Reading - Part 4

Foreign debt

From time to time the media are full of articles about the terrible possibility that a few thousand or a few million people in the rich countries of the world might die from a new flu epidemic. By contrast, very few frontpage articles or prime time TV programs are devoted to the millions of children who die every year from water-borne diseases - diseases that are due to the fact that over a billion people in the world still don't have access to clean water and sanitation.

These children die quietly and out of sight in some of the poorest countries in the world, and the poverty of these countries is one important factor in all this. If the countries were given the help and assistance they need to develop economically they would be more able to tackle these problems and stop so many children dying of easily preventable diseases. Unfortunately, such help and assistance are not being given. On the contrary, many of the poorest countries in the world are effectively trapped in poverty. One of the reasons for this is foreign debt. Many of these countries can't use the little money they earn to develop their economies because they owe so much money to foreign banks as a result of loans that were taken out 10, 20 or even 30 years ago. The burden of foreign debt is almost too much to bear. The Ethiopian economy, for instance, is crippled by a debt that has now reached some 10 billion US dollars. For the developed economies this is a relatively small amount of money. It is comparable to the amount Americans spend on cosmetics every year (8 billion US dollars), and it is the same as the amount Europeans spend on ice cream every year. For developing economies, though, the sums are huge. Countries like Ethiopia have to pay more money to foreign banks than they spend on major public services like healthcare and education.

How did these countries incur these debts? Countries which had only just gained their freedom after centuries of colonial rule were not known as being centers of stability. With tribal conflicts and no long-established political institutions, it was very easy for unscrupulous leaders to take control. These people needed money to buy political support, to build a well-equipped and loyal army and to ensure their personal prosperity. Foreign banks saw the opportunity to profit from the situation and didn't worry much about how corrupt the foreign regimes were as long as they were willing to keep the economy open to foreign businessmen who wanted to exploit the rich natural resources that some of these countries had.

Since then, in some countries there have been revolutions and groups have come to power that are genuinely concerned about the plight of the poor. All too often, though, they find that so much of the little money the country can make has to be sent abroad to foreign banks. This is one of the reasons why so little has changed in a country like South Africa where the apartheid regime fell in 1994 and the new regime inherited a debt of 25 billion US dollars.

In 2005 the political leaders of 8 of the world's richest nations decided to cancel some of the debts of the poorest countries. On the face of it, this is a great step forward. The problem is that debt cancellation is not seen by these leaders as a means of enabling or encouraging those countries to tackle the problems of poverty. It is being used as a means of compelling those countries to open up their economies to foreign investors and businessmen.