Canada crushes Third World, not Third World debt

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by Paul Harris

Bob Geldof and Bono may have screwed it for the world’s poorest countries. These are two well-meaning guys, and they certainly deserve kudos for the attention they have helped to focus on the plight of the world’s poor. But when they offered flippant sound bites last week about plans to relieve some of the debt of poor nations, they set back the path to economic justice by huge strides. It must be assumed they did not do so deliberately, but their fame and their ability to buttonhole the leaders of the wealthiest nations may have clouded their judgment enough to prevent them from remembering that they are spokespeople, not experts.

On June 11, the finance ministers of seven of the world’s leading industrial nations, which includes Canada (the G8, minus Russia), agreed to write off the debt of the 18 poorest countries (14 of them in Africa). It is expected that a further nine African countries may qualify for similar relief over the next 12 to 18 months. Although the agreement still needs formal approval at the G8 Summit to be held in Scotland in early July, it sounds like good news and a noble humanitarian gesture. But is it? And what is actually to be written off?

Anyone with even a simple grasp of the issues will recognize that the conditions attached to the alleged debt relief are actually more onerous than the debt they relieve. When Geldof pronounced the deal as “a victory for millions” and Bono described it as “a little piece of history”, they set back by large strides the hard work that has been done round the world by those fighting to end poverty. For those workers know, even if Geldof and Bono don’t — or didn’t remember — that the enforced economic liberalization and privatization are not designed to ease third world debt, they are designed to open further lucrative investment opportunities for the West in a form of econo-colonialism. Geldof and Bono are running the risk that they will defuse the political campaign toward global justice and relegate any aid or relief to sporadic philanthropy.

It helps to understand the nature of the debt. Although there are poor countries outside of Africa, and some of the alleged debt relief is going to some of those other nations, we’ll use Africa as the example. And we have to look back to the period 1955-1965 when most of the nations achieved independence from European powers.

It was recognized then by the international community that there would be structural weaknesses and that states would need to intervene in economies to overcome them. It was expected that Africa would earn its way through its traditional role as primary-product exporter and accumulating surpluses from the agricultural sector.

Many economists at the time believed there was a ‘vicious cycle of poverty’ which prevented accumulation of domestic savings in the developing world. Low savings led to low domestic investment and that low investment was seen as the main barrier to rapid economic growth. So foreign aid was offered to fill the gap between low savings and appropriate levels of investment. This was expected to allow a relatively brief period of governmental intervention in the economy which, along with the aid, would bring Africa into position to soar economically. But it didn’t work that way.

Between 1960 and 2005, more than $450 billion (inflation-adjusted US dollars) have poured into Africa. The result of all that aid has been a reduction in African gross domestic product by an average annual rate of 0.59% with African GDP in the same period falling from $1,770 to $1,479 (constant 1995 US dollars, adjusted for purchasing power parity). There are many who will point to corrupt African leaders stealing much of the aid and there is undoubtedly some truth to that view; but the idea that African failure is due mainly to poor African governance is one of the greatest myths of our time.

By the 1970s, the terms of agricultural trade had turned decidedly against Africa and rising oil prices crushed their cash reserves. At the same time, public and private loans that had been advanced in the heady days of African optimism became crippling burdens as high interest rates set in. Worse, all these debts came due in the 1980s just as the industrial world was discarding the Keynesian model of economics. Suddenly, it was no longer fashionable for the state to be involved in the economy and a drive was on to remove all barriers, including exchange controls, protective tariffs, and public ownership. The creditor nations insisted that the poorest countries follow suit even though there was no possibility of them competing on that basis. That led to the assumption of greater debt, at higher servicing rates.

A large part of the debt of these poor nations is owed to the World Bank (WB) and the International Monetary Fund (IMF) who, over the years, emerged as the primary vehicles of dictating global capitalism’s new rules to the poor nations. Capital markets applaud the work of the WB and IMF, but not everyone agrees. Nigerian economist Bade Onimode wrote that the programs of those two institutions “have generated and exacerbated a serious decline … and created the atmosphere of suffering facing the rural and urban poor”. David Plank, writing in the Journal of Modern African Studies, stated that the new economic model would result in a “recolonization” of the poorer countries and “the most likely successor to post-colonial sovereignty will be neo-colonial vassalage, in which the Western powers assume direct … control over the ‘deteriorated’ states”.

