External Debt: Brazil and the International Financial Crisis

External Debt Brazil and the International Financial Crisis Marcos Arruda Translated by Peter Lenny

Pluto

Press

LONDON • STERLING, VIRGINIA

in association with and Transnational Institute (TNI)

Chapters 1–3 first published in Portuguese by Editora Vozes/PACS, Brazil. First English-language edition published 2000 by Pluto Press 345 Archway Road, London N6 5AA and 22883 Quicksilver Drive, Sterling, VA 20166–2012, USA www.plutobooks.com Copyright © Marcos Arruda 1999, 2000 The right of Marcos Arruda to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Arruda, Marcos. External debt : Brazil and the international financial crisis / Marcos Arruda ; translated by Peter Lenny. p. cm. Includes bibliographical references and index. 1. Debts, External—Brazil. 2. International Monetary Fund—Brazil. 3. Brazil—Economic conditions—1945- 4. Debts, External—Developing countries. I. Title. HJ8579 .A77 2000 336.3’435—dc21 00-008581 ISBN ISBN

0 7453 1682 4 hardback 0 7453 1681 6 paperback

Designed and produced for Pluto Press by Chase Production Services, Chadlington, OX7 3LN Typeset from disk by Marina Typesetting, Minsk, Belarus Printed in the European Union by T J International, Padstow

Dedication Catherine and Pablo, my wife and nine-year-old son, who supported me all along, and bore with me while I rushed to meet the deadlines. Pablo’s Grandmothers: my Mother, Lina, whose book on my time in jail as a prisoner of conscience is still looking for a publisher, and Catherine’s Mother, Mica, who has been a wonderful Grandma to Pablo. My second Mother, Pauline McCartin, who received me as a son in her family when I was a high-school student, and to Bart and Marilyn, my brother and sister from Chicago.

About Christian Aid Christian Aid is the official relief and development agency of 40 British and Irish Churches and works wherever the need is greatest in around 60 countries worldwide, regardless of people’s race or religion. Christian Aid links directly with the poorest communities through local organisations whose programmes aim to strengthen poor people so that they become self-sufficient. It also seeks to address the root causes of poverty and spends up to 10 per cent of its income on development education and related campaigning at home.

Contents About the Author Abbreviations

x xi

Introduction

1

Chapter 1. E(x)ternal Debt: Understanding Brazil’s Debt Crisis

5

What is External Debt? Is External Debt a Motherless Child? How Do You Pay External Debt? Who Do You Pay External Debt To? Who Pays External Debt? How did External Debt Begin? ‘We did not Get into Debt, They Got Us into Debt!’ ‘We did not Develop, We Under-Developed!’ Capital Takes All, Social Spending Gets the Crumbs A Good Budget Makes for Good Planning The FHC-IMF Agreement: And the Government Promised not to Govern with Packages... Cancel Unpayable Debts Chapter 2. Trojan Horse: Brazil and the International Financial Crisis

5 6 7 8 8 10 11 12 16 17 20 22

30

The Real’s Three-Legged Prop Starts to Fall Apart Brazil and the IMF (International Misery and Famine) Are There Ways Out?

33 38 56

Chapter 3. Neo-liberal Adjustment and Globalization: A Southern Perspective

61

The Historical Roots of the Adjustment Project The International Monetary Fund (IMF) Recipe Adjusting to Competitive Globalization Economic and Social Impacts Opportunities and Challenges

vii

61 62 64 66 68

viii

Contents

Chapter 4. For a Debt-Free Millennium The Burden of Unpayable and Unsustainable Debt The Movements Partial Successes: Official Relief Alternatives, from Society’s Point of View Brazil Jubilee 2000 Campaign – Proposals being Discussed

77 78 89 99 116 127

Appendix 1: Debt Glossary

137

Appendix 2: Alternative Debt Policies being Discussed by Jubilee 2000 – Japan

151

Appendix 3: The Jubilee South Summit in Johannesburg

154

Bibliography and Further Reading

159

Index

164

List of Tables Chapter One: 1.1 1.2 1.3 1.4 1.5 1.6

External Debt of Latin American Countries at the Close of the Dictatorship Period (%) 13 Poverty in Latin America 14 Concentration of Income in Latin America 14 Brazil’s External Debt in the FHC Administration 16 Federal Government Budget – 1998 Forecast of Spending on the Federal Public Debt 17 Most Impoverished, Heavily Indebted Countries that need the Total Cancellation of their Debts 24

Chapter Two: 2.1 2.2 2.3

Evolution of Interest Rates in Brazil (SELIC rate) Evolution of the Internal Public Debt Foreign Debt Service (US$ million)

34 35 47

Chapter Four: 4.1 4.2 4.3 4.4 4.5 4.6 4.7

Foreign Debt – Evolution, 1970–98 (US$ billion) Brazilian External Debt Service, 1993–99 (US$ million) Brazilian External Debt – Public vs. Private, 1989–98 (US$ million) Trade Balance vs. Debt Service, 1993–99 (US$ million) Brazilian External Debt as a Proportion of GDP, 1992–98 (US$ million) Owed by 41 HIPCs (US$ billion) UK Debt Relief

ix

78 84 85 85 85 109 110

Abbreviations ATTAC – Action for a Tax on financial Transactions to Aid Citizens CEPAL – Comissão Econômica para a América Latina (UN) CPMF – Transient Contribution on Financial Transactions CRIES – Regional Coordination of Economic and Social Research ECLAC – Economic Commission for Latin America and the Caribbean FACS – Fundación Augusto Cesar Sandino FHC – Fernando Henrique Cardoso (president of Brazil 1994–2002) GATT – General Agreement on Tariffs and Trade GDP – Gross Domestic Product HDI – Human Development Index HFI – Human Freedom Index HIPC – Heavily Indebted Poor Countries IBRD – International Bank for Reconstruction and Development ICCAF – Inter-Church Center for Africa IDB – Inter-American Development Bank IMF – International Monetary Fund IPS – Institute for Policy Studies LTCM – Long-Term Capital Management MAI – Multilateral Agreement on Investment NGOs – Non-Governmental Organisations OECD – Organisation for Economic Co-operation and Development PACS – Alternative Policies for the Southern Cone of Latin America PFL – Liberal Front Party PMDB – Brazilian Democratic Movement Party PPB – Brazilian Progressive Party PRI – Institutional Revolutionary Party PSDB – Brazilian Social-Democratic Party SAP – Structural Adjustment Programme SES – Socioeconomy of solidarity TNCs – Transnational Corporations TNI – Transnational Institute TWN – Third World Network UN – United Nations UNCTAD – United Nations Conference on Trade and Development UNDP – United Nations Development Programme UNICEF – United Nations Children’s Fund UNRISD – United Nations Research Institute for Social Development US – United States WTO – World Trade Organisation

xi

Introduction

Brazil owes nearly US$230 billion to private banks, governments and multilateral agencies such as the World Bank and the Inter-American Development Bank. Today, every Brazilian child born already owes around US$1,400, which it will go on paying eternally, because this is a debt that grows the more it is paid. Alongside this looms an internal public debt of R$330 billion (R$ is the Brazilian real)(nearly US$290 billion) that drains public – that is, ‘taxpayers’ – funds to the tune of R$130 billion a year (estimates by the Central Bank for 1999) mostly just to pay interest. It is for fear of the insolvency of the government led by Fernando Henrique Cardoso (FHC) that, in wave after wave of capital flight, investors are withdrawing the money they have invested in Brazil, mostly on the stock markets. In order to avert insolvency, the FHC government opted to resort to the IMF, to accept its funds and demands in what is perhaps one of the harshest foreign loan agreements in Brazil’s history. In this way, Brazil is becoming more and more indebted in order to pay off previous debts, instead of building on its own resources and applying them to economic development and social and environmental programmes. At the same time, Brazil faces the reality of a moratorium on the social, political and environmental debts. The financial debts have become an insurmountable obstacle to these other debts ever being paid. Worse still, the creditors of the internal and external debts are rich, they have and consume far more than enough, while the creditors of the other debts are mostly oppressed, exploited and needy. And what of Mother Nature? The social debt is owed to the 100 million people immolated by colonialism and slavery over the last three centuries or more, indigenous American and African peoples and their descendants, deprived of life, work, education, health, social security, safety, the right to childhood and adolescence and so on. The political debt relates to full citizenship, from which most of 1

2 External Debt

Brazil’s population is excluded. The ecological debt results from the galloping over-production and over-consumption of the capitalist model of economic growth and globalization, and from the way it concentrates wealth and excludes the masses. This style of life and economy entails systematically destroying Nature and the assets with which Brazil is so well endowed. The creditors of these debts are the people: workers, indigenous peoples, blacks and mulattos, women and children; in short, the impoverished and exploited, not just in Brazil but in other countries of the South. At the initiative of Pope John Paul II, the International Jubilee 2000 External Debt Campaign was launched with the slogan: ‘For annulment of the external debt and for the right to development’ for the poorest, most indebted countries. The Jubilee 2000 Campaign intends to obtain recognition from the creditors – governments, private banks, and multilateral agencies – that they are in part responsible for the debt crisis afflicting the poor countries. This is particularly true for countries like Honduras and Nicaragua, especially after the catastrophe caused by Hurricane Mitch, which killed thousands and obliterated a considerable portion of both countries’ economies. It also goes for countries like Brazil, Mexico, Argentina and Venezuela, though, where rates of poverty and social exclusion are high and whose debts are unpayable and unjust. This book contains three chapters on the debts. The first, ‘External Debt: Understanding Brazil’s Debt Crisis’, is a primer on external debt. Written in accessible language, it explains clearly the history of the debt, the stakeholders, the policies adopted to deal with the debt, the political, economic and social impact of the policy of indebtedness and the alternative proposals for surmounting the crisis. The second chapter, ‘Trojan Horse: Brazil and the International Financial Crisis’, builds on the central argument that the Brazilian crisis is not the result of some supposed knock-on effect of the Russian finance and exchange crisis. The agent of the crisis – speculative capital, manipulated by banks, corporations and finance funds – has been in Brazil for a long time. Much of it is the same as that which pulled out of Russia in a hurry, and from Southeast Asia before that, and from Mexico before that… And it was the FHC government that invited it to migrate en masse and invest in ‘progress’ and ‘modernisation’ in Brazil. The chapter analyses the background and development of the Brazilian crisis, the factors that led it to devastate not just investors, but also Brazil’s industry and workers. It also focuses on the alternatives that were open to the FHC government and the fact that it opted for more extreme dependence, by subordinating to the IMF in the form of yet another loan with stringent conditions, and plunging Brazil still deeper into the bottomless pit of indebtedness. The chapter points up

Introduction 3

the political and economic, social and environmental dimensions, and concludes with a reference to the Jubilee 2000 Debt Campaign and some social and economic policy alternatives. The third chapter, ‘Neo-liberal Adjustment and Globalization: A Southern Perspective’, describes the origins of adjustment policy as it relates to the external debt crisis of countries of the South, in a period under the hegemony of the liberal bloc of world capital. Its plans for global expansion are not limited to the economy and finance. It is also a political and cultural project and manages to occupy terrain in the workings of the States and multilateral agencies. When the dollar abandoned the gold standard it ushered in a new era of globalization. The United States thus forged a weapon more powerful than all their armies, gaining the practically unrestricted power to issue a currency that serves as international legal tender. This enables them to arrange almost unlimited debts with other countries, to accumulate wealth and to consume at levels that no other nation in contemporary history has been, or will be, able to do. In this context, the debt crisis of the countries of the South looms as an opportunity for the countries and conglomerates of the North: just like the old ‘colonial octopus’ they stretch out their tentacles to subject the markets of the South. This annual tribute is paid regardless of the cost. In a vicious circle the more the South pays, the more it owes. Meanwhile, a group of local lackeys serve as well-paid overseers at their masters’ beck and call. That is the result of the crisis and the price is an enormous burden for the majority that live by working. Neo-liberal globalization does not come down to just threats and crises, though. At its heart lie advances and opportunities for mankind as a whole. The question for the working majority, and for the populations of the South, is how to get around the obstacles, how to overthrow the hegemony of capital and harness these opportunities to emancipate and liberate. That is the thrust of the second part of the chapter. The fourth chapter, ‘For a Debt-Free Millennium’, focuses on how civil society in both hemispheres is mobilising towards pressuring authorities for policy changes that effectively offer the over-indebted countries a new opportunity to achieve economic growth and human development. The chapter overviews the achievements of the Jubilee 2000 Campaign in the form of massive peaceful demonstrations during official meetings and the ensuing policy changes by creditor governments and multilateral institutions, such as bilateral debt cancellations. Finally, the chapter examines a variety of alternatives to over-indebtedness as proposed by national and international forums, showing that civil society does not lack vision, proposals and concerted action, and will not rest until it achieves equity

4 External Debt

and justice in North–South relations and a co-operative way of organising the economy and society. The crowning proposition of this book is that now is the right time for the oppressed peoples to say, loud and clear, that there is another way and that this depends on a development project that is owned by nations and peoples themselves, and on a change in values, attitudes, behaviour, expectations and modes of relationship. These changes have to do not only with socioeconomic structures and institutions, but also with our everyday lives and with relations between people, in the community and with Mother Nature. These are relations that break down with the compulsion of competition and the violence of war, that grow continually from the awareness that we are all interconnected with one another and with the whole cosmos and that the only rational, intelligent, sustainable course for us and for coming generations lies in the values of co-operation, respect for diversity, sharing, reciprocity, complementarity and solidarity. The first three chapters have been published previously as essays. The fourth chapter has been written especially for this book and examines the potential for a debt-free millennium, including the Brazil Jubilee 2000 Campaign proposals.

1 E(x)ternal Debt: Understanding Brazil’s Debt Crisis

Latin America is an extremely rich continent inhabited by people who have been impoverished by centuries of exploitation and oppression. For over four centuries the continent was a European colony, yet even after all their declarations of independence, the countries of the continent are still dependent, exploited and oppressed. External debt is proof that we are not independent. External debt is like a third world war – a different kind of war, one where children die instead of soldiers. Instead of war wounded filling the hospitals, it is the sick and underfed that overcrowd the wards, while the jobless wander the streets in search of work. No bridges or roads are blown up, but factories, schools and hospitals are closed down. No rockets are fired, but wealth is plundered. External debt is a permanent blood-letting from the veins of Latin America that were cut open five centuries ago. Brazil ranks among the ten richest countries in the world. But her veins too have been cut open, and the creditors are sucking her dry of the precious blood produced by the toil of our people. Jubilee 2000 is an international campaign for a noble, just cause; namely, cancellation of Third World countries’ unpayable debt, based on the Jewish tradition of the Year of Grace, the Jubilee Year. Debts and financial liabilities (money invested, later to return abroad) are only one aspect of the debts to be settled; there is also a social debt, a political debt and an environmental debt. But who, after all, are the debtors? And who are the creditors?

What is External Debt? External debt is the foreign money loaned to the government or to companies over several years. It is money loaned with interest. In 1985, Latin America

5

6 External Debt

had a external debt of US$390 billion.1 By 1996, despite the many billions repaid over those twelve years, the debt had risen to US$657 billion. In 1985 Brazil’s external debt totalled US$105 billion. Between 1985 and 1998 Brazil paid back US$282 billion in interest and amortisation. In interest alone the bill was US$126 billion. Nonetheless, by 1998 the debt had swollen to US$243 billion. It is a vicious circle: the more we pay, the more we owe. That is why we say that the external debt is unpayable. It will remain an external debt, unless the people decide to do something to staunch this blood-letting that is crushing and impoverishing us all. The debt grows day by day. When it is rescheduled, as Brazil did in 1982, 1987 and 1994, part of the amortisation is put off to a future date and new interest is charged. In this way, the debt becomes a permanent mechanism subordinating the nation to external creditors.

Is External Debt a Motherless Child? External debt is just one facet of the array of debts that are impoverishing and marginalising the peoples of the third world. The external debt is fathered and mothered by some countries’ forced dependence on richer, powerful countries, and their people are subordinated to local élites allied to these interests from abroad. It is fathered and mothered by the type of economy that is divorced from society, manipulated by whoever controls the banks, factories, machines, land and credit and compels the workforce to be subservient and dependent, just to survive. Those who have most are always going to get more. It is fathered and mothered by this economy that turns everything and everyone into merchandise with a price on the capitalist market. If you are unable to sell your product or yourself on this market, then as far as it is concerned you do not exist. It is fathered and mothered by this policy in favour of massive external capital to the detriment of national savings and investment; of imports rather than local production; the destruction, rather than creation, of jobs; concentration of income at the cost of social exclusion; attracting speculative capital at the highest real interest rates in the world, rather than productive capital; overseas markets instead of a domestic market with ever more buying power; unemployment instead of a skilled, organised labour force; paying financial debts instead of funding human and socioeconomic development and solid infrastructure; the State subordinated to big private capital and bereft of its sovereignty, instead of a democratic State controlled by its citizens.

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 7

How Do You Pay External Debt? Every Brazilian born in 1998 already bears on his or her shoulders a debt burden of US$1,374. This is a debt that weighs on each one of us and day by day is paid not only with the nation’s labour, but also with the privations and necessity that afflict most of us. Debtor countries pay more than just the debt. They also pay interest, the rent for borrowing that money for a certain time. For many centuries Christianity and other religions condemned the practice of charging interest, which is known as usury. But as capitalism expanded, so did the practice of usury: it gradually came to be seen as normal and fair. The reason is that money itself has come to be seen as a merchandise. Lending someone a merchandise is seen as depriving yourself of it for a time, thus entitling you to charge rent for it. Today the question is not whether it is fair to charge interest, but which interest rates can be justified and which cannot. In 1985, Mexico was handing over US$85 out of every US$100 it obtained from the sale of oil to pay interest on its debt. In Latin America, out of every US$100 that the continent earned through its exports, an average of US$35 went to pay interest. Meanwhile, between 1985 and 1997, Brazil paid US$48 in interest for every US$52 amortised from the principal. All these can be considered unfair, extortionate and impoverishing rates of interest. In order to pay off its external debt, Brazil has to export more and more. Since it needs to bring in foreign money, it sacrifices part of its production, which should be used to meet the needs of the population and the country. A long time ago, imports could be paid for out of the foreign currency earned by exports. Since 1969 this is no longer possible, because an increasing portion of foreign exchange is earmarked to pay the debt. Sources of Foreign Exchange to Pay External Debt • Exports – Foreign Exchange: payment of debt + payment of imports = insufficient; • Attracting External Investment: more liabilities to pay, increasing remittances of profits and dividends; • New Loans: before, to invest in development later, to pay interest = more indebtedness in a vicious circle. Brazil tried to attract external investments to cover the difference between the balance of trade and external debt service payments. This increased the liability to pay, and so the country was obliged to lift restrictions on the remittance of profits and dividends abroad. But during the 1980s not

8 External Debt

enough external investment was attracted and so the country was obliged to borrow money to pay the interest on its external debt. In this way, the country went even further into debt without even investing in development.

Who Do You Pay External Debt To? Creditors are those who lend. Brazil’s creditors are the richest capitalist countries, mainly the United States, Japan, Germany, France, England, Switzerland, Canada and The Netherlands. These are the official creditors. Alongside them are private commercial banks such as Citibank, Deutsche Bank, AMRO, Crédit Agricole, Union of Swiss Banks and others. These are the private creditors. And then there are creditors such as the World Bank, the IMF (International Monetary Fund) and the IDB (Inter-American Development Bank). These are the multilateral creditors. Besides being creditors, the IMF and the World Bank play other roles. Both were set up in 1945, not to be debt collectors but rather to help bring some order to the world economy and prevent the big fish from eating up the small fry. But – especially in the 1970s and 1980s – these two agencies, strongly controlled by the rich countries, took on the role of policing not only their own loans, but those of the official and private creditors as well. The IMF was supposed to help balance the finances of countries in crisis by using shorter-term loans to remedy the problems. The World Bank was to help countries progress towards fair, sustainable social and economic development. What really happens is quite different. They grant and refuse loans (Cuba is not admitted as a member and for a long time neither was China). They are not managed democratically, nor is their information transparent. They collect debts in their own favour and for other creditors. They intervene in our countries to tell us how we should organise the economy; they lay down prescriptions that never favour the debtors and always protect the bankers’ interests. And in each one of our countries they have their accomplices.

Who Pays External Debt? People who spend their lives ensuring that they and their families survive believe that the debt has nothing to do with them. It is the government’s business; the government has to negotiate with the IMF and the World Bank. They feel it is a big, complicated issue beyond their understanding. But when they say: ‘I have no food/ school/hospital/work/rights’… they

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 9

are talking about the external debt. Because it is by sacrificing these rights daily that the government is able to go on paying the debt. There are endless examples of people waking up and rising in defence of their rights and against the government and the IMF. In the Dominican Republic, Jamaica, Argentina and recently in Indonesia and South Korea, protests have broken out against packages that swap loans for measures that crush the domestic economy, produce bankruptcies and unemployment, destroy national industry, reduce public funds meant for social investment in health, education, sanitation, housing, land reform and social security, and cause immense suffering, chiefly to those who are already the victims of so much deprivation. Many goods and services in Brazil cost the same as in countries like the United States and Switzerland – or higher. In those countries, you can find food, clothes and electric appliances cheaper than in Brazil. Now, if you compare the average family income of Brazil and the US, Brazil’s is at least ten times lower. In the 1980s we paid the debt by cutting back on imports and domestic consumption in order to export. Little investment entered the country. In the 1990s the neo-liberal trend consolidated and governments reduced tariffs and protections on imports. Cheap goods from transnational companies produced in the rich countries, in Eastern Europe and in East Asia flowed massively into the country, wrecking businesses and destroying jobs. The bill for imports outweighed that for exports, and Brazil’s externalaccount situation deteriorated. The Brazil of Fernando Henrique Cardoso has been the most liberal of all, as far as external capital is concerned. He has taken to the extreme his commitment to foreign powers to privatise public assets, claiming firstly that this was done so as to be able to invest in social programmes, then later, that it was to reduce Brazil’s indebtedness. Privatisation has already yielded more than US$50 billion, yet the people are still waiting for the results. There have been no social improvements, nor is there less debt. Where did all that money go? Increasing unemployment, the numbers of returned cheques and individuals and companies in default, the high rate of compositions with creditors and bankruptcies, the rise in urban violence and corruption at all levels of society, the lack of hospitals, the sorry state of education, health and agriculture in Brazil, the decline in workers’ incomes, the imperilled condition of our universities, the lack of incentives for scientific research and national technology, the scandalous concentration of income – Brazil’s is the worst in the world, according to a recent report by the IDB (InterAmerican Development Bank) – all this has to do with external debt.

10 External Debt

How did External Debt Begin? Ever since the Europeans set foot on the South American continent, it has been in debt. To be a colony is to be a country in debt. It means having to pay taxes to the metropolis simply because you exist, let alone for what you produce. It is reckoned that 25 to 30 million Amerindians were living in what came to be Mexico when Columbus landed. One historian claims that 90 per cent had been wiped out by 1568, leaving only three million. Another calculates that 30 million were exterminated in the very first decades after the ‘discovery’. All those who refused to reveal the location of ore deposits or who refused to work to extract riches for the metropolis were killed. The Portuguese and Spanish, and then the English, French and Dutch, set up the profitable traffic of slaves from Africa to the Americas. Negroes were negotiated by the ton. For over three centuries, slavery was the preferred way of organising labour for capitalism. One hundred million are said to have been dragged out of Africa between the sixteenth and nineteenth centuries. When to the indigenous peoples decimated by the conquistadores and their descendants, you add the negroes sacrificed during capture, in the slave ships, on the farms and in the mines of America, you reach the total figure of ‘100 million human beings wiped out by the boundless voracity of “civilisation” and “modernity”’ (Paulo Schilling, 1989). Who are the real debtors? Faced with these facts, it has to be admitted that the debtors – especially in this century that has sanctioned the human rights of peoples – are the countries responsible for this piracy and genocide. You cannot put a price on human life. Schilling mentions the 1952 agreement between the States of Germany and Israel establishing compensation for the crimes committed by the Nazis in the period between 1933 and 1945, when six million Jews were killed. Under this agreement, Israel began to receive goods (industrial, transportation and communications infrastructure and so on) worth the equivalent, at 1989 rates, of US$125 billion. If we take the US$125 billion that Germany paid to Israel in compensation for the sacrifice of six million lives as our criterion to appraise what the slave-owning coloniser countries owe to Latin America and Africa for the genocide of 100 million Amerindians and Negroes during the centuries of slavery, the compensation due to these two continents totals US$2,083 billion! This amount is greater than the total external debt of the ‘developing’ world in 1998. It is even easier to work out, albeit approximately, the value of the wealth torn from the Americas. Schilling suggests with sound arguments the figure of US$9.55 billion, plus interest of 6.25 per cent a year for 130 years.

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 11

Brazil’s financial debt dates from the days of the Empire. In 1934, the then Minister of Finance, Oswaldo Aranha, said: …the history of Brazil’s indebtedness is one of… debts contracted to pay other debts, in an endless sequence of credit transactions so that, if we look back at our financial past, we will find that the loans meant for public works are few and far between and that these, although officially authorised, were deviated to other ends. Later governments seem to have striven to keep up this tradition. During the depression years of the 1920s, Brazil’s exports began to dwindle. In 1931 Brazil had to declare a moratorium on part of its payments. This happened again in 1987, during the Sarney government.

‘We did not Get into Debt, They Got Us into Debt!’ It was in the 1970s, during the military dictatorship, that external debt reached definitively unpayable proportions. With the 1974 oil price hike, rivers of ‘petrodollars’ – nearly a trillion – were deposited in the banks of rich countries by oil-producing countries and transnational oil companies. The bankers then offered loans with interest rates that were low, but flexible (variable rates that are only set after the loan has been made, and so to suit the interests of the creditor.) The military government had been set up to prevent a truly national development project based on sovereignty and directed at the needs of the Brazilian people. The military regime managed to multiply Brazil’s external debt by 42 in 21 years, catapulting it from US$2.5 billion in early 1964 to US$105 in 1985. In 1984, out of every US$1,619 per inhabitant that Brazil produced, US$781 were pledged to the external debt.2 In Latin America the bankers found poverty and an urgent need for loans to build up industry, increase production and improve the distribution of wealth. Brazil was one of the exceptions, as it had quite advanced industrial facilities and a domestic savings and investment capability. But the Geisel government, and above all Minister Mário Henrique Simonsen, preferred the easy, venture money from abroad. During this government the total debt swelled from US$13.8 billion to US$52.8 billion. With a negative average balance of trade during those five years, this indebtedness must be seen as the result of irresponsible administration, even bearing in mind that average interest rates increased over the period. Those were the days of the big foreign-financed projects, many of which are now decaying or discontinued. But the debt goes on being paid.

