Africana Plus

No 15 May 1996.2


He who pays his debts

He who pays his debts gets richer.

This old French proverb, which most of the affluent nations subscribed to at one time, has less and less currency in the northern hemisphere. Debt, the beast we have nourished for so many years, is consuming the world inch by inch. It is devouring the future of many of the world's children and, if something is not done soon, it will swallow up their present as well.

He who pays his debts gets richer?

Think of what happens when someone gets a credit card for the first time, a MasterCard, Visa or American Express card. The card issuers sing a siren's song about the advantages of being a cardholder. Anything you want can be yours. All your dreams can come true. But such dreams have a steep price when something unexpected happens, and reality inevitably catches up with the naive consumer. The cardholder cannot meet payments any more, and the debts start to pile up. It is then that the beast shows its true colours: at 18.9% interest, the cards quickly become creatures of destruction.

He who pays his debts gets poorer.

At least in the poor countries of the southern hemisphere. The Third World's credit card is known as development aid, and goes by the name of Bretton Woods, Paris Club (governments) or London Club (bankers). It promises rapid development and a chance to enter the circle of the rich industrialized nations. In reality, it only spawns dependence and plunges recipients into a downward spiral of debt.

He who pays his debts gets poorer.

Development aid was first introduced in the United States in 1944. It emerged in its modern form in the Bretton Woods agreements and was ratified by a number of Western nations. The signatories wanted to lend a hand to countries that were experiencing economic difficulties in the aftermath of colonial rule. The fruit of these accords was the International Bank for Reconstruction and Development (IBRD), also known as the World Bank, and the International Monetary Fund (IMF).
In 1948, President Truman signed the Marshall Plan, and thus institutionalized a new notion of aid that included a form of preferred credit. This arrangement tended to benefit the donor more than the recipient. Originally intended to aid war-ravaged Europe, the Plan was eventually extended to the entire Third World1. The objective was to help poor countries along the road to development by providing external aid through a generous transfer of capital and technology. One spinoff was the creation of markets for consumer goods produced in developed nations. This transfer of capital generated debts that ultimately strangled the countries it was ostensibly designed to help.

He who pays his debts gets poorer.

Third World debt rose from US $9 billion in 1955 to $500 billion in 1980, and then to $1.5 trillion in 1995. Of course, this means debt in all its various forms: multilateral and bilateral aid, tied aid and private contributions. The annual debt service -- principal and interest -- of Third World countries amounts to about $200 billion. The poorer countries are financing the overdevelopment of the developed nations. They are actually supporting the rich! The debt spiral has been set in motion. Debt represented 27% of the gross national product (GNP) of Third World countries in 1980, and rocketed to nearly 50% in 1995.
In sub-Saharan Africa, the ratio exceeds 100%. Countries such as Egypt and Madagascar are grappling with debt equal to 130% of their GNP. But the winner of this contest is Mozambique, with a debt load of over 400% of GNP.

He who pays his debts gets poorer.

Of the debt that weighs on poorer nations, one type does more damage than others: multilateral debt. In fact, this debt affects only the poor nations, because rich countries are not eligible for multilateral aid. This aid is disbursed to Third World countries by the World Bank or the IMF, two institutions funded by taxpayers in the wealthy industrialized nations. Canada contributes approximately $425 million per year into this fund.
The total multilateral debt of Third World countries grew from $60 billion in 1980 to $313 billion in 1994. The problem is particularly acute in sub-Saharan Africa, where debt topped $200 billion in 1994. Nonetheless, between 1983 and 1994, this region of the world repaid nearly $150 billion to the IMF and the World Bank, some $15 billion more than it received in new loans.

He who pays his debts really does get poorer.

In contrast with bilateral aid, tied aid or private aid, lenders of multilateral aid neither reduce nor cancel the debts of poorer nations, on the grounds that this would create a moral danger. They claim that leniency would cause certain governments to mortgage the future beyond their means, while other countries might never repay their debts at all. This debt has therefore become nothing short of self-perpetuating. Unlike bilateral debt, it cannot be rescheduled; it must be paid cash on the nail. Otherwise, the borrowers risk being cast out of the international financial community. The consequences would be ruinous, as these nations would no longer have access to trade financing, foreign investment and guaranteed export credit.

He who pays his debts gets poorer.

To pay off their debt, Third World countries must contract new loans under extremely strict conditions. They must submit to the requirements of the IMF, as set out in the Structural Adjustment Program (SAP). Implementation of this vast program of economic reforms (including monetary and budgetary stabilization, and structural reform) is often to the detriment of subsistence agriculture, social programs (education and health care), lower prices on raw materials and the sale of natural resources.
In Uganda, for example, for each dollar spent on health care, the country spends 12 on debt service.
In Zambia, the government has spent 30 times more to repay its debt than to educate its children. A situation which led Julius Nyerere, former president of Tanzania, to lament: Must we starve our children to repay our debts? If this is the case, then the debt must surely be considered immoral.

He who pays his debts gets poorer.

Third World debt has become the most formidable obstacle to development. To secure economic recovery and growth, the debt must be forgiven.
Today, no serious investor would dare consider Africa. The risks are too great, especially given that 25% of world aid is now going towards debt service, and even this aid has been slashed. Western countries have trimmed their grants by close to 15%. Canada plans to cut official development assistance (ODA) by 21%, reducing it to only 0.25% of GNP, a 30-year low.

He who pays his debts gets poorer.

Forgive us our debts pleaded the African bishops in an open letter to their fellow bishops in Europe and America in April 1994.
The Church is deeply concerned about the poor nations' debt to the rich nations, said John Paul II during his most recent tour of Africa, last year. I am making an urgent appeal to the International Monetary Fund and the World Bank, as well as to all other lenders, to ease the crushing debt load of African nations.
The multilateral debt could be totally or partially eliminated if the IMF and the World Bank were to plumb their own resources and sell off the $67 billion of gold reserves they hold. Of course, the easing of the debt cannot take place without some conditions in order to safeguard against borrowers abusing the arrangement. The joint agreement between the multilateral institutions, donor and recipient, should take into account the inauguration of a democratic system, self-determination of native peoples and their territorial integrity, an increase in social spending (education and health care), reduction of military spending, respect for human rights, etc.
Lastly, to be eligible for debt forgiveness, the parties should strike a balance between amounts spent on debt service and those earmarked for social programs. In addition, some degree of joint responsibility must be taken for cases of diverted funds and loans granted for projects which failed.

He who pays his debts gets poorer.

According to the Inter-Church Coalition for Africa, reducing the multilateral debt is no longer a question of feasibility, but rather an issue of morality and political will. Maintaining the status quo so that poor countries will pay their debts while their populations starve is one of the most terrible scandals of our times.

Michel Fortin

Back to main menu