Debt Relief

The scandal of Third World debt

There are increasing calls for creditor nations to cancel the foreign debts of Central American nations badly hit by Hurricane Mitch.

The following article discusses the scandal of Third World debts.

After the second world war, Germany would only agree to spend 3.5% of its export income on debt repayments. It argued that anything higher would be unsustainable.

Today, the world’s creditor nations, including Germany, are demanding that the world’s poorest nations spend up to 25% of their export incomes on debt repayment.

The cost of this hypocrisy is devastating.

Mozambique now spends US$107 million every year servicing its debt – US$6.60 for every Mozambican child, man and woman. In contrast, the country spends only US$2 per person per year on health and US$4 on education.

Ghana spends an average of US$4 a year per person on health. In 1996 it spent US$26 per person on debt service.

Zambia’s infant mortality rate in 1970 was 106 per 1,000 live births. In 1996 it had worsened to II 2 per 1,000. Since 1990 the country has paid a total of US$4.8 billion in debt service – about one and a half times its total annual economic output.

International loans have’e i’n’strwnents of neo-slavery.

The response from the West is that the debts are legally binding, and the debtor Countries have a duty to pay.

But is this correct? During the 1980s, US$8.5 billion was secretly lent to the ex-President Mobutu of Zaire by@Westem institutions who knew that those loans were being corruptly diverted.

If Mobutu lacked the authority to raise money on behalf of Zaireans, under what duty are the people obliged to pay?

What of South Africa? The country is labouring under a US$70 billion debt. Interest payments alone are the second highest expenditure after education. To what

extent are black South Africans obliged to repay the loans of an oppressive regime they could not elect?

These arguments are not new. When the US took over Cuba 100 years ago, it cancelled Cuba’s debt to Spain on the grounds that the burden was ‘imposed upon the people of Cuba without their consent and by force of arms’. Such debts became known as odious debts, not obligations for the nation but for the powers that incurred them.

While the world’s debtor nations work up the confidence to default, however, the international community is pretending to help.

Under their Highly Indebted Poor Country (MPC) Initiative, the World Bank and the International Monetary Fund will partly wipe out a country’s debt if a country is prepared to take a good dose of BW tonic. Six years of it.

Under the euphemistically titled Structural Adjustment Programmes (SAPs), countries agree to libemlise their markets and discard orofligacies such as state-funded education in order to show their willingness to help themselves. The debt cancelled, however, makes very little difference.

In Mozambique’s case, an estimated US$1.4 billion was removed by FHPC, but these debts would never have been.paid. As Joseph Hanlon from the debt relief campaign Jubilee 2000 argued, Mozambique would have more chance of sending a football team to France for the World Cup than paying those debts.

So even after this debt relief, Mozambique will continue to spend as much on debt service as on health and education combined.

The inadequacy of HIPC is part of the reason why Jubilee 2000 – the international campaign for a one-off cancellation of Third World debt – is gathering strength.

Cancelling the poorest nations’ debts, however, is just the start. It is equally important to reform the international lending system, for example, by:

* reducing secrecy in lending. Routinely, neither the people from the poorest nor the richest countries know what their local elites are doing. Financial transparency should become a condition of taxpayer-funded lending.

*introducing an international bankruptcy law. Domestic bankruptcy laws allow individuals to write off unpayable debts and make a fresh start. The absence of comparable controls at the international level encourages irresponsible lending. Creditors know someone will have to pick up the tab.

* introducing a Tobin tax. A small international financial transactions tax would discourage currency speculators from using national economies as tax-free high rolling rooms without punishing legitimate economic activity. It would also provide the United Nations with an independent source of income.

More fundamentally, however, we need to question the orthodoxy of unbridled globalisation. As the World Bank’s chief economist and senior vice president Joseph Stiglitz acknowleged, the convergence of policy from the US Treasury, the EW and the World Bank – the so-called Washington Consensus – can be misguided, misleading and neglect ftmdamental issues.

Heaven forbid, it may even be wrong.

Increasingly, people are asking whether globalisation is delivering its promised improvements of global living standards, or whether it is simply forcing open fragile societies to powerful, intrusive and exploitative foreign forces.

By definition, globalisation cannot be assessed in terms of GDP per capita rates in the developed world.

For as long as we operate within the same trading system and the same environment, the problems of the poorest nations are our problems.

About the writer., Matthew Townsend is a Melbourne barrister. Email:

Matthew Townsend, Third World Network Features, December 31, 1998

Categories: Debt Relief, Odious Debts

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