cIt\u2019s like the Hotel California,\u201d said Penelope Hawkins, senior economic affairs officer at the United Nations focusing on debt and development finance. \u201cYou can check out any time you want, but you can never leave.\u201d<\/p>\n And when the crisis gets deep enough, indebted countries stop building hospitals<\/a>, just like deeply indebted Americans forgo<\/a> health care<\/a> and trips to the dentist. The nations defund their schools<\/a>. Their economies slow. And their credit rating tanks<\/a>, meaning that any future loans will be even more expensive.<\/p>\n \u201cThese aren\u2019t just statistics,\u201d said Joel Curtain, director of advocacy at Partners in Health<\/a>, which has been pushing for reform to the system for resolving runaway debt. \u201cThis crisis is embodied in sickness, ill health, and death.\u201d<\/p>\n To understand a pernicious piece of how this all works, look no further than the handful of Manhattan hedge funds<\/a> that effectively control the financial fate of some entire countries \u2014 just like they may control your mortgage<\/a> and your own highly profitable credit card debt<\/a>.<\/p>\n The terms of most countries\u2019 debt contracts \u2014 also known as sovereign bonds \u2014 are not handled by some international body or within the debtor country, but rather, are split between the jurisdiction<\/a> of judges in the two largest financial hubs in the world, New York and London. After all, that\u2019s where the money is.<\/p>\n And thousands of miles away, it is ordinary people who face the hidden but profound consequences of that debt deal gone wrong. They are the ones who will hurt the most when the government cuts kick in, when the price of bread doubles<\/a>, their kids\u2019 classrooms size balloons<\/a>, and the hospitals go dark<\/a>.<\/p>\n But as poor countries face down a broader shortage<\/a> of funding for critical development projects driven by sweeping foreign aid cuts, some activists see a real opening for relief.<\/p>\n There is nothing inherently wrong with having some debt.<\/p>\n It costs money to get ahead. If you want a well-paying job, you probably have to go to college. And if you don\u2019t have family who can cover the bill, then you probably need to take out loans.<\/p>\n The same is true for countries. If you want to grow your economy, you\u2019ve got to build schools, staff hospitals, and invest in infrastructure. And if your country is not wealthy to begin with \u2014 if you got the short end of colonialism\u2019s stick \u2014 then the only way to pay for that is to take out loans.<\/p>\n \u201cNo country has grown without some debt,\u201d Hawkins said. \u201cNo country has developed without debt.\u201d<\/p>\n Vietnam, for example, was once one of the poorest countries in the world. But a series of economic reforms in the late \u201880s \u2014 accompanied by $26 billion<\/a> in World Bank loans since 1993 \u2014 literally catapulted the country into the global middle class, nearly eradicating extreme poverty<\/a> in the process.<\/p>\n The problem is, the loans that poor countries take out these days have become so expensive \u2014 and the growth they\u2019re supposed to fuel is often so sluggish \u2014 that they can never pay them back. The interest adds up before the returns come in.<\/p>\n And yikes, has that bill added up over the years.<\/p>\n Developing countries have seen their total debt balloon by almost 160 percent<\/a> over the past decade. More than 60 of those countries now spend more than 10 percent of their government revenues on interest payments.<\/p>\n Since you\u2019re a responsible news-consuming citizen, this is the moment when you might be wondering: Doesn\u2019t the US owe gazillions of dollars to its creditors, too?<\/p>\n Yes, in fact, it absolutely does.<\/p>\n While Americans say they care about the debt<\/a>, they don\u2019t vote like they do, though they probably should!<\/a> But they don\u2019t, largely because a rich country like the United States gets to borrow in its own currency<\/a> and it can almost always take out more cheap loans to pay off the old ones.<\/p>\n This means that the national debt rarely affects the lives of ordinary Americans. The US does not need to cut Social Security or stop paying for road maintenance to indefinitely manage its debt. Not yet, at least<\/a>.<\/p>\n But poorer countries lack that luxury.