Debt, who pays?
Debt, who pays?
Michael Hindley, Labour MEP for Lancashire South, looks at the problems for developing countries caused by the burden of debt.
A major problem in dealing with the question of international debt is the huge psychological barrier erected by ordinary peoples' fear and shame about personal debt; surely it is bad personal management, and, by extension, national management, to run up huge debts, and to write off debts will only encourage future mismanagement.
This view is in stark contrast to the actual way in which economies work and neglects the overwhelming and influential fact that individual people and countries are actually encouraged to run up debts. Indeed modern market capitalism could not work without debt -- if today all the credit companies demanded immediate repayment on credit card loans then the economies of the West would collapse. The international debt crisis stems from the West, particularly the USA, exporting its problems. Giving evidence before a Congressional hearing, a US Treasury official said "The debt crisis is to a large extent an indirect result of our success in curing inflation and revitalising the American economy".
In order to find new markets for their goods and to find locations for footloose capital, Western governments themselves extended credits, and encouraged private banks to extend credit to countries whose best interests would have been better served by drawing up their own sustainable development plans. However, no capitalist wants to fund that kind of activity. There's little new in this, especially in the world's longest standing exporter of finance in the modern age: Britain. The ill-gotten gains made in the Lancashire textile mills were creamed off and invested in the newly emerging independent states of Latin America in the early nineteenth century, ensuring that as quickly as countries like Mexico threw off the yoke of Spanish imperialism, they were ensnared into the imperialism of debt.
Modern capitalist entrepreneurs though are reluctant to undertake risk and want government guarantees, so that they do not have to suffer the consequences of their lack of judgment as recently seen in East Asia, where we all will have to bail out rash speculators. The rescue packages for South Korea will not go to workers facing redundancies but to Western speculators. There is a very good argument, moral and economic, for simply telling speculators faced with debt, "tough luck".
One of the major reasons why the Russian Revolution evoked such hostility is that is precisely what the Bolsheviks told creditors of the Tsarist regime. If everyone behaved like that, where would capitalism be ? Mobutu, the late unlamented Western supported leader of Zaire, left his country with a debt of $13 billion and it has been calculated that during the 1980s, when he was seen as a bulwark against the radicalisation of Africa, he contracted some $8.5 billion loans from the West in secret.
Clearly in no way are these the debts of the new Democratic Republic of the Congo. They are certainly not the debts of its people, who new nothing about the deals, and had no opportunity to influence the contracting of such loans. In the private business sector, a change of name would allow an old company to go bankrupt and a new one to start up -- there is no reason why this should not apply to cases like the Congo. Moreover, a simple way of avoiding such future catastrophes is to disallow "secret" loans in future.
Jubilee 2000, which is campaigning for debt reductions through moratoriums on debt repayment, advocates that no loans backed by taxpayers' money, government loans or IMF and World Bank loans should be given to foreign governments in secret.
If such a realistic view is not taken then there is no alternative to the spiral of decline entrenched through "structural adjustment programmes" by which a debtor country's economy is dictated to by the IMF which acts as a kind of international receiver for countries facing huge debts.
The sheer folly of forcing an economy into cutting its own spending and going for a headlong export led drive for growth was proven in Europe in the inter-war years. A structural adjustment plan was forced on Germany by the vengeful allies at the end of the First World War and certainly hastened the rise of the Nazis. The results were so catastrophic that at the end of the Second World War the Allies were much more generous and actually reflated the German economy and rescheduled its debts.
The USA has already written off half of Egypt's debt in reward for Egypt taking its side in the Gulf War, precisely the right economic measure for precisely the wrong reason. Egypt then agreed to cut its domestic budget which creates more discontent and the government's subservience to the USA fuels the fundamentalists' resentment in a manner similar to that which made Saddam Hussain a hero among the dispossessed. The victims of such resentment are not bankers but ordinary civilians.
It pays to be generous, economically and politically. If we begin to fund Third World countries' plans for self-developed and sustainable independent economic growth, they will actually want to trade with us, they will actually want to use our expertise and their dispossessed will not fall prey to the next megalomaniac who thumbs his nose at the West and taps into the resentment we are storing up.
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