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November 3, 1999
#44-99 The Debt Treadmill: Cyclical Poverty in the Third World
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Phillip Babich: This week on Making Contact....
Soren Ambrose: The debts of the Third World came to be what they are through a process of aggressive loan marketing in the 1970s, that was probably the most influential part of this. The World Bank and private banks both in the 1970s were looking to lendů
Seydina Senghor: People, poor, not responsible of the debt, should not be paying for it. The peasants should not be paying for it. The child who is just new born should not be paying for it by not having enough milk, not having clothing, you know, primary health care and all that. They were never consulted.
Phillip Babich: In September 1999, The World Bank and the International Monetary Fund held their annual meetings. Looming large on the agenda was the topic of debt relief for heavily indebted poor countries. At the close of the meetings, President Clinton announced that he would like to cancel debt owed to the United States by 36 poor countries. On this program we take a look at international debt, its causes and why some are calling for the debts to be canceled.
I'm Phillip Babich, your host this week on Making Contact -- an international radio program seeking to create connections between people, vital ideas, and important information.
According to some estimates, debt owed by countries in Latin America and Africa total over 350 billion dollars. Other estimates, which include countries such as Haiti, and factor in the long term effects of debt put the total much higher. Mozambique, for instance, spends 33% of its budget on debt, much more than the 8% it spends on education and the 3% in spends on health. On average countries in sub-Saharan Africa pay four times as much on debt servicing than they do on health care. Njoki Njehu, director of the 50 Years is Enough US Network for Global Economic Justice, says that in order to service its international debt her home country, Kenya, grows cotton and coffee to export rather than basic foods to feed its people.
Njoki Njehu: It manifests itself in many, many ways. I can give you two examples, one of which is the last time I was in Kenya which was in '97, I saw in the reading English Daily, the president calling for food aid from the international community because young children and old people are dying in the eastern province of Kenya because there's a drought and there was no food. But also in that same paper, the same edition, the same day['s] paper, there was a story of farmers complaining and decrying the fact that they had planted, harvested cotton, and it was now sitting in warehouses rotting because they did not have the means to transport it to the port and the airport so it could be exported to Europe. And at the same time that this was happening, of course you had the children and old people starving to death. And it's an irony of a country that cannot feed and protect its youngest and its weakest, but that continues to produce for export non-edible cash crops. And I think that the answer really perhaps should be as easy as Kenya growing rice and beans and millet and sorghum and cassava and sweet potatoes and yams so that the youngest and the weakest do not starve to death, instead of having famines, growing cotton and coffee and tea and tobacco so that we can earn foreign currency to service our debt.
Nunu Kidane: There is an estimated loan amount, an outstanding loan amount of $380 on every man, woman, and child in Africa. Every child that is born in Africa has a loan amount of $380 that must be paid.
Phillip Babich: Nunu Kidane is an Eritrean national who is the Africa Program Director at the International Development Exchange.
Nunu Kidane: This loan amount is very real. It's a real as the loan that you take out from a bank, from a personal loan. It is very real. And the banks intend to be paid. They feel that this agreement was made fair and square with the signing nations, and they intend to be paid. They are very, very resistant to movements like the Jubilee 2000 for complete cancellation. The payment that is being forced on the African nations is being made at the cost of food and health care and education to the millions of poor people in sub-Saharan Africa. The top priority is to make sure that this payment is made. And 30 to 50% of the total earnings of many of these nations has to go to making these payments. You can imagine if what you are earning is being cut by 50%, and someone were to come into your home and take the food out of your refrigerator, knowing full well your children are not going to eat...it is as real as that.
Phillip Babich: In 1997 the United Nations Development Program estimated that debt relief by the year 2000 would save the lives of 21 million children. And, Unicef estimates that 20,000 children die every day from preventable illnesses. Njoki Njehu...
