The global Jubilee campaign has focused attention on the debt crisis engulfing developing countries or the countries of the South. Debt remains a critical obstacles to social development. Unless the chains of debt is decisively broken, the South cannot move from poverty to development.

The chains go back a long, long way. Colonization and neo-colonization created the conditions for indebtedness –with the North countries exploiting our wealth, resources and people, thus reducing South countries to poverty.

The October 8-12, 2000 Regional Assembly of Asia Pacific Jubilee groups provided this brief telling of the recent history of the debt problem:

Immediately after WWII and following the Marshall and Dodge Plans basically aimed at developing markets for US goods in Europe and Japan, though with the stated objective of reviving their economies, the Bretton Woods Institutions was established to take this process to a global scale. It was during this time that the countries of the South were condemned as "under-developed" and were pushed to pursue Western-style models of economic growth and development. By the late 1960s, an over-wealthy over-flushed banking system, desperately seeking to recycle huge amounts of petro and euro-dollars, recklessly lent to southern governments. These loans were strategically targeted to secure the supply of raw materials to the industrial world, aided by the export-oriented strategy espoused by the Bank and the Fund.

The development era was a resounding failure. Moreover, the declining terms of trade for debtor country products and massive increases in world interest rates, drove debtor countries to default on their debt payments. The situation was such that a full-blown debt crisis was experienced in early 1980s. The development aid network, instead of owning up to the inherent weaknesses of the exercise, placed the blame on debtor countries who were deemed to be living beyond their means. This unleashed the creditor-imposed economic policies and strategies which have come to be known as structural adjustment programs (SAPs) which required stabilization measures which included budget cuts, increased taxation, and reduction of public spending on health and education. Simultaneously, there began an effort to develop owners and proponents of these policies in the ruling elite classes.

After over 15 years, there were hardly any cases of successful adjustment programs. What SA had done, instead, was to institutionalize stagnation in the South, alongside rises in the levels of absolute poverty and income inequality. And despite huge transfer of resources from the south to the North, Third World external debt continued to rise. From US$ 609 B in 1980, it more than doubled to US$ 1.5T in 1990, and grew further still to US$ 2.6T by 1999.

SAPs had been the major vehicle for the rolling back of the state and paved the way for the "systematic dismantling of all social and historical obstacles to the free flow of capital." The unrestricted flow of speculative capital was institutionalized in the early 1990s, under the strong urging of the IMF and the US Treasury. The result: the US$100B that flowed in between 1993 and 1997 flowed out quickly in 1997, bringing about the collapse of our economies and spinning them into a mire recession and massive unemployment from which most still have to recover. Since 1997, financial instability or the constant erosion of our currencies has become a way of life under IMF-imposed monetary regimes that leave the value of our money to be determined day-to-day by the changing whims, moods, and preferences of foreign investors and currency speculators. An added dimension of the crisis were the bitter "rescue packages" concocted for Asia that only deepened the economic recession and compelled governments to assume the debts of private banks and companies who acted with nary a grain of discipline nor responsibility in the years prior to 1997.

Debt is a problem created by the establishment—by greedy private banks and big corporate interests, by creditor governments who act on their behalf, and by the multilateral lending institutions who proxy for them. The Southern elites and governments are willing partners in this game as it fulfills their class interests and aspirations, many times bringing immediate rewards in the form of kickbacks and bribes, and confirms their notion of development which is based on export-led consumer oriented production processes. (Asia-Pacific Movement on Dent and Development)

The debt problem is an instrument for further exploitation of the South, to serve capitalist accumulation -- In truth, the North needed to lend more than we needed to borrow. It is a supply-driven problem. The capital and wealth the North accumulated could no longer be profitably invested within their own countries and markets, thus the aggressive peddling of loans to the South.

The debt problem is not only an issues of pesos, yen, dollars. The chains of debt go deep.

What makes up the chains of debt?

1. Impact of debt on resources for development

Debt service takes up a large percentage of public spending. In the countries of the South, interest payments alone take up from 30% to even more than 60% of the budgets of national governments. In the Philippines, there is even a law that requires automatic appropriations for debt service, thus guaranteeing that debt service is prioritized above any item in public expenditures.

