-Caveat Lector-
>From www.oneworld.com/ni/issue312/keynote.htm
> Third World debt enriches the powerful at the expense of the
> world's poor majority. David Ransom calls for a new beginning.
>
> Had someone in any way typical of the Uruguayan population ever
> actually asked for a loan from the international bank in
> Montevideo where I once worked, I’m quite certain they would
> never have got it. The mere look of them would have been enough.
> A part-time clerk wants an advance! A labourer with no collateral
> expects credit! A woman from the barrios seeks an unsecured loan!
> A gaucho (cowboy) with just a horse to his name needs to borrow!
> From the bank? Contemptuous ridicule would have been unconfined –
> which is doubtless why I never saw such a person step through the
> door.
>
> So quite how it happened that by 1990 every single man, woman and
> child in Uruguay had become liable for debts equivalent to their
> entire annual income – without even asking for them, let alone
> receiving any of the cash – is at first sight something of a
> mystery.
>
> Take a closer look, however, and you’ll find that the explanation
> is simple. In 1973 there was a military coup in Uruguay and it
> ushered in a very nasty little dictatorship that for a while
> imprisoned proportionally more people than anywhere else on
> earth. The Uruguayan economy had gone belly-up and powerful
> people who owed large sums of money to international banks were
> facing ruin. So the generals decreed that it was ‘in the national
> interest’ to bail them out by borrowing from exactly the same
> banks, only this time in the name of the Uruguayan people.
>
> The banks were desperate to lend. The Organization of Oil
> Producing and Exporting Countries (OPEC) had just agreed a sharp
> oil-price hike and as a result were collecting a vast extra
> income of dollars which they deposited with the banks. So large
> was the quantity of these ‘petrodollars’ that the banks didn’t
> know quite how to recycle them at their usual levels of profit.
> Dictatorships that could exact repayments from their cowering
> populations with relative ease must have seemed like a pretty
> good bet for a secure and handsome return.
>
> <Picture: A bed of nails behind the bank in Mumbai>
> PAUL SMITH / PANOS PICTURES
>
>
> This combination of dictatorship, foreign loans and the transfer
> of private liabilities on to public backs was not confined to
> Uruguay. For 20 years, between the mid-1960s and mid-1980s,
> despotism pervaded Latin America and employed an ingenious
> variety of scams wherever it went. Sometimes the money was
> borrowed for grandiose projects, sometimes it was simply filched,
> usually both – and always in the interests of political power
> that had quite openly been usurped.
>
> Similar, too, was the experience across Africa and Asia. From
> Mobutu in Zaire to Suharto in Indonesia and Marcos in the
> Philippines, tawdry despots with powerful friends and large
> appetites for personal wealth were financed with enthusiasm by
> the international banking fraternity. Indeed, it seemed to work
> so well that the credit lines became almost limitless –
> particularly if the governments in question were fighting on the
> right side of the Cold War and buying large quantities of
> armaments from Northern suppliers. Third World debt rose from
> less than $100 billion in 1970 to some $600 billion in 1980.
>
> Eventually, however, governments began to run into financial
> trouble themselves. The loans they had raised and squandered on
> daft projects or salted away in private bank accounts became so
> large that their subject countries ran out of foreign exchange
> and tax revenues with which to pay them back. There was a real
> danger of ‘default’.
>
> When this was being considered by Mexico in 1982 the American
> Government stepped in to protect the interests of the US private
> banks that held most of the Mexican debt. The International
> Monetary Fund (IMF) and World Bank were instructed to step in
> alongside the US Government and bail out the private banks. The
> transfer of private debt into public liability was thereby
> complete – and the Third World debt crisis had begun.
>
> <Picture: Do as you're told: a billboard in Accra, Ghana, issues
> the instructions.> RON GILING / STILL PICTURES
>
>
>
> Private banks were now free to move on to fresh pastures, like
> ‘booming’ Southeast Asia and China. Where, of course, exactly the
> same thing would eventually happen all over again.
>
> Ironic that this, the most colossal of all ‘nationalizations’,
> should have passed by unremarked and at a time when
> ‘privatization’ was an article of economic faith. Odd, too, that
> unlike earlier nationalizations intended – in theory at least –
> to increase public control over private interests, this one had
> precisely the opposite effect. It subjected the people of these
> countries to a dictatorship so complete that eventually dictators
> themselves became redundant.
