Another day, another dollar in the hole

By Fred Gaboury

Although not the stuff that usually rates front-page coverage, the foreign debt of undeveloped countries in Africa, Asia and Latin America became front-page news during the "Battle in Seattle" when mass protests forced trade ministers of the World Trade Organization to leave town under cover of darkness.

In one of those demonstrations, thousands of people linked hands around the Seattle Trade and Convention Center to demand cancellation of the foreign debt undeveloped countries owe to the World Bank, the International Monetary Fund (IMF) and the governments and banks of rich countries.

"It was a magnificent show of solidarity," said B.J. Mangaoang, chair of the Communist Party of Washington state, remembers. "Representatives of the religious community, the labor movement, youth and environmentalists ignoring the rain and linking hands in the demand that the foreign debt, which poor nations must repay and from which they can never escape, be canceled," she said.

"Seattle got the debt cancellation ball rolling here in the United States. Now the job is to keep it rolling. The call by Jubilee 2000 for a demonstration against the International Monetary Fund and the World Bank (See box) is a good next step."

The crisis that debt imposes on undeveloped countries made headlines around the world in the early 1980s when Mexico announced that it was unable to pay the interest and principle due on its outstanding debt. This forced a mad scramble by creditor nations to concoct plans that, by relieving some of the immediate pressure, prevented a mass repudiation of the debt.

A combination of factors - the relative ease of borrowing and low interest rates, the 1973 and 1979 increases in the price of oil and the severe recession in industrial countries resulting from domestic government policies to reduce inflation - contributed to the growth of foreign debt, resulting in today's situation where, for all intents and purposes, the debt is simply unpayable.

In addition to steps like devaluation or increasing interest rates, industrial countries contributed to the growing debt burden by unilateral steps taken for domestic reasons: The expenditure of large amounts of money to promote growth in post-WWII Germany and Japan, on the Cold War and the Vietnam war.

The United States spent hundreds of billions of dollars to prop up "friends" around the world without regard to human rights, one example being the large loans at reduced interest rates to Indonesia after a right-wing coup resulted in the murders of more than 750,000 members and supporters of the Indonesian Communist Party.

It was not until 1996 that the IMF and World Bank recognized that the external debt was a serious problem that had to be addressed by the international community and adopted by the Highly Indebted Poor Countries (HIPC) that, theoretically at least, makes it possible for the world's poorest countries to petition for a reduction in their debt.

But there is a wide gap between theory and practice. At best, it would allow cancellation of less than 10 percent of outstanding debt, thus failing miserably in reducing the debt burden. Even if a country could qualify for HIPC assistance, that would do little to relieve a situation where consumer subsidies on basic food staples and public transportation would be cut and children would be left with schools with neither books nor teachers and health clinics without medicines, all in order to add more to the bottom lines of the banks of Wall Street in New York or Fleet Street in London.

The World Bank, always headed by a U.S. citizen, and the IMF, always headed by a European, have but one prescription for relieving the pain caused by the debt crisis: unleash any and all regulations that fetter the free market and private property.

In order to even qualify for relief under HIPC, a nation has to agree to "conditionalities" - policy measures that, among other things, result in devaluation, increased interest rates, and national budgets brought into balance by spending cuts for social services and higher consumer taxes.

Other measures include lowered tariffs and dismantling trade and investment regulations, the sale of public enterprises to investors and cuts in real wages. Taken together these structural adjustment policies effectively destroyed the economic sovereignty of countless nations - and offer a view of an even worse situation should those at the helm of the WTO succeed in launching a new round of trade talks aimed at even further liberalization of the global economy.

The concept of what level of debt service - payment of interest and principle - is "sustainable" is important because of its relation to a nation's export earnings. For instance, debt service on loans given the United Kingdom during WW II are capped at 4 percent of exports while for Germany sustainable debt on U.S. loans is but 3.5 percent.

Under HIPC, a "sustainable" level of debt service is generally set at between 20 and 25 percent of the value of a country's exports. In other words, in order to qualify for the limited reduction of debt service provided by HIPC, a country must reduce social expenditures to a level that will allow it to devote a quarter of its export earnings to debt service.

In some 50 undeveloped countries, debt service eats up more than 20 percent of export earnings and most of these counties run a trade deficit with industrialized countries. Most experts say that because of limitations on market access and deteriorating terms of trade, HIPC countries can only pay $16 billion of their total debt service from trade.

In time, debt reduction schemes like HIPC may bear fruit. But Africa, the continent most heavily burdened by debt, does not have time to catch up. The United Nations Development Index, which looks at life expectancy, literacy and income, has only five African countries in the top 100 and 18 in the bottom 20.

If recent history is any guide, we can draw little comfort from the hope that this gap will eventually close. To the contrary: in 1960, the top 20 percent of wealthy nations had 30 times the income of the poorest 20 percent; by 1995 that figure had grown to 82 times.

A few statistics are helpful:

The countries of sub-Saharan Africa spend more on debt service than they spend on all education and health care.

Debt repayment in Nicaragua exceeds total spending on social programs yet three out of four people live below the poverty line and four children out of five suffer from malnutrition.

In Ethiopia, where only one-sixth of women receive prenatal care, debt repayment totals four times as much as public spending on health.

Despite the myth of "oil-rich Arab countries," Muslim countries are all deep in foreign debt and most are among the poorest in the world. Over 80 percent of the world's refugees are Muslims.

Great Britain defaulted on WW I loans of more than $12 billion - substantially more than the $8.5 billion owed the U.S. by all African countries.

From the moment of its birth, a child born in Tanzania owes foreign creditors $250 and will have an annual income of but $140.

Taken in its broadest context, the campaign to cancel - or at least substantially reduce - the foreign debt of undeveloped countries is a struggle against the free rein on international capital, against the giant banks and transnational corporations who are trying to extend their reach even further through the WTO and a Multilateral Agreement on Investment.

The Jubilee 2000 call for a mass demonstration in Washington D.C. on April 9 offers the next opportunity to confront the forces that were dealt a major setback in Seattle. Both the IMF and World Bank will hold their annual Washington meetings the following week.