Can't pay, must pay
Daniel Nassim examines the devastating impact of 10 years of the debt
crisis in Africa and Latin America
Ten years ago, in August 1982, Mexico sparked the third world debt crisis
when it announced that it could no longer repay its debt to the West. The
debt crisis is little discussed today. Yet its impact on the third world
has been far worse than that of the Western planes, tanks and missiles which
Over the past decade, Western governments, banks and international institutions
have imposed harsh terms on third world countries to ensure that they repay
their debts. The peoples of Latin America and Africa have experienced a
permanent regime of austerity, as a leading Western credit rating agency
'The key effect of the debt crisis has been a profound breakdown of routine
economic norms in debtor countries. When a country must operate in circumstances
equivalent to permanent bankruptcy reorganization, the economic behaviour
of its citizens is bound to shift. To satisfy creditors, wealth must be
relinquished, perhaps for reasons perceived as illegitimate, and without
the promise of reward for such sacrifice.'
In other words, the third world has to tighten its belt still further to
pay money to Western bankers and governments. In effect, the poorest people
on Earth are subsidising the life-styles and economies of the richest. The
result has been a massive shift of resources from the third world to the
West. According to the UN: 'In 1983-9, rich creditors received a staggering
$242 billion in net transfers on long-term lending from indebted developing
countries.' (Human Development Report 1992)
Such figures are so large as to seem meaningless. Who can visualise
the $1.4 trillion dollars that is owed by third world countries to the West?
Yet this burden has a very real human effect on the lives of billions in
the third world. The UN estimates that 2.3 billion people lack access to
sanitation, 1.3 billion people lack access to safe water, and 1.2 billion
barely survive in absolute poverty. It is truly the arithmetic of death.
Sub-Saharan Africa is the worst affected. The Gross Domestic Product (GDP)
of 450m people is the same as that of Belgium (10m). Food shortages are
widespread, clean water is scarce and infant mortality is high. Each year
150 000 African women die and a similar number suffer permanent disabilities
as a result of problems in pregnancy and childbirth. An estimated 200m Africans
have chronic malaria.
In some ways the situation of Latin America is even more shocking. During
the seventies, the industrialising countries of Brazil, Mexico and Argentina
were held up as models of capitalist development. But in the eighties GDP
per person in the region fell by 11 per cent. During this period Chile - ruled
by one of the most brutal dictatorships in the world - was regarded as the
model debtor. The only country to record consistent positive growth was
Colombia - thanks to the drug barons who run most of its economy.
Despite the common perception in the West, such poverty does not spring
from 'natural' causes. It is not caused by African culture, a poor climate
or corruption. It is primarily a product of the way in which the West has
bled the third world, particularly through the forced repayment of crippling
The debt crisis has played a large part in the spread of disease in Africa
and Latin America. One of the most common ways of raising funds to pay debt
is by cutting public spending. This in turn leads to reductions in vaccination
programmes and more polluted water supplies, which allow diseases to spread
and breed much more easily. That is why there have recently been the first
epidemics of typhoid in Latin America this century.
Indeed all of the 'solutions' to the debt crisis ultimately involve an attack
on the living standards of the mass of people in the third world. Public
spending cuts have meant mass redundancies and an end to subsidies on staple
foods. Real wages have been eroded, falling behind hyper-inflation.
Imported goods, paid for with scarce foreign exchange, are only for the
If the impact of the debt crisis is so terrible, why is this issue which
once preoccupied the world's top bankers so little discussed in the West
The fact is that Western banks and governments were only ever concerned
about the third world debt crisis inasmuch as it was a problem for them;
they were never much interested in the dire problems facing the impoverished
masses of Africa or Latin America. Seen in this light, it becomes clearer
why the third world debt crisis has dropped off of the West's economic agenda.
First, the Western financiers have managed to limit the damage it does
to their accounts; and second, they have become preoccupied with other debt
problems much nearer to home.
The various Western 'plans' for third world debt have been designed to bail
out the banks rather than third world countries. The basic strategy has
been to shift as much of the problem as possible on to the peoples of the
third world, by imposing harsh austerity programmes through the International
Monetary Fund and World Bank. The demise of the Soviet Union has given the
West a freer hand to pursue this strategy in the third world than it would
have had a decade ago. A couple of years ago, the Financial Times felt
able confidently to note that the banking industry was 'past the worst
of the third world debt crisis, which was itself the gravest danger facing
it since the last war' (9 May 1990).
In the current slump, the attention of Western banks has also been diverted
by a huge bad debt burden closer to home. Collapses such as those of the
Maxwell empire, the Bank of Credit and Commerce International, the Heron
Corporation and Mountleigh have all left the banks saddled with bad debt.
Olympia & York, the Canadian company that owns Canary Wharf, alone owes
as much money as Peru and almost twice as much as Bangladesh.
While Western capitalists try to extract the maximum repayments from the
poorest countries on Earth to help finance their domestic crises, every
day the third world is witnessing the economic equivalent of the Western
massacre of Iraqis on the road to Basra.
Reproduced from Living Marxism issue 47, September 1992