The Third World Debt Needs be Cancelled Without Any Further Delay

-Sushovan Dhar

On August 3, 2007 the Forbes magazine reported that strong equity markets combined with rising real estate values and commodity prices pushed up fortunes around the world. It pinned down a record 946 billionaires amidst which there were 178 newcomers, including 19 Russians, 14 Indians, 13 Chinese and 10 Spaniards, as well as the first billionaires from Cyprus, Oman, Romania and Serbia. It complemented ingenuity, not industry, as the common characteristic. According to the magazine these billionaires made money in everything from media and real estate to coffee, dumplings and ethanol. Two-thirds of last year’s billionaires are richer. Only 17% are “poorer”(?), including 32 who fell below the billion-dollar mark. The billionaires’ combined net worth climbed by US$900 billion to US$3.5 trillion. That equates to US$3.6 billion apiece. It is worth recalling that the GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (HIPC-567 million people) is less than the wealth of the world’s seven richest people combined.

The 2007 Human Development Report (HDR) from the United Nations Development Program notes that, “There are still around 1 billion people living at the margins of survival on less than US$1 a day, with 2.6 billion - 40 % of the world’s population -living on less than US$2 a day.” Taking into account the recent inflationary spell and spiralling of food prices around the world, the chances of human survival at US$ 2 per day is a vulgar irony. Furthermore, fixing the level of absolute poverty at US$1 a day for Sub-Saharan Africa and US$2 a day for Latin America is highly questionable. To give a more authentic picture of poverty, one would have to double, or even triple, current indicators, which would give far higher results, reflecting the quotidian reality of the great majority of the world’s population. Finally, one would need to incorporate non-monetary indicators such as access to education and healthcare, or life expectancy. The report also notes that “around 28 % of all children in developing countries are estimated to be underweight or stunted. The two regions that account for the bulk of the deficit are South Asia and sub-Saharan Africa”. The report while lauding India’s high economic growth comments that “that this has not been translated into accelerated progress in cutting under-nutrition. One-half rural children are underweight for their age - roughly the same proportion as in 1992.”

The report makes valid criticism of the progress in eliminating child mortality as around 10 million children die each year before the age of five, the vast majority from poverty and malnutrition. Given the increasing structural inequalities existing in most parts of the planet it is not surprising that more than 80 % of the world’s population lives in countries where income differentials are widening and that the poorest 40 % of the world’s population accounts for 5 % of global income while the richest 20 % accounts for three-quarters of world income.Nearly a billion people entered the 21st century unable to read a book or sign their names and based on enrolment data, about 72 million children of primary school age in the developing world were unable to make it to school in 2005; 57% of whom were girls. Around 1.1 billion people in developing countries have inadequate access to water and 2.6 billion lack basic sanitation and some 2.5 billion people are forced to rely on biomass—fuel wood, charcoal and animal dung—to meet their energy needs for cooking. In sub-Saharan Africa, over 80 % of the population depends on traditional biomass for cooking, as do over half of the populations of India and China. The result is that indoor air pollution resulting from the use of solid fuels (by poorer segments of society) is a major killer. It claims the lives of 1.5 million people each year, more than half of them below the age of five: that is 4000 deaths a day. To put this number in context, it exceeds total deaths from malaria and rivals the number of deaths from tuberculosis. As a matter of fact, in 1980, median income of the richest 10 % of countries was 77 times that of the poorest 10 %. By 2002, this gap had increased to 122 times. The number of poor people rose between 1987 and 1998, and any gains in poverty reduction were ‘relatively small and geographically isolated’, with China accounting for the bulk of recent improvements. The era of neo-liberalism, emerging in the 1970s from the wreckage of post-war ‘Keynesianism’, has been one of massively increased inequalities and staggering levels of deprivation alongside equally huge flows of global capital and the transfer of enormous wealth to a tiny minority.


