International debts hinder growth of developing nations

Monday, November 30, 1998

DISASTERS: Governments try to repay loans but cut vital services in process

By Fr. Giles L. Asbury

Natural disasters are an unfortunate part of life. Hurricanes, earthquakes and floods have plagued humankind from our earliest history. The Hebrew scripture tells us that Joseph rose to power and prominence in Egypt because he helped the Egyptians prepare for and meet the challenge of a drought and the resulting famine.

We cannot prevent natural disasters, but one of the characteristics of faithful and compassionate governance is to respond to the need of those who have been the victims of any sort of natural cataclysm. After the 1994 Northridge earthquake, agencies of local, state and federal government, as well as private organizations, helped the citizens of this city recover from the unprecedented damage that we received. In the end, UCLA received hundreds of millions to repair the damage caused by this earthquake.

Hurricane Mitch was a disaster of almost immeasurable proportions. It has been said that it was the most profound disaster that has ever occurred in Central America. We are shocked into silence by reports of more than 10,000 dead and thousands more still unaccounted for.

But one of the contributing factors in this disaster was the inability of governments to respond to the medical and relief needs of the disaster victims. In both Nicaragua and Honduras, medicine, doctors and health care workers were not available to meet the demands brought about by wind, rain and flood. The budgets for national medical care and support had been slashed to meet the demands for the repayment of these nations' international debts.

Honduras and Nicaragua are two of the most highly indebted nations in the Western Hemisphere. Both are forced to pay almost one million dollars a day to service their international debts. To meet these demands, government services have been slashed, medical care cut to the bone, and improvement of infrastructure such as roads and bridges greatly reduced. The very institutions that were most needed by the people in this catastrophe were victims of another unprecedented disaster called international debt.

The burden of international debt and debt service is one of the most serious problems affecting developing countries around the world. These debts have accumulated over the decades and now threaten to crush any hopes of economic development or future growth.

The scandal of international debt had its beginnings in the 1970s, when banks and governments lent lavishly, at low interest rates, and without careful consideration of how the debtor nations would use the funds or repay the debt. About 20 percent of these loans went to purchase weapons, other loans supported showcase development projects that made little impact upon the lives of the people, frequently the money went to keep oppressive governments in power. Few of these funds had an appreciable positive impact on the lives of the citizens of these debtor nations.

In the mid-70s prices on commodities that debtors used to repay the loans fell and interest rates began to increase. Debtor nations earned less than ever on their exports and paid increasingly large percentages of their gross national product to service their loans. Many nations had to borrow additional funds just to make their interest payments.

Over the years, nations tried to default on these loans and were forced to seek the assistance of the International Monetary Fund (IMF) to create plans to assist in rescheduling the payment of their obligations.

The IMF created a scheme called Structural Adjustment Programs. These programs forced debtor countries to spend less on education, health and social services; devalue national currencies; cut back on food subsidies; cut wages and employment for workers in government industries and services; privatize or sell public industries (often to transnational corporations); and move from subsistence agriculture of staple foods to large scale farms growing export products.

All of these measures had a devastating effect on the poor of the world. Cuts in education and health services meant that campaigns against illiteracy were curtailed, reduction of health services meant the reappearance of diseases that were thought to have ended.

The devaluation of currency meant that each person's income bought less, access to government services was decreased, and cuts in government employment and the privatization of industry meant fewer available jobs for growing populations. Finally, the shift to large-scale export agriculture drove many off their farms to the cities or toward illegal emigration and reduced the food available to feed families.

Each year, the developing nations pay the West three times more in debt repayments than they receive in aid. It has been said that this debt burden is a scandal that, in numerical terms, makes the international slave trade of earlier centuries look like petty crime.

In some African nations such as Mozambique, debt obligation is equal to 50 percent of the national budget (compare this to the United States' 14 percent share of the budget). In Mozambique the annual average income is $80 and the per capita share of the debt is $223 (almost three years of each person's total earnings.)

When an individual or a local government cannot pay its debts they take refuge in bankruptcy. When Orange County was devastated, because of losses on poor investments, it declared bankruptcy and slowly recovered its economic stability. There are no provisions for such measures internationally, and debtor nations will be burdened with the effects of these unpayable debts for decades into the future.

The International Jubilee 2000 campaign calls for a case by case process leading to a one time cancellation of the backlog of unpayable debts owed by the world's poorest nations by the year 2000. Many people express reluctance at this ambitious goal. They say it is overly idealistic and that the relief would be squandered by corrupt dictators or remote bureaucrats. To prevent this possibility, creditors will set conditions that must be met before debt relief will ensue.

At the All Africa Conference of Churches, Archbishop Desmond Tutu called upon debtor nations to meet four conditions in order to receive debt relief: democratization, respect for human rights, military reduction, and a commitment to use the money realized from relief for the needs of ordinary citizens.

Achievement of this goal would make an appreciable difference in the lives of hundreds of millions of the world's poorest citizens. It would permit us to begin a new millennium on a more equal footing and give the majority of the world's inhabitants a chance to join in the celebration of a new century and a new millennium.

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