Debt Relief

WHILE SCHOLARS MIGHT argue over the severity and causes of debt and the best solutions for alleviating it, most would agree that the roots of modern debt began with the European enslavement of Africans and colonization of Africa, Asia, the Caribbean, and the Americas. From the 18th century on, in a process called colonization, European countries and the United States expropriated land and exploited the people and resources throughout much of what we now call the developing world and in North America.

By the mid-1900s, many European nations and America realized that colonization was economically untenable, while politically many colonies fought for and won independence. The result was that what had been many colonies were now new countries, which were economically dependent on only a few agricultural export crops (cash crops), financially dependent on the economic generosity of Western countries, depleted of significant amounts of their natural resources, underdeveloped with respect to infrastructure, and politically unstable. As a consequence, former colonies were forced to begin nation-building with little time for planning, small national reserves, and underdeveloped industries.

During the 1970s, these countries, known to economists as Least Developed Countries (LDCs), took out loans from Western banks that were awash with money coming from major petroleum-producing (OPEC) nations. However, by the 1980s, Western countries reacted to the increasing power of OPEC, and the UNCTAD Group of 77, a coalition of LDCs, rallied against southern countries because they feared developing nations were banding together to demand a more equitable economic order than the one constructed by the Western powers.

With Margaret Thatcher and Ronald Reagan in power, Britain and the United States would preside over the neocolonization of the south (southeast Asia, South America and the Caribbean Basin, and Africa), using the World Bank and International Monetary Fund (IMF) to impose structural adjustment programs (SAPs) on developing countries.

SAPs consisted of loan programs that were aimed at reforming the entire economic landscape of a borrowing country. Generally, all SAPs stipulated that the borrowing countries reduce government expenditure, especially on social services such as healthcare, education, and welfare; lift restrictions on foreign investment; privatize state-owned enterprises; and cut wages while weakening labor protections.

Policy analysts have shown that many of the initial loans made by commercial banks during the 1970s went directly to the coffers of corrupt leaders in developing countries who were propped up by Western powers, such as Zaire, Indonesia, and Chile. When these loans proved too much for developing countries to handle and they threatened to default, the World Bank [Page 237]and IMF, at the urging of the United States Treasury Department, stepped in to provide bailouts so that Western banks would not lose the money. The World Bank and IMF then made subsequent loans in the form of SAPs (and do still) so that debtor countries could pay the interest on their debts.

At the same time, these new loans imposed “conditionalities,” sometimes called austerity measures, stipulating that borrowing countries make cuts to any number of state-provided social services. The impact of SAPs was that by the early 1990s most LDCs had little state participation in the economy, trade protections for local economies were dismantled, and the economies of countries with SAPs were linked into capitalist world markets, while fewer people in these countries received necessary medical attention, education, or human services such as access to clean drinking water, sanitation services, or habitable living accommodations.

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