by Henry Rempel

MCC Occasional Paper, No. 22
January 1996

MCC Occasional Papers are a publication of Mennonite Central Committee (MCC). This series features manuscripts by MCC volunteers and staff on topics related to MCC programs and concerns. The papers do not necessarily reflect official MCC policy.

• 1.0 The Burden of International Debt
• 2.0 As We Forgive Our Debtors
• 3.0 The Power to Forgive
• 4.0 Deliver Them from the Hands of the Wicked
• 5.0 The Willingness to Forgive
• Endnotes
• Selected Bibliography

In the United States and Canada the debt crisis is over. Our bank savings are secure once more. The media have turned their attention to more pressing matters. But in Africa, the struggle with the burden of debt goes on. Our approach to solving our debt crisis has created devastating side effects for the lower income groups in Sub-Saharan Africa. There, our brothers and sisters are beginning a trek from the depths of despair along a winding, rough trail to renewal.

1.0 The Burden of International Debt

During the 1980s one of every four dollars earned from exports flowed from Sub-Saharan Africa to lenders in high income countries. This level of debt servicing merely covered one half of the debt payments due. The unpaid balance plus high fees for the privilege of rescheduling debt payments were added to the existing debt. Foreign aid to these African countries was equal to one-half to two-thirds of the annual debt servicing costs, but such aid frequently was in the form of new debt, even if granted on concessional terms.[1] During this same period the price of Africa's exports, relative to the price of imported goods, declined by 30 percent. As a result, between 1982 and 1992 the countries of Sub-Saharan Africa had to export 75 percent more goods and services merely to maintain their level of imports plus service their debts.

Exports could not be increased by 75 percent. As a result, the capacity to import declined in a number of African countries. The reduced level of imports caused shortages of fuel, spare parts and other essential goods, which contributed to Africa's slide back into severe poverty. Capital formation, as a percent of Gross Domestic Product, also declined. With less capital to work with, the rate of growth of production of all goods and services has been negative in a number of countries. The average standard of living of the people has been reduced to levels evident some twenty or thirty years earlier. The number of families unable to meet their basic needs doubled during the decade of the 1980s. This number is expected to double once more during the first half of the 1990s.

The human toll of this poverty is evident among lower income groups, with wage earners bearing the heaviest burdens.[2] It is estimated that wages of the employed declined by 30 percent.;[3] many wage earners lost their jobs. With price controls on basic commodities removed, the rapid increase in urban food prices has fallen heavily on these wage earners as well as on the unemployed and the self-employed in non-formal activities. At the same time, government spending on social services has been reduced. The United Nation's Development Programme estimated the world's 37 poorest countries, most located in Africa, reduced health spending by 50 percent during the 1980s and spending on education by 25 percent.[4] As a result, malaria is making a come back. It affects 90 million Africans annually; one million die. Seventy percent of these fatalities are children under the age of 5. Infant and child mortality rates have begun to increase in several countries. The proportion of children attending school has declined by 7 percent.

The burden of this poverty falls disproportionately on the women of Africa. Their struggle to produce food becomes more difficult as more of the best land is drawn into export crop production, to enable repayment of the international debt. With fewer health clinics available, women must travel greater distances to obtain health care for their children. With the infant mortality rate increasing, women will spend more years of their life either pregnant or lactating as each family struggles to maintain its desired size. Female life expectancy declined during the 1980s in five countries. Where the family lacks money to pay school fees for all the children, girls are the first to be withdrawn from school. The enrolment rate for girls declined in eleven countries. The dreams these women had for a better future for their children has been destroyed.

The United Nation's Development Programme summarizes the situation this way: "Without some end to the debt crisis, the impressive human achievements recorded so far may soon be lost."[5]

2.0 As We Forgive Our Debtors

The burden of Africa's debt continues to fester because there is no provision in international law, as there is in national laws, for the alleviation of debt through bankruptcy. National laws permit debt to be wiped off the lender's records through a declaration of bankruptcy, enabling the borrower to continue the pursuit of a livelihood free of debt. Either party to the debt may initiate bankruptcy procedures. Lenders can minimize their loses by forcing debtors into bankruptcy, or debtors may start over, free of debt, by declaring bankruptcy.

