Mennonite
Central
Committee

Debt Causes... Hunger and the Borrower is the Slave of the Lender

"The rich rules over the poor, and the borrower is the slave of the lender."
—Proverbs 22:7

Zenithou's Story

Sitting with her father on a wicker mat, 3-year-old Zenithou has dark curls and a face that’s been destroyed.

She’s fighting a disease, caused by ordinary mouth bacteria, that eats through her facial muscles, tissue and bones. Children whose immune systems are weakened by chronic malnutrition have nothing with which to fight any disease. Simple antibiotics and mouthwash may have saved Zenithou, if her illness had been caught early. But her father, Ali, a sieve maker, had to sell 150 sieves before he had the money to take her to the hospital.

Dr. Degrey Hubert, the head of the children’s hospital in Niger’s capital, Niamey, says, "In the last five years I’ve seen the number of children dying from infectious diseases related to malnutrition creeping up from around 30 to 50 percent. It’s getting worse. The hospital gets no credit from the government because they have no money to give us. The people can't breathe under this debt."

Niger is not suffering from war or famine, but from constant and crippling paverty. Yet Niger …the poorest country in the world …must spend three times more money paying off its debt burden than it spends on health and education.

Meanwhile, Ali comforts Zenithous as best he can, "When she is in pain she takes my hand and puts it against the part of her face that hurts and sayes to me, ‘Daddy, it hurts.’ I just stroke her and comfort her but my heart is thumping and thumping."

The Story Of Debt

Many North Americans see debt, in the form of credit, as positive. A home mortgage makes it possible to obtain a secure place to raise a family. Farmers get credit to plant crops.

Entrepreneurs seek credit to expand their business. Yet changing economic circumstances can turn mortgages and business loans into burdens. Credit cards can be used unwisely to buy unnecessary luxuries. Crops can fail, leaving loans behind. However, north americans with an impossible debt load can file for bankruptcy, and reclaim their position as productive members of the economic system.

For the 1 billion people who live in the 52 most heavily indebted countries, the 524 billion Cdn./$354 billion U.S. they owed at the end of 1997 is a crushing burden they can never repay. Interest payments alone mean lost educational opportunities, higher prices for food and transportation, poor or non-existent medical care, hunger, and sometimes death.

If we want to understand the difference between credit as an opportunity and debt as a burden, and if we want to understand how we in North America are connected to Zenithou and others like her, we need to understand the story of debt. Rather, we need to understand the stories of debt. Different people start the story at different places and tell the story in different ways, and each different story carries a different message.

For hundreds of years, countries have borrowed money to pay for things they wanted "right now" but did not have the money to pay F for. Most of the money poor countries owe today, however, was borrowed in the last 40 years. Yet even though this is recent history, and the "facts" are fairly well known, people also tell this story differently.

After World War II, many former colonies in Africa and Asia gained their independence. Many wanted to achieve the financial status of the rich nations, often referred to as the "developed countries." For their own reasons, rich countries wanted the poor countries to join the global economy, and so set up agencies such as the World Bank that lent money to the poor countries to help them "develop."

In fact, the 1970s was labeled the "development decade." Tens of billions of dollars flowed into poor countries from governments, businesses and banks of rich countries. The loans were cheap, especially in the days after the OPEC oil crisis, when rich-country banks suddenly had hundreds of billions of "petro-dollars" they had to lend.

Some poor countries used the borrowed money for social and economic development that actually benefitted their people. Some governments followed poor advice from northern governments and development agencies and used loans for grand development schemes that never paid off. Many poor countries were ruled by military dictators who borrowed money to support their military forces that oppressed their people. Much of the money ended up in the overseas bank accounts of corrupt government officials.

During this decade, poor countries became accustomed to running their government programs with borrowed money, and rich-country banks became accustomed to earning large parts of their profits from what they called "third world loans." These profits went directly to banks’ shareholders, and to some extent to everyone who had money earning interest in North American banks.

The 1970s was also a decade of global inflation. The decision of the United States to print large amounts of money to both fight a war in Vietnam and a War on Poverty at home contributed to inflation. The OPEC oil price hike led to further inflation.

The 1980s was the decade of "reverse development." In 1981, the United States, Canada and Great Britain decided to fight inflation by destroying 30 percent of the international financial reserves. Interest rates soared, leading to a global recession.

This caught the poor countries in a double vise. Each 1-percent rise in interest rates added billions of dollars to their loan payments. The global recession dramatically cut demand for the raw materials they were exporting. The combination of rising interest payments and falling earnings made it impossible for many poor countries to service their debt.

