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The Shackles of Imperialism : Third World Debt
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by Rob Lyon

For weeks now since the tsunami disaster that struck South East Asia, Gordon Brown, British Chancellor of the Exchequer, has been on a one-man crusade to solve the problem of Third World debt. Mr. Brown has even spoken of a “Marshall plan for Africa”, with lots of talk of “human progress” and “ending world poverty”. The UK has now pledged to cover 10% of the 20 billion US dollars (10.75 billion) the world’s 70 poorest countries owe international finance houses in debt interest payments between now and 2015.

The unprecedented outpouring of aid for those affected by the disaster shamed the reactions of governments and corporations the world over. It has also brought the horrors that capitalism inflicts upon the world into the spotlight – poverty, misery, and the terrible burden of debt. Most people can see that the money they have donated will either not make it to its destination and will not actually aid the people suffering after the tsunami. Most of that money will go the debt payments that the affected countries will have to pay the IMF and the World Bank.

It is important to realize that Mr. Brown’s plan, no matter the outcome or the amount of “debt relief”, can never solve the problem of Third World debt. The problem of debt is rooted in the capitalist system itself, is indeed integral to it, and will never be solved until capitalism is overthrown and replaced with a system of harmonious and planned economic development – i.e. socialism.

The Causes of the Debt

The period after World War 2 saw unprecedented upheaval in the colonial areas of the world. With few exceptions the colonial powers such as Britain and France lost most of their colonial territories as a result of the uprising of the former colonial subjects. Direct military administration and control of the territories was replaced with ruthless economic control and domination – which was greater in effect than it had been in the past. The nascent capitalist class in the ex-colonial countries was far to weak to develop the economies of their countries without profound dependence on the rich imperialist states and transnational corporations.

As a parting gift, the former colonial masters imposed a sum of US$59 billion in external public debt on the newly independent states in 1960, this was their “share” of the total debts of the empires and colonial holdings. To add insult to injury, an interest rate of 14 per cent was unilaterally set. This was designed to keep these newly liberated states in perpetual poverty and debt, and keep them servile to the wealthy Western countries – their former colonial masters. Imperialism simply changed its clothes.

The energy crisis in the 1970s and subsequent rise in inflation levels led many Western institutions to lend money in increasing levels to the poorer ex-colonial countries. The money, ostensibly to be used for economic development and the improvement of living standards, was generally spent on arms. There was massive corruption and generally a large portion of the money ended up in the Swiss bank accounts of western-supported dictators. Interest rates then rose sharply in the 1980s, meaning that more and more money spent on loan repayments was simply paying off interest, not the principal loan amount. President Obasanjo of Nigeria (who here appears like a victim, but really isn’t), said the following on the debt Nigeria faces: “All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates.”

Compound interest (interest paid on the original principal balance and on the accrued and unpaid interest) means that the actual money borrowed has already been paid back, and that most countries are simply paying interest. In 1996 poor countries paid almost 330 million interest on their debt every day to the banks, governments and financial institutions of the north. As the loans are paid already, interest puts the indebted countries in a sort of indentured servitude to the rich nations. The crushing debt will keep these countries at the mercy of the imperialist powers, will maintain the workers and poor there in a perpetual state of poverty, and will prevent these countries from ever developing to the same level as that of the imperialist countries. They remain a massive reserve of cheap resources and labour for imperialism.

The situation is now completely out of control. The indebted ex-colonial countries must repay these loans in hard currency – currencies which do not fluctuate much in value – such as the US dollar, or the Japanese Yen. Debt crises often occur because of the devaluation of a given country’s currency, meaning that the amount needed to be paid back rises, in some cases astronomically.

This means that an indebted country must make money off foreign exchange in hard currency, which is generally done through exports. The only problem with this, though, is that the value of exports has fallen sharply over the past twenty years or so.

Simply to pay interest on their debts countries had to export more. Most third world countries depend on just two or three export crops or raw materials, i.e. coffee, sugar, copper, tea etc. As interest rates rose, the price of these products on the world market fell. Coffee for example fell from 3,000 per ton in 1976 to 600 per ton in 1986!

The Committee for the Abolition of Third World Debt has published the following figures on the fall of export prices.

Product Unit 1980 1990 2001
Coffee cents/kg 411.7 118.2 63.3
Cacao cents/kg 330.5 126.7 111.4
Peanut oil $/tonne 1090.1 963.7 709.2
Palm oil $/tonne 740.9 289.9 297.8
Soybean $/tonne 376 246.8 204.2
Rice (Thai) $/tonne 521.4 270.9 180.2
Sugar cents/kg 80.17 67 19.9
Cotton cents/kg 261.7 181.9 110.3
Copper $/tonne 2770 2661 1645
Lead cents/kg 115 81.1 49.6

Falling export prices for these goods means that it becomes increasingly more difficult to pay off the interest on the loans, never mind principal payments. As a result, more and more countries refinance their loans by taking out new loans to cover the old ones, and sink further and further into debt.

Structural Adjustment and HIPC

The World Bank and the IMF set up the Heavily In-Debt Poor Countries (HIPC) initiative in 1996 to help the 41 most indebted countries handle their skyrocketing debt payments. The debt of the HIPC countries was, on average, more than four times their annual export earnings, and 120 percent of GNP.