Background

This global economy is policed by a combination of international bodies, comprising of the veterans like the World Bank group and the International Monetary Fund (IMF), and the new-comers like the World Trade Organisation (WTO), which work closely together to regulate and enforce the complex relationships between trade, investment, and economic growth. These have been increasingly drawn under a ‘neo-liberal agenda’, described by Robert Wade as ‘deregulation, privatisation, flexibilisation - although not the elimination of agricultural subsidies or the lifting of restrictions on the cross-border movements of labour’. The ‘Washington Consensus’, as this apparently inviolable set of policies became known, demanded strict fiscal policy (i.e. balanced budgets and low tax levels on the rich), and a thoroughgoing commitment to the free market from impoverished Southern economies. Often this was administered in the bluntest form through the now-notorious Structural Adjustment Programmes, imposed by the IMF on debt-ridden economies to meet the demands of Northern banks, eager to squeeze interest payments from the poorest people on earth.

A lot of structural changes have taken place since the ushering in of the neo-liberal agenda however, in spite of major transformations of the world economy, basic shifts in the international division of labour and very substantial industrialisation in many parts of the third world, the nature of ‘dependency’ of backward or developing states still persists. There is an ‘irreducible’ dependency and domination by the advanced industrialised world which forms the imperialist core symbolised by G-7. All countries in the periphery whether semi-colonial or ‘semi-industrialised dependent countries’ remain dependent on imperialism and, therefore, their ruling oligarchies include a bigger or smaller segment of the representatives of foreign, multi-national, imperialist capital, even if foreign capital can no longer hegemonise the ruling oligarchy in the semi-industrialised dependent countries as it can in semi-colonial countries. Nevertheless, even in the former the indirect hold and influence of foreign capital/ imperialism remains powerful and inescapable. This dependence takes five basic forms, one or more of which are supposed to be found in decisive measure in all dependent countries: (1) powerful hold of foreign capital in numerous branches; (2) domination through indebtedness; (3) technological dependence and transfer of outdated technologies; (4) dependence on the world market remains fundamental and a substantial transfer of value through unequal exchange; (5) substantial military and diplomatic dependence on imperialism.


The historic evolution of the debt

The total debt of the developing countries at the end of 2006 was 2.86 trillion US$.Between 1980, the start of the recent crisis, and 2006, the external debt of the developing countries increased almost fivefold (from US$600 billion, to US$2.86 trillion). There are numerous sources of this huge spiralling debt, the principal one of which are colonialism, odious debt and mismanaged spending and lending by the West in the 1960s and 1970s. Adam Smith and David Ricardo and Karl Marx later did considerable studies of the creation of an international credit system and the role of public debt in capitalist accumulation at a global level. In the first volume of Capital, Marx devotes several pages of interesting analysis to the subject particularly focusing on colonial expropriation, public debt, and the international credit system as the sources of primitive accumulation that made industrial capital prosper the world over. Twentieth-century Marxist scholars have expanded on this question of global primitive accumulation as Samir Amin, Gunder Frank11 and Ernest Mandel. Ernest Mandel’s article “L’accumulation primitive et l’industrialisation du tiers monde” (“Primitive accumulation and the industrialization of the Third World”) provides a particularly interesting summary. Based on calculations by other researchers, he estimates that between 1500 and 1750, some one billion English pounds (gold sovereigns) were transferred from the colonies to Western Europe. This is more than the total value of capital invested by 1800 in all European industrial companies. In fact, the main capitalist powers in the late nineteenth and early twentieth centuries used foreign debt as a weapon of domination toward subordinate powers that could have themselves become central capitalist powers. The Russian Empire, the Ottoman Empire, and China took in foreign investment to deepen capitalist development. They took on heavy debts in the form of government bonds issued in the financial markets of the main industrial powers. In the cases of the Ottoman Empire and China, difficulties meeting debt payments progressively led them to be placed under foreign tutelage. However, Japan which did not take on foreign debt experienced the only example of successful capitalist development in the late nineteenth century by a country from the “semi-periphery.”


