Debt Crisis

The Third World debt crisis was a consequence of the inability of debtor nations to service their external debts. Their burgeoning debts dramatically increased in the 1970s and 1980s and were a result of legacies of colonialism coupled with structural factors in the postwar world economy and historically specific circumstances related to fossil fuel-dependent development and the oil price shocks of the 1970s. Seeds of the crisis were sown at the 1945 United Nations Monetary and Financial Conference, commonly referred to as Bretton Woods. The International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF) were created at Bretton Woods, and plans were laid for creating the General Agreement on Tariffs and Trade. These institutions have played major roles in creating structural conditions for unpayable Third World debt within the neoliberal economic paradigm of globalization. Many Third World nations continue to service unpayable debts to the present day, and these debts create leverage points for the domination and exploitation of both people and environments by transnational corporate interests. The effects of social and environmental exploitation that derive from the economic vulnerability of nations in debt crisis are exacerbated by socially and environmentally destabilizing legacies of the postwar green revolution in agriculture that forced many subsistence producers from the land and into megacity slums and resulted in massive losses of topsoil and declines in soil fertility. During the debt crisis, Third World nations experienced rapidly increasing needs for social investment and environmental protection at the same time that their debts and the neoliberal policies of international banking interests prevented them from addressing these needs, thereby intensifying poverty and environmental damage.

The Bretton Woods conference was a forum for Allied nations to devise strategies and institutions to aid in financing the rebuilding of Europe and to prevent future economic depressions. At Bretton Woods, the stage was set for a postwar world system that carried forward in time inequities imposed during the period of European colonization. The United States led in the creation of a system that would allow it to maintain its trade surpluses, thereby increasing the global concentration of wealth and power and intensifying the economic dependency of newly independent nations. The United States also advocated conducting international trade in a free market, using national currencies. Nations running trade surpluses would be under no obligation to expend their surplus earnings by purchasing exports of debtor nations. The United States had seen its productive capacity rise as a result of the war, and its infrastructure and factories remained intact. The American delegation was concerned with maintaining and expanding U.S. trade surpluses as an outlet for American productive capacity and a vehicle for avoiding a postwar recession. Many former colonies that had not modernized and industrialized would find themselves at a competitive disadvantage as they imported high-priced manufactured goods from the First World and sold comparatively lower-priced raw materials and agricultural produce in a competitive global market.