The Debt Boomerang: The Third World Debt Crisis Is Doing You Harm, Whether You Live in the North or the South

By George, Susan | New Internationalist, May 1993 | Go to article overview

The Debt Boomerang: The Third World Debt Crisis Is Doing You Harm, Whether You Live in the North or the South


George, Susan, New Internationalist


IF the goals of managers in the official institutions that rule over Third World debt were to squeeze the debtors dry, to transfer enormous resources from South to North and to wage undeclared war on the poor continents and their people, then their policies have been an unqualified success.

If, however, their strategies were intended -- as official institutions always claim -- to promote development beneficial to all members of society, to preserve the planet's unique environment and gradually to reduce the debt burden itself, then their failure is colossal.

The most obvious aspect of this failure -- or success, depending on your point of view -- is financial. Every single month, from the outset of the debt crisis in 1982 until the end of 1990, debtor countries in the South remitted to their creditors in the North an average six - and - a - half billion dollars in interest payments alone. If payments of the principle are included, then debtor countries have paid creditors at a rate of almost twelve - and - a - half billion dollars per month -- as much as the entire Third World spends each month on health and education.

Moreover, the debt crisis has given creditor countries the chance to intervene in the management of dozens of debtors' economies -- using the International Monetary Fund (IMF) and the World Bank. Their job is simple: to make sure the debt is serviced. Since the average citizen of a low - income debtor country earns less than one fiftieth of the average citizen of a high - income creditor country, this process is like trying to extract blood from a stone.

To accumulate hard currency and service its debts a country must increase its exports and reduce government spending. Most debtor governments have accepted this and forced their people to co - operate with the draconian policies of the IMF and World Bank to ensure that debts are serviced. Much good has it done them. A decade has passed since the Third World debt crisis first erupted, yet in spite of harsh measures faithfully applied this crisis is today more intractable than ever.

Bureaucratic immunity

Debtor countries have deprived their people of basic necessities in order to provide the private banks and the public agencies of the rich countries with the equivalent of six Marshall Plans (the programme of assistance offered by the US to Europe after the Second World War).

Have these extraordinary outflows served to reduce the absolute size of the debt burden? Not a bit: in spite of paying out more than $1,300 billion between 1982 and 1990, the debtor countries as a group began the 1990s a full 61 per cent more in debt than they were in 1982. Sub - Saharan Africa's debt increased by 113 per cent during this period.

The economic policies imposed on debtors by the major multilateral agencies and packaged as 'structural adjustment' have cured nothing at all. They have, rather, caused untold human suffering and widespread environmental destruction, emptying debtor countries of their resources, rendering them each year less able to service their debts, let alone invest in economic and human recovery.

The World Bank and the IMF structural adjusters have by now had plenty of time to make their measures work. But they have failed. Had they been corporate executives they would doubtless have been sacked long ago for incompetence. But no such accountability applies to these international bureaucrats acting on behalf of the creditor governments. They need never submit to the judgement of their victims. They answer only to their own equally unaccountable superiors and, at the top of the bureaucratic tree, to a Board of Governors reflecting the majority voting strength of the richest creditor countries. These lavishly compensated international civil 'servants' are consequently still to be found in Washington and throughout the Third World living exceedingly well.

There are other beneficiaries. For business corporations operating in debtor countries structural adjustment has enhanced profitability by reducing both wages and the power of the unions. …

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