12 External Debt

The rise in interest rates on the debt in dollars came between 1979 and 1981. In those two years, the average rate of around 6.25 per cent soared to 24 per cent a year. This was a completely unilateral decision on the part of the United States government, which wanted to cover its deficits by attracting money back home. It so happens that the North American currency is also – absurd as it may seem – international currency. This event, along with the flight of foreign exchange back to the United States, tied up the external-debt crisis in the third world. This unilateral raising of interest rates caused losses of US$106 billion to Latin America, a figure that the continent should charge the creditors, with the appropriate adjustments, at some future global negotiating table (Kucinski and Branford, 1987: 222). In 1981, Latin America – and then the other impoverished continents – sank deep into crisis. The debt that was already unpayable by the poor countries also became financially unpayable. That was when the IMF and the World Bank ‘came to our aid’, also in the name of the other creditors. They all realised that this was a golden opportunity to strengthen the ties of dependence and subordination of our countries to the economic model and capital of the northern hemisphere. In exchange for renegotiating external debt, with longer payment timeframes, our governments surrendered the sovereign right to decide our own development path and to define our own investment priorities. An adjustment programme was imposed on us with the aim of fitting our economies to the single priority of continuing to pay interest on the debt, even at the cost of recession, unemployment and the impoverishment of most of our populations.

‘We did not Develop, We Under-Developed!’ The 1970s and 1980s were decades of military dictatorships in much of the third world. The glut of dollars was channelled to the dictators without hesitation and all the creditors can be considered accomplices of these dictatorships. They are co-responsible for those times of repression and official terror, and their investments yielded hefty profits because of that. They are in debt to our peoples. From 1980 on, the countries of Latin America began to send more capital abroad than the capital that entered from abroad. In other words, they began to de-capitalise and under-develop once again, in much the same way as when they were colonies. It is no coincidence that this happened at the height of the dictatorship period. The South American dictatorships most conspicuous for their authoritarianism and brutality were those of Argentina, Chile and Brazil. Were they by any chance punished by those who controlled the supply of foreign exchange; did investments come to a halt? Quite the

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 13 Table 1.1: External Debt of Latin American Countries at the Close of the Dictatorship Period (%) Argentina Chile Brazil Bolivia Uruguay Latin America

US$ billion 48.5 20.4 105.3 4.1 3.9 378.3

Foreign Debt/GDP 74 128 46 139 89 64

(Source: ECLAC)

opposite: at the end of that cycle of dictatorships, these countries showed debts totalling US$49, US$20 and US$105 billion, respectively. Millions of dollars of external debt fell into the hands of the dictators, who spent them arming the police and armies that repressed and tortured. The dictatorships of Somoza in Nicaragua and Stroessner in Paraguay had already opened up that route. Foreign exchange also fell into the hands of privileged groups, élites, companies patronised by the authoritarian states, which imported unnecessary goods, wasted these funds or took them out of the country. This was the capital flight which led to a flood of numbered (unidentified) accounts holding funds that had originated in indebted countries and ended up in international banks and tax havens, where they enjoyed secrecy and protection. During the 1980s the rich countries benefited from the crisis in the third world in at least three ways: by receiving the mass of capital transferred from the southern hemisphere (debt payments, profit remittances, etc.); by taking advantage of the drop in prices of exports from the indebted countries, who all wanted to sell their products in exchange for foreign currency to pay the debt; and with the flood of capital, including that of the élites of the South, that accumulated in the rich countries throughout the high-risk phase in the poor countries. Parallel to this came the wave of neo-liberal reforms that had an impact worldwide and were captained in debtor countries by the multilateral agencies and the governments that the élites had managed to set up in place of the dictatorships. In the 1990s the situation was inverted. International capital sought out Latin America once more, especially the more dynamic, if more indebted, economies. Mexico, Brazil, Argentina, Chile, Venezuela, Colombia and Peru received US$70 billion in 1996 alone, whereas the total capital inflow throughout the 1980s was only US$68 billion. A recent report released by ECLAC (UN) reveals that the external debt crisis of the 1980s and the structural reforms prescribed by the IMF and

14 External Debt Table 1.2: Poverty in Latin America 1980

1990

35%

39%

Families below the poverty line (income of less than US$1.00 per day) (Source: ECLAC)

Table 1.3: Concentration of Income in Latin America

Families with below-average income

1979

1997

67%

75%

Income per inhabitant (US$) Haiti Brazil Argentina Income per inhabitant in Brazil (US$) Piauí São Paulo

1997 US$ US$ US$

500 4,800 9,000

500 6,000

Concentration of income in Brazil Income below US$4,800 Income in the hands of the 10% richest Income in the hands of the 40% poorest

76.0% 42.5% 11.8%

Concentration of income in Chile Income in the hands of the 10% richest Income in the hands of the 40% poorest

39.4% 13.4%

Concentration of income in Argentina Income in the hands of the 10% richest Income in the hands of the 40% poorest

34.6% 14.4%

Concentration of income in Mexico Income in the hands of the 10% richest Income in the hands of the 40% poorest

34.3% 16.8%

Concentration of income in Uruguay Income in the hands of the 10% richest Income in the hands of the 40% poorest

25.4% 21.6%

(Source: ECLAC)

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 15

World Bank in Latin America – especially in the 1990s – have served only to aggravate the concentration of wealth and social inequality. Between 1990 and 1996 the continent’s external debt swelled from US$475 to US$657 billion, at an annual rate of 2.5 per cent, whereas it had grown only 1.2 per cent a year during the 1980s. Also the debt service (amortisation plus interest) more than doubled in the 1990s, from an annual average of US$38 billion in the 1980s to US$86 billion in the 1990s. This all charts a course that is increasingly vulnerable to the fears and whims of international investors and to the instability of the world economy. In 1994, and again in 1995, Mexico fell prey to a sudden outflow of dollars which triggered a deep crisis. In order to obtain external resources from the IMF and the United States to cover the gaps in its foreign accounts, Mexico was obliged to deposit invoices for its oil exports in the Central Bank of the United States. In exchange it received US$50 billion in new loans and a highly recessive package from the IMF. Did that put an end to the crisis? No. Up went the country’s external debt, increasing its vulnerability and its dependence on the United States’ market and investments. Today 84 per cent of Mexicos exports go to its big neighbour up north. Its industry become a mere accessory to that of the United States. All this at the cost of lower real average wages, higher unemployment and more precarious relations on the labour market. While the IMF and the bankers wait for Mexico to meet the targets of their package, they go on financing its debts which, growing steadily, shot up from US$95 billion in 1989 to US$156 billion in 1997. Argentina, in turn, now has its economy tied to Brazil’s. If the real is devalued, the Argentinian economy will burst. The adjustment model applied there is the same as in Colombia and Venezuela; that is, production chains were broken up, imports of intermediate products and consumer goods increased, the balance of trade deficit grew and foreign exchange is raised increasingly via the capital markets (which includes speculative capital). For a long time Chile was showcased of the third world as an example of the success of neo-liberalism. In actual fact, the country abdicated its industrialisation and opted for the agribusiness exporting model that is highly dependent on international markets and investments; nothing to do with ‘modernity’. The country specialised in meeting certain demands from markets in the northern hemisphere, for industrialised fresh fruits, wines, beverages, fish, salmon, timber and low value-added manufactures. Also, like the other ‘emerging’ countries, Chile enlarged its capital market, taking care to regulate both the entry and exit of short-term capital. This should have served as an example for other ‘emergents’ such as Russia and East Asia who failed to follow suit and either plummeted deep into crisis

16 External Debt

or else (like Brazil and the other ‘emerging’ nations of Latin America) are at serious risk of doing so.

Capital Takes All, Social Spending Gets the Crumbs Brazil in particular faces the threat of being the international speculators’ ‘next target’. This means, if they are convinced that it is too risky to invest in Brazil, that the government did not manage its foreign accounts properly, or that the IMF package is not going to work, they will continue to withdrawing their capital and the country will slide into default. That was what happened with Russia last August. External indebtedness has increased sharply during the FHC government: his first four-year mandate (1995–1998) has caused the external debt to grow from US$146 billion to US$243 billion. In that period the country paid out US$137 billion, US$46 billion of which was interest alone. 1998 ended with Brazil owing more than US$100 billion in new liabilities in foreign currency, which had accumulated under the present government. Poor economic growth, acute dependence on imports and on external capital, less public and private investment, privatisation of public and private enterprises (even in infrastructure sectors) – all this is accelerating Brazil’s dependence on external resources, today and tomorrow. The growth of the external debt is reflected in rising internal public debt. During FHC’s four-year mandate up to 1998, Brazil’s internal public debt increased almost six fold. From R$60 billion at the beginning of 1995, it rose to more than R$326 billion (Central Bank, October 1998). Associated with this debt are years of astounding interest payments to holders of federal government securities: official figures indicate about R$60 billion. Those astronomical amounts have to do with the policy of high interest rates with which the government is trying to sustain the Real Plan.3 As the government has no way of paying such amounts, it refinances the debt principal and pays just the interest. The external debt is different. The private sector is the main debtor, not the government. At the beginning of the FHC government, it stood at US$148.3 billion. The high domestic interest rate encouraged the private Table 1.4: Brazil’s External Debt in the FHC Administration Beginning of 1995: December 1998: Debt Service between 1995 and 1998: (Source: Central Bank)

US$148 billion US$243 billion US$126 billion

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 17 Table 1.5: Federal Government Budget – 1998 Forecast of Spending on the Federal Public Debt 1998

R$ billion

Internal debt External debt

219.7 16.9

% of the budget 50.1 3.8

(Source: Ministry of Planning)

sector to take out loans with foreign banks, either to reduce the financial costs of its investments or to speculate on Brazil’s capital markets, taking advantage of the low international interest rates and the high rates in Brazil. During the years of FHC’s mandate (including 1994, when he was Minister of Finance, and not counting 1998) Brazil paid almost US$126 billion interest and amortisation. Even so, in December 1998, according to the Central Bank, the debt had risen to US$243 billion. It really is a vicious circle: the more Brazil pays, the more it owes. The portion of the debt that corresponds to the non-financial public sector is only US$95.2 billion, while the private sector accounts for US$1447.97 billion of the total. What is very important is the burden of short-term debt. The private sector has liabilities of US$34.8 billion and the public sector, US$8.34 billion. The two debts entail charges that consume public funds reserved without limit for this purpose in the federal and state government budgets. This represents an inversion of ethical values in the administration of economic policy. The Executive, with no public debate, imposes debt service as its top priority, and subordinates all other public and social needs to it. Capital takes all, social spending gets the crumbs. This seems to have been the FHC government’s slogan, throughout its entire mandate, but particularly now that it has concluded an extremely harsh agreement with the IMF and the other foreign creditors.

A Good Budget Makes for Good Planning All countries have a budget where forecasts of revenues and spending are entered. The budget is a planning instrument that allows governments to prepare revenue collection and spending policies, according to certain priorities that cater for different interests. This makes it possible to view the borrowing capacity of the family, company or government, and to guide decisions wisely. Decisions on how much to allocate to each item of expenditure are political, meaning that they follow the criteria of those who make these

18 External Debt

decisions. In the case of the federal government, the decisions are made by politicians of the Executive, after consulting Congress. However, if we ask ourselves who are the politicians that make the decisions, and according to what interests, we see that the country’s political system is enormously distorted. The great majority of congressmen are very wealthy people: businessmen, bankers, big farmers, landowners and owners of major media groups. In the Executive, there are also rich people and large technical staffs. While they are all busy with politics, their companies and banks, farms and media networks generate a fortune without their having to work for it. ‘I have my executives who take care of my companies’, said an important businessman with whom we talked in 1989. ‘I devote my time to politics.’ Besides promoting their own interests, politicians are subject to pressure from different sectors of society. There are lobbies representing (even foreign) companies and banks, large farmers, owners of medical insurance companies, big civil construction contractors and so on. In Brazil, but also in many other countries, including the rich countries, there are often scandals involving corrupt practices by these groups, such as buying politicians with money or favours so that they make decisions favourable to their interests. The ‘Dwarfs of the Budget’ and the ‘Pink File’ are just two of a number of such scandals to break in Brazil in recent years.4 In addition, it is common for politicians and technical personnel from the federal government, including many former ministers, after they leave public office, to find a berth in large companies and private banks, even foreign ones. Either that or they go to work as consultants, earning fortunes in exchange for advice and strategic information they had access to when they were public servants. Unlike other countries, here there is no ‘quarantine’ period to safeguard the interests of the State and of society, preventing these specialists from working in the private sector for a certain time and from releasing strategic information from the public sector for exclusionary corporate benefit. Compared to the influence of the rich and powerful, pressure from the rural and urban workers’ unions and organisations of civil society is still weak and hardly influential. Although they may represent majority interests, most people in Brazil are still alienated and disorganised. This is legacy from the times of slavery, that ended only 110 years ago, which has conditioned people to submit to and to depend on whoever is rich or whoever governs, to reduce their citizenship to the act of asking that some of their rights and interests be satisfied and, for the rest, to delegate power so that others can govern them and decide for them. Poor, excluded working men and women still believe that political power is not for them. In this they

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 19

are greatly helped by the media, which put across the message that it is only ‘those that know’ who can decide, and those that know are generally ‘those that have’. So, in fact, most of Brazil’s population is not represented in the Government: they are working men and women of the city and of the countryside, who live on their wages and not from capital that is generated by the work of others. Politics means a power system, or way of using power. True democracy is when the power to make decisions is shared with everybody involved; in the case of a country, with all its male and female citizens. In Brazil, however, democracy is just a façade. In practice, it is the rich and powerful who decide. The majority are excluded. Even at elections, when all must give their opinion, there are many devices the rich and powerful élites use to influence voters’ decisions. In the recent presidential elections, the law was changed to give President FHC the right to run for re-election and to continue as president throughout the electoral campaign. He consequently had scandalously greater access to the public over the whole country than any other candidate. Furthermore, the media gave massive, supportive coverage to the President to the detriment of the other candidates. Public opinion polls also produced distortions, all in favour of the élites’ candidates. Even so, the FHC government re-elected for the 1999–2002 mandate does not represent the majority of the voters: only 33 per cent of the total electorate voted for FHC in October 1998. As the government’s parliamentary base is centre-right, with the PFL, PPB and conservatives of the PMDB clearly predominant, little space remains for the less conservative sectors of the PSDB (the President’s party). Hence, there is nothing odd about the aggressive pro-privatisation tone of the first FHC mandate, which left our economy increasingly vulnerable to waves of speculation. It is interesting that central countries like France and Italy maintain strong control in the communications area, where Brazil’s Telebrás system operates. The same can be said of Germany and Italy in relation to their banks. The Japanese state-run steel company continues to invest and acquire controlling interests in our, and others’, steel companies. These are examples of what some economists call the myths of globalization. In four years the FHC government privatised 50 per cent more than Margaret Thatcher – the ‘iron lady’ – did in twelve. That is really out-Heroding Herod! Even so, Brazil was no less in debt. How were we to pay those debts? When the balance of trade (the difference between the value of exports and the value of imports) is negative, as it has been throughout FHC’s entire

20 External Debt

mandate, the government begins to depend on external investments and on new loans so as not to have to resort to its international reserves.

The FHC-IMF Agreement: And the Government Promised not to Govern with Packages… In September/October 1998, Brazil found itself on the brink of an abyss. The FHC government had already gone through several difficult moments in managing the public accounts. However, one keynote ran through the speeches of the President and of the Minister of Finance: ‘Unlike previous governments, we will settle everything without imposing packages.’ Today the FHC government is exposing its own falsity, by imposing on Brazil a package negotiated behind the scenes with the IMF and other foreign creditors and presenting to the nation a ready-made package, with no discussion, as the only course possible. It refuses even to show the text of the IMF Agreement to the Senate of the Republic, which has the constitutional obligation to supervise all agreements involving foreign loans. The FHC government has contradicted itself on many other occasions. What is at stake, however, is not just its credibility, but the health and sovereignty of the Brazilian nation. In August 1998, it was Russia’s turn. The Russian government saw foreign investors, who had arrived en masse during and after the Asian crisis of October 1997, hastily withdraw their money, lent or invested at short term on the stock exchanges of Russian capital cities. It announced that it would not devalue the ruble. It signed an agreement with the IMF for one more loan, this time for US$22.5 billion. It then said that it could now continue paying its creditors. In spite of having received US$4.5 billion from the IMF immediately, it found itself forced to devalue the ruble, so as to bring in more foreign exchange with its exports. As soon as that happened, however, more investments fled the country. Russia then declared a partial moratorium on its external debt payments and a total moratorium on its internal debt payments. In September and October 1998 almost US$30 billion left Brazil. Brazil’s foreign exchange reserves plummeted from US$70 to US$40 billion. Investors were afraid. They saw Brazil with a foreign account deficit of almost 8 per cent of the GDP, a persistently negative balance of trade, high domestic interest rates, the real overvalued, high rates of internal and external indebtedness and enormous amounts to pay to service those debts. They also saw that the IMF was finding it harder to raise funds to save them when the squeeze was on. In reality, the IMF’s packages have been operations designed to rescue western investors and creditors and not debtor

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 21

economies. So, after experiencing the crises of Mexico in 1994 and 1995, the Asian ‘tigers’5 in 1997 and now Russia – all of them so-called ‘emerging countries’ – they thought it too risky to keep their money in Brazil and in other ‘emerging’ countries. So they began to leave in a hurry. The aim of the FHC-IMF adjustment programme for the three-year period 1999–2001 is to stabilise ‘the ratio of the net consolidated public sector debt to GDP at a prudent level, close to 44 per cent, at the end of the period’. Cutting the public deficit pursues this aim. It is not an aim in itself. Not even the rich countries govern without a public deficit. Moreover, one of those most heavily in debt is the United States, which forecasts a public deficit of US$300 billion for 1999. The FHC government promised the IMF to make spending cuts that would not jeopardise payments to external creditors. Neither will it cut the R$60 billion plus a year that it pays in interest to internal creditors. The only way to prevent this is for society to mobilise and bring strong pressure to bear. The government decided that the cuts would concentrate on social spending and on areas connected with Brazil’s domestic economy. The 1999 budget provision already agreed on with the IMF estimates at 63 per cent the total budgeted just for the federal government’s internal and external debts. Taking as a basis the current internal federal debt, and the 20 per cent interest rate that the government says it intends to adopt before the end of 1998, we would have R$66 billion interest to pay in 1999. However, if the interest rate rises to 30 per cent, the amount will be R$99 billion! Looking at these figures, all the talk about budget cuts seems meaningless. The IMF is demanding that the government, in order to qualify for US$41.5 billion in loans to fill the gaps in its foreign accounts, generate a surplus (called ‘fiscal effort’) of R$28 billion by cutting spending and increasing taxes. In the best case scenario, that of R$66 billion, the government would use all this surplus to pay debt interest and would still have to issue a further R$38 billion in bonds to complete the payment. This would entail an intolerable expansion of the very debt that is being paid. In other words, the government is broke. And not just now, but since last May. Going to the IMF is not an honour for Brazil, as the government and the media would have us believe, but a disgrace. It is not a solution, but an aggravation of the problem. The only solution is to renegotiate the internal and external debts immediately, although this would give rise to a tremendous crisis of confidence in a government whose credibility is already very shaky. This crisis did not come from outside, it was produced by the government itself when it encouraged the financial merry-go-round and mismanaged its

22 External Debt

budget and its debt policy. If the spark came from the Asian and Russian crises, the gunpowder for the explosion was already here, accumulated by a government that attaches more importance to international bankers than to the Brazilian people. The package that FHC said that he would not impose did come. The cuts in social spending that Minister Malan said would not be made are being made. The money from privatisations, that was to relieve the nation and reduce the debt, seems to have evaporated. Meanwhile, the new money to be borrowed from the IMF and from the other creditors that contributed to the package, instead of alleviating the crisis, will have to be repaid at higher-than-market interest rates and in shorter pay-back periods, increasing both debts still further. The political conditions are also extremely harsh: the commitment to privatise Brazil’s entire energy system, ten state banks and the water, sewerage and sanitation sectors. In addition, all the annual revenue of Furnas and Itaipu is to be put at the disposal of the creditors, as a guarantee, until the new debt is paid off.6 All this means passing on funds extracted from work and from production to the financial sector. It also means an unbearable cost for the economy and the Brazilian people, above all the majority of working men and women who make their livelihood solely by hiring out their productive and creative capacity on the labour market. Only pressure from society will stop the government from negotiating with the IMF or submitting to its conditions and giving priority to Brazil’s social and economic development needs. The financial debts should not have priority over social, political and environmental debts.

Cancel Unpayable Debts The International Jubilee 2000 Campaign is an initiative involving a large number of religious, lay and non-governmental organisations from dozens of countries on all continents. It is supporting the proposal for millions of people in the world to begin the new millennium with their external debts cancelled. How? With a single cancellation for the year 2000 of the unpayable debt of the planet’s poorest and most heavily indebted countries, by a fair, transparent process pursued through forums to be set up democratically. The Jubilee 2000 Campaign on the debt aims to pressure creditors – governments, private banks, multilateral agencies – to recognise that they were partly responsible for the debt that afflicts third world countries, in particular the very poor countries of Central America, the Caribbean and Sub-Saharan Africa. Nevertheless, countries like Brazil also have debts that cannot be paid.

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 23

This initiative is inspired by the Old Testament, especially in the Book of Leviticus, which describes the Jubilee year as the Year of Grace. Every 50 years, when social inequalities are adjusted, slaves are set free, land is returned to the original owners that worked on it and debts are cancelled. The campaign was launched in 1996 by the three largest Christian aid agencies in Great Britain (among them Christian Aid and Cafod) and today is being supported and developed in more than 40 countries. Following a survey made in 1995, which considered some vital economic and human development indicators, a list including some 50 of the poorest and most heavily indebted countries was organised for the Jubilee 2000 Campaign. CIDSE (International Co-operation for Development and Solidarity) defined several priorities for the International Campaign and is holding ecumenical discussions on them with other churches and organisations of civil society. These priorities include: • Cancellation of unpayable debts in the year 2000. This principle would apply to only a small number of the poorest and most heavily indebted countries – Uganda, Bolivia, Burkina Faso, Mozambique, Guyana, Ivory Coast, Cameroon, Congo, Ethiopia, Madagascar, Minaram, Niger, Rwanda, Tanzania, Burundi, Guiné Bissau, Nicaragua, St Thomas and Principe, Sudan, Democratic Republic of Congo and Zambia. It would be the simplest and most direct way of reducing the debt. The precedent of Germany after Word War II is important: the creditors reduced almost all the Nazi debt to an annual payment corresponding to no more than 5 per cent of German exports. What a contrast with what they accorded to the poorest and most indebted countries: annual payments of between 20 and 25 per cent of their exports. • Review of conditionalities for the poorest and most indebted countries. • Improvement of the Initiative for the Most Heavily Indebted Poor Countries (HIPC), promoted today by the World Bank and the IMF to reduce or to cancel the debt of these countries in exchange for neo-liberal reforms of their economies. • Debt cancellation must be tied to investment in human development. The issue is that the cancellation should benefit the poor and needy in ways suited to each country. The debt is an important cause of impoverishment and it threatens the development of the people who live in the poorest countries. Cancellation should liberate funds for investment in human development and in the productive capacity of the country and its people. It should also allow more investment in health and education.

COUNTRY Angola Bangladesh Benin Bolivia Burkina Faso Burma Burundi Cameroon Cambodia Chad People’s Republic of Congo Democratic Republic of Congo Ivory Coast Ethiopia Philippines Gambia Ghana Guyana Guinea Guiné Bissau Equatorial Guinea Haiti Honduras Jamaica

POPULATION (million)

NOMINAL DEBT (US$ million)

NET DEBT* (US$ million)

GDP per capita (US$)

10.8 119.9 5.5 7.4 10.2 44.0 6.4 13.3 10.2 6.4 2.7 43.9 14.2 56.5 67.5 1.1 17.1 0.84 6.6 1.1 0.4 7.2 5.9 2.5

11,007 16,370 1,725 5,067 1,259 5,771 1,169 9,200 2,031 875 5,796 13,075 19,010 5,257 39,445 425.6 5,629 2,107 3,179 846 299 778 4,480 4,270

10,859 9,153 920 3,899 646 4,688 523 7,482 1,436 442 5,367 11,630 16,596 3,425 37,802 214 3,776 1,583 2,104 582 217 396 3,707 3,895

1,310 1,380 1,760 2,540 780 1,051** 630 2,110 1,084** 700 2,050 429** 1,580 450 2,850 930 1,990 2,729** 1,103** 790 790 910 1,900 3,540

24 External Debt

Table 1.6: Most Impoverished, Heavily Indebted Countries that need the Total Cancellation of their Debts

Table 1.6: (continued) COUNTRY

NOMINAL DEBT (US$ million)

NET DEBT* (US$ million)

GDP per capita (US$)

26.7 4.9 2.8 13.5 9.7 9.8 26.9 2.3 17.9 21.4 4.3 9.0 111.3 23.7 3.3 7.9 0.13 8.5 4.5 9.1 26.0 29.6 4.1 19.2

7,413 2,069 2,127 4,276 2,141 3,055 22,147 2,368 5,553 2,398 9,614 1,654 34,294 30,831 944 1,041 269 3,853 1,143 2,678 17,623 7,802 1,464 3,552

5,466 743 1,963 3,189 1,018 1,805 19,923 1,180 4,429 1,685 8,194 1,016 32,948 29,739 504 480 142 2,510 768 2,213 16,206 5,389 917 1,868

1,380 2,484** ? 640 750 550 3,340 1,170 810 1,540 2,000 750 1,220 3,770 1,070 540 1,704** 1,780 580 ? 1,084 640 1,130 1,470

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 25

Kenya Laos Liberia Madagascar Malawi Mali Morocco Mauritania Mozambique Nepal Nicaragua Niger Nigeria Peru Central African Republic Rwanda St Thomas/Principe Senegal Sierra Leone Somalia Sudan Tanzania Togo Uganda

POPULATION (million)

COUNTRY Vietnam Republic of Yemen Zambia Zimbabwe

POPULATION (million)

NOMINAL DEBT (US$ million)

NET DEBT* (US$ million)

GDP per capita (US$)

73.5 15.3 9.4 11.0

25,750 6,038 6,770 4,885

23,319 5,109 4,963 4,016

1,208** 805** 930 2,030

* The amount the country needs to have available to pay off the debts in shorter periods. The smaller the difference between the nominal and net debt the more suffocating is the situation for the debtor. **GDP per head in 1994, supplied by the UNDP Report on Human Development, 1997. Source: World Bank – Global Development Finance. 1997. Trends in Developing Economies. Human Development Report, UNDP, 1997.

