—Statement of the All-Africa Conference of Churches, 1999
In 1996 I participated in a delegation sponsored by Church World Service to the poor Central American country of
Here’s another story. In the town where I live there is a wonderful family who moved here originally from
These stories are telling in that they illustrate in human terms the extent of the debt trap that afflicts so many countries in the global south. Countries like
There are a variety of reasons for why countries acquired those debts—some were their “fault” and some not—but the reality is that today they live not just under the burden of making payments, but also under the strict austerity programs of the World Bank, the International Monetary Fund (IMF) and other international financial institutions. One of the goals of this chapter is to illustrate the links between the debt crisis that gripped poor countries from the early eighties to the middle of this decade and our present hyper globalized, hyper economically integrated world. The debt crisis is not the only cause of increases in economic globalization, but it is one that is rarely looked at and its influence is much more important than most people realize.
In many ways that crisis, and the strict rules laid down for loan repayments that followed it, did more to integrate poor country markets, economies, and cultures into the fold of rich countries than any other single event in the past two hundred years. It’s easy to over look how dramatic this event was in the history of the planet. It seemed like a simple banking transaction. A bank gives out a loan to a country and the country pays it back. It sounds fairly straight forward. But imagine this scenario: Let’s say that the country of
So, where does
In Guatemala, for example, instead of growing corn (maize), which for centuries they grew themselves and consumed themselves, now they more and more often are forced to grow cotton, cardamom, hemp, flowers, sesame seeds, and winter vegetables for exports so that their government can get dollar currency to pay back to the US on their foreign loans. The result is that for the first time in its entire history,
The IMF, which functions like an international gatekeeper for all other global financial institutions, puts pressure on poor and developing countries of the global south to make these cutbacks on expenditures to be able to make debt payments. In order to qualify for aid or limited debt cancelation, their governments are forced to divert scarce dollars to pay off the old debts rather than spend them on health, education, or infrastructure.
It’s hard to over estimate how much difference this simple production change made in the lives, cultures, and economies, of so many countries. In one generation the countries gutted centuries of production habits and became a piece of the international production/consumption process, and the affect that it had on their personalities and understandings of themselves as a race or people, is profound.
Snapshots of the extent of the crisis
One good way to get a handle on the size of the debt payments made by poor countries around the world is to compare the amount of aid money going into them with the debt payment money coming out. For example, in June, 2007, over a span of one week, a number of organizations raised tens of millions of dollars to fight malaria in
Here’s another example. Some years ago the
What these stories tell us in real terms is that you can give money to Church World Service, World Vision, Habitat for Humanity, or Heifer Project, or any other reputable organization, and the US can double or triple its aid to that country, and still, there is no way that it can dig its way out from underneath the crushing debts that are draining its future away. One of the indigenous Mayan communities of
An example from
How could this be true? The biggest reason was the sink hole of compounding interest that goes up, adds itself to the principle, and then creates an even larger debt bill to pay at the end of the day. But also it was exacerbated by variety of related tricks. For example, in
The total external debt of
All of these examples are just numbers on a page until you see them connected to real people and real communities. It is estimated that around 7 million children die each year as a result of the debt crisis (in addition to wars, famine, underdevelopment, legacies of colonialism, etc.). Because indebted countries are so frequently required to cut subsidies for food, transportation, education, health, etc. (so that the governments can save money for repayment on their debts), poor children in those countries are harmed at alarming and unnecessary levels. Had the debt for the world’s poorest countries been cancelled back in 1997, when the international Jubilee movement first began, the money released for basic healthcare could have saved the lives of about 21 million children by the year 2000, the equivalent of 19,000 children a day.
How Much Would it Cost?
It is often said by bankers and government officials that the debts would be simply too expensive for wealthy countries to cancel. And we can assume that now that the entire globe has been wracked with a debt related financial crisis, any call for cancelation of the debts our poorer brothers and sisters will look even more impossible. So, what would be the cost of cancelling this much debt? First, in the 60 countries designated by Jubilee USA as needing total debt cancellation, a total population of 1,037 million people shoulder a debt burden of $320 billion. The total amount that the heavily indebted poor nations owe to the
· The total amount of the 1980s savings and loan bailout was a $165 billion.
· The total amount authorized by Congress in October, 2008, for the first financial rescue package was $750 billion.
· A recent book by economist Joseph Stiglitz and Linda Bilmes, estimated the cost of the war in
Or, put another way:
· For a week’s worth of the expense of the war in
· In terms of individual human wealth, the amount needed to cancel all developing country debt is less than the net worth of the world’s 21 richest individuals.
