Assess some of the ways in which Third World Debt might be reduced.
Despite the overwhelming number of statistics and indicators, global
poverty is as hard to measure as it is to conceptualize. One fact is
undeniable: someone is going to have to pay for past debts. It could
be the people in debtor countries, or the banks, or the people in
advanced industrial countries. Most likely it will be some combination
of these three groups. In the last ten years, there have been a
variety of proposals which, unfortunately, usually reflect only the
special interests of the groups proposing them. Generally speaking,
these solutions fall into three categories: repudiation, minor
adjustments in repayments, or reduction.
A report “Relief Works: African proposals for debt cancellation - and
why debt relief works” examines public spending in 10 African
countries which have benefited from debt cancellation. It reveals that
total spending on education in these countries has increased, and is
now twice the amount that is being paid to foreign creditors. The
story is similar with spending on health, which has risen by 70 per
cent since before debt relief, and is now one third higher than
spending on debt repayments. And contrary to the views of sceptics,
debt relief is not being used to fuel military expenditure. The report
presents these clear indications of the positive difference that debt
cancellation can make as the strongest argument there is in favour of
further debt relief for the world's poorest countries.
However, various G8 Summits have seen promises of billions in
debt-write off, but almost hardly are carried out, or contain a lot of
spin. For example, a lot of debt relief promised may include moneys
previously annouced for such purposes, thus creating an impression of
enormous write-offs. Bilateral debt relief also does not typically
release actual money to be used for other purposes. Multilateral debt
relief, however, could.
Debt repudiation, in the sense of a unilateral cessation of repayment,
occurred in a number of countries: Bolivia, Brazil, Costa Rica,
Dominican Republic, Ecuador, Honduras, Nicaragua, Panama, and Peru.
With the exception of the Peruvian cessation, however, most of these
actions have been taken with assurances that the stoppages were only
temporary. Peru announced that it was unilaterally limiting its debt
repayments to a percentage of its export earnings; and since Peru took
this action, other nations have indicated that they will act
similarly. There have been no serious proposals for a widespread and
coordinated repudiation of global debt.
Repudiation would seriously disrupt global economic relations,
probably far beyond the immediate losses of the debts themselves.
Retaliations would follow, because it would be politically impossible
for lenders not to react, and because there would be a conscious
effort to warn other potential defaulters against similar action. The