26 External Debt

Table 1.6: (continued)

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 27

•

•

•

• • •

For this to happen, it is indispensable that civil society participate in planning and implementing policies and projects. Decisions on the reduction/cancellation of the debt must be made transparently. This refers in particular to institutions such as the World Bank, the IMF, the Club of Paris and the governments of the indebted countries. Citizens’ groups should have access to all the information on the objectives and strategies for their country. Advances made by the World Bank should also be adopted in the other institutions, including national governments. All of them should incorporate the views of government ministries, of the legislative, as well as of local churches, labour unions and organisations of civil society, including on loan conditions and the formulation of adjustment programmes. The structure of international financial relationships must be transformed. The pattern of these relationships should be thoroughly modified to establish a fair dialogue between debtors and creditors. Responsibility for what in many countries of the southern hemisphere is an unbearable burden of debt does not belong just to the debtors, but also to the creditors. For that reason, fair and transparent procedures should be adopted to facilitate fair and egalitarian relationships between debtors and creditors. Among these, an international system of default/insolvency would be a possible course to follow, based perhaps on the experience of North America or Hungary, of legal safeguards for local governments in case of default/insolvency and a neutral arbitration tribunal to hear the parties affected and their views on the impacts of the proposed solutions. A tribunal of this kind was set up in 1953 to deal with Germany’s debt. Among CIDSE’s proposals for the work of mobilising and bringing pressure to bear on the centres of power are: To learn more on the subject of the debt. To research data and to prepare proposals in co-operation even with organisations in the creditor countries. To establish clear goals and specific objectives. To build awareness and to mobilise the social base and the networks at the local and national levels. To pressure those who make decisions, to influence them in favour of the Campaign’s proposals.

There is also the world campaign for the Tobin Tax, which proposes a 0.5 per cent tax on speculative transactions on the foreign exchange market. This would bring in about US$100 billion a year to be transferred to international organisations fighting against social inequalities and for sustainable development.

28 External Debt

Added to these are the proposals of the External Debt Symposium: Implications and Perspectives, held in July 1998: • To support national and international social mobilisations that aim to implement policies for reducing or entirely cancelling payment of unbearable or illegitimate external debts, making clear our political élites’ responsibility in adhering to strategies designed to produce dependence and their subservience to the instructions and guidelines issued by multilateral organisations. • To foster debate and to supply information in accessible language about the current situation of the various aspects of the External Debt, its relationship to the social and ecological debts and its consequences for the lives of the whole population. • To guarantee that countries use the resources that would be spent on servicing the debt to implement social policies, with full participation by civil society. • To contest the proposal for liberal deregulation represented by the MAI (Multilateral Agreement on Investment), by strengthening the sovereignty of each nation to define criteria for inflows, use and outflows of capital. • To support initiatives for creating international mechanisms to define limits on indebtedness and to recognise situations of insolvency on the part of nation states. • In solidarity with very impoverished countries, to support national initiatives and to participate in international efforts toward the total and immediate cancellation of their external debts. To accompany closely the Brazilian government’s position in international forums regarding the debts of the countries of which it is a creditor. Regarding Brazil: • A comprehensive audit of the process of Brazil’s external debt, with the participation of organisations of civil society, to guarantee transparency and information for all its citizens. • The cancellation of the debt identified as illegitimate and unjust. • A budget ceiling on debt service and amortisation payments, compatible with the priority of redeeming social and ecological debts, to be set by the Brazilian Congress. • Constitutional mechanisms for civil society to participate in overseeing economic policies and government acts relating to the process of indebtedness at the federal, state and municipal levels are to be encouraged and strengthened.

E(x)ternal Debt: Understanding Brazil’s Debt Crisis 29

• Interruption of the current economic and financial policy of attracting capital from abroad, which is producing massive increases in Brazil’s external liabilities, particularly by privatising public service infrastructure. • Support for efforts to set up a tribunal to judge the whole matter of the external debt and for the churches to make strenuous efforts to achieve this aim. This suggestion is already being put into practice. The Foreign Debt Tribunal sat from 26–28 April 1999, in Rio de Janeiro. Representatives attended from churches, social, intellectual and parliamentary movements, representatives of oppressed sectors of society and the public at large. The audience heard statements, specialist reports and testimony from other countries and regions, like Argentina, Central America, Russia, Africa and Europe. Cultural shows were presented and a large number of international co-operation agencies were present.

Notes 1. A billion is a thousand million. 2. For a criticism of debt-taking during the military dictatorship, see Marcos Arruda, ‘Prometeu Acorrentado, ou Os Grandes Grupos Econômicos, o Endividamento Externo e o Empobrecimento do Brasil’, PACS, Rio de Janeiro, 1988. 3. Real Plan is the governmental plan that created a number of monetary and fiscal rules in order to stabilise the inflation rate. 4. ‘Dwarfs of the Budget’: this term refers to the manipulation of the federal Budget for private gain by seven congressmen, who became known as the ‘Seven Dwarfs of the Budget’. ‘Pink file’: this term refers to evidence of corruption within the Executive, which the Cardoso administration was able to stifle before it became subject to a Congressional Hearing. 5. The term is used worldwide to refer to the Asian countries that underwent intensive economic growth during the 1980s and 1990s: South Korea, Taiwan, Hong Kong and Singapore. They were also nicknamed ‘Asian Dragons’. 6. Furnas is a large State electric power generation and transmission firm. Itaipu is a huge hydroelectric dam between Brazil and Paraguay.

2 Trojan Horse: Brazil and the International Financial Crisis

Even before the growing, ever-quickening signs that a dire global financial crisis was looming, the Brazilian government had pursued the Trojan policy. It opted to bring this appalling Trojan Horse, loaded not with soldiers, but with paper – foreign financial capital, that is – right into Brazil’s citadel. Obedient to the dictates of its international creditors, the backbone of the FHC government’s entire policy of reforms is to open up Brazil’s economy to international capital and to eliminate whatever instruments were once available to the Brazilian State to regulate that capital. As a film, it could have been called ‘How to Bring the Enemy into Your Home’. Even more surprising is that now it stands face-to-face with the crisis, the FHC government’s proclamations and measures keep it on the same course as before. It persists in taking measures of all kinds to lure more and more international capital into Brazil and to hold it there with promises of huge gains and privileges. Contrary to what the government says, the financial imbalance that threatens to devastate Brazil’s economy and society is structural in nature, and not conjunctural. It is the result of the choice made by FHC and his allies to steer a course of excessive dependence on foreign capital. This was the course taken throughout the four years of the FHC government. He of all people, who 20 years ago was denouncing dependence and proclaiming values like national sovereignty: Brazil’s need to have its own sovereign national development plan, grounded in significant financial autonomy. The global financial imbalance, too, is far more than conjunctural, and is tending to develop into a crisis of vast proportions. It has to do with the process of neo-liberal reforms that has prevailed the world over in the 1980s and 1990s. Deregulation – affording greater mobility to capital of all kinds, but chiefly financial capital – has been one of its greatest achievements. And all élites are responsible, particularly the élites of the 30

Trojan Horse: Brazil and the International Financial Crisis 31

wealthy world and the multilateral agencies, whose function it was to safeguard the security and sustainability of the system at the global level. At present, some global leaders (practically all men) are talking in terms of crisis. They are genuinely alarmed and have good reason to be. For some years now, I have written and spoken about the signs that indicate, for lack of political will on the part of governments, bankers and businessmen, that the seeds were being sown for a global financial tornado.1 The core of this tornado is the dissociation between money and production, or rather, the surplus of all kinds of money that is circulating in the world with nothing in the real economy to back it. Socially, this is mirrored in the worsening inequalities among countries and within each country. It is now so grave that finally there is talk of reforms ‘to rescue the world capitalist system’. These words were spoken to the US Congress on 15 September by the leading international financier, George Soros. It is finally being realised that not even the staff economists at the government agencies and multilateral institutions are showing the foresight, analytical skill and political will to see and do any differently. As I see it, we stand on the threshold of a critical moment for mankind. The – today globalized – capitalist system that is being presented as the only way and the only truth, is heading into a profound crisis. And this current crisis, unlike those of the past, affects the whole of mankind. There is a spreading feeling of perplexity, despair and disbelief that brings with it the threat that the economic depression that could result from a global crisis would be accompanied by a generalised emotional and psychological depression; a crisis of identity and of the sense of living. This feeling is nurtured by the competitive, aggressive ideology that lies at the very root of capitalism. We are exposed to it daily and we are angry with the next man when the time comes to contest a job opportunity or a place at university, when closing a business deal, striving to gain control of a market, in traffic and in all kinds of other circumstances. Capitalism is built on the idea that ‘in nature, every man is a wolf to every other man’ (Hobbes) and that ‘there is no such thing as society, only individuals’ (Margaret Thatcher). This abstract, absolute individual, out of all context and devoid of any relationships is, therefore, constituted in extreme individual egoism. The same applies to the capitalist business or to capitalist nations: they are conceived as absolute in themselves and destined to maximise their own benefits and those of their owners (shareholders) and of their compatriots, at the cost of all others. They are thus constituted in extreme group egoism. Once this becomes conviction, all other individuals, businesses or nations are seen as threats, competitors and enemies that I must combat, neutralise or destroy. The present moment of collective

32 External Debt

uncertainty may intensify this egoism and lead to confrontations that could place the very human species itself at risk. For all these reasons, we believe that now is the moment to reaffirm our faith in mankind. To remind ourselves of our evolutionary success that has managed to overcome the difficulties inherent in our struggle for survival as individuals, groups and species, by virtue of the sense of cooperation, solidarity and convergence that has endowed mankind with greater strength than all the forces of competition, disaggregation and fragmentation that have pitted us against each other. This is the moment to realise that we must develop, urgently, a new way of seeing the human race and its existence on this earth, one that awakens us to the awareness that, by natural law, we are interconnected with each other and with the whole cosmos, and that this interconnection is an invitation to link up with others by conscious ties of co-operation, reciprocity, sharing, complementarity and solidarity. This is not just to take an ethical stance, but to opt for what is our natural course; that is, the only genuinely rational course of action open to us. It is time to lay the foundations of a different economy, oriented towards human and social needs, not indifferent to them; an economy that treats each citizen – man and woman – as a subject and at the same time as managers, decision-makers and executors; an economy where finance is harnessed to production; an economy that aims to be only the basis for meeting material needs, capable, by way of technological advances and by democratising productivity gains, of freeing up more and more energy and human labour so that we can concentrate on developing our potential, our attributes and our higher, specifically human, senses. In Brazil, the elections were a moment of active citizenship. We all had to give our opinion, not for one or another candidates name, but on the project for Brazil that each one represented. Despite FHC having shown in four years that he was not good for Brazil, he was elected. He won only a relative majority, with only 33 per cent of the votes of the whole Brazilian electorate. The population was not ready to defeat him, though, and to prevent Brazil from continuing to be weakened and dismembered as a nation, society and state. Social pressure for a changed development project won a majority in only three states, and so the change was postponed once again. Without a development project centred on the country and its working people, we will never have macroeconomic policies capable of surmounting this crisis that threatens to drag Brazil to the bottom of a chasm of poverty, social distress and political and economic subordination. Something has to be done before it is too late. And it may already be too late to prevent a crisis with enormous sacrifices, which will spare neither our nation’s businesses nor its impoverished majority.

Trojan Horse: Brazil and the International Financial Crisis 33

The Real’s Three-Legged Prop Starts to Fall Apart Let us begin our reasoning by briefly examining the factors that lie hidden behind Brazil’s vulnerability to world financial imbalances: these are precisely the policies that we have chosen to call ‘the real’s three-legged prop’. Liberalisation and Disempowerment of the State The neo-liberal advance could be seen in the removal of government controls over financial flows and markets. This formed part of the capitalist reforms that the rich countries and multilateral agencies fostered in what were termed ‘emergent’ countries (which, after 1990, included Central and Eastern Europe), to promote capitals markets offering interest rates unequalled by those at the centre of the global economy. Eager for quick, easy gains, financial capital flowed into our countries from banks, businesses and individual investors – and also from our own élites. The reforms also included opening up our frontiers to indiscriminate importation, removing all ceilings on transnational investment in Brazil’s production markets, privatising and irresponsibly denationalising public assets, and deregulating in line with the ideology that capital should be given completely liberty to come and go at will – rather like granting capital global citizen status – certainly superior to any workers right to come and go, which today has been practically eliminated.2 At any sign of instability, these capitals flow freely elsewhere, leaving economies even more impoverished and exposed than before. FHC’s Brazil was one to take the lead in these reforms and, in spite of the size of its territory and the natural and economic wealth it possesses, today the country is doubly dependent on international capital: it is suffering from a process of spiralling debt, a debt daily more impossible to settle; and it is turning to further international indebtedness as a false refuge to mitigate this dependency and vulnerability. The Monetarist Dogma of High Interest Rates The high interest rates peculiar to all ‘emerging’ countries permit investors to turn large profits on the difference between the rates on loans taken in the rich countries and the rates obtained when these loans are transferred to businesses, individuals or the state in ‘emerging’ countries. This policy of high interest rates is the main feature linking the external and internal debts. It encourages private investors to seek cheaper money abroad and to lend it to the government at far higher interest rates, in the process reaping the benefit of differentials of up to ten times the original rate.

34 External Debt

This was how the private foreign debt rose from US$36.7 billion at the start of the FHC government to nearly US$120 billion by the end of 1998. In Brazil, interest rates have been kept high throughout the whole FHC government (see Table). When crises broke abroad, these rates were hiked spectacularly, as if the government were telling speculators: ‘Leave your money here, because we are ensuring that it will grow even more.’ And at whose cost? – the treasury’s, above all, but also at the cost of investment in production, particularly investment directed to the domestic market; and at the cost of less funds being available for priority investment in the real economy and to meet social needs. In October 1997 the bank assistance rate (Tban) was 23.56 per cent, and in November, as a way of confronting the risks caused by the Asian crisis, the Brazilian Central Bank raised this rate to 46.4 per cent, triggering an appalling escalation in liabilities on securities auctioned by the Brazilian government. The official line that high interest rates would not last was wearing very thin when only in March 1998 did the rate fall below 40 per cent per year. In April they were still the world’s highest interest rates in real terms, higher even than rates in Russia. At the time of the Russian crisis, in mid-August, they were around 19 per cent. Given that capital flight has continued at an ever faster pace, and despite its declarations to the contrary, Table 2.1: Evolution of Interest Rates in Brazil (SELIC rate) 1997

1998

1999

September October November December January February March April May June July August September October November December January February March/5

20.7 22.0 42.2 39.5 37.4 32.1 26.2 25.1 22.6 21.0 18.5 19.3 33.5 39.3 35.5 29.3 31.2 38.8 45.0

(Source Central Bank of Brazil)

Asian crisis ‘Package 51’

Russian crisis

First IMF package

IMF package reviewed

Trojan Horse: Brazil and the International Financial Crisis 35

the government finally adopted the same tactic. First it granted tax exemption to investments in foreign exchange on Brazilian stock exchanges. Then, as foreign exchange continued to leave the country en masse, in the space of only a few days it raised the interest rate to 29 per cent and then to 49 per cent! The same occurred following the sudden devaluation of the real on 13 January 1999 and, on 1 March 1999, the interest rate reached 50 per cent. The press has made no secret of the fact that the interest rate hike, together with the increase in the Provisional Tax on Bank Transactions (CPMF), was one of the conditions imposed by the IMF for liberation of the second tranche of Brazil’s emergency loan, scheduled for the end of March. The incoming president of the Central Bank, the international speculator Armínio Fraga, confirmed that this was the course charted for Brazil. This was the government shooting itself in the foot; there is no other term for it. Monetarist dogma will not back off even when confronted with the worst imaginable results. The monetarists see inflation only from the demand side and in terms of the amount of money in circulation. They are blind to cost-driven inflation. High rates of interest mean greater financial costs for businesses and agriculture, and tend to worsen the public accounts, with newly escalating foreign debt liabilities. The impact of both on prices is inevitable. No recession can contain this inflation, which has come to be known paradoxically as stagflation, because it combines economic stagnation with inflation. New compulsory deposits by banks, another measure planned to curb exchange speculation, constitutes public acknowledgement of the banks’ role as speculators – and cuts both ways: it also serves to restrict the amount of money available for investment in production, forces up interest rates on credit and consumption and reduces production activities still further. This accumulation of political and economic errors, which tends to benefit the speculators at the cost of the nation’s health, cannot hold up for long. It is framed by Brazil’s lacking a development plan of its own, or by the FHC government’s submission to the model of globalization directed by the rich nations and by the major conglomerates and international banks.

Table 2.2: Evolution of the Internal Public Debt (US$ billion) 1993 49.9

1994 61.8

1995 108.5

1996 176.2

1997 255.5

1998–1999 (est.) 330.0

(Sources: Revista Conjuntura Econômica/FGV and Central Bank)

36 External Debt

FHC has governed since January 1995. During his mandate, therefore, the internal debt has multiplied almost six times. This means a colossal draining of federal budget funds from productive and social investment to financial uses. It is one of the factors retarding growth in the real economy and in employment; a sinkhole for funds raised by the privatisations. It also constitutes a mechanism for concentrating income. The Irresponsible Policy of Over-valuing the Real Throughout FHC’s four years, the exchange policy of overvaluing the real was another anchor used to hold rates of inflation relatively stable. This meant artificially maintaining the value of the real against other strong currencies. This reckless intervention in the market tended to create a growing exchange imbalance. The risks – any economics student could have pointed them out (far more so the economic authorities led by Minister Malan) – included kindling a growing fear among investors, especially foreign investors, that the real was heading for sudden devaluation and the domestic economy for collapse, especially following a prolonged spell of trade liberalisation that had left the economy, and even consumers, more dependent on imported products. The wise moment to begin gradual devaluation, offset by more investment in production for the domestic and export markets, would have been 1996, with the first signs that the Asian Tigers might be rocked by an exchange crisis.3 When the Asian crisis broke, in September 1997, there could be no doubting that the measures necessary to prevent the crisis from ravaging Brazil too included a planned process of devaluation. Nonetheless, in Brazil the idea was put about that the exchange policy of overvaluation was a sustainable factor for stabilising the economy and ensured that the new model for integrating the Brazilian economy with the rest of the world would be a success.4 What model? ‘A new model of development in which foreign funds will become an important driving force behind growth, whether by way of direct investment or through demand for Brazilian exports.’ Translating this into the language of the ‘real world’: a model in which Brazil would seek a subordinate, dependent role in the international economy, and would ‘develop’ from the outside in, under conditions defined by the strategies and priorities of the wealthy countries and the large economic and financial conglomerates.5 In September 1998, we were saying: The overvaluation of the Real… is the touchstone that can transform the present imbalance into a far-reaching crisis, not just in Brazil but throughout the whole ‘developing’ world. The Asian crisis has

Trojan Horse: Brazil and the International Financial Crisis 37

essentially taken the form of an exchange crisis! We have been critical of this policy, because when it is prolonged, it threatens the stability of investments and then, when corrections are made, these occur in the profoundly traumatic form of maxi-devaluations, which lead whole economies practically to ruin.6 This does not happen for any exoteric reason or because of some automatic mechanism in the world economic system; rather it is caused by investor behaviour. In the context of capitalism, investors seek to maximise their individual gains at whatever cost, even the collapse of a nation’s economy. Where there is an excessive, prolonged currency overvaluation, the tendency is for them to speculate with the exchange rate, with a view to more and more massive gains. Since early March 1999, Brazil has witnessed a veritable war between the government – striving to stabilise the value of the real at a reasonable, prudent level – and the investors, particularly the major Brazilian and international banks and finance houses – seeking to accumulate foreign exchange by all means possible, on the expectation that Brazil’s national currency will continue to devalue indefinitely. A policy to prevent this by measures to encourage even more speculative investment (such as the total removal of exchange controls and the extra boost to interest rates) can only be called irresponsible, dogmatic and suicidal. And this was the IMF’s recommendation and the course followed by the FHC government. Even the IMF itself usually argues for more pragmatic exchange policy, but seeing how its exchange policy prescription has failed in Asia, it has indulged the FHC government. In July 1997, Minister Malan said that ‘as long as the privatisation programme goes ahead and the inflow of direct foreign investment continues, there is no risk of a speculative attack on the real’. The fact is that, despite the FHC government’s privatisation of state enterprises (BIONDI, 1999: 19–29 and 41–48) – at times even using dubious means (as in the case of the Vale do Rio Doce, Centrais Elétricas de Minas Gerais and, as revealed by tape recorded phone taps of the senior management of the BNDES, the telecommunications sector) – the risk did not pay off. The easy money (from foreigners and from Brazilians) quickly fled the country and, contrary to the ministers forecast, the real quickly came crashing down. The financial crisis that the FHC government led Brazil into could be seen coming as early as April 1998, when the amounts payable on the internal and foreign debts exceeded the country’s normal payment capacity. Devaluation of the real was already advisable then, but for electoral reasons and with the agreement of its foreign allies (the US government

38 External Debt

and the IMF), the president preferred to postpone it. Once again he bargained for this postponement with the IMF when embarking on negotiations for a US$41.5 billion loan shortly after the crisis hit Russia in August 1998. In September, we were still writing: ‘Because of the government’s irresponsibility and FHC’s electioneering opportunism, if it (devaluation) occurs now, it will tend to be sudden and steep, and to drag other nations down with it, beginning with those that make up the Mercosul.’7 The FHC governments discourse that it would defend the real at all costs formed part of the effort to prevent a devaluation. When capital flight resumed in January 1999, however, this proved how useless the enticement measures adopted thus far had been, and demolished the real and with it the whole edifice that is FHC’s trademark and image.

Brazil and the IMF (International Misery and Famine) What, essentially, is it that threatens crisis in Brazil? Not the public deficit, but the failure of a dependent economy and social bankruptcy. What makes up the public deficit? A surplus of spending over income. And what are the largest items of expenditure in Brazil’s public budget? At the core of the Brazilian crisis are the external and internal debts. The FHC government pledged to cut spending but to leave payments to external creditors untouched. Neither was it going to cut the R$60 billion or so it pays annually in interest to internal creditors. Except under pressure from society. What it was going to cut was social spending and anything directed towards Brazil’s domestic economy. This is why the Jubilee 2000 Campaign is so appropriate: it is an international campaign that seeks to cancel the foreign debts of the poorest and most heavily indebted countries, particularly in Africa and Latin America. In Brazil, the campaign is also demanding that, in the case of countries like Argentina, Brazil, Mexico and Venezuela, the unpayable and already paid portions of the foreign debt be cancelled (which will require an audit of the debt) and that the remainder of both debts be renegotiated immediately. Unfortunately, during the months of October and December of 1998, while the FHC government was negotiating an agreement with the IMF on the quiet and behind the scenes, the social concern groups did not make a sufficiently forceful outcry. It took until January 1999 for them to begin to outline a campaign against signing the IMF agreement. This delayed pressure on the FHC government to produce a policy that gives priority to Brazil’s social and economic development needs and delayed the demand that the financial debts should not be given primacy over the social, political and environmental debts.

Trojan Horse: Brazil and the International Financial Crisis 39

The shock waves from devaluation of the real also rocked the social and popular organisations. An intense agenda of protest demonstrations is being drawn up against the FHC government’s economic policy and Brazil’s submission to IMF demands, as well as in defence of Brazil’s sovereignty over its resources and its social and economic policy. The months of March and April were marked by these public events and a call for the impeachment of president FHC is even being outlined, on the basis of numerous arguments, including on legal and constitutional grounds.8 Loans to Pay Off Loans When the father or mother of a family starts to take out loans to pay off the interest on previous loans, the family is said to be bankrupt. The same applies to a business or a country. Brazil has been doing this for many years. The fact is that there is no international legislation that grants countries the right to declare insolvency and start afresh. That is why private, government and multilateral creditors are able to use the foreign debt as an new instrument for colonisation, because the debt of many poorer countries is economically and ethically unpayable, and payment is comparable to the colonial tributes that the metropolitan powers wrested from their colonies, denying them the right to aspire to the freedom to use their own natural and human resources and wealth for their own development. Let’s go back to 1987. With its exchange reserves collapsing and about to be crippled by due debt payments, the Sarney government found itself obliged to declare a foreign debt moratorium and to apply for emergency renegotiation with its official and private creditors. Throughout 1986 Minister Dilson Funaro had endeavoured bravely to steer policy in directions that would boost investment in production, including reducing foreign debt payments and refusing to sign a new agreement with the IMF. The government’s decision to limit foreign payments to 2.5 per cent of GDP, or between US$5 and 6 billion per year – which corresponded to half the amount Brazil had been remitting abroad – displeased the creditors. They wanted to see the Cruzado Plan defeated and debt interest payments brought up to date, whatever the cost to the Brazilian economy and its people. (The Cruzado Plan was another stabilisation plan launched by the Sarney government in 1986. Its name refers to the new currency created at the time, the cruzado.) Not only had foreign investors stopped investing in Brazil, they were withdrawing capital. Under pressure from the USA and the IMF, the Sarney government preferred to submit to the vicious circle of debt taking, rather than press for new rules. In December that year, the government took out a bridging loan from the IMF, to enable Brazil (according to official discourse) ‘to end the

40 External Debt

moratorium and resume growth’. There were several vain attempts to renegotiate the debt, with the IMF acting as intermediary. The rationale was to seek new terms, which would include longer timeframes and less burdensome interest rates. But then, as now, the Brazilian government lacked the political will to break the vicious circle of foreign indebtedness by negotiating an agreement that would not entail taking out new loans to pay off the old ones. The medium-term agreement that was finally drawn up included bank loans totalling US$5.2 billion for the period 1988–89, while debt due and falling due between 1987and 1990 was rescheduled over 20 years, with an eight-year period of grace before starting payments on the principal. (Another renegotiation with creditors became necessary, in 1994, when FHC was Finance Minister in the Itamar Franco government.) Other provisions included a reduction in the spread charged on public sector debt, from an average of 1.5 per cent to 0.8125 per cent.9 The apparently advantageous terms of the agreement conceal a sad reality which, from the Brazilian point of view, runs counter to economic logic. Of the US$5.2 billion, US$3 billion was earmarked to amortise the bridging loan granted in December 1987. Of the remaining US$2.2 billion, US$1 billion was to be used to pay interest in arrears from 1987 and US$600 million was to be disbursed in 1989, so that only US$600 million actually constituted new money entering the country. This was equal to only 5 per cent of Brazil’s debt account or 9 per cent of the interest paid to Brazil’s commercial bank creditors. This operation serves as a good example of how a loan, instead of serving to free a country for a new stage of growth, in fact serves to drag it deeper into a never-ending vortex of indebtedness. A similar process began in September 1998, with the FHC government’s decision to appeal for an emergency loan from the IMF, with contributions from several other creditors (World Bank, Inter-American Development Bank and some 20 wealthy countries). This shorter-term loan at higher interest rates, claimed the IMF, was just to tide Brazil over the transitional phase and set it firmly back on the road to growth… Lessons from Other Crises and the Bankruptcy of the FHC Government The FHC government has been financially bankrupt since April 1998. The level of internal and foreign indebtedness has risen far beyond its capacity to pay. This is made explicit in the November 1998 Letter of Intention: the forecast by Minister Malan and Central Bank President Gustavo Franco is that the public sector would reach year-end 1998 with a nominal deficit of R$72.9 billion. The intention was to reduce this deficit to R$42.6 billion by year-end 1999.

