The Christian Response to the Third World Debt Crisis
By Chris Ewert
A series of events only thirty years ago triggered one
of the worst financial disasters in international economics. The consequences
of the third world debt crisis have been far reaching, affecting not only
third world countries, but also developed nations. The situation has deprived
many countries of basic necessities such as health care, education, and in
some cases, food. Because the third world debt crisis has created a serious
threat to the development of third world countries and has created a humanitarian
crisis, Christians must convince developed countries to significantly reduce
or eliminate the debt owed by developing countries to richer nations.
In order to understand what can be done to solve the debt
crisis, we must first look at the history of the problem and where it originated.
Everything started in the late 1960's, when in response to the inflating
US dollar, OPEC nations agreed to raise oil prices by cutting production.
Because oil is such an important commodity, developed nations continued
to import nearly as much oil as before despite the higher prices. This generated
extra profits for the OPEC countries. Unable to consume all the new income
on imported goods, the OPEC countries decided to invest this new capital
in foreign world banks. Because of rising interest rates, the banks needed
to make more interest payments and needed to raise money to cover those costs.
Eager to invest more in additional loans, the banks made tempting offers
to third world countries without doing the appropriate research. The borrowing
countries then used the money to purchase goods, such as oil, which was needed
to keep what little commercial activity they had. Those purchases turned
out to be bad long term investments (Isbister 177.) More importantly, interest
rates were rising rapidly worldwide. Third world countries found themselves
in situations where they were simply unable to pay back the debts. Finally,
on August 18th, 1982, Mexico announced it was not able to make a payment
on its loan. The third world debt crisis was now in full swing (Congdon
131.)
When the news of unpayable debts became known, governments
of richer nations reacted to the possibility of financial chaos. Since
many third world countries could not afford to pay back their debts, lending
banks were forced to rethink their demands, and banks immediately postponed
all debt payments for 90 days. The problem was a huge threat. In several
instances, the banks could have actually collapsed because the debts were
larger than the net worth of the bank (Isbister 179.) When the banks realized
they likely would not see their money again, the IMF, or International Monetary
Fund, attempted to reschedule the debts by offering new short-term loans
to pay back the overdue loans. It didn't take long before the banks realized
this new plan was not headed for success. The banks tried again to reschedule
the debts in order to spread payment out over a longer time, but this time
with a catch. In order to receive the debt reduction and rescheduling, the
banks required countries to agree to strict terms. These terms were designed
to increase the likelihood that third world countries could repay part if
not all of their debts; however they introduced serious social and economic
side affects. Many indebted nations were forced to reduce their health care,
free public education programs, end subsidies, and commercialize farming
to increase exports (A slient war.) These restrictions and the burden of
debt repayment have created a humanitarian and poverty crisis.. With the
ability to demand unpayable funds, the world banks and richer governments
have established power over the poor countries.
Two main initiatives have been made by the World Bank
and IMF to alleviate the problem, called the HIPC 1 and HIPC 2 Initiatives
(which stands for Heavily Indebted Poor Countries.) Under the first program
eighty percent of third world debt was to be canceled after countries made
several structural changes, (called SAPs) attempting to increase chances
of being able to pay back the remainder of the debt (Too Little, Too Late.)
Uganda and Bolivia both completed the required adjustments and received
the debt relief, only to end up exactly where they were before the debt relief
because of falling commodity prices. In all, the two countries ended up
paying only one percent less than they had been (Too little, Too Late.)
After the World Bank announced that the first original HIPC initiative was
failing, a new program, HIPC 2, was introduced. This new initive was very
similar but called for more money, one hundred billion dollars, of debt cancelation
to countries after completing similar structural adjustments. Since its
beginning, several counties have received relief from the initiative. By
the end of 2000, 22 countries had received a total of 12 billion dollars
in debt cancelation, but even the World Bank has admitted that it is not
enough--and it is a far cry from the 100 billion promised (Too Little, Too
Late.) This relief has made a difference for many countries; however, it
has only started to make a dent in the overall picture. Many countries desperately
need relief, but under the current program, they are not eligible.
Besides the second HIPC initiative, very little has been
done to actually help alleviate the debt problem. The actions by richer
governments and the world banks have mostly been out of self interest, and
all but one program designed to solve the problem have failed. Banks have
written off part of the third world debts; however, the amount written off
was what the banks believed would not be repaid anyway. Debts have been
rescheduled, not out of kindness, but to facilitate the repaying of what
would otherwise be lost money for the banks. While foreign aid has poured
into foreign countries, the relief money has ended up right back in the hands
of the countries that gave it because of the burden of debts. According
to the Jubilee 2000 website, an organization lobbying for third world debt
cancelation, for each dollar of foreign aid received by third world countries,
$1.30 is paid back to those countries in debt servicing (A silent war.)
