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- This page: http://www.globalissues.org/article/30/the-scale-of-the-debt-crisis.
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Debt is a social and ideological construct, not a simple economic fact. Furthermore, as understood long ago, liberalisation of capital flow serves as a powerful weapon against social justice and democracy. Recent policy decisions are choices by the powerful, based on perceived self-interest, not mysterious “economic laws”. Technical devices to alleviate their worst effects were proposed years ago, but have been dismissed by powerful interests that benefit. And the institutions that design the national and global systems are no more exempt from the need to demonstrate their legitimacy than predecessors that have thankfully been dismantled.
— Noam Chomsky, The people always pay, The Guardian, January 21, 1999
The World Bank’s Global Finance Development 1999 publication tracked the annual movement of international capital flows to developing countries, presenting new information about the scale of the debt crisis. It showed that total debt continues to rise, despite ever-increasing payments, while aid is falling. The developing world now spends $13 on debt repayment for every $1 it receives in grants, as summarized by the Jubilee 2000 campaign.
For more schocking figures:
The size of the debt trap can be controlled to claim all surplus production of a society, but if allowed to continue to grow the magic of compound interest dictates it is unsustainable. One trillion dollars compounded at 10 percent per year become $117 trillion in fifty years and $13.78 quadrillion in one hundred years, about $3.5 million for every man, woman and child in the Third World. Their debt is 50 percent greater than this and has been compounding at twice that rate — over 20 percent per year between 1973 and 1993, from $100 billion to $1.5 trillion [only $400 billion of the $1.5 trillion was actually borrowed money. The rest was runaway compound interest]. If Third World debt continues to compound at 20 percent per year, the $117 trillion debt will be reached in eighteen years and the $13.78 quadrillion debt in thirty-four years.
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 143.
As well as the Noam Chomsky quote at the top suggesting that the debt crisis is more than just economic issues, J.W. Smith also goes on to point out that:
Instead of developing the Third World, it is clear that the Third World dependency is a policy of the major powers, and the world leaders insist on restricting consumer buying power in the Third World as a price for what is essentially maintenance loans. Meanwhile, these same leaders easily agreed that West Germany must put $1 trillion into the former East Germany to simultaneously build industry, social infrastructure, and markets. And when the relatively poorer countries of Greece, Portugal, and Spain wanted to join the Common Market, these leaders “implemented a 15-year plan which included massive transfers of direct aid, designed to accelerate development, raise wages, regularize safety and environmental standards, and improve living conditions in poorer nations.”... Emerging former colonies receive no such care for their economies to become viable.
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 150.
The following is a quote from President Obasanjo of Nigeria, commenting on the debt Nigeria faces:
All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors' interest rates.
If you ask me what is the worst thing in the world, I will say it is compound interest.
— Jubilee 2000 news update, August 2000
Argentina, a nation formerly described as a model of development by the IMF and World Bank, following their prescriptions, has been one of the latest casualties of economic problems. As the economy has collapsed, people have died in confrontations, and millions are losing jobs or facing reduced salaries and risk going hungry. The IMF had offered a $20 billion bail out loan, but as Gregory Palast reports, this bailout is hardly that:
Argentina owed $128 billion in debt [in mid 2001]. Normal interest plus the premium amounted to $27 billion a year. In other words, Argentina’s people didn’t net one penny from the $20 billion in “bailout” loans. The debt grew, but none of the money escaped New York, where it lingered to pay interest to U.S. creditors holding the bonds.
— Gregory Palast, Eyes-Only Memos Show Who Done It, Americas.org, February 7, 2002
And then offset all this against world debt:
In 1999, developing country debt (not counting the former Eastern Bloc) was placed by the World Bank at $2,060 billion, less than 6 percent of total world debt ($37,000 billion). The debt of former Eastern bloc countries was calculated at another $465 billion. The public debt of Belgium is approximately $ 250 billion, the public debt of France is $750 billion, the national debt of the United States is $5,000 billion, U.S. household debt is $6,000 billion, and the national debt of Japan at $2,000 billion. In contrast, the total debt of the 41 HIPC countries is approximately $200 billion (less than one percent of world debt). It is difficult to imagine how canceling the $200 billion owed by the HIPC would seriously affect the market that Mr. Wolfensohn [head of the World Bank until mid-2005] is so worried about.
— The Transfer of Wealth; Debt and the making of a Global South, (Focus on the Global South). Chapter 5, p.39
Some poor countries are told by the IMF and World Bank to pay around 20 to 25 percent of their export earnings towards debt repayment. Yet, “[n]o European country including Britain, France and Italy is repaying its loans at levels higher than four percent. Why then do they insist poor African countries pay what they refuse to pay and consider unsustainable? We are forced to make sad assumptions in the absence of a plausible answer” as Charlotte Bagorogoza points out.
But third world debt also causes mass destruction:
According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund’s structural adjustment programs. These programs required the abolition of price supports on essential food-stuffs, steep reductions in spending on health, education, and other social services, and increases in taxes. The debt crisis has never been resolved for much of sub-Saharan Africa. Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in this blighted continent as a result of the debt crunch.
— Ross P. Buckley, The Rich Borrow and the Poor Repay: The Fatal Flaw in International Finance, World Policy Journal, Volume XIX, No 4, Winter 2002/03 (Emphasis Added)
- Causes of the Debt Crisis
- The Scale of the Debt Crisis
- The Heavily In-debt Poor Countries Initiative is Not Working
- Debt Cancellation and Public Pressure
- Debt and the Global Economic Crisis of 1997/98/99
- Debt and the Effect on Children
- Debt and the Environment
- G8 Summits: Empty promises each year
- Third World Debt and Disaster Recovery
- Poverty Links for More Information