How Paying Off Debt Pays Off

Before 2000

Before 2000, many emerging countries had never seen a period of real financial stability or a healthy credit boom.  

• Inflation was high and volatile, and when prices for big-ticket items are unpredictable, banks won't dare make loans that extend for more than a few months.
• In emerging countries, five-year car loan and the 30 year mortgage, had been unimaginable luxuries.  Yet, these are the many cornerstones of American consumer culture and middle-class existence.

After 2000

The new generation of emerging world leaders began controlling deficits and lowering inflation.  This newly stable environment quickly led to a revolution in lending.  

• Credit cards and corporate bonds were introduced for the first time.
• Mortgages, which barely existed in 2000, became a multibillion-dollar industry, rising from 0% of GDP to 7% in Brazil and Turkey, 4% in Russia and 3% in Indonesia by 2013.

For countries where people cannot buy a car or a house unless they amass enough cash, the introduction of these simple credit products is an important step into the modern world.

Periods of healthy credit growth

Periods of healthy credit growth bear no psychological resemblance to the extreme exuberance of manias or the extreme caution of debt-phobia.  

In place of shady lenders and unqualified borrowers, responsible lenders are widening the choice of solid loan options, creating a more balanced economy.

Global financial crisis in 2008

When the global financial crisis hit in 2008, countries like the US were vulnerable because they had been running up debt too fast.  

In Southeast Asia, however, the opposite story was unfolding.

Indonesia, Thailand, Malaysia and the Philippines had manageable debt burdens and strong banks ready to lend, with total loans less than 80% of deposits.  

Over the next 5 years the health of the credit system would prove crucial:  

• nations such as Spain and Greece, which had seen the sharpest increase in debt before 2008,  would post the slowest growth after the crisis; 
• nations such as the Philippines and Thailand, which had seen the smallest in debt during the boom, would fare the best.