In the face of poverty and deprivation for the majority of people in the countries of the South, it is an injustice for massive amounts of public funds to be spent on interest and principal payments on the debt instead of being used for badly needed services such as housing, health, education, water, etc. and badly needed programs and infrastructure requirements of development.

2. Odious, Onerous, Fraudulent and Criminal Debts

What is an even greater injustice is that people of the South are made to pay for debts that they have not benefited from and in many instances even used to their detriment. These are the odious, onerous, fraudulent and criminal debts.

Odious, onerous, fraudulent and criminal loans include those which were used to finance so called ‘development projects’ which cause displacement of communities, damage to environment, and pose danger to people as well as to the environment. These ‘development projects’ were not solely or even primarily designed by national governments, but prescribed by these lending institutions and bilateral creditors.

Creditors peddled loans to private corporations but were required to have government guarantees. Many of them were approved at the behest of high ranking officials, presidents, as the private corporations were either owned by the officials through dummies or owned by the cronies of these officials. The monies from these debts were used by the owners to enrich themselves, and when their companies declared bankruptcy, government assumed the loans.

Loans were given to illegitimate governments, governments who have ruled not by democratic mandate but through the use of force. We only needs to review history and recall how aid and loans were flowing to various corrupt and repressive governments of South countries. These loans enriched corrupt government officials who either stole the funds directly or received bribes and kickbacks in exchange for approving loan applications, approving bids, and financing infrastructure and other types of projects.

These funds helped prop up undemocratic governments and that some of these funds were actually used to help finance repressive policies such as apartheid, military and "National Security" operations.

Creditors argue that they cannot be made responsible for the sins of the governments of the South. According to them, corrupt or not, legitimate or not, the debts of these governments must be honored.

But we say, the creditors knew very well what kind of governments they had been dealing with. They knew these governments were corrupt. In fact, they have participated in corrupting these governments in various ways. The creditors knew these were authoritarian and dictatorial governments, military regimes or apartheid governments. These loans were used to ensure the continued cooperation of governments of the South with the economic and geopolitical interests of their northern or western patrons and creditors.

And because huge amounts of public funds go to debt service, countries incur deficits and resort to more borrowings. Thus you have a vicious cycle if borrowing in order to be able to pay debts, and the downward spiral to greater impoverishment.

3. The imposition of economic prescriptions

Debt has been used as leverage for imposing economic adjustment conditionalities.

Further using debt as leverage, many doors have been opened for the creditors, many economic policies have been imposed on the South that have been favorable to the creditors.

And all of these have made greater profits for the creditors and global capital possible, and created further impoverishment and indebtedness in the South as consequences.

Structural adjustment measures and other neoliberal policies of the multilateral financial institutions are not only severe, they are wrong. The Asian crisis of 1997 demonstrated how vulnerable and disaster-prone the economies that are subject to the capital accounts liberalization policy had become.

Other prescriptions are of the same mold-- globalization, liberalization, deregulation.

These policies of stabilization, liberalization, privatization and deregulation result in further indebtedness. While there were temporary growth periods that created trappings of wealth (as exemplified by the Asian tigers), the recent Asian crisis showed how hollow these economies were. Other Asia/Pacific countries did not even experience this kind of growth. Common to all the countries is the deepening inequalities inside the country, the further marginalization of the poor and excluded, and the increasing vulnerability to the whims and caprices of global capital.

Debt has committed our people and our economic resources almost irrevocably to foreign control.

I must address the claim that structural adjustment policies and other conditionalities have changed. They may not necessarily prescribe the same exact package of policies today, but the impact of the present day conditionalities have been similarly disastrous. The Asian crisis is one testament to this fact. If in the past, the policies have been mainly aimed at stabilization, now they are concentrating on opening our economies and making them more vulnerable to foreign capital and reducing the roles of our states in delivering services.

The heavily-indebted poor countries (HIPC) initiative, the G7 debt relief program, promote these very destructive structural adjustment polices.

