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Lidy B. Nacpil

From Debt to Development

by Lidy B. Nacpil

18 November 2005

Development is a concept and a process that encompasses all of the dimensions of human life - economic, political, social, cultural, emotional, spiritual, gender and sexual, as well as the interaction of humanity with the earth and environment. All of these dimensions are interrelated and mutually influencing. It is thus impossible to address the question of social development without taking into account the economic context and economic requirements for fulfilling social development goals.

The Debt problem remains to be one of the main challenges to development. The global celebration of Jubilee has been an important reminder that the debt crisis is far from over for the developing countries or the countries of the South. Unless the debt problem is decisively solved, development, including social development, cannot be achieved.

The impact of Debt on resources for development

Debt service takes up a large percentage of public spending. In the countries of the South, interest payments alone take up from 30% to even more than 60% of the budgets of national governments. In the Philippines, there is even a law that requires automatic appropriations for debt service, thus guaranteeing that debt service is prioritized above any item in public expenditures.

In the face of poverty and deprivation for the majority of people in the countries of the South, it is an injustice for massive amounts of public funds to be spent on interest and principal payments on the debt instead of being used for badly needed services such as housing, health, education, water, etc. and badly needed programs and infrastructure requirements of development.

Odious, Onerous, Fraudulent and Criminal Debts

What is an even greater injustice is that people of the South are made to pay for debts that they have not benefited from. Many of these debts have even been used to their detriment. These are the odious, onerous, fraudulent and criminal debts.

Odious, onerous, fraudulent and criminal loans include those that were used to finance so called ‘development projects’ which displaced communities, damaged the environment, and endangered people as well as the eco system. These ‘development projects’ were not solely or even primarily designed by national governments, but prescribed by lending institutions and bilateral creditors.

Creditors peddled loans to private corporations but required government guarantees to these loans. Many of these loans were approved at the behest of high ranking officials, presidents, as the private corporations were either owned by the officials through dummies or by the cronies of these officials. The monies from these debts were used by the owners to enrich themselves. When their companies declared bankruptcy, governments assumed the payment for these loans.

Creditors granted loans to illegitimate governments — governments that have ruled not by democratic mandate but through the use of force - and helped prop up these illegitimate and undemocratic governments. We only need to review history and recall how aid and loans were flowing to various corrupt and repressive governments of South countries. These loans enriched corrupt government officials who either stole the funds directly or received bribes and kickbacks in exchange for approving loan applications, approving bids, and financing infrastructure and other types of projects. Some of these loans were actually used to help finance repressive policies such as apartheid, military and “National Security” operations.

Creditors argue that they cannot be made responsible for the sins of the governments of the South. According to them, corrupt or not, legitimate or not, the debts of these governments must be honored.

But, the creditors knew very well what kind of governments they had been dealing with. They knew these governments were corrupt. In fact, they have participated in corrupting these governments in various ways. The creditors knew these governments were authoritarian and dictatorial governments, military regimes or apartheid governments. And loans were used to ensure the continued cooperation of governments of the South with the economic and geopolitical interests of their northern or western patrons and creditors.

The Vicious Cycle of Deficits and Dependence on Debt

Because huge amounts of public funds go to debt service, South countries continuously incur deficits and resort to more borrowings. Thus, you have a vicious cycle if borrowing in order to be able to pay debts, and the downward spiral to greater impoverishment.

The impact of Debt on the ability of nations and peoples to define and direct their development programs and processes

Debt has been used as leverage for imposing economic adjustment conditionalities, policies which are favorable to creditors and big capital but have damaging impact on the economies and lives of people of the South. Through policies of macroeconomic stabilization and blanket and indiscriminate liberalization, deregulation and privatization, greater profits for the creditors and global capital have been facilitated. At the same time, these policies create further impoverishment, keep the economies dependent on borrowings and deepen indebtedness.

The impact and consequences of structural adjustment measures and other policies of the multilateral financial institutions have been well documented in critical studies. Ongoing investigations and researches add to the evidence. Grassroots testimonies give vivid images of the actual effects on human lives.

Critique of Debt Relief Initiatives

Creditors concede that countries of the South should be given "debt relief." They categorized countries according to aggregate national income and per capita income, referred to ’middle income, poor and poorest countries,’ and declare only the poorest countries are deserving of relief. They also defined standards of ’debt sustainability’, ‘sustainable debt’ and ’unpayable debt’ and declared only the unpayable debts will be forgiven. In any ethical framework, these actions by the creditors will be constituted as blatantly self-serving.

The categories and standards do not reflect the actual conditions of the majority of the peoples of the South. In all of the countries of the South, whether "middle income, poor or poorest," the majority of the people suffer from poverty, deprivation and marginalization. These categories merely serve the purpose of the creditors to concede as little as possible.

In fact, current and past debt relief initiatives are beneficial mainly to the creditors. The HIPC (Heavily Indebted Poor Countries) initiative is a ‘Creditor Relief’ initiative. Its serves to clean the books of the creditors and recycle "uncollectable loans” of a limited number of South countries. The Brady Bonds served to "rehabilitate" debtor countries just enough so that these countries can again borrow, and thus generate profits for the creditors. And worst of all, as the promise of new loans were and are used as leverage for implementation of economic adjustment policies, debt relief is being conditioned on implementation of the very same policies which bred and aggravated indebtedness. More than the issue of small amounts and limited number of countries, it is the economic adjustment conditionalities that make HIPC unacceptable.

Debt cancellation is seen by creditors as an act of charity and forgiveness, and they deem it their right to decide what level of "generosity” that they will exercise. From this point of view it is also easy for them to presume that creditors have a right to impose conditionalities.

Debt cancellation is a fundamental question of justice. The countries of the South were and are offered loans not for humanitarian reasons but so that creditors can make profits on their financial capital. These ’debts’ have been paid many times over. In the last two decades, there have been more resources flowing from South to the North by way of payment of interests on debts. In fact, it is the countries and people of the South that are creditors for huge human, social, economic and environmental debts from decades and even centuries of exploitation of the South by countries of the North.

A Southern Framework for Addressing the Debt Problem

Thus, debt campaigns, people’s movements and organizations from the South call for debt cancellation for all South countries. We call for cancellation not only of the "unpayable" debts but of all illegitimate, unjust and immoral debts. We call for unconditional cancellation and reject the imposition of structural adjustment programs and other economic conditionalities. In the spirit of Jubilee, we call for restitution of what has been taken unjustly from us and reparations for the damage wrought.

We are not forgetting the complicity, culpability and co-responsibility of South governments and the elites in South countries. Past and present government officials, private sectors corporations and individuals who have participated and benefited from illegitimate and unjust debts must be made accountable for their actions. Stolen wealth must be returned. South governments must be pressured to take decisive actions to stop payment of illegitimate debts, change their policies on borrowings and stop public guarantees of private sector debts.

We call for review and investigation of the different debts with full public transparency and accountability, and with people’s participation. We call for collective repudiation by South Governments of odious, onerous, criminal, fraudulent and all intelligence debts and the formation of a debtor’s alliance. We demand the rechanneling of public funds away from debt service and the allocation of these funds for people’s welfare and basic services, and for equitable and sustainable development.

We demand systemic, structural and policy changes that will get the South countries out of the debt trap prevent the repetition of the debt cycle, democratize the economic and political structures of society, and lead the way to people-centered, equitable and sustainable development. We must break free from the development paradigms imposed it and from which we have suffered and fared so badly.

Lidy B. Nacpil
Secretary General, Freedom from Debt Coalition, Philippines
International Coordinator, Jubilee South.

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