Big banks were afraid they would go bankrupt if poor countries repudiated their debts. For several years banks agreed to stretch out the payments for the poor countries. They even lent them a small amount of new money to make interest payments, although most of this new money never really left the banks: banks "lent it" to poor countries by making internal bookkeeping entries. This allowed poor countries to stay current on their payments, but did not give them new money to invest. Meanwhile, their overall debt load continued to grow.

As time went on, banks set aside financial reserves to cover themselves if the poor countries stopped paying on these "non-performing loans." Banks also tried to get others to assume these debts. They asked their own governments to pay off part of the debts of poor countries. Rich countries also asked the International Monetary Fund (IMF) to play a larger role in ensuring that poor countries would make payments on their loans.

The IMF was originally designed to make short-term loans to countries to cover cash flow problems. Since the debt crisis was first seen as a cash flow problem, poor countries therefore turned to the IMF for small loans.

However, as the debt crisis continued, rich country governments, private banks, and the World Bank began to refuse to extend payment terms or make new loans to poor countries unless they had entered into an agreement with the IMF to restructure their economies. This was a new mandate for the IMF, and gave the IMF power over heavily indebted countries far out of proportion to the actual amount of money the IMF had lent them. In effect, it turned the IMF into a global enforcer of the market system.

Agreements between indebted countries and the IMF were called Structural Adjustment Programs (SAPs). These programs forced governments to spend less money on domestic programs and to use more of their resources to generate foreign currency. This allowed them to make interest payments on their international debt.

The effect of Structural Adjustment Programs (Saps) on poor people was immediate and severe. Countries were forced to reduce or eliminate the subsidies they paid to keep the price of rice, corn, or wheat low, so poor people could afford these foods. They removed subsidies on train and bus service, which increased the amount of money poor people had to spend on transportation. Countries stopped making low-interest loans to small farmers. These changes made more money available to make payments on the foreign debt. They also meant the poorest citizens of the country began going without food.

Many heavily indebted countries have rich resources of forests, farm lands, fishing beds, factories and skilled workers. These resources can be used to meet domestic needs or to earn foreign exchange. Farmland can grow corn for local consumption, or raise flowers for export. Fishing beds can support thousands of small fishing families, or be harvested by a mechanized trawler. Factories can be locally owned making items used by people in that country, or they can be owned by people from other countries making items used by people in other countries. Structural adjustment programs forced countries to shift from using their resources to meet the need of their people to using their resources to earn foreign currency.

Structural adjustment programs enabled heavily indebted countries to generate huge amounts of foreign currency. In fact, during the 1980s, the poor countries made a net payment of more than $298 Cdn./$200 billion U.S. to rich country governments and banks.

As structural adjustment programs continued into the 1990s, heavily indebted countries began to sell off the economic resources they had developed during previous decades. With so many countries putting their economic resources on the market at the same time, under heavy pressure to sell in order to make their loan payments, this turned into a decade-long "fire sale."

In fact, structural adjustment programs of the 1980s sowed the seeds of the accelerated economic globalization of the 1990s. As countries in Latin America, Asia and Africa sold government-owned businesses and opened their economies to global capital, workers in these countries were thrown into competition for jobs with hundreds of millions of industrial workers in the former Soviet Union, China, Eastern Europe, and other countries of the socialist bloc who were also opening their economies to global capital.

Corporations based in rich, industrialized countries used this huge labor pool in negotiations with their workers. This led to downward pressure on wages for workers in most regions of the world.

The IMF and other financial institutions still administer structural adjustment programs, even though countries that have followed Saps continue to sink deeper into debt, and even though the IMF and the World Bank acknowledge that the Saps have not brought growth or debt reduction to the most heavily indebted countries.

Yet because these policies brought new capital into some poor countries, and allowed the wealthier segments of society to gain access to the global consumer market, many countries that were once forced to adopt structural adjustment programs now voluntarily embrace the economic policy of integrating their countries into the global economy.

Common Elements of Debt Stories

These very different stories all illustrate how individual countries are affected by larger forces beyond their control. The Cold War that led powerful economic and political blocs to extend cheap loans on favorable terms, the credit crunch engineered by the Western powers that made those loans more expensive, and the decisions by OPEC that raised energy costs and generated Petro-dollars for cheap loans are examples.

These stories all agree that heavily indebted countries could have made better choices, although they disagree about what those "better choices" would be. But most people acknowledge that much of the money that was borrowed was stolen by corrupt government officials, spent on poorly designed economic projects, or used to support military forces that propped up dictatorships and suppressed political dissent.

