If the goals of managers in the official institutions that rule
over Third World debt were to squeeze the debtors dry, to transfer
enormous resources from South to North and to wage undeclared
war on the poor continents and their people, then their policies
have been an unqualified success. If, however, their strategies
were intended -- as the official institutions always claim --
to promote development beneficial to all members of society, to
preserve the planet's unique environment and gradually to reduce
the debt burden itself, then their failure is colossal.
The most obvious aspect of this failure -- or success, depending
on your point of view -- is financial. Every single month, from
the outset of the debt crisis in 1982 until the end of 1990, debtor
countries in the South remitted to their creditors in the North
an average $6.5 billion in interest payments alone. If payments
of the principle are included, then debtor countries have paid
creditors at a rate of almost $12.5 billion per month -- as much
as the entire Third World spends each month on health and education.
Moreover, the debt crisis has given creditor countries the chance
to intervene in the management of dozens of debtors' economies
-- using the International Monetary Fund (IMF) and the World Bank.
Their job is simple: to make sure the debt is serviced. Since
the average citizen of a low-income debtor country earns less
than one fiftieth of what the average citizen of a high-income
creditor country earns, this process is like trying to extract
blood from a stone.
To accumulate hard currency and service its debts, a country must
increase its exports and reduce government spending. Most debtor
governments have accepted this and forced their people to cooperate
with the draconian policies of the IMF and World Bank to ensure
that debts are serviced. Much good has it done them. A decade
has passed since the Third World debt crisis first erupted, yet
in spite of harsh measures faithfully applied, this crisis is
today more intractable than ever.
Bureaucratic Immunity
Debtor countries have deprived their people of basic necessities
in order to provide the private banks and the public agencies
of the rich countries with the equivalent of six Marshall Plans
(the program of assistance offered by the U.S. to Europe after
the Second World War).
Have these extraordinary outflows served to reduce the absolute
size of the debt burden? Not a bit: in spite of paying out more
than $1.3 trillion between 1982 and 1990, the debtor countries
as a group began the l990s with a full 61 percent more in debt
than in 1982. Sub-Saharan Africa's debt increased by 113 percent
during this period.
The economic policies imposed on debtors by the major multilateral
agencies and packaged as "structural adjustment" have
cured nothing at all. They have, rather, caused untold human suffering
and widespread environmental destruction, emptying debtor countries
of their resources and rendering them less able each year to service
their debts, let alone invest in economic and human recovery.
The World Bank and the IMF structural adjusters have by now had
plenty of time to make their measures work. But they have failed.
Had they been corporate executives they would doubtless have been
sacked long ago for incompetence. But no such accountability applies
to these international bureaucrats acting on behalf of the creditor
governments. They need never submit to the judgment of their victims.
They answer only to their own equally unaccountable superiors
and, at the top of the bureaucratic tree, to a Board of Governors
reflecting the majority voting strength of the richest creditor
countries. These lavishly compensated international civil servants
are consequently still to be found in Washington and throughout
the Third World living exceedingly well.
There are other beneficiaries. For business corporations operating
in debtor countries, structural adjustment has enhanced profitability
by reducing both wages and the power of unions. For many international
banks, debt service payments at unusually high interest rates
in the early 1980s helped to fuel several years of record earnings.
From the corporate or banking perspective, the World Bank and
the IMF pass the test with flying colors.
Third World elites don't have much cause for complaint, either.
They have weathered the "lost decade of the 1980s" with
relative ease and have sometimes profited handsomely from it.
They, too, benefit from plummeting wages. Their money is often
in safe havens outside their own countries. Each time the IMF
requires a devaluation of the national currency to encourage exports,
those whose holdings are in foreign currencies automatically become
richer at home. And although
public services may deteriorate or close down, rich people can
afford private ones. So it is not surprising that Third World
governments have failed to unite and demand debt reductions.
The debtors' lack of unity ensures the draining of their economies
and a continuing South-to-North resource flow on a scale far outstripping
any the colonial period could devise. The debtor governments have
from time to time called for debt relief, but have never collectively
confronted the creditors. As a reward for docility, creditors
have allowed most debtor-country elites to maintain their links
to the world financial system, providing them with at least a
trickle of fresh money and offering them frequent opportunities
to purchase local assets at bargain prices through so-called debt-for-equity
swaps of privatization programs.
Third World debt should not, therefore, be seen as a straightforwardly
"national" problem. Different social classes in debtor
countries have vastly divergent interests and are unequally affected.
Although debt has visited unprecedented pain on the vast majority
of Third World people, the crisis is not necessarily a crisis
for everyone.
While the topmost layers of Third World societies remain largely
insulated from debt distress, ordinary people in the South sacrifice
to pay back loans they never asked for, or that they even fought
against, and from which they derive no gain. Knowledge of their
plight is by now fairly widespread in the developed, creditor
countries, thanks to the efforts of thousands of concerned people
patiently explaining the human and ecological consequences of
the debt crisis in the Third World.