<\/p>\n Just like low-income Americans often contend with backbreaking interest rates<\/a> if they want to borrow cash, so too do low-income countries. African nations pay an average of 10 percent interest on their loans, whereas interest rates for rich countries like the US are typically under 3 percent.<\/p>\n And this is where we get to Wall Street. Because private creditors like hedge funds and insurance companies increasingly hold the bulk \u2014 about 60 percent<\/a> in 2023 \u2014 of low- and middle-income countries\u2019 external debt, a trend that has been rising since 2010.<\/p>\n That wasn\u2019t always the case. For much of the 20th century, when a developing country needed finance, it usually turned to the Paris Club<\/a>, an informal grouping of Western creditor countries, or newly formed Western-controlled multilateral institutions like the International Monetary Fund and World Bank, while working more sporadically with private creditors like banks.<\/p>\n But in the early 2000s, the Paris Club pulled back on lending after a protest campaign endorsed by Bono<\/a> and the Vatican caused it to forgive<\/a> billions of dollars in poor countries\u2019 debt. Then, boom \u2014 the Great Recession hit and interest rates plummeted, forcing private creditors to start looking for a new way to earn cash.<\/p>\n They found it in poor countries, where they could charge much higher interest rates than they could in rich countries. In fact, bonds became so unprofitable in places like Germany that they entered negative territory<\/a> a few years after the financial crisis, whereas interest rates across Africa hovered above 5 percent<\/a>. The modern sovereign debt business was born. And these private companies made a killing on those high-interest loans.<\/p>\n \u201cIt\u2019s good business to lend,\u201d said Mart\u00edn Guzm\u00e1n, an economist and former economy minister of Argentina. \u201cAlmost too good of a business.\u201d<\/p>\n Few countries know that as well as Argentina does. After years of debt drama, a slew of neoliberal reforms compelled by the International Monetary Fund (IMF) and a debilitating economic crisis, the country stopped paying off its $100 billion debt<\/a> on Christmas Eve 2001.<\/p>\n It was the second-largest sovereign debt default in history, one that sent its creditors \u2014 from Wall Street barons to pension funds \u2014 into a tailspin. Fear of exactly this worst-case scenario illustrates why loans are so expensive for low- and middle-income countries: The higher the risk, the higher the interest rates demanded by lenders. In Argentina\u2019s case, chronic overspending and cycles of inflation have made borrowing especially expensive.<\/p>\n Almost nobody benefits when a country defaults. Lenders have to take a haircut on their loans, while the debtor country has to make painful cuts and becomes a sort of pariah in the global financial world. But there are exceptions.<\/p>\n Most creditors eventually accepted<\/a> new discounted terms to Argentina\u2019s debt, but others, hoping to make a quick buck and wash their hands of the crisis, sold off their Argentine bonds \u2014 or loan contracts \u2014 for pennies to the dollar to vulture funds, investors that specialize in hounding debtors for what they\u2019re owed.<\/p>\n You can imagine what came next. The vultures who bought up Argentina\u2019s loans pounced, the most notorious of them<\/a> being the hedge fund Elliott Management. Elliott sued the bejeezus out of Argentina for nonpayment, even seizing an Argentine naval ship<\/a> ported in Ghana in an attempt to recoup the loans in 2012.<\/p>\n Argentina has been embroiled in recurrent debt crises for decades now, and thousands of people haven taken to the streets to protest against austerity measures and the International Monetary Fund. Muhammed Emin Canik\/Anadolu Agency<\/p>\n Creditors who lend to poor and middle-income countries \u201cwant to charge high interest rates, but they also demand to be repaid in full when risks happen,\u201d said Tim Jones, policy director of the longstanding advocacy group Debt Justice<\/a>. \u201cThey want to have their cake and eat it too.\u201d<\/p>\n In the end, Elliott won. After a 15-year battle in New York state court \u2014 since about half of all sovereign debt is litigated on Wall Street\u2019s turf \u2014 Elliott managed to score a highly profitable $2.4 billion<\/a> settlement, a 392 percent return on the original value of the bonds, but since Eliott paid very little for those bonds, the company earned a profit of 10 to 15 times<\/a> what it initially paid.