Even though it may appear progress is being made, there is more that richer
governments and world banks can do to help solve both the debt crisis and
the poverty crisis.
There are many social, humanitarian, and biblical reasons
why we must not allow this situation to continue. As the Jubilee 2000 website
puts nicely, we have a system in the US for dealing with the debt problem:
"When individuals become deeply indebted, we draw a line under the debt.
That line is called bankruptcy. It is a line beyond which we do not allow
people to fall. No such line can be drawn in international law. When poor
countries become deeply indebted they fall into an abyss of economic degradation."
(How it All Began.) This is the situation many third world countries have
fallen into, and without help it is nearly impossible for them to get out
on their own. The situation has improved some, but we must continue to help.
Because developed countries contributed significantly
to the third world debt crisis, they have a social responsibility to help
third world countries. The problem all started here in the 1960's when the
US printed more dollars, causing major inflation. For the third world, this
is what caused the debt problem to spiral into the debt crisis. On top of
causing inflation, the western governments also advised third world governments
to make changes, which ended up causing even more problems. It wasn't just
the west that was responsible, however. OPEC countries were responsible
for raising oil prices not only to rich countries, but also to those that
couldn't afford to pay the higher price for oil. The poorer countries had
no choice but to accept the higher price. If they had stopped buying oil,
they could have crippled their already struggling commercial sector. Unlike
the US or other developed countries, third world countries were not able
to reduce their use of oil. The world's banks are also partly responsible
for creating this problem by offering the appealing deals that they did without
establishing a reasonable system of repayment. Isbister states in his book:
"Both the borrowers and the lenders conspired to make some of
the worst loans in the history of international finance. The borrowers were
desperate for the funds because of their high oil bills. The lenders were
desperate to make the loans, because they owed interest payments to the OPEC
countries. Neither side had an incentive to look closely at the true picture..."
(Isbister 178.)
If closer attention had been paid by the lending banks
to what was happening, this crisis might have been averted. Although they
didn't have much choice, third world countries also bear part of the responsibility
for not investing the money more wisely. But, the fact that almost every
third world country ended up in the same situation certainly shows that the
problem is not just theirs. Clearly, outside factors have significantly
contributed to putting third world countries were they are now. Governments
and world banks bear some responsibility to make right what they have messed
up.
Structrual changes that have been imposed by lending banks
have had devastating humanitarian side effects. These structural adjustment
programs have forced governments to divert funds from important programs
such as public education and healthcare -- all in the name of being able
to repay their debts. It is not hard to find third world countries that
have seen devastating effects. Zimbabwe has had a one third decrease in
the amount spent on healthcare since the adjustment program was enacted.
(A silent war.) In many countries, the SAPs have affected public education,
forcing many schools to charge for entrance. This means that only the relatively
rich are able to send their children to school and has led to a large drop
in school attendance. In Africa, school attendance dropped to fifty percent
after the SAPs were introduced (A silent war.) The SAP programs have not
only affected government funded programs, but they have also damaged employment.
In order to adhere to the program, countries had to end government subsidies
for growing crops and increase the export of crops. Because so many countries
were exporting the same crops, prices plummeted. Farmers and their workers
received less wages as a result of the lower prices, often as much as one
third less. This creates the additional problem of more starving people
and less taxes for the government, continuing the downward spiral (A silent
war.) An excellent example of just how devastating these controls are is
Malawi. Malawi managed to exceed a target budget it was given by the IMF/World
Bank to qualify for debt reduction. Claiming they were off target for debt
relief, the IMF/World Bank forced Malawi to sell 28,000 tons of maize to
pay back a loan they had taken out to purchase the stockpile of food, despite
indications that there was a possible food shortage in the near future.
Today, in a country of 11 million people, Malawi has 7 million people without
adequate food -- this all because Malawi was forced to sell their stock of
maize to service a debt. As if that is not bad enough, the IMF/World Bank
went on to advise countries to withhold foreign aid to Malawi, causing the
UK alone to withhold $109 million with IMF itself withholding $47 million.
