Revisiting The Debt Crisis

5 mins read

In December 1988, the World Bank released the International Debt Table for the outgoing year. According to the report, the total stock of Third World debt for 1988, increased by 3 percent to over 1.32 trillion dollars, as against 1.28 trillion dollars in 1987. Further breakdown, showed that this debt figure represents 50% of the GNP of the developing countries. The net resource transfers from the indebted countries to the creditors between 1985 and 1987 was $74 billion which is about 3% of the combined Gross Domestic Product (GNP) of a these countries.

Stanley Fischer, Vice President and Chief Economist of the World Bank, remarked that “despite remarkably rapid growth in the industrial world in 1988, growth in the debtor nations (at best!) has remained constant”. He of course, offered the notorious panacea of “sustained adjustment programmes, enhanced catalytic roles by International Financial institutions.”

It was quite interesting to note, that the report on the International Debt Table, came out about the same time, that the United Nations Children’s Fund (UNICEF) was presenting the State of the World’s Children’s Report for 1988. That report made it clear that half a million children died in the year, as a result of the problems generated by the debt crisis of the developing countries. James Grant, UNICEF’s Executive Director, described the situation as “a shameful outrage.”

The UNICEF report made it clear that, 900 million people in Africa, Latin America and the Caribbean, which represents about one sixth of the world’s population, are faced with serious problems. It was also indicative, that this situation of crisis is at a point, when humanity seems to be making progress on a general historical scale.

Between 1980 and 1988, average Incomes  have dropped between ten and twenty-five percent. While the same period has witnessed fifty percent cuts in spending on Health Care and about forty percent on Education. According to the UNICEF analysis, the roots of the debt crisis lay in the 1970s, when loans were “irresponsibly taken and irresponsibly granted.” The loans went into the building of non-productive projects, or ended up in the private accounts of various government officials. The mass of the people, in our countries, did not have a say, in the contracting of these, mostly, dubious debts.

Take Africa, The total Indebtedness has reached $200 billion. This represents about half of its entire GDP, and approximately three to four times its annual income. This is particularly alarming, given that our continent has the most underdeveloped, of the world’s productive forces.

For the whole of Africa, by 1986, debt service had reached $15 billion yearly. At the same time, the continent lost $19 billion due to lower prices for commodity exports, which totaled only $46 billion that year. The total net resource flows to Africa decreased to $18 billion, in the same year of 1986. Exports credits which were $1 billion in 1985, were just $0.4 billion, in 1986. Africa is now a net EXPORTER of capital.

The general debt service ratio on average, for Africa, exceeds 50 percent. In some cases, they even hit the one hundred percent level. For example, Sudan’s debt service ratio was 204%, Comoros Islands and Zambia 100%, Madagascar 87%, Togo at 54%, Malawi, Uganda and Ghana at about 50% in 1986. By 1989, Nigeria’s debt service ratio, exceeded 60%.

It is against this backdrop, in fact, as part of this wholesome programme of “re-colonization” of our societies, that the various regimes of our countries, have been implementing Structural Adjustment Programmes (SAP). As ex-President Julius Nyerere puts it, we might be having to sell our children, in order to repay these inhuman debts!

The October 1988 edition of the WORLD TRADE UNION MOVEMENT, the monthly review of the World Federation of Trade Unions (WFTU), had an incisive analysis of the ruination of Brazil, by the TNCs, under the guise of the debt crisis. The importance of understanding the Brazilian dilemma, are double-edged. First of all, Brazil is the Third World’s biggest debtor. But unlike the African countries, it has very highly developed productive forces.

The article explains, that between 1973 and 1985, during which the country accumulated 80 percent of its debt, Brazil’s debts rose from 9.5 to 105 billion dollars. In the same period, the total amount of debt payments totalled 121.3 billion dollars. We must add to this, the 24 billion dollars in profits repatriated by the TNCs to their countries of origin.

The same article quoted the Morgan Guaranty Trust, an American International bank, which acknowledged that 18 to 20 billion dollars in credit never entered Brazil as a result of fraudulent transactions by the banks. The variations in interest rates, a favorite practice of the TNC banks, similarly cost the country a great deal.

The debts contracted at an interest rate of 6.25% in 1976, were paid off in 1981, at a rate of 21.5%. Because of these arbitrary fluctuations, Brazils’ debts increased by 34.57 billion dollars. The widespread practice of exports under-invoicing and imports over invoicing was also estimated to have caused the loss of between 70 and 95 billion dollars, which is higher than the total Brazilian debt, contracted from private International banks.

One of the many fallouts, from the sometime desperate efforts, to repay these debts, include the grants the Brazilian government has been giving the TNCs in the transport, extraction of primary materials, and energy production industries.

For instance, energy from the hydroelectric power station at Tucurui (which generates 8 megawatts and cost Brazil some 8 billion dollars borrowed from abroad) is now sold  to Japanese, America and British aluminium monopoles for 10 to 18 dollars a megawatt, although the cost price is 38 dollars. The total subsidies given to foreign companies producing aluminium alone, totals one billion dollars per annum.

Of course, it is the working people in Brazil, that have borne the brunt of efforts to come to terms with these debts. The level of the minimum wage has fallen from 111.04 in 1950 (100 in 1940) to 61.78 in 1980, falling further to 34.08 at the beginning of 1985, that is a two-third drop.

 The last three years have witnessed further drops in wages. The minimum wage lost 20%, at 12,444 cruzados, that is 60 dollars. Government, in the meantime continues implementing an IMF – approved policy, as society learns to grapple with Inflation at over 1,000 percent by January 1989. So much for the busting bubbles of the old Brazilian “miracle.”

Africa faces a bleak future, as a result of the debt-crisis. It has been estimated that by the year 2000, our continent will have more illiterates than there were, at independence in 1960. In fact, mortality will also be greater then, than at independence, as governments continue to implement suicidal structural adjustment programmes.

Added to this tragic picture, is the fact, that today, 91% of Africans live in dire poverty, while infant mortality rate is 150 per 1000 live births, a rate that is 20 times greater than that of developed countries. Twenty-six of the 32 most backward nations on earth are African.

Ironically though, in the bowels of the earth of our Africa, is located 97% of the world’s Chromium, 85% of the Platinum, 64% of the Manganese, and about 25% of the Uranium, to name a few.

It is the debt-crisis, in consonance with other crisis issues, that has emboldened imperialist circles in their brazen attitudes of arrogance, which has become so much pronounced in the past couple of years.

The September 4, 1988 editorial of the Conservative British SUNDAY TELEGRAPH, asked arrogantly “who will now take up the Whiteman’s burden?” It said Africa’s “gruesome” collapse was a challenge to Western humanitarianism. The truth according to the TELEGRAPH was that “black Africa, with its endless complaints, arrogance and ingratitude, has exhausted the goodwill of the industrialized world.” So instead of anti-apartheid sanctions, the West should explore sanctions against Africa “to prevent the return there of savagery and destitution.”

Reflecting upon the present impasse in the developing countries, not too long ago, President Fidel Castro said: “It is an Aesop’s Fable, except that instead of everything having some good and some bad, for us everything is bad.” We share his conclusion.


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