Fallout in the North
Yet the pressures exerted by dozens of non-governmental organizations
in both the North and South have so far failed to alter basic
debt-management policies. Although the Fund and the Bank now claim
they seek to "mitigate the social costs of adjustment,"
official response to the crisis advances at a calculated snail's
pace, inching from one feeble and ineffective plan to the next
while leaving the status quo essentially untouched.
Until now, those in the North who have tried to change the debt
management strategies have rightly based their arguments on ethical
and humanitarian grounds. The impact of Third World debt fallout
in the North is much less well known -- doubtless because the
consequences of debt are far more serious and life-threatening
in the South than in the North. But although people in the South
are more grievously affected than those in the North, in both
cases, a tiny minority benefits while the overwhelming majority
pays.
Northern taxpayers have carried commercial banks through the Third
World debt crisis from the start, and virtually all of them are
blissfully unaware of the fact. We have paid Northern banks between
$44 and $50 billion in tax relief on bad debts -- enough to meet
the entire Third World's health spending for one year.
There is another less measurable cost: the strong correlation
between debt and worldwide military conflict. Loans have frequently
been employed by Third World governments to buy arms from Northern
manufacturers for use against both internal and external opponents.
Debt promoted the Gulf War. Saddam Hussein saw the invasion of
Kuwait as one way of wiping out the colossal debts he owed both
to that country and to the allies -- much of it used to finance
his arms build-up. George Bush granted massive debt forgiveness
to an allied Arab nation like Egypt as a reward for staying on
his side.
Third World debt is not the only cause of, say, increased illegal
drug exports to the U.S. and Europe, or of accelerated deforestation
hastening the greenhouse effect. But it is, at the very least,
an aggravating factor. Debt-burdened Latin American governments
become hooked on dollars from their coca-producing regions. This
severely dampens their incentive to encourage legal crops. Increasing
drug exports, in turn, escalate the costs of law enforcement and
contribute to social breakdown in the North.
A Stake in Change
Such harmful effects did not suddenly spring fully armed from
the head or the belly of the World Bank. They result from a set
of policies aimed at promoting a capital-intensive, energy-intensive,
unsustainable Western model of development, which was favorable
only to Third World elites, Northern banks and transnational corporations.
Not surprisingly, massive overborrowing coupled with high interest
rates led to the debt crisis. This crisis in turn provided official
debt managers in the 1980s and l990s with a perfect lever to entrench
the very development model that had caused the original problem.
Relying on unbridled free-market forces and export-led growth,
they have devastated the unprotected: the poorest, most vulnerable
groups and the environment.
They are still doing it and, quite simply, they have to be stopped.
Any standard of human decency or ethical imperative demands a
change in debt management, but so does enlightened self-interest.
Everyone outside the narrowest of elite circles has a stake in
positive change. If enough people in the North realize that the
Third World debt crisis is their crisis, they may well insist
on radically different policies, speak out and seek to join with
similar forces in the South.
For this to happen we must first think for ourselves, recognize
the modern mythology that prevent us from acting and then act.
There are some obvious directions we can take to help the "natural
majority" to become effective. Workers, farmers, trade unionists,
activists, parents, immigrants, taxpayers -- we all have to make
a common cause against the common danger.
We do not want to prescribe a program but to state some principles:
First, those who borrowed were rarely elected by their peoples.
They squandered money on arms or used it to further entrench their
own power and privilege, counting on their poorer compatriots
to make sacrifices to pay back the loans when due. Democratically
elected governments should not be expected to assume the debt
burdens of dictatorial predecessors.
Those who made the loans were either irresponsible or intentionally
attempting to make the debtors subservient to their interests.
The creditors have been richly rewarded and are in no danger if
the debt is canceled or converted to provide genuine development.
They should play by normal rules and not expect the public to
pay for their costly mistakes.
The debt has already been largely or entirely repaid. The North
is, in fact, substantially in debt to the South, and it has received,
since 1982, the cheapest raw materials on record.
But cancellation and other debt reduction measures must not be
used as an excuse or a pretext to further cut the debtor countries
out of the benefits of the world economy. The guiding precepts
should be popular participation in decision-making at every level,
social equity and ecological prudence.
So long as the policies of the rich North represent a mixture
of crude carrot-and-stick maneuvers, coupled with basic contempt
for the South, its problems and its peoples, we can expect more
lethal North-South tensions, more powerful boomerangs hurtling
back at us, a further forced retreat of the rich countries to
Fortress America or Fortress Europe.
Alternatively, we could decide that it is time -- high time --
we began to live together on this improbable planet as homo sapiens
with a good deal more sapiens.
50
Years Is Enough
IMF,
World Bank, Structural Adjustment