>
> All of this rested on a crude threat. Unless debtor governments
> agreed to certain conditions, then they would be cast into the
> outer financial darkness and new loans would be withheld. These
> conditions were originally cobbled together for the ‘Baker’ and
> ‘Brady’ plans in Mexico, named after the two US Treasury
> Secretaries who devised them. They were then touted around the
> world as the paradigm of financial probity and became known as
> ‘structural adjustment’. Their main purpose was to ‘liberalize’
> the country in question: devalue its currency, open it up to
> world markets, reduce government intervention and flog off as
> many of its assets as possible at bargain-basement prices.
>
> The theory was that this would increase prosperity so that debt
> would no longer be a problem. But the 1980s were the ‘lost
> decade’ for most of the Third World, and their economies didn’t
> grow. Third World debt doubled to almost $1,600 billion ($1.6
> trillion) by 1990. An ever-increasing proportion of it was simply
> to pay off old debt and keep the system up and running.
>
> The ‘conditionalities’ of structural adjustment meanwhile
> diverted government revenues away from things like education and
> healthcare, towards debt repayment and the promotion of exports.
> This gave the World Bank and IMF a degree of control that even
> the most despotic of colonial regimes rarely achieved. The
> situation has remained essentially unchanged ever since.
>
> So we are left with a bizarre and degrading spectacle. Today in
> Ethiopia a hundred thousand children die annually from easily
> preventable diseases, while debt repayments are four times more
> than public spending on healthcare. In Tanzania, where 40 per
> cent of people die before the age of 35, debt payments are 6
> times greater than spending on healthcare. From the whole of
> Africa, where one in every two children of primary-school age is
> not in school, governments transfer four times more to Northern
> creditors in debt payments than they spend on the health and
> education of their citizens.1
>
> Truly dreadful things are being done in the name of debt
> repayment which would otherwise have to be recognized for what
> they are: the grossest abuse of even the most elementary
> requirements of human dignity.
>
> The legitimacy of large chunks of Third World debt is doubtful
> for more subtle reasons, too. For example, natural disasters have
> a much more devastating impact on poor countries like Honduras or
> Bangladesh than on rich ones like the US or Japan. More people
> die, more livelihoods are destroyed and fewer people can afford
> any kind of insurance. So economic recovery is much more
> difficult and slow. It makes no sense at all for the
> reconstruction of such countries to be further delayed, and the
> devastation compounded, because they are paying out more to
> service foreign debts than they will ever receive in emergency
> aid.
>
> The economics of debt are shot through with just as many flaws,
> though they tend to be dismissed as ‘unintended’ consequences.
> For example, a crude ‘adding-up problem’ arises when
> cash-strapped countries are all instructed by the IMF to promote
> commodity exports at the same time. The entirely predictable
> result is that the world price of commodities collapses and the
> environment is vandalized. Lasting damage is done to the world’s
> non-renewable resources without any economic gain for poor
> countries.
>
> At some point you have to stop and ask yourself: what has really
> been achieved by all the years of ‘structural adjustment’, other
> than vast areas of economic devastation? The fiasco has become
> much more conspicuous because of the financial chaos that
> overtook Southeast Asia in 1997. Such theory as there was to
> structural adjustment relied heavily on the appeal of an ‘Asian
> Tiger’ economic model that has now simply disintegrated. The
> structure was adjusted – and then promptly collapsed.
>
> <Picture: Counting the cost of ecomonic chaos in a queue for rice
> in Jakarta, Indonesia.> CHRIS STOWERS / PANOS PICTURES
>
>
> Meanwhile, Third World debt continues to increase relentlessly.
> By the end of 1997 it exceeded two trillion dollars – and to this
> will now have to be added several hundred billions more from the
> various crises in Southeast Asia, Russia and Brazil. There could
> be more to come. No-one seems to know where it will end, though
> everyone knows that it cannot continue.
>
> And so apostasy has become the new orthodoxy. One by one the
> apostles of structural adjustment have renounced a religion they
> once proselytized with ruthless zeal. Even Jeffrey Sachs, the
> high priest from Harvard who made articles of faith out of
> free-market nostrums in Eastern Europe, now recants: ‘Many of the
> three billion of the world’s poorest live in countries whose
> governments have long since gone bankrupt under the weight of
> past credits from foreign governments, banks and agencies such as
> the World Bank and the IMF. These countries have become desperate
> wards of the IMF... Their debts should be cancelled outright and
> the IMF sent home.’2
>
> In 1996 the IMF and World Bank finally conceded what they’d never
> been prepared to concede before: that perhaps some of the debts
> owed to them by the very poorest and most indebted countries in
> the world might eventually have to be written off. The Heavily
> Indebted Poor Country (HIPC) Initiative was born and a list of
> some 40 countries thought to fall into this category was drawn
> up.