The period between 1961 and 1968, witnessed the doubling of the total external debt of the Third World from US$21.5 billion to about US$47.5 billion. Between 1968 and 1980, the Third World’s total external debt was multiplied by twelve in as many years—from US$47.5 billion to more than US$560 billion. The severe indebtedness of the Third World countries were due the irresponsible actions of Northern governments and the northern banks aided and abetted by the IMF, World Bank and various other institutions like the Asian Development Bank, the African Development Bank among others. These bodies pursued a policy of low-interest or even negative interest, loans enabling the Third World to borrow, especially as export revenues were growing due to an increase in the prices of products exported from the South. The governments in the North encouraged debt in the South in order to provide an outlet for Northern products and banks held a considerable volume of capital on deposit and were looking for investments, even high-risk ones. The origins of the debt crisis can be attributed to the birth of the Eurodollar market, increase in World Bank loans, recycled petrodollars, etc. The northern banks cannot evade their responsibility in fermenting the crisis since they pursued increasingly audacious and risky loans to Third World countries governments and private companies. Until the crisis hit in 1982, more than five hundred banks had made loans to Mexico, and more than eight hundred to Brazil. Additionally, during the global recession in 1974-75 the Northern governments implemented a kind of pump-priming measures that aimed boosting production through an increase in demand. This increased easy credits to third world and in addition, several countries in Central Europe and the Balkans (Yugoslavia, Poland, Hungary, Romania, and others) were brought into the orbit. This followed with attractive export credits for the South on condition that they purchased industrial goods and other products, including military hardware from the creditor countries. Such bilateral loans (from governments of the North to those of the Third World) aimed to boost Third World demand for products from the North. Because of this policy, between 1976 and 1980, the South’s total debt grew at an annual rate of 20 %. The recent Norwegian decision in October 2006 to unilaterally cancel Norway’s debts to some countries is a belated acknowledgement of this fact. Between 1976 and 1980, Norway had a policy of supporting the export of ships to developing countries (such as Ecuador, Peru, Jamaica, Egypt, Sierra Leone, Burma and Sudan). It exported these ships mainly to secure employment for its crisis ridden ship-building industry rather than any objective analysis of the development needs of the country purchasing the ships.

Most of these loans advanced by the northern countries and the northern banks were for large infrastructure projects; for e.g. mega energy projects, they also provided loans to finance the balance of payments deficit of countries of the South. Export credits were provided to back the North’s exporting industries.

A large share of the loan went to the personal coffers of the political leaders of the Third World holding offices– mostly despots with dictatorial powers. The list is endless: Ferdinand Marcos in Phillipines, Mobutu in Zaire (now the Democratic Republic of the Congo), Habyarimana in Rwanda, Suharto in Indonesia, the Argentinian generals during the military rule (1976-83), Pinochet in Chile, the Uruguayan dictatorship, the Brazilian dictatorship, the debts of Nigeria, Togo, South Africa, etc. Marcos amassed a fortune of US$ 10 billion dollars at the time he was overthrown in 1986, Mobutu accumulated a wealth of US$8 billion dollars when he was toppled in 1997; a considerable share of money loaned by the North never reached the target countries, let alone the people of these countries. Apart from it, a large majority of the loans were used for projects aimed at increasing the prestige of the hated regimes. In the Ivory Coast, for example, Félix Houphouët-Boigny built a replica of Saint Peter’s Basilica in the village where he was born. Mobutu had the Gbadolite palace built. These are a small evident part or aspect of largely hidden open facts. These debts are debt incurred by the regimes for purposes that do not serve the interest of the particular nations and should not be enforceable since the local population never derived any benefits out of it. These are odious debts.

As said earlier, the debt of the developing countries between 1980 and 2006 increased from US$580 billion to US$2.86 trillion. At the same time there was a repayment of more than US$6.5 trillion. The amount increases by 0.5 trillion if South Korea is included. Nonetheless, the data indicates that the developing countries till date have paid eleven times the amount owed in 1980 and in spite of that they find themselves five times more indebted. How is it possible? What powers on earth make it happen? A deeper look into the issue reveals that this is due to the transfer mechanism set up by the Northern bankers with the able assistance of the Paris Club and the IMF/World Bank duo. In general, the interest rates applied to the repayment of capital borrowed by countries of the periphery are so high that the borrowers must systematically increase their indebtedness in order to meet the repayments. They contract new debts to pay off the old. This is a vicious cycle in which the countries of the peripheries are stuck. The ruling classes as well as the government’s of the Third World play an active role in sustaining this situation.

