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Social Justice and Human Rights
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DEBT FORGIVENESS: MORAL IMPERATIVE AND ECONOMIC NECESSITY
The current situation is both a unique history and the general trend of capitalism. Although we will confine ourselves primarily to the current situation, it must be noted that this is not the first debt crisis faced by the world capitalist system. Debt crises have been a regular feature in the development of Western economies for over two hundred years. Thus, we must remember that the current problem is, to an extent, merely the latest example of this inherent imbalance in the growth process of the advanced Western economies. In each case, the process starts with large sums of money attempting to earn more money. Eventually all the safe investment opportunities are exhausted and this money must seek less safe, higher risk, investment opportunities. Often these high-risk investment opportunities are less than credit worthy, in that they are to fund activities that do not promote sustainable economic growth (that is necessary to pay off the investments, i.e. loans). Eventually, there is a collapse and a wiping out of the burden of the debt. This wiping out of the debt burden is essential, for it allows the process of investment to start again. A look at the current situation will show that it is a similar tale. The current debt crisis starts at the beginning of the 1970s. The rise in the price of oil by the OPEC nations (the first oil price shock) caused these oil-producing countries to be flush with dollars. They deposited them in mostly American banks, which now had an excess supply of dollars (i.e., the supply of dollars to lend exceeded the demand). As the American economies, and most of the other rich countries, were running at full capacity and full employment, there was little chance of lending this money to American, European or Japanese companies to invest in their respective countries. However, there were a large number of countries that were not heavily in debt and saturated with investment. This was the "third world" in the early 1970s. The American banks (flush with oil dollars) started lending to the third world to fund: the building of new capitals to glorify the egos of the despots that ran them; large hydroelectric dams and other show pieces of development projects; increased domestic consumption; and often simply directed into the savings accounts of the ruling elites. In essence this money was not lent to these poor countries to help the poor in these countries, but was mostly lent to help the banks in the rich countries and was used to enrich the elites in the poor countries. When interest rates were low this generally was not a problem, however, the inflation caused by the oil shocks (or more accurately, the monetary policies designed to fight the inflation) eventually led to an increase in interest rates. This rise in interest rates at the beginning of the 1980s to historically high levels measured in real terms, had two effects that started the debt crisis. First it caused the cost of the debt to rise substantially. Second, it caused a series of recessions in the rich countries and depressions in the poor countries. This lead to a fall in the per capita income for much of the "third world," from which many have yet to recover. It is a sad commentary of the blight of the poorest countries that it is only in the year of the Jubilee (2000), twenty years after the beginning of the debt crisis, that there is a strong effort to deal with the problem. True, there were reforms in the 1980s to deal with the Latin American debt crisis, but these were undertaken because that debt crisis threatened to destabilize the United States banking system, not because of any real concern with Latin America. The fact of the matter is that the debts owed by the poorest countries are irrelevant to the wealth of the West, or to the banking system. There is an old joke in the banking world: "If you owe the bank $10,000, the bank owns you. If you owe the bank $10 billion dollars, you own the bank." No one feels that this money will ever be paid off, or could be paid off. Even though most of the initially borrowed money has been paid back, due to the magic of compound interest, and the usurious rates attached to many of these loans (I remember Mexico borrowing at 40% in one of their bail-outs), there is no way that these loans can or will be paid in full. The banking system knows this, and these loans have for the most part been discounted, reclassified as non-performing or shifted to international agencies (such as the IMF and World Bank). If these countries were individuals in the United States of America, they would have filed for bankruptcy a long time ago and moved past this horrible situation. Yet, the world’s monetary leaders have not accepted this reality. This raises the question: Why does the West keep up the illusion that these are loans that could be paid back? Like much of economics, the issue is power. The West, specifically, the USA and the international agencies (IMF, World Bank) use this debt as a way to force these third world countries to submit to their authority. Often this is in the form of cramming down the throats of these poor countries "structural reforms," that is deregulation of their local economies so that multinational corporations can act without any interference from the governments