Christian Debt Recovery

Debt Of Countries In The World

June 10th, 2011 |

Author: Gavin

debt of countries in the world

What you didn’t know about Third World Debt

Debt in itself is not bad; it allows people and organisations to do things they wouldn’t ordinarily do, like buy a house or expand a business. But throughout history, excessive debt accumulation has been blamed for exacerbating economic problems, from the Great Depression to the current global financial crisis.

Back in the 1970s, a wave of oil-fuelled bad lending crippled the Third World, shoring up unelected regimes and imposing decades worth of unpayable debt. In the 1990s, the moral outrage of this situation – where aid to the Third World was clearly being dwarfed by debt repayments – sowed the seeds of the Jubilee 2000 campaign.

Well-informed and broad in appeal, the Jubilee coalition took an obscure issue and put it at the top of the rich countries’ agenda. In the run up to the year 2000, a petition calling for the cancellation of debts owned by impoverished countries to rich nations was handed to the Secretary–General of the United Nations. It had over 24 million signatures and was entered into the Guinness Book of Records twice, as the world’s biggest petition and the most international petition, with signatures from more than 166 countries. The result? The G8 agreed to a debt relief scheme for of the poorest countries in the world, with over $50 billion of debt reduction eventually received.

Beyond the millennium, the Jubilee coalition struck another massive blow as part of the Make Poverty History campaign of 2005, when international creditors such as the World Bank agreed to a bigger cancellation of debts, with some countries having the vast majority of their debts to these institutions cancelled. Another $50 billion has thus far been cancelled through this scheme.

The benefits of debt relief to poor countries are massive. It means more children in schools, more people receiving healthcare and child-births attended by midwives. Looking at the experience of Malawi (whose total external debt has reduced from over $3.2 billion to $750 million), this had lead to annual debt repayments falling from $90 million in 2006 to $13.3 million, and spending on healthcare and education increasing by 83% and 56% respectively.

Despite such progress, the list of countries eligible for debt reduction was restricted and left off many other severely indebted developing countries. These include Kenya, Lesotho, Ecuador, Peru, Vietnam, Indonesia, the Philippines and Bangladesh, to name just a few. The fact is that for every $1 developed countries give in aid, $5 still comes back in debt repayments from developing countries. And even when these bad debts are cancelled, they are counted as aid.

In addition, debts are still outstanding to this day across the world to the UK’s Export Credit Guarantee Department (ECGD). This little-known Government Department is the body to which most – over 95% – of the UK’s outstanding Third World debt is owed. Furthermore, it creates new debts – through insuring failed UK exports – without taking adequate account of Third World development needs.

The ECGD works by providing insurance to UK companies operating abroad, including in the developing world. Unfortunately, much of this insurance goes to what some would consider to be large and irresponsible corporations. Over the last ten years, ECGD support for fossil fuels, arms sales and aerospace (aeroplanes) has accounted for around 75% of its work. Last year, a single company, Airbus, received 89% of ECGD support. Most significantly, ECGD projects have been implicated in human rights abuses, environmental destruction, increased carbon emissions and corruption.

Today, developing countries currently owe £2 billion to the ECGD, more than any other public institution in the UK.

For example, Indonesia ‘owes’ the ECGD over £500 million, most of which was run-up selling British weapons to General Suharto, whose regime reportedly killed between 500,000 and 1 million people during his first year in office. The current Indonesian government is still paying for these weapons.

The Al-Yamamah deal with Saudi Arabia – The biggest arms deal in British history – was also insured by the ECGD in the 1980s. The deal provoked claims that sales had been overpriced in order to pay off and entertain Saudi Royals. Only the personal intervention of then Prime Minister Tony Blair halted a Serious Fraud office enquiry.

A few years ago, ECGD lent its support to an oil pipeline which runs from the Azeri oil field in the Caspian Sea to the Mediterranean, passing through Azerbaijan, Georgia and Turkey. The pipeline started pumping up to a million barrels of oil a day in 2006. It has since faced allegations of human rights violations and concerns over its potential environmental impacts.

There are many examples where these came from and now campaigners say it’s time for a change.

The Coalition Government has promised to stop using the ECGD to support fossil fuels, which suggests this is a perfect time for reforming the ECGD and putting an end to this historic injustice

If the taxpayer is to underwrite exports, we need to be absolutely clear that the exports we’re supporting benefit not only British industry, but also make for a fairer world. No doubt we could use export credits to support small and medium businesses struggling with the financial crisis. In particular we could support green industry, which will create sustainable jobs for the future.

But this will all require fundamental reforms of the ECGD. In a recession, export credits come to be seen as more important than ever. They are presented as a key way that the British government can support struggling industry and re-stimulate the British economy.

So changes to the ECGD are urgent. To make it fit for purpose, there needs to be a public audit of all outstanding debts, so that those found to be unjust – for example where the ability to repay was never possible or where corruption is evident – can be cancelled. In addition, the practice of converting failed exports into Third World debt should stop, and efforts made to ensure much stronger standards are introduced to enable the Government to be a world leader in its support for green growth.

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