Author and Page information by Anup Shah This page last updated Saturday, July 02, 2005
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Consider the following:
In 1970, the world’s poorest countries (roughly 60 countries classified as low-income by the World Bank), owed $25 billion in debt. By 2002, this was $523 billion For Africa,
In 1970, it was just under $11 billion By 2002, that was over half, to $295 billion Debts owed to the multilateral institutions such as the IMF and World Bank is currently around $153 billion For the poorest countries debts to multilateral institutions is around $70 billion.
$550 billion has been paid in both principal and interest over the last three decades, on $540bn of loans, and yet there is still a $523 billion dollar debt burden.
Sources Debt relief hopes bring out the critics , Jorn Madslien, 1 BBC, June 29, 2005 Paying for 100% Multilateral Debt Cancellation; Current proposals explained , Sony Kapoor, 2 , January, 2005, p.5 (link is to a PDF formatted document) EURODAD
There have been many headline-grabbing promises by world leaders for third world debt cancellation or relief for the poorest and most ravaged countries, and yet those past promises have hardly been kept
. For example: 3 The debt cancellation doesn’t actually happen; The debt cancellation is very slow to happen; The amount of money or cancellation promised is actually far less due to fancy spin and adding in money that has already been earmarked for this purpose
For poor countries, third world debt is a crucial issue.
Crippling third world debt kills: Rich countries have pressured these poor countries to sacrifice health and education spending and prioritize on debt repayment; Rich countries have protected their agricultural markets while forcing poor countries to open theirs, leading to dumping and flooding of products, driving local people out of businesses and livelihoods. For rich countries, the debt figures involved are tiny; For poor countries, these same figures are a matter of life and death:
Extrapolating from UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in sub-Sharan Africa as a result of the debt crunch since the late 1980s. 4 The United Nations fears another 3 million children will die in the poorest countries of sub-Saharan Africa by 2015 , the target for the Millenium Development Goals to cut poverty by half. 5 Some 11 million children die each year around the world , not just Africa, due to similar conditions of poverty and debt. 6 These statistics typically define childeren as those under the age of five. What about 6, or 7, for example?
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 7
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 8 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. 9
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. 10
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. 11
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 12
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 13
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 14
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 . 15
An updated graphic from the
BBC on Africa’s debt servicing shows that a couple of countries even spend between 25-40% of government revenue on debt service, while many more fall within the 5 to 25% bracket. 16
One possible assumption made by many, and hinted to here by Bob Geldof is that as throughout history, those at the top don’t want others to succeed. His comments below come from a speech about Africa, but is relevant in general:
The truth is that throughout economic history those who succeeded economically kicked away the ladder beneath to prevent others from scrambling up behind. That is why today we are imposing so many impossible conditions, in the form of benign interference, which in truth to actually prevent them developing. Perhaps it’s not conscious but this is the manner in which all wealthy c ountries have always behaved. That’s what was so unusual about the United States Marshall Plan which after the Second World War rescued Britain and Wily Brandt’s Europe. Yet the truth is that, without taking away from Americas legendary generosity, the Marshall Plan was devised to further America’s self-interest and security. The US at that time needed a viable trading partner for their uniquely booming post war economy and a bulwark against the Soviets threatening Stalinism. Whatever...it worked.
Why Africa? Bob Geldof Speaks at St. Paul’s Cathedral
, DATA.org, April 21, 2004 17
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) 18
0 articles on “The Scale of the Debt Crisis” and 2 related issues:
Last updated Sunday, June 03, 2007.
Third World Debt Undermines Development” to learn more. Last updated Sunday, September 28, 2014.
Trade, Economy, & Related Issues” to learn more. Where next? Online Sources:
(Note that listed here are only those hyperlinks to other articles from other web sites or elsewhere on this web site. Other sources such as journal, books and magazines, are mentioned above in the original text. Please also note that links to external sites are beyond my control. They might become unavailable temporarily or permanently since you read this, depending on the policies of those sites, which I cannot unfortunately do anything about.)
http://news.bbc.co.uk/1/hi/business/4619189.stm http://www.globalpolicy.org/socecon/develop/debt/2005/01payingforrelief.pdf https://www.globalissues.org/TradeRelated/Debt/Pressure.asp 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, http://www.worldpolicy.org/journal/articles/wpj02-4/buckley.html Larry Elliott and Patrick Wintour, 'Broken promises leave three million children to die in Africa', The Guardian, June 8, 2005, http://www.guardian.co.uk/hearafrica05/story/0,15756,1501676,00.html https://www.globalissues.org/TradeRelated/Debt/Children.asp http://www.guardianunlimited.co.uk/debt/Story/0,2763,208938,00.html http://www.worldbank.org/prospects/gdf99/ http://www.jubileeresearch.org/jubilee2000/news/imf0904.html http://www.ied.info http://www.ied.info http://www.jubileeresearch.org/jubilee2000/news/london180800.html http://www.gregpalast.com/detail.cfm?artid=117&row=1 http://www.focusweb.org/publications/Books/Transfer.pdf http://web.archive.org/web/20041106003603/http://www.debtchannel.org/views/opinion/charlotte030501.shtml http://news.bbc.co.uk/1/shared/spl/hi/africa/05/africa_economy/html/debt.stm http://cms.data.org/mt-search.cgi?search=Why+Africa%3F+Bob+Geldof+Speaks+at+St.+Paul%27s+Cathedral http://www.worldpolicy.org/journal/articles/wpj02-4/buckley.html Author and Page Information by Anup Shah Created: Monday, July 20, 1998 Last updated: Saturday, July 02, 2005