Trojan Horse: Brazil and the International Financial Crisis 41

The nominal deficit includes financial liabilities, while the primary balance (surplus or deficit) excludes them. To translate this economicsspeak, expenditures will have consumed the revenues and Brazil will still be R$72.9 billion short. In a context of recession and a persistent trade deficit, this is bankruptcy. That is the main reason the creditors are afraid. There can be no escaping this diagnosis: Brazil’s internal and external accounts have been mismanaged. The issue raised by the financial crisis is: whom to sacrifice? This colossal shortfall has to be covered. The FHC government’s reply came immediately. If speculative capital starts to leave Brazil en masse, we will not hinder them; instead we shall offer greater facilities to persuade them to stay. Malan offered two gifts: tax exemption on fixed income applications, soon followed by the spectacular base interest rate hikes. Even so, capital outflows continued to exceed inflows. This was the main reason that led the Central Bank to halt the gradual downwards drift in interest rates last October. As a result, at year-end 1998, the interest rate stood at around 30 per cent. If we take as our reference the R$328 billion value of the internal debt (October/1998), the country will have had to pay out more than R$80 billion in interest and roll-over costs during 1998. This does not take into account the foreign debt. According to the Central Bank, foreign debt amortisation and interest payments for 1998 are projected at more than US$45 billion.10 The optional preventive package coordinated by the IMF for Brazil was designed to prevent a collapse of its currency, which was being undermined from the outside in by the sappers of the global crisis: the ‘currency jackals’, according to Jacques Rueff, De Gaulle’s finance minister (Joelmir Beting). The great friends of these sappers and jackals include the executive secretary of the IMF, President Clinton, President FHC and Brazil’s finance authorities, starting with Pedro Malan. IMF Director General Michel Camdessus encouraged participants in the 1996 annual meeting of the IMF and World Bank to continue ‘advancing towards freedom of movement for capital’. In 1997, also at the annual meeting, his key appeal was for ‘orderly liberation of capital movements’. Clinton and other OECD leaders have nurtured the hope of arranging a multilateral agreement that will liberate capital movements and prevent states from raising barriers to this freedom, and will grant equal rights to foreign capitals in national contexts. Since the beginning of the present government, FHC and Malan have worked to attract foreign capital into Brazil, with no conditions, limits or regulations and have managed to accumulate tens of billions of dollars in short-term liabilities that flee the country at the least sign of smoke on the horizon. For the ‘emerging’ countries’, this is the Trojan Horse.

42 External Debt

Had none of them perceived that the Mexican, Asian and Russian crises (1994, 1997 and 1998, respectively) had this element in common: the sappers and jackals? Of course they knew, but they were all gaining from it. They all act on the same logic: for capital, everything; for workers, the law. But now Brazil is seeking advice from the very same IMF that has impoverished and even destroyed poor countries’ economies with its ‘packages’. The very same IMF that led Indonesia and Thailand to ruin and chaos is saying today: …the lesson [to be drawn] from this crisis is that, in a globalized economy, a few macroeconomic virtues are not enough. Constant vigilance must be maintained over all the socioeconomic parameters in each one of these countries… The solidity of the banking system, particularly, must be monitored at all times. Even so, these countries failed here too; and, what is more, their unsustainable accumulation of shortterm funding left them vulnerable to the markets’ rapid changes of heart. These are Camdessus’ words to the Parliamentary Assembly of the Council of Europe (23 June 1998) (my emphasis). For decades – and with disastrous effects – the IMF, the World Bank and the official and private creditors had forced macroeconomic reforms down the throats of governments in the southern hemisphere. Why should they be worrying now? Because the rich countries are in danger too. Their banks and investment funds (several of which figure among the sappers and jackals) are vulnerable to these crises because they have pledged large sums in wagers on capitals markets in the ‘emerging countries’. Wager is certainly the right word, because the capitalist financial system has turned into an oversized casino.11 What is most serious is that in a casino, if you lose, you get into debt or go bankrupt, while in the capitalist system, if the large banks and finance houses lose out in the speculation game, then governments set aside funds to bail them out. That was what happened with LTCM (LongTerm Capital Management), a major North American investment fund that manages private and government fortunes under the command of some of the financial markets ‘sly old foxes’, among them two recent Nobel economics laureates. LTCM took out US$2.2 billion in loans to stake in the global casino, expecting gains in excess of US$100 billion. The crises left it insolvent. The US Federal Reserve withdrew US$3.5 billion from public coffers and ‘rescued’ the company from bankruptcy. The same occurred in Brazil under FHC in 1995–96. More than US$20 billion was paid out through the PROER programme to save corrupt bankers.12 It is not known how much, if any, of that total has been reimbursed. In Japan, the forecast

Trojan Horse: Brazil and the International Financial Crisis 43

is that US$501.5 billion in public funds is to be made available to reform the financial system, US$150.8 billion of which is for the ‘temporary nationalisation of insolvent banks’. That means US$209.6 billion to recapitalise financial institutions on the threshold of bankruptcy and only US$142.4 billion to safeguard depositors’ rights (O Globo, 14 October 1998). Who is the IMF today? The IMF was set up to prevent crises in the balance of payments among nations and to keep the world’s finances in sound health. However, it does not perform the functions for which it was created (to be a proper, internationally acknowledged source of money and to work to keep currencies realistic) and is thus unable to achieve those larger objectives. In addition, it has lost credibility and lacks funds. Its army of economics experts has proven its ideological – but not scientific or socioeconomic – effectiveness. It is to be regretted that only now, crouched over the ashes of all Southeast Asian populations, are they beginning to ask themselves ‘what went wrong?’ (Washington Post, 4 October 1998). What is astounding is that the ministers of the Group of Seven’s wealthiest countries put out a communiqué (O Globo, 21 February 1999) approving the creation of a Financial Stability Forum ‘to prevent future global financial crises’, with no mention whatever of the need to turn the IMF into what it was in fact set up to be. The IMF today is a failed institution. It faces major criticisms: it lacks a neutral international reserve currency (the international currency is a national currency: the US$); it lacks mechanisms for stabilising exchange rates and for macroeconomic guidance of the global system; it lacks a lender of last resort; its decision-making structure is undemocratic; it lacks social participation and is excessively confidential; it is powerless and asymmetrical when dealing with the imbalances between the hemispheres; it uses medium-term loans as if they were long-term; it duplicates the activities of the World Bank; and special drawing rights (the IMF currency) are poorly distributed. In addition, with its structural adjustment programmes it has set poor countries on a course for crisis and the risk of bankruptcy. The question of the dollar as an international currency deserves special mention in the context of this chapter. The error in the emerging countries’ exchange policy, from the perspective of their sovereignty and the sustainability of their economies, lies precisely in linking their national currencies to the US dollar, when their economies lack the solidity necessary to maintain parity. With the dollar no longer tied to gold reserves (this was eliminated unilaterally by President Nixon in 1971), there was no

44 External Debt

limit to the amount of dollars the US could issue. This enabled the US to purchase goods and services and to invest abroad simply by entering into unlimited debt with other countries. The dollar could also be used as a speculative currency on the world’s stock exchanges, aggravating the threat of a global inflationary crisis – a threat which, in fact, is ever more present. The IMF has not questioned this state of affairs, nor has it identified it as a basic factor in the ongoing financial crisis and the deepening inequalities at the global level, nor has the IMF pressed for thoroughgoing financial reform to eliminate global inflation. When the IMF and the US government ‘rescued’ Mexico in 1995 with a US$50 billion loan package, the managers of banks and investment funds felt encouraged to wager billions in Asia, Russia and Latin America, because they knew that, in the event of a financial collapse, investors’ losses would be offset by IMF packages. Those who argue in favour of modernisation via subordination say that the policies of the IMF and governments of the North helped Latin America capitalise during the 1990s. Foreign investment in the region increased five fold, reaching US$300 billion in 1996. When panic struck in Asia and Russia, however, this capital began to leave Latin America. And when it also fled Asia and then Russia, there was a US$40 billion IMF-coordinated loan for Indonesia, plus tens of billions for Thailand and South Korea, plus $22.5 billion for Russia… How long will it go on? Russia took the bankers and financiers by surprise, because it received money and loan guarantees from the IMF and the wealthy countries and, even so, found itself obliged to declare a moratorium on its debts. A number of analysts announced that Brazil’s turn had come. And what did the FHC government do? It accused its critics of being ‘neo-boobies’ and pressed ahead with its suicidal policy of overvaluing the real, offering the highest real domestic interest rates in the world and junking the stock of state assets in an irresponsible, unselective process of privatisations or denationalisations. Alvin Toffler, a best selling American author, called the IMF a murderer, when he saw it was prescribing the same brutally recessive fiscal adjustment and exchange devaluation programmes for Indonesia as had been proposed for South Korea and Thailand, where the results had been devastating: ‘These measures take lives’ (‘Estes remédios tiram vidas’, Gazeta Mercantil, 30 September 1998). In May 1998, the International Herald Tribune (19 May 1998) reported that the crime rate in South Korea had increased alarmingly and remarked that these crimes are known as ‘IMF survival crimes’. Ironically – but also from electioneering opportunism to benefit FHC – the item that the IMF waived to suit its traditional prescription to the Brazilian case was devaluation of the national currency. In view of the disaster

Trojan Horse: Brazil and the International Financial Crisis 45

that the policy of abrupt devaluation had precipitated in Asia and Russia, the IMF chose the easier, and less prudent, course of leaving the real overvalued… until it burst! The other novelty was saying that the Brazilian adjustment had to include income redistribution measures. The IMF seems to have been referring to a progressive tax reform, something discussed with Mr Camdessus six years previously when seven representatives of social organisations met with him during the RIO-92 conference.13 But the months went by and nothing more was heard of progressive tax reform, until 21 February 1999, when the O Globo newspaper published a summary of a study by Vito Tanzi, director of the IMF Tax Affairs Department, mentioning the need for developing countries to surmount income distribution inequalities, and adding that a more efficient taxation system and better utilisation of tax revenues were indispensable to achieving that objective. It is curious that the IMF insist that what actually determines the impact on social inequality is what people earn, not what governments spend. This can only be an excuse to justify their insistence that the Brazilian government cut spending to the bone so as to preserve intact its external and internal debt payments to its already very well-heeled creditors. How then does one justify the erosion of the population’s gains and of credit, when both are essential for economic growth? Increased purchasing power is a precondition to increasing effective demand and speeding up growth, and can be achieved only by redistributing income and wealth, facilitating credit at relatively low rates of interest and thus cutting financial costs so that businesses can sell their products at reasonable prices. Devaluation is clearly a high-risk policy. But note that it only became necessary in the case of Brazil precisely because there had previously been a policy of overvaluation, which – if the truth were told – served as one of the real’s peg legs. If there had been controlled devaluation over at least the preceding two years, along with a policy to prioritise domestic production – and thus the Brazilian currency – this would have averted the explosive crisis that tore at Brazil’s financial and socioeconomic roots from January 1999 onwards. Controlled devaluations are possible if the government decides to centralise exchange policy; that is, make it an instrument of the country’s development policy. The same can be said of bank and financial policy. This, however, is not the plan of the IMF, the World Bank and the Inter-American Development Bank. In response to the interests of international bankers, they are pressing for reforms in two directions: total privatisation and total liberalisation of international capital markets. What need is there for bank and financial policy if Brazil’s development is to be left to the ‘international markets’?

46 External Debt

The Fiscal Deficit and the Debts Under FHC’s direction, Brazil’s economic and financial situation has taken a dramatic turn. The concerted effort to stabilise prices under the Real Plan by liberalising trade has produced an inversion in the country’s trade situation. From being a trade surplus it has become a deficit, chiefly due to the uncontrolled opening up of Brazilian markets to imported products, many of them subsidised by the governments of their countries of origin. The 1994 trade balance was US$10.4 billion. In 1997, this became a deficit of US$8.3 billion. In 1998, despite restricted consumption as a result of unemployment and high interest rates, by October the deficit already exceeded US$4 billion. At the start of the FHC government, the service balance was a deficit of US$14.7 billion. In 1997, this deficit had nearly doubled to US$27.3 billion and the estimate is that it reached US$30 billion by the end of 1998. Interest payment-related expenditures rose from US$6.3 billion in 1994 to US$10.4 billion in 1997 and are estimated to have exceeded US$12 billion by yearend 1998. Dividend profit remittances have also increased. In 1994 these totalled US$2.8 billion; in 1997 they rose to US$5.6 billion, and the yearend estimate for 1998 was around US$8 billion. The external accounts reveal a decline in the figures for current transactions (the sum of the results of the trade and service balances). In 1994, Brazil’s current account deficit was US$1.6 billion and it soared to US$33 billion in 1997. It was estimated to have exceeded this figure in 1998. By October, the deficit had grown by 1,962 per cent during the FHC government. Over recent years, FHC and his finance minister have made no attempt to act on the factors that determine Brazil’s worsening deficits. Their preferred policy has been to finance these by attracting external capital, for which they use three means: increased indebtedness by companies that operate in Brazil, direct foreign investments and investments in the capitals markets. ‘We will not pay the external debt with the blood and hunger of our poeple’, said Tancredo Neves after being elected president in 1985. And then he died… Since then, our debt has grown more than twofold, despite our having paid several tens of billions of dollars to our foreign creditors. During FHC’s government alone, the external debt leapt from US$148.3 billion when he took office, to around US$243 billion in December 1998. In the meantime, some US$125.6 billion has been paid in interest and amortisation. True, the external public debt has not grown that much. The private debt, taking advantage of the low foreign interest rates and high rates in Brazil, is estimated to have risen around 130 per cent and in December stood at US$148 billion. But all the money to be paid abroad has to be converted

Trojan Horse: Brazil and the International Financial Crisis 47 Table 2.3: Foreign Debt Service (US$ million) Year

Amortis. (A)

Interest (B)

Service (A+B)

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 (est.) 1999 (est.)

5.889 8.053 7.830 7.147 9.268 11.001 11.023 14.423 26.064 33.645 51.905

9.633 9.748 8.621 7.253 8.453 6.338 8.158 9.840 10.388 12.096 15.170

15.522 17.801 16.451 14.400 17.721 17.339 19.181 24.263 36.452 45.741 67.075

Total FHC govt.

134.343 147.957

90.528 61.176

224.871 192.506

(Source: Central Bank of Brazil)

into foreign exchange at the Central Bank, and thus the government must have this exchange available in order to make these payments. Moreover, in the event of insolvency on the part of private debtors, the burden has systematically be transferred to the public sector. The internal public debt, however, grew by more than 400 per cent during the first FHC government, and reached a level which effectively constitutes insolvency, aggravated by the effect of the high interest rates set by the Central Bank. This obliges the Union to strip its annual budget of R$60 billion – or two-and-a-half times the budget of the Ministry of Health – to pay interest on this debt. The Landless Rural Workers Movement calculates that with only US$40 billion it would be possible to settle four million landless families in a single year! Even calculated in reals, the internal public debt is a decisive factor in attracting speculative capital from abroad. It ensures easy profits to Brazilian and foreign rentiers and is the most evident sign of the irresponsibility of the FHC government’s economic policy. It is fiscal revenues from taxes that guarantee interest and principal will be paid to creditors on the internal public debt. In 1995 tax collection by the federal government yielded R$81 billion. It is estimated that in 1998 this reached around R$115 billion: growth of 42 per cent, against a more than 400 per cent increase in internal indebtedness. This explains why the IMF is pressing so relentlessly for higher tax revenues and for cuts in federal and state government spending. There is a real – and even imminent – risk that the only option left will be to declare a moratorium on

48 External Debt

payment of these debts – or alternatively, to declare default which, under corporate law, would lead to the legal cancellation of the debts. Unfortunately, no international law recognises and guarantees this same right for nations. The official argument that the emergency loans from the IMF and governments of the North, in addition to increased foreign investment in Brazil – particularly by way of privatisation – will eliminate the threat of crisis, does not hold up. Since the onset of the present crisis, in mid-1998, the FHC government has preferred irresponsibly to run down the country’s international reserves in an effort to arrest the drain of capital flight, instead of recognising that it is, in fact, insolvent and embarking resolutely on renegotiation of the debts or a moratorium. In this way, it has caused Brazil’s reserves to plummet by around 50 per cent to a March 1999 level of no more than US$35 billion, which is a high-risk situation, especially considering the precarious state of Brazil’s balance of trade in recent years. Neither are the Brazilian public managing to identify where the nearly US$50 billion earned in the privatisations was spent. On the contrary, it is witnessing the steady deterioration of all public services, while the public debt continues to grow relentlessly. On the other hand, as was agreed with the IMF in March 1999, foreign investments in privatisations should total US$28 billion in 1999. This will place the largest, most profitable and most strategic public enterprises and banks in the country at jeopardy, as well as making profit remittances more and more important as a factor in capital flight from Brazil. Moreover, this process involves no counterpart gain for domestic production, because these investments are directed to purchasing existing public and private companies and do not add significant value to production. The fear is that, once the privatisations have been completed and control of this patrimony has been taken out of government – and even Brazilian – hands, the revenues earned from the new privatisations will vanish down the debt payments drain, decapitalising Brazil even further. According to the rich countries and multilateral agencies, Brazil must be prevented from collapsing at all costs. But is Brazil really so important to the world capital system? In our opinion, it is: not just because of its size, population, production base and wealth of natural resources and biodiversity, but also because of the extent to which it has allowed foreign capital to penetrate its economy14 – and certainly because of the size of its debts!15 For the rest of the world – starting with the US – the greatest danger of financial meltdown in Brazil is its knock-on effect, which would tend to drag down not just Latin America, but North America too and perhaps Europe. The IMF, the World Bank and the governments of the North are

Trojan Horse: Brazil and the International Financial Crisis 49

concerned to ‘rescue’ Brazil, not out of altruism, but from their own, and their banks’ and businesses’, self-interest. The IMF approach has gone unchanged for nearly 20 years: emergency loans in exchange for severe fiscal and monetary adjustment measures.16 The siren song of the balanced budget – ‘spend no more than you earn’ – conceals a perverse trick. Behind it lie political decisions of enormous importance to the population: spend on what? The Brazilian government’s answer to the IMF, in the form of a commitment implicit in the loan agreement, is to leave interest and amortisation payments on Brazil’s external debt untouched in the 1999 and 2000 federal budgets. It thus commits itself to making cuts in social spending, dismissing public employees, eroding wage levels, keeping interest rates high; in short, to doing everything necessary to ensure that the interests of the large banks continue to be served. Malan today is ‘a man with no clothes’. He has been the leading proponent of macroeconomic policies that have brought Brazil to its knees before its external investors, the US government and the multilateral agencies. Contrary to what he claims, the crisis has not come from outside. The spark came from abroad, but the gunpowder was brought into Brazil by the FHCMalan government’s policy: it goes by the name of over-indebtedness and over-exposure to foreign capital. Brazil’s external accounts have been managed irresponsibly. Going to the IMF and submitting to its conditions is the height of irresponsibility. It is a criminal act against the Brazilian economy and society. The Commitments and Failure of the 1998 Agreement The FHC government’s Letter of Intention to the IMF suggests that Brazil’s privatisation programme is the largest in the world. It lists the sectors where public assets have been dilapidated, and talks explicitly of the present government’s commitment to ‘dismantling the public monopolies’, ignoring the sovereign concept of strategic enterprises and sectors. It declares that the privatisations will continue, focusing more narrowly on public utilities (‘which in many countries continue public’). It promises that the whole electric power generation and distribution sector will be privatised, and all the state banks that have not yet been privatised, as well as water, gas and sanitation utilities. Telecommunications concessions to the private sector are to be extended. Deregulation of the economy will proceed, and it explicitly mentions the commitment not to impose controls on capital outflows from Brazil. This is all quite in keeping with the terms of the controversial Multilateral Agreement on Investment that the rich countries are finding it so difficult to impose on the third world, but whose

50 External Debt

provisions surface insidiously in structural adjustment agreements and in regional integration treaties. It refers to a continuation of the policy of flexible interest rates (a euphemism for the policy of excessively high rates, in true IMF style) and to the gradual broadening of the exchange ‘band’, which means a gradual devaluation of the real. The explicit projection was for a devaluation of 7.5 per cent by the end of December. There is a reference to the public debt: on the supposition that domestic interest rates will fall, there will be an increase in the portion of debt securities at fixed rates of interest. The intention is gradually to extend the maturation timeframe of the public debt. But there seems to be no hurry about this; precisely the item that most devours public budget revenues: the 1998 budget provides for 54 per cent by September. In February 1999, this provision exceeded 60 per cent. In the second week of January, however, not just this target but the entire system of exchange rate bands were swept aside. And more serious still, all exchange control policy was waived in favour of total and headlong liberalisation of the exchange rate. Thus, once again, no longer can the world see the IMF as the guarantor of stability for ‘emerging’ economies. Once again the IMF approved an adjustment programme and, less than three months after it was implemented, capital was once again fleeing the country in panic. In two weeks, devaluation of the real against the US dollar had soared by more than 50 per cent. In just two days, US$2.5 billion left Brazil. And even so, because of the devaluation, in January the major foreign and Brazil banks made net profits five to eight times greater than in the entire year of 1998.17 These events are causing great harm to Brazil’s domestic economy and to its people. The FHC government had now shot itself in the other foot, because without exchange controls it is impossible for a country overindebted and over-exposed to the whims of the international markets to conduct any policy to surmount the crisis, far less to resume economic growth, let alone human development. The Conditions The Brazilian government’s Letter of Intention to the IMF makes no explicit reference to conditions (perhaps the Senate, which has seen the whole set of documents forwarded to the creditors, knows differently), particularly as relates to the guarantees required for the loan. Through the media, we have learnt of three guarantees that constitute severe breaches of Brazilian sovereignty, along the lines of what Mexico suffered (in 1995 it had to deposit the operating revenues of PEMEX – the national oil company,

Trojan Horse: Brazil and the International Financial Crisis 51

corresponding to Brazil’s Petrobras – with the US Treasury until the new debt was paid off): • complete privatisation of water, sewage and sanitation utilities, the electric sector and what remains of the federal and state public banks; • operating revenues of the state enterprises, Furnas and Itaipu, pledged; • public shares in Petrobras attached until the loan is paid. The latter item is particularly provocative, as this is an enterprise that belongs to the Union and not just to the Executive. If the government does not manage to pay, control of Petrobras is transferred automatically to the foreign creditors. This was disclosed by journalist Carlos Chagas and published by the Rio de Janeiro branch of the Sindipetro oil workers’ union in an announcement in the daily Correio Braziliense of 3 December 1998. Later, the information emerged that other promises had been made during the March 1999 negotiations, among them the imposition by the IMF of a US$28 billion minimum to be raised by accelerating and extending the privatisation programme. It therefore forms part of the FHC government’s privatisation policy to transfer a large, if minority, portion of share control in the Banco do Brazil and the Caixa Econômica Federal (federal savings and loan bank) to foreign banks. FHC also spoke of carving Petrobras up and of privatising, or at least hiving off part of, the government’s controlling interest in important Petrobras group subsidiaries to the private sector, and – given its craving for foreign exchange with which to pay the external debt – preferably to foreign investors. There is certainly no limit to foreign ambitions as regards gobbling up the public assets of indebted countries. Unfortunately, there also seems to be no limit to the FHC government’s enthusiasm in handing over Brazil’s assets, unless the population decides to take to the streets to withdraw his presidential mandate, which has already been sufficiently dishonoured by the present incumbent.18 Adjustment and Social Crisis The measures contemplated by the fiscal adjustment are, by and large, disastrous for the majority. And the Congress, the majority of which belongs to the élites and represents the interests of big capital, has approved all of them, one by one, in spite of the daily more eloquent protests of opposition groups and civil society, who are not consulted at all. The 1997 year-end fiscal package aimed to raise R$20 billion from Brazilian society – and it did, but even then the funds were not used to adopt effective national development policies or policies designed to lessen the risk of crisis. Now

52 External Debt

the government is doing the same again, this time announcing that the figure to be raised is US$28 billion. The perversity of going to the IMF lies in the fact that it declares the intention to enter into a macabre swap: financial crisis for a crisis in Brazilian society and the Brazilian domestic economy. The two are interconnected. The forecasts are that the recession will cause economic contraction calculated at between 3 and 6 per cent of GDP, or between R$27 billion and R$54 billion. In the March 1999 agreement, which was far more severe and thus more recessive, recession was estimated at between 3.5 and 4 per cent in the year. In any case, trying to close a fiscal deficit by producing less does not seem a sensible approach. The effects will be increasing decapitalisation, more unemployment,19 businesses going to the wall, rising levels of default by individuals and firms (which already stand at around 20 per cent of loans granted), erosion of real wages,20 more exclusion, more hunger, more poverty and more debt. For years, the states that are now led by opposition governors were encouraged to contract debt on the internal and external markets so as to finance the privatisations and their budget deficits. The governors then were untouchable and the federal government covered the delays in payment of those debts without much trouble and without punishing those responsible. The case of Minas Gerais is a good example. Again and again, Governor Azeredo postponed payments to the Union and other creditors,21 and the Executive made no protest; rather it used public monies to compensate for those arrears. When Itamar Franco announced that he was going to postpone paying service on the state’s debts for three months, it seemed like the end of the world. Once again, capital began to flee the country en masse. Now, though, the federal government tried to put the blame on Itamar, and went on to punish Minas Gerais by withholding funds that constitutionally it was obliged to transfer to the state. The same occurred with Rio Grande do Sul, whose government chose another route to contest irresponsible debt-taking by the state’s previous governments: the amount payable was deposited in escrow with the Federal Supreme Court, until such time as the court reached a verdict on the state’s application for negotiations to safeguard good governance. The policy of high interest rates is bringing a large part of the business sector into opposition to the government. But why does the Central Bank not lower the interest rates, if it aggravates the federal and state debts so badly? Because if it did so, the tendency would be for creditors to liquidate their holdings in government securities, to convert reals to dollars and withdraw them from Brazil. These are the inevitable consequences of the FHC government’s chosen course of endeavouring to ‘rescue’ the country