The stories all agree that different groups of people are affected in different ways by the debt. When loans were flowing into poor countries, people with personal, family or ethnic ties to government and military officials used their connections to get cheap loans and government jobs. When heavily indebted countries began to restructure their economies, these same people used their connections to buy government owned businesses for "cents on the dollar." Large land owners sold their land to multinational corporations or began to grow crops for export. Merchants prospered by selling imported goods. The poorest people in the country, who had the least control over the decisions that created the debt, and benefitted least from the original loans, pay the heaviest price for debt payments.

When structural adjustment programs force countries to "tighten their belt" by dropping subsidies, the poorest people in that country stop eating. When countries devalue their currency so they can sell more exports on the global market, the poor people who labor to make those exports receive less money. When heavily indebted countries raise money to pay their debt by clear-cutting their forests, turning their mangrove swamps into shrimp hatcheries, and allowing huge trawlers to fish in their coastal waters, the poor people who once used the agricultural land to raise subsistence foods, harvested meat, fruits and nuts in the forest, and fished in the ocean are pushed off the land.

The stories all acknowledge that countries have focused on short-term survival. Countries that make paying interest on their foreign debt a priority reduce expenditures for education and health that would develop their citizens’ social and physical capacities. Indebted countries cut their budget for developing the roads, bridges, ports, phone systems and power systems that are necessary for either domestic or international businesses to make productive investments in their country.

While the changes indebted countries make often result in an influx of foreign investments, this money is most often a "foot-loose" form of capital that does not make local investments in bricks and mortar, enjoys long periods of exemptions from taxes, takes its profit out of the country instead of sharing it with a local partner, and continually puts their workers in competition with workers in other countries. This drives wages down to the lowest possible level, and adds little to the local economy.

The Effect of Debt on North Americans: The Financial Effect

(p)Different groups of people in North America are affected in different ways by the international debt. People with money invested in banks benefitted from higher interest rates and dividends made possible by the huge profits generated when banks raised interest rates on international loans. Pension funds and mutual funds reaped increased financial rewards from international investments as indebted countries lowered restrictions on foreign capital: People with money in those funds reap financial benefits from the circumstances of poor countries. Consumers in North America benefit from low prices they pay for food and consumer goods produced in heavily indebted countries that lowered their labor rates.

On the other hand, some workers in North America lose their jobs when corporations move to heavily indebted countries with lower wages. Other workers, who earn less than a living wage, are hesitant to vigorously protest because their jobs could move. North American farmers face increased competition from food imports grown by workers receiving extremely low wages.

The Spiritual Effect

We are all citizens of the corked in which children die in order to enable their country to pay interest on ultimately unpayable debt. There is no tragedy "over there" that is not "our tragedy." The death of a child anywhere in the world grieves God, who wants all people to live an abundant life.

Christians in North America may feel far removed from this reality. Indeed, working alone, individual citizens in North America often have as little control over government policies related to debt as do individual citizens in third World countries. Yet ordinary people around the world are joining together to do not what none of us can do alone …put an end to the burden of debt crushing the life out of millions of children like Zenithou. Our spiritual vitality depends on not turning our faces away from these children.

Ways to Respond

1. A first step for most North Americans is to learn more about the way international debt works. Because much of the money involved at this point comes from government sources to which we contribute, because many of us have benefited personally, if unknowingly, from the international debt. Because we are joined in one human family with people suffering and dying because of the debt, we are called to become well informed about this complex reality.
2. A second step is to become politically involved in advocacy on behalf of those suffering from the burden of international debt. Most national church groups have advocacy staff who address this issue. Organizations that produce education and advocacy materials are listed on pages 24-25.
3. A third step is to become aware of the effect of one’s personal investments in the international economic system. People with money invested in retirement accounts, stocks or mutual funds, can get information about the types of investments the companies that manage their money are making. It is incumbent on those of us who have investments to ensure that our money is not playing a role in the impoverishment of others.
4. A final step is to support international development agencies who work directly with people most affected by international debt. In the short-term, this involves addressing the immediate problems caused by debt: extending credit to replace government loans that are discontinued, providing community groups with books, teachers, and other educational resources, teaching agricultural techniques that decrease the reliance on imported agricultural inputs, and supporting community based health programs. In the longer-term, this involves educating people about the causes of the international debt, and organizing people to resist the pressures that cause their governments to ignore their needs in order to pay back the debt.

Resources (videos)

Banking on life and debt shows how the "new world economic order" has become a major cause of national debt, export imbalances and financial instability for developing nations. It visits Ghana, Brazil and the Philippines, where cuts in health and education, forced farmland sales and export policies dictated by the World Bank have caused diminished living conditions. Study guide included. Produced by Maryknoll World Productions in 1995. 30 minutes. Available for loan from MCC in Akron, MCC Alberta, MCC Great Lakes, MCC Manitoba.

