Introduction: Illegitimate Debts

Illegitimate Debts

The hut is sinking in the mud near the bridge over the River Guaibe in Porto Alegre, Brazil. A woman social worker is welcomed by five children, the oldest about 8 years old. The parents have gone out foraging in the garbage heaps. Noticing how poorly the children look, the social worker asks them whether they have eaten recently. `Yes, miss, yesterday Mummy made little cakes from wet newspapers.’ `What? Little cakes from what?’ asks the woman. `Mummy takes a sheet of newspaper, makes it into a ball and soaks it in water and when it is nice and soft kneads it into little cakes. We eat them, drink some water and feel nice and full inside.’

This story was told in the “Information Newsletter” of the Brazilian Evangelical Lutheran Church; millions of similar stories remain untold. From the shantytowns of Porto Alegre to Brazil’s poor north-east, starvation is endemic. So bad are nutrition levels in the north-east today that IBASE, the Brazilian Institute for Social and Economic Analysis, claims the situation has produced a sub-race of people, or, in the terminology of nutritionists, that the region suffers from an epidemic of dwarfism.

The situation seems to be getting worse rather than better. In the early 1960s, an extensive household survey conducted by the Brazilian Institute of Economics and the U.S. Department of Agriculture concluded that one-third of the Brazilian population suffered from malnutrition. More than 20 years later, another survey found that two-thirds of the country’s population suffered from malnutrition.

The boom days of the debt build-up — full of high-flying bankers doing deals with generals building monuments in the rainforest — had benefited Brazil’s poor not a whit: development projects brought disease along with the disruption of economies and environments. The debt crisis has only added salt to their wounds: bystanders as the debts were incurred, they are now expected to do their part to pay off their nations’ creditors.

Like Brazilians, other Latin Americans saw the desperate living conditions created by the borrowing binge become more desperate once the bankers pulled the plug on the spendthrift generals that called themselves governments. Often, the new and indiscriminate austerity measures spurred the decline of health conditions: while nutrition levels fell the incidence of disease rose.

By the end of the 1980s, the Third World’s poor had lost so much ground that UNICEF, the United Nations Children’s Fund, called it the “decade of despair.” The burden of cutbacks in public expenditures was falling not only on megaprojects and military expenditures but also on the world’s most vulnerable — hundreds of millions of children. “It can be estimated that at least half a million young children have died in the last twelve months as a result of the slowing down or the reversal of progress in the developing world,” UNICEF estimated in its 1989 Annual Report, laying the blame for that reversal squarely on the debt.

Calling the debt “an economic stain on the second half of the twentieth century,” UNICEF condemned both those who incurred the debt and those who extended it. “It is hardly too brutal an oversimplification to say that the rich got the loans and the poor got the debts,” the report says. “The fact that so much of today’s staggering debt was irresponsibly lent and irresponsibly borrowed would matter less if the consequences of such folly were falling on its perpetrators…. When the impact becomes visible in rising death rates among children … then it is essential to strip away the niceties of economic parlance and say that what has happened is simply an outrage against a large section of humanity.” UNICEF laid out the facts: throughout most of Africa and much of Latin America, average incomes had fallen by 10 per cent to 25 per cent in the 1980s; the average weight-for-age of young children, a vital indicator of normal growth, had fallen in many of the countries for which figures were available; in the 37 poorest nations, spending per head on health had been reduced by 50 per cent, and on education by 25 per cent over the last few years of the 1980s; in most of the 103 developing countries from which recent information was available, the proportion of children from 6 to 11 years old enrolled in primary school was falling.

Now that the party is over and the bills are coming in, UNICEF stated, “it is the poor who are being asked to pay…. The heaviest burden of a decade of frenzied borrowing is falling not on the military or on those with foreign bank accounts or on those who conceived the years of waste, but on the poor.”

SOME WESTERN COUNTRIES have a debt comparable to Brazil’s: Canada’s foreign debt in 1988 was about twice as large in an economy twice the size. Servicing Canada’s federal government debt alone consumes over one-quarter of every tax dollar collected. Because Canada borrows just to make its interest payments, its debt grows every day, and has become the source of heated debate. Yet Canadians don’t suggest repudiating their debts. They were accumulated with everyone’s full knowledge, with the majority’s consent, and Canadians enjoyed the use of the loans. Canadians acknowledge that Canadians must repay their debts, and to do so, Canada’s federal government has dedicated the proceeds of an existing sales tax, and the proceeds of future privatizations of crown corporations. Both the tax and privatizations are controversial subjects in Canada, yet Canadians generally approve of paying down the debt from their proceeds.

Most Third World nations, poor though they are in relative terms, could easily repay their debts through taxation and privatization of their assets — a Japanese consortium led by Bishimetal Corporation Limited, a subsidiary of Japanese conglomerate Mitsubishi Metal Corporation, for example, offered to assume all of Brazil’s foreign debts in exchange for the gold mining rights to the Amazon. All countries have minerals, agricultural lands, state corporations, and other assets whose title — if the public were willing — could be transferred to foreigners. Through taxation of the Third World’s rich and middle class, and through a wholesale asset sale, the entire Third World debt could likely be liquidated in a matter of years.

Sources and Further Commentary

The story from the “Information Newsletter” of the Brazilian Evangelical Lutheran Church has been cited in many places, including Susan George’s book, A Fate Worse Than Debt, Penguin Books, 1988. The information about the study on nutrition levels in north-eastern Brazil also came from A Fate Worse Than Debt.

For UNICEF’s position, see The State of the World’s Children 1989, United Nations Children’s Fund, Oxford University Press, 1989. UNICEF’s figures of social spending are per capita, unlike the figures in Chapter 12 on the military, which are as a percentage of GNP.

Information on Canada’s debt came from numerous newspaper articles and from “Foreign Investment in the Canadian Bond Market, 1978 to 1990” by Lucie Laliberté, in Canadian Economic Observer, Canada, June 1991, which states that Canada’s net liability to non-residents is $259 billion, representing 38 per cent of gross domestic product. Brazil’s total external debt of $111 billion is 24 per cent of gross national product.

Word of the Japanese offer to assume Brazil’s debt in return for mineral rights to gold in the Amazon shocked everyone: it came at a time when concern for protecting the Amazon from damaging activities like gold mining was at its height; most were surprised that the debt could be retired so easily; the offer seemed unconscionable. For further information see “Japanese offer to buy Brazil’s debt” in The Globe and Mail, Toronto, February 5, 1990.