There is little doubt that some of the poor nations have been the victims of their own misdeeds or misfortune. Many have been under the leadership of unscrupulous rulers, and have suffered devastating natural disasters with little ability to recover on their own.

But much has been made by the West of the need to stem corruption among the governments of the poor nations. Western leaders regularly trot out the adage that poor nations have corrupt governments and must be held to legitimacy if they expect aid or relief from debt. In reality, it has never worked that way and there is nothing in the G8 plan just announced that will stem corruption in government, theirs or ours. Western leaders use the word ‘corrupt’ as code: they mean, these countries won’t do what they’re told. If corruption in government was really an issue for Western leaders, let them explain why twenty-five nations have ratified the UN Convention Against Corruption and none of those is a member of the G8.

The poorest nations are heavily indebted now to various institutions world-wide. In addition to the WB and IMF and African Development Bank (ADB), there are also substantial debts owed to the Inter-American Development Bank (IDB) and the Asian Development Bank (AsDB). The G8 plan will not cancel debts owed to IDB or AsDB. Whatever debt is forgiven by the G8 plan will be reimbursed in some way so the solvency of the institutions is not threatened.

In Africa, for example, external debt currently stands at about $300 billion. In the past 40 years, the international community has not encouraged the development of resources for local people. Rather, it has granted loans linked to ‘conditionalities’ based on IMF structural programs that demand the opening of Third World markets, privatization of publicly owned assets in the poor nations, deregulation of the financial sector and free in-and-out flow of capital. These measures, designed to enrich major corporations, have led to catastrophic increases in poverty and a deterioration in living conditions.

Efforts by the poor countries to resolve their own crisis through trade is met head-on by extensive protectionist measures designed to prevent penetration into Western markets and to limit the poor nations to being no more than cut-rate raw materials and cheap labour suppliers.

The G8 finance ministers’ announcement of the deal they call ‘historic’ is not what it seems. The total debt to be forgiven is about $40 billion but this actually accounts for just $1.5 billion in annual debt repayment. Full forgiveness of the debt of all 62 poverty-stricken countries would cost $45.7 billion per year, roughly 30 times the amount agreed upon by the finance ministers. And the agreement affects only debts owed to the multilateral institutions noted above, not the large sums owed to national governments and private lenders.

Critics accuse the G8 of showmanship aimed at deflecting some of the growing criticism of the major nations’ failure to honour previous aid commitments. For more than 30 years, the wealth countries have pledged to reach a United Nations target of spending 0.7 percent of GDP on foreign aid. The United States presently allocates just 0.16 percent of its GDP and the average among the wealthy countries is only 0.28 percent.

The reality is that the finance ministers’ proposal has the potential to deliver to the wealthy nations more money than they have written off. The statement they issued at the end of their meetings said that “in order to make progress on social and economic development, it is essential that developing countries put in place the policies for economic growth.” Further, they must “boost private sector development, and attract investment” along with “the elimination of impediments to private investment”. The World Bank has been made the monitor of the move by these countries towards “good governance, accountability and transparency.”

While the phrase ‘good governance’ sounds fine, it doesn’t actually mean or imply good government. It means that all publicly-owned assets are to be privatized, including such things as power and water, so that private investors can reap profits from them. Failure to meet that goal will disqualify a nation from receiving any relief from the crippling debts. It is easy to understand why critics of the G8 deal believe this program is actually designed to enrich the already wealthy, rather than to alleviate the plight of the poorest people on earth.