Cancel the debt, now! The Jubilee 2000 campaign shows the devastating impact of debt on the people and environment in the world’s most heavily indebted countries. It invites North Americans to join the worldwide Jubilee 2000 movement to cancel these debts. 24 minutes. Available for loan from MCC in Akron, MCC Central States, MCC Ontario.

Deadly embrace documents the struggle of people in Nicaragua to cope with the debt crisis, structural adjustment and free trade. It intersperses footage of people’s struggle to survive with background information about the World Bank, the International Monetary Fund, and the "embrace" of Nicaragua by the global economic order. Produced by Compas de La Primavera Productions in 1999. 30 minutes. Available for loan from MCC in Akron and MCC Manitoba.

Hurricane Mitch: Uncovering the costs of external debt examines debt’s effect on Nicaragua and Honduras after Hurricane Mitch. These countries, already paying 30 to 40 percent of their national budget on international debts, struggle to find money to rebuild. Produced by Victoria Maldonado for Interreligious Foundation for Community Organization and Pastors for Peace. 30 minutes. Available from MCC in Akron and MCC Canada.

Life and debt argues that Brazil’s massive $194 billion Cdn./$130 billion U.S. debt is the ultimate cause of the assassination of 500 street children a year in Rio de Janeiro. This dramatic docu-drama examines links between Brazil’s economic crisis and its tragic social and ecological plight following 500 years of domination and exploitation by Europeans, Americans and now Japanese. Produced by Octavio Bezerra for BBC in 1994. 50 minutes. Preview before showing. Available for loan from MCC in Akron and MCC British Columbia.

To be a woman: African women’s response to the economic crisis offers a critical analysis of the impact of economic Structural Adjustment Programs on the lives of women and children in Ghana, Uganda and Zambia. Allows a better understanding of the struggles and coping mechanisms of African women. Study guide included. Produced by Visafric Productions in 1992. 42 minutes. Available for loan from MCC in Akron, MCC British Columbia, MCC Manitoba, MCC Ontario.

Where are the beans? An MCC worker sets out to discover why Honduran farmers work hard and col lect a plentiful harvest of beans, yet do not have enough beans for themselves. Explains how Honduras’ structural adjustment program and other political factors deprive Honduran farmers of their bean harvest. Also illustrates how North Americans are affected by international economic policies. Produced by MCC in 1995. 13 minutes. Discussion guide included. Available for purchase from MCC in Akron for $20 Cdn./$15 U.S. Available for loan from all MCC offices.

Organizations

The MCC U.S. Washington Office and the MCC Canada Ottawa Office provide Mennonite and Brethren in Christ constituents a presence in their nation’s capital. Both offices encourage prophetic witness to the way of Christ on matters of U.S. and Canadian public policy. Both offices provide information about current legislative initiatives to respond to the international debt crisis, as well as links to debt relief campaigns. MCC Washington Office, 110 Maryland Ave NE #502, Washington, DC 20002, phone 202-544-6564; MCC Ottawa Office, 803-63 Sparks Street, Ottawa, ON K1P 5A6, phone 613-238-7224

Bread for the World provides Christians with resources to help them advocate for specific policy changes to address root causes of poverty and overcome hunger in the United States and around the world. Bread for the World provides tool kits for an annual offering of letters for use by churches. 110 Wayne Avenue, Suite 1000, Silver Spring, MD 20910, website www.bread.org

The Canadian Ecumenical Jubilee Initiative is a project of some 30 churches and ecumenical organizations seeking a new beginning for the world through release from the bondage of debt, redistribution of wealth and the renewal of the Earth. Inspired by the theology of Jubilee, the Initiative integrates concerns for social justice, peace, and ecological integrity. The CEJI website is an entry point to an incredible array of resources. PO Box 772, Station "F," Toronto, ON M4Y 2N6, phone 416-922-1592 (ext 30), website www.web.net/~jubilee/

Jubilee 2000 is a global network dedicated to providing debt relief to the world’s most heavily indebted countries. National Jubilee 2000 groups provide information about legislative initiatives, local and national actions, and educational and campaign resources. Jubilee 2000/USA, 222 East Capitol Street NE, Washington DC 20003-1036, phone 202-783-3566, website www.j2000usa.org

Mennonite Economic Development Associates, founded in 1953, offers hope, opportunity and economic well-being to low income people in the developing world and North America by providing affordable credit, marketing services and training. MEDA describes its Sarona Global Investment Fund Investment Fund as a "social investment fund with an aggressive focus on ventures that strengthen the economic prospects of the poor in low income countries." 302-280 Smith St., Winnipeg, MB R3C 1K2, phone 204-956-6430 or 800-665-7026, e-mail , website www.meda.org