<\/p>\n At the time, Elliott\u2019s CEO, Paul Singer, blamed Argentina<\/a> for its own \u201csad path\u201d to financial crisis as a \u201conce very impactful country economically\u201d coming out of World War II. \u201cThey are imposing damage on themselves way out of proportion to the cost of paying the debt,\u201d he said.<\/p>\n It\u2019s true that Argentina was in part a victim of its own mistakes. But it\u2019s also true that Argentina, which was once one of the wealthiest countries<\/a> in the world, has never fully recovered<\/a>. And it was ordinary Argentinians, not those who were making the decisions, who paid the price.<\/p>\n The real cost of repayment<\/p>\n There is no shortage of reasons that poor and middle-income countries fail to pay off their loans, including the most obvious: overspending.<\/p>\n When the southern African country of Zambia defaulted on its debt in 2020, the IMF and other analysts blamed it<\/a> on years of unsustainable borrowing, corruption, and poorly targeted<\/a> infrastructure projects underwritten mostly by private creditors and, increasingly, China<\/a>. There were also factors mostly outside of Zambia\u2019s control, like a drought<\/a> the year prior that strained the country\u2019s finances<\/a> to its breaking point, and an extractive economy based around copper mining that developed under colonialism that forces the country to take out more loans when the price of the commodity drops<\/a>..<\/p>\n \u201cThere is a school of thought that whenever a country is in default, it is all the fault of the lenders, and that is usually not the case,\u201d said Gregory Makoff, a self-professed sovereign debt obsessive, author of Default: The Landmark Court Battle Over Argentina\u2019s $100 Billion Debt Restructuring<\/a>, and a fellow at the Centre for International Governance Innovation.<\/p>\n As a result, 3.4 billion people now live in the 46 developing countries that spend more \u2014 $921 billion in 2024, a 10 percent increase from 2023 \u2014 on interest payments alone than they do on health or education, according to the United Nations<\/a>.<\/p>\n \u201cIt is usually the fault of the borrower,\u201d he said, because the borrower is the one who makes the decision to take out a loan, the one who \u201cuses the funds and has to take responsibility for itself.\u201d<\/p>\n But for every handful of nations that stop paying their loans, dozens dutifully take out new loans<\/a> to pay off their old ones each year.<\/p>\n One reason that debt burdens are so high today is the Covid-19 pandemic, which forced<\/a> many countries to take out additional loans to keep their economies and healthcare systems afloat.<\/p>\n Another is interest rates. Remember when the Federal Reserve hiked<\/a> the price of borrowing to try to quell inflation in the US? That didn\u2019t just impact your mortgage rates \u2014 it made borrowing that much more expensive for poor countries too.<\/p>\n Add in the war in Ukraine<\/a>, which drove up energy and food prices globally, and increasingly frequent climate disasters<\/a> that force countries to borrow even more just to rebuild, and you\u2019ve got a recipe for the worst sovereign debt crisis in decades.<\/p>\n But even as countries\u2019 debt balloons, defaults like Argentina\u2019s are relatively rare these days, largely because nobody wants to be chased by a vulture fund or find themselves locked out of global financial markets. Instead, many countries are digging deep into whatever savings or spending cuts they can muster to pay off those loans.<\/p>\n \u201cCountries are not defaulting on debts,\u201d Guzm\u00e1n said. \u201cBut they\u2019re defaulting on development.\u201d<\/p>\n Developing countries spent $741 billion more<\/a> on paying back their loans than they received in new finance between 2022 and 2024, the largest gap in 50 years. But despite these payments, their debt has just grown larger, rising at twice the rate<\/a> of rich countries.<\/p>\n If you\u2019re an austerity hawk, that might sound like a good thing.<\/p>\n These kinds of cuts are compelled by the IMF not because that institution is mean-spirited, but because it\u2019s a way to bring countries closer to eventually paying off their loans and finding a stronger financial footing in the long term.