The Poverty of Economic Policy: Is Debt Sustainability Really Sustainable?
Vallee, Olivier, Vallee, Shahin, Journal of International Affairs
For those concerned about poverty in general and highly indebted countries in particular, the Millennium Development Goals (MDGs), and the apparent new commitment to "making poverty history," are creating a sense of hope and optimism. (1) Naturally, many are skeptically waiting to see if rhetoric will be followed by action, since a key ingredient in the MDG consensus is the accepted need for a significant increase--some estimates suggest a doubling--in official development assistance (ODA) to poor countries. The recent history of poverty- and debt-relief initiatives, however, suggests that attention should be given not only to the level but also to the form in which aid is provided. In particular, care should be taken to ensure that this additional financing is available in ways that support long-term fiscal sustainability in low-income countries. Financing the MDGs on inappropriate terms could lead to the re-emergence of debt problems in these countries, and would undermine the very development goals that donor countries are seeking to achieve.
This article challenges some of the preconceived notions about development, debt and sustainability and their complex relationships. It investigates the use of the term "sustainability" through a paradigm that Michel Foucault calls a "political anatomy of detail." (2) The discourse associated with economic development, and particularly with debt alleviation, constitutes an arena in which ideas, actors and practices often conflict. Despite its many definitions and interpretations, "sustainability" remains synonymous with authority It is a term that, like "pragmatism," "common sense" or "rationality," hinders debate and dissent because one simply cannot disagree with it. Sustainability becomes a new ideology and a new religion. The authoritative nature of the term becomes problematic when it is inappropriately defined and applied, as has been the case in relation to debt alleviation.
Following is a brief description of some of the key initiatives launched since the 1980s to address the debt crisis that was set in motion by the 1982 Mexican debt default. It demonstrates how the emerging use of the term "debt sustainability" has masked an inappropriately narrow, single-criterion evaluation methodology with the appearance of a holistic, multifold approach. In fact, by weakening institutions and constraining sovereignty and economic policy, the current conception of debt sustainability undermines the very process of development that it is meant to advance. Despite the rhetoric, the application of the term in practice ignores the fact that a strong administration and a government relying on a stable state are the fundamental bases upon which one can hope to build the wealth of a nation and the welfare of its population. As an alternative, the article argues for the use of the more appropriate term "fiscal sustainability." Unlike debt sustainability, fiscal sustainability takes into consideration factors such as domestic debt and external shocks, insisting on a stable, predictable and sufficient cash flow to ensure adequate investment in development infrastructure and initiatives.
The current debt relief modus operandi echoes historical events such as Great Britain's 1882 seizure of Egypt in order to assure the repayment of debt, ultimately leading to the departure of the Ottoman Empire in 1914, or Venezuela's 1902 default, which resulted in German, British and Italian gunboats blocking the country's ports until the government paid up. What we are witnessing in the 21st century is a similar hijacking of sovereignty in the name of sound economic policy Superpowers exercise a great deal of control over other nations through debt alleviation and poverty-reduction strategies and programs. (3) Examples are numerous, from Latin American countries that are forced to strip down their public companies to African nations that are heavily constrained by structural adjustment programs. …