· Spread over 20 years, canceling the debts is one penny a day for each person in the developed world.
· And finally, in light of the recent Wall Street scandal, it’s especially interesting to note that Goldman Sachs paid Chairman and Chief Executive Officer Lloyd Blankfein $54 million last year. Co-Presidents Gary Cohn and Jon Winkelried each received $53 million, including cash bonuses of $26.7 million. All together their annual pay and benefit packages equal roughly what all sub-Saharan African countries pay on their debts every three hours in interest and capital repayments.
A Personal Loan Analogy
In order to understand the extent of the problem, let’s bring the story closer to home by looking at the macro credit crisis in personal terms. What would all of this look like if it happened to one person’s individual budget?
Let’s say a generation or two ago your grandfather took out some shaky loans from some unscrupulous bankers and then died old and happy in the
How do you do it? Let’s say your annual income is $50,000 (roughly average for a US citizen), and your normal present monthly expenditures are about $4,200, which actually comes out a little over $50,000 per year (unfortunately it’s not uncommon for Americans to go in the hole slightly every year, so you are at least normal). However, the new debt payments you just inherited are about $2,000 per month (which is about the size of half of your monthly income) and the new payments go on top of your other normal living expenses. That means that your outgoing payments have now gone up by one third and you will have to cut your normal monthly expenses nearly in half just to break even (which you weren’t totally doing before).
So, here’s how you do it. The first and most important thing that you should know is that you are not allowed to file for bankruptcy. There is no bankruptcy in the international finance world, so in this analogy, you don’t get that option either. If you tried it, you would be banned from purchasing anything ever again from anyone outside of your own immediate family and household. Or if you tried to simply stop paying on the loans, you would be completely cut off from the rest of the outside community, and you would eventually starve. Imagine, for example, not being able to buy a car or a large appliance because you can’t get a loan (nobody can get by without taking out a loan sometime) and you’ll see how constricting that would be.
Now, to pay on the loans, first you would be told you must cut out all nonessentials (like computers, bed sheets, towels, TV, or more than one shirt), but of course that wouldn’t be enough. Next would be cuts in the real essentials, like your health plan. You have to get by without it. There are, as you know, millions of Americans who are forced to do this and it’s typically pretty scary. Next comes food. You don’t need to eat healthy foods, and you probably don’t need to have more than two meals per day. It will be difficult and painful, but you can make it. Much of the world gets by without three meals a day, so you have now joined them. Then education: forget saving for your children’s college tuition. In fact, forget sending them to school at all, because the private schools in your neighborhood are too expensive and the IMF has forced your town to charge for public education as well. It’s a part of its “aid” package to “help” your town raise money to pay on its own debts. So you no longer can afford any kind of education for your children, public or private. But that’s okay. They have to go to work to earn money for the debts anyway. Next comes upkeep on the home. Don’t think about repairing the doors and windows, because you can’t afford the carpenter, let alone the wood and nails. You can’t even afford the tools to repair things yourself. So let the garage collapse, the banks need their money more than the garage does. Forget about heat or electricity too. You can get along with out it most of the year and you need to save every penny to make the additional $2,000 per month in loan payments.
But even all of this is not enough. With all of these cuts, you are still only able to come up with an extra $1200 payment per month. To meet the level of payments demanded of you on your grandfather’s debts, you still need at least another $800 per month, which means you still need more money. The only places to go for new cash are the government and private banks, which by the way, are in cahoots with the local stores and constable who are enforcing these rules on you (and the constable defines his job as punishing you if you break the pay-back rules of your grandfather’s loans).
So, to pay your loans, these friendly “helpers” float you another loan, which once again you are not allowed to default on, with interest which rolls over into the principle, and which therefore gradually increases the size of the total debt. And they only agree to give you this loan if you agree to cut back further in your expenditures on health, education, and infrastructure, and you agree to work where they tell you to work and produce what they tell you to produce, and spend what they tell you to spend, all so that you will have the money to send to them in payments on your grandfather’s debt (plus interest, of course).
With the “help” of the local banks and government “aid” agencies, you are now starving, uneducated, in poor health, in a crumbling home, and you are borrowing money from one bank to pay off money owed to another bank, on loans that your grandfather took out to retire to the Bahamas. Welcome to the “Washington Consensus,” Neo-liberal, philosophy of a smoothly running global economic system.
This story is roughly what the developing world debt crisis is all about. It may be slightly exaggerated, but unfortunately not by much. If it sounds vaguely like the kind of abuses of debts and loans that Amos and Nehemiah were complaining about in the Hebrew Scriptures, you’re right. This is the same system that created debt slaves in the Bible in the twelfth through eighth centuries, translated into the contemporary world. Some things never change, do they?
