Third World debt crisis kills millions every year

Scan page 14

Underdeveloped countries are

getting poorer. A central cause of their misery is the austerity measures imposed by the International Monetary Fund (IMF)

and the World Bank to cope with the $1.2 trillion owed to the West.

The following article is reprinted from the May 18, 1991, issue of Socialist Outlook, a newspaper published by the International Socialist Group (ISG), sympathizing section of the Fourth International in Britain.

When the Mexican government announced in August 1982 that it faced bankruptcy and might not be able to pay its debt, shock waves spread through the international banking system.

Mexico was not the first state to face insolvency-other Third World countries were in a similar positionbut the sheer scale of its debt threatened a major crisis in the world economy.

Mexico was the world's biggest debtor after Brazil, owing some 10 percent of the world total. Letting Mexico default would have signalled to other countries that this was a way out for them too.

An international bank crash was only averted by a rescue plan cobbled together by governments, private banks and the International Monetary Fund (IMP).

Short-term relief for the bankers though, merely served to extend the burden of debt on the Third World. Debts were not written off but simply rescheduled for payment at a future date.

Even tougher austerity measures were laid down by the IMF, and Third World governments were strong-armed into accepting these penalties. The debt crisis has continued to deepen, rising from $763 billion in 1982 to over $1.2 trillion today, and it remains just as unsolved today as it was nine years ago.

What are the fundamental reasons for the debt? Foreign debt is nothing new. All the imperialist powers were originally built on it and still gorge on it today. In fact, the largest debtor country in the world is the United States-although it has the immense advantage of being simply able to print more dollars-—unlike Brazil, Sudan or Bangladesh.

In fact, the Third World "debt trap" dates back to the last century. In those days payments of debts were enforced militarily. Today the IMF imposes debt repayment through threatening to cut off future credits-which would make new imports impossible and financially wreck the [Third World countries concerned.

Bretton Woods The IMF came into existence at the end of the Second World War. However, its roots lie in plans that were drawn up during the war to ensure the expansion of U.S. capital in the post-war era and thus increase the economic and political hegemony of the United States.

The founding conference of the IMF took place in 1944 at Bretton Woods in the United States. Most Third World countries were still under the yoke of the imperialist powers. Not surprisingly, the interests of the colonial and semi-colonial world were not represented here.

What the key imperialist players wanted was a plan that could avoid a repetition of the world economic crisis of the 1920s [and 1930s], which had facilitated the rise of the Nazis in Germany and, consequently, the Second World War.

The main players in the conference were Britain and the United States. It was inevitable, given the declining role of sterling and the ascendancy of the dollar, that U.S. interests won the day. Stalin's representatives were also present, but in the era of "peaceful co-existence" and "socialism in one country," they had no impact on the outcome of the talks-indeed the Soviet Union has still not joined the IMF.

While there was agreement between the main imperialist powers around the pillars of the "new order" (free world trade, fixed exchange rates, and equal treatment for trading partners) there was disagreement over what to do about balance-of-payments deficits and foreign debt.

John Maynard Keynes, leader of the British delegation, proposed a plan for countries with a surplus to finance the deficits of others. Both debtors and creditors would end up paying towards the imbalances.

The World Bank Realizing that in the future it would have high balance-of-payments surpluses, the United States rejected Keynes's plan. Instead, they pushed through a plan to put the burden of debt onto the debtor countries themselves. The IMF would be responsible for short-term aid, and in conjunction, the World Bank was set up to provide longterm development aid.

Since 1945, membership in the IMF has been crucial to Third World states to ensure credit for imports and development. But IMF "aid" is always on the terms of the capitalist West.

Real power in the IMF lies with the United States, Britain, France, Germany and Japan-but with the United States as overwhelmingly the dominant power.

If debt has always been a problem for the Third World, the present chronic crisis started at the beginning of the 1970s.

The 1973 Arab-Israeli War led to the Arab states using oil prices as a weapon against the West. In October 1973, OPEC doubled the price of oil, then in December doubled it again.

Rich oil producing states were consequently awash with financial surpluses which they deposited in European, and especially American, banks. Eager to make profits from these deposits, the banks then tured to lend these "petro-dollars" to countries in the Third World. The huge amounts of money loaned to the Third World were rarely used productively by those countries' rulers, but generally for "prestige" projects, armaments, or even salted away in private fortunes in Swiss bank accounts.

But although the oil crisis gave the debt problem a special twist, in fact, it had been accelerating since the 1960s.

In 1960, Third World debt had stood at $18 billion. By 1970, it had shot up to $75 billion. At the beginning of the oil crisis it was $112 billion. These figures show that there has been a long term worsening of the overall position of the Third World countries which has progressively worsened their debt situation.

In 1950, the share of world trade involving Third World countries was 32 percent. By 1970, it had fallen to 17 percent. High inflation in the advanced capitalist countries pushed up the costs of imports to the semi-colonial world even further.

Between 1973 and 1982, there was a mass explosion of loans to the Third World. As the recession deepened, the debtor countries were forced to borrow more and more purely to service the interest on these loans.

After the near disaster with Mexico in 1982, the IMF stepped in much harder to keep the semi-colonial world in line. Debts were rescheduled through IMF negotiations and debtor governments were forced to adhere to a strict "stabilization program." These adjustment policies are used to control the debts of more than 80 percent of loans granted.

Their effects are devastating for the peoples of the semi-colonial world.

Governments are told to cut spending on