Cashing in on Poverty

As we approached the year 2000, the movement to obtain debt relief for the world's poorest countries gained momentum. The Jubilee 2000 campaign, orchestrated by a coalition of religious groups, is calling for the forgiveness of all Third World debt based on the Christian idea that debt should be forgiven every fifty years. They believe lenders have a moral obligation to forgive the debt of those overly burdened by it. Many believe that the debt load of the world's poorest nations is not only impeding their ability to develop, by restricting educational and economic growth, but is actually increasing levels of disease and malnutrition. Of the 40 countries that are eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative of the International Monetary Fund (IMF) and World Bank, 32 of them are in Africa.

There are several reasons for these countries' massive accumulation of debt. In the 1970s, during the oil crisis in the West, the oil-producing countries were depositing huge profits into western banks. These banks accumulated such a quantity of petro-dollars that they began offering huge loans at very low interest rates to developing nations.

Many of the newly independent African countries that took advantage of the loan offers were, like many governments in Latin America, corrupt military dictatorships whose leaders redeposited much of the loan money into their private Swiss bank accounts. Many of these dictatorships were products of the Cold War and their allegiance to the West was the only prerequisite for receiving loans. Even money that was used for development failed to benefit most Africans as the dictators built grandiose buildings and monuments that created the illusion of development in the large cities, while offering little or no economic opportunities to most of the population.

The debt accumulated by dictatorships in the 1970s and early 1980s might have been manageable if two other factors had not come into play. In the early 1980s, the price of oil dropped, resulting in a steep decline in the amount of petro-dollars that were being deposited in western banks. Consequently, the banks, with less money to lend, began to raise interest rates. The amount of interest being paid by developing nations increased dramatically to the point that many countries were lucky if they could even pay the annual interest, never mind the principal.

As if this were not bad enough, throughout the 1980s and 1990s, many of the controls that regulated currency exchange rates were removed. This transition from fixed to floating exchange rates transferred much of the power to influence the value of a nation's currency from the national governments to Wall Street and the U.S. Federal Reserve. The only control that governments retained over their currency was the printing of more money, which of course resulted in a devaluation of their currency vis-a vis the U.S. dollar. But most of the loans had been issued in dollars, so when a country's money was devalued by 200 percent in relation to the dollar, that nation's debt tripled.

This is the situation in which most of the world's poorest countries find themselves at the beginning of the new millennium. The issue of debt relief and the consequences of IMF and World Bank policies were addressed on the final evening of the State of the World Forum. The president of Senegal, Abdoulaye Wade, cited the hypocrisy built into the austerity measures imposed on nations by the IMF and World Bank in return for restructuring their loans: "U.S. and European agriculture receives subsidies from their governments. If I give help to the peasants in Senegal, the IMF and World Bank cut off their aid."

It is the conditions attached to new loans by the IMF and World Bank that severely restrict the ability of poor countries to develop. As Wade pointed out, governments are not allowed to subsidize industries, which often results in higher food and fuel prices for many people already living at or below subsistence levels. Furthermore, the governments are forced to cut back social spending, which reduces funding for education and healthcare, especially critical when you consider the fact that there are 22 million people in sub-Saharan Africa with AIDS.

According to Maxine Waters, a California Democratic congresswoman, "The promises of debt relief made by the G8 countries in Cologne have not been fulfilled. Only Uganda has seen a decrease in its debt. Others can only receive a decrease if they implement measures demanded by the IMF that starve children in many of these countries." To further illustrate the consequence of the debt burden on African countries, Waters pointed out that over 20 percent of the population in Zambia has AIDS, and yet this country is forced to spend $4 on debt payments for every $1 spent on healthcare.

Waters is primarily responsible for the $435 million the U.S. government has committed to debt relief. But as Father Robert Brooks, a consultant for the HIPC program at World Space, said, "I hope you share my embarrassment as an American when I tell you that the United States, with the most powerful economy in history, is only paying three percent of the international commitment to lowering the debt of the Heavily Indebted Poor Countries. Europe, Australia and Japan are paying 97 percent." Much more money is needed before people in countries like Mozambique, where 40 percent of the government's revenue goes to debt relief, begin to benefit.

Uganda, the only country to benefit from the HIPC program, is an example of what is possible when some of the debt burden is alleviated. Charlotte Bagoragoza, chairperson of the Jubilee 2000 Campaign Uganda, said, "If civil society is empowered in many of these African countries that don't enjoy the same level of democracy as you do here, it will be a beginning." She went on to point out that in Uganda, where debt relief is making a difference, local councils, churches and NGOs are involved. Bagoragoza says that debt relief has allowed the government to redirect funds to education, healthcare and infrastructure projects. Primary school enrollment has increased from two million children to six million, new health centers have been built and funds allocated to pay medical staff, while $1 billion has been directed toward HIV/AIDS programs.

Uganda offers hope that the massive human suffering that results from debt can be alleviated. But there is another tragedy that, according to Olara Otunnu, United Nations Special Representative on Children and Armed Conflict, must be a precondition for debt relief. Otunnu was talking about peace. Without peace, any debt relief will just subsidize war and will not benefit the people. Furthermore, said Otunnu, the inequities and imbalances within countries have to be addressed, whether they are vertical imbalances with a tiny wealthy elite on top and a majority of poor on the bottom, or horizontal imbalances with huge inequities between different regions or ethnic groups within a country. Otunnu also said that African governments have to develop greater transparency in their governmental actions in order to avoid a repetition of past corruption. But others, like Jesse Jackson, believe that debt relief should come without conditions they believe are racially motivated because of the insinuation that black leaders are incapable of developing and implementing responsible policies.

It is clear that the globalization of financial capital has not benefited the world's poorest countries, especially those in Africa. Until these countries receive some debt relief they will be unable to educate their people and develop their industries and agriculture. Furthermore, many of these countries are facing a human catastrophe of holocaust proportions if the ever-increasing spread of AIDS on the African continent is not contained. But it's not too late, because, as Bagoragoza said about the Ugandan people's reaction to the initial success of debt relief in that country, "It has given them hope and the belief that something can be done to relieve their burden."

copyright © 2000 State of the World, Inc.