Njoki Njehu: When Unicef says 20,000 children are dying in indebted countries every day from preventable and curable diseases, it does not take an economist or a rocket scientist to make the link that children are dying because they lack immunization. And they lack immunization because the government does not have money to put into hospitals and into immunization programs. Children are starving because food security has been severely compromised because the government provides funding and credit for farmers to grow coffee and tobacco and flowers and bananas, but not beans and rice or sorghum and millet and other things that are consumed locally. In many, many indebted countries you find a phenomenon where countries are producing what they don't consume, and consuming what they don't produce. And in many cases our people are simply not consuming.
Phillip Babich: Meanwhile, international lending institutions and banks are virtually sucking currency out of indebted countries, according to Seydina Senghor, co-founder of Jubilee 2000, a world-wide movement calling for international debt relief.
Seydina Senghor: Let me give you an example: In Senegal, where I am from, every Thursday, at 4 p.m., all the banks close, no more transaction[s] for people. But they were getting all the money, at 4 p.m., send[ing] it to the treasury of the country, so that the country [could] get that money together to send it to service the debt. Every Thursday, you see? We are not talking about figures on a paper telling you in real life what's going on. People die because of lack of medical necessities and attendance, or they die because... but what we often don't talk about is the emotional wounds it creates in people on a daily basis. You used to be able to guarantee your dignity by meeting your needs, or respecting a reciprocity between you and a peer, or your wife, or your husband ...it depends on what the situation is. And then you find yourself not being able to do it. People do not understand that outside there are forces that are creating this situation. They take it on you, or you take it on yourself, think I'm less than what I'm supposed to be, that I'm less than what a good husband is supposed to be, or what a good brother is supposed to be. Then they commit suicide, they destroy peoples' heart like that. You know, recently two Guinean people [were] saying in front of the IMF that they decided to commit that kind of suicide in front of world international opinion, so they know that the debt is ruining their lives, that they have no future. So they're sacrificing their lives to put the word out, and they had a letter to explain that.
Phillip Babich: But why shouldn't indebted countries have to pay off their debts--just like anyone who purchases something with a credit card is responsible for the bill?
Seydina Senghor: It's the literal transposition of two different realities. You know, the debt you contract from your bank as a citizen of a country, and the debt that we are talking about are very different.
Phillip Babich: Seydina Senghor...
Seydina Senghor: You use the same word, "debt" here, "debt" there, which is the same word but two different meanings and two different contexts. So, if they need help, it might be at that level...that it's not like I want to borrow this. It was compulsive lending, one. The second is, we have to realize that those who were contracting those loans are not legitimate, because they never consulted with the people to do so. And they never used it for the benefit of the people. So we are saying people who are not responsible of the debt should not be paying for it. The peasant should not be paying for it. The child who's just new born should not be paying for it by not having enough milk, not having clothing, primary health care, all that. They were never consulted. Women who live in villages and who have to work like slaves because of the scarcity of everything, they were not consulted. That's what we are saying.
Phillip Babich: Not only were they not consulted, but in some cases, the people of indebted countries never even saw the borrowed money in the first place. Nunu Kidane explains that corrupt leaders in sub-Saharan Africa actually accepted loans from the IMF and made personal deposits in Western banks.
Nunu Kidane: It's really ironic because a lot of the money that was actually given, that we continue to pay huge interest rates on, is not even being used. It was never used for the benefit of the African people. It went back into Swiss banks and the African leaders who are charged with corruption...time and again we hear that the African governments who take out these loans were basically so corrupted and they were embezzling funds and fattening their pockets. Well, the money ended up in Western banks. Everyone knows full well where the money is. The Swiss banks are not willing to release it, and none of the Western banks are willing to release it. So there's nothing secretive about it. We know where the money is. We continue to pay interest rates on money we don't even have.
Phillip Babich: Other countries have accrued debt under illegitimate or repressive governments. Take the example of South Africa, which was ruled by an apartheid government until the early 1990s. Brian Ashley is with AIDC, the Alternative Information and Development Center in South Africa.
Brian Ashley: In South Africa it comes across in this way. People are asking, "Why must we, the victims of apartheid, now have to pay for our victimization. Why must we pay twice for apartheid, by having now to pay this apartheid debt?"
