The Debt Threat: How Debt Is Destroying the Developing World

The relief of debt for poorer countries is an issue which many support but few really understand. Noreena Hertz is someone who knows what she is talking about. She formerly worked at the World Bank and in now Professor of Economics at Cambridge. She is also a tireless campaigner for debt relief. What I most appreciated was her ability to explain the economics in a way that was both understandable and convincing. She tells us how the debts came about - often during the cold war in an attempt by the West to gain and maintain areas of influence in the developing world. She also reminds us that many of these loans went to corrupt leaders of countries whose citizens now have to pay the price. As a result basic human needs - food, housing, and healthcare are sacrificed to service the debt payments. We are left in no doubt that we carry a significant responsibility for this situation. This is why we should lobby our leaders to write of these debts. It is easy to say that fault lies on both sides. That may be so but if poor children have to pay then we who are in a position to do something should do all that we can. She writes all of this in a very readable style. This book did far more than big events such as Live 8 to convince me of the need to do something. I would urge all readers to get hold of a copy and read it!

Back in the good old days of Western imperialism, Western powers used the same tried and true approach over and over again to extract wealth from and subdue non-Western peoples: invasion and/or colonization, and/or enslavement. This method was effective for a few hundred years, until subjugated populations after living in close quarters with their masters and learning their weaknesses, mounted various successful forms of resistance against them, e.g., the Algerians' violent resistance of the French, or Gandhi's non-violent resistance of the British. After the First World War, the Western powers (although with much backsliding, evident now in Iraq), began to withdraw their armies and close up their colonial shops. After the great bloodbath of WWI the old cover stories -- "The White Man's Burden" - were so threadbare that the average Westerner could at last see imperialism for the nasty racket it was. But wait. It turns out that was just the opening chapter of imperialism. There's a new chapter, or in business-speak a "new paradigm." Through the relatively abstract miracle of debt, rich countries since WWII have been able to reclaim their hegemony. The beauty part for the West has been that invasion through debt does not require much in the way of armies and colonists. In fact, what is really sweet about the new way of doing business is that invaders get to dictate terms to poor countries and don't usually have to back up their threats with armies. Instead there's the threat that global traders will lower poor nations' bond ratings, squeeze their economies, and, by extension, their people, until they see the light. Kind of like loan sharking when you think about it. Loan sharks, contrary to the stories told in movies and books, generally like to keep their customers alive, because after all, they want to get their money back. In this new form of colonialism that's pretty much true, too. But still, people do get killed like they did during the traditional imperialist paradigm. Hertz shows in chilling detail, for instance, how a cholera epidemic swept through Peru because Alberto Fujimori, following the dictates of the IMF and World Bank, sent every nickel he could get his hands on to pay the interest on Peru's national debt so Peru would get back into the good graces of the financial markets. Healthcare services, welfare and other human services were curtailed or cut to pay the debt. When Peru and opened up its economy to the international market as per the IMF just as commodity prices dropped, unemployment and poverty rates went through the roof. Rural dwellers moved to the city seeking work. Work was not available; unsanitary conditions were. So desperate was their poverty that these Peruvians couldn't afford soap to wash their hands or kerosene to boil their water. And so cholera killed nearly 4,000 in less than a year. Ms. Hertz provides much needed insight into the history of the debt threat. It began in the Cold War -

Large amounts of government debt are a combination of a noose around the neck of many developing countries as well as a potential time bomb that could explode and threaten the developed countries as well. When I was growing up, I was repeatedly told how much the United States was giving to the poor countries of the world in foreign aid: money, equipment and food. I also heard many times about the anti-American stance that people in those countries had and how their lack of gratitude was disgraceful. Once I entered graduate school, I encountered people from other countries and we talked very frankly about how they perceived the United States. Those from Chile talked about how they watched the Chilean military round up their friends and take them to the soccer field, and how they later heard gunshots and never saw the people again. They also described how the same thing was happening in Argentina. At the time, those regimes were strongly backed by the U. S. as fellow anticommunist governments and received substantial amounts of American aid. Students from other countries considered U. S. allies also talked about how the aid sent by the United States and other western countries was used to buy arms and equipment for the government forces and very little was ever distributed to the people. A large amount of the aid that the United States sent to third world countries before the collapse of the Soviet Union was used to buy weaponry or to bribe the leaders. The only two conditions imposed on them were that the weapons had to be purchased from the west and the country had to maintain a firm stance against communism. If the leaders receiving the money followed these guidelines, then they were free to skim whatever they felt they needed with no threat of the funds being cut off. Therefore, those nations are now overloaded with vast amounts of debt that they can never repay. One of the main themes of the book is that most of the debt of the third world countries should be forgiven. Since it was the price that the west paid to defeat communism, that is one strong argument in favor of the debt cancellation. There is also the ugly history of the origin of much of the debt, namely greedy bankers who literally pushed the debt onto governments, giving out massive loans, knowing that the U. S. government would step in to avoid defaults in the worst cases. The International Monetary Fund (IMF) and the World Bank have forced debtor governments to institute policies that have made bad situations worse. In Rwanda, after the horror of the genocide was over, and there was not even so much as a stapler in the government buildings, the new government pleaded with the IMF to give them an emergency loan. The response was that they first needed to pay the three million in interest that they currently owed. This theme of western rapaciousness in the face of increasing problems is the saddest aspect of the situation. In western societies, if a person goes bankrupt, the l

A highly readable and accessible book on an important subject that most people believe is too difficult to understand. Hertz's history of third world debt, which takes us from the Bretton Woods agreements to the present day, is interspersed with stories from the author's work and observations, such as Bono's Jubilee activism and the author's own foray to Russia as a consultant for the World Bank and International Monetoary Fund. Every American should read this book -- particularly every American who finds the subject off-putting, doesn't think it really matters, or has wondered why all those people are protesting globalization.

Few exhortations to action manage to blend a detailed objective analysis of the facts; a practical, well thought-out agenda for change; and the true passion that comes of moral certainty. Dr Hertz's book somehow pulls it off. Her central case is that developing country debt is the legacy of bad decisions - bad on the parts of the lenders, and of the borrowers. The consequences are awful at the human level, on a massive scale, just as Bono eloquently described at the Labour Party conference. IOU goes some way down the same path, successfully mixing the pure statistics of poverty with anecdotes of uneducated children, needlessly untreated HIV/AIDS sufferers, and women forced into prostitution. One of this book's strengths, however, is that it brings to the fore something far less obvious: namely, that the consequences of debt are malicious for the lenders in the rich world too. The debt quagmire entrenches much of the world's unrealised economic potential in a spiral of corruption, dampening demand for western goods and limiting investment, breeding ill-feeling towards lender nations, and ultimately contributing to the existence of failed states in which terrorists can thrive. She goes on to explain exactly how to break the spiral, and anticipates and overcomes the practical objections. In a nutshell, she proposes applying strict criteria to debt relief, and an ingenious series of controls to ensure that money freed up benefits people rather than corrupt politicians. Dr Hertz's breathless writing style conveys her passion for the subject rather well. Colloquialisms, run-on sentences, and a strange eye for the physical characteristics of her protagonists all give the sense of being on the receiving end of an intense face-to-face monologue rather than reading a dry book about development economics. Male characters "probably used to be good looking"; women are "hose clad". But the facts and figures to buttress the case are never far behind. If there is perhaps one area in which she stretches the case a little too far, it is in the impact of debt on the environment. The reader gets the sense that because both debt and climate change are important, there must somehow be a causal link. But this section does little do dilute the impact of the whole. All in all, an engaging and important piece of work that deserves the plaudits. As Bob Geldof says: "everyone should read this book".