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January 2001

THIRD WORLD DEBT AND THE CATHOLIC RESPONSE

S. CLENCY MARIAPA

"Opposition to abortion and euthanasia does not excuse indifference to those who suffer from poverty, violence and injustice."
  John Paul II
  Evangelium Vitae

"Thus, in the spirit of the Book of Leviticus (25:8-12), Christians will have to raise their voice on behalf of all the poor of the world, proposing the Jubilee as an appropriate time to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threatens the future of many nations."
  John Paul II
  Tertio Millennio Adveniente


Pope John Paul II has frequently called upon world leaders to pay more attention to the ethical aspects of the problem of international indebtedness. In fact as early as 1985 in his message to the UN on its 40th anniversary, the Holy Father pointed out that "the problem of the Third World’s global indebtedness and of the new relationships of dependence, which it creates, cannot be posed solely in economic and monetary terms". In the words of the Pope, Third World indebtedness has become "a problem of political co-operation and economic ethics". Ten years later, he returned to the same theme in his 1994 Apostolic letter Tertio Millennio Adveniente to suggest that Jubilee year 2000 be celebrated as a "year of the Lord’s favour" and, as was the practice and custom in the old days, to proceed with the cancellation of all debts during the year of Jubilee celebration.

Origin of the debt crisis
The immediate cause of the crisis can be traced back to 1973 when the members of OPEC (Organisation of Petroleum Exporting Countries) quadrupled the price of oil and invested their excess money (the famous petrodollars) in commercial banks in the West. The banks, anxiously seeking investments for their new funds, lent recklessly to Third World countries, with little thought to how the loans were used or how they would be repaid. The 1973 oil price increase also had the effect of triggering inflation in the USA and other industrialised countries. In 1979, OPEC raised the price of oil a second time. The USA adopted stringent monetary policies to reduce inflation, producing a domestic recession, which was followed by a world-wide recession in the wake of the rising price of fuel and rising interest rates. The Third World was hit the hardest as the rising cost of production meant a drastic drop in their exports, collapse of commodity prices and rising interest rates on their loans. Third World countries were thus entangled in a web: having to borrow more to keep up with their debt servicing (i.e. repayment of interest and principal). The debt crisis became more apparent in 1982 when Mexico announced that it could not repay its foreign debt. This news brought the international financial system to the brink of collapse, as it was feared that other Third World countries would follow suit. After Mexico’s announcement it was hard to pretend that the poorest countries would ever pay back their loans in full and clear that something had to be done about the situation. Hence, the various responses at national and international levels such as the 1989 Brady Plan (to reduce debt to commercial banks by 20%), the 1996 World Bank/IMF Heavily Indebted Poor Countries (HIPC) Initiative (to reduce debt to a sustainable level) and British Chancellor Gordon Brown’s announcement in December 1999 that the UK government would cancel the debts owed to it by twenty-five of the world’s poorest countries.

Facts and figures
The figure below illustrates in clear terms the heavy debt burden which hangs like a millstone around the neck of forty of the Heavily Indebted Poor Countries – a massive US $212.6 billion. A group of the eight richest countries in the world (also known as the G8 i.e. UK, USA, Canada, France, Italy, Germany, Japan and Russia) meeting in Cologne in July 1999 agreed to reduce Third World debt by $100 billion. However, so far less than $13 billion of that total has actually been cancelled, and most of that had already been cancelled before the Cologne Summit. Since Cologne, less than $2 billion has been written off. Here is a list of the forty most Heavily Indebted Poor Countries (HIPCs). Figures are in $US Million:

Country

Total Debt

Country

Total Debt

Angola

12173

Madagascar

4394

Benin

1647

Malawi

2444

Bolivia

6074

Mali

3202

Burkina Faso

1399

Mauritania

2589

Burundi

1119

Mozambique

8202

Cameroon

9829

Myanmar

5680

Central African Rep

921

Nicaragua

5968

Chad

1091

Niger

1659

Congo, Dem. Rep.