Phillip Babich: Such debts are recognized under international law as "odious" debts. If a debt is found to be odious, a country can be relieved of its obligation. South Africa's debt is considered to be one of the clearest examples of odious debt.
Brian Ashley: Here we are talking about odious debts. These are not legitimate debts. And in international law, there's the "doctrine of odious debt". That doctrine has been undermined by the existence of the Bretton Woods Institutions, the IMF, and the World Bank. But nevertheless, this is a recognized doctrine of international law which basically says that normally successive governments have to honor the debts of the past regime, except in the case in which those loans have been undertaken by a illegitimate regime against the interests of the people. Now it can be no clearer that in the South African case, where South Africa and apartheid South Africa was deemed to be a crime against humanity. It was the pariah state of the 20th century. And therefore all loans to apartheid has to be seen as odious debts, odious loans, and ought to have fallen away with the previous regime.
Phillip Babich: But the World Bank and the International Monetary Fund do not recognize the international doctrine of "odious" debt and South Africa is still required to make debt payments. At the same time, other countries, such as Haiti, which has also accrued what some consider odious debt, are paying more in debt payments to so-called Northern, or First World, countries, than they receive in aid from those same countries. Camille Chalmers, executive director of PAPDA, the Haitian Advocacy Platform for Alternative Development, says that debt repayment plans essentially amount to social control mechanisms. Chalmers is translated by Marx Aristide.
Camille Chalmers: [Translator] We find that the debt issue is but one part of the entire upside-down world economic order, but nevertheless we think it's a very important one, because it's one of the most efficient ways that they use to keep the status quo the way it is. To illustrate this problem, it's estimated that 35 billion dollars from the Northern countries went to the Southern countries in 1998. However, the outflow from the Southern countries to the Northern countries is 250 billion dollars, to service the debt. It is a situation that's totally immoral and unacceptable, particularly since these debts were contracted by dictatorial regimes, which these people have absolutely no business in paying. Between 1980 and 1990, the people of Latin America have paid more in debts that they have owed in 1980, and since 1990 they owe even more now than they had owed in 1980. It's a spiral, it's a vicious cycle, and mathematically there's no way out of it. In addition, it's a criminal debt, because servicing this debt usually means that there's no money to put into things like education, potable water, health care. For example, in Haiti, the money that Haiti uses to service the debt is twice as big as that which it uses for health care. And if we look at it from a broader historical perspective, and go further, during 500 years, with the slaughter of the Native Americans in the Americas, and the slave trade, where many people were killed, and also when you consider that the richness, the wealth of the North is totally based on the super-exploitation of the Southern countries, it is very clear that it is the North that owes the South, and not the other way around.
Stephanie Welch: You're listening to Making Contact, a production of the National Radio Project. If you'd like to get in touch with us, we'll be giving out our toll free number at the end of this broadcast.
Phillip Babich: So, how did this debt cycle start in the first place? Seydina Senghor says the World Bank and the International Monetary Fund started lending money to poor countries following the second world war after the two institutions were founded at Bretton Woods, New Hampshire.
Seydina Senghor: There was a conference in 1945 in Bretton Woods in the United States. That conference gave birth to two giant financial institutions, such as the IMF and the World Bank, the International Monetary Fund and the World Bank. Those institutions designed a policy for the Third World and the nonaligned movement say you have to send them money, lend them money. And when you lend them money, they will keep depending on us. So there has been a compulsive lending of money, and they had their experts, respectable gentlemen, very well dressed, with suits, who are being sent to those governments as advisors and experts. And then they were convincing them to contract these loans...because the money is there -- take it! You know, but what they really had in mind was the return, which they were not telling, let's say, the example of African countries, because I'm from Africa. Those heads of states were irresponsible enough to play the game, because it takes two for a tango. You know, and take the money, without consulting with their people, and then use the money among themselves with their families and friends. The people never got anything. This I'm telling you...take the example of former Zaire, where Mobutu was being given money by the IMF, and they knew that he was not spending it on development issues. He was spending it on his own frivolous life style, and all that kind of stuff. But they kept sending him the money, because he allowed the multinational corporations to deal with the diamonds and gold and all that wealth in Zaire. So that was like a green light, come and do what you want, come and raid this country, I don't care.