To be sure, bankruptcy is not painless. Lenders will likely lose part of their wealth; debtors may lose a business, a farm, or other assets, and the ability to borrow money for at least several years. But these costs may be less than the expenses, pain, and uncertainty involved in continuing the debt relationship.

There is no comparable provision within international law to cancel international debt when such debt becomes unbearable. The debtor country may repudiate its international debt, but this is an illegal act which does not wipe the debt from the lender's records. There have been cases, for example Ghana in the post-Nkrumah period, where the effects of repudiating international debts were no worse than declaring bankruptcy within a country. Initially, Ghana lost its credit rating, but after approximately five years new loans and investment were forthcoming. This, however, is an exception. A more likely result is that one or more of the international lenders will, at an opportune moment, seize a debtor country's assets as they become available outside the boundaries of the debtor country. Repudiation of debt had some success during the cold war period where revolutionary changes in government provided the in-coming government with the option of changing its allegiance to the other super power. Such changes in political allegiance were frequently rewarded with offers of aid and new credit provisions. With the end of the cold war this option has been closed as well.

There are some examples of creative, legal approaches to reducing an international debt burden. In the struggle to throw off British colonial domination the United States government created internal conditions which caused the British-owned railways within the United States to go bankrupt. The United States then bought up the railway assets at the greatly reduced bankruptcy prices. Currently, international debt can be bought and sold at prices below the face value of the debt in the New York money market. Bolivia successfully reduced its international debt load by buying up some of its debt on the international money market at prices between 10 and 20 percent of the face value of the debt. But such opportunities occur only occasionally, under unique conditions. They do not represent a means of eliminating debt that is open to all countries at all times.

One possible response, as outlined by the previous Secretary General of the United Nations, sets out the prospects for a better future provided three conditions are met:[6]

1. overseas development assistance increases from $21 billion U.S./$28.7 billion Cdn. in 1989 to $30 billion U.S./40.1 billion Cdn. in 1992 and then grows by a further 4 percent annually until the year 2000;

2. bold action is taken to substantially reduce the continent's crippling debt burden; and

3. concerted efforts are made to improve the global economic environment that inhibits Africa's recovery.

These are imposing pre-conditions. The 1988 Toronto agreement of the Paris Club members, if implemented fully, would have reduced Africa's annual debt servicing charges by about 15 percent. The action actually taken by the donors reduced these debt servicing charges by a mere 2 percent. But, even if there was a change of heart by the donor countries, contributing all that is needed under the United Nations plan, the effect would be a mere doubling of per capita income, by 2015, to the equivalent of $700 U.S./$955 Cdn. Such a doubling in per capita income by $350 U.S./$478 Cdn. will not be politically and socially sustainable in a world where the high-income countries can be expected, during this twenty year time period, to have an increase in per capita income of at least ten times that amount, i.e., an increase in our standard of living by $3,500 U.S./$4,778 Cdn.

Without a provision for bankruptcy, or something comparable, the people of Africa will remain our debtors. It is our banks, our governments and the international financial institutions that primarily serve our interests that hold this debt. As the customers of these banks and the electors of these governments we are also co-lenders. The power to lift the burden of debt from the backs of our sisters and brothers in Africa rests in our collective hands.

3.0 The Power to Forgive

In the model prayer Jesus gave us there are the words: "And forgive us our debts, as we also have forgiven our debtors." (Matthew 6:12). The Greek word for debt refers to sin in this context. This is the basis for the alternative translation: "Forgive us our trespasses as we forgive those who trespass against us." Nonetheless, our being forgiven is compared to our treatment of those who owe us something.

In today's world the direct, personal application of this prayer request is lost. We have developed institutions that link us to people we will never meet or learn to know at a personal level. For example, our banks receive our savings and then lend them, in multiple amounts, both near and far. During the 1970s a portion was loaned to governments and businesses in Africa. Our government receives our tax dollars and then "gives" a small portion of them as foreign aid in the form of "soft loans" that have to be repaid. The accumulation of these and other transactions, over time, has given rise to the debt crisis of the 1980s. It is a crisis that links us as savers and taxpayers to the world's poor people. They are now at the forefront of bearing the burden of dealing with that accumulated debt.