12929

Rwanda

1226

Congo,Rep

5119

Sao Tome/Principe

246

Cote d’Ivoire

14852

Senegal

3861

Ethiopia

10352

Sierra Leone

1243

Ghana

5899

Somalia

2635

Guinea

3442

Sudan

16843

Guinea-Bissau

964

Tanzania

7603

Guyana

1653

Togo

1448

Honduras

5002

Uganda

3935

Kenya

7010

Vietnam

22359

Lao PDR

2437

Yemen

4138

Liberia

2103

Zambia

6865

   

Total

$212.6 billion

Source: Global Development Finance 2000, World Bank

The chart below shows the amount of money that some of the HIPC countries channel towards debt servicing as opposed to what they spend on education and health. Notice that the total amount of debt servicing in 1998 was in excess of the total amount spent on health. In the case of Mauritania, one of the poorest countries in the world, debt servicing exceeded the amount spent on education and health combined. In fact it spends nearly seven times more on debt repayment each year ($116m) than it spends on health ($17m), despite having only one doctor for every 17,000 people.

US$ Million

Debt 1998

Debt Service

Education Spending

Health Spending

Uganda

3935

155

174

126

Bolivia

6078

329

442

325

Mauritania

2589

116

51

17

Tanzania

7603

162

154

87

Mozambique

8208

112

96

57

TOTAL

30411

874

917

612

Source: Jubilee 2000 (19.5.2000)

This debt burden is a serious threat to the development of many Third World countries and consequently to the quality of life of their people. Here are some further facts from various organisations concerned with the debt problem:

  • Live Aid raised $200 million for Africa. Each week, Africa pays $292 million in debt repayments to the West (Source: World Bank 1998)
  • Africa owes $227.2 billion to creditors i.e. $379 for every man, woman and child. (Source: World Bank 1998)
  • For every $1 in grant aid to developing countries, $9 goes back to lenders in debt service. Even the poorest, most indebted group of countries pays more than they receive - $1.26 in debt repayments for every $1 in grants. (Source: World Bank)
  • Debt repayment in the poorest countries accounts on average for a third of government spending. For some it is even higher e.g. Cote d’Ivoire 63% and Madagascar 61%. (Source: Jubilee 2000 Coalition 1999)
  • Developing countries often end up paying back much more than they originally borrowed. Costa Rica borrowed less than £4 million from Britain in 1973. It has now paid Britain more than £7 million on that loan and still owes more than £1 million. (Source: Hansard 1997)
  • All the debt of the 52 Heavily Indebted Poor Countries (over $350 billion at face value) could be cancelled at a cost to the taxpayer in the rich (OECD) countries of $71 billion – less than 1p a day for each person for a period of twenty years. (Source: Jubilee 2000 Coalition 1999)
  • In 1953, Germany only had to pay the equivalent of 3.5% for export earnings as debt service. Yet under the current World Bank/IMF debt reduction initiative, the poorest countries are expected to pay more than 15% of export earnings in debt service after receiving debt relief. (Source: Jubilee 2000 Coalition 1999)

Catholic Social Teaching
Catholic social teaching approaches the complexities of the debt problem and its impact on human communities from the standpoint of the moral dimensions of economic activities. An ethical approach based on human dignity must work hand in hand with any economic analysis seeking to solve the debt crisis. The ethical approach points to four basic dimensions of Catholic social teaching which must be taken into account:

  1. Human dignity. The starting point in respect of the debt issue and its ramifications is our belief that each human person is created in the image of God and is therefore sacred. Each person has a basic dignity, which flows from our very creation, and human dignity is the benchmark against which all economic, social and political systems as well as all aspects of the debt problem are to be judged and measured.
  2. Rights and duties. There are certain rights and duties, which are fundamental to the promotion and protection of human dignity. Human rights are moral claims to goods, which are essential for the preservation of human dignity in the social, political and economic systems. Every right has a corresponding duty and every human being has both. Someone’s right to something implies someone else’s duty that that right is respected. In Catholic social teaching rights and duties extend to relationships between states. Rights and duties at international level mean that states have responsibilities towards each other and the international common good.
  3. The Common Good. The common good is defined as the sum total of those conditions in society that are conducive for all humans to achieve their full development. All individuals have the duty, as members of society, to contribute to and to further the achievement of the common good. The notion of the common good in Catholic social teaching extends to the international community as well. Each state, international institution and private operator has the duty and responsibility to promote the international common good. This calls upon states and international institutions to promote policies that would enable marginalised people to participate in global economic and social systems. In other words, that the "universal destination of the goods of creation" be truly accessible to the whole of the human community. The present debt crisis is an impediment to the accessibility of the goods of creation to all human beings and therefore an impediment to the promotion of human dignity, the protection of human rights and the fulfilment of the international common good.
  4. Preferential Option for the Poor. Given the shortcomings of the present economic order, of which the debt crisis is an integral part, Pope John Paul II has called for a preferential option for the poor when dealing with economic issues. It is the poor whose rights and dignity are most violated and require the greatest attention and care when economic systems fail or impose great burdens on the weaker countries.

