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A Clean Slate: Foreign Debt Relief for the World's Poorest Countries

The Global Village

If we could shrink the earth's population to a village of precisely 100 people, with all the existing human ratios remaining the same, it would look something like the following. There would be:

  • 57 Asians
  • 21 Europeans
  • 14 from the Western Hemisphere, both north and south
  • 8 Africans
  • 52 would be female
  • 48 would be male
  • 70 would be non-white
  • 30 would be white
  • 70 would be non-Christian
  • 30 would be Christian
  • 89 would be heterosexual
  • 11 would be homosexual
  • 6 people would possess 59% of the entire world's wealth and all 6 would be from the United States.
  • 80 would live in substandard housing
  • 70 would be unable to read
  • 50 would suffer from malnutrition
  • 1 would be near death; 1 would be near birth
  • 1 (yes, only 1) would have a college education
  • 1 would own a computer

Source: Phillip M Harter, Stanford University

What do Peru, South Africa, and Zimbabwe all have in common? (Okay, besides the fact that they are all countries the world trek team has visited or will be visiting in the next few months.)

And what do these nations have in common with the Pope, Muhammad Ali, and Bono, the lead singer of U2?

These are just some of the millions of individuals and governments from all over the world that are joining a movement called Jubilee 2000, a global campaign to cancel the unpayable foreign debts of the world's poorest countries by the end of the year 2000.

This has been a hot issue in the newspapers here in Peru lately. More than 65 Peruvian churches and non-government institutions, as well as hundreds of professors and social workers, have joined the Jubilee 2000 campaign. They've been spreading news about it, gaining support from all over the country.

Why cancel the foreign debt? "Foreign debt constitutes one of the main obstacles preventing the developing countries from fully enjoying their right to development," according to the UN Human Rights Commission. The UN estimates that if funds from debt repayment were diverted back into health and education, the lives of seven million children could be saved within a year. That comes out to 134,000 children a week.

Here in Peru, for example, the foreign debt is over $30 billion dollars, half of which was acquired by the government to buy arms--not for the improvement of the lives of its people, but its people must pay nevertheless. A debt that large means that every man, woman, and child in Peru owes about $1500. . . in a country where over 11 million people now live in poverty.

As Peru struggles to merely pay off the interest on its enormous debt, the Fujimori government has been energetically complying with the "structural adjustment" programs imposed by the International Monetary Fund (IMF), which include deep cuts to social service programs. This year, for example, the government must pay $2 billion US dollars towards the debt, including much of the money Peru earns from exports. This is money that could be used towards poverty reduction, education, health, housing, roads, electricity and clean water-- all of which Peruvians desperately need.

A Short History of Debt Repayment

How did these countries get so deep into debt? And why are these governments making so little headway in the struggle to pay it off?

It all began in the 1960s, when the US Government spent more money than it earned and decided to print more dollars to compensate. With more dollars on the market, their price fell in value-- bad news for the major oil-producing countries, whose oil was priced in dollars. So, in 1973, they hiked their prices. These countries made huge sums of money and deposited it in Western banks.

Then the trouble really started. With all of this extra money, interest rates plummeted, and the banks were faced with an international financial crisis. In their desperation, they turned to the Third World, whose economies were doing well but whom needed money to maintain development and meet the rising costs of oil. Banks lent lavishly, and without much thought about how the money would be used or whether the recipients would be able to repay it.

Most of these countries intended to use the money to improve standards of living, but little of the money ended up helping the poor. A lot of it went towards the military, often to shore up oppressive regimes. And although many governments started large-scale development projects, most were of little value. Corruption was rampant, and all too often the money found its way into private bank accounts. The poor were the losers.

By the mid 1970s, Third World countries, encouraged by the West to grow cash crops (such as copper, coffee or cotton), discovered that they weren't getting the prices they used to. Too many countries-- advised by the West-- were growing the same things, so prices fell. As a result, oil prices rose again, and interest rates started to rise too. Third World countries were earning less than ever for their exports and paying more than ever on their loans. They had to borrow more money just to pay off the interest.

By the 1980s, many Third World countries were caught in this vicious circle, taking on new loans to pay off their interest while increasing their debt each time. This led to a lot of bankrupt nations. In 1982 Mexico told its creditors it could not repay its debts. The International Monetary Fund (IMF) and the World Bank - the two main international financial institutions - stepped in with strict, new loans to help pay the interest.