The IMF administers a plan known as the Heavily Indebted Poor Countries (HIPC) Initiative. Under the terms of the debt forgiveness announced June 11, the only nations will qualify for this debt write-down are those who have met the standards of the HIPC. These standards include privatization of all public assets such as power and water supply, health and education. Capitalists will no doubt see this as a good thing because it will open significant opportunity for investment into third-world projects with virtually no risk and at fire-sale prices. It is hard to imagine how this will help the poor, although it might readily enrich the leaders in those poor countries along with a select group of Western corporations.

But what does the announced deal actually say? First, only 18 countries are covered and it is well understood that there are at least three times as many nations who need to get out from under insurmountable debt. On average, these 18 countries will save about US $1 billion in debt servicing charges over the next ten years. The 62 countries who actually need 100% debt cancellation currently pay over US $10 billion per year so, in fact the alleged total debt forgiveness the G7 ministers crowed about is only really about a 10% reduction in debt. Worse, the G7 ministers are practicing a little chicanery with the numbers: they claim a “US $40 billion cancellation” but that is actually projected over the next 40 years. The Net Present Value of the deal is US $17 billion. And for each dollar of debt reduction, those qualifying countries will see an equal reduction in new aid from the International Development Association.

Probably the most obnoxious aspect of the announced deal is that the ministers insist the World Bank and the IMF will monitor the indebted countries’ progress and decide if they are to be relieved of the debt burden. These organizations have a vested interest in ensuring that debt relief takes place slowly, if at all.

The deal is tied directly to a continuation of World Bank and IMF conditions imposed on the poor nations, the same conditions which have largely been responsible for preventing the countries from rising out of poverty. Poor nations are forced to beg for outside aid and to pledge their support for economic austerity measure, liberalization of their economies, and privatization of their most vital social services; these measures ensure that the poor countries can never develop economically. This is a deliberate tactic of the international financial elite and it is naïve in the extreme for anyone to believe that the cancellation of any third world debt is not designed to further enrich that elite.

The African NGO Statement of Debt notes that creditor nations need to acknowledge publicly the role they played in creating and exacerbating the debt in the poor countries. Further, it says: “The failure to link Africa’s debt crisis to the impact of the predominantly hostile global trading environment under which it has to operate has in most cases resulted in piecemeal measures that end up dealing with the symptom of the problems and not the causes.”

Most poor nations are victims of dumping by heavily subsidized Western producers, particularly in agriculture. Poor nations cannot produce as cheaply as the subsidized imports and cannot export their products to the West because of protectionist tariffs. As much as ever during the colonial period, the West sees the poor nations as the suppliers of cheap raw products and produce. A June 15 press release from Oxfam notes: “This is a scandalous betrayal of the developing countries that put their faith in the WTO system. As we approach the G8 the focus is on aid and debt relief, which are vitally important and could help create the circumstances in which poor countries could benefit from global trade. But while rich countries continue to rig trade rules in their own favour, the developing world will never have the chance to work its way out of poverty.”

The agenda of the Western world is to embrace capitalism, solely for the benefit of the Western world. Any measures presently being announced to help end poverty are merely the reaction to vigorous criticism of those who fight to end poverty. Through the work of elderly rock stars and many others, poverty has remained high on the agenda of the world’s richest nations but their efforts to address the issue should be seen for what they are: the callous lies of a group who are looking to get heat off their backs, and in a way that they can make even more money from someone else’s misery.

Nothing announced by the G7 ministers, and touted by Bono and Geldof, is going to make the lives of the poor one jot better. It is estimated by many economic experts that the West actually stands to gain significantly greater wealth by enforcing the IMF and World Bank ‘conditionalities’ than writing down the debt will ever cost them.

If the leaders of the Western nations were serious about easing the plight of the world’s poorest, they would, as a minimum:

• drop all debt without conditions for the poorest of the poor, and not just part of it
• stop the IMF and the World Bank from imposing so-called ‘free market policies’
• stop the heavily subsidized dumping of products and produce in the poor countries
• stop Western nations and multinationals from pumping profit out of the poor nations
• use the hundreds of billions spent on arms to really deal with the causes of poverty.

Anything less is just the same old nonsense, and brings us one step closer to that day when the poor are not going to take it any more.

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