If we look at the data provided by the World Bank for a period of fours years between 2003 and 2006 we shall observe that the total disbursement of public and publicly guaranteed loans for the developing countries is US$ 597.13 billions. The same sources indicate that in the same period the total debt repayment in terms of principal repayments & interest payments amounts to US$ 869.25 billions which means that there is a net transfer of around US$ 272.111 billion. This is a slightly lower figure than the preceding years since it excludes South Korea which has been in the meantime classified as a developing country. The net transfers for a period of the previous five years (1998-2002) amount to US$ 560 billions. It is no surprise that figures would increase substantially if we compare the figures for a period since the third world debt originated. This implies that in a period of nine years the developing countries remitted the net equivalent of more than ten Marshall Plans to their creditors. This huge net transfer of wealth is kept systematically concealed. Even the World Bank in its report titled Global Development Finance in 2003 admit the fact that developing countries have become net capital exporters to the developed world, running a modest current-account surplus in most years since 1998. This implies that the “debtors” finance their creditors. It is shameful to observe that no major media of the Northern countries have sufficiently highlighted this grave failure of the Bank’s fiscal measures for which multiple sacrifices are enforced upon the populations of developing countries whose precarious survival is well-known and is amply portrayed by the various reports brought out by governmental and non-governmental sources of the North and the South. The above state of affairs reveals the existence of a systematic pilferage of much of the wealth produced by the populations of the developing countries via instruments that could be considered lethal Weapons of Mass Destruction. Debt repayment sucks up part of the social surplus produced by the workers of the South (whether salary earners, small individual or family producers, or workers in the informal sector) and directs this flow of wealth toward the holders of capital in the North, with the ruling classes of the South taking their commission. Thus, the latter grow rich, while the national economies they head stagnate or regress and the populations of the South grow poorer.

Apart from the abhorrent instrument of debt, the transfer of wealth also takes place through a number of other mechanisms. Difference in interest rates between North and South (higher rates in the latter than the former), deterioration in the terms of trade for the South since the global trade is largely controlled by the Northern MNCs, profit repatriation by MNCs operating in Third World countries, sale of state-owned companies in the South to Northern corporations at a sum much lower than their perceived market values, patents, royalties, & intellectual property rights and various other methods contribute to the net transfer of wealth from the periphery to the centre. The sum total of the transfer is gigantesque and is a fundamental contributor to the progressive impoverishment of the populations of the South. These mechanisms along with debt are not simply economic means but are political tools as well, to subordinate the inhabitants and states of the periphery by the centre which is symbolised by the Group of Seven (G7). One can also add military domination by the imperialist nations, the “brain drain” from the South to the North; environmental depredation; devastation of natural resources; protectionist barriers raised by the North against goods from the South; and restrictions on the movement and settlement of citizens of the South in the North as well-oiled machines to maintain the hegemony of the centre on the periphery.


The case for the debt cancellation

A large part of the movements in the South as well as in the North terms the external debt of the third world as illegitimate and calls for its abolition as they feel that the debts should be cancelled because they are unjust in terms of their origin, and also because they degrade the material existence of a vast majority of the population of the planet who are otherwise oppressed in a number of other ways. They demand for a complete and irreversible cancellation of the illegitimate and the odious debts, i.e. debts on loans knowingly given to dictators, or those on unfair terms, or for failed projects based on lenders’ advice. The cancellation needs to be immediate since these debts are unjust and harbours crisis the world over. The money saved by the countries of the periphery due to the cancellation of the debt can be utilised for socially useful projects to ameliorate their existing conditions and thereby increasing the access to dire necessities of life such as food, health, education, shelter, transport, sanitation, hygiene, etc. It is not a matter of debate that the vast majority of the masses in the countries of the periphery are excluded from these basic amenities of life.

They strongly insist that the cancellation of debt should not be conditioned to harmful conditions which are attached by the international financial institutions like the World Bank and IMF to debt relief. There should not be any conditionality attached to debt relief like the privatisation of basic services or cutting public expenses in the name of reducing fiscal deficit or discipline for receiving desperately needed debt relief. Human needs are fundamental and must take priority over debt relief. Furthermore, poor countries should be given more grants, rather than have their debt burden piled higher with yet more loans which can further exacerbate the current crisis and deteriorate living conditions further. There should as well be transparency of the transactions between the countries of the North, the International Financial organisations and the countries of the South.

The movements also demand that the indebted countries suspend the payments of their external debt and conduct debt audits to understand the nature of the debt, to identify criminal, illegitimate, irregular as well as undesirable social conditions to pin down the person/s responsible for such a situation and bring them up for prosecution and to seek reparation. There is also a demand for the establishment of a transparent international financial with definite and clear rules of lending in view of the severe crisis of debt.

