Question

Why is it an important to note who holds the debt when comparing debt-to-GDP ratios among countries? Lower levels of external debt create a greater threat of global instability. Higher levels of external debt create a lower threat of global instability. Higher levels of external debt create a greater threat of global instability. Lower levels of external debt create higher interest rates.

Answer 1

Higher levels of external debt create a greater threat of global instability.

Step-by-step explanation:

External debt is the sum of one country's obligations to another, which is composed of public debt (contracted by the state of the country) and private or private sector debt (contracted by individuals abroad).

Foreign debt to other countries is often given through agencies such as the International Monetary Fund or the World Bank. If the debtor has trouble paying it off, it can be a serious problem for the economic development of a country, and even for its autonomy.

In principle, debt is not bad, because it allows nations to conserve their own resources and receive external resources to exploit, process or produce new goods and services. However, it becomes a problem when the debt is not actually used for the requested purpose or the repayment conditions harden. Then it can become one of the causes of underdevelopment rather than a way to solve it.