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'Third World Debt': Who gains from Brown's plans?
GORDON BROWN urged activists at Labour's Scottish conference to join the July demonstration demanding global justice at the Edinburgh G8 summit. Has the "Iron Chancellor", author of "prudence" and architect of Private Finance Initiatives and 100,000 civil service job cuts, been so affected by the tsunami disaster and poverty in Africa, that he's turned into a raving anti-capitalist?
No! Closer examination of his, and other Western leaders', proposals for 'Third World' debt relief reveal that hard cash calculations have not been overcome by altruism and philanthropy.
However, the tsunami, Africa and the 'Make Poverty History' campaign have thrust the debt issue back up the political agenda, and Brown and Blair want to be seen to be doing something about it this year when the UK holds the presidency of both the European Union and G8.
British and US imperialism want to improve their world public image after the debacle of Iraq, especially in the Muslim and poorest countries. They rightly fear social revolt growing in the developing countries, already presaged by uprisings and 'radical' governments in Latin America. One serious debt default could lead to a world financial crash and the bankruptcy of major private financial institutions, causing economic crises in the advanced capitalist countries.
So Brown's debt relief plans, passed off as helping tsunami victims and Africa's poor, are more intended to protect private western investors.
Tsunami-affected countries like Indonesia, Thailand and India, owe more than half their debt to private banks and bondholders. The World Bank estimates that emerging market debt in 2003 stood at $2,433 billion, of which $1,600 billion, two-thirds, is owed to private western investors.
Brown got the G8 to offer the Asian countries a three-year postponement of their public debts. The moratorium offered by the Paris Club (the 19 biggest creditor governments) is also of public debt (ie debts to western governments).
The effect of this will be that in three years time, Indonesia for example will owe an extra $12 billion on top of its existing $132 billion total debt.
But in the meantime, this public debt postponement will allow the governments of the tsunami-affected countries to carry on servicing their private creditors without interruption. This means that even after the tsunami, these countries will still be paying more out in debt repayments than they are getting in aid!
And a growing proportion of loans and credit to the Third World is coming from private lenders and investors. Over the last 15 years the private sector has accounted for more than 90% of net capital inflows to the biggest borrowing countries. Since the East Asian financial crisis in 1998 that figure has become 100% because borrowing countries have been making net repayments to the World Bank, IMF and Paris Club.
Bailing out banks
THESE NET repayments are the price Asian countries are paying for the bail-outs of their economies from the financial crises of 1997/8. But these bail-outs were primarily intended to protect the interests of private imperialist creditors.
As much was admitted at the time by Gavyn Davies (then chief economist at top city firm Goldman Sachs, later to be Director General at the BBC) when he said regarding South Korea: "it is clear in retrospect that the allocation of IMF funds to Korea last year had the effect... of bailing out the western banking system.
"International money sent to Korea was immediately used to pay down foreign bank debt which would otherwise have been subject to a very high risk of default. .... Typically.... (western) taxpayers have no idea that their money is being spent in this way ... the most direct beneficiaries are the shareholders of western banks ... this transfer from general taxpayer to the bank shareholder almost certainly implies gains by the rich at the expense of the poor ...which is perhaps why governments are generally at pains to disguise these effects of IMF programmes".
Essentially the same thing is being repeated now in response to the tsunami and for Africa.
It's true that Brown has pledged to forgive debts owed to Britain (public debts) by Mozambique and a few other poorest African countries, and will pay off 10% of their debts owed to the IMF and World Bank. But these were unpayable debts anyway, so in effect bad debts are being written off by western taxpayers' money.
Again though, it means that even the poorest African countries will still be paying up much larger amounts to private lenders. Sub-Sahara African countries owe $68 billion to international institutions, but $220 billion to private lenders!
No, the world capitalist leaders will not countenance any major debt cancellation, even of tsunami-affected countries, because they fear that would lead to mass social movements in other indebted countries, like Latin America, demanding that their governments refuse to pay as well. One major default could lead to the collapse of the world financial system.
So when Gordon Brown said in January that "the fortunes of the richest persons in the richest country (are tied) to the fate of the poorest persons in the poorest country of the world even when they are strangers and have never met" we know whose side he was speaking for.
In The Socialist 19 March 2005: