Engel and Park (2022) argued that the original sin problem in sovereign and private sector debt was first introduced by Eichengreen and Hausmann in 1999, suggesting the inability of emerging markets to issue debt in their currencies, which forced them to issue debt in a foreign currency such as in the significant reserve like U.S. dollar and euro currencies. The problem is that the monetary institutions’ weaknesses and their policymakers’ need to manage the exchange rate might explain creditors’ unwillingness to lend in a unit that borrowers could manage (Chui and Gai 2005). For instance, if an economic crisis occurs because a country’s currency depreciates, the debt burden becomes more challenging to manipulate, leading to an increased risk of default (Chui and Gai 2005).

Thus, for developing countries, the original sin problem can increase the risk of debt crises because these developing countries have less control over their currencies and monetary policies. Such vulnerability makes them more susceptible to external shocks and exchange rate fluctuations (Murawski, 2020). Murawski (2020) argued that these effects are outside the state’s control and can exacerbate financial uncertainty. Gegenfurtner (2021) stated that the inability to borrow in their currencies can hinder the developing countries’ relentless efforts to achieve domestic economic growth. Their weak monetary institutions can prevent them from exploiting economic development opportunities at the international level (Eichengreen, Hausmann and Panizza, 2022). So, addressing the original sin problem is crucial for the financial stability and economic development of emerging markets and developing countries (Gegenfurtner 2021).

Two possible measures for helping developing countries are issuing them foreign aid and debt relief. Developed countries can provide debt relief to developing countries by forgiving and helping to restructure their debts to alleviate the burden and allowing them to allocate more resources to poverty reduction and development (Murawski 2020). In addition, developed countries can provide financial assistance and aid to developing countries to help them invest in infrastructure, education, healthcare and foster economic growth to mitigate poverty (Gegenfurtner 2021).

From a biblical perspective, many scriptures show the importance of helping the poor and needy. For example, Proverbs 19:17 (NIV) states, “Whoever is generous to the poor lends to the Lord, and he will repay him for his deed.” In developing countries, forgiving and restructuring debt relief and foreign aid can be seen as ways for developed countries to fulfill their moral duty to assist those in need. Forgiveness and compassion align with biblical principles, and supporting struggling countries reflects a sense of humanity, justice, and generosity at the international level.  

Thus, addressing the original sin problem and helping developing countries through debt relief and foreign aid align with economic principles and biblical teachings on compassion, humanity, justice, and generosity. In other words, debt relief and foreign aid depict the willingness and moral duty to assist those in need in developing countries.

References

Engel, C. and Park, J. (2022) Debauchery and original sin: The currency composition of sovereign debt. https://users.ssc.wisc.edu/~cengel/PublishedPapers/ParkOriginalSin.pdf

Chui, M and Gai, P. (2005) Private sector involvement and international financial crisis: Analytical perspective. https://academic.oup.com/book/34771/chapter-abstract/297165566?redirectedFrom=fulltext&login=false

Murawski, S. (2020) Time to resolve debt issues in the Global South. https://www.tni.org/en/article/time-to-resolve-debt-issues-in-the-global-south

Genenfurtner, A., D. (2021) The cause of original sin: An empirical investigation of emerging market and developing countries. https://www.ipe-berlin.org/fileadmin/institut-ipe/Dokumente/Working_Papers/ipe_working_paper_174-eh.pdf

Eichengreen, B., Hausmann, R. and Panizza, U. (2022) Yet it endures: The persistence of original sin. https://growthlab.hks.harvard.edu/files/growthlab/files/2022-11-cid-wp-420-persistence-original-sin.pdf

Holly Bible, New International Version (NIV) (2011) What does the Bible say about helping the poor? https://www.biblestudytools.com/topical-verses/bible-verses-about-helping-the-poor/