Breaking the Chains
May 22, 2008 12:45 | by Nick Dearden
Ten years after landmark anti-debt protests at the G8, Nick Dearden explains why the fight must go on.
In May 1998, 70,000 people from across Britain and the world formed a human chain around the G8 summit in Birmingham demanding an end to developing country debt.
It was a huge demonstration on an issue which had received little public attention, made all the more impressive by the huge range of people who showed up for the protest. They came from all walks of life and from all points on the political spectrum.
The issue of debt was catapulted to the top of the G8 agenda, leading over the years to a whole programme of debt cancellation for some of the poorest countries in the world. It was a turning point in the ability of ordinary people directly to pressure world financial institutions.
Ten years later, $88 billion of debt has been wiped out, but stringent economic conditions have been attached by international financial institutions the World Bank and IMF, including trade liberalisation and privatisation.
These conditions mean that debt cancellation in itself has become a form of domination to those countries participating. For example, the IMF refused to allow Zambia to employ more health-care workers, even when the Canadian government offered to foot the bill for five years. Malawi was similarly declared "off track" for daring to borrow money from domestic banks to deal with food shortages caused by a drought.
So harsh are many of these conditions that some countries, such as Kyrgyzstan, Bhutan, Laos and Sri Lanka, prefer not to enter the debt relief scheme.
And, although $88 billion has been cancelled, poor countries are still shelling out more than $100 million a day in debt payments on a total external debt stock of $2.7 trillion.
For every $1 that developing countries receive from rich countries in aid, they return $5 in debt repayments.
Based on an "ethical poverty line" estimating that everyone needs $3 per day to live on, we have calculated that around $400 billion of debt is still "unpayable" - governments cannot repay that debt while still providing basic services to their people and abiding by their human rights obligations.
The debt issue put global economic issues on the protest agenda in Britain for the first time. Since then, the WTO, World Bank, IMF and a host of other institutions have come under attack for the injustice and iniquities being visited on the developing world by globalisation. But debt remains key to understanding the globalisation process.
The genesis of the crisis lies in a world economy saturated by dollars in the 1960s and '70s, as the dollar replaced gold as the currency of exchange, and the world paid for a growing US budget deficit.
When oil-exporting countries in OPEC reduced oil supply in 1973 and oil prices soared, much of this profit was again deposited in dollars in Western banks. Banks, eager to reduce the supply of dollars, to prevent a collapse in the dollar price and to make profit, lent out more money to developing countries, many of which were newly liberated from colonialism. Little thought was given to how useful these loans were or to whom they were being lent.
Then, Ronald Reagan came to power in the US. Interest rates soared and the price of commodities, on which many poor countries depended, slumped. Poor countries earned less for their exports and paid more interest on their loans. They had to borrow more simply to repay the interest. The debt crisis was born.
Today, these debts are like a new form of empire and lie behind all manner of problems facing the world, from the food crisis to climate change.
Take Haiti, the poorest country in the western hemisphere, which, in recent weeks, has been gripped by violent protest against the rise in food prices.
Haiti still owes $1.3bn to international creditors like the World Bank. Some 40 per cent of this was run up by Papa Doc and Baby Doc, who stole parts of these loans for themselves and used the rest to repress the population. When the US flew Baby Doc out of Haiti in 1986, he is estimated to have taken $90m with him.
In the 1980s and '90s, like all indebted countries, Haiti had to follow structural adjustment policies designed by the World Bank and IMF, including cuts in government expenditure on health and education, privatisation and the removal of import controls. Indigenous Haitian industries were wiped out.
In 1995, the IMF forced Haiti to slash its rice tariff from 35 per cent to 3 per cent, enriching US business through soaring imports. A country that was self-sufficient in rice is now dependent on foreign imports at the mercy of global market prices.
Today, 80 per cent of Haiti's population live in poverty as defined by the World Bank, earning under $2 a day, and the average life expectancy is just 52 years. Yet Haiti failed to qualify for debt relief under the heavily indebted poor country initiative, which was established in 1996 to make the debts of the most severely indebted poor countries more sustainable.
It has recently been allowed to join, but it could spend several years jumping through economic hoops until its debt stock is cancelled. So, while some Haitians are reportedly eating dirt to quell their hunger, their government is forced to send almost $1m each week in debt service to wealthy banks supposedly established to fight poverty.
Study after study has shown that the debt which has been cancelled has translated to money being used to eradicate poverty.
In Uganda, for example, debt cancellation allowed the government to abolish school fees, leading to a doubling of enrolment and almost completely eliminating a pattern whereby girls were denied the opportunity to go to school because it was too expensive. It is estimated that nearly 20 million Africans are in school today largely because of savings afforded by debt cancellation.
This treatment must be extended to the remaining countries that require cancellation. On top of this, much of the remaining debt is unjust and should be cancelled outright on the grounds of illegitimacy.
The Suharto regime in Indonesia was reputed to be one of the most corrupt and brutal governments in modern times. Suharto stole up to $35bn from his country and killed up to 1 million people in political witch-hunts, yet the World Bank still lent it $30bn. Today, the Indonesian people continue to pay $2m every hour for their former dictator's debt, while 100 million Indonesians live in poverty.
In a similar way, the Democratic Republic of Congo continues to pay ex-dictator Mobutu's debt and South Africans continue to pay apartheid debt.
We call for an immediate end to unpayable and unjust debt, as well as root-and-branch reform of the international lending system in order to prevent a future debt crisis from occurring.
Ten years on, justice requires debt cancellation more urgently than ever.