Phillip Babich: Then, in the 1970s and 1980s the World Bank and other lending institutions started shopping around for more borrowers, according to Soren Ambrose, policy director at the 50 Years is Enough Network.
Soren Ambrose: The debts of the Third World came to be what they are through a process of aggressive loan marketing in the 1970s. That was probably the most influential part of this. The World Bank and private banks both, in the 1970s were looking to lend, and they were doing this because they had a surplus of cash on hand. And so they suggested projects that countries could begin to work on, such as infrastructure projects like bridges and dams and power plants. And they simply worked with government officials who were their friends, often in the finance ministries, or the president or vice president of the country, and there were very few checks and balances on the kinds of loans that were being taken out. So a lot of these loans were really the product of undemocratic processes and a lack of consultation with the people of the countries that were signing up for them. Unfortunately it is of course the people of those countries who end up having to pay back the loans. One of the problems here is the variable interest rates. A lot of the loans that countries took out in the 1970s when banks were trying to aggressively market loans to Third World countries, were loans that were at pretty low interest rates... six percent, four percent, something like that. In the small print, what many of the finance ministries who were taking out these loans, failed to notice, and what many of the banks failed to point out, was the proviso that these loans were really variable interest rate loans. So that if the standard interest rate on the world market went up, so did the interest rate that these countries would have to pay. And of course what happened at the end of the 1970s is that the federal reserve here in the U.S., in an inflation battling measure, started to hike the interest rates that it charged banks here, so consequently interest rates around the world went up. And at one point they reached a peak of about 21 percent, in 1981.
Phillip Babich: The World Bank and the IMF never write off or reduce their loans. When a debtor country finds itself unable to pay, the IMF comes to the rescue offering a new loan to cover the old. These new loans come with strings attached, known as structural adjustment policies. Njoki Njehu, who is also with the Jubilee 2000 movement, says these policies instruct a debtor government how to operate in order to make its debt payments, leading to cuts in spending on education, health care, road building, electricity and sanitary water systems.
Njoki Njehu: Structural adjustment programs are not really about helping people, but they are about these institutions and Western governments like the U.S. and Japan and the United Kingdom and Germany, maintaining control and allowing their institutions, their governments, their multinational corporations to have carte blanche on the economies of indebted countries. And so, we reject that. Jubilee 2000 especially in the global South has said that debt relief linked to structural adjustment, is a poisoned chalice. And debt relief linked to structural adjustment, the South African Council of Churches has said, merely polishes rather than breaks the chains of debt. And we are calling for a fundamental addressing, a definitive debt cancellation idea and program, not one where countries are kept on a debt treadmill.
Phillip Babich: Camille Chalmers of PAPDA adds that structural adjustment policies shift decision making power away from indebted countries to the lending institutions themselves.
Camille Chalmers: One of the major problems with these structural adjustment programs is that they derail the economic process, whereby the people who were duly elected, those who are duly elected by the people, they no longer have true power. You have a shift of power from the duly elected representative, somewhere else.
Phillip Babich: In fact, Harvard economist Jeffrey Sachs has argued that "the IMF is completely miscast as a development institution" and acts as a "surrogate government" for many impoverished countries because of the extensive IMF conditions which must be met in order to qualify for IMF loans and debt relief. According to some estimates, for every one dollar in aid given by the 29 richest countries, three dollars is sent back in the form of debt repayment. Since 1984, sub-Saharan Africa has paid $167 billion dollars to the West. This is one and a half times the amount that was owed in 1980. That's one of the reasons why the Jubilee 2000 movement is calling for debt relief.