The situation gets even worse. The original World Bank plan required Malawi
to stop subsidizing farmers and to allow the market to regulate the food
prices. Now there are fewer farmers, and prices are higher for the consumers
who mostly cannot afford them (Pettifor.) Clearly the structural adjustments
required by the IMF and World Bank have had serious humanitarian repercussions
while the banks are receiving their money.
Treatment of the poor and debt cancelation are two areas
on which the Bible is anything but silent. First, the Bible tells us that
we are not to be greedy and get everything we can but to give some to the
poor. Leviticus 19:9 says, "When you reap the harvest of your land, do not
reap to the very edges of your field or gather the gleanings of your harvest.
Do not go over your vineyard a second time or pick up the grapes that have
fallen. Leave them for the poor and the alien. I am the Lord your God."
It is clear that God is instructing us not to consume more than we need so
we don't take resources from the poor. In Deuteronomy 15:1-2, God gave instructions
to the Israelites to cancel the debts owed to them every seven years: "At
the end of every seven years you must cancel debts. This is how it is to
be done: Every creditor shall cancel the loan he has made to his fellow Israelite.
He shall not require payment from his fellow Israelite or brother, because
the Lord 's time for canceling debts has been proclaimed." Perhaps the most
pertinent verse dealing with the third world debt situation is Exodus 22:25-27,
"If you lend money to one of my people among you who is needy, do not be
like a moneylender; charge him no interest. If you take your neighbor's
cloak as a pledge, return it to him by sunset, because his cloak is the only
covering he has for his body. What else will he sleep in? When he cries out
to me, I will hear, for I am compassionate." Clearly God has told us what
he wants us to do about the situation.
With many social, humanitarian and biblical reasons, we
must write off the debts of the third world. By demanding payment, the world
banks and governments are forcing third world countries to divert scarce
resources from health care, education and other public services to servicing
debts. For many indebted countries this has become a huge burden. For example,
some third world countries are paying between forty and sixty percent of
the value of their exports to debt servicing (Isbister 178.) These are resources
that can be used to improve health care, education, and provide clean water
with the help of the lending banks and rich governments.
Lending banks and governments that control their policies
need to take steps to make sure the canceled debt money goes to help those
that need it. When the original loans were made, some third world countries,
mostly those controlled by dictators, misused the funds. These misuses include
everything from personal use by government officials, tax breaks for the
rich, to poor investments. Very little was done by the lending banks to
insure that the funds were being used appropriately. Banks kept making loans
even after evidence existed to show that funds were being used personally
by government officials. The situation has improved since the original loans
were made, because many governments have changed and become democracies,
which are less prone to corruption. Closer monitoring of freed funds and
debt cancelation in installments can help significantly reduce the amount
of corruption in third world governments.
With millions of lives at stake, it is crucial that developed
nations take effective action quickly to avert further preventable disasters
by writing off the debts owed by third world countries. For us, the problem
is merely a nuisance, but for the third world it is an immediate danger.
This last year alone, the US government increased military spending by 14
billion -- more money than World Bank had spent canceling debts by 2000 --
and more than Africa spends in a year on debt servicing (A slient war.)
We certainly have the money to cancel the debt. If we keep the money, it
will be invested into TV, movies, computers and luxury cars, but if the poor
are allowed to invest this money, it can be used for food, medicine and clean
water. It is clear that we cannot just ignore this problem. If we are to
fulfill our responsibility to the poor, we must cancel their debts. The
third world debt crisis has turned into a political game, and the poor are
the losers.
Works Cited
A Silent War. 18 Aug. 2002. Jubilee 2000 <http: //www.jubileeusa.org/jubilee.cgi?path="/learn_more/beginners_guide/&page=a_silent_war.html">.
Congdon, Tim. The Debt Threat. New York: Basil Blackwell Inc, 1988.
Holy Bible. NIV Study Bible. Grand Rapids: Zondervan Publishing House,
1995.
How It All Began. 18 Aug. 2002. Jubilee 2000. <http://www.jubileeusa.org/jubilee.cgi?path="/learn_more/beginners_guide/&page=how_it_began.html">.
Isbister, John. Promises Not Kept: The Betrayal of Social Change in
the Third World. Bloomfield: Kumarian Press, 2001.
Pettifor, Ann. World Bank/IMF Forces a Famine On Malawi. 2002.
18 Aug. 2002 http://www.jubileeusa.org/jubilee.cgi?path="/learn_more/&page=lynchpin.html".
Too Little Too Late. 18 Aug. 2002. Jubilee 2000. <http://www.jubileeusa.org/jubilee.cgi?path="/learn_more/beginners_guide/&page=too_little.html">.
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