Magazine article Geographical

Pushers and Junkies: The Current Debt Crisis in the Developing World Is the Product of Cold War Rivalry, Corporate Interests and the Actions of Greedy, Corrupt Dictators

Magazine article Geographical

Pushers and Junkies: The Current Debt Crisis in the Developing World Is the Product of Cold War Rivalry, Corporate Interests and the Actions of Greedy, Corrupt Dictators

Article excerpt

"I place economy among the first and most important of Republican virtues, and public debt as the greatest of the dangers to be feared." So wrote Thomas Jefferson in 1816 in a letter to William Plumer, the governor of New Hampshire. However, contrary to the wisdom of the great man, national debt is by no means an inherently bad thing. Borrowing money is a historically tried-and-tested method of expanding the productive capacity of an economy, if not a prerequisite. The USA would go on to amass an enormous debt, but this was used relatively sensibly to bring about a more-than-proportionate growth in the size of its economy.

The vast majority of citizens living in developing countries have not, however, benefited from the loans their leaders have taken out. Lending productively was never their story of debt. Instead, the current debt crisis is the product of a vicious cocktail of Cold War rivalry, corporate interests and the corrupt avarice of self-aggrandising dictators.

During the Cold War, loans to the developing world became a silent weapon. Washington, in thrall to the domino theory of Communist expansion, lent to any regime, regardless of an absence of democratic credentials, believing that if it didn't, the Reds would. Russia similarly attempted to gain allies by doling out tens of billions of dollars in loans.

Consequently, the amounts being lent were more often than not far in excess of what was needed, jacking up the debt mountain so that the Third World owed levels way above what the debtor countries could realistically service.

And to whom the monies were lent wasn't an issue. Some of the most egregious regimes in the world were propped up or strengthened by a lending process utterly divorced from humanitarian concerns. Geopolitics and perceived national interests were in control. The USA, for example, provided Mobutu Sese Seko, the leader of Zaire (now the Democratic Republic of Congo), with as many loans as he desired in return for making his territory available to the USA for covert action against neighbouring Angola, despite being aware of endemic corruption and human rights abuses in the country. The Congolese people whom Mobutu terrorised now see 37 per cent of all government revenues being used to service the debts he incurred--not great for a country whose gross national income (the total value of the goods and services its citizens produce each year) per capita is just US$90.

Saddam Hussein's Iraq was also provided with loans totalling around US$100billion--several times Iraq's gross domestic product (the total value of all goods and services produced within the country each year). Lending by the West and Arab powers continued right up until the 1991 Gulf War, despite the fact that his chemical gas bombing of the Kurdish city of Halabja--which killed 5,000 of his own people and wounded 10,000 others--was by then common knowledge.

Another key group of characters in the debt story are the commercial banks. The Arab-Isreali or Yore Kippur War of 1973 led to a 400 per cent rise in oil prices. The mainly Arab oil producers were suddenly incredibly rich, but Islamic sharia law forbade usury, so they couldn't earn interest in local banks. Consequently Western banks became the common haven for depositing Arab petrodollars. Faced with a huge credit injection--some US$334billion--commercial banks actively sought out new lending targets in the developing world, encouraging borrowing almost to the point of shoving loans down the throats of the poorest nations. …

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