Foreign debt:

A curse on the poorest countries of the world

From time to time the media are full of articles about the terrible possibility that a few thousand or a few million people in the rich countries of the world might die from a new flu epidemic. By contrast, very few frontpage articles or prime time TV programmes are devoted to the millions of children who die every year from water-borne diseases - diseases that are due to the fact that over a billion people in the world still don't have access to clean water and sanitation.

These children die quietly and out of sight in some of the poorest countries in the world, and the poverty of these countries is one important factor in all this. If the countries were given the help and assistance they need to develop economically they would be more able to tackle these problems and stop so many children dying of easily preventable diseases. Unfortunately such help and assistance is not being given. On the contrary, many of the poorest countries in the world are effectively trapped in poverty. One of the reasons for this is foreign debt. Many of these countries can't use the little money they earn to develop their economies because they owe so much money to foreign banks as a result of loans that were taken out 10, 20 or even 30 years ago. The burden of foreign debt is almost too much to bear. The Ethiopian economy, for instance, is crippled by a debt that has now reached some 10 billion US dollars. For the developed economies this is a relatively small amount of money. It is comparable to the amount Americans spend on cosmetics every year (8 billion US dollars), and it is the same as the amount Europeans spend on ice cream every year. For developing economies, though, the sums are huge. Countries like Ethiopia have to pay more money to foreign banks than they spend on major public services like healthcare and education.

How did these countries incur these debts?
Countries which had only just gained their freedom after centuries of colonial rule were not known as being centres of stability. With tribal conflicts and no long-established political institutions it was very easy for unscrupulous leaders to take control. These people needed money to buy political support, to build a well-equipped and loyal army and to ensure their personal prosperity. Foreign banks saw the opportunity to profit from the situation and didn't worry much about how corrupt the foreign regimes were as long as they were willing to keep the economy open to foreign businessmen who wanted to exploit the rich natural resources that some of these countries had.

Since then, in some countries there have been revolutions and groups have come to power that are genuinely concerned about the plight of the poor. All too often, though, they find that so much of the little money the country can make has to be sent abroad to foreign banks. This is one of the reasons why so little has changed in a country like South Africa where the apartheid regime fell in 1994 and the new regime inherited a debt of 25 billion US dollars.

In 2005 the political leaders of 8 of the world's richest nations decided to cancel some of the debts of the poorest countries. On the face of it, this is a great step forward. The problem is that debt cancellation is not seen by these leaders as a means of enabling or encouraging those countries to tackle the problems of poverty. It is being used as a means of compelling those countries to open up their economies to foreign investors and businessmen.

Mozambique, for instance, was told it would have its debt cancelled only if it imposed a fivefold increase in the charges for treatment in the public health service, and if it privatised the water company - a move which led inevitably to higher charges and quicker disconnections for people who didn't or couldn't pay. The banks also objected to the way Mozambique was protecting its cashew nut industry from foreign competition (measures used by all developing countries at one time or another). The country was told that it would have to drop import controls, meaning that the local industry would lose out to cheaper nuts coming in from abroad. It has been estimated that 10,000 jobs have been lost as a result of this.

Similar measures will be imposed on all the countries that are being offered some degree of debt cancellation. It is clear from this that priority is not being given to helping the local economy develop on its own terms and to helping it achieve a greater degree of autonomy. Although some of the world's leaders - most notably the British prime minister - took up the slogan "make poverty history'' during the widely publicised debt cancellation agreements, it is clear to those who are prepared to read the unpublicised small print that priority is given to the interests of big businessmen who want to see these foreign markets opened up. No one can maintain that poverty reduction is a priority when people are being forced to pay more for the necessities of life like water and health care in a country where the average wage is less than a dollar a day and when the immediate consequence of many of these policies is an increase in the level of unemployment.

For more about foreign debt and lots of similar issues you might like to begin your search at the Green Left Review website: www.greenleft.org.au