Cancel Third World debt

By Achin Vanaik

SINCE 1960, the world's wealth has increased eight times. But half of the world's population lives on less than $2 a day, a quarter on less than $1 a day; one third has no access to electricity; a fifth has no access to clean drinking water; one- sixth is illiterate; and one in seven adults and one in five children suffers from malnutrition. The UNDP and the UNICEF estimate that $80 billions a year for the next ten years would ensure basic education, adequate health care, enough food, clean water and sanitation for every human being on this planet. This yearly sum is less than a fourth of the average external debt repayment of $200 billions to $250 billions a year by the Third World to the advanced countries. It is also a fourth of the U.S. defence budget, nine per cent of world military expenditure, and eight per cent of annual global expenditure on advertising. It is half the accumulated wealth of the four richest persons in the world.

Since the debt crisis of 1982, there has been a massive outflow of wealth from the Third World to the advanced metropolitan countries. At today's dollar prices, the Marshall Aid Plan of 1948 would be the equivalent of $78.5 billions. If all debt repayments by the third world in just the year 1999 were taken into account it would amount to $300 billion or four times the Marshall Aid in that year alone. Since 1980, the periphery has given to the centre the equivalent of 43 Marshall Plans or $3,450 billions. In 2001, Third World debt (excluding what is owed by former East European bloc countries) amounted to $2,100 billions of which 75 per cent is public debt. Huge as this amount is, it is only a small percentage of the total world debt for 2001 which comes to more than $45,000 billions of which $22,000 billions is the total public plus private debt in the U.S. alone. If this Third World debt were to be cancelled without indemnification it would mean a loss of a mere five per cent at most in the portfolio of creditors.

But neo-liberal economists tell us that developing countries must repay their external debt to keep foreign capital inflows coming, the key to their own growth and prosperity. That such a claim can be made in the face of the massive outflows from the poorer to the richer countries shows that there really are no limits to the brazenness of neo-liberalism. According to the UNDP, only 25 developing countries (including East European countries) out of 180 have access to private markets for bonds, commercial bank loans and portfolio investments. In 1999, the 48 least developed countries got 0.5 per cent of the FDIs destined for the developing countries while the richer countries get over 80 per cent of all such flows, i.e. the centre overwhelmingly invests in the centre even as it insists on debt repayments from the periphery in the name of encouraging foreign investment possibilities there. Of the developing countries four of them - China, Brazil, Mexico and Thailand - got more than 50 per cent of such FDI flows. But 80 per cent of these flows were for mergers and acquisitions and not for `greenfield' investments.

Historical precedents show cancellation promotes prosperity and does not affect access to international capital in the longer term. In the late 18th century, the U.S. cancelled its debts to the British Crown. In the 20th century, the Russian state debt in 1918 was cancelled, as also the war debts of the U.K. and France and the debts of the South American states after the 1929 Wall Street Crash. In 1953, 51 per cent of Germany's war debt was cancelled. In all cases the results were considerable economic expansion and subsequent access to international capital. In fact, there are certain legal arguments legitimising such debt cancellation, most notable the principles of `odious debt' and `force majeure'.

An `odious debt' is one contracted against the interests of local populations, i.e. it is a debt incurred by a regime which is odious for the population concerned and should be annulled when the regime falls, since it is not obligatory for the nation to undergo unjustified suffering to repay such debt. In the 19th century when the U.S. gained control of Cuba from Spain, the U.S. cancelled the Cuban debt owed to Spain on the grounds that the debt was incurred by a non-consensual `imposition' on the Cuban people by the previous regime. In the 1930s, an International Court of Arbitration of which U.S. Supreme Court Judge Taft was a member ruled against repayment of loans by President Tinoco of Costa Rica to a British bank on the same grounds. In the 1980s, lawful Governments following dictatorships in several South American countries (Argentina, Uruguay, Brazil, etc.) should have cancelled such `odious debts'. Indeed, the loans of those dictatorships for which repayment was insisted upon were embezzled by local elites in collusion with Northern banks. The same kind of fraudulence took place after the fall of the Marcos regime in the Philippines in 1986, in South Africa after it overthrew apartheid, in Rwanda after the genocide of 1994, in the Democratic Republic of Congo in 1997 when Mobutu was overthrown and in 1998 after the fall of Suharto in Indonesia.

According to `force majeure', a major change from the conditions when contracts were first drawn up can invalidate the continued fulfillment of that contract's obligations. This would be the case when circumstances get out of one's control, as a result of which there emerges `non- feasibility', `frustration' or `impossibility' of fulfillment of contract obligations. From 1979, two exogenous factors created circumstances in which `force majeure' can be said to be applicable. The creditor countries, led by the U.S., dramatically raised interest rates worldwide; and export prices of Third World commodities fell drastically relative to imports.

Apart from outright cancellation of Third World debt, we need a road map of where a more humane and decent world order would head towards, i.e. one in which current neo-liberal thinking would be rejected for the pernicious and damaging ideology it is. Five other processes should be set in motion. 1) Restore stolen property to third world citizens. Between 1976-83 under a military dictatorship, Argentina saw its debt increase six- fold. Much of the money borrowed was deposited by members of the regime in Western banks and financial and industrial institutions. In July 2000, the Argentine Judiciary in a trial established collusion of the IMF and the New York Federal Reserve and passed a judgment that the populations robbed should receive compensation.

2) Introduce a tax on financial transactions. A one per cent tax on daily global transactions (well over a trillion dollars) would raise over $800 billions a year which could be split into two funds - one for social and ecological rehabilitation in the countries where the transactions took place and the other half for redistribution to Southern countries for promotion of education, health, etc. Even a 0.1 per cent Tobin tax would raise $100 billion-plus annually. It is now possible in this age of globalised markets and centralised computerisation of clearing houses to carry out and monitor such a solidarity tax on all financial transactions from bonds and shares to currencies to derivatives.

3) End Structural Adjustment programmes which have caused untold misery to the developing world. Third World debt has quadrupled since these programmes were first set up even though debt has been repaid six times over during the same period. 4) Each country's right to nutritional autonomy and self-sufficiency in staples should be recognised, i.e. protection for imports opposing WTO's minimal agricultural export quota of five per cent on member countries. 5) Establish new rules for the world's financial markets - re-regulate money movements so that all financial operations can be traced. Control capital movements through obligatory one year deposits of 30 per cent of any sum invested, returnable (without interest) after one year so as to encourage longer term investments. Similarly, bonds and shares should be held for a minimum of one year before selling, and confine currency exchange to non-financial commercial transactions. Eliminate tax havens and change banker's rules to combat tax evasion, embezzlement of public funds and corruption.

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