issue 189 - November 1988
Sue Shaw tells a detective
story with a difference.
Mr Stevens stared. The sun shone. The Hilton Hotel towered indifferently against the Nairobi sky. Large limousines cruised down wide roads. And dozens of human beings floundered around the city rubbish tip, searching for food. Some were barefoot, most were in rags. And there were so many children.
Mr Stevens didn't even loosen his tie. He just stood in the sunshine, transfixed. He had sent a generous donation to the starving Ethiopians at Christmas. But poverty had been just a word, an image on a screen - until now. It stank. Its very ordinariness stunned him. A question bubbled up from some remote corner of his brain, as uncomfortable as the children's sores. He tried to forget it: in his hotel, at the dinner table, over the bar, but it would not go away.
He completed his business deal, hired a car and drove past coffee and sugar-cane plantations, to Kericho near Lake Victoria where the air was chilly and the fields emerald-green with tea bushes. From the vehicle he watched women picking tea; gazed at their barefoot, pot-bellied children. He had heard about the lack of hospitals, the lack of schools; heard that the same conditions exist throughout the Third World. And the question that had troubled him in Nairobi swelled, until he stopped the car, wound down the window and with a curious naivete called: 'Please tell me: why are the children here hungry?'
The elderly woman turned her head as far sideways as the basket strap permitted. She eased the tea-carrier from her shoulders, lowering it heavily onto the red-dirt road. Wiping her head with the back of her hand, she balanced herself on the basket-edge. 'No money in tea,' she said.
'But we drink it all the time where I come from,' protested Mr Stevens. Shaking her head the old woman proffered a calloused palm, into which he deposited a shilling. 'The white men took away our land,' she said tucking the coin down the front of her dirty dress. 'And now there is nowhere left to grow maize. I have to pick tea for money to buy food. But there is no money in tea.'
'Then you cannot be producing enough,' Mr Stevens said. The old woman shook her head. 'When we grow more, we earn less.' She stooped wearily to lift the basket. Mr Stevens was puzzled. He climbed out of the car to help her lift the load. And watching her shamble away up the road, he stood in the sunshine and wondered.
Lured by curiosity
Back home Stevens sneaked out of the office to visit the local business library. After scouring through several reports, he ran his forefinger down a column of figures and discovered the facts behind the old woman's plight: commodity prices are plunging. Looking back over previous years, Mr Stevens found that the more poor countries produce, the less they earn. Thailand increased its rubber exports by 31 per cent in the first half of 1985 compared with the same period the year before - yet its rubber revenues fell by eight per cent.1
One paragraph particularly intrigued him. It read: 'Not only is debt partly responsible for the slump in commodity prices; it also devours the money earned by Third World exports. Many poor countries are so deeply in hock that they end up borrowing just to pay interest on their initial debts: the poorest people of the world are slaves to the banks.'
Wasn't the word 'slaves' a bit exaggerated? Forgetting his appointment with a client, Stevens read on: 'It all began in the 1970s when oil prices quadrupled. The banks were stuffed with petro-dollars. And Third World countries were desperate for money to fuel development. It was a marriage of convenience: the loans came thick and fast.
'Then interest rates unexpectedly rocketed. After a long struggle, Mexico finally refused to pay: it was 1982 and the country had an 80-billion-dollar debt. The largest US banks panicked. They had nearly half their capital tied up in loans there. Something had to be done. Enter the International Monetary Fund.'
Stevens shut the book. He had to go. Hurrying back to the office he found the client gone and his boss apoplectic.
But Stevens' curiosity was aroused. How had the IMF made poor countries like Mexico pay up? Next day after lunch, he told his secretary he was attending a meeting and made his way back to the library where he reopened the book. The story went thus: the IMF developed a special austerity package. This required governments to cut public spending and imports, and increase exports, in exchange for fresh loans, or extending old ones over longer periods. Export or perish was the message received by 98 countries from the IMF between 1980 and 1985
Very ingenious, thought Stevens. It certainly ensured that the banks got paid. But what did it mean in practice? He remembered those pot-bellied children in Nairobi and he wanted the facts. Deshelving half the library's books, he discovered that in countries where the IMF operates, food prices rocket and wages are cut. Preventable diseases and malnutrition are returning. And unemployment soars. Whoever benefits from Third World loans, it is the poor who pay the price ...
Obsessed by poverty
The subject became an obsession. He wanted to talk. 'Mr Graham,' he said conversationally to the boss next day, 'Do you think that IMF policies should be so stringent?'
'Does this affect the Kenyan contract?' asked Mr Graham sharply. They were in the middle of a meeting and he was irritated that Stevens' mind - often his entire presence - had been elsewhere for weeks. With forced patience he said: 'If a country borrows money, it has to repay it and sometimes tightening its belt is the only way. Now can we continue?'