Mennonite Mutual Aid provides financial services to members of Anabaptist-related denominations in the United States who can place retirement or other investment money in MMA Praxis Mutual Funds®. MMA’s basic guidelines are respect for human dignity, responsible management and environmental stewardship. MMA advocates for positive corporate practices through shareholder resolutions and dialogue with corporations. PO Box 483, Goshen, IN 46527, phone 219-533-9511 or 800-348-7468, website www.mma-online.org

Print Resources

An excellent set of three resources is available from The Canadian Ecumenical Jubilee Initiative (see address page 24): A New Beginning: A Call for Jubilee is a 32-page study guide outlining the themes of Jubilee by presenting the contemporary problems, biblical vision, contemporary proposals, and possible responses for a personal, church, national and international response. ($5 Cdn.) Sounding the Trumpet: Educating for Jubilee is a 28-page book offering practical lesson plans, sermon notes, workshop outlines, and resources on jubilee for children and adults. Making a New Beginning: Biblical Reflections on Jubilee is a 132-page booklet offering 15 theological reflections on Jubilee. ($8 Cdn.)

Hunger 2000: A Program to End Hunger is the 10th annual Bread for the World Institute Hunger Report focusing on how hunger around the world could be substantially erased. Contains a section on debt advocacy, and updated statistical information. 1100 Wayne Avenue, Suite 1000, Silver Spring, MD 20910, phone 301-608-2401, website www.bread.org

Jubilee 2000/USA Education Packet is an excellent resource which can be ordered from the Jubilee 2000/USA address listed on page 25. ($5 U.S.)

Response to the International Debt Crisis contains the official MCC policy regarding international debt, briefly outlines the nature of the crisis, and gives the basis for a Christian response to this crisis. Available from any MCC office. (Free)

Working to ensure that people have access to food is a central part of MCC’s mission. We believe food is a gift of God. When we work to ensure that all God’s children have an adequate food supply, we are witnessing to God’s love and grace. We believe those who have an abundant supply of food have a special responsibility to share with those who are hungry.

Power of Global Capitalism

Some people start the story 500 years ago, when European countries acquired colonies that supplied the raw materials, mineral wealth and cheap labor that allowed European countries to develop industrial wealth and power. When the colonies became independent, many followed an economic path quite different than their colonial rulers. The former colonial powers simply bided their time. When the former colonies became heavily indebted, the countries at the center of the global economy now had leverage to force the former colonies to re-assume a subservient role in the global economy. Once again, poor countries were providing raw materials, mineral resources and cheap labor to the rich countries of the world. This story is about the power of global capitalism, focusing on global inequalities and parallels between political colonization and the current economic relationship between rich and poor countries.

Cash Flow Problem

Some people start telling the story here. They tell a story about a cash flow problem. They do not believe that any country, rich or poor, will ever get out of debt, and they do not believe that is inherently a problem. They say that countries, like businesses and individuals, need to borrow capital to grow. The important thing is that countries use their loans to generate new business, and that the debt load is not so high that it scares away outside investors. People who tell the story this way focus on the long-term picture. To them, it is more important that countries are able to pay on their debt rather than how much they owe.

Failure of Socialism

Some people tell the story of the debt as the failure of socialism. During the 1950s and 1960s, many newly independent countries looked to China and the Soviet Union as models for how to develop economically. These countries gave their governments a leading role in developing their economies. Many of them joined the "socialist bloc." Many of these countries developed a strong manufacturing base and other domestic businesses. These state-owned businesses were often used to reward the families and clans of political leaders. When the Soviet Union collapsed, destroying the Socialist economic bloc, these countries’ industries could not compete on the global market. People who tell this story believe the international debt helps poor countries to abandon failed dreams and flawed economic theories, and move into the future with a more dynamic economy linked to the global market.

Vindication of Free Market Economies

Some people look at the effect of structural adjustment programs as vindication of free market economics. These people focus on the decision by many newly independent countries to ignore the advice of the rich country governments, banks and free market economists. These countries forced international corporations that wanted to do business in their countries to take on local partners, make investments in factories and other infrastructure, and re-invest much of their profit in these same countries. They used government revenues to develop state-owned business, and developed an overall economic development strategy. Once structural adjustment programs forced countries to remove these restrictions, international corporations and global investors brought new business and capital into some of these countries, leading to growth in some overall economic indicators. People who tell the story this way focus on a country’s economic growth as measured by the cash economy.

 

Writer: Dave Schrock- MCC