of these countries (elimination of worker protections, subsidies to the poor, environmental protections, etc.). Furthermore, this power is used in many other aspects of international relations (forcing poor countries to support the USA agenda in the UN). Unfortunately for the poor countries, their debt is too small for it to give them any leverage. One should note that the poor countries have all but been excluded for the whole discussion of the debt issue, as if they didn't have anything to say that might be relevant to this issue. The statistics of this problem are mind-numbing. Many countries in Asia and Africa are paying three times their social services budget for debt service. Some examples to illustrate: Philippines, in 1992, spent 30.7% of its budget for debt servicing and only 7.7% on social services; in Cote d'Ivoire the breakdown, for 1994-96, was 35% for debt servicing, 11.4% for social services; and worse of all, Zambia in 1997 spent a mere 6.7% of its budget for social services and a whopping 40% on debt servicing. These statistics go to the heart of the issue here. The poorest countries are starving their populations in order to send money to the banks and international financial agencies of the richest countries where an equally large number are suffering from over eating and other forms of over consumption. This has been the trend from the very beginning of the development of the West, for it has always benefited from net flows of funds from poor countries or regions to the wealthy countries and regions. In fact, for every dollar in aid, investment and loans that the rich countries send to the poor, typically three or four dollars is returned in the form of profits, rents, royalties and loan repayments. Looking at the morality of this problem, it is clear that the world's poor should not be asked to pay back what they didn't borrow. The loans mostly benefited the elites in the poor countries who were aligned with the West's financial and political elites, and of course the West itself. Remember, the loans only existed so that Western banks could make money off of the petrodollars, which resulted in the rise in the price of oil. For the most part, it was not spent in a manner that benefited the people of these countries. They are in no way morally, or legally (since neither they, nor their elected representatives, borrowed the money) responsible for these debts. All efforts to make them pay off these loans are nothing short of stealing, and, since they have caused millions to die prematurely, mass murder. From a Christian perspective it is clear that even if these were legitimate loans, taken out in a legal and fair manner, they should not be paid back. This is because the burden of paying back these loans: malnutrition, widespread suffering, increased poverty and millions of deaths, is too high a price. From an economic perspective, it is just as clear that the economic development of these countries cannot begin until this burden is lifted. Any individual who has gotten a bit over their heads in credit card debt can tell you how difficult it is to get solvent. Just imagine having 40% of your family budget going towards paying these debts. Furthermore, it should be noted that the United States forgave the debts of the rich European countries incurred under the Marshall Plan (with only Finland paying theirs off), and this was for projects that produced sufficient revenues to pay off the debts, and not wasted on corruption and unnecessary spending. This debt was not collected because it was seen as a barrier to further economic growth in Europe. The economic reality of Asia and Africa is the same. No economic
development can take place until this debt is lifted. If we can forgive
the debts of the rich European countries, why not forgive the debt
of the poor African and Asian ones. The continued forced payment of
this debt is a sin against God, is morally offensive to all humanity
and is economically insane. The rich countries in the West caused
the problem, under no circumstance should the poorest of the poor
bail them out. The Third World debt burden is a new form of slavery,
equally as offensive as that which took place from the 16th to 18th
centuries. All debts of the poor countries to the rich countries must
be wiped clean, with no conditions attached. The West needs to do
this not so much for the benefit of the poor in these countries, but
to stop the continued acts of the rich countries stealing from the
world's poorest. 1 _Charles M.
A. Clark is a 2001-2002 Senior Fellow at the Vincentian Center
for Church and Society and Professor of Economics and Finance, Peter
J. Tobin College of Business, St. John’s University. Professor
Clark is the author of Economic Theory and Natural Philosophy
(1992), Pathways to a Basic Income (with John Healy) (1997)
and Basic Income: Economic Security for All Canadians (with
Sally Lerner and Robert Needham) (1999) and the editor of History
and Historians of Political Economy (1994) and Institutional
Economics and the Theory of Social Value (1995) and Unemployment
in Ireland (with Catherine Kavanagh) (1998). He has lectured widely
in the United States and Europe. His current research interests include
alternative measures of economic and social well-being and Catholic
social thought and the role of values and ethics in the economy. He
holds a Ph.D. from the New School for Social Research.
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