The severe havoc wrought by the debt is also acknowledged by the International Financial Institutions and leading governmental bodies and the governments of the North. The IMF states that “In about half of the 80 poorest countries, unsustainably high external debt has also become a key constraint on development.” However, it has reservations for a 100 % debt cancellation even for the HIPCs and argues that “...total debt cancellation would require concerted action by all creditors, many of which continue to provide assistance, total cancellation would seriously jeopardize the overall flow of financial support for the poorest countries.” It adds that “…poor countries will rely on external financing for their development needs long into the future. A growing portion of this need is being met by bilateral and multilateral agencies on concessional terms. Total cancellation could imperil these funds. It would also undermine the confidence of existing and potential investors whose funds are vital for the long-term development of the low-income countries.” It argues that the economic impacts of debt annulment on the multilateral agencies, primarily the multilateral development banks and the IMF would be harsh.

On the other hand, we witness that the Northern governments quickly come to the rescue the private banks whenever there is a crisis. The recent crisis that engulfed a large part of the international financial system following the US sub-prime crisis started in mid-2007. According to IMF, the potential cost of the current global financial crisis is precisely 94522 billion dollars for the international financial system, of which 565 billion is directly linked to the system of risk-laden mortgage loans. The actions by the governments were very simple and usual, viz. nationalisation of banks, exchange of devalued and distressed debt securities for fresh cash, cash injection, rescue plans, decreased interest rates, etc. A question arises in consequence: why have the banks, which do not hesitate today to erase doubtful debts in billions of dollars, always refuse to annul developing countries’ debts?


The moral, political and juridical arguments

It must be acknowledged at the onset that the repayment of a loan contracted under regular and reasonable conditions is a moral obligation. However in the case of the present debt crisis of the South, the scenario is something else. This compulsion disappeared with the debt trap casting a gloom over the region in the early 1980s and annihilating all hopes of development. It is absolutely not a case of wriggling out of a legitimate obligation but a question of taking serious note of the mechanisms of domination, pillage and wretched poverty that these countries endure and to demand a measure of justice. This system of domination with debt as its nerve centre can’t be endured further. Jubilee South is right to proclaim, “We owe nothing, we will pay nothing”. However, simply putting the counters back to zero will not in itself modify the system which has led to this deadlock. Debt cancellation is a necessary but a pre-condition to a sustainable condition. Alternative mechanisms for funding must be established that does not result in debt-induced domination, and important complementary measures must be taken in numerous areas.

We have as well seen that the debt leads the Southern states, often endowed with human and natural wealth to a state of impoverishment due to organised looting and pillage since debt repayment is a fundamental obstacle in satisfying basic human needs. A contrario, the satisfaction of basic human needs must take priority over all other considerations - geopolitical or financial. Hence, from an ethical point of view, the rights of creditors, stock-holders or speculators are insignificant in comparison to the fundamental rights of five billion citizens and it is immoral to demand them to commit their meagre resources in repaying prosperous creditors whether in the North or the South) rather than satisfying fundamental needs.

The debt is one of the main mechanisms whereby economic colonisation operates to the detriment of the people in the South. It is another milestone of historic abuses carried out by the rich countries in addition to slavery, pillage of raw materials, extermination of the native population, the colonial yoke, etc. The time is overdue to replace the logic of domination by the logic of wealth redistribution. The IMF, the World Bank and the Paris Club impose their own truth, their own justice, where they make the rules.

The debt is also immoral since it was frequently contracted by undemocratic regimes, where money was not utilised in the interests of the population. Embezzlement on a massive scale, with the tacit or active agreement of the states and banks of the North, the World Bank and the IMF was not an exception. The creditors of the industrialised countries, who took advantage of the high interest rates in 1979 and the low prices of raw materials on the international market, by design lent money to corrupt regimes. They have no right to demand payment of such loans. Let them deal with the fallen dictators, or those still in place, and their accomplices! The struggle against this overweening domination and its human ravages must intensify to break the stranglehold. The North cannot expect that its relative well-being should be financed by poverty in the South. Demanding the total cancellation of the external public debt for the South is simply coming to the rescue of people in danger. It has to be total, for slavery cannot be amended, it has to be abolished!

