The Third World Debt Crisis

As human beings we are able to recognize that we
don't always make the right decisions. We have all made mistakes, and we have certainly proven that we are not as infallible as we would like to think we are. And, as human beings, we are able to look at our past and realize that any poor decisions we have made are to first be learnt from and then forgiven. Without this ability to learn and move on our societies would not be able to grow and flourish, and we would be sliding backwards in a world filled with resentment. So why, then, are we still punishing people for the mistakes their predecessors made over four decades ago? As we go about our daily lives there are millions of people in hundreds of countries still paying the price for blunders made by their past leaders and contributed to by our own. As a direct result of bad judgement on behalf of both the Western-based banks and the politicians in developing countries, one of the major societal issues faced today is the rising problem of Third World Debt. Over a period of forty odd years, and fuelled an ever-changing economy, debt owed by countries in the developing world has risen to crisis status. As history has shown, if we continue with our current practices - without taking into account and even rectifying previous errors - this predicament we find ourselves in will only continue to get worse. It seems the only solution is to wipe the slate clean and begin again.



It all began during the 1960's and 70's. During the 60's the US government spent a lot more money than they had and so had to print off more dollars to compensate. As a result, the dollar value quickly decreased. This devaluation had a significant effect on oil-producing countries, whose export earnings dropped because they received much less money for the oil they sold. To combat this drop in their earnings, oil prices were hiked up. These oil-producing countries then made incredible amounts of money in a short time, all of which was deposited into Western banks. And this is where the trouble really began.





After receiving such massive deposits and with interest rates dropping rapidly, Western banks stood to lose a lot of income
that had been previously generated through interest paid loans. In order to stop the slide, the banks lent out money quickly and to whoever was willing to take it. They focused on Third World countries who were sustaining themselves sufficiently, but borrowed to maintain development and to be able to afford the now expensive oil prices. Governments in the Third World happily borrowed lavish amounts of money, pleased that they were paying such low
interest rates. However, the loans were often the first these countries had taken out, and the large sums of money proved to be in incapable hands. Most countries borrowed the money with the intention of using it to improve the standards of their people, yet the majority of it went to funding militaries and large-scale developments that were of little use to the common person. Very little of the money borrowed actually benefited the poor.


Then, in the mid-70's, countries in the Third World were encouraged (by the West) to grow more cash crops. This resulted in too many countries exporting the same raw materials - namely cocoa, coffee, tea, cotton and copper - which meant that their export values severely decreased. At the same time, interest rates were beginning to rise and oil prices were continuing to skyrocket. The Third World countries were trapped. They were getting less money for their exports and paying much more for interest on their loans. The result: They needed to take out more loans simply to pay the interest on the old ones. These debts have had significant and very detrimental effects on the citizens of these Third World countries. While it may be argued that these countries are suffering largely due to their own ignorance, it's Western practices that are keeping these countries from breaking this vicious cycle.


The lending policies of the IMF (International Monetary Fund) and the World Bank have come under fire many times in regards to their relationship with Third World countries. While they claim to be helping these countries by offering low-interest loans to help repay old debts, the loans come with conditions. The IMF and World Bank have put in place Structural Adjustment Programs (SAP's) that Third World countries must follow in order to reschedule their debts or borrow more. These SAP's focus on increasing a country's exports in order to pay off the loan, often leaving no room to consider the consequences. So many countries are now being forced - sometimes inadvertently - to produce the same materials on such large scales that their export earnings are barely adequate to earn enough foreign exchange (debt must be paid in hard currencies such as the Japanese Yen or American Dollar, as opposed to the soft currencies circulating developing countries) to repay their debts. They are trying so hard to make large amounts of money from exports that governments are spending less and reducing consumption, actions which have devastating consequences for the already poor citizens. While their governments are focusing so much on exports, little time or money is devoted to fundamentals such as education and health care. As a direct result of implementing SAP's put in place by wealthy Western societies, the standards of living in already poor Third World countries are steadily lowering.


In attempt to help those countries struggling to overcome debt, the IMF and World Bank have begun to give grants and aid in a bid to lower the money owed. In 1996 the Heavily In-debt Poor Countries (HIPC) initiative was started. This initiative was organized by rich nations via the IMF and the World Bank, and aims to reduce Third World debt through write-offs given by official donors. While the HIPC was started with good intentions, it has done little to help many of the world's poorest countries. One of the main reasons people remain critical of the HIPC is that it does not provide any long term solutions to the Third World debt crisis. The sole purpose of the HIPC is to reduce a country's debt to a level which is deemed sustainable according to criteria set by the IMF. By measuring a country's sustainability in monetary terms, as opposed to social or human development, the HIPC leaves them no better off than before. Third World countries will continue to pay back their loans with large amounts of interest, and their people will continue to suffer through lack of attention to social issues.


Admittedly, many organizations (including the World Bank) have made and are still making contributions in the form of grants and aid to many countries burdened by debt. However, these grants are not substantial enough to be of any use to HIPC countries. As of 1998, developing countries received $1 in grants for every $13 dollars they paid back in debts. This shows that even though money is being donated, it is in no way helping the cause intended. In fact, the gap between what is given in grants and what is paid is increasing. In 1996 countries paid $9 for every $1 given, and in 1997 it was $12 for every $1. If drastic measures are not taken to eliminate Third World debt the situation will only perpetuate, and any money given in grants or aid will be even more useless than it is today.


In 1996, the Jubilee 2000 foundation was formed with the purpose of canceling 100% of the unpayable debts owed by the developing world by the year 2000. Jubilee 2000 proposes ...


"a one-off cancellation of the backlog of unpayable debt for the world's poorest countries - which either cannot be paid, or can be paid only with enormous human suffering. This wouldn't be setting a precedent for cancelling all debts repeatedly. Rather, it would be a once-only gesture to mark the millennium, a gesture showing that creditors and debtors alike have made mistakes and that the slate needs to be wiped clean. The procedure for agreeing this debt relief should be undertaken by an independent body, perhaps under the UN. The procedure will be open, transparent and fair. This would change millions of lives, without taking away the responsibility of debtors to pay their future debts."


Clearly this was not achieved, but the Jubilee 2000 campaign proved an enormous step in the process of eradicating Third World debt. Jubilee 2000 opened the eyes of many to the plight of hundreds of countries across the world.


And so I return to a question posed earlier: Why do we continue to allow the people in Third World countries to suffer, especially as a result of a debt crisis that was as much our fault as it was theirs? As compassionate beings we should be outraged that millions of
people are suffering at the hands of Western banks that will do anything to reclaim loans which should not have been handed out in the first place. Consider this: As of 1999 the national debt of the US alone stood at $5,000 billion. Compare this to the debt owed
by the 41 HIPC countries - a total of $200 billion. Would canceling $200 billion really hurt the world economy so much? I think not. It's time to swallow our pride, disregard our greed and move on.