For over two decades many of the world's poorest countries have experienced a debt crisis which is having a crippling impact on their livelihoods, hobbling economic growth, and draining and diverting scarce resources from health, education and other vital services, which particularly effects women and children. But how did this state of affars come about? What's happening now? And what can we do about it?
A (Very) Brief History
The latest debt crisis in the global south began in the 1970s after the Bretton Woods monetary regime was scraped and financial markets were 'liberated'. The global south found that the resulting instability in the north's economic activity (fluctuating interest rates, recessions and the rising US dollar) made it increasingly dificult to repay money that had been lent to them from northern banks. This problem first came to world attention with the Mexican default on its loan in 1982, which was followed by other Latin and South American countries. African debt was also exacerbated by official "aid" programmes that were often tied to importing from the donor nation, thus creating a new kind of colonialism and imperialism.
Debt and the G8
Many of the debt defaults had a good deal to do with Regan's economic policies since most of them were in US dollars and from US banks. Ironically the banks themselves verged on collapse until they and the government discovered a new love for international institutions - particularly the IMF, which found a new lease of life in rescheduling and renegotiating loans under terms favourable to the intrests of those influenceing it, i.e. financial interests. Moreover, because of the new financial liberation (neoliberalism), the richest in many of these poor countries were simultaneously transfering massive amounts of money out of their countries, forcing the middle and lower classes to face the IMF austerity and adjustment programs. The result of which was that in the 1980s Latin America joined Africa in having declining levels of income, and between 1980-1990 total debt owed by developing countries more than doubled, and shot up by half as much again by 1995. The global south were obviously unable to pay back what they owed, yet they were continually forced to pay back more than they could afford in relation to their long term stability and development.
Where Are We Now?
The Jubilee Debt Campaign paper, "Did the G8 drop the debt?", from June 2003, looked at what has happened to debt since 1998, when a 70,000 strong human chain surrounded the G8 summit venue in Birmingham. As a result of this and other actions, in the 1999 G8 summit in Cologne it was announced that debt relief worth $100bn would be granted. The program, which actually started in 1996, was to tackle HIPC (Heavily Indebted Poor Countries) and was managed by the IMF. Its main aim was to make the debt 'sustainabile'. Later the rich and powerful G8 leaders also agreed to cancel 100% of the bilateral debts owed to them by the poorest countries, adding $10bn more. In 2002, the G8 further agreed to provide a $1bn 'top up' for countries still facing unsustainable debt. Even thought this total of $111bn is still less than a third of the $350bn that Jubilee 2000 calculated was required, their report calculates that actually only about $15bn of debt that would not have been cancelled anyway has actually been dropped. In fact nine of the HIPC countries will have annual debt repayments in 2003-2005 equal to or higher than those paid in 1998-2000.
|Type of relief||Commitment||Actual|
|Traditional debt cancellation||$30bn||$19.8bn|
|Relief from HIPC I||$25bn||$6.2bn|
|Relief from HIPC II||$25bn||$8.8bn|
|Previous bilateral cancellation||$20bn||$0|
|Additional bilateral relief||$10bn||$1.3bn|
Debt relief also comes with socially harmful conditions. The IMF and World Bank impose a web of free-market economic conditions attached to the debt relief, such as privatisation and unilateral trade liberalisation, which has delayed the debt relief process in many countries. These policies are also unsuccessful, having a history of increasing poverty and inequality; they undermine poor countries negotiating positions (e.g. at the WTO); and they are undemocratic, as they are forced on countries against the wishes of civil society, parliaments and even governments, which can lead to widespread civil unrest.
What to do? What are the alternatives?
Jubille 2000 lobbies to replace the IMF program with one based on social and humanitarian values. Another proposal is to construct a proper mechanism in the international financial architecture to handle insolvency at the national level - similar to the bankruptcy frameworks that exist for individuals and companies. This would encourage international financial markets to conduct more realistic risk assessment and not to rely on the IMF to 'bail them out'. It would also mean the results of bad lending decisions are not borne by the poorest people on the planet. Or you could join your local social justice group and work towards destroying the undemocratic and unacountable G8 and IMF.
- "Capitalism since 1945" by Armstrong, Glyn and Harrison
- "The Global Gamble" by Peter Gowan
- Did the G8 drop the debt?
- UNICEF's The Progress of Nations 1999