|
| |
Debt
People in Britain feel the effects of debt in many ways
 Households in
the UK owed $50 billion to banks, finance houses and other creditors in 1992.
A survey by three High Street
banks in 1993 estimated that students leaving college are likely to have an average debt
of �1,765 each.
People in poorer countries are hit even harder
In Brazil,
1000 children die of starvation every day, while food is exported to pay the country's
debts.
In many parts of the so-called
"Third World" large areas of land are used for growing export crops like cotton
or coffee instead of food for local people to eat. This earns foreign currency to pay off
debts, but it also contributes to malnutrition and famine.
And many countries are deep in debt.
Many developing
countries have huge debts: Peru, for example, was $20.7 billion in debt at the start of
1993, the Philippines owed $32.6 billion, while Brazil was $121 billion in debt.
The combined
debt of all the countries in Sub-Saharan Africa is $180 billion. This is as much as all
the money those countries earn each year.
WHY DO COUNTRIES GET INTO DEBT?
There are two main reasons why a country borrows money. Firstly, because
it wants to build roads, dams, or schools. Secondly, because it wants to buy more than it
can afford with the money it has earned from exports. In that situation it often takes out
a loan. Countries, just like people, get into debt when they find themselves unable to
repay the loans. This might happen because of a recession; sometimes money is committed to
a badly-designed project or disappears in corrupt administration. But most often it is a
rise in interest rates which makes it very hard to repay a loan, and then countries slide
into debt.
WHERE DO YOU GET A LOAN?
The people who loan money are called creditors. As well as governments
and international banks, there are two very important international creditors:
One of the major activities of the World Bank is lending money to
countries for development projects. Money comes to the World Bank from its members, from
private investors, and from the interest it charges on loans.
The International Monetary Fund makes loans to countries with short-term
cash-flow problems. The idea is to make sure they can continue to function economically.
In return for the loans the countries have to carry out economic reforms.
THIRD WORLD DEBT GOES THROUGH THE ROOF
 By 1980 Third
World countries owed $572 billion.
Between 1982
and 1992 they paid back �850 billion to try to clear their debts.
But by 1992
the foreign debt of the Third World was $1,510 billion.
THE DEBT CRISIS
In 1973 the price of oil trebled, bringing massive profits to many
oil-producing countries. They deposited large amounts of money in Western banks. The
banks, in turn, were eager to loan out the money rather than let it sit in their own
accounts, and so huge sums of money were lent to Third World governments at very low
interest rates.
Unfortunately, the money was often spent on arms or put into private
accounts rather than allocated to health or education programmes. The banks and
governments of Europe, Japan and the USA did not look too closely into how the money was
being used. They assumed that countries do not go bankrupt so they would always be repaid.
The trouble began when recession hit the industrialised world. Interest
rates were raised. In the early 80s they reached over 20%. It became very difficult for
Third World countries to pay back the interest, let alone the capital. And the debt
multiplied.
TODAY... many countries in the Third World have successfully overthrown
the generals and dictators who took out these loans. Most of them are now democracies.
However, they are saddled with a vast debt, and many are actually poorer now than ten
years ago. Kenya, for example, faces enormous debt repayments. They soak up one third of
all the income earned from exports. 44% of the population in Kenya live in absolute
poverty. In Britain, by contrast, less than 0.1% of the population live in absolute
poverty.
DEBT IS A BOOMERANG
Third World Debt does not just hurt people in developing countries. It
hurts people in the rich, industrialised countries of the North as well. There are four
particular ways in which this happens:
ENVIRONMENT:
Pressure to find money for debt repayments has forced countries to
exploit their natural resources in the most profitable and least sustainable way. This
destroys the environment and threatens the whole planet.
DRUGS:
The United States spends $60 billion a year coping with the social and
economic costs of people taking drugs. Most of these drugs are grown by poor farmers in
countries which are deep in debt, such as Peru and Bolivia. Drug cultivation is often a
response to the increasing poverty which comes from being in debt.
"What is at risk is not the accounts of international creditors,
but the lives of millions of people."(Cardinal Arns of Brazil)
UNEMPLOYMENT:
Exports from rich countries to the Third World would be much higher if
those countries were not strapped by debt, and this would stimulate manufacturing and
create jobs in the North.
IMMIGRATION:
Millions of people flee poverty each year, swelling the numbers of
refugees, and causing immigration problems all around the world.
African countries paid back over $180 billion between 1983-90. That is
over $40 billion more than they owed in total at the end of 1982. And their debt is still
getting bigger.
HOW DO YOU SOLVE THE CRISIS?
In the past, if a country has been unable to keep up repayments they have
been re-scheduled. This means setting a new timetable for repayment and providing more
money to do so. However, this only makes the debt bigger.
The only realistic alternative is for creditors to write off the debts
they are owed.
In 1990 a meeting of Finance Ministers from the Commonwealth countries
proposed the "Trinidad Terms". These suggest that two-thirds of the debts owed
by low-income developing countries ought to be cancelled, and the rest repaid over 25
years. Many organisations urge governments to act on these proposals, but by the end of
1993 the Trinidad Terms had still not been granted to any country.
Banks are even less willing to cancel repayment of debts. In 1989 the
"Brady Plan" was launched to reduce commercial debt, but this has so far helped
only five countries. For the most part, banks feel that where possible countries should
repay everything that is owed either in cash or in kind.
WHAT CAFOD IS DOING...
CAFOD is working to raise awareness of the debt crisis among young people
and adults in England and Wales. It looks to encourage supporters to learn about the issue
and take action, individually and together, to promote a solution to the debt crisis.
There are many organisations all over Europe campaigning like this for reduction and
cancellation of the debt.
"Give us today our daily bread. And forgive us our debts as we
forgive those who are in debt to us." Matthew 6. 12
THINGS TO DO
1. Find out which banks are involved in
Third World Debt. If you have an account, ask your manager about the bank's policy on this
issue. If not, think carefully about who you want to bank with before you open an account.
2. Write to the World Development Movement
(25 Beehive Place, London SW9 7QR) or to Third World First (217 Cowley Road, Oxford OX4
lXG) for information on their campaigns to resolve the debt crisis.
3. Order free copies of 'Strapped for
Cash', one of the series of Youth Topics produced by CAFOD, Christian Aid, and SCIAF. It
contains ideas for groups on money, debt and banking.
CAFOD, Romero Close, Stockwell Road, London SW9 9TY Telephone: 0171-733
7900 Facsimile: 0171-274 9630 Registered Charity No. 285776
|
Factsheets Index,