The loan pattern continued for years, as many Third World countries joined Mexico in taking on new loans to make interest payments, thereby increasing their debt. The IMF and the World Bank have been involved in lending money and rescheduling debt in countries that cannot pay the interest on their loans. But their loans only add to the debt burden and come with conditions: governments must agree to impose strict economic measures, known as Structural Adjustment Programs (SAPs), in order to reschedule their debts or borrow more money.

SAPs are designed to help a country repay its debts by earning more hard currency-- by increasing exports and decreasing imports. In some countries, SAPs appear to have had some good effect; in most they have made things worse. In all countries applying SAPs, the poor have been hit the hardest. In order to make SAPs work, governments usually have to: spend less on health, education, and social service; devalue the national currency; cut jobs and wages for workers in government industries and services; privatize public industries; and cut back on food and farming subsidies. Foreign debt has spiraled into a self-perpetuating mess.

Is there any way out? (This information was taken from Jubilee 2000's website)

Peru's dilemma is not unique. The poorest countries in the world, from Latin America to Africa, suffer a similar fate, each owing hundreds of billions of dollars to the powerful western nations and their funding agencies like the IMF and the World Bank. As you can see, then, foreign debt makes it very difficult for developing countries to really develop, serving to perpetuate the vast inequalities that separate the "first world" from the " third world."

The point of Jubilee 2000 is to allow poor nations to start the new millenium building more sustainable, healthier nations, instead of struggling to pay off decade-old inflated debts. For every dollar they received in grants, these developing countries must pay back nine dollars in debt repayments. The only way these countries can service even part of the debt is to take on new loans to help pay off the old ones. And even then, they generally cannot afford to make repayments in full - so they go into arrears and the debt gets bigger still.

Jubilee 2000 maintains that the best way to help these countries is to stop taking their money. Whoever or whatever is to blame for the huge build-up of debt-- greedy dictators, corrupt lenders, Western companies with dollar signs in their eyes, or just poor planning-- the people who really suffer are among the poorest in the world. Very little of the money borrowed actually benefited ordinary people, and it is these ordinary people-- people who might not have been born when the loans were made-- who suffer now because of the debt.

Thanks to overwhelming international support for the Jubilee 2000 campaign, debt relief has become an urgent issue and will be an important topic of discussion at the G8 Summit (which will be held in Cologne, Germany, on June 19, 1999. That's only a few weeks away!). The G8 Summit is a meeting of the eight most powerful governments in the world right now: namely Japan, the US, Britain, Canada, France, Germany, Italy, and Russia--the very countries to which the majority of foreign debt is owed.

The G8 governments are hoping to reach a consensus on reform for the Heavily Indebted Poor Countries Initiative (HIPC), established in 1996 by the IMF and the World Bank to address the grave issue of unpayable debt. The HIPC provides loans that allow poor governments to keep up with debt repayments, as they implement IMF structural adjustment programs (SAPs, as they are called, are measures designed to rein in inflation, cut public spending, and open local markets to international trade, commercial lending, and foreign ownership).

Unfortunately, the HIPC does very little to ameliorate the situation for most poor countries, and both the IMF and the World Bank have admitted that in some cases it makes the situation worse. SAPs have had catastrophic results for countries whose debt has been managed by the IMF and the World Bank, leading to a great deterioration in living standards since the 1980s. Dissatisfaction with HIPC has grown over the past year, leading its supporters to seek improvements and a growing number of critics to urge alternatives.

History has shown that debt cancellation can be good for everyone. For example, Germany received massive debt relief after its defeat in the Second World War. The Allies realized that creating a stable Europe meant helping Germany rebuild itself. With Allied help, Germany's economy grew, enabling it to trade with its European neighbors, buy American and Japanese goods, and made for a healthier Europe overall. Debt relief for today's developing countries could have similar results.

We need to let our leaders know how we feel about foreign debt relief before their big summit on June 19th (see this weeks Making A Difference). Time is running out!


Shawn - Home Is Where the Heart Is
Kevin - Working for a Living
Monica - She's at the CO-pa, CopacaBAAAANAAA!
Abeja - Guardian Angels
Making A Difference - Debt, Debt and More Debt!

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