Debt Crushing Third World Growth
New York, NY - Today, 30,000 children will die.
This is due in part because developing countries are diverting resources away from healthcare and education to repay a crushing debt that was forced upon them. In Zimbabwe, spending on health care has fallen by a third since 1990 due to this debt. Developing countries have been challenged with severe economic, political and social problems that threaten humanity and as a result undermine development and human rights.
The history of the Third World debt is inextricably linked to colonialism. Former colonial occupiers acquired debt and then transferred them to newly independent governments that had for the first time governed their countries. "This debtÃÂ?¦ was assigned an interest rate of 14 percent, set unilaterally by the international financial institutions for the benefit, needless to say, of those who held the purse-strings, who were also the colonial powers," noted Third World Debt a Continuing Legacy of Colonialism.
Before these newly independent developing countries had time to manage their economies and organize their government, they were already burdened with debt. According to Global Issues.org, in 1970 these countries already owed approximately $25 billion in debt, by 2002 this was $523 billion. Roughly $550 billion has been paid in both principal and interest over the last three decades, on $540 billion of loans and yet there is still a $523 billion debt burden.
In the 1960s, the U.S. was spending more money than it earned. To solve this problem, the U.S. printed more money. The printing of extra money lessened the value of the dollar and consequently made stocks fall.
In 1973, oil was priced in dollars, so to counteract the falling dollar, oil companies hiked up their prices. This price hike was lucrative for the oil companies and the profits were deposited into western banks. Interest rates plummeted because there was too much money in the banks. To prevent an international financial crisis, banks lent at low interest rates without considering where the money went or if the borrowers had the capacity to pay it back.
A great majority of the loans went to pro-Western oppressive regimes that denied socio-economic benefits to their people. The money laundered in offshore centers and funneled back to Western stock markets, basically upholding and perpetuating the colonial cycle. For instance, South Africa, which acquired debt during the oppressive Apartheid regime, used the money to uphold a racist colonial system.
By the late 1970s, interest rates started to rise and the Third World economies were on the verge of bankruptcy. To stimulate their economies, they were advised by the West to grow cash crops. This plan backfired because countries were producing too much of the same crops, which made export prices fall. When the export prices fell, the repayment of the debt became impractical. Additionally, interest rates rose. In essence they were trapped. "The trap was sprung ? Third World countries were earning less than ever for their exports and paying more than ever on their loans and on what they needed to import. They had to borrow more money just to pay off the interest," reported Jubilee USA Network. The loans simply could not be repaid and debt became a major cause of poverty, causing human suffering and misery, and hampering human development.
In 1982, Mexico announced that it could not pay back its loans. The International Monetary Fund and the World Bank intervened. Their intervention involved rescheduling and spreading out the loan and offering newer and smaller loans. These loans came with conditions: governments had to implement stringent economic programs known as Structural Adjustment Programs (SAPs). In a few countries, SAPs had some positive effects but in most countries such as Zimbabwe and Tanzania, SAPs worsened the economic situation. In Tanzania, school fees were introduced, which led to a drop in attendance as parents could not afford to pay the fees. In Sub-Saharan Africa, the percentage of 6 to 11 year olds enrolled in school fell from nearly 60 percent in 1980 to less than 50 percent in 1990.
The SAPs are designed to assist countries with repayment of their debts by earning more hard currency, increasing exports and decreasing imports. In order for countries to obtain more hard currency, the governments implemented harmful economic policies that spent less on health, education, and social services. They also cut back on food subsidies and took over small subsistence farms for export crop farming leaving farmers with no land to grow their food. These conditions often have practical economic intentions but mostly serve the interest of the lenders at the borrower's expense.
For these reasons, many activists protest Structural Adjustment Programs and call for debt cancellation. One such organization is the Jubilee Debt Campaign, which calls for a 100 percent cancellation of unfair poor country debts.
Due to the debt, Third World countries are unable to respond to the necessities of their people, who are confronted with such problems as lack of infrastructure, hunger, disease, and grave underdevelopment. These problems create a severe hurdle to human development.
Third World debt is a terminal disease that can't be cured by standard Western economic prescriptions. History has proven that "rescheduling" the debt does not offer a permanent solution. Interest rates continue to accrue on any deferred amount and have to be paid for the entire balance until the loan is paid in full. Economic conditions and programs that are implemented by international financial institutions have caused more suffering to the poor. These repayments are stealing resources desperately needed to finance sustainable development and growth.
Confronting the root causes of debt is crucial. The international economic system benefits and subsidizes developed countries while exploiting and oppressing the poor and working people of the developing world. A system built by a self-centered builder who does not care to dismantle the faulty invention will only result in devastation.
###WHY is a nonprofit organization co-founded by the late singer-songwriter Harry Chapin, and radio talk show host and present Executive Director Bill Ayres in 1975. WHY attacks the root causes of hunger and poverty by promoting effective and innovative community-based solutions that create self-reliance, economic justice and food security.