The mechanisms of the debt cycle have subjected the South to the demands of Washington - the sites of IMF, the World Bank and the US Treasury, where they decide the economic policies of the South. Is there any valid reason for the IMF and the World Bank to interfere in every economic decision that any developing country makes? These actions only enable the creditors to exercise exorbitant power over the indebted countries. There is no alternative but to stop this modern form of slavery. The governments of the South under the yoke of debt and the stranglehold of the creditors have gradually been forced to abandon all policies for which people elected them. For example, in Guyana, the government had decided, in early 2000, to increase the salaries of the civil service by 3.5%, after the purchasing power fell by 30% in the preceding five years. The IMF immediately threatened to remove it from the list of HIPC owing to which the government had to back-track after a few months. In 2002, Brazil, with the most voluminous debt in the third world, was stunned by financial turbulence, due to the combined contagious effects of the Argentine crisis and the economic slow-down in the US and the European Union. President Cardoso’s government negotiated an agreement with the IMF which granted them an unprecedented huge loan of: 30.4 billion dollars by the end of 2003, adding to the existing external debt of 238 billion dollars with a demand that a strict austerity budget should be adhered to until 2005. This loan, destined to calm down the markets, was also meant to bridle the future government. The IMF exacted an agreement in principle on this plan from the main presidential candidates before granting the loan. Magnanimously, it relented on its initial insistence on a written agreement. It is not difficult to conclude that the aspirations of sovereignty of the third world masses shall remain impossible as long as they stay under the bondage of the IMF and the World Bank, and more generally of all the creditors of the North.

After five centuries of pillage, slavery and colonisation and twenty five years of structural adjustment policies, the inhabitants of the South have a right to demand reparation for all the ills they have suffered, caused by the mechanism set up by the creditors of the North with the support of the ruling classes of the South. Total cancellation of the debt should be the first act of reparation. Not many in the North understand these perverse mechanisms that compel the citizens of the South to leave their land and their loved ones and survive a sub-human existence in the North. Often, they have no alternative, since the wealth they produce is systematically sucked up by the North. Aid sent by the rich countries is far too meagre to even begin to compensate this transfer of wealth from the South. The grotesque rise of egotism, which can be commonly observed in Europe, with its attendant racism and xenophobia, is a consequence of the ignorance of some and the bad faith of others. There is a pressing need to unveil this and explain that it is in the common interests of the populations of North and South alike to unite in demanding the total cancellation of the external public debt, and an end to neo-liberal policies that are responsible for this situation.

On one hand, the figures given prove that the debt has already been repaid several times over - every US$1 owed in 1980, US$ 9.5 has been repaid and the third-world still owe. The debt is no longer the cause of fair repayment of a loan obtained in regular conditions, but a very clever instrument of domination, dissimulating racketeering and pillage. On the other hand, the net transfers concerning the debt are strongly negative for the South. Since 1995, the governments of the different developing nations have “given” a total contribution of about 250 billion dollars to capital-holders in the North, resulting from the work of local salary-earners and producers. This financial haemorrhage due to the debt, which is bleeding the countries of the South and the East dry, has to be stopped. Instead, a cycle of ecologically sustainable and socially just development must be promoted. The iniquitous debt must be abolished, and mechanisms must be established for alternative funding of this development, and effective limitation of the tendency to borrow.

The economies of the South have everything to gain through the cancellation of their external debt. Examples of actual cancellations carried out in the past have proved particularly beneficial for the economies of the countries concerned. The economies of the South would not be forced, as they are today, to export at all costs to repay their debt.

There are several arguments in International Law that can be invoked as legal justification for unilateral cancellation of the external debt. Force Majeure, The State of Necessity & Odious Debts are the most important arguments.

Force majeure can be invoked when a government or public body finds itself, due to external circumstances beyond its control, unable to fulfil its international obligations, like the repayment of a debt. This is the juridical codification of the fact that none can be held to do the impossible, which is laid down by both international law and common sense. These external and unintentional circumstances may very well be the fall in the prices of raw materials or an action on the part of the creditors (who are recognized as being co-responsible in the mechanism of indebtedness by the law), or again the rise in interest rates in 1979. The countries contracted loans at reasonable rates in the 1970s, but the actions of the rich countries aimed greatly at increasing interest rates and manoeuvring to lower the prices of raw materials on the world market have radically changed the nature of the deal. This is indeed a case of force majeure caused by the unilateral behaviour of the industrialized countries.

