West’s ‘debt relief’ keeps system of economic dependence working

Empowering Weak & Oppressed

Laila Juma

Rabi' al-Awwal 17, 1420 1999-07-01

Special Reports

by Laila Juma (Special Reports, Crescent International Vol. 28, No. 9, Rabi' al-Awwal, 1420)

After months of kite-flying, the world’s wealthiest countries announced a debt-relief plan on June 19 which, they said, was designed to reduce the debt-burden of the world’s 33 poorest countries by up to $70bn from its present level of $127bn. The main beneficiaries of the program are expected to be sub-Saharan African countries, Bolivia, Burma, Guyana, Nicaragua and the Honduras. The so-called ‘Cologne Initiative’ was announced at a summit meeting of the Group of Seven ‘leading industrialized democracies’ (G7), which consists of the US, Canada, Japan, Britain, Germany, France and Italy. These happen, conveniently, also to be the world’s largest creditor-nations.

The announcement of the plan followed months of build-up, and was carefully presented to be as positive as possible. The build-up has taken the form of much apparent soul-searching among the normally-heartless western politicians about the plight of the world’s poorest countries. US president Clinton and his wife emphasised the point during their tour of Africa last year, and British prime minister Tony Blair claimed to be considering the unilateral cancellation of debts owed to Britain if international agreement was not reached. At the same time ï coincidentally ï international humanitarian agencies, charities and media organizations launched campaigns demanding that the debt be reduced or cancelled. Last month’s decision, therefore, was greeted as another triumph for the caring west, to go alongside its ‘humanitarian war’ in Kosova.

The presentation of the announcement was equally public-relations oriented. Out of the complicated text of the agreement, the media were guided towards emphasising that G7 was insisting that the poor countries’ savings were dedicated to education and health programs, especially AIDS-prevention. This, it was explained, was to ensure that the money that the wealthy countries were kindly writing off was not dissipated in corruption or wasteful projects, as it was this that had rendered ineffective previous attempts to help the poor. While stringent conditions are placed on the countries hoping to have their debt reduced, the media emphasised that these are much less onerous than those attached to the last debt-relief program: the Highly Indebted Poor Countries (HIPC) program of 1996. This was supposed to help 41 countries, but in the event only two were able to qualify.

In truth, however, the conditions remain very stiff. In order to qualify for the debt relief, poor countries must have a three-year track record of compliance with IMF-imposed economic policies. They must also demonstrate that their debt is unsustainable. This involves interest payments exceeding certain current and projected government and export revenue figures, as determined by the IMF. However, the IMF is known for ludicrously optimistic projections of export growth, which will enable it to minimise the debt which it (and the G7 countries) have to write off.

In practice, moreover, the stricture that the money saved will have to be spent on approved education and health related projects is likely to mean that much of it is returned to G7 countries for the purchase of unnecessary or over-priced goods, services or technology. Washington, for one, is likely to use this as an opportunity to back the US pharmaceutical companies’ campaign to force poor countries to buy their expensive, branded medicines instead of cheaper generic equivalents, a campaign which vice-president (and presidential candidate) Al Gore pursued during his tour to African countries last year.

The promotion of ‘projects’ under the control of the international agencies is also of dubious value in other ways. The inefficiencies of the international agencies’ operations are well known. Their operations in developing countries are also designed more for the benefit of the projects’ bureaucracies than for the people they claim to help. They tend to focus on the less needy people because they are easier to reach and to work with. Often they damage the local economic infrastructure instead of stimulating it. The importing and distribution of food surpluses from developed countries, for example, frequently undermines local food production.

The sheer level of the debt is staggering. In 1998, developing countries paid $717 million each day ï nearly $270bn over the year ï just in ‘debt servicing’ (ie paying interest on outstanding loans). This is the equivalent to about $60 per person each year ï almost double the average per capita expenditure on health and education combined in these countries. In Africa alone, it is estimated that $10 million lives a year could be saved if the money paid in debt-servicing were spent on infrastructure and health services.

Notably, much of this debt has been incurred by western-supported dictatorships purchasing arms from the west. Britain is the sixth-largest creditor to the most heavily indebted countries, and the third-largest arms exporter. Most of this credit is held by the government’s Export Credits Guarantee Department (ECGD); arms are the largest single area in which the ECGD works. Moreover, in March this year, Britain’s minister for international development announced that the country’s ‘overseas aid budget’ can henceforth be used for training and equipping foreign armies.

This is at a time when UN figures show that the gross inequalities between rich and poor countries are widening at an alarming rate. Its latest annual Human Development Report, published in September 1998, shows that the much-vaunted consumption boom of the last two decades, which western countries claim has improved the standard of living of people all over the world, has in fact benefited only the developed countries. The richest 20 percent of the world’s population now account for 86 percent of the world’s consumption; people in north America and Europe spend $37 billion a year on pet-food, perfumes and cosmetics alone ï enough for the provision of education, water, sanitation, primary health care and nutrition for all those in the entire world now deprived of them.

None of this is news to the west. On the contrary, it is the fulfilment of the very object of the international economy (which is now presented as a ‘global market’ to try to de-personalise its effects). And herein lies the probable true reason for this new program of debt relief: the unsustainable level of poor countries’ international debt was threatening to render unworkable the established system by which they are kept economically dependent on, and subservient to, the west.

The debt system, administered by international agencies that are wholly controlled by the western powers (as the G7’s decision-making on behalf of the supposedly-independent IMF shows) has been a crucial part of this system ever since the present international order was established after the second ‘world war’. It could not be permitted to grind to a halt.

After the HIPC initiative in 1996, the few countries which qualified for debt relief reached their previous debt levels again within two years, despite slavishly following IMF-dictated economic policies. The Cologne Initiative’s supposedly humanitarian decision to reduce the debts of other countries should keep the system going for another few years.

Muslimedia: July 1-15, 1999

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