Trojan Horse: Brazil and the International Financial Crisis 53

from the attacks of Brazilian and international speculators by attracting more foreign capital, increasing its external indebtedness and liabilities to the point where it is prey to their every movement. If Congress and the Executive leave untouched the budget allocations earmarked for internal and external debt service and roll-over payments, then the whole burden of the adjustment will fall on the domestic economy and the Brazilian people: spending on health, social security, education and sanitation will all come under pressure. Exporters, who sell their highest quality products abroad to supply the already glutted markets of the northern hemisphere, were once again being granted all kinds of facilities to offset the overvalued real. These privileges increased after devaluation, because the government needed to turn its persistent trade deficit quickly into a surplus. The Finance Minister went so far as to propose to the public that an ‘exporting culture’ be developed in Brazil, instead of what is really needed, which is a culture of welfare and active citizenship, a culture of social justice and fair distribution of income and wealth, a culture of productive, creative work for all capable men and women, a culture of co-operation and solidarity; in short, a culture of human development, built from the bottom up and led mainly by the working population and their communities, and taking as its frame of reference the material and human resources of those communities and of the Brazilian nation. This is being paid for by public servants, whose pension system was already based on an 11 per cent contribution from their monthly earnings in order to ensure a full pension when they retire. Workers in the private sector pay contributions of 8–11 per cent, depending on their wages, but (under an FHC government law) receive only up to a ceiling of RS$1,200 when they retire. The government, which portrays all public servants as privileged, decided to eliminate that right and raise the contribution rate. If, instead, it had seen private sector workers as prejudiced, it would have had to think in terms of raising their pensions, instead of lowering the civil servants’ ceiling. In line with its March 1999 agreement, the government announced it was suspending the Length of Service Bonus, promotions and entrance examinations for the civil service: cuts of R$1.4 billion to the detriment of public servants. The military were exempt from these measures. As federal and state budget allocations for paying civil service wages are whittled away, imagine the effect that will have on education, public health and so on. But private wage earners are being made to pay too. This is because the government wants an adjustment that will modify the system of private employees’ pensions, the value of which is calculated today on the basis of the contribution rate paid over the final 36 months. This calculation

54 External Debt

will now come to include employees’ contributions over their whole lifetime, which will drastically reduce the value of the pension. Even more violent is the burden placed on pensioners who, after contributing to the social security system throughout their whole active lives, reach retirement age to find that (except for a minority) they are now required to go on paying social security out of their meagre pensions. The whole population is being made to pay by way of increased taxes, but this in a country that already hands over to the government 30 per cent of all it produces. The ‘Provisional Contribution on Financial Transactions’ (CPMF) was a temporary measure, a tax on all bank transactions, regardless of their value. The FHC government then asked Congress to approve an extension of the CPMF for a further two years, and an increase in the tax to double its original value. The 1998 adjustment was a failure. New, even more draconian terms were negotiated. On 1 March the national daily O Globo had reported that the new cuts in social programmes were going to affect 760,000 beneficiaries. The Folha de São Paulo published the entire list of cutbacks by programme, amounting to a total of around R$2.04 billion. It became clear that the cuts would affect the land reform and resettlement programme, programmes directed to children and teenagers, and many more.22 Meanwhile, FHC declares repeatedly that there will be no further cuts in social spending. Moreover, on 6 March he once again attacked his critics, to say: ‘social spending is not going to lose one red cent… We cannot allow public opinion to be contaminated by the oppositions ingenuous arguments about cuts in social spending’ (O Globo, 6 March 1999). He had also declared publicly that there would be no new increase in interest rates while, the same day, the new President of the Central Bank, Armínio Fraga, was announcing an increase from 39 to 45 per cent! Is it possible that FHC is simply lying? Or could the truth be that it is no longer he who governs Brazil? Conclusion: The Achilles’ Heel But the fiscal deficit is not the main problem. The real Achilles’ heel of Brazil’s whole crisis is the financial deficit, or the huge liabilities of the internal and external debts, which far outreach the federal and state governments’ real capacity to pay. The investors’ fear is precisely that Brazil will become utterly insolvent and lose them billions. As said above, if one takes those liabilities as an indication of the health of the economy, Brazil has been bankrupt since April 1998. That is why the fiscal adjustment seems so brutally perverse. It makes the population pay for the FHC government’s irresponsible financial management, for the boundless greed of the investors and creditors, and for the short-sighted dogmas of the multilateral

Trojan Horse: Brazil and the International Financial Crisis 55

organisations. Opposition efforts to block or modify the first package or its passage through Congress were unsuccessful. Subsequent implementation has already begun and is already producing fearful impact on the lives of all and on the nation. The first package was not enough to stave off the crisis. Billions of dollars left Brazil in September and October. It was only after the US Federal Reserve dropped its interest rates for the second time that relative calm reigned. The two decreases added up to only half a percentage point. And a third reduction was necessary. Other wealthy countries also lowered their interest rates, but there is not much room left (in Germany they fell to only 3 per cent per year and, in Japan, to negative rates). The effects of the Asian crisis on the US and perhaps Europe may still worsen. Despite the Japanese governments multi-billion-dollar package to ‘rescue’ the private banking sector, stagnation continues and seems to confirm that the prolonged recession and the fragility of the Japanese economy are not due to lack of money, but to some deeper-rooted, more structural malaise. There are fears for the Chinese currency, and it is in China, more than anywhere else in the world, that western transnational corporations have concentrated. The other Asian countries remains unstable. When the overvalued real collapsed on 13 January 1999, the failure of the first package was complete. The government had a second chance to ‘come down to earth’ and retake control of the nation’s finances, but it preferred to run after the IMF imploring for concessions and proposing that an even more servile package be drawn up. There are good reasons for believing that, in the event of a knock-on crisis, Brazil would be just one of the various ‘emerging countries’ to need outside support so as not to go under; that is, so as not to be left utterly insolvent and obliged to declare a moratorium. If this were to happen to several countries at the same time, the effect on the economies of the wealthy countries (starting with the US) would be devastating, because they have bet so heavily on the ‘emerging economies’ that make up this juicy section of the Global Casino. The fact is that, at each sign of a new financial crisis, the wealthy countries feel that they too are closer to being rocked by the shock waves of speculation. This is no surprise, considering that something like US$100 trillion circulates on the world’s financial markets. This is a veritable bubble, backed by real wealth – that is a ‘real economy’ – worth a paltry third of that value. This is a farce that only the ill-informed believe in. In real terms, both the FHC government and the IMF have lost all credibility. What is regrettable is that the media are concealing these facts and lending themselves to the role of stage managers for this playacting that makes a mockery of

56 External Debt

the majority, who need a policy that prioritises Brazil’s social and economic development needs. The financial debts must not have primacy over the social, political and environmental debts. The most recent occurrence with relation to the debts is the confrontation between certain states and the federal executive. On a smaller scale, this crisis encapsulates the very same problem that exists between the federal government and the internal and external creditors. Recent events have laid bare the adventurist and exclusionary nature of present economic policy. The veil drawn by the media and supported by some relative success in stabilizing price levels is quickly disintegrating to reveal the true nature of the government’s measures. The recent and even more voracious tax measures are designed to ensure ever higher levels of income transfer from the population to a narrow group of rentiers and speculators; the sales of the assets of public enterprises are deals among cronies, as demonstrated by the phone taps on the ‘National Economic and Social Development Bank’. (Nelson LeCocq, Informe PACS No. 6, December 1998, Rio de Janeiro).

Are There Ways Out? Different fiscal adjustment measures are possible and, in spite of the government’s and its allies’ insistence on ignoring them, the opposition parties have made concrete proposals for exchange, financial and trade liberalisation to be drastically reversed. A number of trade union and professional organisations, churches, organisations participating in the Jubilee 2000 Debt Campaign, the Brazil Network on Multilateral Institutions and numerous popular movements are forming a united front to launch a campaign to declare an immediate moratorium and to table renegotiation with the creditors, to seek new payment conditions for the internal and external public debts, and to oppose the signing of the IMF agreement. The byword of the Jubilee 2000 International Foreign Debt Campaign is ‘For the annulment of the foreign debt and for the right to development’ of the poor, most heavily indebted countries. The Jubilee 2000 Campaign aims to obtain from the creditors – governments, private banks and multilateral agencies – recognition that they are in part responsible for the debt crisis that afflicts the poor countries. This refers particularly to countries like Honduras and Nicaragua, especially after the catastrophe caused by Hurricane Mitch, that killed thousands and destroyed a considerable portion of those countries’ economies, but also applies to countries such as Brazil,

Trojan Horse: Brazil and the International Financial Crisis 57

Mexico, Argentina and Venezuela, which show high rates of poverty and social exclusion, and are labouring under unpayable, unjust debts. In Brazil, the Catholic bishops and a number of Protestant churches added their voices to those of the trade union and popular movements to organise a Foreign Debt Tribunal in April 1999.23 Their message is that the Jubilee should focus not only on the financial debts, but on the social debts (life, work, education, health, social security, safety, the right to childhood and adolescence, and so on), political debts (the debt linked to full citizenship, of which most of Brazil’s population is deprived) and ecological debts (resulting from the systematic destruction of nature and of the natural assets with which Brazil is so well endowed). In the latter cases, the creditors are the people, workers, indigenous peoples, blacks and mulattos, women and children; in short, the impoverished and exploited sectors of the population, not just in Brazil but also in the other countries of the South. This is the right moment to say, loudly, that there is another way and that it depends on the Brazilian nation having a development plan of its own, whose basic short-term macroeconomic policies must include: a) immediate renegotiation of the external debt (if possible, concerted with other Latin American debtors), taking as its principal frame of reference the development needs of the population as a whole and not those of the international markets and the interests of the creditors; if this proves impossible, then a moratorium that transfers part of the burden of the crisis to the international creditors; and an urgent audit of the external debt, to exclude from it the portion already paid and the part that is economically and ethically unpayable; b) a ceiling on the remittance of payments abroad, taking as its frame of reference the terms of the agreement between Germany and the allied powers at the beginning of the 1950s: that war reparations to be paid by Germany were not to exceed 5 per cent of its annual exports; c) measures to restructure the astronomical federal marketable debt, so as to cut off at its source the drain on public funds that is diverting resources away from productive investment and into gains for speculators that are wrecking the health of the Brazilian economy; d) centralisation of financial and exchange policies, thus permitting finances to be directed to their prime purpose, which is to foster production to meet Brazil’s needs, and make it possible to control and regulate inflows and outflows of foreign capital to and from Brazil; e) restoration of interest rates to sensible levels to encourage productive investment again, and a credit policy oriented towards encouraging consumption and domestic investment;

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f) a policy of social and economic investment designed to reactivate the economy, starting with an effective land reform; incentives for the whole range of workers’ autonomous and self-managed schemes, and to small and medium-sized businesses; investment in infrastructure with a considerable multiplier effect on the national economy; g) restriction of superfluous importation and redesign of import tariff policy; selective, intelligent export incentives; h) fiscal and tax reform centred more on increasing revenue collection than cutting back on investment; capable of absorbing part of the surpluses of moneyed tax evaders, so as to reduce substantially and intelligently the value of tax waivers, eliminate income-concentrating taxes (such as the CPMF and a number of taxes on consumption) and institute or extend workable taxes on fortunes, and on the bank and financial systems; i) pressure for international legislation recognising and guaranteeing the right of nations to default on debt, and institutions capable of enforcing this legislation at the world level.

Notes 1. Gorostiaga, Xabier, Human Needs and Economic Structures (1992) and Arruda, Marcos, Global Transformations and the Challenge of Building Democracy, in ‘Worlds Apart – Worlds Together: Conference of Partners’, Peace Research Centre, Nijmegen and Pax Christi Netherlands, Utrecht; Arruda, Marcos, Brasil e Globalização: Oportunidades e Desafios (1996) Debate, No. 5, Year VI, July, CESE, Salvador, Bahia. 2. This is the essence of the Multilateral Agreement on Investment (MAI), negotiated behind closed doors at the Organisation for Economic Cooperation and Development (OECD) at the initiative of the wealthy countries. In the name of freedom of movement for capital, this agreement is designed to grant equal rights to national and foreign capital within all signatories’ national borders, and removes from governments the right to supervise financial flows within their national territories. An international campaign by civil society is under way to overturn the present text of the agreement and to replace it with another text that will guarantee regulation of financial flows, one that will institute international regulations and safeguard the sovereign right of peoples and nations over their own economies. 3. See, among others, Gazeta Mercantil, 26 August 1996, São Paulo. 4. See the column of Guilherme Barros in the Jornal do Brasil, 29 June 1996, p. 19.

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5. In this regard, see the excellent book by Reinaldo Gonçalves, Ô AbreAlas: A Nova Inserção do Brasil na Economia Mundial, Relume Dumará, Rio de Janeiro, 1994, especially chapters 5 and 6. 6. Informe PACS do Jubileu 2000, No. 3, September 1998, Rio de Janeiro. 7. Ibid. 8. In this regard, see the Manifesto of the OAB (Brazilian Bar Association), February 1999, and the ‘Manifesto of Brazilian Jurists’, launched by the IAB (Institute of Brazilian Lawyers) on 24 February 1999. 9. See Cavalcanti, Carlos Brandão, ‘A negociação da Dívida Externa e as Perspectivas de um Acordo com o FMI’, in Carta de Conjuntura do CORECON/DF, Year 2, No. 12, May 1988. 10. See Imformações Econômicas, in the homepage of the Central Bank of Brazil, November 1998. 11. This point is well illustrated by the excellent article by the Finance Minister of Cuba, Francisco Soberón Valdés, ‘Se convertirá en mundial la actual crisis financiera?’, published in two parts on 22 November 1998 and 29 November 1998, in Dominical, Havana, Cuba. 12. PROER: a government programme aimed at bailing out private banks in deep trouble. It transferred a total of R$21.5 billion to them from public funds. 13. RIO-92 Conference: the UN Conference on Environment and Development held in Rio, 1992. (A non-governmental global forum was held simultaneously.) 14. See Reinaldo Gonçalves, O Governo FHC e a Desnacionalização da Economia Brasileira: Diagnóstico, Problemas e Perspectivas (School of Public Policy and Government, Rio de Janeiro Federal University, 1998). 15. In the early 1990s, a journalist asked former British Prime Minister Margaret Thatcher if she did not fear for the wave of British investments in an unstable country like Brazil. She replied that no, she did not, because Brazil had the Amazon to offer as a guarantee! 16. To understand the history of the adjustment and its undesirable effects on impoverished economies, see Arruda, Marcos, Ajuste Neoliberal e Globalização: Uma Perspectiva do Sul Global, chapter 3, and also Arruda, Marcos, Dívida Externa: para o capital, tudo; para o social, migalhas, editora Vozes, chapter 2, p. 83. 17. Federal Congressman Aloizio Mercadante demanded that the causes of this fact be investigated by the Central Bank by the Congress, and raised serious concerns that there were criminal leaks of information to the benefit of those banks. See O Globo, 8 March 1999.

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18. In this regard, the Manifesto of Brazilian Jurists, 24 February 1999, offers a competent juridical grounding for an impeachment process against President Cardoso. 19. On 6 March 1999, O Globo stated that the number of jobs eliminated grew 1,528 per cent in 1998, as compared with the previous year, with 581,753 job positions being closed nationwide. The Inter Trade Union Department of Social and Economic Studies, meanwhile, calculates that the recessive effect on employment will raise the unemployment rate well over 20 per cent; a socially critical level. 20. There is ongoing polemic over whether or not to peg wages to inflation. The ‘provisional (presidential) order’ that prohibits pegging of wages has now been renewed 47 times by the FHC government since 1995! The new president of the Força Sindical trade union federation proposes a threshold policy, with automatic wage adjustments whenever the inflation rate reaches 10 per cent. The High Labour Court is of the opinion that the Labour Justice system will find it unavoidable to grant wage adjustments in the event that inflation rates reach 16.8 per cent, as is provided for in the IMF agreement. It has to be asked why the government is allowing prices throughout the economy, including public tariffs, to be adjusted to the new costs, but is preventing any adjustment to the price of the workforce. This is clearly a class, corporatist policy in favour of capital and to the detriment of labour. 21. See Tribuna da Imprensa, 21 February 1999. 22. See the complete list in Folha de São Paulo, 6 March 1999. 23. The Tribunal was held from 26–28 April 1999, at the João Caetano Theatre, Rio de Janeiro, the spot where Republican martyr Tiradentes was hanged and quartered in 1779. This hero of Brazil’s Independence was murdered following an uprising planned for the date of the Derrama, the forced collection of taxes to be transferred from Brazil to Portugal. This bears a close relation to the foreign debt service that Brazil transfers annually to its external creditors, a modern form of colonial tribute!

3 Neo-liberal Adjustment and Globalization: A Southern Perspective

It all started with the debt crisis in the 1970s. Following the guidelines of the World Bank, many developing countrys’ governments had chosen to seek cheap loans with private banks. They accumulated huge debts, especially in dollars. This chapter begins with an account of the historical roots of structural adjustment. It examines the impact of neo-liberal policies on growth, wealth distribution and the increasing focus of economic power on TNCs (transnational corporations) and international financial institutions rather than governments and civil societies. The chapter concludes with proposals for an alternative globalization based on human centred development.

The Historical Roots of the Adjustment Project Why is it an unpayable debt? Foreign indebtedness and foreign capital were proclaimed as crucial resouces to launch durable growth and thus overcome poverty, surely? In the 1960s and 1970s, the policies at the root of foreign indebtedness were of no special concern to the poor. That was a time when the trickle-down ideology prevailed among governments and corporations in both the North and the South, and also among multilateral organisations. The belief that capital accumulation and economic growth should first entail income concentration until the economy reached a point where the benefits of that accumulation and growth would ‘naturally’ trickle down to the majority, was widely publicised. The priority was to create an attractive environment for foreign investment, which was proclaimed as one of the main engines of economic development. Countries were also urged to take private loans from Northern commercial banks, instead of resorting to bilateral agencies. The unpopular nature of these policies and the resulting inequality generated widespread 61

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social unrest. In order to control this social unrest, the Northern governments, particularly the US, showed no hesitation in promoting military régimes. In Latin America in the 1970s all but four countries had military governments, abiding by the gospel of the free market and the need for foreign investment and loans to fulfil the ‘development dream’. These were precisely the governments which, lured by the claims of international bankers and the grandiose rhetoric of multilateral agencies, decided on flexible interest rates, which in fact meant that a growing proportion of the country’s financial equilibrium now depended on the monetary policy of those with strong currencies. The explosion of interest rates as a result of a unilateral decision of the US Federal Reserve Bank to multiply its prime rate by three in the late 1970s, hastened the foreign debt crisis, since the largest part of most developing countries’ debt was in US dollars. Such moves increased the amount to be paid so steeply that most of the Southern economies faced the choice of either declaring themselves insolvent or renegotiating their debts on very disadvantageous terms.

The International Monetary Fund (IMF) Recipe The IMF was mobilisied to negotiate agreements with the insolvent countries which included the rescheduling of debt payments in exchange for certain reforms. The reforms were baptised ‘adjustment policies’. Adjust to what? To the need to keep on paying the interest on their debt in time – this was the priority of the official, private and multilateral creditors. Adjustment to the dominant interests of foreign creditors was the policy to be followed. And nearly all indebted countries of the Southern hemisphere accepted this condition.1 Those who sought alternative terms of negotiation were ostracised. Adjustment was identified with two phenomena: price stabilisation and re-orienting investments toward the development of the export sector. Based on a neo-classical and monetarist approach, the IMF attributed high inflation rates to excessive money supply chasing too few goods. Central to its stabilisation strategy was, therefore, to reduce the amount of money circulating in the domestic economy by making credit expensive and by reducing wages. Adjustment implied the contraction of the domestic economy, not only to free up investment for the external sector, but also to force imports downwards, thus increasing the chances of trade surpluses. Governments were forced to cut their spending, with serious impacts on wages, employment and the services they provided. In turn, they would provide incentives, subsidised credit and tax exemptions to the export sector. Each country’s economy was taken abstractly as an isolated unit, in

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order to be stimulated to rush onto international markets with its exports, thus capturing growing amounts of foreign exchange which would then be used to service its foreign debt. Over the years, this economic path wrecked national economics, increased their vulnerability to international imbalances and generated high social costs. It also created explicit resistance against the IMF, seen by the public as an undesirable intruder which weakencd national governments. In many Southern capitals, public demonstrations against the IMF and its conditions shook the certainties of bilateral and multilateral economic advisers. Behind them was the evidence that adjustment policies were hurting the majority and the sacrifices they imposed did not seem to lead to growth in their domestic economics in the short or medium run, as promised. This type of adjustment ignored the urgent need to find a durable solution to the debt burden of the most highly indebted countries. The adjustment designers refused to face the fact that a crisis of indebtedness involving too many debtors has no sustainable solution that does not engage the creditors in paying part of the costs. As a result, a vicious cycle of indebtedness was established, whereby the more the debtor countries pay, the more they owe. Total debt-related transfers (debt service minus disbursements) between 1987 and 1994 were equivalent to US$224 billion. The debtor countries’ trade deficit in this period reached US$547 billion, while total payments were US$1,445 billion. This meant that the debtor countries largely depleted their foreign exchange reserves and took new loans not for development purposes, but to pay old debts. By 1995 total debt had reached, or put more appropriately, was allowed to reach, almost US$2 trillion. How sensitive have adjustment policymakers and implementors been to this reality? Is it not fair to ask why UNICEF’s estimate that half a million children die every year as a direct result of the debt crisis does not seem to be taken seriously by creditors and multilateral agencies? It took government and multilateral policymakers a long time to realise that economic stabilisation and adjustment generated unbearable social costs, which had to be addressed simultaneously. By the early 1990s, however, the World Bank had already adopted overtones of neo-Keynesianism in its approach to adjustment. While maintaining its stance on the virtues of ‘free market’ economics, it publicly acknowledged that the market was powerless to deal with various aspects of human and social needs; it adopted poverty alleviation as its ‘overarching goal’; and it brought back the idea that the state had a role to play in compensating for the shortcomings of the markets.

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Adjusting to Competitive Globalization2 As a result of the growing isolation of the IMF and the mounting social opposition to neo-liberal adjustment policies and their effects, a new era of adjustment was inaugurated after 1985, this time led by the World Bank.3 The stated goals were now ‘accelerated growth and poverty alleviation’. 4 The means to achieve these would be to effect ‘changes in relative prices and institutions designed to make the economy more efficient, more flexible, and better able to use resouces and thereby to engineer sustainable long-term growth’.5 By what means? …by unshackling the market mechanism and strengthening its role in economic development... the private sector was to be the engine of growth with the Government playing a supportive role. Economic growth was to be the principal means through which poverty would be eliminated.6 The World Bank approach, however, was more sophisticated and more complex, for at least two reasons. One, it conceived stabilisation and adjustment as longer term than previously. Two, and most importantly, it readjusted its own goal, from making the debtor countries capable of servicing the debt in time to adjusting them to the ‘realities’ of a world becoming global, under the reign of transnational corporations and banks. This re-definition of the objective of adjustment came to deserve a qualifying adjective: ‘structural’ adjustment. In a recent study, a UN development research agency defines structural adjustment programmes (SAPs) as ‘the main method of promoting the application of neo-liberal development models in indebted countries of the Third World’.7 The idea was to change the structure of national economies in order to make them fit for globalization. This included large-scale and rapid privatisation of state enterprises, the rolling back of the state sector (through deregulation, cuts in expenditures related to social programmes and the drastic reduction of the state’s share in the economy), market liberalisation (which entailed freeing markets from state controls and regulations but not freeing markets from oligopolies and cartels) and transferring the power of defining the development path, and the economic strategies to make it viable, from national governments to multilateral institutions. The latter was particularly important, because it implied abandoning: …any aspiration to self-sufficiency in favour of specialisation by national economies in sectors in which they are said to have what is

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termed ‘comparative advantage’. In the Third World, this generally meant concentrating on exploiting natural agricultural and mineral resouces and on manufacturing in sectors in which the advantage stems from low pay and weakly organised labour.8 The collapse of statism in Eastern and Central Europe made the work of the multilateral institutions much easier. Counting on local élites to put structural adjustment into practice, they could retreat to a position of ‘consultant’ and ‘advisor’, even when they actually inspired or even made the decisions. Two concerns guided their quiet political intervention – accomplished either directly, through conditions related to their loan portfolio in the country, or indirectly, through pressures by Northern government officials: one, to support the election of politicians who would ensure the implementation of adjustment; and two, to promote with all possible resouces the continuity of the governments’ approaches to the adjustment project. A recent example of this concern in Latin America was the qualified international support given to Carlos Salinas and to whatever PRI candidate would follow him in Mexico, and support for the change in the Argentinian constitution which granted Menem the right to be re-elected to the presidency of the country. In Brazil, international support systematically favoured anti-Workers’ Party candidates, leading to the election of Fernando Collor de Mello in 1990 (who was impeached two years later for leading a pervasive corruption scheme) and later Fernando Henrique Cardoso (who abandoned his party’s socio-democratic ideals as he established a privileged alliance with the Liberal Front Party. Not surprisingly given past examples Cardoso is now working for a constitutional amendment that will allow him to run for presidential re-election). World Bank President Lames Wolfensohn, who had shown sensitivity with respect to a worldwide critique of SAPs, agreed to NGOs’ proposals for a collaborative review of 15 years of adjustment operations and an exploration of new economic options in conjunction with civil society around the world. In Brazil, a network on the multilateral financial institutions has been in operation since early 1995. It brings together representative social organisations and NGOs in an effort to sensitise civil society about issues of national and global finance, thus enabling citizens to interact with government and multilateral agencies in order to influence their policies and culture.

