The bilateral debt is that contracted by the Government of one country with another Government of another country conditions more favorable than those of the market that help its development.
Bilateral debt allows countries to finance each other under more favorable conditions than those of the market. However, they can cause dependence on the lender country . This can sometimes limit the expansion of important strategic sectors in an economy . For example, the energy sector.
In addition, it is important to highlight that this form of financing represents an important part of the total debt in the world.
Objectives of the bilateral debt
Among the objectives of the bilateral debt are:
- Help deleveraging the beneficiary country. That is, to debt reduction.
- Such debt reduction must be accompanied by greater financial and fiscal discipline.
- Promote investments in different areas that promote the development of the country. That is, use that help to carry out productive projects.
This is, in short, to help the country’s development, reduce its poverty and improve living conditions.
Advantages and disadvantages of bilateral debt
The most important advantages are the following:
- It allows financing between countries at a lower cost.
- It promotes competitiveness thanks to
- It allows economic integration and employment generation through investment.
- Improve globalization.
The most important disadvantages are the following:
- Excessive dependence between countries that can end up with substantial losses between them at the economic and social level.
- Existence of conflicts of interest at strategic level.
- Abuse of dominant position of the strongest country.