<\/p>\n If your uncle is \u201cdrunk and always is running up his credit card and running personal bankruptcy, are you going to blame his credit card lenders and his mortgage provider for his problems?\u201d Makoff asked. \u201cOr maybe he made some bad decisions.\u201d<\/p>\n At the end of the day, the IMF is brought in to \u201cdo math\u201d for countries that have \u201cgenerally made a lot of bad decisions,\u201d said Makoff. \u201cThey make sure the money [that comes] in and out adds up\u201d and do their best to avoid catastrophic social spending cuts in the process.<\/p>\n But for billions of people around the world, this kind of fiscal responsibility can also mean hospitals that don\u2019t get built. Schools that don\u2019t get textbooks. Roads that don\u2019t get paved.<\/p>\n Every dollar of interest lining the pockets of Wall Street\u2019s Bonobos pants and fleece-lined vests is a dollar less for development.<\/p>\n \u201cWestern governments tend to only see it as a crisis when people stop paying,\u201d Jones said, but \u201cthe real crisis is the fact that they are paying and the cost that\u2019s happening through cuts\u201d to service these debts, which he described as \u201ccatastrophic for the future.\u201d<\/p>\n And this is more or less by design. For decades, the US-dominated IMF has required countries<\/a> looking to restructure their debt to impose cuts to social services.<\/p>\n Increasingly frequent disasters like droughts and cyclones have made it even more difficult for low-income countries like Malawi to climb their way out of debt spirals. Andrew Renneisen\/Getty Images<\/p>\n So Malawi\u2019s government has taken out loans. A lot of loans, many of which carry very high interest rates, because lenders don\u2019t trust that the impoverished country will be able to pay them back. Over the past several years, Malawi\u2019s total public debt has soared to above 80 percent<\/a> of its GDP or around $12 billion, up from 35.5 percent of GDP \u2014 under $3.2 billion \u2014 a decade ago.<\/p>\n Take Malawi, for example. The landlocked southeast African country, the world\u2019s third poorest<\/a> per capita, is in the midst of the worst economic crisis in its history. Since 2019, it has faced back-to-back climate disasters<\/a>, including the region\u2019s worst drought<\/a> in a century, which has plunged over half of Malawians \u2014 most of whom are subsistence farmers \u2014 into profound food insecurity.<\/p>\n Long story short, if you want to understand the dystopian and often surreal reality of global debt financing, look at Malawi\u2019s budget<\/a> for the coming fiscal year. The country will spend just over $440 million \u2014 $20 per person \u2014 on health care. It will spend just over $770 million on education.<\/p>\n And it will spend over $1.25 billion, more than what it spends on health and education combined, on interest payments. Again, these are just interest payments, which go straight into the pockets of commercial banks and foreign investors who own them.<\/p>\n Given that 75 percent<\/a> of Malawians live on less than $3 per day, the government can hardly rely on tax revenue, so it will need to borrow even more money to make those payments on time.<\/p>\n And so the cycle continues, and ordinary Malawians suffer the most.<\/p>\n \u201cWe don\u2019t have enough doctors. We don\u2019t have enough nurses,\u201d said Makhumbo Munthali, director of partnerships at Partners in Health\u2019s office in Malawi<\/a>. In Malawi, he said, a generation of trained local health professionals can\u2019t get jobs because the \u201cgovernment is trying to meet austerity measures\u201d imposed by the IMF. Most end up moving abroad for work, leaving the country with just two physicians<\/a> for every 100,000 people.<\/p>\n \u201cThe IMF has been saying that there will be some sort of pain for a while and then later on things will stabilize,\u201d he said. \u201cBut that has not been the case.\u201d<\/p>\n Why there\u2019s hope for change<\/p>\n Malawi is far from alone. Almost half of low-income countries are now in or at high risk of debt distress<\/a>, meaning they\u2019re struggling to pay their loans.