Mennonite
Central
Committee

Response to the International Debt Crisis

The Nature of the Crisis

The debt crisis, a product of deficient international economic system, has spread around the globe. In North America, family farms face bankruptcy; some businesses, both large and small, are threatened. For the poor in Africa, Asia and Latin America the debt has become a matter of life and death. To service their debt, low and middle income countries are annually paying approximately $50 billion more to the high income countries than they are receiving in aid, investment and new loans. Heavily indebted countries on four continents can no longer meet their debt commitments.

A debt of low and middle income countries in excess of a trillion dollars, combined with the inability of some of these countries to service their debt, has created several crises. The threat to the financial viability of North American banks caused a temporary crises of public confidence; a much more serious long-term crisis exists for people in low and middle income countries.

A major cause of the debt crisis was irresponsible bank lending. Such loans were made possible by a ten-fold increase during the 1970s in the international reserves which form the basis for commercial bank lending. Encouraged by the availability of money, a number of low and middle income countries borrowed large sums for finance development programs, prestige projects and military expenditures. In 1981 three countries, the United States, the United Kingdom and Canada, in coordinated action against inflation, destroyed 30 percent of the international reserves. The result was shortages of credit and dramatic increases in interest rates. This action generated a serious recession, causing commodity prices around the world to fall.

The policy response to the ensuing debt crisis, mounted vigorously by high income country governments, the International Monetary Fund (IMF) and the World Bank, had one objective: stabilize and assure the continuity of the existing international financial system. The realization of this objective significantly reduced the crisis mentality within high income countries. Conversely, a crisis of survival ensued within many low and middle income countries, especially affecting poor people, who were powerless to defend themselves against the IMF conditions imposed on their respective governments.

A contributing cause to the debt crisis is corruption and internal mismanagement with some of the low and middle income countries. Corruption and mismanagement are a product of unjust and inequitable structures within these countries. Such structures have aggravated the debt crisis, encouraging wealthy people in low and middle income countries to remove money from their home countries and to hold such investments elsewhere, often in the banks of high income countries.

The Need for Action

The international debt is both a problem in its own right and a symptom of a larger problem. The poor who are suffering most from the debt crisis are often in a position of inequality within the global economy.

Given their place within the larger economic system, poor people most severely feel the impact of current solutions to the debt crisis, such as IMF mandated structures adjustment policies. However, these attempts have serious implications for everyone, rich and poor alike: 1) the increased infant mortality rate will hinder current global attempts to reduce the rate of population growth; 2) action taken by poor people to survive is increasing the rate of environmental degradation; 3) the reduced capacity of low income countries to provide education will mean the current generation of children will be less able to participate in development; 4) the capacity of low and middle income countries to import goods from high income countries has been reduced, eliminating well over one million jobs in North America; and 5) political instability in low and middle income countries is increasing, creating a harsh environment for promotion of justice and peace, and the development of newly established democracie.

God’s Call to Faithfulness

As members of the worldwide Mennonite and Brethren in Christ churches, we are both rich and poor, lenders and debtors. Together we are participants in the story of God working in history to create a Kingdom of love, justice and equality.

God delivered the children of Israel from economic and social slavery in Egypt, and established a covenant relationship with them. The fundamental economic principles of "sabbaticals" and "Jubilee" provided for the periodic forgiveness of debts and the redistribution of wealth from the rich to the poor (Leviticus 25; Deuteronomy 15). The purpose of such radical socio-economic restructuring was to guarantee the survival of a just and peaceful community.

The concern Jesus had for the poor and for their human dignity is our model in working for economic justice. Jesus proclaimed a mission to bring Good News to the poor with the use of an Old Testament text that announces the Jubilee, an invitation to spiritual, economic and social liberation (Luke 4: 16-19; Isaiah 61). The disciples were taught to pray that God’s will be done on earth as it is in heaven (Matthew 25: 31-46). Given that international debt deprives some people not only of the means to meet their needs, but of life itself, the debt cannot be seen as an expression of God’s will. The debt is a faith issue for those of us who believe in a God of life.

The Mennonite and Brethren in Christ tradition is marked by a desire to follow Jesus’ life and teachings within a community of mutual caring and service. Our church communities have maintained these ministries through the years. MCC’s relief and development work is an expression of the churches ministering to human need in the name of Christ.

As we have sought to alleviate poverty, hunger, homelessness and oppression, we have learned from brothers and sisters with whom we have served to recognize the economic, social, and political structures that create and perpetuate these problems. The policy decisions made by financial and government leaders in North America play an important role in shaping systems that perpetuate hunger and poverty. For that reason, MCC has sought to monitor government policies in North America and to speak to policy makers from our experience. Our current experience causes us to say the debt situation is immoral. Banking institutions, their depositors and their investors, are able to benefit at the expense of the poor people in low and middle income countries.

