6.27.2005

Causes of the Debt Crisis

This might be helpful. Its a blog by a someone named Anup Shah. Don't know anything about the person, but the information looks helpful

Causes of the Debt Crisis

3 comments:

donna said...

wow...you've done a lot more looking than i have. i'll have to read up on all the stuff that you've posted. in fact, i invited one or two others to take a look at all of this with us. we'll see if any new insight comes from it.

in the mean time, i have a new question for us to look into. gail's comment would point to the affirmative, but i'd like to read something about it. "is the debt of africa more of a loan, or a credit line?" in other words, is it something that they are currently paying interest on...or is it something that we loaned out to them expecting repayment in 20 years, thus we can now cancel it "on paper" and it's all gone. does that make sense?

my point being, if they are not currently paying on their debt and we cancel it for them, that really doesn't help them to "end poverty." the only possible help that i see it could hold is that they are now "debt free" and can possibly go get more loans to help in the interim. BUT, as chris said earlier, if they are paying interest on their debts and we thus cancel them, that actually does help quite a bit. so, i'd be curious to find helpful rhetoric about this issue. so far i've only found naive and annoying rhetoric. :)

Chris Spinks said...

I have read a few things so far. Let me point them out.

The articles from the Association of Christian Economists, at first glance, seem to be a microcosm of the conversationwe are trying to have. The PDF file (see link at end of paragraph in previous post) is only 12 pages long. It is actually the presentation of Stephen L.S. Smith from Gordon College supporting the idea that absolute forgiveness of debt (as supported by Jubilee 2000) is not as useful, healthy, or biblical as "highly conditioned, prudentially-managed debt forgiveness," (as insinuated in the World Bank/IMF HIPC initiative). After this short article, three other Christian economists respond. In brief:
Christopher B. Barrett, Cornell - endorses Smith's core points, disagrees on some second-order issues.
Daniel Rush Finn, St. John's - in favor of debt relief but only for the right reasons. The gist of his argument sounds much like the previous two presenters. Finn does say that the context of "niggardly contribution to assist in the development of poorer countries" gives the arguments for debt relief "morally persuasive power." I take that to mean that debt relief looks much better in light of the fact that the US and other richer countries do so little to help develop poorer countries.
Roland Hoksbergen, Calvin College - echoing the other three; "Forgiving debts withouth regard to the consequences is irresponsible, though forgiving debts with discernment and purpose can be a powerful force for good. Still, as I have tried to argue, we must do it right."

So, in the end these Christian economists agree that debt relief is necessary, but it must be done wisely, with conditions, and should not take the place of direct aid for poorer countries.

The website by Anup Shah (Global Issues) is incredibly exhaustive. One could spend a long time browsing around. It does have a bias toward absolute debt relief, but it does not seem to be completely without merit. Anup is very careful to support his arguments. The site is filled with quotes and links to external sources that help support the points being made. I have looked at a few thinge on the site.

I call your attention especially to the section called "Structural Adjustment - a Major Cause of Poverty" (www.globalissues.org/
TradeRelated/SAP.asp). The basic argument here is that the import/export structures that exist unfairly benefit the richer nations and hurt the poorer ones. I offer a few quotes:

"Debt is an efficient tool. It ensures access to other peoples' raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters' income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in ... [a] healthy, well-fed, literate population ... is the most intelligent economic choice a country can make." — Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235.

"Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economics policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people."

And finally,
"One of the many things that the powerful nations (through the IMF and World Bank etc) prescribe is that the developing nation should open up to allow more imports in and export more of their commodities. However, this is precisely what contributes to poverty and dependency."

"[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. [Emphasis Added]

...Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]" — J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 116, 127, 139.

Conclusions I've come to so far:
1) Something must be done! That, to me, is a forgone conclusion. We simply cannot ignore the huge discrepancy between the rich and the poor.
2) Some form of debt relief seems to be a necessary action. I am not yet convinced that all-out debt relief is THE answer to the global poverty problem. However, addressing the burden of loans on poorer countries is essential.
3) How to address the issue of debt relief is still up in the air. This, to me, is where the discussion should move. If, as I suggest, something should be done and debt relief is one of the somethings that can be done, then discerning the most prudential and most effective ways to enact some sort of debt relief should be where we direct our energies.

What does anyone else think?

Gail said...

this is a really good website. 3rd world countries definitely pay interest on the debt they've accumulated--14%. this rate is more than any of us would think of paying to finance our homes, etc. total debt cancelation is crucial if only for the reason that these countries are hardly able to even pay a portion of the interest on their debt, while the principal accumulates. thus, the basic services their citizens desparately need are put on the back burner.

on another note, forgiveness is a huge christian principle--in both the old and new testaments. in our very capitalist nation (that claims to be christian), i think we forget this. the bible is full of parables, stories, and commands about forgiveness (not to mention those about money/greed/helping the poor!). these passages far outnumber those we might stretch to support a "those who do not work should not eat" philosophy. by giving these countries relief from the heavy burden of interest on a debt they will never be able to repay, the g8 are allowing them to use their resources more wisely.

these are my thoughts for now. i'd love more feedback from anyone!