Who Owes Who?

50 Questions About World Debt

By Damien Millet, Eric Toussaint, Vicki Briault Manus, Gabrielle Roche

Fernwood Publishing and Zed Books Ltd

Copyright © 2004 CADTM
All rights reserved.
ISBN: 978-1-84277-427-4

Contents

Abbreviations, viii,
Introduction, ix,
Maps, xi–xvii,
1 The Third World in the context of globalization, 1,
2 The origins of the developing countries' (DCs') debt, 19,
3 The debt crisis, 27,
4 Management of the debt crisis, 36,
5 Anatomy of the developing countries' debt, 74,
6 Ongoing moves to reduce the debt burden, 88,
7 Debt cancellation and suspensions of payment in the past, 108,
8 The case for cancelling the DCs' debts, 117,
9 Issues raised by debt cancellation, 138,
10 The international campaign for debt cancellation, 164,
Appendix: Lists of countries, 169,
Glossary, 171,
Bibliography, 182,

CHAPTER 1

The Third World in the context of globalization

Q1 What is meant by the Third World?

First of all, the vocabulary used needs to be defined. The terms 'North', 'rich countries', 'industrialized countries' or 'Triad' all refer to the group formed by the countries of Western Europe, North America, Japan, Australia and New Zealand (See Appendix).

However debatable it may seem to group together such diverse countries as South Korea, Haiti, Brazil, Niger, Russia or Bangladesh in one category, we have adopted the terminology used in statistics provided by the international institutions. Thus we refer to all the countries outside the Triad as the Developing Countries (DCs). In 2001 there were 165 of these according to our figures. Within this category we distinguish, for historical reasons, between the countries of the former Soviet Bloc and the rest, classed as the Third World or the South.

The Third World is divided into five regions: East Asia and the Pacific; South Asia; the Middle East and North Africa; Sub-Saharan Africa; Latin America and the Caribbean (see Appendix).

Out of a world population of approximately 6 billion people, the International Monetary Fund (IMF) (see Q12) estimates that about 86 per cent live in the Developing Countries.

The Gross Domestic Product (GDP; see Glossary) is the conventionally accepted indicator used to evaluate the production of wealth in the world. However, the indication it provides is approximate and incomplete, with at least three major inadequacies:

• it does not take into account unpaid work, mainly provided by women

• the production of pollution is recorded as a positive and not a negative value

• the unit upon which the calculation is based is the price of a commodity or a service, and not the amount of work it requires

Despite these drawbacks, GDP is used as an indicator of economic imbalance between the North and the South. The GDP and all other monetary figures used in this book are expressed in US dollars, as more than 60 per cent of international loans and exchanges are transacted in this currency.

The production of wealth is largely concentrated in the North, and is in inverse proportion to the distribution of population. Present-day liberal globalization has been deliberately set up by the rich countries, which receive most of the profits, even though this can only be to the detriment of the 5 billion inhabitants of the DCs as well as large numbers of people in the industrialized countries.

The GDP per inhabitant reveals the economic gulf that separates the North and the South. However, this provides only a very incomplete overview of the world economic situation, as it ignores the often flagrant income disparities within a given category of country. The annual income of the richest 1 per cent of the world's population is equivalent to that of the poorest 57 per cent of the planet. Furthermore, the income of the richest 5 per cent of people in the world is 114 times higher than that of the poorest 5 per cent. Consequently, it is never useful to oppose North and South in overall terms.

The words are used only to express a geographical state of affairs; most of the decisions are made in the North and have heavy consequences for the DCs. However, within each region, the same mechanism of domination is reproduced. In the final analysis, and this is fundamental, the main problem is the oppression of one part of humankind (not exclusively located in the South) by another, much smaller in number but much more powerful. In other words, different interests (capital-holders) oppose the great majority of the population (wage-earners, small producers and their families) in both the North and the South – all those of us who are subjected to the present system. It is therefore crucial to make the correct analysis here in order to avoid misunderstanding some of the underlying issues and missing interesting alternatives.

Of course these extremely disparate economic situations tend to trigger off correspondingly dramatic human situations.

Q2 Are the living conditions of the poorest populations improving?

No, far from it. The living conditions of the most deprived have deteriorated almost everywhere over the last twenty years, though at different times, to different degrees and at different rates from one country to another. Some DCs were hit very early in the 1980s (Latin America, Africa, some countries of the former Soviet Union) while others were hit later, in the second half of the 1990s (East Asia). By the beginning of 2000, all the DCs were in a serious state of decline.

In 2000, at the United Nations' (UN) Millennium Summit, world leaders committed themselves to several calculated objectives – in reality far too modest – destined to reduce poverty by 2015. In its Global Human Development Report, 2002, the United Nations Development Programme (UNDP) (see Glossary) shows how far there is still to go. It reckons that, 'For much of the world, the prospects are bleak', with at least a quarter of the world's population living in countries which will not manage to fulfil even half of the fixed objectives. Let us examine these in detail.

The millennium objectives

• To reduce by half the proportion of the population living on less than a dollar a day 2.8 billion people are estimated to be living on less than $2 a day; of these, 1.2 billion survive on less than $1 a day. Yet even these figures, given by the World Bank (see Q13) and the IMF (see Q12) are unreliable. A study by the United Nations Conference for Trade and Development (UNCTAD; see Glossary) of Sub-Saharan African countries showed that the figures provided by those two institutions considerably underestimated the true numbers of the poor. For example, whereas the World Bank estimated that the percentage of the population of Niger living on less than a dollar a day was 41.7 per cent, based on a survey of a sample of individuals, UNCTAD found more than 75 per cent, using the country's national accounts as their source.

Again according to UNCTAD, in the thirty-four Least Developed Countries (LDCs; see Glossary) in Africa, 65 per cent of the inhabitants live on less than $1 a day, and as many as 87 per cent on less than $2 a day. Often this amount of $1 is not nearly reached: many people in Niger, in the Democratic Republic of Congo, in Bangladesh, India or other DCs have to make do with less than $0.30 a day.

Furthermore, fixing the threshold of absolute poverty at $1 a day for...