>
> The intended purpose of the HIPC Initiative is to reduce debt to
> a ‘sustainable’ level – what the IMF and World Bank dictate that
> a country can afford to pay. This level is fixed by a number of
> measures, including the size of debt repayments compared with
> exports or government revenues. These measures of
> ‘sustainability’ are, however, extremely severe: 20-25 per cent
> of export earnings for the HIPCs which is more than double the
> ratio applied to Germany after the Second World War.3 And the
> proposed ‘relief’ often makes little difference in practice,
> since for the most part it merely discounts debts that were not
> being paid anyway.
>
> But there is another much more fundamental objection to the
> initiative. Far from dismantling structural adjustment, the HIPC
> Initiative actually strengthens it. Absolute compliance with its
> most stringent requirements must endure for six unbroken years
> before any actual ‘relief’ will be considered. As a result, no
> more than a handful of countries will have benefited in any way
> by the year 2000 – while a great many more of the HIPCs will be
> even more firmly in the grip of structural adjustment than they
> were before.
>
> The HIPC Initiative, though it may be an important departure, is
> not the destination. The suspicion arises that its purpose is
> less to minimize than to maximize the ‘sustainable’ levels of
> debt repayment; that perhaps rich governments, their tools at the
> IMF and World Bank and their clients from the private banks,
> actually prefer debt bondage to remain in place, precisely
> because of the control it gives them over debtor countries.
>
> If this is so, then the consequences will be felt by the poor
> into the indefinite future. What they want, and desperately need,
> is for despots, whether they come in the shape of dictators or
> delegations from the IMF, to get off their backs.
>
> And debtor nations do have a great deal more power than they are
> encouraged to believe. What lenders fear above all else is the
> prospect of collective default. You can tell this from the
> history of Third World debt. When the system is threatened – as
> during the crisis of 1982 and before the HIPC initiative of 1996
> – then creditors move fast to keep the game in play.
>
> Those rules now have to be changed decisively in favour of the
> world’s poor majority, who have suffered enough. The campaign for
> an orderly, complete and unconditional cancellation of Third
> World debt is the best and probably only chance we have of
> reaching the UN target for poverty reduction by 2015 – and to
> avoid a bleaker nightmare of the kind that has already descended
> from the storm clouds of high finance on to the people of
> Indonesia, Russia and Brazil.
>
> Can we afford it? Well, if several hundreds of billions of
> dollars could be found within months to fend off the crisis in
> Southeast Asia, a mere $200 billion to cancel the illegitimate
> debts of the world’s poorest people is clearly not beyond our
> means. So a new contract must be offered in all humility from the
> North to the South: unconditional debt cancellation where there
> is democratic control; the prospect of unconditional cancellation
> where it remains to be established. And, to start the ball
> rolling, cancellation for the HIPCs in the Jubilee Year 2000.
>
> And let this contract be, for once, written in the South for the
> South. Let ‘civil society’, that enormous network of trade
> unions, human-rights groups, farmers, homeless and landless
> people who have struggled so long to free themselves from a truly
> dreadful dictatorship, take an active part in the process. Only
> then will there be an unequivocal break with the past or any
> assurance that the poor majority will be freed from the bondage
> of debt once and for all.
>
> 1 ‘Making debt relief work’, Oxfam position paper, April 1998. 2
> The Independent, London, 1 February 1999. 3 We’ve been here
> before by Joseph Hanlon, 1998 (UK Jubilee 2000 Coalition).
>
>
> -----------------------------------------------------------------
> -------
>
>
> Drop the debt:
> There are 52 countries that the Jubilee 2000 Coalition believes
> should have their external debts cancelled to mark a fresh start
> for the new millennium. They are poor, often desperately so, and
> repayment is making them poorer still.
>
> In 1996 there were 984 million people living in these countries.
> Each man, woman and child then had an average foreign debt of
> $377, and yearly income of just $425. Foreign debt was larger
> than annual income in 31 of them.
>
> The World Bank and IMF classify 40 (not marked *) as ‘Heavily
> Indebted Poor Countries’ (HIPCs) that now qualify for
> debt-relief. Since the process began in 1996 no country has yet
> emerged from it, while the total of their debt has continued to
> grow. Other countries, like Indonesia, may be about to fall into
> the same category, as the effects of the Southeast Asian crisis
> spread and deepen.
>
>
>
> 1996
>
> GNP per person $Debt per person $Debt as % of GNP
>
<<There's a nifty little chart at the site {bottom of page} that
completes this analysis. Go there to see the effect of "good-
guy-ism" on the poor little citizens who are recipients thereof.
A<>E<>R >>
A<>E<>R
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