When the Third World debt crisis erupted in 1982, development came to a halt. Relieving the economic stagnation resulting from the debt crisis will not be easy, and the time lost during this decade may not be recoverable. For Third World income growth, and perhaps for development more broadly, the 1980s represent a decade of lost opportunity. Rejuvenating growth and development should be a priority item on the agenda of the Western leaders as they meet in France this weekend for an economic summit.
The global recession of 1981-83 and lingering debt crisis caused a dramatic decline in developing-country income. In the 17 highly indebted countries (mostly in Latin America) gross domestic product per capita fell steadily so that by the end of 1988, on average, citizens in these countries were about 10 percent poorer than in 1980. Sub-Saharan Africa`s income per capita in 1988 was nearly 20 percent lower than in 1980. Average living standards during 1979-85 fell in countries that are home to 719 million people-29 percent of the developing world`s population.
The income crisis has been paralleled by an erosion of progress in human well-being. Although the mortality rate among children under 5 has continued to fall during the `80s, it did so at a much slower rate than during the three previous decades. Access to safe drinking water has declined in some parts of the world.
These and other social problems are likely to be aggravated over the long term by the reduction of public spending on social programs such as education, health, housing, welfare and social security. As debtor-country income declined, overall government revenue and spending fell by nearly the same proportion. Furthermore, large public-sector debts required growing amounts of money to cover interest and principal payments. Latin America devoted 27 percent of central government spending to interest payments in 1985 as opposed to 9 percent in 1980. Consequently, public spending on social programs contracted from 44 percent of spending in 1980 to 36 percent five years later. This reduced social spending today is creating a growing ``social debt.`` The failure to invest in educational training, health standards and other improvements in living conditions will reduce the development potential of Third World populations in coming years and thereby increase the future costs of development.
The current era of slow growth stands in stark contrast to the impressive developing-country growth rates of the 1960s and `70s. Therefore, while actual income declines in the 1980s were substantial, the losses of potential growth in income were even greater. These countries are $2 trillion poorer now than they could have been-amounting to some $3,500 per person over the 1980-88 period.
It will not be easy for policymakers to create the economic climate necessary to increase developing-country incomes at the same pace as before the debt crisis. Most estimates for the next several years project growth rates that are significantly lower than the rates achieved in the `60s and
`70s. If these projections are correct, many countries will still be poorer in 1992 than they were in 1980. The average African, for example, will not recover his or her 1980 income level until the year 2005.
Even under optimistic economic scenarios, it will be many years before the highly indebted developing countries make up for the lost time and recover the path they left after 1980.
Western leaders face the task of finding the political will to act in a concerted and unswerving manner to achieve faster global growth. They will have to use the tools of state to accomplish the necessary policy objectives, which include strong growth in industrial countries, low interest rates, low oil prices, debt relief, better macro-economic management and open trade.