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Economic and Social Impacts As a result of the debt crisis the South became a net exporter of capital to the North. This dynamic led to massive decapitalisation of Southern economies and a growing impoverishment of their societies. The conceptual division between the domestic and the external sectors of their economies materialised in policies which stimulated the external sector while stifling production for the domestic market and effective demand. Debtor countries scrambled to compete with one another in international markets. The result was a massive collapse of the prices of their exports and a profound deterioration of their terms of trade. Export-oriented growth obliges the economy to adjust to global demand, which is led primarily by the industrial countries’ demand. It makes the economy vulnerable to the ups and downs of international markets and imposes a production pattern which responds inadequately to the needs of the country’s majority. This process has also contributed to the acceleration of income concentration on a global scale as never before. According to UNDP, control over the global income by the richest 20 per cent increased from 70.2 per cent to 76.3 per cent (6.1 percentage points) between 1960 and 1980, to 82.7 per cent in 1989 and 84.7 per cent in 1991. The most recent UNDP report is adamant in its diagnosis: ‘Widening disparities in economic performance are creating two worlds – ever more polarized.’9 This extreme concern with correcting balance of payment imbalances without looking at the structure and the dynamics of the whole economy/ society resulted in a short-sighted one-size-fits-all policy that failed to identify the range of factors which determine the problems to be overcome in each country. All this has been aggravated by the lack of transparency and participation in the process whereby SAPs are designed.10 Looking at the evolution of Latin America and the Caribbean, a region where most countries are undergoing SAP-related reforms, explicitly or implicitly, we find that between 1991 and 1995 inflation collapsed from 418.9 per cent in 1992 to an estimated 25 per cent in 1995; 11 yet, between 1991 and 1995 economic growth remained below an average of 3 per cent per year. Per capita GDP grew by an average of only 1 per cent per year. The debt stock grew by a total of 27.7 per cent, exports grew 63.3 per cent, imports 78.3 per cent. This meant that the debt was serviced at the expense of international reserves and loans to pay loans, rather than from a favourable trade balance (the balance on current accounts was systematically negative, having reached US$50 billion in 1994). The trend toward higher wages based on steep rises in productivity, which were prevalent in the region in the early 1990s, came to a halt, while the region’s open

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unemployrnent rate rose to 7.4 per cent in 1995. The latter pushed a growing number of workers on to the informal economy. In Brazil, workers employed in urban informal activities in 1993 totalled 11.6 million, or 18 per cent of those employed; up from 9.7 million two years earlier. Other international agents are also involved in shaping structural reforms in the South and integrating developing countries into the global market economy. One of the most influential is the WTO (World Trade Organisation). A major issue being promoted by Northern governments and WTO officials is the liberalisation of trade and investment as an effective means of promoting faster integration into the global economy.12 Myths are passed to the public as if they are eternal truths. Many points should be made about those issues, among them: 1) Liberalisation of trade cannot be imposed at any cost; protectionism has been a useful tool for Northern countries both to industrialise and to shield their own industries and markets from external vulnerability; free trade is beneficial to developing countries only in certain circumstances. 2) Trade liberalisation needs to take into account each country’s ecosocial development goals, not only short-term goals related to balance of payment problems and the need to attract foreign capital. Whenever such investment is judged beneficial over time, it should be carefully planned and implemented in a timely way so as to maximise gains for the nation and the people, and to minimise social and environmental costs. 3) The multilateral investment agreement being pushed so strongly by Northern governments and transnational corporations aims at protecting foreign investment from regulation and controls, something like setting up a global soccer cup with no rules and regulations. 4) Neither trade nor investment liberalisation seem to address the central problems of development, namely poverty eradication, social and human development and safeguarding the environment.13 5) There are at least two different ways of integrating the global economy: one is a subordinate way, whereby the determining factors of the country’s development are external to the country’s economy. The other is a selfreliant way, in which the country’s human and material resouces are the determining factor, its self-development as a nation is the priority and the development of external ties is related to complementarity, co-operation and genuine mutual benefits. Presenting the first way as the only option implies the quiet but effective abolition of the nation’s and the people’s sovereignty and its replacement with the sovereignty of global corporations.

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Opportunities and Challenges The world is undergoing its most pronounced phase of economic liberalism. It has brought enormous technical progress and greater control of the productive process and no longer has any major adversaries on the horizon. This situation provides an historic opportunity for world capitalism to prove that it is capable of generating sustainable development, in addition to promoting the well-being of humankind and the earth. Globalization has a global, not just a local or national, reach, and encompasses all dimensions of human existence, not just in the economic and financial spheres. In fact, the challenge is to accomplish a cultural, psychological and spiritual transformation as much as socioeconomic, political and institutional change, involving each and every human person and community in working for another globalization, centred on the human being and her/his communities, on co-operation and on solidarity. In what follows I will set out what I view as the the main contradictions of competitive globalization and the main challenges they raise for humanity today and in the future.14 These could be seen as goals and targets to inspire different stabilisation and adjustment policies. Because they shift the development reference from global agents and markets to people, communities and collectives locally, nationally and regionally, they also serve as alternative frameworks for adjustment projects that point towards another globalization. l. Development centred on transnational corporations with their headquarters in industrial countries, and on the illusion that the free market (when in reality competition is more often than not restricted to the large and the powerful) now has the opportunity to prove its worth. It tends, however, to prove incapable of meeting the yearnings of people and society for the development of their potential. Competitive globalization has taken the conflict between capital and labour to all parts of the world and to the limits of its elasticity. At the same time, it is providing the material basis for workers of the world finally to unite, instead of fighting each other, around the ideal of a responsible humankind in solidarity. The challenges here consist of: a) initiating, within oligopolised global capitalism, a process of development centred on human communities, based on associative, co-operative and self-managed initiatives; a process that will reduce as much as possible the dependence of its subjects with regard to the

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macro-markets and their agents; a process that will, ultimately, reconstruct globalization on the basis of the diversity of human communities and cultures spread all over the planet; b) integrating this local development and empowerment horizontally so that each community becomes interconnected in a complementary and creative manner, and in solidarity with other communities that form the county/commune, municipality, state or province, nation, region and ultimately our common international community, without having to renounce its own identity and its own path to development. 2. Systems of smaller-scale and more flexible production are flourishing. Labour time and human energy are in decreasing demand in tasks related to mere survival. On the shopfloor, such progress demands workers who are better informed and better educated, operating in more flexible and less monotonous ways, with greater control over the work and within a less hierarchical system. A trend towards systems of co-management and even co-property is gathering momentum. The potential for the emancipation of labour with regard to waged employment is becoming visible; the recognition of human labour as communicative and creative praxis – rather than just as a means of survival – and as the very core of truly human development, is spreading. On the other hand, the private appropriation of the mounting gains in productivity is leading to a sharp increase in the rate of worker exploitation. Many enterprises invest all their surpluses in technical and organisational innovation in order to face increasingly stiff competition. The accelerated elimination of jobs and the very slow creation of new job opportunities for an expanding labour force is generating grave tensions. Workers’ power to organise is being reduced, as is the capacity of the state to impose rules and regulations protecting the worker and the environment, to create and manage taxes, to invest and to finance welfare programmes. In developing countries these trends are aggravated by regressive stabilisation policies and neo-liberal adjustment programmes. The challenges include: a) establishing a global process of democratisation wherein the benefits of technical and organisational progress and increases in productivity are shared, by means of micro as well as macro level measures, such as the sharing of labour time, the recognition (for the purpose of remuneration) of various forms of non-paid work, such as the domestic labour of women, the establishment of a citizen’s pay independent of waged labour, and others;

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b) democratising and strengthening local, national, regional and global institutions, capable of guaranteeing the implementation of codes of conduct, regulation and sanctions on individual economic agents, in particular TNCs, so that they respect a global social contract, of a level above them, centred on the well-being and the sustainable development of society and the human person. 3. The spectacular growth of global finance and the increasingly important role of institutional investors are the main forces behind the globalization of markets. In consequence, states have lost their power to regulate financial capital and can no longer effectively stimulate productive investment, control speculation-related inflation, durably stabilise exchange rates and favour the growth of savings. The logic of responding first to the corporate interests of their stockholders has led some financial institutions to justify all forms of speculation, tax and capital evasion, including illegal transfers of profits, laundering of money earned through drug trafficking, arms deals and other immoral activities. The globalization of financial flows is one of the most prominent features of neo-liberal competitive globalization, because it steals from states and societies their power to finance their own development. It shifts to speculation and unproductive use of resources that are indispensable for human and social development, and deepens the social trough between those who possess capital and those who live by the sale of their labour power. In short it can often substitute speculation for enterprise. The challenges here include: a) generating participatory and self-managed savings and investment schemes, centred on communities and municipalities, that can be geared to finance their own development initiatives; b) preserving and democratising the capacity of the central government, states and municipalities to finance the development of their respective eco-systems and converting finance once more into a function of productive investment, instead of an end in itself; c) establishing an international agency empowered to regulate the global financial system and to place controls on massive speculation and on ilegal and corrupt activity;15 d) establishing a regulatory global system as well as global juridical institutions empowered to impose morals on the financial system and respect for the priorities of people’s development.

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4. Technical progress in telecommunications has enhanced the potential for the democratisation of communications and for the establishment of relations among individuals, communities, peoples and nations, that go beyond commercial relations. Such progress facilitates an exchange of experiences, of potentials and resources, as well as solidarity in aspirations and struggles. It also provides for the expansion of species consciousness, which aggregates and unifies its diversity without sacrificing it.16 On the other hand, progress has expanded the consumerist culture, eroding national cultures and traditional values. The increasingly global and concentrated ownership of much of the means of communication not only inform about events, but also contribute to determine their course. In its trail the very culture of capital is becoming global, centralising and homogenising, thus reducing the meaning of human life to the acts of consuming and accumulating material wealth. The challenges include: a) developing an eco-social praxis based on a paradigm alternative to that of unlimited economic growth and consumption. This should promote a willingness to limit accumulation and material consumption to the level of enough – both through respect of the limits of nature, and through awareness that the more excessive the material possessions of individuals and nations, the lesser their capacity to develop ethically and spiritually; b) using advances in telecommunications to create new means of enhancing interconnections between individuals and peoples, the aim being to use these tools to create two-way communications between citizens, communities, co-operatives and workers’ groups. 5. Global power is now restricted to some hundreds of TNCs, a small number of Northern governments and multilateral institutions. TNCs have a global power beyond that of any other institution. They lead technical progress and are broadening their market access to the world’s population, be it as consumers or as producers. However, they have persistently ignored the social implications of their actions. They have a non-democratic nature, they are not accountable for their decisions and actions to global society. Moreover, they continually press for the cancelation of regulations in national and global markets, so they can freely damage the means of survival and the environment of large parcels of the world’s population. Their lobbying has been so powerful as to influence state policy and weaken or eliminate useful state institutions,

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such as regulatory agencies in developing countries.17 Locally, the globalization imperatives of TNCs are undermining communities and families. The multilateral institutions have a dualistic nature. They have an indispensable supranational role to facilitate dialogue, negotiation and regulation. On the other hand, they are dominated by the industrial countries, who have stronger voting power, and are vulnerable to the influence of TNCs. Together, they act as the informal quasi-global economic government. They have their own way of promoting a strategy of competitive globalization, in particular the Bretton Woods institutions (i.e., the World Bank and IMF) whose neo-liberal stabilisation and adjustment programmes are more influential on Southern than on Northern countries. Among these challenges are: a) reconstituting society – defined as the totality of citizens, whose majority consists of persons living off their own labour – gradually and persistently, as the new subjective agent of history and of its own development; subordinating private agents to the resulting socially identified priorities and giving the state and multilateral agencies a truly public and democratic content; b) promoting self-organisation and self-management of communities and societies around their own development plans; linking them with other communities and societies in a complementary and cooperative manner, as well as assisting them in negotiating their plans with public authorities and private enterprises without losing control of their project; c) redefining the role of the state, gradually removing it from being the dominant political agent, and promoting it to a mere orchestrator of the development of the economy-society as a whole; a similar role should be attributed to the multilateral agencies in their respective geopolitical spheres; d) establishing codes of conduct for transnational enterprises at national and international level, binding them to rules that guarantee fair production and trading practices and avoid restrictive market practices, tax evasion, illegal financial outflows, corruption and other common practices.18 6. Political liberalism offers greater freedom of expression for a larger sector of the population than other systems have done. But its foundations – the right to disagree and alternate representation – are insufficient to fulfil the people power project (‘all power emanates from the people...’) in all

Neo-liberal Adjustment and Globalization: A Southern Perspective 73

spheres. And even these rights are jeopardised by the compulsion of consensus and political stability at any cost. The result is the strengthening of the approach which equates the raison d’être of the market with that of the state, thus producing new social divisions, feeding ethnic or territorial conflicts and amplifying corruption at state and enterprise levels. The challenges include: a) making globalization a process that democratises not only the right of opinion, but also the rights and duties of full citizenship for all members of national as well as the global society; b) generating processes of participation that, on the one hand, re-establish each human person and community as the subject of her/his own development and, on the other, cultivate and integrate the diversity of capacities, expectations and aspirations into a movement for redirecting markets, instilling a democratic content in the state and rebuilding global society from the diversity of its local and the national components. In conclusion, it is worth noting that the growth in complex emergencies in the 1990s while often diagnosed as rooted in local/national ethnic and other conflicts should instead also be assessed in terms of the impact of global economic and other policies on the societies affected. Unless the external forces of globalization which contribute to domestic divisions are simultaneously tackled, the chances are that conflict situations may re-emerge with regularity and all to tragic consequences. The negative effects of globalization, as well as the structural problems within nations, need to be tackled together to overcome the poverty of countries and the polarisation of the world.

Notes 1.

During the decade of the debt build-up, dictatorships outnumbered democracies in the Third World by five to one, arms expenditures amounted to 40% of the debt increase, and Third World arms sales more than doubled. In the mid 1980s, the SIPRI (Stockholm International Peace Research Institute) attributed 15% of the nonoil-exporting Third Worlds accumulated debt directly to arms purchase. In 1989, World Bank President Barber Conable put the figure at one-third for some Third World countries. Adams, 1991, pp. 119–20.

74 External Debt

2. The author uses the term ‘competitive globalization’ because anarchic, deregulated competition is the motto of neo-liberal globalization. Europe, Scandinavia, the US and other countries still have regulatory institutions and bodies of law to deal with the waves of mergers and acquisitions that strike their national economies. But nothing exists on a global scale. Even existing instruments are gradually being eroded under the weight of neo-liberal ideology. The trend is toward decreasing market freedom and growing ‘market totalitarianism’, as cartels and oligopolies are formed or reinforced. This is the outcome and here the author evaluates the process that leads to it. Thus competitive globalization contrasts with a profoundly different type: namely co-operative globalization. The latter does not do away with competition, but subordinates it to the dynamics of solidarity, development planning, complementarity and genuine co-operation which benefits all partners. 3. While in the early 1980s the IMF was the main negotiator of adjustment programmes, that adjustment was conceived as a short-term process, to stabilise and quickly return the economy to growth. That period coincided with a number of demonstrations and riots – the UNRISD study calls them ‘the IMF riots... which obliged governments to withdraw the adjustment policies or to change them’ (pp. 25–6). These changes in approach to Structural Adjustment Programmes (SAPs) by both the Bank and IMF as of 1985 are very neat. The structural adjustment approach is more long-term and much more complex and comprehensive than just the monetary and balance of payments measures related to the founding mandate of the IMF. It involved structural reforms which were no longer merely economic – the state itself became a key target, and with it the sovereign power of the state to design macroeconomic policies. 4. Statement by a World Bank representative at a meeting with the Sri Lanka Aid Group in Paris, 18 June 1993, as reported in ‘Structural adjustment in Sri Lanka: A grassroots perspective – Executive Summary’, NGO Working Group on the World Bank, Geneva, 1993, p. 1. 5. The World Bank, 1988, ‘Adjustment lending: An evaluation of ten years of experience’, Washington DC, p. 1. See also Lionel Demery and Tony Addison, 1987, ‘The alleviation of poverty under structural adjustment’, The World Bank, Washington DC; Peter S. Heller, A. Lans Povenberg, Thanos Catsambas, Ke-Young Chu and Parthasarathi Shome, IMF, 1988, ‘The implications of Fund-supported adjustment programs for poverty: Experiences in selected countries’, Washington DC, May. 6. Adams 1991, op. cit. 7. UNRISD, 1995, p. 18. The author uses the term neo-liberalism to refer to the revival of economic liberalism in the context of economies

Neo-liberal Adjustment and Globalization: A Southern Perspective 75

8. 9.

10. 11. 12. 13.

14. 15.

16.

undergoing mounting globalization. In the case of liberalisation of the labour market the term ‘flexibilisation of the labour market’ is used to mean the loss of workers’ conquered rights, the abolition of labour legislation and of state intervention on behalf of workers, etc. It also incorporates state deregulation, the greatest possible freedom for private capital at national as well as global levels. A good critique is made by Franz Hinkelammert (‘Las Armas Ideologicas de la Muerte’) and Hillary Wainwright (‘Arguments for a New Left’). Martin, 1993, p. 76. UNDP, 1992, 1993, 1996 p. 2. UNDP chief, Gus Speth, states that the world has become more economically polarised and ‘if present trends continue disparities between industrial and developing nations will move from inequitable to inhuman’. The Guardian was even more frank and scathing in its review of the report: ‘358 people own as much wealth as half the world’s population’, which the paper referred to as ‘highway robbery by the super-rich’. Arruda, 1994. CEPAL, 1995, p. 5. TWN, 1996, p. 15. This was also clear from the core themes at last year’s UN World summit on Social Development: poverty eradication, productive employment and social integration. The Summit aimed to stimulate debate on global citizenship in a globalized world. Arruda, 1997. ‘The bulk of those trillions of currency exchanges are speculations and arbitrages, seeking to make quick money on exchange rate fluctuations and on international interest rate differentials. They contribute little to rational long-term investment allocations.’ James Tobin (UNDP, 1994: 70) also proposes 0.5 per cent tax on foreign exchange transactions as a means of ‘directing world savings to high-productivity projects’, foreseeing a revenue of over US$1.5 trillion a year. A question arising from this is how to ensure that these savings are channelled to relevant developmental investment. The urgent need for poverty eradication is a matter that goes far beyond the increase in transfers from North to South. Species consciousness is the awareness, beyond all differences that divide humankind, that we all belong to the same species, are rooted in the same origins and move towards a common destiny as a species. It is the awareness of the natural solidarity that unites us among ourselves and with nature. It is at the root of the willingness to act towards making that natural solidarity a human-made sisterhood-brotherhood, at all

76 External Debt

levels of life, from the political and economic to the cultural. In the case of humankind, each individual is a physical-mental-spiritual totality as such and, at the same time, a part of broader totalities: community and humankind. In the world of life, we call the reality for variety ‘biodiversity’. In the human world, I call it ‘noodiversity’ (noos in Greek means conscience, will, intention, capacity to think, etc.). Species consciousness allows us to develop respect for noodiversity while seeking to build links which result in common projects, common action, co-operation and genuine consensus. It is a methodology and ethics of being human. The challenge being addressed here is how to apply it to local, national and global economies. 17. UNRISD, 1995, pp. 153–68. 18. UNRISD criticises non-binding codes by saying that they represent a way for TNCs to elude official control, and argues that TNCs ‘should not be expected to elaborate their own codes with the intention of regulating themselves: this task belongs to an efficient and democratic public administration, supported by a system of international norms’ (UNRISD, 1995:xxi).

4 For a Debt-Free Millennium

This motto of the Brazilian Jubilee 2000 Campaign embodies a vision that goes far beyond the problem of the foreign debt. It anticipates and forcefully proposes a process for eradicating poverty and human misery, for overcoming inequality, the abuse of individual and social rights and environmental destruction. One precondition for achieving these goals is that the financial crisis of domestic and foreign over-indebtedness is definitely overcome. The chains of unsustainable debt impose a brutal burden on millions of people around the world. The ecumenical movement has called these millions ‘the modern debt slaves, who continue to demand the solidarity and action of all people of faith and good will’. The movement calls for a commitment to the Jubilee as ‘more than debt cancellation. It is about restoring rightful economic and social relationships’ (LWF, 1999: 5). Debt is not a purely economic issue. It is an issue of human development, of political, socioeconomic and cultural rights, and of justice. Purely economic approaches are unable to acknowledge or deal with the scale of human deprivation lying hidden behind the numbers. This last chapter begins by briefly exploring the unpayable and unsustainable nature of current foreign over-indebtedness, not only in the case of highly indebted poor countries, but of highly indebted Southern countries as a whole. It stresses that it is in the latter that the largest numbers of poor and excluded are concentrated. This has as much to do with domestic inequality and injustice as with the nature of international relations where foreign over-indebtedness and overexposure to international capital form a core dimension. Then, the chapter focuses on three aspects of the struggle to overcome foreign over-indebtedness. First, it examines how social movements have worked towards building a strong global alliance around the issue of Southern over-indebtedness, the search for alternative policies and the pressure on centres of political power to adopt a new approach to 77

78 External Debt

development. This in essence is the international Jubilee 2000 Campaign. Second, it describes the official responses to social pressure, including a brief critical survey of the variety of creditors’ schemes to reduce or eliminate Southern countries’ over-indebtedness. Third, it discusses alternatives emerging from social movements in different parts of the world, framed by the vision of a new development paradigm as the only enabling environment for a sustainable solution to the debt problem.

The Burden of Unpayable and Unsustainable Debt The bare figures are witness to how unsustainable the cycle of indebtedness is. Taken together, developing countries owed US$609.5 billion in 1980. In 1998, their debt had increased to US$2,465.1 billion (estimate). That is equal to one-tenth of the value of all corporate stocks traded on Western capital markets (Table 4.1). You may think the indebted countries have defaulted. This is not true. In 1980 they paid US$93.4 billion, of which US$48.9 billion represented interest payments. Remember that interest is net gain to the creditors – it does not reduce the burden of debt. Interest is a key modern instrument of neo-colonial bondage that ties the South to the North, the poor to the rich, labour to capital. In 1998, debt repayment had increased to US$296.1 billion, with interest amounting to US$125.3 billion (World Bank, 1999: 188). The interest paid equals five times the amount received as grants (excluding

Table 4.1: Foreign Debt – Evolution, 1970–98 (US$ billion) (*Estimate) All Developing Countries 1970 — 45.8 15.4 0.8 —

1980 609.5 381.1 70.6 12.2 145.7

1990 1472.8 1115.5 65.5 34.7 257.1

1997 2316.6 1420.1 362.7 70.8 463

1998* 2465.1 1637.1 320.4 95.5 412.2

6.7 — —

44.5 48.9 93.3

93.7 70.5 164.2

196.2 109.1 305.2

170.8 125.3 296.1

Gross National Product (GNP) 1124.6 Trade Balance –83

2900.9 93

4393.8 –441

6635.4 –1083

6600.9 –1318

Total Debt Stocks (EDT) Public and Publicly guaranteed Private non-guaranteed Use of IMF credit Short-term debt Principal repayments Interest payments (INT) Total Debt Service (TDS)

For a Debt-Free Millennium 79 Latin America and the Caribbean 1970 Total Debt Stocks (EDT) — Public and Publicly guaranteed 15.8 Private non-guaranteed 11.9 Use of IMF credit 0.1 Short-term debt —

1980 257.3 144.8 42.5 1.4 68.6

1990 475.4 354.6 25.1 18.3 77.4

1997 703.7 400 159 18.6 126.2

1998* 735.8 424.4 161.7 22.6 127.1

3.7 — —

21.7 24.6 46.3

22.8 22.8 45.6

90 40.6 130.6

77.6 45.4 123

171.5 –36

740.3 –311

1064.3 –73

1963.1 –690

1994.5 –929

1970 — 5.8 0.3 0.1 —

1980 60.9 42.1 4.6 3 11.2

1990 177.4 144.6 5.3 6.6 21

1997 219.4 163.3 7.8 7.4 41

1998* 225.8 168.5 7.5 7.4 42.4

0.5 — —

3.2 3.5 6.7

5.6 5.3 10.9

9 4.9 14

7.9 6.7 14.5

62.3 –20

252.8 –2

274.4 –69

322.5 –158

330.6 –273

Severely Indebted Low-Income Countries1 1970 1980 Total Debt Stocks (EDT) — 58.1 Public and Publicly guaranteed 5.3 40.6 Private non-guaranteed 0.2 4.3 Use of IMF credit 0.1 2.7 Short-term debt — 10.5

1990 203.1 170.6 4.1 5.7 22.7

1996 225.4 179.8 3.6 6.9 35.1

1997 211.2 170.2 3.8 6.4 30.8

Principal repayments Interest payments (INT) Total Debt Service (TDS) Gross National Product (GNP) Trade Balance

Sub-Saharan Africa Total Debt Stocks (EDT) Public and Publicly guaranteed Private non-guaranteed Use of IMF credit Short-term debt Principal repayments Interest payments (INT) Total Debt Service (TDS) Gross National Product (GNP) Trade Balance

Principal repayments Interest payments (INT) Total Debt Service (TDS) Gross National Product (GNP) Trade Balance

0.4 — —

2.7 3.2 5.9

4.9 4.8 9.7

5.9 4 9.8

5.3 3.4 8.7

109.9 –16

179.4 –35

156.3 –89

257.2 –148

286.9 –163

80 External Debt Severely Indebted Middle-Income Countries 2

Total Debt Stocks (EDT) Public and Publicly guaranteed Private non-guaranteed Use of IMF credit Short-term debt Principal repayments Interest payments (INT) Total Debt Service (TDS) Gross National Product (GNP) Trade Balance