<\/p>\n To make matters more complicated, sweeping foreign aid cuts have left many countries scrambling to fill funding gaps this year. Many poor countries normally rely on foreign donors \u2014 chief among them, the United States \u2014 to subsidize the majority of health and education programs in their country. The United States previously subsidized at least half of all annual health spending<\/a> in Afghanistan, Somalia, South Sudan, and Malawi. Countries like Nigeria have already begun taking out new loans<\/a> to keep their health systems afloat.<\/p>\n And so far, it appears that Trump\u2019s new foreign policy prerogative will mean that when the US does choose to fund development, it will increasingly be in the form of loans<\/a>, rather than grants. China, an increasingly important lender for poor countries \u2014 especially in Africa \u2014 also conducts much of its foreign aid this way, and has also faced its own criticism for leading nations<\/a> into debt spirals.<\/p>\n One of Trump\u2019s first actions upon taking office was to stop all US funding<\/a> to a program that helped vulnerable countries prepare and adapt<\/a> to climate change. Many of those countries have no choice but to regularly take out enormous new loans in the aftermath of every new disaster, like Hurricane Melissa<\/a> in Jamaica. It\u2019s a burden that seems to grow every year.<\/p>\n These countries \u201care piling on debt not to build infrastructure, not to grow, not to develop like other countries,\u201d said Ritu Bharadwaj, a climate finance and resilience expert at the International Institute for Environment and Development, but simply \u201cto rebuild and bring the economy back on track\u201d when disaster strikes.<\/p>\n Sri Lanka, for example, was recently forced to ask the IMF for a multimillion-dollar loan to fuel its recovery in the aftermath of Cyclone Ditwah<\/a> last month, even as the country continues to recover after defaulting<\/a> on its loans in 2022.<\/p>\n At the time, Sri Lanka\u2019s debt crisis forced schools to cancel exams<\/a> because they ran out of paper. Hospitals canceled surgeries<\/a> because they ran out of medication. Fuel shortages forced doctors to stitch wounds in the dark and food prices rose by 90 percent<\/a>, leaving over a quarter of people food insecure.<\/p>\n But if there is one silver lining to the aid cuts, it is that countries struggling widely with debt burdens have gained a powerful new moral argument for changing the system.<\/p>\n An enormous advocacy push managed to erase over $100 billion in poor countries\u2019 debt at the turn of the century. Though the contours of the crisis has changed, advocates say that similar large-scale relief is necessary today. Mufty Munir\/AFP<\/p>\n If wealthy countries are unwilling to help subsidize what it costs for poor countries to adapt to climate change, Bharadwaj said, then \u201cwe really need to at least provide them a fair chance to do it themselves,\u201d because most developing countries spend far more on interest payments than they\u2019ve ever received in foreign aid.<\/p>\n Even some private creditors are calling for change. At recent meetings with bondholders, UNCTAD\u2019s Hawkins said, some acknowledged that pushing countries to keep paying unsustainable debts ultimately hurts everyone \u2014 including creditors who want borrowers to stay solvent enough to keep doing business.<\/p>\n For some activists, the solution starts on Wall Street. Over the past few years, organizers in the financial hubs of New York and London have been exploring changes to local law<\/a> that could shield vulnerable countries from the most egregious debt litigation.<\/p>\n We\u2019re talking about Elliott Management in Argentina. Or more recently, an entity called Hamilton Reserve Bank, which has refused to agree to a debt restructuring plan for Sri Lanka, instead suing the country for $250 million<\/a> in a lawsuit still ongoing<\/a> in New York.<\/p>\n The proposed New York state law<\/a> would offer countries a framework for obtaining relief and restructuring their debt, with provisions against private creditors that attempt to hold out on a deal. Amid a concerted lobbying effort from Wall Street<\/a> firms, the deal failed to move forward this year, but will be coming up for a vote again in the year ahead.<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/il\/wp-content\/uploads\/2025\/12\/gettyimages-1238306439.jpg\"\/)
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