For the lower income groups in Africa this experience brings back painful memories. Our being able to exercise some control over their resources and their destinies, because our institutions hold the debt and insist on full repayment, is a bitter reminder of their colonial past. When historians interpret the Africa experience of the 1980s it is to be expected that they will use language and images that are similar to those being used to analyze colonialism in Africa.

Our exercise of such power has a number of elements. First, we triggered the international debt crisis. The seeds of the crisis were sown a decade earlier. Between 1969 and 1980 there was a 10-fold increase in the reserves used by the banking system to create money. The basis for this increase in reserves was primarily the increase in the price of gold and the creation of Special Drawing Rights [SDRs] by the International Monetary Fund [IMF]. The United States holds a significant quantity of the world's gold reserves and the new SDRs were granted primarily to the high income countries.[7] As a result, it was the financial institutions in the high income countries that experienced both the ability to absorb the rapid increase in petro-dollar deposits and the possibility of expanding their loans dramatically.

As their own countries could not absorb this growth in loans in profitable ventures, the banks in the high income countries turned to international lending opportunities. During the 11 year period, there was a five-fold increase in loans to the low and middle income countries. Their share of the total international debt increased from 50 to 67 percent. A number of loans were made to low and middle income countries with little or no knowledge on the part of the banks on how these loans were used or what the repayment capabilities would be.

In 1981, in response to a serious inflation problem, the United States, the United Kingdom and Canada jointly decided to use a tight monetary policy to counter inflation. Together the central banks of these three countries destroyed 30 percent of the reserves available to banks to create money. As a result, the commercial banks in these three countries were not in a position to make new loans and they demanded the repayment of existing loans without offering additional credit. This created a severe cash flow problem for farmers and small businesses in the high income countries and for heavily indebted governments and state-controlled businesses in a number of low and middle income countries. The effect within countries was a sudden increase in bankruptcies. It became an international debt crisis in 1982 when Mexico announced it would not meet all of its debt payments due that year. Soon a number of countries followed Mexico's example.

The evolution of the debt crisis in Africa was different. The countries are mostly low income, of little interest to commercial banks. There are some exceptions: Nigeria, Zambia, Côte d'Ivoire and the countries of North Africa. As a result, much of Sub-Saharan Africa's debt is government-to-government debt, plus commercial trade credits and loans from the World Bank. For the African people, the debt crisis took the form of the side-effects of the approach taken by the United States, the United Kingdom and Canada to address their international debt crisis. These side-effects were in the form of higher interest rates, a sudden shortage of new credit, and hence foreign exchange to finance imports, a decline in export prices as a deep global recession took hold because of the tight money policy, the movement of wealth by the small but rich African elite to high-income countries to take advantage of the high interest rates available there, and, eventually, submission to stiff World Bank and IMF mandated structural adjustment programs.

A second element of our exercise of power was the coordinated drive by the United States government, the World Bank and the IMF to divide the debtor countries. The fear was that the major debtor countries would group together to form a debtors' cartel which would force the high income countries to deal with the international debt crisis in a manner which would distribute the debt burden more equally among people in the high income countries as well as in the low and middle income countries. This divide and conquer strategy proved successful. The primary "solution" offered the debtor countries was a rescheduling of the debt, with the hope they would eventually be able to grow out of the problem.

A third element of power was the vaulting of the IMF into a position of control well beyond its initial mandate. As a source of loans, the IMF is an insignificant player. In four of the five years from 1986 to 1991 the flow of funds from the IMF to Sub-Saharan Africa was negative. Prior to 1984 the IMF had really no development experience. It was created to address temporary balance of payments problems in member countries. It makes short-term loans of foreign exchange to countries with a negative balance of payments. A country with a balance of payments problem has the right to make one withdrawl of foreign exchange, called a tranche, from the IMF as a three-year loan.[8] If a country needs to resort to borrowing a second tranche it must first meet certain conditions which are designed to help the country overcome its balance of payments of problem. During the 1980s the IMF became a major player in the debt crisis in that commercial banks and foreign aid donors grasped the opportunity to force indebted countries to submit to the IMF's second tranche conditions as a pre-condition for restructuring their respective debts.

