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.