In looking for solutions to the debt crisis these four guiding principles would help provide for a structure that upholds human dignity and rights as well as the human welfare of some of the most vulnerable members of society.

Co-responsibility of Creditors and Debtors
Further to his concern about the problem of international debt, the Holy Father asked the Pontifical Commission for Justice and Peace to study and propose guidelines for the parties concerned – debtor and creditor countries, international agencies and commercial banks – for an ethical and equitable approach towards the resolution of the debt problem. The following paragraphs look at the various issues raised by the Pontifical Commission, published in October 1986 in a document entitled "At the service of the human community: an ethical approach to the international debt question".

The Commission points out that as a result of constant improvements in the field of information and communication technology there is an increased interdependence between countries. For that interdependence to lead to just relationships it is necessary that it gives rise to a new and broader expression of solidarity which respects the equal dignity of all peoples, rather than lead to domination by the strongest, to egoism, inequalities and injustices. This broader expression of solidarity among nations recognises the co-responsibility for the causes and the solutions relative to international debt. The causes emanate by and large from development in the international environment, and of actions and decisions taken by the developed countries. The causes are also the product of certain actions taken internally by Third World countries regarding the spending of loans. Accepting shared responsibility for the causes will facilitate dialogue and the emergence of solutions. Acknowledging co-responsibility will also underpin the emergence of a framework for international peace based on justice. Co-responsibility in the search for solutions to the problems of international debt is necessary to restore trust relationships between creditor and debtor countries and the other agents involved. Mutual trust and respect among all the parties is indispensable for the success of the problem-solving process. It is equally important that the various partners in the problem-solving process share equitably the adjustment efforts and the necessary sacrifices that need to be made in order that the priorities of the most deprived people are met. The Pontifical Commission states unequivocally that in the international context within which the debt crisis exists, the Church has a duty to specify the requirements of social justice and of solidarity.

The Commission explains how the high rate of interest and principal payments each year, coupled with lower export revenues due to the falling prices of raw materials, limited access to protected foreign markets and unpredictable fluctuations in exchange rates, has pushed many of the very poor countries to the brink of bankruptcy. In such a situation an "ethics of survival" dictates that international solidarity needs to prevail and that emergency measures be taken to ensure that so many of the poorest countries do not face economic collapse. Making demands on poor debtor countries in such situations may be legal, but they can become an abuse. Instead, the Commission suggests that with the Gospel as the source of inspiration, other types of action can be contemplated "such as granting extensions, partial or even total remission of debts, or helping the debtor to regain solvency". However it is also the moral responsibility of the leadership of a country to see to it that their debt level does not reach crisis proportions through short-sightedness or careless management.

Certain recommendations are made regarding responsibilities of both the industrialised and the developing countries. The Commission states that due to their greater economic power, the industrialised countries bear a heavier responsibility, which they must acknowledge and accept. They must assess the positive and negative effects of their policies on other members of the international community and introduce changes if the consequences of their policies constitute too much of a burden for other countries, especially the poorest ones. The application of economic policies that will lead to growth for all members of the international community is a difficult, but challenging, task. The current rules of international trade, comprising of protectionist measures to hinder exports from the developing countries, high interest rates, which hinder reimbursement, and the unstable prices of raw materials are obstacles to the achievement of a more just distribution of the fruits of economic growth and need to be revised. The adoption of policies to re-launch economic growth, reduce protectionism, lower interest rates and ensure a just value for raw materials fall under the responsibility of the industrialised countries if they wish to contribute to a development in solidarity with the whole of mankind.

