Jo Hunter Adams
“Sometimes in life one has to admit that things just aren’t working. This is one of those times.” p178 The Debt Threat, Noreena Hertz.
Last week I spoke about how Mohammed Yunus and the world bank think of credit as an opportunity for the poor to survive and better themselves. I will also talk more about the Grameen in a post in the next week, but for now I would like to talk about the debt that plagues many of the poorest nations in the world. This post is based on my reading of The Debt Threat by Noreena Hertz. Debt and Credit are two sides of the same coin.
Most of the debt of poor countries did nothing to help them grapple with poverty. Yet today, debt repayment makes poverty more intractable than ever.
"Much of the debt of poor countries is left over from the 1970s - and often arose through reckless or self-interested lending by the rich world." (Noreena Hertz) In the height of the cold war, wealthy countries used their wealth to buy the friendships of other countries. They attempted to win countries over to their political system by implying that system was synonymous with abundant resources. Not surprisingly, lenders were less interested in where the money was spent than on how it served them politically.
Just as quickly, at the end of Cold War, debts were suddenly due. Before reading The Debt Threat, I had not connected the concept of "sustainable development" with the end of the Cold War. Hertz makes this connection. And it's a powerful one! Suddenly, development needed to be sustainable, not based on loans, at the same time that loans were no longer politically necessary. Understanding the origins of the system is really helpful for making sense of why "sustainable development" is generally not terribly sustainable. Hertz is arguing that the driving force behind sustainable development was political; it was not based in the inherent dignity of self-sufficiency.
The impact of debt repayment is dire. Instead of spending money on health care or social infrastructure, funds are spent servicing loans. The argument that many advocated of debt-forgiveness make is that if all debt were to be cancelled, there would be no real negative impact on the countries or institutions who own the loans. The $150 billion would not be missed-- it would not impact stock value, employees, or governments. Yet the payment of the debts has a huge impact. If debt were canceled it would free up money to tackle infectious diseases and maternal and child health.
One could argue that the money used for debt repayment will never be used for infrastructure in countries that have corrupt governments. And many of the governments with the most debt are also the most corrupt. This argument doesn't strike me as reason to hold on to debt. After colonialism (another breeding-ground for corruption), the existence of abundant credit bred corrupt politicians.
Hertz argues that making an entire country meet subjective standards of good governance may not be the job of those holding the debts or advocating for debt forgiveness. It may only be their role to create islands of good governance.
Hertz also provides a framework for the forgiveness of debt. She argues that sovereign debts should be canceled and considered illegitimate if three conditions apply:
1 The regime borrowing money lacked democratic consent.
2 The monies were used in ways that were inimical to the interests of the population
3 The lender knew that monies would be used in such a way
Hertz also argues that a nation should be able to declare bankruptcy, under specific conditions. Her line of reasoning makes sense-- why should one try to draw blood from a stone?
I recommend The Debt Threat because it provides a framework in which to think about when and how to cancel debt without encouraging irresponsibility. I was left wondering how colonialism-imperialism-slavery fitted into this paradigm of debt and indebtedness. It's a relationship I would like to process more fully, and probably could use some help thinking about.
A Few Resources
Jubilee Debt Campaign http://www.jubileedebtcampaign.org.uk/
Questions and Answers on debt relief http://www.jubileedebtcampaign.org.uk/?lid=98
Jubilee USA: http://www.jubileeusa.org/