Posted on 22-6-2004
A
New Approach To Third World Debt Crisis
by Kevin Danaher
Dozens of countries, large and small, have foreign debts so
large that
their interest payments on the debt are a crushing burden. The
Republic of
the Congo, for example, has annual debt service payments equal
to 50
percent of its export earnings; Uganda's debt service equals
44 percent of
its exports. Not surprisingly many countries cannot keep up
with their
interest payments, let alone ever hope of paying off the principal.
The situation has gotten so hopeless that even the the World
Bank and IMF
have been forced to admit that debt relief is necessary. With
the approval
of G-7 leaders, the Bank and IMG approved a plan at their 1996
annual
meeting to address the debt dilemma of the heavily indebted
poor countries
(HIPC). The ostensible goal of this multilateral debt facility
is to ease
the worst cases while maintaining strict criteria that will
reassure the
bankers. The requirements a country would need to meet include:
having
already agreed to a debt reduction plan on their commercial
and bilateral
debt, and possessing a good record on "economic reform"
(i.e., past
compliance with structural adjustment). The World Bank assumes
that only
about two dozen countries could possibly qualify. Critics such
as
Christian Aid in England have pointed out that the plan fails
to provide
enough relief: only about 3 percent of total HIPC debt could
be written
off if all the strict conditions were met.
At best this plan would serve to keep the worst debtor governments
on the
debt-payment treadmill and therefore under the influence of
the overpaid
economists in Washington. Yet the mere fact that the debt crisis
is so bad
that the people in power can no longer ignore it raises important
questions for those of us in the movement for progressive change:
how do
we respond to this issue? Do we point out the flaws of the World
Bank's
plan and not propose alternatives? Do we call for outright cancellation
of
the debt as some European groups are doing? Or should we propose
an
alternative plan that would give us something positive to say
and show
that we are trying to come up with workable alternatives instead
of just
criticizing the schemes of those in power?
The problem with simple cancellation of the debt is that it
gives a
reprieve to third world elites-many of them undemocratic-without
requiring
any reforms. There is nothing to guarantee that they won't simply
get into
debt all over again and continue to owe more allegiance to first
world
elites than to their own people. Cancellation also let's off
the hook the
World Bank, IMF and commercial lenders who made such stupid
loans in the
first place. So the question becomes: how can we relieve the
pressure of
third world debt from the workers and family farmers of debtors
countries
yet not let elites off the hook?
We should try to come up with a proactive proposal that could
meet several
criteria:
1. reduce the debt payment burden that is draining much-needed
foreign
exchange that could otherwise be used by debtor countries for
health
care, education, housing and other needed services;
2. address the crying need for capital and empowerment at the
grassroots in developing countries;
3. provide a class-conscious way to mobilize people here in
the North
that is based on feelings of solidarity with third world workers
rather
than pity;
[the latter two features would provide a basis for building
a
transnational coalition of working class forces]
4. interrupt the cycle of debt payments and new debt that links
the
interests of first world elites and third world elites.
Imposing conditionality on third world elites is not necessarily
a bad
thing. (Majority forces would like to impose 'conditionality'
such as
democratization and redistribution of wealth downward.)
It's just that up til now conditionality has been a tool used
by first
world elites to impose structural adjustment on third world
governments to
ensure profitable access of global capital to the workers and
natural
resources of third world countries. If we could build a large
transnational alliance of grassroots forces we could force the
elites to
agree to a form of debt relief that would really address the
problems at
hand.
The Beginnings of an Alternative
It is time we started developing a positive alternative to elite
conditionality. We would rally global support for "people's
conditionality." The idea would need significant input
from partner
organizations around the world and in practice would need to
be adjusted
for the specific characteristics of individual countries (unlike
the
dogmatic application of structural adjustment to debtor countries
with
vastly differing conditions and capabilities). But we in the
industrial
countries would need to do a significant portion of the lobbying
because
it is our government's that hold most sway over the policies
of the World
Bank, the IMF, the bilateral lenders and commercial lenders.
Along the lines sketched by Yunus in the L.A. Times piece, debtor
governments would pay local currency into a local People's Development
Fund, Micro-Enterprise Fund (or some such name). Once the money
was
deposited into the account, the government could not touch it.
This would
prevent the money being manipulated as political patronage.
The Fund would
have strict democratic requirements: it could be run by a board
elected in
nationwide free and fair elections with limits on campaign spending;
the
board would be required to comprise at least 50 percent women;
representation of workers and small farmers could be written
into the
charter; grassroots development organizations would figure prominently;
(and other requirements to be specified, all with the goal of
ensuring
mass democratic accountability and control).
This board would use the money deposited into the Development
Fund to
issue loans (and possibly grants) to grassroots development
efforts. These
could include a wide range of small-scale enterprises and empowerment
projects: women's production and marketing co-operatives, organic
farming
projects, craft production, provision of health, education and
transportation services, grassroots infrastructure development
such as
solar power, water purification, and sanitation, and the list
could go on.
The Grameen Bank and many other micro-enterprise lenders provide
useful
lessons on how limitations could be imposed on the size of loans,
how the
money could be paid back by collectives rather than individuals,
and how
the process could go beyond mere financial transactions to social
organizing. The economic multiplier effect would be great because
the poor
spend most of their money in the local economy on basic things
such as
food, clothing and shelter.
For each sum of local currency deposited into its People's Development
Fund, that particular government would get their foreign debt
written off
for an equivalent amount of hard currency at a mutually agreed
exchange
rate. This stops one of the biggest problems of the debt crisis:
the
bleeding of hard currency from third world countries. Talk to
people about
the economic crisis on the streets of Zimbabwe, Nicaragua or
Haiti and
eventually the discussion comes around to the problem of foreign
exchange
shortages.
Obviously third world elites and first world elites will initially
resist
this plan because of its democratic character and its goal of
shifting
economic resources downward in the class structure instead of
upward.
That's why it will require a big, transnational pressure campaign.
But
pushing for simple cancellation of the debt would also require
a big,
transnational pressure campaign in order to succeed-so why not
get more
payoff for our efforts?
To the smaller business classes we could make the factual argument
that
the current stagnation in the global economy is partly due to
insufficient
demand at the base of society among the majority population.
This fact is
already admitted by some corporate leaders and they worry about
the
worsening prospects for the future. We could get some elements
of the
business classes to support the plan out of self-interest: they
could
expect to sell more products if the majority classes had more
money to
spend.
This plan may be thought of as a debt-for-democracy equity swap.
The
problem with most debt-for-equity swaps is that they fail to
transfer
ownership to the grassroots. Under this plan there would be
(1) a
lessening of the debt stranglehold, (2) a transfer of the political
accountability of third world elites away from first world elites
to the
citizens of third world countries (a change that must take place
if there
is ever to be democracy or development in poor countries), (3)
a way to
ensure that money is getting to the grassroots base of societies,
and (4)
establishing the principle that if democracy is in fact a good
thing, it
should apply to all aspects of society, economic as well as
political.
We need a positive issue to build transnational unity around.
We can
either continue the previous practice of the left and focus
on government
policies, even though government power is being rapidly eclipsed
by the
power of transnational capital and free market ideology. Or
we can try to
directly influence how capital gets invested: a central issue
that affects
jobs, gender inequality, the environment, immigration, the fiscal
crisis
of the state and a host of other issues. One good thing about
people's
conditionality is that it allows us to go to the public with
our same
critique of the powers that be, yet it gives us something positive
to
promote: a democratic vision and practice of bottom-up, grassroots
development.
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