History of the Debt Crisis: How We Got From There to Here
The above is a parable, but it is a fairly accurate representation of the present crisis. The following is a more historical review of the same story.
In the 1960s the
Many countries back in the sixties experimented with creating cartels to help prop up the prices of their exports. The oil producing countries were particularly hurt by the drop in the value of the dollar because their oil was purchased in dollars. As a response, in 1972, the finance ministers of the Organization of Petroleum Exporting Countries (OPEC) met together and announced increases in oil at breath-taking levels.
I don’t want to make this overly complicated, but they actually raised the price of oil in two ways. First they tied the price of oil to the price of gold. The significance of that is that in 1971 the US had uncoupled the value of the dollar from the price of gold, and allowed it to float up and down with the market, and that was one of the reasons why the dollar‘s value had declined, starting all of this. And since the price of gold happened to be skyrocketing in value when the
The second action was ostensibly a reaction to the Yom Kippur War. The Arabic countries of OPEC announced that they would punish all of the countries who supported
In the three months following the announcement of the Arab/OPEC finance ministers, the price of oil around the world quadrupled to nearly $12 per barrel (a high price in those days). Over the next year and a half, the price of Saudi light crude oil soared from $2 per barrel to over $13 per barrel. The price then leveled off for a few years to just under $15 per barrel until the next shock in 1979. This time, from 1979 to 1981, crude oil prices more than doubled again to up to $35 per barrel. The price at the pump rose from $.38 in 1973 to $ .55 in 1974, and from about $.55 in 1979 to nearly a dollar in 1982. Those prices sound meager by today’s standards, but relative to other prices at the time, it was a shock. The 1973 increase was 210 percent. The 1979-80 increase was 135 percent.
If you are of a “certain age” you will recall what the price shocks did to the American economy. Suddenly there were long lines at gas pumps all over the country. The Nixon Administration called for gas rationing, and if you had an even number on your license tag (including “vanity” plates) you could buy gas on even numbered days of the month and if you had an odd numbered license tag you could buy it on the odd numbered days. I was a divinity student at
This arrangement made the OPEC countries more money than they had ever seen before in their collective histories. (Somewhere in the neighborhood of 400 hexa-quadra-trazillion dollars…and change). They made so much money that they were not able to spend it or store it inside their respective countries. There is a story (perhaps apocryphal, but still telling) that
It is beyond the scope of this book, but interesting to note in passing, that the explosion of wealth was not always a good thing for the oil producing countries either. A rapid increase in wealth can have a negative impact on a country. Today more than half of the OPEC countries are more poor than they were back during the oil boom of the seventies. The problem is sometimes called the “Norway Curse,” named after the time when
New money often brings corruption. In
Sometimes wars and internal disruptions can come from oil wealth that many see as easy money. A prominent example of this today is, of course,
The place where all of this touches on the debt crisis was that the OPEC countries solved their abundance-of-money “problem” by investing their newly acquired “Petro-dollars” in the banks of wealthy countries. That created another problem, however, because, while the banks now had more money than they had ever conceived possible, the US and Northern Europe were also going through a recession (caused in part by the inflationary spending of the sixties) and had few people wanting to borrow the money. When a country is in a recession, people don’t buy as many things. Developers don’t build shopping malls because people aren’t going to shop in them, and they don’t build housing developments because people aren’t going to buy them. The banks were in the dilemma of having an enormous amount of money to loan out but few people who wanted to borrow it.
Somewhere along this time, the idea came to the people in the banks that something radically new could be done with this incredible stock of money, just begging to be loaned out for interest and profit. So, for the first time in the history of banking, someone—we don’t know who first thought of it—came to the novel conclusion that banks did not have to loan just to individuals, but they could actually loan directly to sovereign governments as well. And the first step to the present debt crisis began.
There actually had been scattered instances of banks loaning to countries before that time, but nothing like what was about to take place. In the midst of this recession, which was depressing commerce in wealthy countries and which was driving dozens of poor countries to desperation, literally hundreds of banks in wealthy countries, flush with petrodollars, launched programs of shoveling out money at an amazing rate to poor countries desperately starved for cash.