A situation where the existence of the State is endangered, that is, its economic or political survival might be grave social upheaval or the impossibility of fulfilling the needs of the population (health, education, etc.). Here, it is not a matter of being absolutely prevented from fulfilling international obligations, but to do so would necessitate sacrifices on the part of the population which go beyond what is reasonable. The state of necessity must justify repudiating the debt, as it implies prioritising the different obligations of the State. The United Nations Human Rights Commission has adopted numerous resolutions on the issue of the debt and structural adjustment. One such resolution, adopted in 1999, asserts that “the exercise of the fundamental rights of the population of an indebted country to food, housing, clothing, work, education, healthcare services and a healthy environment, may not be subordinated to the application of structural adjustment policies or economic reforms generated by the debt”. The developing states are hardly able to fulfil the fundamental human needs of their populations. This inability throws into question the very existence of all these States, which must invoke “the state of necessity” for the unilateral cessation of their repayments.

International Law also recognises the need to take into account the nature of the regime that contracted the debts, and the use the funds thus raised were put to. This implies the direct responsibility of the creditors, such as private bodies or the IFI. If a dictatorial regime is replaced by a legitimate regime, the latter can demand that the debts were not contracted in the interests of the nation, but for odious ends. In this case, they can be declared null and void, and the new government does not have to repay them. The creditors should pursue their case with the leaders of the dictatorship, on a personal basis. The IMF, the World Bank or any other creditor is legally obliged to check that the loans made are put to legitimate use, especially when they cannot help but know that they are dealing with an illegitimate regime.

Argentina, after the dictatorship that ended in 1984, was perfectly justified in taking such course. The Olmos judgement of July 13, 2000, pronounced before the Criminal and Correctional Court II, recognised that the policies carried out over seven years could be defined as legally-organised pillage, with the active participation of the IMF and the World Bank. But it was no good. Enormous pressure was put onto the Argentine government until they finally agreed to take on the debt to the very last peso… until 2001 when, after more than three years of recession, they were completely unable to pay, following the refusal of the IMF to grant a further loan.

This point could also have been used by many other governments succeeding illegitimate regimes, such as in Latin America after the fall of the military dictatorships (Uruguay, Brazil, Chile, etc.), the Philippines after the departure of Marcos in 1986, Rwanda after the genocide in 1994, South Africa at the end of apartheid, Zaire after the overthrow of Mobutu in 1997 or Indonesia after the fall of Suharto in 1998. One can only deplore that the governments that replaced the dictatorships capitulated before the creditors in taking on previous debts, however odious, and found themselves prisoners of repayments they could have avoided. In doing this, they have unduly burdened their people with the weight of odious debts since they chose what was easiest for them. In exchange for their docility and their cowardice, the creditors have lent them more money. Governments do not repay out of their pockets; it is the population who have to sacrifice their meagre resources. Today all these governments can do is negotiate rescheduling or meagre reductions…

Yet the notion of odious debt has been invoked on occasion, as in Cuba in 1898, Costa Rica in 1922, Namibia in 1995 and Mozambique in 1999. When the notion is successfully invoked, the State debt becomes the personal debt of those responsible during the dictatorship, and cannot engage the financial resources of the State. These notions urgently need to be brought to the heart of public debate, to oblige the democratic governments to take such a course whenever it is possible.

Thus International Law is rich in doctrines which could provide grounds, and indeed have already provided grounds, for the cancellation or repudiation of debts. Social movements must insist that International Law, and especially the Universal Declaration of Human Rights and the Pact for Social, Cultural and Economic Rights must take precedence over the rights of creditors and usurers. These foundation texts can in no sense be compatible with the repayment of an immoral, and often odious, debt.