When a country is in danger of defaulting on its debt, the IMF usually intervenes with “structural adjustment packages”. Of course the structural adjustment packages that came along with this particular initiative were not meant to cancel the debt of these countries, or even significantly reduce it. It was designed to ease debt figures down to a level where they would be “sustainable”. Structural adjustment has actually meant severe cuts to social spending, so that more money could be spent on debt repayment. These types of deals do not help the indebted country at all, and in fact only aid the rich countries by ensuring that they receive payments on their loans (which have more than likely already been paid). The debt reduction itself was very small, and it has been calculated that with interest payments, countries like Zambia and Niger will pay more now than they would have in the past.

Some of the poorest countries in the world spend upwards of nine times more on debt repayments than they do on basic social services. Committee for the Abolition of Third World Debt published these figures:

Percentage of budget allocated to basic social services compared to debt repayments for the period 1992-1997

Country Social Services Debt repayments
Cameroon 4% 36%
Ivory Coast 11.4% 35%
Kenya 12.6% 40%
Zambia 6.7% 40%
Niger 20.4% 33%
Tanzania 15% 46%
Nicaragua 9.2% 14.1%

This is the despicable end result of all IMF and World Bank structural adjustment packages. When a country is in danger of defaulting on its debt, these organizations step in and slash social spending to ensure that debt payments can still be made. These so-called “bailouts” or “aid packages” don’t amount to anything at all. Take Argentina for example, a country that did default on its debt payments. The IMF and World Bank offered a $20 billion bailout. Argentina owed $128 billion in debt in mid 2001. Normal interest plus the premium amounted to payments of $27 billion a year. In other words, Argentina’s people didn’t get one penny from the $20 billion in “bailout” loans, as all of the money simply went back to US banks to pay their loan debts. The same goes for all aid packages or bailouts. It is estimated that for every one dollar that reaches these countries in aid, $11 is paid back in the form of debt payments. Under these conditions these countries will never be able to get ahead and the workers and poor will be left to face perpetual poverty and misery.

Poverty and the ex-colonial world

The tsunami disaster led to the launching of the biggest humanitarian aid effort in human history. It has also forced millions of westerners to recognize the misery and horrors caused by poverty in the so-called Third World, and put these conditions in the spotlight.

Millions of people the world over felt compelled to donate money to ease the suffering of those affected by the disaster. The tsunami has exposed Third World debt and put it in the spotlight. Millions of people can see clearly that debt in Third World countries is imperialist robbery – in most cases these countries have paid back their principle loans, and are simply paying interest, which amounts to billions of dollars over and above what they originally owed. In this way the countries of the ex-colonial world are creditors as much as debtors. Many also saw that the billions of dollars in aid would not actually go to helping people in the region affected by the disaster, because of the colossal debt these countries would have to pay back. The tsunami disaster has helped to expose the criminal and hypocritical nature of capitalism, and that is why Gordon Brown has launched his crusade – to save the image of capitalism and the image of British imperialism in particular (which obviously played a role in creating this situation, and is now involved in an unpopular imperialist war in Iraq).

However, the terrible poverty and social conditions of those in the Third World have always been there. The tsunami disaster has tragically killed nearly 300,000 people. This makes it one of the largest natural disasters of the last century. Yet every year millions of people die due to easily curable illnesses and medical complications. These people could be cured and helped if it were not for the lack of medical and social infrastructure in these countries, and if it were not for the outrageous price of drugs. 611,000 people die every year as a result of measles. Malaria kills 1.3 million, and tuberculosis 1.6 million. 1.8 million people die from diarrhea, and perinatal conditions result in the deaths of 2.5 million. 2.8 million die from complications as a result of AIDS/HIV, and respiratory infections kill 4 million.

Most people with these conditions could be cured, or their lives prolonged, with drugs readily available here in the West. But the poverty, lack of medical infrastructure in the ex-colonial world mean that some 15 million people die every year for no real reason at all. It was the disaster that exposed the tragedy and misery of the Third World and put it squarely on our television sets and has really caught the attention of westerners. People are outraged. Hence, Brown and co. are scrambling to save the face of capitalism.

The World Bank released some figures last year that reveal the misery that the majority of the world’s population face. 1.2 billion people live on less than $1 a day, and 2.8 billion people live on less than $2. For the 34 poorest countries in Africa, 87% of the population live on less than $2 a day, and 65% on less than $1. More than 1 billion people in developing countries live in slums; 800 million go hungry every day; 27 million adults are slaves; 245 million children have to work. 30,000 children die every day as a result of easily curable diseases. 1.1 billion have no access to clean drinking water. Life expectancy has fallen below 40 years of age in seven countries. These numbers clearly show the misery that capitalism has inflicted on the world.

The picture looks even worse when you compare them with the figures for the rich. In 2002 there were 147 people whose properties and holdings were worth more than $1000 billion. In the same year there were 497 billionaires whose total properties and holdings were worth more than $1544.2 billion. In 2002 the seven richest people in the world and their total holdings were worth more than the total GDP of the 49 least advanced countries, where 650 million people live.