Soren Ambrose: It's often said that the debt has been paid. This is a rallying cry of people in the South. And in many cases that's true, in the very hard sense that the principal has been paid over and over again. But of course we have interest, and these loans keep accruing interest, and in many cases while they are paying the interest payments only, and never touching the principals, the amount that they have paid on any specific loan far exceeds the original amount of the loan. So it's really the devil of the interest that makes these countries permanently in thrall to the international financial institutions and other creditors.
Phillip Babich: There are precedents for debt relief, and it's possible for banks and lending institutions to write loans off at reduced rates. Unpayable loans between governments and commercial banks or between two governments have been reduced or canceled on numerous occasions. Brian Ashley of the Alternative Information and Development Center in South Africa...
Brian Ashley: There's been a long tradition of debt cancellation, where it's been politically expedient. You know, it's not very well known that the German debt, after the second World War, was significantly reduced. Egypt was rewarded for the support of the U.S. in the Gulf War...had 50 percent of their debt canceled. Similarly Poland's shift from a centrally planned economy to a market economy was rewarded by the U.S.
Phillip Babich: The high human cost of international debt resulted in the birth of Jubilee 2000, a movement inspired by Leviticus in the Hebrew scriptures of the bible which states that every 50 years slaves should be freed and debts should be canceled. From its humble 1990 beginnings and its initial roots in the church, the movement began capturing world attention in 1996. Today it boasts 60 independent national coalitions. Its petition has been circulated in 100 countries. Many secular organizations have joined the faith based originators. The list of people speaking out on behalf of unconditional debt cancellation is surprisingly diverse and includes the Pope, rock star Bono of U2, record producer Quincy Jones, and members of Congress, including Democrats Dennis Kucinich and Cynthia McKinney, and Republican Spencer Bachus.
Camille Chalmers: Another very important aspect in the Jubilee 2000 movement is that for the first time we see millions and millions of people who are coming together to speak on questions of economics, which usually is left to the so-called experts. Today we think it is very important that everybody is beginning to talk, dialogue, and ask themselves about economic issues.
Phillip Babich: Increasing public awareness about international debt and its effects has led the U.S. Congress to consider debt relief legislation. Soren Ambrose...
Soren Ambrose: The U.S. Congress is extremely important in the debt equation. In fact, there's no institution that's more important, apart from the World Bank and the IMF. That's because the U.S. Congress is the only elected body that can deny funding to these institutions. The other governments of the world simply do it through their executive branches. We have a legislative branch who has this power. So right now, there are a couple of different debt bills moving through the U.S. Congress.
Phillip Babich: Two that do not condition debt cancellation upon continued structural adjustment programs and are supported by the Jubilee 2000 movement are HR2939, the Debt Relief and IMF Reform Act of 1999, and HR3049 the Debt Emancipation for Emerging Democracies Act. The World Bank and IMF have their own debt relief plan known as HIPC, the Highly Indebted Poor Countries Initiative. But that plan is linked to continued structural adjustment policies and is rejected by supporters of the Jubilee 2000 movement.
For more information call the organization "50 Years is Enough" at 202-IMF-BANK.
That's it for this edition of Making Contact: A look at international debt and its effects. This has been a production of the National Radio Project's Globalization Desk. Thanks for listening.
Laura Livoti is our managing director. Peggy Law is executive director. Stephanie Welch is associate producer. Norman Solomon is senior advisor. Our national producer is David Barsamian. Our production assistant is Shereen Meraji. Din Abdullah is archivist. And I'm your host and managing producer Phillip Babich.
If you want more information about the subject of this week's program, call the National Radio Project at 800-529-5736. Call that same phone number for tapes and transcripts. Making Contact is an independent production. We're committed to providing a forum for voices and opinions not often heard in the mass media. If you have suggestions for future programs, we'd like to hear from you. Our theme music is by the Charlie Hunter Trio. 'Bye for now.
Njoki Njehu and Soren Ambrose
50 Years is Enough: U.S. Network for Global Economic Justice
1247 E Street SE
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tel: (202) 463-2265
Alternative Information and Development Center
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c/o Marx Aristide
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