Creditors have also categorized countries according to aggregate national income and per capita income and then say only the poorest of these countries need debt relief. These categories have little to do with the actual conditions of the majority who are poor.

In fact, current debt relief initiatives from the creditors are essentially ‘Creditor Relief’ initiatives as they serve to recycle the uncollectable loans of a limited number of South countries

A Southern Framework for Addressing the Debt Problem: break all the chains

It must be remembered that loans were peddled to the South not with the primary aim of helping the South develop, but to invest the financial capital to generate profit. In the last two decades, there were more resources flowing from South by way of payment of interests on debts. More than original amount owed has been paid.

These are the reasons why the Freedom from Debt Coalition and other groups and movements in the Jubilee South call for debt cancellation for ALL South countries. We reject the use of aggregate income to divide the countries of the South when it comes to debt cancellation. Debt cancellation is justice for the poor. And the poor in low income and middle income all face overwhelming poverty, they have the same rights, they must be accorded justice.

We also call for TOTAL cancellation of not only the ‘UNPAYABLE" debts but of all ILLEGITIMATE, UNJUST and IMMORAL debts We cannot just talk about sustainability, affordability and the impact of the financial aspect of indebtedness. We need to address the implications and impact of the historical, ethical, political even legal aspects of the debt problem.

We call for UNCONDITIONAL CANCELLATION. We reject the imposition of structural adjustment programs and other economic conditionalities. Hence debt relief conditioned on implementation of such policies we find unacceptable. We have been witness to the human, social, environmental damages that these policies have wrought on the South.

We reject these economic measures even as they are now being repackaged as part of "Poverty Reduction" programs. In the recent September 1999 meetings of the WB and the IMF - they came out with a new formula and repackaging for these conditionalities. They are now talking about : PRSP or the Poverty Reduction Strategy Program. This is on the one hand, a tacit admission that social development goals and poverty reduction have not been at the heart of macroeconomic and structural adjustment policies. This does not mean the IMF and the WB have radically redefined their framework for development and the corresponding macroeconomic and structural adjustment prescriptions? Further reading of their documents on PRSP, other documents and actual programs indicate that this is not the case.

There are others who are advocating positive conditionalities along the lines for example:

  • of respect for human rights
  • achievement of social development targets
  • democratization of institutions and the like.

We would of course be the first to say these are desirable goals, but we cannot agree with these being put forward as conditionalities coming for creditors who are Northern government and IFIs dominated by Northern governments. Among many reasons it reinforces and legitimizes the relationship of dominance on our countries, and their assumed right to shape our economic policies. It also presumes that agreeing on social development targets means we agree with the creditors in terms of methods and policies of achieving these targets.

In the spirit of Jubilee, we demand RESTITUTION of what has been taken unjustly from us, and REPARATIONS for the damage wrought. Peoples and countries of the South are in fact creditors of an enormous human social, and ecological debt, in the context of the historical exploitation of the South by the North. Not only should there be cancellation of the ‘debts’ of the South. This debt must be repaid in order to make possible a "New Beginning".

We are not forgetting the complicity, culpability and co-responsibility of South governments and the elites in South countries in the debt problem. Past and present government officials and private sectors corporations and individuals who have participated and benefited from illegitimate and unjust debts must be made accountable for their actions. Stolen wealth must be returned. South governments must be pressured to take decisive actions to stop payment of illegitimate debts, change their policies on borrowings and stop public guarantees of private sector debts. Further, South governments must be radically change their economic development strategies and democratize the economic and political structures of society.

We are forwarding the following strategic calls:

  • Review an investigation of the different debts with full public transparency and accountability, and with people’s participation.
  • COLLECTIVE REPUDIATION by South Governments of odious, onerous, criminal, fraudulent and all intelligence debts and the FORMATION of a Debtor’s ALLIANCE.
  • RECHANNELING of the Public FUNDS away from debt service and ENSURING THAT PUBLIC FUNDS are used primarily for people’s welfare and basic services, and equitable and sustainable development.
  • SYSTEMIC, STRUCTURAL and POLICY changes and programs that will get the South countries out of the debt trap, and prevent its repetition.