The financial crisis and the ensuing global recession are affecting more people in every part of the world than ever before. Almost everyone in the United States is somehow connected to this crisis. Many of our friends, family and neighbors have lost their jobs, homes and life savings.
As the United States struggles in its efforts toward recovery, impoverished countries in Asia, Latin America and Africa are hit even harder due to economic threats that have lasted for decades. One of these threats, the debt crisis, has crippled the economies of poor countries. Debt payments prevent precious resources from being invested in essential services for the poor. Much like the current economic crisis, the international debt crisis has brought about suffering for poor people due to the decisions and policies of governments and financial institutions.
In the 1970s, U.S. and European banks were flush with petrodollars (money received by oil exporters which is then deposited into Western banks). To gain more wealth, these banks convinced developing nations to borrow large sums of money with low interest rates. These loans were given with little accountability, so the funds were often used for ineffective development projects or by corrupt government officials for personal gain. The Marcos dictatorship in the Philippines, for example, siphoned off more than $5 billion to banks in Switzerland. Creditors continued lending, despite knowledge of such activity.
In the early 1980s, the global economy began sliding into recession and interest rates began to rise. Developing nations were hit especially hard because most of the loans were borrowed at variable rates, set about 1 percent above the U.S. rate. In 1981 the U.S. rate peaked at 21.5 percent and the debt of poor countries ballooned out of control. In 1982, Mexico’s finance minister announced that they could no longer make debt payments; 40 other nations soon followed suit. If these nations would have defaulted on their loans, U.S. banks such as Citibank, Chase Manhattan and others could have fallen into bankruptcy.
To prevent bankruptcies of Western banks, the International Monetary Fund (IMF) and the World Bank stepped in to restructure and reschedule loan payments, which included additional loans to repay old ones. The IMF also forced these countries into so-called Structural Adjustment Programs (SAP). Structural adjustment includes cuts in government social spending and the privatization of essential services such as health care, as well as trade liberalization and a reorientation of the economy for export, with cuts in support for local agriculture. These programs have had a devastating impact on the poor and have driven countries into deeper levels of poverty. Dr. Adabayo Adedeji of the African Centre for Development Strategy in Nigeria and a former Under Secretary General of the United Nations says, “Debt is tearing down schools, clinics and hospitals and the effects are no less devastating than war.”
Since the mid 1990s, due to organized efforts by economic justice advocates, some countries have seen debt relief. In 1996, the IMF and the World Bank began the Heavily Indebted Poor Countries (HIPC) initiative, which yielded billions of dollars in debt cancellation in 1999. The HIPC program, however, also came with strings attached in the form of structural adjustment programs. Still, a major victory was achieved in 2005 when the G8 (eight of the world’s wealthiest countries) agreed to provide complete debt relief for 18 additional countries that were part of the HIPC initiative.
Today, many other countries continue to suffer from the heavy burden of debt and its impact on their economies. The Jubilee USA Network, of which MCC is a member, states that the poorest countries spend about $100 million every day in debt payments. These countries, many of which are in sub-Saharan Africa, could better use this money to support domestic programs. According to Jubilee USA, “every day, 30,000 children die of easily preventable diseases due to malnutrition and lack of adequate medical care. The Jubilee vision that we find in Scripture calls us to challenge this horrible reality.” Cancellation of unjust debt and reform of lending is one important way to challenge this “horrible reality.”
More than 60 countries suffer from a heavy debt burden and will not reach the Millennium Development Goals (MDGs) without further cancellation. The MDGs are a strategy by the United Nations to cut poverty in half by 2015.
The Jubilee Act for Responsible Lending and Expanded Debt Cancellation calls for expanded debt cancellation without harmful economic policy conditions. It also calls for more responsible and transparent lending by creditors to avoid a new debt crisis and to move us toward a more just global economic system. The bill was passed by the House of Representatives in 2007 but failed to pass in the Senate.
At the time of writing this article, the Jubilee Act has not been reintroduced but is expected to be soon. Passing the Jubilee Act will be an important step toward economic wholeness while costing little. According to Jubilee USA, it would cost only 40 cents per U.S. resident to cancel the debt owed to the U.S. by 24 additional impoverished countries and less than one additional dollar to cancel the debts owed by these countries to the World Bank and the IMF.
Debt cancellation can help poor countries create a new beginning in a time of economic turmoil and uncertainty. This is a way toward abundant life for all.
