Poverty, Aid and World Debt
Almost 2 billion people in 80 countries lack access to clean water and 25,000 people die every day because they only have access to dirty water. 1.2 billion people lack adequate sanitation and 900 million people are unable to read or write. In sub-Sahara Africa one in three children do not survive to the age of five years because there is no money for food, basic public health programs or medicine. This region pays $10 billion every year in debt service. That amount is about four times as much money as the countries in the region spend on health care and education.
Aid programs are intended to promote economic and social progress, relieve poverty, and support protection of the environment. In reality, they are often a method of political and financial leverage used to extract concessions from foreign governments. For example, the Pergau hydroelectric scheme in Malaysia received £234 million (US$374 million) of the UK tax-payers' money in return for a massive arms contract. The scheme affects an area of tropical rainforest supporting hundreds of rare species of plants and animals, including the rare Sumatran Rhinoceros. It will accelerate highly destructive logging in the area and potentially increase the prevalence of malaria and other tropical diseases. Further it could fail to operate over its planned 35 year life span as sediment builds up in the lake created by the dam.
In Zambia, life expectancy is dramatically falling because of the AIDS crisis. It is estimated that around 19,000 children die every day in Africa as a result of the debt crisis.
For many years Britain collected debt repayments from some of the poorest countries in the world. The figure grew to over US$100 million every year. Recently, however, the UK government took an important initiative by writing off the debts owed directly to them by the world's poorest countries (bilateral debt) and promising up to $190 million (£100 million) a year to write off the UK's share of the debts owed to the World Bank and African Development Bank (known as multilateral debt). It is hoped that other G8 creditors will take similar actions.
Education and resources are essential in order to eliminate the poverty which is intertwined with environmental degradation in the developing world. Humans depend heavily on resources that occur in the wild. Much of the world's fish come from the wild and, in some tropical countries, this accounts for almost 90% of people's daily protein. In many countries, these natural resources have been severely depleted.
Overexploitation of wildlife, constantly expanding human populations, ill-conceived development projects and pressure from the developed world to export exotic plants and animals and grow cash crops rather than food for local consumption, have all taken their toll. Monocultures of crops and tree plantations replace a diversity of plant life. Cattle, sheep and goats scour the land for food and turn fertile grasslands, which once sustained great herds of wild animals, into sterile dust bowls.
The total debt owed by the poorer countries to Western governments and banks at any one time is difficult to calculate. Debt relief groups estimate that the amount of debt - which should be cancelled - as between US$300 billion and $500 billion. About 10% of the debt had been cancelled by 2005.
Some countries squander their wealth on massive armies and it is questionable if they should be included in debt relief. However, for many countries the debt represents an unpayable burden, leading to immeasurable human misery and the destruction of the environment.
Valuable tropical rainforests have been logged or turned into cash crop plantations as indebted countries attempt to earn foreign exchange to repay debt by exporting more raw materials and agricultural produce. Many countries are forced to hand over as much as a third of their hard-earned income from exports, merely to service the interest on their debt, let alone to repay it. Until debt relief was initiated in 2005, three-quarters of Niger's tax revenue went towards paying its foreign debt, which was estimated at US$1.4 billion. In Latin America, debt is growing faster than earnings from exports.
The G8 governments (UK, France, Germany, Japan, Italy, USA, Canada and the Russian Federation) and the international financial institutions, like the International Monetary Fund (IMF) and World Bank, are responsible for most of Third World debt. These countries have previously been reluctant to cancel debt, despite awareness of the destruction and human misery it is causing. However the Annual Meetings of the World Bank and IMF agreed, as part of an ambitious package of commitments that came out of the G8 summit at at Gleneagles last year to implement proposals to cancel debt. Eighteen countries are immediately eligible, 14 of which are African. Up to 38 Heavily Indebted Poor Countries are eligible overall, which makes the initiative worth US$55billion.