Many of us have received benefits from the existing international trade and finance system. Yet we are called to stand with the poor and oppressed, the victims of the debt crisis. For this stance to appear valid, we, both individually and collectively, will need to re-affirm our commitment to simplicity and frugality and to be prepared to carry a significant portion of the economic sacrifice necessary to resolve the crisis. In the longer term, we need to examine the values and power relationships embodied in the international economic system, and work to eliminate its inequalities by surrendering our privileged position within it. We pray to God for the courage to do so.

The Basis for Action

In most cases, low and middle income countries have repaid more than the amount of the original (prior to 1981) loans plus the originally agreed upon interest charges. However, they find themselves further in debt than at the outset of the crisis. The original debt has been paid; it is both impossible and wrong to enforce greater sacrifices on poor people in debtor countries. It is, therefore, the international financial system that will need to bear a significant portion of the costs for reducing the current debt burden.

Our call is for a renewed international financial system which channel loans for the benefit of both investors and poor people in low and middle income countries. The realization of such an international financial system, which promotes equity and justice, will require specific actions. The following criteria are set out as a basis for evaluating such actions: 1) the action should enhance the ability of poor people to provide for their own necessities of life; 2) the action should enhance the ability of governments to pursue a course of development compatible with their cultures and values; 3) the action should strengthen political structures through which the people can participate in shaping decisions which affect their lives, giving them a sense of their own worth and capacity; 4) the action should be environmentally and ecologically sustainable over time; and 5) the action should promote peace with justice. All these form an integral part of peacemaking at the local and global levels.

Policy Options

For Action by MCC

1. MCC will listen to those affected by the debt crisis to inform ourselves, our constituency and the public about the effects of the international debt crisis and the policy actions designed to counter the crisis.
2. MCC will prepare appropriate educational material with an emphasis on understanding the causes of the crisis and assisting with the implementation of renewed public policies.
3. As called upon, MCC will assist sisters and brothers in low and middle income countries to study the mechanisms and effects of the international debt crisis within their countries and to identify alternative solutions to the crisis.
4. MCC will build bridges between lenders and debtors within the larger church to: 1) promote a dialogue between the decision-makers in lending institutions and those persons suffering the negative effects of current attempts to end the crisis; and 2) establish a mechanism through which persons who have profited from the high interest rates associated with the debt crisis can channel some of this interest income to those persons suffering as a result of the debt crisis.
5. MCC will register opposition to policies and actions by government or other parties that seek to carry out debt-equity swaps.
6. MCC will investigate and may experiment with utilizing international bank loans that have been received as donations or purchased from commercial banks, as a means of funding new approaches to development. Local currency obtained in this manner will be used to fund programs in addition to normal MCC programming. For example, MCC, jointly with other NGOs, will utilize the local currency obtained to establish development funding institutions within the low income countries which have a heavy debt burden.
7. MCC will promote assistance to those countries which have the lowest capacity to re-pay debt or where the suffering of poor people in most severe.

For Action by Mennonite and Brethren in Christ Churches

1. Mennonite and Brethren in Christ churches/agencies in North American are encouraged to set a positive example by canceling the loans they have extended to sister institutions in low income countries.

For Witness and Promotion by MCC and Supporting Constituency

1. MCC will call on its supporting constituency to join us in encouraging the governments of Canada and the United States to make larger commitments to the poor of the world and to revise public policies in that direction.
2. MCC will encourage the United States to take leadership in a joint effort by high income countries to reduce the overall debt by: 1) canceling a significant portion of the official debt of the low income countries; 2) creating a means for reducing the existing commercial debt; 3) eliminating those policies which ease the economic problems of high income countries by shifting the burden to poor countries; and 4) working toward establishing a more equitable international finance and trade system.
3. MCC will join other church bodies in a dialogue with the IMF and the World Bank to encourage the development and implementation of debt relief which does not place undue burdens on poor people within the debtor nations nor eliminate the freedom of the people with a nation to make their own decisions.
4. MCC will call on the commercial banks and other institutions holding international debt claims to: 1) show debt purchased on the secondary market at its market value rather than book value; and 2) write down the debts of the low and middle income countries by the amount of the reserves set aside against such debt and for which tax credits were obtained by the banks from their governments

 

Prepared by the International Debt Crisis Committee.
Accepted — MCC Annual Meeting, January 1991, Archbold, Ohio