I gave a talk to a church in
His experience has been mirrored by leaders of the countries receiving the loans. One minister of finance from a Latin American country told an interviewer once that whenever he would go to international conferences he would be accosted by
Countries that needed loans got money. Countries that might need loans later on got money. Countries that didn’t need loans at all got money. It didn’t really matter to the banks. Some countries took the loans because they were poor and the oil price shocks were crippling their economies, and they needed a loan just to get by. These were sometimes called “Consumption Loans,” taken out simply to pay the bills. During the 1960s, for example, the
In Nigeria, in 1975, right in the middle of champagne, gold bath tubs, and the great cement over-purchase scandal, in the middle of a flurry of international investigations, government denials, and a million tons of wet cement hardening in vessels and sinking in their harbors, First Chicago Bank and Trust arranged a $1.4 billion loan for them, for mostly “undesignated” purposes. The money was ostensibly to pay back the government for the rampant embezzlement at the root of the scandal, but mainly it just continued it. Did anyone check this loan out to see if
Other countries took out loans simply because the deals were impossible to pass up, often at below market rates. For a while loans were actually being offered at negative real interest rates, meaning that at the end of the payment period the country would have paid back less than the amount borrowed. The theory of development pushed by the banks and their co-conspirators in the World Bank, IMF and various governments, was that an increase in indebtedness would eventually create an increase in exports, which would create an increase in income, which would create an increase in standards of living. Borrow the money, spend it (wisely, one hoped) on economic development projects, and within ten years you will not only pay back the loans, but you will have developed so much economically that you would be considered a first world county. It was called “the doctrine of debt as the path towards accelerated development.” Or occasionally by its critics as the “Snake Oil” theory of development. One doesn’t have to think too hard to understand why. 
In the swirl and flood of big money, banks often competed with one another to make big loans, and often joined with other banks to get a piece of their action. In 1979 Bank of America was attempting to arrange a loan to a Latin American country. The loan was already large, over $1 billion, but it got larger when others heard about the project and joined in. Bank of America couldn’t finance the entire amount itself, so it planned to put up $350 million and then sell off the rest. But the size (not the quality) of the loan was so popular that in the end Bank of America only had to put up $100 million and other banks added an additional $2.4 billion to the loan. Two and a half times more than the country had requested or needed. It was like a Christmas tree with everyone adding its own ornament.
These stories have three things in common. First, it didn’t matter whether a country asked for a loan, wanted a loan, needed a loan or asked for it for purely greed, graft and corruption reasons. In the end the loans would be granted anyway with no oversight or due diligence. There is a story of one bank loan officer who read a story about
The Day the Music Died
In 1982 all of this came to a quick and painful end. It began with the US Federal Reserve raising interest rates dramatically in order to help slow down the “stagflation” that had gripped the economy during the late seventies. (“Stagflation” was the term coined in the 1970s for the condition of inflation and stagnation at the same time.) The action worked but it also threw the
Attempts to Address the Crisis
So, this was the story of how the fifty to sixty poor and developing countries of the global south came to be tied to the crippling debts that have pulled them down, driven their people deeper into poverty, and damaged their prospects for a better future. But it only brings the story up to about the mid 1980s. From that time to the present there have been a number of attempts to “fix” their problems. A few of those plans have had some success, some have just perpetuated the status quo, and some have made the situation worse. We’ll take a look now at the most prominent of those plans and then at the end of the chapter we’ll share a few words on some of the ways you can get involved to work for a healthier, more ethically responsible international financial system.
As an aside, it is interesting to note that the debt explosion of 1982 was very reminiscent of the housing loan bubble that burst in 2008. In both instances aggressive agents pushed loans onto borrowers who could ill afford them at variable rates of interest. In both, some of the borrowers were poor and desperate and took the loans to get ahead, and some were unscrupulous and took the loans to make a killing. But the explosion at the end of the two bubbles took them all down together.
The responses to the two crises had similarities as well. In both, the first inclination of the rescuers was to help the lenders and not the borrowers. The first money spent on the housing loan crisis was directed, not at the families who were in default and now living with their in-laws in the garage, but at the financial institutions that made the unwise—occasionally immoral—loans. The first plan of Treasury Secretary Henry Paulson was to buy up many of the loan packages that were on the secondary market, to help protect the incomes of the banks. That was essentially the same direction taken by the IMF and the World Bank in the early 1980s when they bought up the bad loans from the commercial banks. However, Paulson eventually changed course when he realized that the house loans had been so split, parceled, and sold all over the planet, that buying them up would be impossible. Instead, he decided to buy stock in the financial institutions themselves. The loans to developing countries, on the other hand, were usually still held by their originators, so the plan of buying them up to rescue the banks went forward. The IMF and World Bank (using taxpayer money) bailed out dozens of (mainly US) banks by purchasing billions of dollars worth of their most shaky and discounted loans. But in both crises, the rescuers made it clear that their first priority was helping those who had made the terrible loans, not those who (occasionally under pressure) had taken them.
