New Internationalist

The Facts

November 1988

new internationalist
issue 189 - November 1988

Dicing with Debt - The Facts

[image, unknown] Loads of money

About two-thirds of the Third World's $1,000 billion debt was lent by around 550 of the world's private banks from North America, Japan and Europe between the late 1960s and early 1980s. Most of the lending came from the largest US Banks - Bankers Trust, Bank of America, Chase Manhattan, Chemical, Citicorp, Continental, Illinois, First Chicago, Manufacturers Hanover, Morgan Guaranty1 - and their counterparts in Japan, Germany, France and the UK. The rest came from government sources.2


Empty earnings

Many Third World countries owe more in debt repayments and interest than they earn a year from exports.3 That makes it impossible for them to repay their debts. Such countries have no option but to borrow more money to survive.

[image, unknown]


[image, unknown]
Running to stand still

To repay the banks, Latin American countries exported more and more goods over the first half of the 1980's. Exports grew in volume to levels that were double those of the previous decade. But despite this increase export earnings have actually been falling - by an average of 5% a year since 1981.6


Booming banks

Between 1982 - when Mexico threatened to default - and the end of 1985 the dividends declared by the big nine banks increased by more than a third. Profits shot up and stockholders benefited from rising share prices.9 As one banker said 'we rushed blindly along chasing a rainbow we thought would lead to easy profits'.10

[image, unknown]


Desperate dependence

Three quarters of developing countries' earnings come from just 33 commodities and an individual country is likely to be dependent on just two or three of these.4

[image, unknown]


Plunging prices

The more that is exported from the third world the faster the prices fall: between 1980 and 1987 the price of food fell by 10% minerals by 6% agriculture raw materials by 4% and tropical beverages by 2%.7

[image, unknown]


[image, unknown] Disappearing dollars

Vast sums of money have been stolen by corrupt Third World élites seeking to create personal fortunes - often to be smuggled out of Third World countries to Western banks.

Net capital flight between 1976 and 1985 (billions of US dollars)8

Mexico
Venezuela
Argentina
53
30
26
South Africa
India
Malaysia
17
12
12
Rep of Korea
Brazil
Nigeria
12
10
10
Philippines
Indonesia
Ecuador
10
5
2

1 A Review of Bank Performance; 1986.
2 A Journey Through the Global Debt Crisis, The Debt Crisis Network, Institute for Policy Studies, Washington DC 1988.
3 World Bank Debt Tables Vol 2,1987-88.
4 John Clark, For Richer For Poorer, Oxfam 1986.
5 Gemini News Service, 1988.
6 lnterAmerican Development Bank, Economic and Social Progress in Latin America: 1987 Report, Washington DC, 1987.
7 Unctad Commodity Yearbook, 1987.
8 Morgan Guaranty Trust estimates of net capital flight from various countries from the Industry and Development Global Report, UNIDO, 1987.
9 Calculated from table 6 in The Impact of the Latin American Debt Crisis on the US Economy, a staff study prepared for the Joint Economic Committee, US Congress, 10 May 1986.
10 Susan George, A Fate Worse Than Debt, Penguin 1988.

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