Stevens surveyed Mr Graham's rotund figure as his boss briefly outlined the Kenyan project. Graham could be right, Stevens thought doubtfully - in theory. But in practice his own research had proved that IMF austerity programmes force Third World countries deeper into debt. For one thing poor countries produce similar commodities, and encouraging them to increase their exports has flooded the market. Moreover the West has developed cheap alternatives for most things they used to depend on the Third World for. If poor countries want to compete, they must practically give their goods away. Plus European markets are subsidizing their farmers to grow crops more cheaply than Third World producers possibly can. No. He couldn't agree.
'What do you think, Stevens?'
Assuming Graham was referring to the IMF, Stevens began to explain.
Mr Graham glared at his junior. 'Listen,' he said crossly, ' I'm as sorry for those people as the next guy but this country spends millions of dollars every year on overseas aid and expertise. Now concentrate.'
Silence. Stevens recognized Mr Graham's misapprehension. The boss thought that the flow of cash (not to mention knowledge and culture) went all one way - from 'us' to 'them'. And he was wrong.
Over the next few days Stevens confirmed his hunch. Around 20 per cent of loans to Third World countries have been spent on arms: the weapons go to poor countries, the money back to rich ones.3 The poorest Third World countries spend the largest proportions of their incomes on weapons. And Stevens understood why when he read about the 1986 food riots in Zambia. These resulted from IMF policies that forced the price of maize to double virtually overnight. If Third World countries are to tighten their belts, then their governments have to be prepared for trouble, because starving people get desperate.
Stevens also discovered that loan money finds its way 'home' through the building of extravagant, ill-conceived development projects. These are often initiated on the advice of Western experts and require the importation of Western goods or services. From hotels to dams - nothing but the glitziest technological monstrosities will do. Brazil's purchase of nuclear reactors is a particularly nerve-wracking example which added up to 40-billion dollars to the national debt.4
Mr Graham coughed. Hastily Stevens laid down his book on Third World debt and straightened his reclining chair. Graham gritted his teeth. He thrust Stevens the Kenyan dossier. 'Isn't it time you stopped thinking about old debts and started winning some new contracts? Third World governments have squandered their loans.'
Factually, Mr Graham was right, thought Stevens. President Marcos increased the Philippine national debt from $2.7 billion to over $28 billion between 1972 and 1986 - slipping around $15 billion of it into his own bottomless purse.5 But the people who carry the can for Marcos and other corrupt Third World elites are the millions of ordinary, working poor. Too often the governments that are most genuinely concerned are the ones refused Western aid.
Moreover Mr Graham forgot that the West actually benefits from stolen money - at least the banks do. Literally billions have been smuggled out of Third World countries to Western banks as hand luggage. The 'conservative' estimate of one bank is that 55-billion dollars wafted northwards from Latin America between 1977 and 1983.6 Many banks gained twice from a single loan - once in interest and again with deposits of stolen loan money.
Stevens bit his tongue. He gazed floor-ward, then skyward to avoid Mr Graham's eye. The vast reservoir of information he had acquired was bursting to be expressed. He wrestled to control himself, but the faint hope of convincing Mr Graham propelled the words irrepressibly from his lips: 'Actually,' he said as his boss opened the door, 'our banks have done rather well out of the debt crisis .
Mr Graham spun round.
'Oh yes,' gabbled Stevens, 'a few small banks were hit hard by 'bad' loans. Some even went bust. But for the largest banks the whole business has meant big pickings.'
'We are not here to sort out the world's problems!' Mr Graham's face was puce. 'Besides,' he added ill-advisedly, 'banks have been losing money hand over fist to the Third World.'
'On the contrary,' Stevens read from the book before him, 'The profits at Banker's Trust shot up 66 per cent between 1982 and 1985. At Chemical they went up 61 per cent and at Chase Manhattan by 84 per cent. Shares in these banks rocketed, and the value of their stock went through the ceiling - in one case by 154 per cent.7 That is why the former chair of Citicorp Bank, Walter Wriston said: 'Our strategy is not one of making loans; our strategy is one of making money.
His victory was short-lived. A curt letter of dismissal greeted Stevens next day, reminding him that there is a time and place to speak your mind.
So he worked out his notice and packed his bags. Full of youthful optimism and his consuming interest in debt, he continued reading and applying for jobs. But the weeks went by. His job applications got nowhere. And the mortgage payments began to bite. Debt was hitting home.
Scraping rock bottom
After the sixth week of collecting welfare, he opened his post and received a letter containing - a credit card offer. He laughed hysterically. Credit offers are circulated from purchasable mailing lists just like any other commodity. The US Bank of New Orleans once even sent credit cards to potential customers with 'steady jobs' who turned out to be inmates working in Angola State Prison!
After this, Stevens noticed loan possibilities everywhere: bank loans, hire purchase for clothes and cars, mortgages, credit unions. Debt earns interest just as easily in the West as it does in the Third World. And interest is what these businesses are all about.
As he rewrote his curricula vitae yet again, Stevens contemplated the prospect of his home being repossessed by the mortgage company. He realized gloomily that individually Western people suffer from debt just as Third World people do. The difference between their debts and those of Third World countries however, is that while loan institutions can seize an individual's assets, they can't so easily reclaim a nuclear reactor or a dam.