The bias of the 2008 bailout money was not lost on the people at the Jubilee USA network, the organization most concerned with ending developing country debts. At the height of the debate over how to spend Congress’ $700 billion package, they were at a meeting of the IMF/World Bank encouraging them to “act with the same urgency in tackling the food crisis and global poverty crisis as they have the banking crisis.” Neil Watkins, national Coordinator of Jubilee USA Network put the matter bluntly: telling
The “Baker Plan”
The first “solutions” to the debt crisis were standard banking solutions, based on the misconception that the problem was a temporary liquidity problem. They tried rollovers, refinancing (borrowing new money to pay the debt on old money), rescheduling, and renegotiation. In 1985 the Reagan Administration’s Secretary of the Treasury, James Baker, launched a plan (subsequently called the “Baker Plan”) that was a package of all of these ideas, plus some new ones, such as opportunities to consolidate or diversify the loans, or even to buy them back at a lower rates. One interesting idea was “Debt for Equity Swaps,” whereby a country swaps part of it productive capacity in exchange for the cancellation of some of its debts. For example,
The “Brady Plan”
By 1989, an awareness was finally dawning that this was more than a balance of payments issue and couldn’t be addressed by rolling over, rescheduling, repackaging, or swapping. These procedures were simply shuffling the money around and not addressing the problem. That year, Treasury Secretary Nicholas Brady launched the “Brady Plan.” There are two parts of it that are good to remember. The first was a call for an across the board reduction in the debt owed by some of the largest of the developing countries (Mexico, Argentina, etc.) and for the IMF and the World Bank to guarantee the repayment of the other 80 percent. In exchange, the countries would have to implement some of the draconian economic policies we described in chapter one as the “Washington Consensus.” The countries agreed to these policies, which almost invariably impoverished millions of people, but they had little choice. The IMF has an incredible amount of power and influence within the financial world and turning them down meant being cut off from almost any other credit ever again. If you say no to the IMF you never again see a dime cross your borders in aid or loans or investment. Also, it didn’t hurt in the negotiations that the leaders of the poor countries were actually very wealthy themselves. If the stringent, belt tightening policies begun with the Brady Plan and followed up with IMF structural adjustment programs caused mass hunger and poverty in their countries, the leaders would by and large be immune from it. Many of them kept their own money outside of their host country anyway and would not be harmed when the inevitable crash came.
The second important part to the Brady plan was a repackaging of many of the old loans into bonds which would then be sold on the secondary market, much like equity stock. These were called “Brady Bonds,” and to protect the investor, they were partially underwritten by the U.S. Treasury. These proved a very popular investment and by the mid-1990s about $170 billion worth of Brady Bonds were selling in the market. By 2000, that number had risen to over $2.5 trillion. The rise of the secondary market is an entire subject unto itself, with pension funds, mutual funds, hedge funds and insurance companies all leaping into it with ever more complex financial instruments and derivatives, all finally collapsing in 2008 at the same time. But interestingly Brady Bonds played an important role in getting that movement started. Their partial US backing made them very safe for investors to experiment with, and they were created just at the time when the US was relaxing its requirements, accountability, transparency, and who could get into the market and buy and sell. They were so well received that by the mid-nineties some developing countries began issuing bonds on their own to raise capital because they knew they would be bought up at low interest. Until the recent global financial crisis, bonds accounted for about 60 percent of developing country debt, compared with only 13 percent in 1980.
The Rise of the Multilaterals (IMF, World Bank, etc.)
However, in spite of the importance of all of these responses to the debt crisis—the rollovers and restructures, the Baker Plan, and the Brady plan, etc.—by far the most far reaching event was the entrance of the IMF, and by extension, the World Bank and other regional development banks (because the other banks typically followed the IMF’s lead).
The IMF, you may recall from chapter one, was originally established in 1944, along with the World Bank, with the responsibility for stabilizing the global economy. Whereas the World Bank was to give long term loans for development (originally Europe and Japan, but later poor countries in the global south), the IMF was to mainly give short term bridge loans to countries caught in a balance of payments gap. But that began to change with the oil price shocks of the seventies and especially with the debt related financial meltdowns of the eighties. With the arrivals of the administrations of Margaret Thatcher in the
To be fair, some of the items on their lists are sound policies for a healthy economy. Getting inflation under control, for one example, or getting a country to not spend more than it takes in for another. But applying them every time in every country in every situation, without correct sequencing or social protections, created tremendous hardships. They didn’t take into consideration that there would be real people with families with hopes and aspirations for their futures who would be impoverished or homeless, or uprooted by some of these policies. Sometimes, if the underlying circumstances were sound and a safety net was in place, the policies helped. Sometimes they did very little. But in many countries, when conditions were not right, the safety nets were not in place, the financial institutions were not strong, the results were devastating and millions of people dropped into poverty, became immigrants, or died. During the time that poor and developing countries were under the control of the IMF (and the institutions that followed their lead), per capita income went down, poverty went up, and inequality widened.
