Relieving the Burden of Third World Debt

Lauren Reinhalter
Every country carries a national debt. The United States for example holds an external debt of approximately $8 trillion (US epartment of the Treasury!. "t is assumed that debt is not necessarily disadvanta#eous if it does not directly harm the country and its citi$ens% ho&ever' there are instances in &hich it can be a debilitatin# burden to a developin# country. Unli(e the debt of the US' the external' multilateral debt o&ed by most third &orld nation states far exceeds the ability of the #overnment to repay it. )any underdeveloped and developin# nations o&e billions or trillions of US dollars to external multilateral public lenders such as the *orld +an( and the "nternational )onetary ,und ("),! as &ell as to other countries li(e the United States or the United -in#dom. principle amount. External national debt is a tremendous disadvanta#e for developin# countries. These countries are &ithout the benefit of an international mechanism to provide ban(ruptcy relief as an individual &ould be able to find in the many countries. .s a result' these countries fall deeper into debt &ith each passin# year. /urrent a#reements and policy by lendin# countries #ive minimal help in the form of reschedulin# and refinancin#. ,or economic' le#al' ethical and environmental reasons' a policy of total debt cancellation by lendin# nations and international finance institutions such as the *orld +an( "), should be assumed. This &ill allo& for a mar(et0based industriali$ation and democrati$ation to develop &ithout constraint. +efore discussin# debt solutions it is important to understand ho& third &orld debt accumulated. Third &orld debt be#an to build after *orld *ar " &hen colonial po&ers such as ,rance and +ritain lost their colonies (1uisse!. The ne&ly liberated colonies &ere left &ith an automatic transfer of the standard debt amount of US$23 billion dollars and an interest rate of 456 that they o&ed to their past coloni$ers (Lyon!. +orn carryin# an enormous debt' it &as impossible for infant economies to develop fast enou#h to repay this initial debt. .s a result' more loans &ere ta(en to service that first burden of colonialism (1uisse!. urin# the 43789s the dollar stoc( fell due to the United States9 printin# exorbitant amounts of currency. .s oil is priced in US dollars' oil prices &ere raised in 43:; creatin# a surplus of money that &as placed in *estern ban(s (<ubileeUS.!. To ma(e money' ban(s offered very lo& interest loans to sturdy developin# nations &ithout consideration of &hether or not the country &ould be able to repay Third &orld countries rely on their exports to repay their debt' yet &ith hu#e interest rates these countries stru##le to maintain interest payments' let alone repay the

(<ubileeUS.!. *hen interest rates shot up a#ain' the amount o&ed by each country &as more than they could handle. )any of the loans &ere poorly used by elites &ho transferred the funds into private ban( accounts or used the money for arms production (Shah!. External causes of colonial debt and hi#h interest rates' as &ell as irresponsible domestic spendin#' have created the debt disaster amon# developin# nations. ,inally' in the 43889s' the &orld experienced a debt crisis after )exico &as unable to ma(e its payments and defaulted. .ccordin# to <oshua 1oldstein' =)any third &orld states could not #enerate enou#h export earnin#s to service their debts' much less to repay them not to spea( of retainin# some surplus to #enerate sustained local accumulation> (2?;!. )any loans &ere rescheduled and payment plans chan#ed to avoid defaults similar to )exico9s' yet this did not fix the problem. Since the debt crisis' debt rene#otiation occurs re#ularly to avoid similar situations. 1roups such as the London /lub and the @aris /lub' &hich protect third &orld lenders li(e the "),' meet annually to reor#ani$e debt of least developed countries' many of &hom have defaulted (1uisse!. <ust before the turn of the millennium' there &ere pushes to help &ith debt relief such as <ubilee?8889s debt for#iveness campai#n and the = rop the ebt> campai#n. The idea behind these campai#ns &as to #ive a fresh start for the ne& millennium to third &orld debtors. *hile these and other campai#ns still press on' they have been relatively unsuccessful' as debt remains a problem six years after the turn of the millennium. The most practical and tan#ible reason to cancel the third &orld debt is its economic impracticality. There are approximately forty0four nations that Aualify as Beavily "ndebted @oor /ountries (B"@/s! ran#in# from +olivia to Cambia' &hich they are considered as havin# an unsustainable debt burden (<ubileeUS.!. )ost of the B"@/s are located in .frica thou#h many more are found in the /entral .merica' South .merica and Southeast .sia. The three most heavily and dan#erously indebted countries are R&anda &ith a total of US$4 trillion' Somalia &ith US$; trillion' and Sudan &ith US$48 trillion (/entral "ntelli#ence .#ency!. These numbers are a si#nificant cause of the difficulty of economic' social and institutional development in third &orld countries. The actual amount of debt o&ed by each country &ill realistically never be paid in full. There is a bac(lo# of payments that date bac( to the independence of many of the countries. "t is also impossible for third &orld economies to efficiently pay bac( their debt. This is because payments must be in forei#n exchan#e such as the US dollar or <apanese Den' &hile the economies of developin# nations have soft currency that can fluctuate drastically and freAuently (-eim!. urin# certain times it ta(es much more soft currency to pay off a hard currency amount and therefore countries end up payin# much more than &hen they &ere actually #iven the loans.