Some typical IMF conditions include: cut back government spending, especially on social programs; reduce or eliminate any protection workers might have against the effects of inflation; allow food prices to rise to free market levels; and devalue its currency relative to the currency of other countries. The intent is to make imports more expensive and exports less expensive, to provide farmers with greater incentives to produce, and to transfer income toward the wealthy who, it is assumed, will invest such income in the development of the country. Such changes should enable the debtor countries to better service their debt. This is a priority for the World Bank, for commercial banks and for the IMF.

Finally, the Uruguay round of negotiations of the General Agreement of Trade and Tariffs [GATT] has run its course. Current projections are that this agreement will generate US$30 billion of additional income for the world. It is estimated Canadians, on average, will obtain an annual income that is one hundred dollars higher than would have been the case without this GATT agreement. The benefits for citizens in the other high-income countries will be similar. These same projections show Africa contributing to the US$30 billion rather than receiving a share. The GATT agreement will force African countries to open their economies further to foreign trade even though they lack the capacity at this time to compete for a larger share of the markets in the high income countries.

These expressions of international power have proved beneficial to us. The drop in price of Africa's exports during the latter part of the 1980s, relative to the price of our exports to African countries, has been so great that the transfer of income to high income countries has exceeded all foreign aid granted to the African countries. The flow of debt repayment has exceeded new credit flowing into Africa. The in-flow of capital from Africa's rich elite, in response to our high interest rates, is one factor in allowing high income country governments to run large deficits without serious harm to their economies. Having enjoyed these benefits, we have acted in a manner similar to the citizens of the "colonizing" countries.

The question for us is how should we respond to what has happened and continues to affect adversely the peoples of Africa, especially those in the lower income groups? If we have the means to exercise such power we also have the ability to "forgive" these debts. As customers and shareholders of the banks, as voters of our governments, as citizens of countries with a march portion of the votes in the World Bank and the IMF, we have the means to influence how power is exercised on our behalf. When most of us benefit, majority support was easily obtained. Persuading the majority of customers, shareholders and voters to deny ourselves a portion of these financial benefits, so the lower income classes in Africa need not suffer as much, will not be an easy task. Indeed, we, the constiuents of such international development agencies such as Mennonite Central Committee, may have to take on personal sacrifices to create pilot projects or models that the larger population may choose to follow as well.

4.0 Deliver Them from the Hands of the Wicked

In Psalm 82: 1 - 5 there is a scene where God convenes a court of lesser deities who have been serving as judges. These judges have oppressed the poor people, causing the poor to walk in darkness. The effect is that the foundations of the moral order are thoroughly shaken. God's criticism of the judges indicates that proper judgements on their part would have delivered the weak and the needy from the hands of the wicked.

In an article entitled "Poor," Keck defines one of the five theological positions on poverty and wealth in the Old Testament:

...the sense of justice grounded in Yahweh's own rectitude [righteousness], induced the prophets to denounce all wealth gained at the expense of the poor (e.g., Amos, 2:6 - 7; 5:10 - 12; 8:4 - 6; Isaiah 3:13 - 24; Jeremiah 6:26 - 29; Micah 2:1-2). The prophets' protest is grounded in the same conviction as the simple reward-punishment scheme that Yahweh rewards rectitude and punishes injustice. New with the prophets is the moral discernment that there is no necessary connection between righteousness and prosperity, since the experience during the monarchies showed that wealth generated power through which the poor were robbed of their rights. (Job 24 is a poignant portrait of the exploited poor.) Therefore the justice of God would lead him to destroy such wealth.[9]

The first of the two traditions focuses on moral evil that is deliberately caused by the responsible person. The other focuses on evil that is suffered by the innocent and involves more than the individual; it is physical evil, the evil of misfortune. For an example of innocent suffering, Gesché appeals to the Lukan parable of the Good Samaritan: the injured man at the roadside does not merit the misfortune that has befallen him. The point is well taken, but the man's innocence does not relieve the highwaymen of their responsibility although the determination of this responsibility (and seeking out a fitting punishment) is in no way a prior condition that must be met for the Samaritan to approach the man who has been mistreated. In this case, the innocence present in the suffering refers to the injured man, not to the evildoers.[11]