In fact the threat of default by a Third World country could put the banks in a tight spot; which is why virtually all the big banks have recently started to keep money aside as 'loan-loss' provision. This, combined with an unwillingness to lend more money to 'high risk' countries, considerably reduces their chances of running into trouble, although it does nothing to help the poorest nations.
He expanded this idea at his next job interview, and finally his obsession with debt paid off: the aid agency offered him a position. Now he had all the time in the world to read and discuss the serious question: what can Third World countries do to alleviate their debt crisis?
Perhaps instead of competing with each other to sell their wares, Third World countries could get together and force the West to agree to a standard minimum price for commodity prices, like oil-producing countries did with OPEC. He suggested this to a colleague, only to find it had been thought of before. Of course many programmes of regional co-operation exist, but unlike oil most Third World commodities are no longer essential to the West.
However Stevens did have a point. He argued it through: many developing countries have repaid their debts several times over in interest, but still the burden gets heavier. They certainly have a legitimate case for refusing to pay. So why don't they?
'Individually a few have done,' said his new colleague Sarah, 'but they get squeezed back into line by the West.'
'Reprisals: no more loans: the boycott of their goods - the West can plunge defaulting countries into total obscurity if it chooses.'
'So why don't those countries get together and refuse to pay?'
Sarah sighed. 'Western financial institutions operate a divide and rule policy: they strike sweetheart deals with individual governments which benefit Third World élites even though they harm the poor. But,' she added, 'it's becoming obvious - even to the West - that something has to give. And if Third World countries defaulted together, the very size of their combined debts could give them massive bargaining power. So there is hope.'
Stevens smiled. Inside he felt a warm glow, relieved that at last he was getting some answers. What he didn't realize however, was that the real questions had only just begun.
1 'Poor man's gift', Economist, 30 November 1985.
2 A Journey Through the Global Debt Crisis, The Debt Crisis Network, 1987.
3 SIPRI Yearbook 1985, Stockholm International Peace Research Institute, 1985.
4 A Fate Worse Than Debt, Susan George, Pelican, 1988.
5 Solita Collas-Monsod, 'The Philippines: Debt and Democracy,' speech, Washington DC, 21 September 1987.
6 The Bank for International Settlements, 1983 annual report.
7 Susan George ibid.
8 Debt Trap, Richard W Lombardi, Praeger, 1985.
CORSO (Council for the Organization of Relief Services Overseas),
P0 Box 9716, Courtney Place, Wellington.
Telephone (4) 856229.
Campaigns about Third World poverty.
Community Aid Abroad,
P0 Box 82, Fitzroy, Victoria 3065.
Telephone (03) 419 7111.
Promotes aid to the poorest - as well as understanding the forces that make them poor.
Australian Council of Churches,
6th floor, 379 Kent Street, Sydney 2000.
Telephone (02) 29 2215.
Distributes information on Third World debt.
11 Madison Avenue,
Toronto, Ontario, M5R 2S2.
Telephone (416) 921 4615.
A project run by Canadian churches for global economic justice.
55 Murray Street, Ste 200,
Ottawa, Ontario KIN 5M3.
Telephone (613)236 3535.
An independent thinktank which lobbies about global economic issues.
274 Banbury Road,
Oxford 0X2 7DZ.
Telephone (0865) 56777.
Campaigns within international debt networks.
Profits Out of Poverty,
37-39 Great Guildford Street,
London SEl QES.
Telephone (01)620 1111.
Campaigns on the debt crisis.
The Debt Crisis Network,
c/o The institute for Policy Studies,
1901 Q St, NW,Washington DC 20009.
A network that campaigns about debt and produces various publications.
Interfaith Action for Economic Justice,
110 Maryland Avenue, NE, 5th Floor, Washington DC 20002:
Campaigns to secure just and effective development.
Paulus, Potteratrast 20, 1017 DA Amsterdam.
Telephone (010) 3120 662 6608.
Produces extensive documentation about Third World issues.
3 United Nations Plaza, NY 10017.
Telephone (010) 212 326 7000.
Campaigns for governments to adopt strategies that will ease the burden of debt on women and children.
Worth reading on DEBT
A Fate Worse Than Debt, Susan George, Grove Press, 1988. A well researched, highly readable account of the debt crisis.
A Journey through the Global Debt Crisis, The Transnational Institute, 1987. Essential for schools. A cartoon version of the debt tragedy.
The Debt Squads, Sue Branford and Bernardo Kucinaki, Zed Books 1988. A useful analysis of Latin American debt.
Adjustment With A Human Face - a study by UNICEF edited by Andrea Cornia, Richard Jolly, Frances Stewart, Oxford University Press 1987. The real effects of International Monetary Fund policies.
This special report appeared in the dicing with debt - the third world dilemma issue of New Internationalist. You can buy this magazine or, to get stories like this one through your door every month, subscribe.