CREDIT AND ECONOMIC OPPORTUNITY FOR ALL: RETIRING
DESTABILIZING DEBT
“Debt, grinding debt, whose iron face the widow, the orphan, and the sons
of genius fear and hate.”
—Ralph Waldo Emerson
“There is no debt with so much prejudice put off as that of justice.”
—Plutarch
Current Problem
Least Developed countries owe over $500 billion to wealthy countries; over
3 billion people are without access to credit.
Preferred State/What the World Wants
An economically vibrant and growing set of opportunities for 100% of humanitY.
Context
Over the past few decades, numerous nations, particularly in Africa and Latin
America, funded their development projects through loans from the banks of
industrialized nations, the World Bank, regional development banks, and other
government agencies. Total debt of the developing countries is $2.4 trillion.
The debt of the poorest countries in the world is $536 billion.[1] Debt and
interest payments from these loans of the world’s developing countries amounts
to about $280 billion per year.[2] This is over five times the total amount
of aid received from the developed countries.[3] After many development efforts
failed, in large part as a consequence of low commodity prices that reduced
the earnings of many developing countries (caused by subsidies given to wealthy
countries commodities which, among other things, stimulated over production
and subsequent price drops; see Chapter 5, Food for All), the debts remained,
stifling productivity and creating an impediment to further investment in
the future.
Credit for Humanity Strategy 1: Debt Retirement
A comprehensive debt retirement and forgiveness program will enable debt-stricken
nations to meet or renegotiate their repayment schedules, thereby avoiding
or getting out of bankruptcy. More importantly, it will free up capital that
will enable domestic investments in social services and infrastructure for
meeting basic human needs of people living in these countries.
A lack of confidence in the ability of many nations to repay their debts has
precipitated a devaluation of these outstanding debts on world markets. Devaluation
of developing nations’ debts has given rise to an opportunity to retire substantial
amounts of debt at a fraction of their face value.
By investing an average of $25 billion per year for ten years on retiring
all current debts of the poorest countries in the world $500 billion or more
of current debt discounted to at least 50% face value,[4] rich countries can
succeed in returning the heavily indebted nations of the developing world
to a position from which they can afford to repay any additional debts and
make strategic investments that will strengthen their economies and produce
the growth needed to provide jobs, social services, and additional revenues.
To insure that debt forgiveness and debt retirement works for the individual
citizens of heavily in-debt countries, and that it does not fuel corruption,
those countries receiving debt relief need to formally adopt a series of measures
that increase the transparency and democracy of their governmental processes.
These measures include budgeting and the budgeting process transparency—where
every dollar is spent needs to be public knowledge and how decisions are made
that determine where funds are allocated needs to also be known. Measures
to increase the democracy of a country also need to be implemented (see Chapter
16, Building Democracy), along with agreements to spend freed up resources
on providing social services for the poorest segments of each country’s society.
With some developing nations paying upwards of 30% of their foreign exchange
earnings on servicing debts, they are not in the position to import goods
from developed countries, or more importantly, to fund basic services for
their citizens.[5] The U.S., with its enormous trade deficit, would stand
to gain by any reduction in the international debt crisis that increased its
customers buying power. More than the bankers, it is the manufacturers of
the developed world that are suffering the consequences of the developing
world’s debt.[6]
Credit for Humanity Strategy 2: Debt for Nature
In addition to the agreements from heavily indebted poor countries to meet
the above requirements for transparency, democracy and social services spending
in return for debt retirement, another agreement would be negotiated for some
developing countries with especially valuable and endangered natural resources.
This agreement would stipulate that the debtor country preserve a given section
of natural resources—for example, a tract of rainforest, for posterity. Such
segments of the country’s natural endowments would be protected from development
and preserved as a trust for all humanity.
“You can have wealth concentrated in the hands of a few, or democracy.
But you cannot have both.”
—Louis Brandeis
Credit for Humanity Strategy 3: Credit for Humanity
Retiring a country’s past debts is crucial for laying a solid economic foundation
for future sustainable development, but even more important is getting individual
citizens access to credit—especially the poor in the poorest countries.
Micro-loans to the poor have been in wide use and hugely successful in many
parts of the world. 41 million people in 65 countries have benefited from
microfinance.[7] Adding $5 billion per year for ten years to the micro-loan
programs of the world, thereby expanding them by an order of magnitude, would
light the innumerable fires of sustainable development that are needed for
getting the world what it wants.
Costs/Benefits—Credit for Humanity
The amount needed to retire the major portion of the developing world’s debt
and to provide access to credit for those without access is about 9% of the
annual interest payments on the U.S. government’s debt,[8] 6.7% of what the
world spends on advertising,[9] or 3.3% of the world’s total annual military
expenditures.
Benefits include more stable national economies better able to attract outside
investment, more revenues from internal sources for investment in social programs,
expansion of the economy, more jobs, increased standard of living and social
stability and more international financial stability.
So everyone in the world has access to some form of credit and is not part
of a society being crushed by heavy debt burdens. And we all have access
to food, water and the other vital necessities of a healthy life. Are we rich,
are we the equivalent of a contemporary “millionaire” or “billionaire?” What
if we have all this but we lack human rights? What if all this is delivered
to us by a totalitarian dictatorship? Could we be “rich” yet impoverished
when it comes to our political and personal options? What if our world still
has refugees, landmines, genocide and war?
The next chapters look at how much wealth will be added to our world in ways
that increase our collective and personal rights as well as increase the security
of our world.
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References
[1] World Bank, Global Development Finance 2002 (Washington DC: 2002, p.188-189)
and World Watch Institute, Vital Signs 2003. (Washington DC: 2003 p. 46)
[2] UNDP Human Development Report 2001
[3] Total aid in 2001 was 51.4 billion in “Flows of aid” (UNDP, Human Development
Report 2003, p. 294).
[4] Brown et al., 1988, pp. 183-85. Also: much of the developing world’s current
debt is already discounted to 10-20% face value.
[5] Zambia used 30% of its budget each year to repay its debts in the 1990s.
It used 10% of its budget to fund social services for its citizens. From:
Jeffrey Sachs, et al., Implementing Debt Relief for the HIPCs (Cambridge,
MA: Harvard University Center for International Development, August 1999).
[6] UNICEF, State of the World’s Children 1990 , p. 63.
[7] Unleashing Entrepreneurship: Making business work for the poor, (Report
to the Secretary General of the United Nations, February 2004).
[8] U.S. government interest payments in 2002: $332,536,958,599.42; at Public
Debt Direct, http://www.publicdebt.treas.gov/opd/opdint.htm
$230 billion per year.
[9] $444 billion; World Watch Institute, Vital Signs 2003. (Washington DC:
2003 p. 48)
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