by Meara Dietrick
The current economic crisis is primarily a result of irresponsible lending in the United States and Europe, yet the repercussions have spread to developing countries across the globe. Many countries in the global South have found it difficult to finance the present crisis, as demand for their exports has decreased, credit markets have all but dried up, and money sent home by foreign workers has slowed.
Low-income countries that have already received debt relief through the Highly Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative, like Zambia, are finding themselves in danger of reaching unsustainable debt levels again with the drop in export prices. Other countries did not meet eligibility criteria for debt relief despite high levels of debt and poverty, such as Bangladesh, and are now listed by the World Bank as extremely vulnerable to the global financial crisis.
In an effort to respond to the economic crisis, the G20, a group composed of the world’s 20 largest economies, committed in April to increase funds for the International Monetary Fund (IMF). Although civil society groups have repeatedly warned that the structural adjustment policies promoted by the IMF have made countries more vulnerable to the economic crisis, the G20 selected the IMF to help developing countries through the financial crisis—without requiring significant reforms of the institution.
With the funds promised by the G20, the IMF recently announced plans to assist low income countries through the economic crisis. These efforts, however, do not go far enough. While the institution expects to provide up to $17 billion from now through 2014 for low-income countries in the form of concessional loans (which have lower interest rates and longer repayment periods), it is not certain that the IMF will even receive the contributions necessary to reach that amount.
The conditions attached to the loans mean that low-income countries will not have the flexibility to respond to the financial crisis in a way that best meets the needs of their citizens. Unlike developed countries that are trying to stem the crisis by stimulating the economy, low-income countries will be forced to increase interest rates and reduce public spending, thus negatively affecting the poor. Furthermore, this assistance is to be offered in the form of loans rather than grants. For countries like Zambia and Bangladesh, the accumulation of even more debt could lead to serious problems in the future.
Low-income countries urgently need financial assistance to weather the economic crisis without becoming more indebted. Efforts are needed to attain debt relief for more countries, eliminate interest charges for a much longer period of time on concessional loans, and provide grants without harmful conditions for countries that are vulnerable to reaching unsustainable levels of debt. The developing world should not be further indebted for an economic crisis it did not cause.
Meara Dietrick is a graduate student at American University and Wesley Theological Seminary. She was an intern in the MCC Washington Office during the summer of 2009.