Statistics are sometimes difficult to follow in these matters, but here are a few easy ones. A few years ago the United Nations Conference on Trade and Development (UNCTAD) studied the journeys of the 48 least developed countries under the guidance of the IMF’s “Structural Adjustment Facility,” which it officially launched in 1986. The UNCTAD study found that on average the Gross Domestic Product per person was going down slightly, by 1.4 percent, in the three years before they initiated IMF policies, it leveled off for the first three years that they were in practice, and then they declined again after that by about 1.1 percent. That part of the story alone could allow one to say that at least the countries didn’t get any worse under IMF control, except for one thing. The UNCTAD report also found that “under the time of IMF guidance, their indebtedness actually became worse. It grew to unsustainable levels.” So, their incomes flattened out in real terms, while their loan payment demands went up.
Some regions of the world fared worse than others. Between 1980 and 2000 (the years when the IMF’s structural adjustment programs were most in effect), the incomes of the poorest 20 percent of countries in southern
They are held up as a poster child of new free market growth, while they starkly reject many of the basic “Washington Consensus” principles of the free market.
This idea of redistribution within the country is one of the central pieces missed in the global advice and management of country economies. It is considered a good thing to throw open the doors of a country and invite a free flow of trade and finance, but what if the income from that open door policy stays only in the hands of a small minority of upper class elites. A useful comparison for this is
Joseph Stiglitz, in his book Globalization and its Discontents, describes how the IMF’s “one size fits all” approach failed again and again, in part because they failed to understand local situations and local cultures. He tells the story of the IMF putting extreme pressure on
Interestingly, the UNCTAD study cited above concluded its work by questioning the science used by the IMF to determine their economic policies. “The efficacy of the economic reforms, on which so many lives and livelihoods now hang is, and must remain, an act of faith.” I agree.
Excursus: Structural Adjustment programs
Much has been said about the structural adjustment policies of the IMF and its partner institutions. Here is a summary of the most important of those. If this list sounds similar to our list earlier of the basic principles of the “Washington Consensus,” it’s not an accident. Both evolved at roughly the same time from roughly the same people holding roughly the same ideologies.
1. Public Sector Layoffs.
Most poor countries have huge federal staffs. In many ways, it was their jobs program. However, the public sector is often bloated, so understandably the IMF says cut it down. The problem, as with so many of the IMF’s prescriptions, they tend to demand it immediately without jobs programs or an economic safety net to catch those who are fired.
2. Privatization of state owned industries
Water, telephone, electricity, health care, education, national forests, etc. Everything is sold off. And, because most poor countries do not have enough wealthy people within their borders to buy these things, the majority are either sold to foreigners or sold at fire-sale prices for huge losses. The old
3. Spending Cuts in Basic Social Services
These include education, health care and other social programs. The philosophy, again, is that anything that does not enhance the ability to balance the budget and make payments on the loans should be cut. But in the end, the future health and well being of the country is often undermined. An illustration is
4. Abolition of Price Controls on Basic Foodstuffs
Frequently poor countries subsidize basic goods like bread or cooking oil. But typically the IMF demands that these are cut (to save money for the loans, etc.) While, again, saving money makes sense in general, it is the poorest of the poor who suffer, and in many countries food riots have broken out when the subsidies were cut.
5. Wage Freezes and Labor Suppression
The lower the local wage, the more appealing the country is for foreign investment and the building of foreign owned companies.
6. Devaluation of Local Currencies
If a country’s currency is forced down in value, it encourages foreign investment and purchases because goods and services become cheaper relative to the investor’s currency. However, it also means that the local people have to spend more of it to get the same products. It in effect makes the local population slightly more poor.
7. Export-Oriented Production
Developing countries are heavily encouraged to make an historic switch from producing for domestic consumption to producing for foreign consumption. Factories that once made products for local sales now refocus on products for exports; farmers that once grew agricultural goods for domestic needs now grow cash crops for exports. Millions of farmers and indigenous people lose their land to large farming conglomerates growing the new crops. The result is that a good many countries are no longer food-sufficient and now dependent on imported foods that they once grew themselves.
