The Messenger - June 2009 - Pope's Intention
By Walt Kilroy - 23 June 2009
This month the Pope asks us “that international efforts to help poorer nations bring relief from the crushing burden of foreign debt.”
Walt Kilroy: Jesuit Solidarity Scholar
Times are changing. The tone of public discussion on our economic system has moved from uncertainty and disbelief to fear and even anger. And yet shouldn’t there be a sense of déjà vu? Didn’t we in this country already know something about being at the mercy of a financial system which is larger than governments?
It now takes little to convince people that we have been living in a financial Alice in Wonderland, with irresponsible lending, under-regulation, and collective denial. But at the very time when some are looking inwards, and thinking that we must tend to our own needs first, we find there are striking parallels with the experience of developing countries which have been crushed by unjust debts which they can never repay, no matter how hard they try. There are important differences too: while some debts in rich countries are being promptly written off or guaranteed, poor countries suffered for decades before debt cancellation finally began in recent years.
Poor countries still pay an estimated $120 million a day in debt servicing, according to Oxfam. These payments can dwarf spending on health or education. Poor countries owed a total of $2.85 trillion in 2008, according to Eurodad, the European campaigning network on debt.
We are now a little wiser – with hindsight – about unsustainable lending which banks engaged in when property values were rising. There are interesting similarities in how developing countries’ debt was accumulated: after the rise in oil prices in the early 1970s, western banks were flush with petro-dollars and encouraged poor countries to take out significant loans. Interest rates later rose, and commodity prices fell; as repayments were missed, penalty charges and interest mounted up. After paying an estimated $34 billion on its original loans of $17 billion, Nigeria was still being told it had not paid off the initial “debt”.
Illegitimate debt
Worse still, some of these loans were made to clearly corrupt regimes which were seen to be pocketing the money, like Zaire’s western-backed dictator, Mobutu Sese Seko. After the fall in 1997 of his spectacularly kleptocratic regime, the impoverished people of what is now the Democratic Republic of Congo were left with debts of $9 billion, even though they had seen little of this money.
These types of loans are called “odious debt”, a legal concept for monies which are owed by the illegitimate regime which borrowed them, rather than the state. Other loans funded arms sales to autocratic regimes, or were used for dubious “development” projects which did not benefit the people. For example, under the Marcos regime in the Philippines in the 1970s, the Bataan nuclear power station was built by Westinghouse on an earthquake fault, but was never brought into operation. It was only in 2007, more than 20 years after Marcos had gone, that the Filipino people finally paid off the loan for the $2.3 billion white elephant. Allegations of kickbacks for awarding the contract are still going through the courts.
Unlike corporations or individuals, countries can’t declare insolvency and walk away from their debts. The amount keeps on growing, even when repayment is clearly impossible.
Much of Liberia’s debt was run up by what were clearly undemocratic regimes in the 1970s and 80s. During its brutal civil war in the 1990s, repayments were halted, so that the debt mushroomed to $4.7 billion through penalty charges and interest. This amounted to 23 times its annual export earnings, making it impossible to repay, for a country where most people scrape by on less than a dollar a day. Most of Liberia’s foreign debt has finally been cancelled.
Impact of debt cancellation
At a time of overwhelmingly negative news, it’s worth looking at the positive impact of the debt cancellation which has taken place, following the Gleneagles G7 summit in 2005. Government expenditure on key areas can finally be allowed, and according to the Jubilee Debt Campaign, 29 million children are now receiving education due to debt cancellation, while millions more have been immunised against serious diseases.
Malawi used to spend 10% of its GDP on debt repayments, amounting to more than twice the budget for public health care. After it met a set of stringent conditions – including being forced to privatise some basic services and banks – some $3.2 billion in debt was cancelled in 2006, amounting to three-quarters of what it owed. It is now training 4,000 teachers a year. Zambia too used to spend twice as much on debt repayments as on health care, but following debt cancellation, user fees have been abolished at rural clinics, so that people can now access basic medical services. Uganda used its debt relief to make primary education free, and the numbers of children at school more than doubled within four years.
Campaigners are calling for further cancellation of debt via the IMF and World Bank, and an enquiry into the legitimacy of loans through these institutions. All of this is of course linked to the issue of good governance and accountability at every level – just as it is in Ireland. Now that we are really being forced to think and act outside of the box, we have an opportunity to reform the international financial architecture – which has been part of the problem – and to create a system of fair trade.
So, we find ourselves in challenging times, but also a time of opportunity. We sometimes talked about the lack of social solidarity during Ireland’s economic boom. As affluence has turned into recession, there is a danger that people will now look inwards, and have less time for those in poorer countries. But we are still among the wealthiest nations on earth, even if that wealth is not fairly distributed. So when it comes to those people and countries who have lost out most, now is the time to rekindle that sense of solidarity and passion for justice which some people feared had been lost.