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The global boomerang
by Jeremy Traylen

Why canceling Third World debt will alleviate poverty and suffering, and increase the quality of life in the developed world.


Maitreya has said that complacency is the root of all evil. It is "a mentality that can be summed up as ‘I’m all right Jack’. This mentality leads individuals and institutions to become estranged and disconnected from the realities of life. In this condition one has no vision and can only produce ineffective solutions."(*1) In recent times nothing illustrates this truth better than the annual summit of leaders from the industrialized democracies known as the Group of Eight. In May of this year they met in Birmingham, England: recent events in Indonesia and India were at the top of the agenda.

Further down the list was the issue of Third World debt. At present the developing world spends $270,000 million annually on debt servicing. After deducting aid there remains a net transfer back to the industrialized nations of more than $200 billion. This means that governments of developing nations have very little to spend on health, education and other essential services. If Africa alone had its debts cancelled, the money released could save the lives of about 21 million children by the year 2000 and provide 90 million girls and women with access to basic education.


If Africa alone had its debts cancelled, the money released could save the lives of about 21 million children by the year 2000 and provide 90 million girls and women with access to basic education


That the G8 discussed the debt issue at all was due largely to the political pressure created by the Jubilee 2000 coalition, an international campaign that church aid agencies started in 1996(*2). The coalition also made sure that the people’s voice was heard by mobilizing 70,000 people to march on the streets of Birmingham at the time of the summit.

Disappointed

Naturally the coalition was disappointed when the G8 failed to take any action on the issue. "Each year the G8 pitches up promising to give meaningful debt relief to the poorest countries and each year they remain trapped in a world of aid dependency and disaster after disaster," said Andrew Sims of Christian Aid. "It has failed to understand that the target of halving world poverty by the year 2015 can only be met by more realistic debt relief; the kind of debt relief Germany received after the Second World War."

Third World indebtedness is more than just a humanitarian issue. The other problems on their summit agenda, namely unemployment, global warming and drugs, are all affected by it. By taking action on debt they could effectively address four issues at the same time.


At present the developing world spends $270,000 million annually on debt servicing. After deducting aid there remains a net transfer back to the industrialized nations of more than $200 billion


This is the argument that debt relief campaigner Susan George makes. She was also in Birmingham during the weekend of the G8 summit, but was attending a parallel annual gathering known as the "People’s Summit". In 1992 she coined the expression "debt boomerang" to describe how the Third World debt crisis rebounds on industrialized countries in ways that are impossible to avoid.

At the heart of the problem are the Structural Adjustment Programs imposed by the International Monetary Fund and the World Bank when nations get into financial difficulty.

The goal of these programs is for a nation to increase its savings and earn more hard currency so that it can pay off its debt. Thus, when the debt crisis engulfed the developing world in the 1980s, government spending was slashed, state assets were privatized, and public sector employees laid off. National currencies were devalued and export earnings were increased at any cost. This called for the cashing in of natural assets such as forests and fisheries, and the conversion of land to large-scale export farming.

Urban dwellers lost their jobs and smallhold peasant farmers were forced off their land, creating an exodus of people in search of a means of survival. This growing population of economic refugees stripped forests bare to make firewood and space for growing food. This was in addition to the rapid increase in commercial logging and clearing of land for large cattle farms. Budget austerities meant government conservation programs were cancelled. The Third World’s largest debtor, Brazil, also contains the largest proportion of the world’s remaining tree cover, and it is busily clearing it at the rate of 50,000 square kilometers a day.

Debt is clearly connected to deforestation, which in turn contributes to global warming. The debt connection also shows up in other environmental problems. Studies of 33 counties in the United States that take their drinking water from the Rio Grande river show significantly higher rates of liver and bladder cancer than the US national average. It is just one side-effect of an ecological disaster area across the Mexican border, known as the maquiladora zone. As part of its drive for export earnings, Mexico has encouraged 1,800 foreign-owned factories to be built near its northern border. Among the incentives is an almost total absence of environmental regulations, which leads to, among other things, the dumping of huge quantities of toxic wastes. This pollution is no respecter of national boundaries and soon makes its way into the US.

There have also been economic repercussions. An obvious effect of the maquiladora program is unemployment for Americans as firms relocate en masse to areas where there are no minimum wages, no child labor laws, no workplace safety standards, no unemployment insurance, and of course no environmental protection costs.

