Globalisation and the Problem of International Debt

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1 Globalisation and the Problem of International Debt The current state of international debt is a dangerous obstacle to human development. It forces the world's most impoverished countries to use scarce resources to pay their debt rather than invest in the well being of their people. I am viewing international debt from the perspective of Catholic social teaching, which offers a set of principles and a framework to understand the issue and examine options to bring about change. International debt is a complex policy issue that carries with it a profound moral challenge. This challenge is based on how international debt affects the human dignity, human rights and human welfare of some of the most vulnerable women, men and children in the global community. The moral dimensions of international debt extend to how it was contracted, who was involved in key decisions, which institutions are now primarily responsible for its resolution, and what moral criteria should be used to assess and structure the relationships of the individuals and the institutions involved. The existence of debt has both social and financial costs. On the social side, debt repayments divert resources that could be used to fight poverty or invest in infrastructure, such as roads, schools or health facilities. Sub-Saharan African governments, for example, transfer to Northern creditors four times more than they spend on the health of their people. On the financial side, high levels of debt indicate investment risk and thus deter investment. Previous attempts by bilaternal, multilateral and commercial creditors have not been sufficient to reduce international debt in a way that benefits themost impoverished people.

2 The World Bank and the International Monetary Fund agreed in 1996 to a comprehensive debt reduction plan, the Heavily Indebted Poor Country (HIPC) Initiative. Its purpose was to reduce the external debt of heavily indebted poor countries to a sustainable level. Only a few of the 41 HIPCs are eligible, and those that qualify receive too little relief after too long a wait. The G7 Summit earlier this year failed to seriously address the issue. Instead, I join the call of Caritas International and many other church based organisations throughout the world in calling for the cancellation of the unpayable debt of the most impoverished countries. This decision should be taken during the current Jubilee Year. We all know about personal debt. Most people have borrowed money to buy supplies, equipment, a car or a house. Countries do the same. They borrow money from private capital markets, international financial institutions, and other governments to pay for infrastructure such as roads, public services and health clinics, or to run a government ministry or to purchase weapons. Like individuals, countries intend to pay back the principal and the interest on the loans they take out. But there are differences. If a person borrows money, he or she receives the money directly and pays it back according to the terms and conditions of the loan. But if a country borrows money, the citizens are not necessarily notified or informed of the purpose of the loan or its terms and conditions. In some situations, such international loans have been used to enrich a small group of people or have been transferred out of the country to the private bank accounts of government officials, such as has occurred in the Philippines and in Indonesia. I believe that the ethical analysis, rooted in the principle of human dignity, is as fundamental as any economic analysis to solving the international debt crisis.

3 The dignity of the human person is a criterion against which all economic, political and social systems are to be judged and all aspects of the debt situation must be measured. Just as individuals have rights and reciprocal duties, so rights and duties also extend to relationships among states. States have responsibilities to each other and to the international common good. I define the common good as the sum total of those conditions in society that make it possible for all people to achieve their full human development. The common good has both national and international dimensions. But there is currently no entity which carries the responsibility and power to promote the international common good. In the absence of such an entity, additional responsibility falls upon individual states, international institutions and companies, and private actors to accept their responsibility to promote the international common good. The current international debt situation is a factor contributing to the erosion of the international common good. For this reason this assembly will call on governments, like the Australian Government, and institutions, like the World Economic Forum, to actively seek solutions that assure human dignity, protect human rights, and promote the international common good. The principle of preferential option for the poor recognises that it is the most impoverished people whose rights and dignity are most often violated, because they have least power. Just as this applies to individuals, so does it apply to national communities. This call is being made by many organisations throughout the world, particularly those who celebrate the year 2000 as the Jubilee Year. In the Herbrew Scriptures, the Jubilee was to have occurred every fifty years. It was a time to free slaves, return land to its rightful owners, and forgive debts. This year of Jubilee, combined with the devastating poverty of the least developed countries, the widening gap between rich and poor

4 worldwide, the relative failure of past efforts at debt reduction, present a challenge we cannot ignore. The international debt crisis became apparent in 1982, when Mexico announced it could not pay its foreign debt. The immediate cause of the crisis occurred in 1973, when the members of the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil and invested their excess money in commercial banks. The banks, seeking investments for their new funds, made enormous loans to developing countries, often without appropriately evaluating the loan request or monitoring how the loans were used. In fact, much of the money borrowed was spent on programs that did not benefit the poor - armaments, large scale development projects, and private projects benefiting government officials and a small elite. The existence of debt has both social and financial costs. Heavily indebted poor countries have higher rates of infant mortality, disease, illiteracy, and malnutrition than other countries in the developing world, according to the United Nations Development Program. Six out of seven heavily indebted poor countries in Africa paymore in debt service, paying interest, than the total amount of money needed to achieve major progress against malnutrition, preventable disease, illiteracy and child mortality. If government invested in human development rather than debt repayments, an estimated three million children would live beyond their fifth birthday and a million cases of malnutrition would be avoided. The international Jesuit network campaigning for debt reduction, a network of over 200 Jesuit academics, researchers, ethicists and moral theologians from around the world, has consistently argued that indebted nations are under no absolute moral obligatioin to repay their debts.

5 Employing the Christian moral principle that legal contracts undertaken in conditions of unequal power and severe need are fundamentally unjust, and that in conditions of extreme need - such as danger of death by hunger - one may take from the riches of others, we argue that an ethical exit from the burden of international debt is imperative. The demands of millions of signatories to the call for international debt reduction in this Year of Jubilee cannot be ignored. Let's recognise that we all live in a global environment, and where one country bleeds, we all bleed. The Jubilee Year 2000 provides us with this extraordinary challenge, and an unprecedented opportunity. Peter Norden, S.J. Director, Jesuit Social Services 10 September 2000