It has been estimated that providing the world’s population with decent basic services, access to clean water, and decent education would cost around $80 billion a year for 10 years. This is a drop in the hat compared to total world finances and the holdings of the 500 or so richest people in the world.

Solving the Problem of Debt

In 1999, the total debt of the “developing world” (not counting the former Eastern Bloc) was around by the World Bank at $2,060 billion, less than 6 percent of total world debt ($37,000 billion). The debt of the former Eastern bloc countries was calculated at another $465 billion. The public debt of Belgium is approximately $250 billion, and the public debt of France is $750 billion. The US national debt is $5,000 billion, US household debt is $6,000 billion, and the national debt of Japan at $2,000 billion. Compare these figures to the total debt of the 41 HIPC countries, which is approximately $200 billion (less than one percent of world debt). The reformists argue that it is difficult to imagine how cancelling the $200 billion owed by the HIPC would seriously affect the market. They argue that this debt should be cancelled and then everything will be fine, and these countries will be able to lift themselves out of poverty and misery.

But that is not the end of the question. It is not simply about how much debt is cancelled, or the percentage this debt would be in terms of total world debt. Annulling the debt of the 41 HIPCs, or even of the entire “developing” world would not solve the problems that these countries face. On the contrary, even though these countries may be able to spend more money on health, education and other social programs, in the event of a cancellation of the debt, they would again sink into debt. The ruling class in these countries is far too weak to develop their countries on their own, alone and in isolation of the world market. Many of the companies that operate in their country, or from whom they buy products in order to provide medicines and educational material are from imperialist countries. Most of the profits from these countries do not remain within their own national borders anyway – they return to the banks of the imperialist countries. And as most of the countries do not have diverse and developed economies, they rely mainly on the export of just one or two commodities. That means that they need to purchase consumer goods from the West as well, which more than likely would be imported by western companies working there already. Even if the debt were annulled, these countries would need to start the whole process over again – by borrowing from the IMF and the World Bank, and various other national banks and corporations in order to fund most of these things. The cycle of debt would continue.

Beyond that, it is in the interest of the IMF, the World Bank, and the imperialists to continue this parasitic relationship and keep the ex-colonial world in perpetual debt. The imperialists win either way – they lend the money, and in return, in the form of interest payments, they make billions in return on their investment. Also, most of the products purchased are from companies established in imperialist countries, so they also get a very good return on their investments in the form of profits. If the debt of the “developing world” is annulled, the IMF, the World Bank, and the forces of imperialism are not just going to pack up and go home. Cancelling the debt is not going to cause capitalism to collapse, or cause it to seriously reform itself. The whole cycle of debt will restart. In fact, debt, and Third World debt in particular is essential for the continuation of capitalism. It provides the imperialists with cheap resources, and cheap labour. The debt payments ensure that the forces of imperialism can continue their looting and profit making.

Third world debt also clearly demonstrates two other things. The first is that we cannot tinker with capitalism. As long as the means of production remain in the private hands of the bourgeois, then there will always be poverty, and the ex-colonial countries will always remain impoverished and in debt. Debt reduction or increased aid packages will not solve the problem. Even if the debt is annulled, these countries will remain impoverished, the workers and poor will pay for the bad loans of their own ruling class and the imperialists.

Capitalism has made life hell for the majority of the world’s population. Two billion people live on less than $2 a day. If you count all the people, in the “rich” and “developing” countries who live in squalor, poverty, are underemployed, are poor, who make the minimum wage, who require benefits to survive etc... then it is clear that capitalism is not working for the overwhelming majority of the population of the world. The present economic system is very good, however, for those at the top. Never before has the gulf between the rich and poor been greater. Capitalism has long ago lost its progressive character and its ability to develop the productive forces in a meaningful way.

The struggle against the tyranny of imperialism and debt is picking up once again. In this struggle the demands of the masses will become more and more radical, and the movement will move closer towards the goal of socialism. We can see this in Latin America and the struggle against imperialism in Venezuela, where Chavez has recently said that capitalism is the cause of the problems in the region, and that capitalism must be transcended. Chavez has said that the solution to the problem is socialism – genuine socialism.

Not only must the debt of the Third World be annulled, but the major banks and companies of these countries must also be nationalised, and placed under the democratic control of the working class, so that a harmonious plan of production can be initiated. The second thing the disaster highlights is the internationalist character of the revolution. If the debt is cancelled capitalism will still exist, and will force these countries into more debt. One country on its own, even if it abolished capitalism and reneged on its debt payments, would still be at the mercy of world capitalism, and other countries would still be plundered at the hands of imperialism. What is needed is a world revolution to end capitalism. If capitalism is international, then so must socialism be. How else can the ex-colonial world fight the World Bank, the IMF and imperialism? The World Bank and the IMF must be expropriated, and the major finance houses, banks, and transnational corporations must be nationalised, placed under the democratic control of the working class, and integrated in a harmonious plan of production that would actually produce for need, not profit. Genuine socialism is the way to raise the ex-colonial world out of its poverty and misery, and actually place them on the road of economic development. It is the only way to end world poverty.