The Highly Indebted Poor Country initiative (HIPC)
Beginning in around 1995 the tide of global public opinion on the debt crisis appeared to turn. That year the G8 (an annual gathering of a group of the eight wealthiest countries) met in
As an aside, later in chapter seven we will talk about the great Jewish historian, Josephus and his discussion of the rules by which the biblical Jubilee debt cancellation and slave liberation program was to be practiced. As you may know, Leviticus 25 calls for a complete wiping away of slavery and debt peonage and offering a fresh start, something that seemed utopian at the time, and was in fact never allowed to be enacted. Josephus, who was himself a member of the highly educated, wealthy classes, discusses in his The Antiquities of the Jews, the list of provisions that the members of his class had set down for implementing the Jubilee law. He does it with a straight face, and in excruciating and ponderous detail, line after line, rule after rule, until one finally in the end wonders whether the point of all the rules and guidelines was not actually to guarantee that no one would ever receive any debt relief. Today it’s also hard to read the ponderous, tedious, complicated, rules and guidelines of the first HIPC plan without coming to the same conclusion. It sincerely makes one wonder if the IMF today has been using descendents of the same attorneys and accountants as Josephus’?
After a few years it became clear that the HIPC initiative was simply too stringent and cumbersome and had to be revised. Also, by the end of the nineties the international grass roots anti-debt campaign had grown increasingly active and influential and it was beginning to put measurable pressure on their host governments to do something more. Jubilee chapters were popping up in country after country, and though it was an issue that attracted broad support, it was unusual in that it was driven almost entirely by church people—in the US mainly Catholics and mainline protestants, but also even a few evangelicals. They took as their theme the biblical image of the Jubilee, but more than that, many also felt spiritually connected to the cause because for generations their churches had been sending missionaries and (more recently) anti-hunger money to many of these same desperate countries. The fact that whole regions that they thought they had been helping were now sliding backwards into even deeper poverty because of a financial system over which they had little control, tugged at their religious hearts and challenged them to action.
The tipping point began in 1998 at the G8 meeting in
It was an exciting and hopeful proposal. The number of countries on the list to receive relief was to be expanded, the bar they needed to reach cancellation was lowered, the six-year qualification period was shortened, poverty reduction was now to be a central goal and not just balance of payments, $100 billion was set aside for immediate relief, and civil society would be consulted in constructing each country’s debt cancellation and poverty reduction program. Plus, the
I was present at the World Bank/IMF gathering in
As it happened, some of the countries that pledged cancellation of their individual bi-lateral debt did follow through, but some did not. On average, their cancelation brought down the debt load by about twenty-five percent, which is an improvement. However, most of the affected countries were only able to pay on about seventy-five percent of their debts at that time anyway. So in reality, the country to country cancellation brought their official debt payments down to what they were presently able to pay, so in the end it didn’t change much.
The IMF, for its part continued blocking debt relief with ever more requirements and rules. By the mid-2000s, only ten countries were close to qualifying (out of 41 on the HIPC list and about 60 on Jubilee USA’s list). In the new and improved HIPC the IMF was supposed to produce “Poverty Reduction Strategy Papers” with input from each indebted country, but a number of independent analyses showed that the papers were empty or ineffective. The UK-based World Development Movement looked at four of the new poverty strategies and found they were almost identical to the earlier non-poverty alleviation strategies. The major difference was the change of the name from “Structural Adjustment” to “Poverty Reduction.” But otherwise they were the same. Also each of those papers was supposed to be designed with input from civil society, but in a great many instances that never happened. One report from the Catholic Episcopal Pastoral Social Commission of Bolivia said that the supposed “civil society” organizations invited to planning sessions were actually representatives of banking consortiums and low-level government bureaucrats—not really the teachers, workers, and farmers envisioned in the plan. In
All in all, the new plans seemed to be the old plans. They were built on the same ideology of anti-government, pro-corporation, deregulation, privatization, and trickle down policies that the earlier ones were. There seemed to have been the same drive to increase the national income, with no awareness of the need to distribute it equitably within the country. No awareness of how cutting schools can impact education. No awareness of how cutting health care can impact a country’s ultimate health.