1970 — 9.8 8.1 0.2 —

1980 165.6 103 28.2 0.9 33.5

1990 386.2 289.2 19.4 7.3 70.3

1996 567.3 341.5 107.3 8.9 109.6

1997 606.8 334.6 141.4 11.9 118.9

2.1 — —

13 14.5 27.5

21.8 12.8 34.6

41.8 28.5 70.3

57.2 30.9 88.1

110.8 –16

503 –166

835.3 –75

1548.5 –423

1618.4 –561

1. The Severely Indebted countries are: Angola, Burkina Faso, Burundi, Cameroon, Central African Republic, Congo, Dem. Rep. of Congo, Rep. of Ivory Coast, Ethiopia, Ghana, Guinea, Guinea-Bissau, Haiti, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Nigeria, Rwanda, São Tomé and Príncipe, Sierra Leone, Somalia, Sudan, Tanzania, Uganda, Vietnam and Zambia. 2. Includes: Argentina, Bolivia, Brazil, Bulgaria, Ecuador, Gabon, Guyana, Indonesia, Jamaica, Jordan, Peru and Syrian Arab Republic. (Source: World Bank, 1999)

technical assistance) and would suffice to feed nearly 70 per cent of the 800 million hungry people in the world. Aggregate interest paid since 1982 equals four times the value of the total debt (Swiss Coalition, 1999: 4). In 1980, the debt stock corresponded to 21 per cent of the debtors’ GDP. In 1998, it jumped to 37.35 per cent. All things considered, granting loans to the developing countries has been juicy business for the lenders; that is, the large commercial banks, the northern governments and the multilateral financial institutions. At the same time, for a number of reasons, indebtedness has become over-indebtedness for the borrower countries, where the poor and most vulnerable are the main victims of a catastrophe imposed on them by the rich. In order to service the debt, developing countries have effectively been pressured by the IMF and the World Bank to eliminate subsidies on food products, close cheap public schools and health services, stop investing in water, sanitation and other infrastructure, deregulate their markets and open them to foreign investment, privatise/denationalise their public assets, offering enormous advantages to the buyers, most of them foreign

For a Debt-Free Millennium 81

firms. This is a programme designed to dismantle ‘national’ economies in the name of ‘modernisation’ (alias falling prey to neo-liberal globalization). Until the 1980s, these countries borrowed mainly in order to invest in national development. The exception was the military dictatorships so conspicuous in the 1960s and 1970s, that borrowed heavily for the purpose of arming themselves, mainly against their own people. For this they were able to count on the complicity of government, multilateral and private creditors. But, as of 1982, when Mexico first declared itself insolvent, most debtor countries have been borrowing mainly for the purpose of serving former debts. As a result, and since then, the more debtor countries pay the more they owe. This is the key to understanding why their debt is unpayable and unsustainable. It is unpayable, because debtor countries, even if relatively industrialised and well endowed, will never be able to pay it. And this was the essence of the message civil society movements took to the G7 meeting in Cologne, in June 1999. One way of explaining it is to look at the nature of interest and compound interest, and how they function. One penny invested at the birth of Jesus Christ at 4 per cent interest [per year] would have bought in 1750 one ball of gold equal to the weight of the Earth. In 1990, however, it would buy 8,190 balls of gold. At 5 per cent interest it would have bought one ball of gold by the year 1466. By 1990, it would buy 2,200 billion balls of gold equal to the weight of the Earth! (Kennedy, 1995: 22) The author above demonstrates that 1 per cent makes an enormous difference over time, and, on the other hand, that ‘continual payment of interests and compound interests is arithmetically as well as practically impossible’. As we saw in the first chapter, when the USA unilaterally decided to increase the interest rate three fold, Southern indebted countries automatically went bankrupt, and, within one decade, Latin America had lost US$106 billion on that account (Kucinski and Bradford, 1987: 222). This blood transfusion to the North, in the form of interest paid by the South on its foreign debt, is unacceptable for any criterion that goes beyond ‘purely’ economic considerations. The debt is unsustainable because, in the economy, over-indebtedness gradually and continually corrodes the national capacity to invest, the national ability to take decisions and the financial base for domestic socioeconomic development. For society, it has vicious effects on government budgets, displacing savings from social investment and impoverishing growing numbers of people. Over-indebtedness in the context of neo-liberal

82 External Debt

structural adjustment programmes can be qualified as ‘the worst of all worlds’. Let us look at some examples: a) In Mozambique, only 3 in 10 people have access to health services, the adult illiteracy rate is nearly 60 per cent, only 24 per cent of the women can read and write, and the infant mortality rate is 130 per 1,000 live births. Meanwhile nearly a fifth of Mozambique’s export earnings are spent on debt repayment. In the three years before HIPC (the Highly Indebted Poor Countries debt relief initiative, led by the World Bank), debt service averaged US$111 million per year; after HIPC it will average US$100 million. There is very little to be gained from HIPC in terms of increased resources for the poor of Mozambique. The government has joined the Jubilee 2000 campaigners calling for total cancellation of the debt. b) In Cameroon, one in four people does not survive to the age of 40, and only half the population has access to safe water and sanitation. However, one-fifth of export earnings leaves the country in debt service payments. In 1996, for every dollar received in aid grants, the country paid out US$2.20 in debt service – even though it was actually only meeting about 60 per cent of the debt repayments due that year. c) In Kenya almost half the population does not have access to safe water, the average life expectancy is 52 years, there are 20,000 people to each doctor, and only 2.7 per cent of the GDP is spent on public health. Over a fifth of Kenya’s export earnings goes to repaying debt. d) In Tanzania, almost half the population lives on less than US$2 a day, only 67 per cent of primary school-age children have access to education, and there are approximately 8,000 cases of malaria per 100,000 people. Yet almost 13 per cent of export earnings disappear in debt payments. e) In Uganda, many children are denied education because they and their parents do not have enough money to pay for it. More than half the population lives below the poverty line, on less than US$1 a day. More than 45 per cent of pupils drop out of school by their fifth year and a mere 12 per cent of girls make it to secondary level. The country spent 8.3 per cent of its 1997–98 budget on education. Yet Uganda is on its knees under the weight of a US$3.6 billion foreign debt. Servicing that debt, 76 per cent of which is owed to the World Bank and IMF, costs the country US$140 million a year, 14.7 per cent of total budget expenditure (LWF, 1999: 27–8). f) In Bangladesh, over 1 in 10 children die under the age of 5, and less than half the population has access to sanitation. But over 10 per cent of

For a Debt-Free Millennium 83

the country’s export earnings go on debt repayment. In 1996, Bangladesh paid out US$1.12 in debt service for every dollar received in aid grants. g) In Guyana, the infant mortality rate is 60 per 1,000, and there are fewer than 250 trained doctors in the country. In 1995, only 4.1 per cent of the GNP was spent on health, compared to 20.3 per cent on debt service. Less than 15 per cent of its total budget is spent on health, education and welfare. In 1997, after having completed a series of IMF-led structural adjustment programmes (SAPs), the country was obliged to spend 56 per cent of total revenues on servicing its foreign debt. The relief package under the HIPC was seriously delayed. It consists of US$25 million debt service relief per year for 20 years. HIPC may only free up an additional 2–3 per cent per annum for social sector spending. A close examination of the situation of the most indebted poor countries shows that they ‘are effectively bankrupt, unable to meet both their debt repayments and assure a decent standard of living for their people’ (LWF, 1999: 9), including work, food, housing, access to health care, education and basic social services. This is the same as saying that their debt is unsustainable. In addition, even countries that are not poor in terms of material resources, energy sources and their population’s productive capacity, are caught in a similar situation. Brazil and Ecuador are among the most outstanding cases. Brazil is worth mentioning as an illustration of the extreme distortions produced when local globalized élites apply the neo-liberal ideology faithfully, and therefore disastrously, to a resourceful country. A number of studies have drawn an accurate picture of the process of Brazilian indebtedness (Arruda, 1988; Kucinski and Bradford, 1987; Pereira, 1989; Furtado, 1987, and others). According to a study published by the Brazilian government agency IPEA, 32 million children belong to families earning less than two dollars a day, while 3 million children under the age of 14 are working. More than 50 per cent of the population earn around US$2.50 a day, while 29 per cent of the population (or 47 million people) go hungry, because they survive on less than US$1 a day. The country has a deficit of 13 million dwellings, plus another 8 million in precarious conditions. Meanwhile, 60 per cent of social investments are appropriated by the upper 50 per cent on the income scale. Nevertheless, in 1999, as much as 64 per cent of the federal budget went to serve the domestic and external debts. Recent Central Bank data (Tables 4.2 to 4.5) estimate that in 1999 the country’s foreign debt payments reached US$67.1 billion, of which US$15.2 billion was interest (Tables 4.2 and 4.3). Its export earnings (Table 4.4) were worth US$48 billion

84 External Debt

but imports reached US$49.2 billion (BCB, 1999: 3). The proportion of external debt to GDP has increased during the Cardoso administration (Table 4.5), and if one adds the public external debt to the public domestic debt the proportion exceeds two-thirds of the GDP. Of course the current account balance has been in the red for decades and was more 4 per cent of the GDP in 1998. Coupled with the foreign debt, the Cardoso government has spawned an unmanageable domestic debt. By the end of 1999, this was estimated at around R$500 billion (around US$300 billion), demanding a gigantic amount of reals in public funds every year simply to pay interest on federal bonds. The issue of insolvency is, therefore, important for all the highly indebted countries of the developing world. In brief, as Brazil pays its financial debts, so it lacks capital to invest in any self-induced growth and in human development. The inevitable result is increasing dependence on external financing, which in turn increases both the foreign debt and foreign liabilities. Brazil will have to repay and remunerate both. Besides, the economy will encounter a growing need to generate trade surpluses1 to provide the foreign exchange it needs… to pass on to the creditors. A vicious circle of increasing de-capitalisation and impoverishment sets in. The only way to break this deadly cycle is to say ‘No’ to over-indebtedness and to the IMF-led and creditor-inspired SAP, and to redefine the country’s priorities around its domestic needs, and its capacity to produce and to save.

Table 4.2: Brazilian External Debt Service, 1993–99 (US$ million) Year

Payment of Principal Planned (A)

Interest (C) Debt Service Total Debt Service Paid (B)

1993 (9.978,00) (9.268,00) 1994 (50.411,00) (11.001,00) 1995 (11.023,00) (11.023,00) 1996 (14.419,04) (14.419,04) 1997 (28.714,50) (26.021,50) 1998 (33.586,99) (33.587,00) 1999 (51.905,00) Total (148.132,52) (157.224,53) FHC Govt. (147.956,53) (Source: Central Bank of Brazil)

Paid (B+C)

Paid and Postponed (A+C)

(8.280,00) (17.548,00) (18.258,00) (6.337,40) (17.339,00) (56.748,40) (8.158,00) (19.181,00) (19.181,00) (9.172,70) (24.263,00) (23.591,73) (10.389,60) (36.452,00) (39.104,09) (11.947,96) (45.534,96) (45.534,95) (15.170,00) (67.075,00) (69.455,65) (227.392,96) (202.418,18) (61.175,65) (192,505.96)

For a Debt-Free Millennium 85 Table 4.3: Brazilian External Debt – Public vs. Private, 1989–98 (US$ million) Year

Public Sector

Private Sector

Total

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

98,539.00 106,084.00 104,726.00 107,682.00 107,785.00 87,330.00 87,455.00 84,229.00 76,247.00 95,194.00

16,966.00 17,355.00 19,184.00 28,267.00 37,875.00 60,965.00 71,801.00 95,636.00 123,751.00 147,971.00

115,505.00 123,439.00 123,910.00 135,949.00 145,660.00 148,295.00 159,256.00 179,935.00 199,998.00 243,163.00

(Source: Central Bank of Brazil)

Table 4.4: Trade Balance vs. Debt Service, 1993–99 (US$ million) Year

1993 1994 1995 1996 1997 1998 1999*

Service

Trade Balance (FOB)

Service/ Trade Balance %

10,466.50 (3,351.20) (5,554.00) (6,765.00) (6,591.00) (1,198.00)

–166 572 437 539 691 5599

(17,548.00) (17,339.00) (19,181.00) (24,263.00) (36,452.00) (45,534.96) (67,075.00)

* Estimate. (Source: Central Bank of Brazil)

Table 4.5: Brazilian External Debt as a Proportion of GDP, 1992–98 (US$ million) Year

Total Debt Stock

Reserves

GDP

TDS/GDP (%)

1992 1993 1994 1995 1996 1997 1998

135,949.00 145,726.00 148,295.00 159,256.00 179,935.00 199,998.00 243,165.00

25,214.00 37,887.00 50,918.00 60,059.00 52,106.00 34,362.47

387.3 429.7 543.1 705.4 775.5 801.7 775.5

35,10 33,91 27,31 22,58 22,97 24,06 28,61

Net Debt

94,545.00 98,486.00 108,150.00 138,186.00 191,229.00

86 External Debt

Ecuador is another example. One in ten people dies before the age of 40, one-third of the population lack access to safe water and one-fifth lack access to health services. One in ten adults is illiterate, almost one-third of the population have an income of less than US$1 a day. Four children in every hundred do not survive to the age of five. Nonetheless, 30 per cent of the country’s budget is spent abroad on interest payments (LWF, 1999: 5–6). For years the country has been engaged in IMF-led adjustment. And what are the results? In 1999 unemployment reached 16 per cent and underemployment, 57 per cent; this means that 75 per cent of the labour force do not have full, stable employment, and two-thirds of the population are living in conditions of dire poverty. The minimum living wage fell to US$53 a month. In the meantime, interest paid on the public (external and internal) debt increased to 7 per cent of the GDP. Total debt service (interest plus payments of principal) raised the gross need for external financing to 11.8 per cent of the GDP in 1998 and 11 per cent in 1999. Total debt service is worth nearly 50 per cent of the revenues from exports of non-factor goods and services (Espinosa, 1999: 2). Considering these huge payments abroad plus the fiscal deficit of 5.8 per cent of the GDP, it is easy to understand the recent Ecuadorian collapse: the economy is bankrupt, IMF-led adjustment has forced crucial subsidy cuts, the Mahuad government decided to substitute the US$ for the sucre, and people, especially a mass of indigenous peoples (who make up 25 per cent of the population), came out on to the streets to demand Mahuad’s resignation and a new development path for the country. It is worth noting that, in October 1999, the Mahuad government had already been induced – not only by the dramatic situation of insolvency, but also by suggestion from the IMF and the US Treasury Department – to declare a moratorium on payments of Brady bonuses, which was soon extended to eurobonds and the private debt. The former vice-president became the new president and declared he would faithfully follow Mahuad’s (IMF-inspired) policies, including dollarization. He has thus expressed his choice to submit the country to what Toussaint calls ‘the dictatorship of financial markets’ (Toussaint, 2000). The new president arrested the colonel who had allied the army with the protesters, and the new commander turned the army against the people, forcing them to back down. However, social unrest and political instability are now deeply rooted and new outbursts of rebellion are expected sooner or later. Why would the IMF and US Treasury Secretary Larry Summers make such an apparently clumsy move? They are following a planned strategy ultimately to force private investors to contribute to international rescue packages. This new concept, known as ‘bailing in’, emerged after the Mexi-

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can, Asian and Russian crises as a means to draw public attention away from criticism that the IMF uses public funds to pay powerful international investors (Edwards, 1999; Toussaint, 2000). Acosta (1999) calls our attention to the fact that Romania, Pakistan and Russia followed the Ecuadorian moratorium. They are: …the expression of the failure of the Brady Plan and of World Bankand IMF-led structural adjustment. The institutional crisis of both agencies is manifest. … economic growth in years 1950, 60 and 70 in Latin America, during the epoch of Cepaline ‘perversity’,2 was twice as high as that of the 90s, the epoch of neoliberal ‘kindness. In a more recent, penetrating article3 on the ‘Trap of Dollarization’, Acosta says that: …with the dollarization Ecuador is the first South American country unconditionally to sacrifice its monetary and exchange policy. It joins the list of 26 colonies and territories who use a foreign currency in the world, 11 of them the US dollar. Panama is the most representative and important case,4 the others can be considered fictional economies, whose most recent exponents are the Virgin Islands, dollarized in 1973 (Acosta, 2000: 1). The author goes on to present a critique of dollarization: it imposes on the country a radicalisation of the neo-liberal model, a higher stage of the adjustment inspired by the Washington Consensus; it institutionalises reforms aimed at taming resistance from Ecuadorian society; it makes Ecuador ‘a guinea pig of an experiment led from the outside, as happened a few months ago when the moratorium on the external debt was declared under the auspices of the IMF…’; it serves ‘as a tool of multiple use: the dollar as a pendulum to generate a collective hypnosis, as a lever to unleash privatisation and labor flexibilisation, and finally as an anchor to set the roots of the neo-liberal model’. Acosta’s brilliant analysis encircles the official pro-dollarization arguments, stripping them one by one of their deceitful verbiage. Acosta concludes with a brief but important point on alternatives. The need gradually emerges to revise the lifestyle of the elites, that serves as the (unattainable) ideal for the majority of the population; a revision that must be made on the basis of real equity, the reduction of labour time and its redistribution, as well as the collective redefinition

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of needs as a function of the satisfactors adjusted to the economy’s and the nature’s carrying capacity. He talks about the priority of enough – as opposed to unlimited – competition, consumption and growth; the challenge of building a society without excluded or exclusions; and the historical trend towards growing empowerment of the popular sectors to build their own future and to constitute a genuine counter-hegemonic force. The Jubilee 2000 campaigners in Ecuador have received broad support for their effort to make Ecuador the first country that would appeal to an international arbitration tribunal, so as to achieve the goal of ‘negotiating the debt in an independent and transparent manner’. The Multilateral Financial Institutions’ classification of countries (low, middle and high income countries) is inadequate, in my opinion, because it does not take into account the fact that a large number of ‘middle income’ countries have high rates of poverty and destitution. In fact, if we add the numbers of people in those countries living in poverty and in absolute poverty, the figure will probably exceed by far that of the ‘low income’ countries. For years now the social movement in various countries has been discussing the proposal of an international insolvency law, inspired in Chapter 9 of the US Insolvency Law of the USA. While enterprises and individuals in the creditor countries enjoy the right to legal protection in case of insolvency, international relations have ignored this right with respect to nations. International power relations, therefore, have allowed creditors to demand payment far beyond the indebted economies’ capacity to pay – with fatal consequences for the health of the economy, the sovereignty of the nation and above all the well being of its most vulnerable sectors. (Arruda, 2000: 1) International forums are failing to debate the need to set up an International Arbitration Court and International Insolvency Law. The demands are more pressing than ever before. In the early 1990s, Raffer made a well-founded proposal which social organisations continue to discuss with governments and multilateral agencies (Raffer, 1993). A few years earlier, Calcagno wrote an excellent book on the Argentinian debt, in which he reports that the 1933 Argentinian moratorium law on mortgages was subject to an appeal by the creditors, and the Argentinian Supreme Court of Justice decided the moratorium was constitutional (Calcagno, 1986: 168). He points to the importance of the verdict in terms of jurisprudence in Argentina, but also because it was founded upon the US jurisprudence on the matter, which

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establishes the prerequisites to be fulfilled by a moratorium law. He also cites the case of Costa Rica, whose Central Bank in 1981, confronted with the grave economic crisis resulting from the unilateral US decision to multiply the interest rate by four in the space of a few months, suspended the delivery of foreign currency for external debt payments, following a decision by the President of Costa Rica to declare a moratorium until the debt was negotiated with the creditors. The US private creditors appealed in New York, and in April 1984 the US Federal Court of Appeals declared the Costa Rican moratorium a legal measure, compatible with US legislation. The moratorium, said the Court, was based on a sovereign state act declaring the impossibility of the payment. This precludes the possibility of the decision becoming subject to ordinary courts of a foreign country (US Sovereign Immunity Act, 1976). In the appeal, the Court compared the Costa Rican moratorium to the situation of someone who is insolvent and requests redefinition of the debts in the terms of Chapter II of the Bankruptcy Law of the US (Calcagno, 1987: 170–2). As I have argued all along in this book, and have postulated since I began to write about the debt more than ten years ago (Arruda, 1987), the problem of over-indebtedness is not simply an economic and financial problem to be resolved by discussing technicalities. It is essentially a political, social and ethical problem. Ultimately, ‘it is a question of love’, says Bernard Stasi, Mediator of the French Republic, as he argues that ‘the approach to indebtedness must be the same for countries and individuals. They need respect, understanding, assistance to overcome the impasses in which they are trapped. More: they need love’ (Mazerolle, 1999b: 5). In other words, what the Jubilee campaigns nationally and internationally are seeking is a political, socioeconomic and ethical solution to a life-or-death problem for billions of people. This is why I chose to focus this chapter on the social movements’ search for alternatives, some of the actions taken, some of the results achieved and the substance of their alternative proposals.

The Movements Jubilee 2000 – A New Horizon The Verdict of the Berlin Tribunal on the foreign debt was clear.5 The World Bank and the IMF are guilty of violating the UN Charter of Human Rights, of violating the right of nations to sovereignty and to self-determination, and of violating their own statutes (they have not contributed to the promotion and maintenance of high employment and real income levels and the development of productive resources of all their members as the primary goals of economic policy). In those years, churches and church

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organisations, concerned with the massive net transfer of wealth from the South to the North and the increasing impoverishment of the so-called developing countries (‘debt is effecting the de-development of Southern countries’), were already raising the idea of the Jubilee as a biblical reference to debt remittance or cancellation and the right to a fresh start for debtors. Christian Aid, a London-based diaconic agency of the British Council of Churches was one of them (CEDI, 1989: 213–23). Today, the international Jubilee 2000 Campaign for the cancellation of debts intends to bring this injustice to an end. It demands the cancellation of all debts of the very poor developing countries. This amounts to nearly US$300 billion. Under this pressure, creditors have finally acknowledged the urgency of more durable and effective solutions. But they have been terribly slow in designing them, testing them and making them work concretely. They forced the multilateral agencies to acknowledge their responsibility and to move towards concrete solutions for the burden of multilateral debt, which is simply too heavy for many of those countries. The highly indebted poor country (HIPC) initiative, led by the World Bank and the IMF for the purpose of cancelling part of the debts of HIPC countries was a first step, but has not achieved any quick, effective or significant results. The comments below are not intended to repeat the abundant analytical materials being produced by various members of the international Jubilee 2000 Coalition and other social organisations who have been active on the debt issue for the last two decades. The purpose is to emphasise the steps forward made by the social movements in recent months, to highlight some lessons to be learned and to identify the opportunities and the challenges that lie ahead. Below I focus on a selection of movements and events organised mainly in 1999, although I would have liked to include all of them, from all continents. I will purposely leave aside much of what has been done in past years and much of what is being done around the world today, in solidarity with the peoples and nations afflicted by the plague of the debts – financial, social, political, ecological. I pay tribute to thousands, perhaps millions, of people and social organisations around the world for bringing the debt crisis into the limelight once again, and creating a favourable public climate for it to be debated. Jubilee 2000 in Latin America For decades now the social movement in Latin America has been active on the debt problem. Churches and the ecumenical movement have been particularly prominent in mobilising and educating their congregations on the need for a sustainable solution to the debt crisis. During the 1980s,

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a number of national and international conferences, meetings and seminars were held, and significant declarations were published containing alternative policy proposals which, if implemented, would certainly have created the conditions for a very different last decade to the century and the millenium. Here mention must be made of authors like Gustavo Marín and Patricio Rosas (Chile), Franz Hinkelammert (Costa Rica), Oscar Ugarteche and Javier Mujica (Peru), Xabier Gorostiaga and Gerardo Timossi (Nicaragua), Miguel Wionczek (Mexico), Alejandro Olmos, Alberto Sanchez, Alfredo Eric Calcagno and Eduardo Basualdo (Argentina), Reinaldo Gonçalves, Paulo Schilling, Maria da Conceição Tavares, Paulo Nogueira Batista Jr, João Luis Duboc Pinaud (Brasil), Fidel Castro himself (Cuba) and others. They have made important contributions to a critical understanding not only of the process of indebtedness, but of the ways and means to surmount over-indebtedness and embark on the path of self-reliant socioeconomic and human development. In 1989, an ecumenical meeting was held in Rio de Janeiro to discuss the debt crisis from a technical, political and theological perspective. On that occasion, a book was published (CEDI, 1989) carrying prominent contributions on the history and consequences of the foreign debt, biblicaltheological reflections and a number of documents and declarations by the churches on the issue of debt relief. In January 1999, representatives from a range of social organisations from 16 Latin American countries gathered in Tegucigalpa, Honduras, to launch the Latin American and Caribbean Jubilee 2000 Platform, with the call ‘Yes to life, no to debt’. The Declaration of Tegucigalpa states that the enormous amount of Southern debt is responsible for excluding four-fifths of the world’s population from economic and social development. Resulting from the long history of slavery and exploitation to which the peoples of the continent have been submitted, this debt expresses the unjust international economic order. The document summarises the drama of the region. In the mid-seventies, Latin America’s external debt was nearly US$60 billion, in 1980 it reached US$204 billion, in 1990, US$443 billion and it was estimated at US$706 billion by the end of 1999, which will require US$123 billion of payments. Between 1982 and 1996, debt payments reached US$799 billion, a figure larger than the total accumulated debt in 1999. (World Bank, 1998) The conclusion is that the external debt is unpayable, illegitimate and immoral. Also, that it serves as a pretext for the rich countries to impose neo-liberal policies and reforms on the debtor countries, perpetuating

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dependence by means of IMF- and World Bank-led structural adjustment programmes. A number of national initiatives have taken place in a variety of countries, among them Peru and Ecuador. For practical reasons, and due to its international repercussion, I will focus on the initiatives of the Brazilian Jubilee 2000 Campaign for a debt-free millennium. In July 1998, a national symposium to evaluate the impacts of the Brazilian debt on the nation’s economy and society gathered church leaders, ecumenical organisations, trade union and social movement representatives, journalists, politicians, researchers and the country director of the World Bank in intensive dialogue in Brasilia. A number of important materials were produced for the symposium (CNBB, CONIC, CESE, 1998). Proposals for mobilisation on the debt issue included holding a tribunal to try those responsible for Brazilian over-indebtedness. A Brazilian tribunal on the foreign debt was held in Rio de Janeiro, 27–29 April 1999. A number of highly representative Brazilian social, ecumenical and popular organisations mobilised more than 2,000 people to attend the tribunal, the purpose of which was to prosecute the external debt, identifying those responsible for Brazil’s over-indebtedness, and to sensitise society to the urgency of coordinated action. It also aimed to propose a policy of socioeconomic change required to overcome the unbearable burden of financial debt and to build a human-centred development path, socially and environmentally sustainable, and founded on democratic participation by all citizens in producing and enjoying the country’s wealth. Renowned jurists led the tribunal. The jury was formed by representatives of a variety of sectors of the Brazilian population: city dwellers and workers, peasants, women, indigenous peoples, churches and politicians. Witnesses included Brazilian intellectuals, politicians, church leaders and representatives of social organisations, as well as representatives of the societies and churches of countries in Latin America, Africa, Asia, Eastern and Western Europe. The next step in the Brazilian Jubilee 2000 Campaign strategy is a nationwide popular plebiscite, to be held 2–7 September 2000, in connection with the ‘Cry of the Excluded’ and the nationwide municipal election campaign.6 The goals are to educate and mobilise the masses of the population in the political aims of the campaign, among them de-linking from the IMF; pressure for a sovereign moratorium and an audit of the financial debts; pressure for regulations regarding the internal debt and financial speculation; and national sovereignty and a people-centred development path. In May 1999, the Peruvian Jubilee 2000 Campaign organised the ‘International Seminar on Foreign Debt, Debt Reduction and Global Solidarity’, focusing in particular on the ethical and juridical aspects of the debt crisis.