But the problem is more fundamental than this. If a country is to make debt payments it has to run a trade surplus. If most of the developing world starts trying to run a trade surplus, it means there has to be an increase in trade deficits elsewhere in the world. Not surprisingly the 1980s saw a huge shift in the American balance of payments. For industrial countries as a whole, the growth of export earnings to the developing world went from 8 per cent per annum to zero, and even declined in Europe. In America lost exports to developing countries are estimated to have cost 1.4 million jobs.

Social consequences

The American farm crisis of the 1980s was also part of the fallout. During the 1970s the buildup of Third World debt fueled their consumption of imports and American farmers enjoyed buoyant sales to these countries. These boom conditions encouraged the farmers themselves to borrow in order to expand their production. When the crisis hit, not only did the developing world stop importing but also their drive for exports sent commodity prices tumbling. American farmers were left in the lurch and over 400,000 family farms went bankrupt. But the rebound effect didn’t end there. Massive farm losses meant rural businesses, services and communities were also dragged down, which in turn led to bank failures.

The debt crisis hurt an American economy that was already under pressure. Rising unemployment and falling wages created a fertile environment for the phenomenal growth of the drug economy, arguably America’s number one social problem today. Unemployment and falling standards of living have a two-pronged effect on the drug problem. They create the psychological conditions that make people want to take drugs. At the same time, the supply becomes more readily available as the lack of other economic prospects draws people to enter a trade that has a growing clientele. The ready availability of drugs helps to increase the number of users, and so the cycle continues.

While American society was becoming addicted to drugs, so were the Andean economies of South America. The case of Bolivia is illustrative. In 1981 unemployment was officially 6 per cent. By 1988 it was officially 22 per cent, but in reality probably closer to 35 per cent. Landless peasants and laid-off workers flocked to the coca-growing regions and the area given over to the coca plant increased by 250 per cent. By the end of the 1980s the coca business was generating jobs for around 40 per cent of the workforce, accounting for up to 80 per cent of exports and was the sole reason that Bolivia had been able to service its debt.

Recently however Bolivia has come under pressure from the US to eradicate all illicit coca production. It has already started to destroy the crops of small growers but in doing so risks sparking a revolution. As a former director of the Central Bank of Bolivia said: "Cocaine is like a cushion that is preventing a social explosion."

Debt and war

This brings us to the link between debt and war. After the First World War, Germany had to make reparation payments of up to 15 per cent of its export earnings, an amount so excessive it is considered to be a leading cause of the Second World War. At present the developing world is paying 20 per cent of its export receipts in debt servicing, creating an ever present source of tension. As Benjamin Creme has warned: "The divisions in the world are so great, the tensions inherent in these divisions so intense, that they have within them the seeds of a Third World War. That war would be nuclear, and would destroy all life on this planet."(*3) A rather chilling statement considering India’s and Pakistan’s recent nuclear tests and the regional tensions they have created.

In 1953 the Allies were wise enough to take a lesson from history. They cancelled German debt to the extent that only 3.5 per cent of export earnings were required to service it.

Boomerang effects aren’t just about avoiding harm; they can just as easily bring you good. In 1947 the US was facing the collapse of its export markets as a war-torn European economy ran out of the means with which to continue paying for its imports. They created the Marshall Plan and (in today’s money) spent $90,000 million priming Europe’s economic pump.(*4) Not only was collapse avoided but peace and prosperity were created for both donor and recipient: the global boomerang (or Law of Cause and Effect) had been wielded effectively.

When the Third World debt crisis began in 1982, the industrialized countries were essentially faced with the same scenario that America had faced after the War. Unfortunately our leaders lacked the vision of their predecessors and the end result has been pain and misery for the whole family of nations. We can, however, reverse the effects of this terrible blunder but first we must sacrifice our complacency.

Notes

  1. ‘The Law of Cause and Effect’, Share International, Special Information Issue.
  2. See ‘Abolishing debt slavery’, Share International, April 1998.
  3. Maitreya’s Mission Volume Three, p12.
  4. See ‘When sharing saved the world’, Share International, May 1998

References:

Breaking the Chains, A Guardian, UK, special report.

Susan George, The Debt Boomerang: How Third World Debt Harms Us All, Pluto Press, 1992.

From the July/August 1998 issue of Share International.


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First published April 1999, Last modified: 15-Oct-2005