Globalization

THIRD WOLRD DEBT - THE SILENT KILLER

[page 2 of 2] The Debt Piles Up

Depending on what figures are used, between 1972 and 1992, borrowing countries paid back $227 billion to $302 billion more than they borrowed. The net outflow of resources during the 1980s averaged an astonishing $41.5 billion a year. Yet, these same countries are even deeper in debt--to the tune of $1.7 trillion ($1,700 billion). What is going on?!

Corruption, capital flight and poor investments are part of the explanation. Yet there were other important factors over which the debtors had no control. For example, interest rates--set by the U.S. government to attract money to pay for its growing budget deficit and to keep inflation down--skyrocketed to over 20% from 1979-81. Since the debts of developing countries are denominated in foreign currencies, at variable interest rates, their debt payments ballooned.

The poorest countries, especially those in Africa, have fallen deeply into arrears, and are able to meet only about half of their scheduled payments. All deeply indebted countries have had to borrow anew from commercial banks and the World Bank to pay on old debts.

To make matters worse, when countries were forced to reschedule their loans, especially those held by commercial banks, they were charged hefty fees and even higher interest rates. Furthermore, banks refused even to enter into re-scheduling negotiations with debtor countries such as Brazil, Peru, and Argentina, unless the governments assumed responsibility for the debt incurred by their countries' private corporations!

While countries were being hit by higher interest rates, their incomes were falling, due to global recession. International prices of commodities which were the primary exports of indebted countries--such as coffee, sugar, cocoa, copper, tin, and cotton--fell dramatically during the 1980s. Even countries not dependent upon one or two commodities for export were hit by a general drop in prices. Countries had to export more just to maintain their incomes. Increased exports depressed world prices further.

Time Out

Clearly, we all need to work for more equitable and sensible debt management policies. In 1987, the U.S. interfaith community articulated a set of criteria to evaluate alternatives. In our efforts to affect policy through public mobilization, perhaps we can keep these criteria--which appear below in a slightly edited form--in mind.

1. Lift the burden of adjustment from the shoulders of those least responsible and most vulnerable.... Ways must be found to ensure that "structural adjustment" does not result in further reductions in the living standards of the disadvantaged.
2. Share the burden equitably among creditor institutions and the debtor governments, corporations and elites that incurred the debt. Current strategies place the burden of adjustment almost exclusively on debtor nations, despite the fact that the lending policies of private banks and capital flight have contributed greatly to the current situation.
3. Alleviate factors which add to the debt burden of developing countries, such as declining aid resources, protectionist trade policies in industrialized countries, and the impact of U.S. budget and trade deficits on hard currency interest rates.
4. Support developing nations efforts in fostering economic self-reliance and political self determination.
5. Ensure that efforts to alleviate the debt burden benefit the poor, and help move debtors beyond debt repayment to development. Certain commitments by debtors, such as respect for human rights, and efforts to control capital flight and military expenditures, may be necessary to ensure that reducing the debt burden actually benefits the poor. Future loans should support development geared toward satisfying the basic needs of the poor.
6. Promote a just international economic system. ...Reforms are urgently needed to provide more democratic representation and decision in international economic institutions, greater accountability of financial system, stable and remunerative prices for developing nations' goods, fair access to developed country markets, and support for alternative, needs-oriented paths to development.

Conclusion

To conclude, the relationship between development and debt needs to be monitored carefully. "Sustainable development" is a process in which economic, fiscal, trade , energy, agriculture and industrial policies are all designed to bring about development that is economically, socially, and ecologically sustainable. That is, current consumption cannot be financed by incurring economic debts that others must repay in the future. Investment must be made in the health and education of today's population so as not to create a social debt for future generations. And natural resources must be used in ways that do not create--in the words of the United Nations Development Program-- "ecological debts by over-exploiting the carrying and productive capacity of the earth."
-Christina P. Cobourn

Reprinted from Beyond Debt; Relieving the Debt Burden on the Poor and the Environment. Missionary Society of St. Columban.

What Can You Do?

Send letters to elected representatives and Editor of your local newspaper emphasizing the need for the creditor countries of the World Bank and IMF to cancel the debt of the poorest countries and in the future to make more responsible loans to the Third World that encourage development and do not harm the poor so much.

Letters to U.S. Senators and Congressional representatives can be sent to The Senate, Washington, D.C. 20510 and The House of Representatives, Washington, D.C. 20515.

The Treasury Department decides policy toward the Bank and Fund, while Congress and parliaments vote on money for these institutions.

Houston Catholic Worker, Vol. XIV, No. 8, November 1994.