There is, however, one final event that we will discuss, one that has in fact produced fragile but measurable results, and which shows that diligent and indefatigable work by people of faith and conscience working together can in fact save lives and ease hardships. There are still an enormous number of problems and pitfalls along the way, but from this event has come a definite promise of hope. It was the G8 meeting at
On the positive side, the Gleneagles meeting appears to have been a watershed for the international organizations working for social good. Over 250,000 people from all over the globe came to the event, with concerts, rallies, sharing, and networking among the people and groups. Out of this meeting evolved the “Make Poverty History” campaign in the
And it was important in terms of financial pledges from the G8 representatives. The plan they drafted would wipe out most of the debt owed to the multilateral institutions for all of the countries that had completed the HIPC process, as opposed to the partial relief offered in previous plans. And the plan pledged $50 billion for actual cancellation immediately. On the downside, the G8 leaders were only willing to extend the relief to a potential 41 countries, still far short of what the Jubilee organizations had hoped for. And some of the institutions involved offset the cost of their debt relief by reducing future aid allocations. Nevertheless, for those 41 countries, it was still relief, and it did tacitly recognize the inadequacy of the “debt sustainability” language that had been used up to then.
The initiative has since become known as the Multilateral Debt Relief Initiative (MDRI). Through it 23 countries have received 100 percent cancellation of their debts, the majority of them in
The job is not over. There are still many important campaigns in the Jubilee struggle. One would be working for full inclusion of all countries still saddled with damaging, punishing levels of debt. Some countries like
But in spite of all of these challenges ahead, there is no denying that hard work of people of faith and conscience all over the world has made the level of crisis in the countries stricken with debt is smaller today than it was just a few years ago. People can make a difference. And you are one of those people. You can make a difference. This issue, like no other like it, since the Civil Rights era of the sixties, is an example of how people of faith have stepped forward and made an impact on the direction, visibility, and outcome of a campaign to make the world a better place. In this campaign, like few others, every dollar that is freed up by the US, the World Bank, the IMF, the Inter-American Development Bank or any other, is a dollar that saves a life, builds a road, or sends a child to school. When you wonder if all those people signing post cards to the US Treasury, or making phone calls to Senators and Representatives actually did any good, think of the children in the little school up in the mountains of
 “A Silent War,” Jubilee 2000/UK
 Joe Nocera, “Can a Vision Save All of
 “A Silent War,” paper Jubilee 2000/UK
 Cited in Enlace the newsletter of the Christian Commission for Development (CCD), of
 From the U.S. General Accounting Office, and the New York Times, November 22, 1998, respectively. Cited in “Proclaim Jubilee: Break the Chains of Debt,” background paper by church World Service.
 Ben White, “Wall Street’s Pay Is Expected to Plummet” (The New York Times, November 5, 2008), B1.
 Michael L. Ross, “Blood Barrels: Why Oil Wealth Fuels Conflict” (Foreign Affairs, May/June, 2008), p. 3.
 Noreena Hertz, The Debt Threat: How Debt is Destroying the Developing World (Collins: 1994), pg. 61.
 To be fair, the US, World Bank, IMF and others have made their share of destructive loans to dictators to keep them happy and voting with us in the United Nations, but perhaps one could say they were not as frequent as the banks (at least in the early days of loans) and less blatant about it.
 Hertz, Debt Threat, p. 61.
 A good survey discussion of how the money from OPEC “oil shocks” moved to unregulated loans to the Third World can be found in Robert Devlin, in “Growth and Transformation of International Banking,” in Debt and Crisis in Latin America: The Supply Side of the Story (Princeton: Princeton University Press: 1989), pp. 8-55.
 Hertz, Debt Threat, p. 60.
 Cited in Ibid., p. 61, though the story could not be independently corroborated.
 The norm, however, was closer to twenty percent, still a horrific drain on the economy. See Oscar Ugarteche, “the Structural Adjustment Stranglehold: Debt and Underdevelopment in the
 Hertz, Debt Threat, pg. 77.
 Cited in Richard Peet, Unholy Trinity: The IMF, the World Bank, and the WTO (
 Ibid., p. 103.
 Hertz, Debt Threat, p. 103-4.
 Dani Rodrik, “The Rights and Wrongs of Globalization,” lecture delivered at the Princeton Colloquium on Public and International Affairs, Woodrow Wilson School of Public and International Affairs, Princeton University, “The Return to Morality in International Affairs: A World of ‘Good and Evil’?” April 25-26, 2003, pp. 59-60.
 Joseph Stiglitz, Globalization and its Discontents (
 Peet, Op.Cit., p. 103.
 The list is adapted loosely from John Cavanagh, Sarah Anderson, and Jill Pike, “Behind the Cloak of Benevolence: World Bank and IMF Policies Hurt Workers at Home and Abroad,” in Corporations Are Gonna Get Your Mama (Monroe, ME: Common Courage Press, 1996), p. 82
 Sarah Williams and Trisha Rogers, Unfinished Business: Ten Years of Dropping the Debt (
 Peet, Unholy Trinity, p. 100.
 Hertz, Debt Threat, p. 122.