Developing countries need to look at the domestic causes behind their high level of indebtedness and accept that they are also to blame for the crisis and therefore also responsible for adopting measures to alleviate their debt burden. In particular, the actions and responsibilities of Third World leaders must be examined in order to expose their wide-ranging malpractices, which include negligence in setting up proper structures and abuse of existing ones, tax fraud, corruption, currency speculation, national capital reserve drain, foreign bank accounts, private jets and shopping sprees in Western capitals for the spouses of the ruling elite, prestige construction projects which turn out to be white elephants, to name but a few.

The Pontifical Commission calls for the "duty of transparency and truthfulness" to prevail, so as to establish individual responsibilities and to engage in suitable and necessary reform of institutions and personal behaviour. This will be possible only if the leadership and state bureaucracy are infused with a strong dose of moral integrity.

It will be recalled that after World War II great efforts went into programmes of reconstruction and the economic recovery of countries that were seriously damaged in that conflict. The industrialised countries of the world must now work on a new system of aid for the less prosperous countries of the Southern Hemisphere in order to bring hope to their suffering populations. It is now clear that for some of the poorest countries, the cancellation of a substantial part, if not all, of their external debt is a necessary step to enable them to get out of this vicious circle of poverty and to achieve their social development aims. It is also equally clear, and must be reiterated ad nauseam, that debtor countries have responsibilities which they must take on, in order to guarantee the setting up of systems of government and economic administration that would make diligent and proper use of scarce resources for the genuine economic enhancement of their long suffering people. In other words, it must be a sine qua non that remission of debts be accompanied by well thought out and well-structured programmes for educational, social and healthcare development and such programmes must be constantly monitored and evaluated. There must be an undertaking from debtor countries that money which becomes available through debt remission will be used solely for poverty alleviation and development programmes. Such a course of action will require the collaboration of both debtor and donor countries, and must include a mutually agreed monitoring mechanism for various development programmes. Debt remission must not lead to the further strengthening and/or enriching of dictators and embezzlers.

It must be emphasised at this point that debt relief packages for poor countries are required now and must be put into operation urgently. Too often in the past debt relief packages have been followed by procrastination or delays in the application of terms on which agreement has been reached, thus prolonging the very misery which the debt relief packages were supposed to alleviate. Chancellor Gordon Brown's December 1999 decision to cancel the debt of 25 of the world’s poorest countries was good news, but it must not be interfered with by conditions and bureaucratic red tape that would delay its execution. The British initiative must be used as a spur to put pressure on other industrialised countries such as France, Italy, Germany and Japan to do likewise.

Underlying all economic, technical and historical analyses of the debt problem are a number of ethical issues. The various proposed solutions, such as The Brady Plan and the HIPC Initiative, in some way are recognition of the ethical dimension of the debt problem. But the debt problem will linger on unless there is a full remission of the debt of the poorest countries accompanied by policies that would redress the imbalance in the world economic order and avoid a repetition of the situation. The Catholic Church’s response is to tackle the debt problem by addressing the ethical issues involved as enumerated in the foregoing paragraphs and to use the Gospel as a source of inspiration to arrive at fair and equitable solutions.

During the year of Jubilee, which in the old days was characterised by forgiveness and debt remission, many reflected on these words of Pope John Paul II in his address to the 50th General Assembly of the United Nations on 5 October 1995:

"The international economic scene needs an ethic of solidarity, if participation, economic growth and a just distribution of goods are to characterise the future of humanity … when millions of people are suffering from poverty which means hunger, malnutrition, sickness, illiteracy and degradation, we must not only remind ourselves that no one has a right to exploit another for his own advantage but also and above all we must recommit ourselves to that solidarity which enables others to live out, in the actual circumstances of their economic and political lives, the creativity which is a distinguishing mark of the human person and the true source of the wealth of nations in today’s world."

While the Jubilee is over, the debt still remains. And so - the Social Gospel proclivities commonly associated with ecclesiastical bureaucracies notwithstanding - individual Catholics who wish to act on the papal call for total or partial debt remission on a more practical level can get in touch with the Southwark Diocese Peace and Justice Office, Cathedral Clergy House, Westminster Bridge Rd., London SE1 7HY, or the Jubilee 2000 Coalition at 1, Rivington St., London EC2A 3DT. The Jubilee 2000 Coalition is a worldwide campaigning organisation set up in 1996 and operating in 60 countries, and has as one of its sponsors, Pope John Paul II.