PrepTest 93+, Section 1, Question 25

Some environmentalists claim that the higher the international debt a nation carries, the more likely it is that the quality of life in that nation will suffer. These environmentalists argue that in a variety of ways the effort a nation must expend to pay its debt hastens the depletion of its natural resources, increases pollution, or hampers domestic spending. The most common reason given by the environmentalists is known as the exports promotion hypothesis. According to this hypothesis, in order to increase foreign trade in a way that better allows it to repay international debt, a nation must divert resources away from sectors generating domestic goods and toward the production of export goods. Partly because of the greater volume involved, this causes more environmental damage than does production of goods for domestic consumption. One possible scenario frequently cited by environmentalists is that a nation might raze its forests for timber or to open up land on which to plant cash crops. Another reason the environmentalists give for their claims is that domestic spending can fall when a nation shifts money toward repayment of its debt. A nation may take funds away from health care, education, or improvements in such public services as water quality or sanitation. It can also adjust its economy in other potentially harmful ways in order to cut costs—for example, through the elimination of government subsidies for practices that reduce pollution or conserve natural resources.

But the evidence for the environmentalists' claims is weak. With respect to the exports promotion hypothesis, one recent study does suggest a positive correlation between international debt and deforestation, but also indicates that other factors besides debt may play a stronger role. Another study found only a slight positive correlation between debt and deforestation; in fact, in one nation the correlation was negative, contrary to the environmentalists' expectations. The impact of debt on environmental indicators such as pollution or depletion of other resources has not yet been studied. Similarly, with respect to the domestic spending argument, while debt-saddled nations might shift money away from programs designed to enhance quality of life, it is just as likely that they would shift the money from plans that, if implemented, would have a negative impact on the environment. For example, they might abandon plans to build new dams or roads, or eliminate subsidies that promote fertilizer or pesticide use. The extent, then, to which a nation's quality of life is connected to the size of its international debt must be considered unknown. Indeed, a case could be made that at least some of the fiscal discipline or economic restructuring imposed by debt may rein in potentially harmful spending.

Some environmentalists claim that the higher the international debt a nation carries, the more likely it is that the quality of life in that nation will suffer. These environmentalists argue that in a variety of ways the effort a nation must expend to pay its debt hastens the depletion of its natural resources, increases pollution, or hampers domestic spending. The most common reason given by the environmentalists is known as the exports promotion hypothesis. According to this hypothesis, in order to increase foreign trade in a way that better allows it to repay international debt, a nation must divert resources away from sectors generating domestic goods and toward the production of export goods. Partly because of the greater volume involved, this causes more environmental damage than does production of goods for domestic consumption. One possible scenario frequently cited by environmentalists is that a nation might raze its forests for timber or to open up land on which to plant cash crops. Another reason the environmentalists give for their claims is that domestic spending can fall when a nation shifts money toward repayment of its debt. A nation may take funds away from health care, education, or improvements in such public services as water quality or sanitation. It can also adjust its economy in other potentially harmful ways in order to cut costs—for example, through the elimination of government subsidies for practices that reduce pollution or conserve natural resources.

But the evidence for the environmentalists' claims is weak. With respect to the exports promotion hypothesis, one recent study does suggest a positive correlation between international debt and deforestation, but also indicates that other factors besides debt may play a stronger role. Another study found only a slight positive correlation between debt and deforestation; in fact, in one nation the correlation was negative, contrary to the environmentalists' expectations. The impact of debt on environmental indicators such as pollution or depletion of other resources has not yet been studied. Similarly, with respect to the domestic spending argument, while debt-saddled nations might shift money away from programs designed to enhance quality of life, it is just as likely that they would shift the money from plans that, if implemented, would have a negative impact on the environment. For example, they might abandon plans to build new dams or roads, or eliminate subsidies that promote fertilizer or pesticide use. The extent, then, to which a nation's quality of life is connected to the size of its international debt must be considered unknown. Indeed, a case could be made that at least some of the fiscal discipline or economic restructuring imposed by debt may rein in potentially harmful spending.