,inally' and most importantly' third &orld debt is not an actual issue of monetary necessity. )ichael Ro&botham refers to third &orld debt as an =abstract identity &ith no physical existence>. "f not paid bac(' the lenders &ould not suffer because the principle amount has been paid bac( many times over in interest. Some scholars ar#ue that current payments are strictly used to maintain a stran#lehold on developin# countries (Ro&botham!. Economically' it is unli(ely that third &orld economies to ever #et themselves out of debt &ithout external assistance. to lenders. @overty and debt are inter&oven realities. "mpoverished citi$ens create a need for more loans to help them' but this creates a vicious cycle of ne& loans payin# for past loans. evelopin# #overnments are forced to ma(e a choice bet&een payin# debt and buildin# infrastructure such as schools and hospitals. /ancellation of this debt &ould allo& an additional 488 million children to #o to school' and &ould save ;8'888 people a day from preventable diseases (<ubileeUS.!. Everall' 42 million people die each year for no reason except the burden of debt (Lyon!. This is the &ay in &hich third &orld debt smothers development. )oney that is payin# off the debt could be spent on medicine' clinics and prevention methods to help combat ." S pandemic. Everyday that lendin# countries continue to accept interest on debt' 8'888 people die of B"FG." S because the US$:.2042 billion needed' instead services debt (<ulibleeUS.!. Hon0#overnmental or#ani$ations also see the importance in debt relief' particularly for children. UH"/E, states that =the face of debt is the face of a child>' meanin# that increasin# debt causes a rise in already sta##erin# infant mortality rates (Shah!. *hile nation states stru##le to service their debt' it is their citi$ens &ho bear the ultimate burden and live in a &orld &here improvement must seem impossible. <ust as debt ta(es its toll on the people of these countries' it also &rea(s havoc on the environment and natural resources. "n order to meet export Auotas necessary to service the external debt' many countries exploit their limited natural resources in non0sustainable &ays (Shah!. This obli#ation robs the country of conservation options' as the #overnment cannot see beyond ma(in# the next debt payment' let alone to the future of the environment. Lo##in# is a maIor export option for many debtor countries. These massive lumberin# efforts are the leadin# cause of deforestation of the &orld9s rain forests (<ubileeUS.!. ue to lo##in#' +ra$il9s .ma$on Rainforest for instance is rapidly disappearin# and debt obli#ations have ended any efforts at conservation (Shah!. "t is not Iust the environment that suffers but also the animals and humans &ho rely on these natural resources to survive. )any indi#enous peoples in developin# countries espite this' it appears unli(ely that cancelin# the debt &ill be si#nificantly harmful