The environmental case

The two main causes of the degradation of the natural environment are well known. At one pole of the planet, there is accumulation of the wealth produced with no regard for the balance of the ecosystems, to the point that certain resources are near exhaustion. At the other, the poverty is such that it condemns populations to surrender their resources to the highest bidder. On the one hand, in the rich countries, overproduction and over-consumption rule. Natural resources are exploited well beyond their capacity for renewal. Indeed, overall, we human beings consume 40% more resources than we can produce on a sustainable basis. All this with very harmful side effects: air and water pollution, the accumulation of highly toxic waste, the disappearance of green areas. When they can, the governments and multinationals of the North who are responsible for the degradation try to get the developing nations to bear the brunt of it. For example, US industrial waste containing heavy metals are sent to India to be processed. The vice-like grip of the debt obliges the developing nations to accept the highly pollutant industries of the North. The subjugation of the South through the debt mechanism contributes to its becoming the dustbin for the North.

In the developing nations, for several centuries, the resources have been exploited to the exclusive profit of the ruling classes of the rich countries. One only has to think of the tons of precious metals which have been taken from Latin America to Europe since the XVIth Century or the ravages of colonisation in Africa and Asia. Brute force, needed at the time to seize all these riches, has now been replaced by structural adjustment plans. To obtain the hard currency needed to repay the debt or keep themselves in power, governments are ready to overexploit and sell off their natural resources (minerals, petroleum, fishing, etc.), putting biodiversity at risk (many species of animals and plants are becoming extinct), encouraging deforestation, soil-erosion, etc. In Africa, 65 % of arable land has been degraded over the last fifty years, i.e. 500 million hectares of land. Because of all the irreversible damage to the environment, mainly in the poor countries, we hold that an environmental debt has been mounting up over several decades, owed by the industrialised states to the populations of the developing nations. Substantial reparation must therefore be demanded.


Conclusion

The considerable deficit in human development in the South on one hand, and the grave ecological consequences of the present system for the populations of the indebted countries on the other, and lastly, the legal, political and economic arguments mentioned above, clearly demonstrate that the present financial debt is odious and that the debt that the ruling classes of the North owe to the South is at once historical, human, cultural, social, moral and ecological.

Nevertheless, most of the governments of the South adopt a singular position. They embrace the neo-liberal logic which is at the origin of the iniquitous system of indebtedness, despite the fact that they are supposed to work for the good of their countries. It is on these grounds that we ask the governments of the South to repudiate the financial debt towards the North, but we consider that they too are accountable for having run up this multi-faceted debt. Consequently, the populations of the South have a right to demand immediate reparation from the ruling classes of both North and South.

Finally, it must as well be emphasised that debt cancellation has to be un-conditional and it can’t be prefixed or suffixed with any sort of conditionality. The term “conditionality” designates the very strong constraints imposed on the developing nations by the IMF and the World Bank, by means of structural adjustment policies. If the system of domination created by the debt is to be ended, there has to be a definitive break with the logic of structural adjustment and its conditionalities. Certain bodies, through the NGOs, are now proposing to subject debt cancellation to positive conditionalities. Reductions could take place if a democratic process is instigated, if projects promoting human development are set up (schools, health centres), etc. However tempting they may appear, such positive conditionalities raise the unavoidable question of who has a right to impose them.

Certain institutions (IMF, World Bank, G8 and even some powerful NGOs of the North) believe themselves imbued with the mission of determining “Good or Bad”. Depending on local conditions, one might choose an irrigation system or prefer to devote the money to solving other serious problems of human development like AIDS. It is for the populations concerned and their democratically elected representatives, and them alone, to decide. They must be the only ones to establish development priorities, to choose the projects they will embark upon, to control the use of the funds made available and to be responsible for keeping track of progress. They must have full control of the entire process from zero to end. Some decisions may be made after consulting an NGO or specialized institution, able to make a useful contribution at the planning level. Dialogue with movements of North and South may be fruitful, of course. But it is fundamental that decisions concerning the South be made by the South and for the South (unlike the present system where the decisions are made in the North to promote the interests of finance and the multinationals of the North).

It is therefore up to the populations of the developing nations to dictate conditions, and no-one else. To make sure that this principle of decision by the South and for the South is implemented with complete transparency, it is crucial that the debt should have been cancelled and solid safeguards set up. For populations to be able to influence the decision-making process on the use of the funds, they must be fully and actively involved. Any decisions on major borrowing must be decided by Parliament after a vast public debate. This participative democracy, conjoined with the cancellation of the debt and the renunciation of structural adjustment policies, is the only way to give back to the peoples of the developing nations the power of decision over their lives. The only acceptable conditionalities are those emanating from the populations of the South.