THE RECENT SERIES of financial crises in Asia have brought the issue of Third World debt once again to the forefront of the global agenda. With the help of speedy financial assistance from the International Monetary Fund, the World Bank, and the major creditor nations, the countries of South East Asia have managed to escape their immediate financial woes. The same cannot be said for the most heavily indebted poor countries (HIPCs) of the Third World, many of which are in Africa.
This neglect is proving catastrophic. As a whole, debt levels in the Third World have increased from $650 million in 1980 to a level of over $2 trillion in 1995 and the effects have been most severe in the poorest countries, attesting to the exclusionary rather the inclusionary dynamic of `globalization’. For example, Nicaragua, a country trying to rebuild itself after years of civil war, has a debt load in excess of 700 per cent of its GNP and Mozambique, also in the throws of a `peace-building’ program, has a debt load of over 400 per cent of its GNP – a situation that forces both countries to spend significantly more on debt servicing than on such basic services as health care, food provision, and education. The result is dramatic increases in levels of poverty. The Latin American Council of Churches, for example, estimates that debt has resulted in more deaths than civil war; in Africa, UNICEF puts the total of debt-related deaths at 10,000.
Who is responsible for this state of affairs? Unfortunately for those adversely affected by debt, this often seems to depend upon one’s perspective. In the present ideological climate, for example, it is debtors who are looked upon as being primarily responsible for their own destitution. Applied to the global arena, this blame is in turn transferred to the debtor nations themselves, be they rich or poor. Certainly, the history of economic policy-making in many countries of the Third World, characterized as it has been by corruption and inefficiency, gives this argument much ammunition.
Yet, a return to the founding principles of the present global economic system would suggest that there are strong arguments why responsibility should be more widely shared. For example, the founders of the IMF and the World Bank meeting at Bretton Woods in 1944 universally agreed that growth in the world economy could only be sustained through international co-operation. Uppermost in their minds was a concern to prevent the return of `beggar thy neighbour’ policies that had led to global economic depression in the 1930s. The answer agreed upon was to use the IMF and the World Bank as mechanisms to redistribute capital from surplus to deficit countries in order to alleviate the need for the latter to implement drastic deflationary adjustment policies. Underlying this system was the principle that the burdens of adjustment be shared by the international economic community as a whole.
However, for many countries in the Third World, this principle of `shared responsibilities’ has now been effectively abandoned. With the emergence of the debt crisis in the 1970s and the rise of IMF and World Bank structural adjustment programs in the 1980s designed to promote market reform, the burden of adjustment has now fallen squarely on the deficit countries. As Hans Singer, the noted development economist, remarked, they have now become in an exclusive sense `the bad boys’ of the international economic system. Despite the creation of `financing facilities’ by the IMF for countries experiencing unexpected payment shortfalls and the signing of debt rescheduling agreements, capital continues to flow directly out of the Third World and into the coffers of both private commercial banks and public treasuries. The head of the North-South Institute in Ottawa, for example, Roy Culpepper, estimates that Canada itself will reap three times as much from the developing world as it gives out in aid. Even the IMF and World Bank, initially mandated with easing the burden of readjustment, have now become (much to their embarrassment) net creditors with many of their Third World clients.
So, what to do? In 1996, the IMF and the World Bank recognized the extent of the problem by establishing a modest initiative to reduce the burdens of the most heavily indebted poor countries (HIPCs) in exchange for commitments to pursue economic reform packages. Yet, compared to the speedy influx of capital into the economies of Thailand, Indonesia, and South Korea, only four of 32 eligible countries have signed agreements because the IMF’s terms are simply too harsh and one-sided. A few, such as Gordon Brown, Britain’s chancellor of the exchequer, have tried to go further by campaigning for greater flexibility in the HIPC initiative. And church leaders from around the world, including those from Canada, have begun to mobilize their congregations in support of a world-wide `Jubilee 2000′ campaign that calls for the outright cancellation of unsustainable debt for the world’s poorest countries by the millennium.
This campaign deserves our support. It is grounded in the reality of a shared and interdependent world and it is both serious and responsible calling for the cancellation of `unsustainable’ debt loads – not for the abrogation of all foreign debt. These are not proposals that absolve Third World countries of their own responsibility for the accumulation of large and unsustainable debt loads. What they embody, on the contrary, is a recognition that debt loads emerge out of a specific global context that is in part moulded by creditor countries themselves and, hence, that responsibility for the emergence of huge debt loads must be shared by all.
Will debt relief be enough? Gregory Baum, a noted Roman Catholic theologian and social activist in Canada writes of a distinction between compassion and justice. Debt relief falls into the category more of an act of compassion. It relieves some of the financial pressure on poor Third World governments, giving them space to pursue domestic economic reform in ways that will not destroy the social fabric of their countries, many of which are already very fragile after years of civil strife. However, that space will quickly disappear if relief is not followed by some reforms to the international economic system. At the top of the list is a significant increase in the resources of the IMF which will allow it to play a more effective and universal role of easing the burden of economic adjustment for all countries. Real justice, however, will depend upon reforms to the international trading system. For the HIPCs, this means greater access to markets in the developed world, especially in the still heavily protected agricultural sector. Without such reforms, debt reduction is a question that we will be returning to again and again and again.
Paul Kingston is associate professor of political science at the Univeristy of Toronto.