still loo( to farmin# as their primary sustenance. .s debt rises' so too must exportation and the conseAuences of relentlessly exploitin# natural resources. Hatural disasters can also lead to increased debt and more desperate economic situations. These disasters such as floods' earthAua(es' hurricanes or the tsunami of ?885 are unexpected but ta(e a harsh toll on developin# economies. "n ?888' )o$ambiAue experienced massive floods that too( from many people everythin# they had (Exfam!. *ith no money bud#eted for disaster' their #overnment relied solely on aid to rebuild. The countries hit hardest by the tsunami in South .sia did received si#nificant humanitarian aid to help start the process of rebuildin# (Lyon!. 1ordon +ro&n' the +ritish /hancellor ExcheAuer' be#an a ne& crusade to cut third &orld debt by &ritin# a chec( for US$? billion to the poorest U- debtors after he &itnessed firsthand the devastation of the Tsunami (Lyon!. Unli(e the victims of theses t&o natural disasters' there are many other instances &hen after a natural disaster' a country receives no humanitarian aid. *ith the causes of third &orld debt examined' and the many Iustifications discussed' it seems easy to loo( to&ard a ne& policy that &ill act as a solution to the chaos of third &orld debt. ebt reschedulin# and refinancin# only chan#e the timin# of the problem. The "), and *orld +an( admit that current policies are not &or(in# and that somethin# must be done (Shah!. "t is no& time to end this debt crisis. ,or economic' ethical' and environmental reasons' the debt of developin# nations can and should be cancelled completely. This &ill end the monetary control of developin# nations by richer nations and allo& them a fresh start. Bopefully &ith this ne& be#innin# these soverei#n nation states &ill no lon#er be concerned &ith their debt to forei#n countries but rather extendin# small loans to their o&n people to stren#then economic and institutional development.

*or(s /ited .dams' @. The Doctrine of Odious Debts, /h. 4:. Retrieved )arch 48' ?882 from httpJGG&&&.odiousdebts.or#GodiousdebtsGindex.cfmK S@LsubcontentM.rea" L;. /entral "ntelli#ence .#ency. The World Factbook. ?887. Retrieved .pril 44' ?887 from &&&.cia.#ovGciaGpublicationsGfactboo(Gran(orderG?8:3ran(.htm 1oldstein' <oshua S. International Relations (6th Edition ! Ed. Lon#man' ?885

1uisse' E. Third "orld debt a continuing legac# of colonialis$! ?885. Retrieved )arch 48' ?882 from httpJGG&&&.southcentre.or#GinfoGsouthbulletinGbulletin82Gbulletin82.htm. <ubileeUS.. %o" it all began! ?888. Retrieved )arch 48' ?882 from httpJGG&&&.Iubileeusa.or#GIubilee.c#iK pathLGlearnNmoreGbe#innersN#uideGMpa#eLho&NitNbe#an.html. -eim' +. The third "orld debt crisis! ?888. Retrieved )arch ?5' ?882' from httpJGG&&&?.#ol.comGusersGbob(eimGmoneyGdebt.html. Lyon' R. &hackled of i$'erialis$! Retrieved )arch 48' ?882' from httpJGG&&&.marxist.comG1lobalisationGthirdN&orldNdebt.htm. He& "nternationalist. Debt(the facts! 4333. Retrieved )arch 48' ?882 from httpJGG&&&.ne&int.or#Gissue;4?Gfacts.htm. Exfam. )o*a$bi+ue floods ,---(,--.! Retrieved )arch ?5' ?882' from httpJGG&&&.oxfam.or#.u(G&hatN&eNdoG&hereN&eN&or(Gmo$ambiAueGfloodsGindex.htm. Ro&botham' ). %o" to cancel third "orld debt! ?884. Retrieved )arch 48' ?882' from httpJGG&&&.prosperityu(.comGprosperityGarticlesGcant&d.html. Shah' .nup. Third World Debt /nder$ines Develo'$ent! ?884. Retrieved )arch ?;' ?882 from httpJGG&&&.#lobalissues.or#GTradeRelatedG ebt.asp. U.S. epartment of the Treasury. /& E0ternal Debt! ?885. Retrieved )arch ?;' ?882 from httpJGG&&&.treas.#ovGticGexternal0debt.html.