Developing world debt was high on the international agenda around the millenium, with the Jubilee Campaign enjoying some remarkable success. Much was promised. Several years later, Noreena Hertz explains in her book IOU, very little has happened, and the issue has slipped out of the public eye.
IOU is a useful overview of debt, of where it came from and how it came to be – lending the absolute maximum to the developing world has been a very profitable strategy. The crippling debt may look like a terrible mistake now, but it was and remains entirely deliberate, with richer countries and banks aggressively touting loans, and reaping the rewards. With money easy to obtain, dictators bought weapons, crooked governments funded vanity projects. Badly planned dams and factories were hurried through – Hertz mentions a steel foundry in Togo that was funded and built without anyone ever asking where the ore was going to come from. On opening, they had nothing to feed into it except the old iron pier on the site. Once that had been dismantled and fed into the furnaces, the place shut down.
This may sound like bad planning on the part of the borrower, but given the irresponsibility of the lenders in bank rolling poor governance for decades, Hertz is very clear: “there are some debts that should never have to be repaid, some debts that are so clearly illegitimate or unpayable, that countries should never be asked to honour them. It is a matter of justice, not mercy or charity.”
There are several stages to the debt crisis. Hertz’ account of the various chapters of lending, first governments, then banks flush with dollars from the 1970s oil crisis, and then the IMF, captures all the complexity of the issue without making it overly dense. She also unpacks the potential consequences of the debt problem, both for the developing world as it struggles to keep up payments, but also what happens in the developed world when a country defaults. Suffice to say that with commodity prices rising and debt becoming increasingly painful, the problem is getting worse, not better.
Frustratingly, debt relief is still in the hands of the IMF, who still insist on structural readjustments which have been repeatedly shown to make matters worse. The blindness of the IMF on this front is breath-taking. No developed nation would countenance some of the things that are regularly demanded of poor nations in return for debt re-scheduling or cancelling. Reducing government spending remains a priority, even if that means that fewer children learn to read, HIV/AIDS infection rises, and what little healthcare there is dries up. All subsidies and tariffs are forbidden, despite the US and EU using these extensively to protect their own industries. These crimes are committed against the poor, in the name of development. The sooner debt relief can be prised from the IMF the better.
Fortunately, the last chapters deal with solutions, and there are some very real ones. The scale of international cooperation is daunting, but there are precedents and possibilities. The UN would be a viable alternative to the IMF in processing and cancelling debt. All that’s missing, like so many of these things, is the will to act.
For more on the challenges of debt, and the specific ways you can get involved, see the Jubilee Debt Campaign.
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