Liberation theology more than any other kind of theology issues out of the crucible of human suffering and anguish. It happens because people cry out, "Oh, God, how long?" "Oh, God, but why?..." All liberation theology stems from trying to make sense of human suffering when those who suffer are the victims of organized oppression and exploitation, when they are emasculated and treated as less than what they are: human persons created in the image of ... God ... This is the genesis of all liberation theology and so also of black theology, which is theology of liberation in Africa.[12]

5.0 The Willingness to Forgive

For the African peasants the desire to participate actively in creative, productive processes runs deep within their mentality. For the peasant, how economic activity is carried out, assuring the opportunity for each member to participate, is as important as the value of the output that flows from these efforts. Bankrupting the peasants denies them the opportunity to participate actively. This unemployment and under-employment, this inability to contribute as creative, productive beings, is the real human tragedy of the debt crisis in Africa.

Nonetheless, the peoples of Africa labor on, seeking to renew their hope through their own efforts. Fawzi H. al-Sultan has captured well their dedication and determination:

On the economic front, what is particularly striking is that so many countries in Africa have looked at their future and decided to bear the enormous costs and burdens of reforms. Given the declines in African per capita incomes in the last decade, the current willingness to accept further costs of adjustment is a remarkably brave one. The determination of these countries deserves an equal commitment by external donors.[13]

Fawzi H. al-Sultan also throws out a challenge to the external donors. As citizens of these donor countries, we need to confront the real meaning of such a commitment. One element is the need to address the issues of unequal power. In 1983 and 1984 there was the possibility of a debtors cartel. That opportunity was missed in Africa. The political leaders in Africa at the time were captured by the divide and conquer strategy pursued jointly by the United States government, the World Bank and the IMF. These leaders were persuaded that their political and personal financial future would be enhanced if they did not collude with the other heads of state in Africa to act jointly as a means of addressing the effects of the debt crisis on Africa. The result was each small African country had to negotiate with the lending countries as a group. The IMF and the World Bank served as a primary means of exercising the joint power of this set of wealthy countries.

Ordinary citizens in Africa were not consulted on the issue of whether they wanted their respective countries to become part of a debtors cartel. Had they been asked whether their future was best placed in the generosity of the high income countries one expects their response would have been similar to the African peasant who was being encouraged by a missionary to accept Christianity. The missionary used the approach of describing how wonderful heaven was. Then he asked the peasant: "Don't you want to go to heaven?" The peasant was not convinced. He replied: "If heaven is as good as you say it is the British would have grabbed it long ago."

A second element is the need for our governments, the World Bank, and the IMF, to see the debt burden in Africa as an socio-economic and political problem that is much more severe than a mere balance of payments problem. It is, in essence, an issue of power; an issue of setting human priorities. What we see now is the painful consequences of how that power has been exercised in the past to meet the priorities of the institutions controlled by the high income countries. The effects of that misuse of that power on the peoples of Africa are similar to the evils of slavery. Internationally, we need a debt emancipation movement. Internally, there is a need for social and political reforms in African countries that will enable the lower income groups to have a significant voice in the future shape of their economy to counteract some of the destructive policies of their own leaders.

A third element is the need to reduce significantly the level of the debt burden. The donor countries deserve to be commended for the debt that has been written off. But, this has reduced the burden of servicing the international debt by 3 percent only. The foreign aid granted to Africa appears to be generous but it was less than the value of the losses caused by the declining terms of trade or the amount of the annual debt service charges paid. Significant amounts of food aid have been granted to a number of African countries. But, more than half of the countries in Sub-Saharan Africa export more food and beverages than they import. These countries are transferring food and beverages to citizens of the high income countries as the means to earn the foreign exchange needed to service the debt and to try to maintain at least basic imports.

Our leaders cannot agree on an evolution in international law to obtain something comparable to bankruptcy provisions as a means of reducing the level of debt. Therefore, we must work with what we have. There is a need to accept that commercial banks have set aside sizable reserves to cover most of their bad debts held by low and middle income countries or that debt has been sold at discounted prices on the international money market. A coordinated action by the governments of the donor countries, requiring their respective commercial banks to show debt outstanding at the value not covered by reserves for bad debts or at the value paid for debt purchased on the international money market, would eliminate more than half of the international debt without affecting adversely the profit position of the commercial banks involved.

