Debt: nothing but an obstacle

The history of economic development is littered with attempts to correct the “mistakes” of development policy. The preferred method was to add new elements to the agenda. This approach led to an ever increasing scope of issues included in policy discussions, ranging from environmental concerns to focalization of social policies. The results of this methodology are for everyone to see: of the original eight MDGs, only two have been met, with serious doubts regarding the possibility of meeting the other six. In other words, the track record of the current development agenda is less than stellar.

So, maybe it is not necessarily an issue of continuing to add new elements to the framework, but rather of assessing whether the already present ones are working, and if that is not the case, whether they can be eliminated. In that regard, the one element that stands out is debt as a development policy tool.

Since the implementation of the Marshall Plan in Europe, policy circles have been burdened with the notion that injections of capital and fresh financial resources constitute one of the basic components of development. Based on this premise, the World Bank has tried to help countries to borrow their way into development throughout the last 69 years. As has been demonstrated in my book, the results of this approach on the living conditions of millions of people around the world have been dismaying.

Instead of providing developing countries with fresh resources, the debt system has forced them to prioritize payments to their creditors over the provision of basic social services. According to World Bank data, only recently in 2010, developing countries paid US$184 billion on debt service, roughly the equivalent of three times the resources annually required to secure the fulfillment of the MDGs. Even more troublesome, between 1985 and 2010, net public debt flows to developing countries – that is, the difference between debt disbursements and debt payments – have reached US$530 billion. To place this number in context, the net resources transferred by developing countries to their creditors is the equivalent of five times the resources devoted to the Marshall Plan.

All the while, debt has been used by international financial institutions (IFIs) and creditor countries alike to push countries to adopt policies that, if anything, prevent them from securing minimum living conditions for their populations. From the privatization and downsizing of public services, to the opening of trade barriers which has seriously undermined food sovereignty, the policies enforced upon developing countries have thwarted their capacity to achieve development through domestic means.

Therefore, if there is one thing that must be done, then that is to cancel the public debts of developing countries. Contrary to what skeptics point out, this debt represents a drop in the bucket: in 2010, it reached US$1.6 trillion (total public external debt), or less than 5% of the resources devoted by the US government to rescue the banks.¹ If such a massive amount of resources can be marshaled to secure the bonuses of banking executives, is it too much to ask for a small share of those same resources to secure better living conditions for hundreds of millions of people around the world? Clearly this is a political question, rather than an economic one, but the fact remains that debt continues to be a major obstacle for development. As the Committee for the Abolition of Third World Debt (CADTM) has advocated during the last 24 years: let’s get rid of it.

Footnotes