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In this two-part series, Martin Khor addresses issues relating to debt and international trade. Since the debt crisis began in the 1970s, many developing countries have had to agree to new loan conditions imposed on them by the International Monetary Fund (IMF). These conditions, of benefit to many western commercial interests, often prevent national governments from implementing their own key economic, development and environmental policies. Trade liberalization is one such condition. Dr Khor describes the adverse effects a liberal trade agenda can have on these countries, particularly on their farmers and small industries. He argues that developing countries must be given the freedom to adopt policies of their own. Finally, he welcomes the G8’s decision to cancel the debt of some 18 countries, but warns that the terms and scope will need careful study.
- Debt in the Developing World—Part Two
- Running time
- 3m 15s
- London, UK, July 15, 2005
- Marcus Morrell
- About Martin Khor
- Director, Third World Network
Martin Khor is the Director of the Third World Network (TWN) and editor of its monthly publication Third World Resurgence. He has led TWN since its inception in 1984, advocating on behalf of citizen groups throughout the developing world on a wide number of development issues. These include environmental sustainability, the protection of human rights and the impact of corporate-led globalization. A former economist and university lecturer, he is also an advisor and consultant to a number of United Nations agencies and other important international bodies. Dr Khor is author of several books on WTO reform, international trade and the global economy.
Many of these countries fell into debt because of low commodity prices, which they are of prices of commodities that they are exported. This collapse of commodity prices, for example, the price of coffee has fallen by 60-80%, whilst the price of the coffee you consume in the coffee bars here have actually gone up. So in between our intermediaries that have made the profit, but the poor coffee farmer has really suffered, and the country, because it does not have the foreign exchange, fell in the debt.
But debt is actually not even the worse part of the problem, because when they fall into debt then the World Bank and the IMF comes in to give them a new loan, or to give them a report card that allows them to reschedule their loans, and have imposed conditionalities that have been very restrictive. For example, their interest rates are high, they’ve had to devalue, they’re not able to have government expenditure, they’ve had to privatize and deregulate, and all these policies have not worked for a very large numbers of countries. They have been locked into a system of structural recession in a way, whilst at the same time trade globalization, again one of the conditions, has increased their imports, which also have damaged the livelihoods of local farmers or small industries. And at the same time they have been unable to increase their export earnings to the same degree, so their trade deficit has widened putting them further into debt.
It is the conditions that come with your being in debt that is really the problem. And the reason G8 announcement that 18 countries would have their debt canceled, I think that number one is welcome, and number two we have to re-examine that further because we are not quite sure the mechanics by which this debt is supposed to be canceled. To me it looks more like a kind of aid, or a diversion of aid because it’s a G8 of the OACD countries that are going to do the debt servicing on behalf of the developing countries, rather than really debt cancellation which means that the debt is canceled and the institutions, the creditors take the hit. Now if this debt repayment is going to go on for the next twenty or forty years, in other words they’re going to pay the debt for these developing countries, does that mean that the conditions continue for the debt repayment to carry on? Or are these countries really liberated now from debt and they don’t have to look backwards, they can now look forward? And they can now have policies of their own that they consider more appropriate. And as for the other 70 developing countries that really require debt cancellation, will they get this debt cancellation or will it be condition again on policies that are damaging to them? This is the key question that comes up.
— Martin Khor