A potential element appeared in the 1991 Mennonite Central Committee [MCC] policy statement: "Response to the International Debt Crisis." Policy option 4 in that statement reads: "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." This policy option draws a link between the high income obtained by holders of bonds and savings accounts in banks from the exceptionally high interest rate during the height of the debt crisis and the poverty of the lower income groups in Africa. According to Keck, as cited above, God's sense of justice will require the destruction of wealth obtained at the expens e of the poor. Alternatively, we could share the wealth obtained in this manner with our sisters and brothers in Africa. MCC needs to be held accountable for actions taken to implement this policy option.

A fifth element relates to international policy initiatives designed to promote democracy in the countries of Africa. In part, this problem exists because of the extensive support offered by our governments to African leaders, in a battle against communism, even though a number of them had claimed power via a military coup. The promotion of democracy has at least two basic elements: a set of institutions which enable the people of a country to select their leaders and a set of institutions that serve to hold these leaders accountable to the people during their term in office. The current foreign policy emphasis on holding elections addresses the first concern but largely ignores the second one. It is the latter where there is a pressing need for political and social development on the African continent.

For us, as citizens of the high-income countries, the debt crisis of the 1980s has come and gone. We cannot undo what we have imposed on the poor people in Africa. But, we can work diligently for the structural changes which will reduce the extent of the on-going burden and will reduce likelihood that it will happen again. An example is the current popular movement to decentralize all functions of the World Bank to the continental regional banks of the United Nations system and to return the IMF to its initial role of merely having the power to deal with balance of payments problems. This would allow the African Development Bank to work on policies and programs specific to the needs of the African peoples. Further, we can build bridges to the lower income groups in Africa which will enable us to share the weight of their continuing burdens. Our abundance will not remove their poverty but it can serve as a means of hope, as a means to mobilizing their own resources to a better life for themselves and for their children.

Henry Rempel
January 1995

Endnotes

The ideas in this paper were developed initially in a set of lectures sponsored by the MCC Peace Office and presented at Associate Mennonite Biblical Seminary and Goshen College in November 1993. The author expresses appreciation for comments received on an earlier draft of this paper from Jerry Buckland, David Schrock-Shenk and Roy Vogt. Their constructive suggestions have improved the paper but they are not responsible for any errors or omissions or for the specific positions taken by the author.

1. International conventions allow foreign aid donors to count loans as aid, provided the repayment or interest rate terms are at least 25 percent below that of commercial loans made at market rates.

2. United Nations Development Programme, Human Development Report 1990. New York: Oxford University Press, 1990, p. 35

3. United Nations Secretary-General, "Economic Crisis in Africa." Report of the U.N. Secretary-General prepared for the session of the Ad-Hoc Committee of the Whole of the UN General Assembly, 3 - 13 September, 1991, New York, p. 31.

4. United Nations Development Programme, op. cit., p. 79.

5. Ibid., p. 36.

6. The information is taken from the "Africa Recovery News Feature" on the Report of the UN Secretary-General on the Review of UNPAAERD, August 28, 1991.

7. Annually, as new SDRs are created by the IMF, these SDRs are distributed among the members of the IMF in the same ratio as the voting rights in the IMF. The United States receives just over 20 percent; the United States and the European Community countries together receive in excess of two-thirds.

8. The size of a tranche, as well as a country's voting power within the IMF, is defined by the amount of money and gold the country has paid into the IMF as a condition of its membership in the IMF.

9. L.E. Keck, "Poor," in The Interpreter's Dictionary of the Bible, Supplementary Volume, Nashville: Abingdon, 1976, p. 673.

10. Gustavo Gutiérrez, On Job: God-Talk and the Suffering of the Innocent, Maryknoll: Orbis Books, 1988, p. xv.

11. Ibid., footnote 10, p. 10.

12. Ibid., pp. xiv - xv.

13. Fawzi H. al-Sultan, President of the International Fund for Agricultural Development (Rome), in a Letter to the Editor of the International Herald Tribune, July 7, 1994.

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