The International Monetary Fund (IMF) and the World Bank were established by the United States and Great Britain at the end of World War II for postwar reconstruction and to facilitate economic cooperation between countries.
The World Bank provides its 160 member countries with loans and acts as a guarantor for loans made by others. It derives its capital from private investors and from funds borrowed when private capital is too expensive. It provides loans to governments or businesses.
The IMF was set up initially to keep international monetary rates stable and to promote financial cooperation among predominantly Western countries. Over the last 30 years, however, its role has changed to one of extending loans for development in Third World countries. It has more recently focused its attention on solving the world debt crisis. Both organisations are powerful players on the international economic scene.
Voting is determined by how much contribution is made to the banks capital and Western countries wield the greatest voting power. Consequently the World Bank is more concerned with looking after the interests of its wealthy investors than looking after the interests of its customers, which are mainly poor countries.
Some of the loans have been for education and population programs, but most are made for agricultural and telecommunications projects and building roads, railways, ports, and power facilities. So far very little has been directed at promoting self-help and loans have failed to reduce poverty levels.
Many loans were made during the boom times of the 1960s and only intended to be short term. A fall in the value of exports coupled with increasing costs of imports, particularly after the oil crisis of the 1970s, meant more countries had economic difficulties and more applied for loans. By the 1980s many countries fell behind in loan repayments. Some ended up borrowing from one bank to pay off the interest on loans made years earlier by another bank. It was impossible for them to get out of debt. This spiral of borrowing and repaying eventually resulted in the world debt crisis.
Many countries have become dependent on IMF loans to keep them afloat, as export markets can be volatile. Many countries have heavy debt burdens going back thirty years. Most of the loans were ill-conceived and went to military regimes and dictators who disappeared long ago, leaving the debt for democratically elected governments to cope with.
The IMF requires countries to make so-called 'structural adjustments' before they will approve loans. Only countries that adhere to strict IMF rules are eligible to receive debt cancellation. These conditions include lifting foreign-exchange restrictions and price controls. Also required are cuts to spending on the environment, government employees' wages and services, including health and education. In their efforts to balance budgets, many governments in developing countries pay a heavy social and environmental price.
The poor and the environment are the first to feel the effects of tighter fiscal management. IMF debt policy is basically a singular drive towards economic efficiency, in the hope that the poor will eventually benefit through a trickle down effect.
The IMF, in collaboration with the World Bank, has promised a new set of rules for debt repayment, which take into account social and environmental needs. So far these new rules have had no impact on poverty levels and the rate of environmental degradation.
Tough conditions for providing loans mean the IMF wields considerable influence over government policies and this has generated resentment.
In spite of strict conditions attached to loans, membership in the IMF has increased over the years. More recently, loans have been made to Russia and eastern European countries.
Recently, the World Bank has begun to consider environmental issues when giving loans. The idea of a debt for nature swap has been suggested, but many people are calling for a full and unconditional debt relief. Some organisations have devised clever ways to help developing countries lessen their debts. For example UNICEF made a deal with the international banks to take the money that poor countries owed them and use it to help children inside the country - the Debt for Child Relief program. In return the banks received tax deductions.
So far, only a small proportion of the total debt has been cancelled - about 10%. The debt must be written off completely. Debts owed to the International Monetary Fund should be cancelled using their ample gold reserves. Repayment schemes are a burden to governments in developing countries, which are struggling to feed and house their people and protect their environment. Poor countries aspire to develop and have a reasonable standard of living - but an ongoing debt severely limits this possibility.
Perhaps the initiatives that came out of Gleneagles in 2005 will prove to be a step down the right path. However we must ensure that the commitments made by both the G8 nations, the World Bank and the IMF are carried through and expanded.
What you can do
Support and join the coalition of groups working to cancel the debt.
Withdraw your money from your bank if it holds any of the world debt. Write and tell them why you are doing it.
Use our lobbying service to write a letter or email your government and ask them to take action against poverty.
Write letters to the editor of your local newspaper about your concerns.