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This was just one of the many activities focusing on debt and development in Peru and in Latin America in the past decade. Again, the role of the Catholic and Protestant Churches in the process has been crucial. More recently, a very dynamic Jubilee 2000 Campaign has developed in Peru. I shall narrate it briefly here through the words of a very sensitive woman journalist (Bunding, 1999). In a dark room by a narrow alley in El Agustino, a Lima slum, a little boy is eating a dish of rice with vegetables. He is the last of one hundred people who lined up in the comedor, a collective popular kitchen, for his only meal of the day. When we asked his name, he raised his shiny black eyes. His mother shyly replies: ‘Jesús.’ This is how Madeleine Bunding starts her article about the Jubilee Campaign in Peru. Jesús is one among 50 per cent of children in Peru who are malnourished. ‘What Jesús will earn, if he finds a job, will be eclipsed by his country’s debt of … US$1,230 per Peruvian.’ Interest payments on the foreign debt take away no less that 28 per cent of annual income – almost twice the health budget. Yet Peru is not even included in the list of countries who may receive international cancellation of their debts. According to World Bank and IMF criteria, Peru is considered a middle income country and its debt levels are considered ‘sustainable’. Bunding points out that the IMF and the Bank ignore the enormous income inequality. The tough measures imposed by the multilateral institutions illustrate their failure to understand the linkage between debt and development. ‘Jesús’ mother is shy, but the women who prepared the food speak earnestly. Susana Arce Sarmiento depends on the comedor to feed herself and her three children. She is one of 1.8 million Peruvians who within five months signed the Jubilee 2000 petition for the cancellation of unpayable debt. Through the comedor she was able to collect hundreds of signatures. ‘If we get debt cancellation, the first thing we would like is more jobs’, she says. ‘If my boy could find a job, he could help us buy medicine for his sister. And if young people found a job, there would be less crimes and drugs.’ Susana’s daughter has asthma and the hospital near El Agustino does not admit any patient until they prove they can pay for the treatment. Susana simply cannot understand how the World Bank ever arrived at the conclusion that Peru is not a poor country.

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Jubilee 2000 Peru collected 10 per cent of the total signatures the Campaign presented to the G7 presidents in Cologne. And the role of the Catholic Church has been crucial. The endeavour became a massive educational campaign, with people discussing why Peru owed so much, how the government had been using the money, and, if the debt were cancelled, how this would improve the life of the poor. Such enthusiasm became a protest against the development model closely controlled by president Fujimori, faithfully following the restrictions imposed by the IMF. ‘Nowhere is the bankruptcy of the Peruvian development policy more obvious than in the La Oroya Valley, in the Andes, four hours away from El Agustino.’ Ericson, says Bunding, is a boy about the same age as Jesús. He lives in La Oroya, where Peruvian Jubilee 2000 campaigners gathered the highest number of signatures for the petition. It is there that the lead foundry spits smoke into the narrow valleys. The firm was privatised not long ago and is now controlled by a US mining company. In the negotiations to convince the company to sign a contract, the local government offered the company exemption from all taxes and environmental controls. Local farmers are now complaining that their sheep are losing their wool and their crops do not grow. The river is surrounded by a black marsh. In the city the presence of lead reaches hazardous levels, according to César Siguas, co-ordinator of the campaign, whose son has three times the acceptable level of lead in his blood. The development model of the 90s offers the inhabitants of La Oroya lead poisoning and nothing more. On such a model, where all cards are marked to benefit the rich Northern countries, the gains of the La Oroya plant go Northwards into the hands of the foreign stockholders, while the foreign currency Peru earns by exporting lead also returns North to contribute to the interest payments on the debt to Western creditors. All that is left for Ericson and other kids who play in the muddy street are the black heaps of garbage and bald rock. The Latin American and Caribbean Coalition of the Global Jubilee 2000 Initiative met from 20–23 September 1999, in Matheu, Buenos Aires Province, Argentina. The call was ‘For a Debt Free Millennium’, and ‘Yes to Life, no to Debt’. Participants from different countries, initiatives and platforms7 once again reaffirmed their conviction that the goal of the campaign is to achieve the annulment of foreign debt as a first step toward a full, definitive Jubilee, as inspired by the biblical text of Leviticus 25. The Jubilee 2000 Campaign, seeded in Europe, also has roots in North America, Asia-Pacific and Africa. There is simply no space here to go through

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all that has been done, but the events surrounding the G8 meeting in Cologne, in June 1999, where all those campaigns converged with signed petitions and a clutch of proposals to do away with over-indebtedness and the social and ecological debts, are evidence of how widespread and successful the campaign has been. Jubilee 2000 USA Over recent years a strong Jubilee 2000 Coalition has developed in the US, encompassing a variety of churches and social organisations. They have an important influence upon both the US Executive and Legislative. Jubilee 2000 USA has worked in collaboration with other coalitions on the continent and worldwide. It is now organising a major event on debt cancellation to be held on 9 April in Washington, DC. This will inaugurate a full week of action on debt, structural adjustment and the IMF/World Bank, reports Robert Weissman for Jubilee 2000 USA. The US April mobilisation aims to influence national and international policy and decision makers; and to call on the US public to pressure Congress and the Administration to cancel the crushing international debt of impoverished countries. Jubilee 2000 Japan and the 2000 G8 Meeting in Okinawa Japan deserves special mention because, as of 1 January 2000, it took the lead of the G8. This means that its influence on setting agendas for G8 meetings and on influencing policy are enhanced. A strong Japanese Jubilee 2000 Coalition has developed and is now leading the actions regarding G8 meetings to be held in Japan during 2000. Japan’s coalition points out that to form a human chain around G8 meetings has become part of the Jubilee 2000 culture, but that this cannot be expected at the Okinawa meeting from 21–23 July 2000, because the island of Okinawa is remote and difficult to reach (Kitazawa, 2000). Therefore, Jubilee 2000 Japan Coalition proposes to hold an international conference, attended by two official representatives from each national Jubilee 2000 Coalition, regional network and international organisation waging Jubilee 2000 campaigns. This conference will be held from 19–20 July 2000 in Naha City, the capital of Okinawa. The goals are (1) to agree on a petition to be presented to the G7 heads, demanding total cancellation of the debt of the 41 heavily indebted and poorest countries by the end of the year 2000; and (2) to issue a statement by Jubilee 2000 campaigns worldwide on Japan’s Jubilee 2000 position, policy and strategy on the debt solution which could be valid beyond the year 2000. A petition will be handed to Prime Minister Keizo Obuchi and other G7 heads on 21 July.

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On Saturday 22 July, the Anti-US Military Base Coalition in Okinawa which opposes the relocation of the Futenma US Marine Helicopter Base to Nago city is planning to make a human chain surrounding either Futenma Heli Base or Kadena Military Air Base, which is the largest US air base in the Pacific and Asia region with two 4,000-metre runways. Futenma is close to Naha city; 10,000 people are needed to surround it and access to it is much easier. Jubilee 2000 delegates are welcome to participate in the chain action, and to carry Jubilee and debt cancellation banners. The Coalition8 warns that all action in Okinawa is non-violent. The Coalition will gather Jubilee 2000 campaigners in front of the Ministry of Foreign Affairs in Kasumigaseki, Tokyo, and a few of them will meet and hand over their Petition to Cancel the Debt, as well as the information sheet on the worldwide Jubilee 2000 Campaign, to the Japanese government. The rest of the group will remain outside the gate with banners. The same will be done at the Ministries of Finance and of Foreign Affairs. This action will be taken every Tuesday until April before the IMF/WB Spring Meeting. April may be general election month in Japan and there is a chance that the Democratic Party may win. If this happens, the Prime Minister will be Mr Yukio Hatoyama, president of the Democratic Party and a key figure of the Jubilee 2000 Parliamentary Caucus. The Japan Jubilee 2000 Coalition statement below deserves to be presented here for its powerful content and potential importance given the forthcoming G8 meeting in Okinawa. The March on Cologne Cologne, 19 June 1999: 35,000 people coming from hundreds of countries around the world gathered to create a human chain of solidarity demanding debt release for poor countries. Another 15,000 people gathered at the Churches’ Day in Stuttgart to support this demand. One year earlier, the International Jubilee Campaign had also gathered thousands of people in Birmingham, UK, to pressure the same club of the world’s richest countries for debt cancellation on behalf of the poorest countries. Since that date, the Jubilee Campaign has spread throughout the world, reaching more than 50 countries and gaining from its increasing cultural and national diversity. Using electronic communication, these national campaigns have worked in articulation with one another, developing into a globalized movement whose horizon has been gradually extended to encompass the concept of the social, political and ecological debts and the concern with their remission as a crucial condition for truly liberating the world’s poor from the chains of hunger, exclusion and deprivation of their basic human rights.

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The campaign originally aimed at gathering 5 million signatures to the petition for debt cancellation and the right to development. In Cologne, the G8 representatives were handed 17 million signatures, the second largest petition in history. The human chain embraced the city of Cologne, generating such powerful energy that Monsignor Rodriguez, from Honduras, said that this was a remarkable chain of solidarity, the alternative way of globalizing (LWF, 1999: 23). Some Other Jubilee 2000 Initiatives There has been intensive social action and pressure on governments and multilateral institutions from Asian social movements and coalitions. Among these are the Philippine Freedom from Debt Campaign, the Philippine-Thai Focus on the Global South, the Philippine-Asia Jubilee Campaign Against the Debt (PAJCAD). In May 1999, PAJCAD organised a conference on Cebu Island, Philippines, and published the CEBU Declaration ‘Break the Debt Cycle!’9 Among the European Jubilee 2000 Coalitions with whom PACS has been collaborating is the Spanish Citizen’s Network for the Cancellation of the Foreign Debt. They are organising a nationwide plebiscite on the debt. The date is set for March 2000, to coincide with the general elections (perhaps, due to current political tensions, the Basque country will hold its own plebiscite some time later). The preparations have reached 50 cities in more than half of all provinces and autonomous regions of Spain. Italy and The Vatican are key places where initiatives are taking place. In the words of singer/composer Bono (Bono, 2000), Pope John Paul II made the Debt Jubilee 2000 appeal his own moral crusade. His appeal has touched the hearts of religious and lay persons around the world. Tavola della Pace (an Italian initiative for peace) has organised a number of conferences and marches relating to the foreign debt in recent years. An Italian Jubilee 2000 Coalition, Sdebitarsi, is active throughout the country. In Treviso, a conference on the Jubilee 2000 was held on 2 January 2000 by a number of social organisations, among them Assoziazzione Beati i Costruttori di Pace, Banca Etica, Centri Missionari Diocesani del Nord-Est, Coordinamento Caritas Diocesane del Nord-Est, Operazione Bilanci di Giustizia, Tavola della Pace. They published a statement of commitment that says: For us, the Jubilee of the year 2000 will be the right and proper time to try and build a global society that is more just, one which respects the rights of all women and men. To achieve this we need to pursue the following objectives:

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a) Cancel the foreign debt of impoverished countries; b) Restore the land for a fair redistribution of resources with full respect for indigenous cultures and natural biodiversity; c) Exert pressure in favour of political control over international investments (M.A.I.; Millennium Round), monitoring the activities of transnational corporations; d) Guarantee dignity of labour, especially respecting the rights of women and children; e) Promote a culture of peace and non-violence for a world without wars, without armaments and without the death penalty; f) Recognise ourselves in all permanently poor pilgrims, immigrants, social outcasts, victims of discrimination, ensuring we all enjoy the same rights; g) Choose a sober lifestyle, reducing the quantity and quality of our consumption in a spirit of brotherhood and respect for nature, to build a sustainable future for all. But how can we act upon these objectives in our daily lives? How can we avoid getting caught up in all the rituals and symbolisms surrounding the year 2000? We want to set in motion community programmes that may help us identify and quantify the restitutions each one of us can put into practice daily, to join forces and create the synergies needed to make our actions powerful enough to influence the worlds political institutions, to change the existing economic structures and pave the way for alternative systems. Mass Mobilisations for Debt Cancellation In May 1998, 70,000 people crowded the streets of Birmingham, England, forming a human chain six miles long, to say ‘Drop the Debt’. In June 1999, 40,000 people linked up on the streets of Cologne, Germany, to demand justice for indebted nations, and to hand in to the presidents of the G7 countries a petition with 17 million signatures. In November, 1999, 30,000 people formed a non-violent human chain in Seattle, Washington, to demand action to lift the burden of debt. Like the Birmingham and Cologne events, this chain involved thousands of members of local congregations. In indebted countries there have also been large-scale actions. By November 1998, 1.2 million Peruvians signed the Jubilee 2000 petition in a space of five months, contributing to a total of over 17 million signatures worldwide. In June 1999, 2,000 people formed a human chain in Dhaka, Bangladesh, to call for debt cancellation. In October 1999, over 1 million

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people across Latin America took part in the ‘Cry of the Excluded’, to call attention to the burden of debt and injustice. Mobilisation is a living alternative. It means people expressing themselves in ways that are much more direct than voting. It means direct democracy. If the national and global authorities only understood that these events are part of a different future that is being built here and now, perhaps they would be less timid and fearful, and would take more decisive action regarding the dramatic plight of society (the working majority) and the natural environment under neo-liberal globalization and the excessive debt burden.

Partial Successes: Official Relief The consensus that partial or total cancellation of one state’s public external debt to another as a reasonable means to do away with over-indebtedness did not emerge very easily. Two factors have made it coalesce: one, the dramatic situation of impoverishment and growing inequality and social unrest in the highly indebted countries, including those who have been subject to IMF recipes for stabilisation and adjustment; the other, growing dissatisfaction and mounting pressure from society worldwide for a policy change that will make the lives of millions valuable and viable again. Movements of this kind have concentrated pressure on two types of targets: the multilateral institutions and the G7 countries. A number of networks of civil society organisations have launched educational as well as lobbying activities, particularly in North America and Europe and also in Japan.10 They all express the sense of practical solidarity from growing sectors of the Northern populations with the oppressed in the Southern hemisphere. Even more importantly, these social organisations and movements in the North are aware that neo-liberal globalization is fostering a process that has been called the ‘Latin-Americanisation of the North’. This term means the impoverishment and exclusion of masses of working people and increasing disparities, also in the Northern countries. What matters is that there is a growing awareness that today the geographic division of the world (between North and South, for example) is less important than the ‘sociological’ division between ‘the Global North’ and ‘the Global South’ – the globalized élites versus the globalized working people of both North and South. The Northern solidarity movement, therefore, is gradually realising that action in solidarity with the oppressed of the South is just one dimension of their own struggle for justice, equity and an environmentally sustainable order in their home countries and on the planet as a whole. Overall, we must rejoice because, given the re-configuration of the international division of labour brought about by neo-liberal globalization,

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which is intensifying the split between those who appropriate and enjoy wealth in excess and those whose work is their main source of livelihood, a coalition of Northern and Southern people weaving networks of action in solidarity with one another is a clear signal that a new world is already in the making. In 1996, the G7 met in Lyon, France. Discussion focused on the idea of cancelling up to 80 per cent of the foreign debt of 40 nations in Sub-Saharan Africa and Andean Central America. The condition was that only debt prior to the first negotiation (generally as late as 1985) would be considered. This meant a very small reduction, but it did help create a favourable climate for individual countries to consider cancelling ODA (Official Development Assistance) a reasonable option. Despite social pressure, progress was slow. A number of initiatives have ensued in recent years, some of which we will discuss below, but overall they were insufficient. The best results seem to have been achieved with respect to bilateral ODA; i.e., debt owed to Northern government agencies. Neither private commercial banks (who hold more than 50 per cent of Latin American and Asian foreign debts) nor the multilateral agencies have been willing to consider modifying the payment terms of ‘their’ debts. The HIPC Initiative To the minds of the government and multilateral creditors, however, the whole relief/cancellation exercise should be limited to very poor and highly indebted countries. And even they should be put to the test of a sixyear period when they would implement an enlarged structural adjustment programme (SAP). As Toussaint says, this ‘makes the process of freeing oneself from the burden as heavy as the burden itself’. These are the foundations of the HIPC initiative, created by the World Bank (with IMF agreement) as a response to the G7’s demand for a serious multilateral programme of debt relief. The original proposal was to cancel US$25 billion, or nearly 10 per cent of these countries’ total debt. Launched in 1996, it was the first acknowledgement by the multilateral agencies that the problem was critical and more than just financial: that it demanded political solutions. At the same time, the ‘just financial’ argument was clearly hypocritical, for the creditors had been exchanging debt payment scheduling for increasing power to influence domestic social and economic policy. This has actually been the SAPs’ deeper meaning. The nature of such programmes is ultimately political. But this was hidden behind a rhetoric of technicalities and they could count on the allegiance of local élites, who seem to have lost any loyalty and commitment to their own nations and people.

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‘The HIPC initiative … has since shown itself to be too restrictive in its current criteria for entry, too slow in delivering relief, and ineffective in bringing debt to sustainable levels’ (LWF, 1999: 11). This is the substance of the critique social movements have been presenting to authorities at a number of official meetings. Other social organisations, whose global moral influence is powerful and pervasive, such as the Roman Catholic Church and the World Council of Churches, were also dissatisfied with the HIPC initiative and impatient for more effective programmes promising quicker results. The Catholic and Protestant pastorals, and peace and justice commissions, deserve a special reference in this context. Their commitment to the cause of the debt Jubilee has been decisive. Their arguments on behalf of the poor and the excluded have been convincing for both their congregations and government authorities. Together with trade unions, popular movements of different sorts, intellectuals and social development organisations, they have built a global coalition whose presence can no longer be ignored, either by authorities or by the media. Under their influence, the wave of pressure on the Group of 8 (the seven wealthiest nations plus Russia), who met in Cologne in June 1998, produced quite significant results. Society Embracing Cologne – The G7 Cologne Debt Initiative The Cologne Debt Initiative, made public at that meeting, is first of all an expression of the failure of the HIPC initiative to produce palpable results. It is also the boldest and most promising set of proposals for debt cancellation made by the creditors so far. In the statement, the G7 governments acknowledge that past solutions to the debt crisis, the latest being the HIPC initiative, have not led to a solution of the debt crisis nor have they brought about socioeconomic recovery for the poorest countries. For the Jubilee 2000 campaigns around the world the initiative is the result of a combination of two factors: one, the recognition, after so many years of insistence on the false solution of neo-liberal SAPs, that they were aggravating, rather than alleviating the plight of the HIPCs; the other, the massive pressure exerted by the Jubilee 2000 campaigns, expressed in the presentation of 17 million signatures collected the world over, demanding the cancellation of HIPC debt. Demonstrations were staged and government authorities lobbied around the globe in different cities and countries, in a demand for a radically effective programme to eradicate over-indebtedness. The petition and other actions certainly influenced the G7 decision to create what the Brazilian newspaper O Globo (19 June 1999) called ‘the largest debt forgiveness program in History’. A few months earlier, a writer for the British Guardian (Elliott, 1999) had saluted the fact that presidents

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and prime ministers were all talking about ‘a plan to relieve debt of the poorest countries’ as ‘a deeply significant moment for grassroots activism and democracy, and the Jubilee 2000 Coalition has every reason to feel proud of itself for what has been achieved’. This is of course a great victory for the global social movement that has come together around the Jubilee mobilisation. It shows that, in response to exploitation and globalization of capital, society is proving capable of effectively globalizing its voice and action. The Cologne initiative, however, is gravely insufficient. It clearly does not go beyond the limited framework of the HIPC initiative, nor does it make any fundamental change to this initiative, despite the abundant evidence that the HIPC proposals will never lead these countries out of their precarious situation to a sustainable solution. Indeed, the assertion from top government officials who met in Cologne that the debt burden of the poorest countries is solved is unfortunately simply untrue. They did not even have the courage to accept their share of responsibility for the failure of the neo-liberal prescriptions they passed on to the debtor countries through the IMF and World Bank, in exchange for rescheduling and partial relief measures. What was achieved in Cologne? In June 1999 we briefly evaluated the achievements of Cologne in a newsletter widely circulated by email as well as in printed form (PACS, 1999). Let us begin by outlining the essential elements of the Cologne initiative as officially publicised: 1. A reduction of up to US$90 billion on 33 of the poorest countries’ debts. US$70 billion would be cancelled by the G7 countries and another US$20 billion by other creditor countries. This total would mean a cancellation of 70 per cent of the US$127 billion owed by those countries. 2. Financial aid to these countries would be quadrupled, from the current US$13 billion to US$50 billion. 3. The IMF would design a plan to sell 10 million ounces of its gold reserves (less than 10 per cent of the 104 million ounces it controls) to cover part of the cost of cancellation. 4. A Millennium Fund would be created, with US$2 billion immediately available. 5. A new condition would be applied in creditor–debtor negotiations; i.e., that debtor countries prove they are using the savings earned with cancellation primarily for education, child care, health (the statement

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mentions the fight against AIDS), greater transparency regarding the national budget and broader consultation with civil society in developing and implementing economic programmes. 6. The agency responsible for deciding which nations qualify to benefit from the Initiative will be the IMF. Favourable comments from social organisations on the G7 cancellation programme were voiced by Oxfam International’s Washington office and representatives of the US Jubilee 2000 Coalition (Washington Post, 19 June 1999). Why are these measures insufficient to eradicate over-indebtedness? While not disregarding the initiative’s positive achievements, let us focus on its various flaws, insufficiencies and omissions: 1. The Cologne initiative is merely an extension of the HIPC initiative. Although less emphatically than in the latter, IMF-led structural adjustment programmes (SAPs) continue to be a fundamental condition, involving neo-liberal reforms in the countries wishing to benefit from cancellation. Trimming the period of reforms that will effectively launch delivery of debt relief from six to three years does not change the essence of the problem. SAPs have not resulted in real benefits for the population, as acknowledged recently by the World Bank. They continue to involve conditions that punish the majority of the population and subordinate governments to creditor control over domestic policy. 2. Only 33 of the 41 poorest countries listed by the World Bank (or of the 52 listed by the international Jubilee 2000 Coalition) are to benefit from the initiative. But only 20 could actually meet the conditions set out in Cologne. Countries in extreme need like the Democratic Republic of Congo, Sudan, Liberia, Sierra Leone and Angola are excluded. The majority of these countries would have to pay more than they can borrow: in 1997, they paid US$8.2 billion to foreign creditors, while they received only US$8 billion in loans. Both the World Bank and the IMF (these countries’ largest creditors) receive more than they lend to these countries. Even with the benefit of a reduction under the new framework, Mozambique, the poorest of all, will still have 40 per cent of its budget committed to debt service. 3. Despite the announcement of a possible US$70 billion cancellation by the G7 countries, it is estimated that, given the conditions and other technical details, only US$25 billion will in fact be cancelled. This amounts to only 12 per cent of the total debt of the 41 HIPCs, or US$205

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4.

5.

6.

7.

8.

billion. Even if the cancellation reaches US$90 billion, as announced, it will still be less than the fortune of one single North American individual, Bill Gates ($100 billion, according to Forbes Magazine, 21 June 1999). The majority of the world’s poor live in countries like India, Indonesia, Brazil, Bangladesh, Pakistan and Mexico. But none of these countries is contemplated in the G7 debt cancellation or reduction programme. The Brazilian Debt Tribunal made concrete proposals for dealing with Brazilian over-indebtedness which would apply to other so-called ‘middle income’, highly indebted and highly impoverished countries. Today we hear the IMF and the World Bank jointly claim that structural adjustment should be redesigned to include social concern, and that it should not aim at strictly economic goals, such as price stabilisation and favourable conditions for private investment. Their rhetoric includes the fight against poverty. It took years of failure, at enormous socioeconomic cost, for these blindly stubborn institutions to acknowledge that SAPs were not adequate tools for overcoming the debt crisis. What sense does it make now to empower the IMF to lead the implementation of the initiative? The IMF continues to be a bankrupt institution in sociopolitical terms. IMF-sponsored SAPs continue to make whole nations and populations poorer and always less self-reliant and less sovereign. Socially and ethically the IMF is not qualified to choose the countries who should have the right to debt cancellation, nor to lead the adjustment programmes. The transfer of wealth from the South to the North relies mainly on two mechanisms: debt payments and unequal trade. Both are factors of impoverishment that neutralise the meagre benefits of official aid coming from the North. With declining terms of trade and increasing interest rates on the debt stock and arrears, the Southern debtors are practically insolvent. They earn less from their increasing exports and, at the same time, must pay more: a sure recipe for unsustainability, corruption and poor governance. The debt relief provided by the initiative will fall far short of actual need. Official aid has continued to fall. In 1998, Southern countries paid US$250 billion to their creditors, but received little more than US$30 billion in ODA, only 55 per cent of the US$54 billion of 1990 ODA. Besides, the aid only targets poverty alleviation, whereas strategically effective measures for eradicating poverty by combating the factors of impoverishment continue to be timid or absent (NGOWG, 1994b). The Initiative does not take into account the responsibility of private creditors nor does it call on them to share the burden of cancellation. World Bank money, originally earmarked for development programmes, is also

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being channelled to debt payments as part of the conditions for getting further loans.11 Such distortions ought to be targeted in an overall policy of debt reduction which the initiative was not bold enough to outline. Some European Initiatives Switzerland is one of the pioneers in debt relief policy. The Swiss Coalition of Development Organisations12 tells us that between 1989 and 1990 a record number of 250,000 people, or 4 per cent of the Swiss population, signed a petition demanding a debt reduction policy (Swiss Coalition, 1999:18). The motto of that campaign was ‘Debt reduction: a question of survival’. In May 1991 the Federal Assembly (the Swiss Parliament) accepted a programme of debt reduction consisting of a SF400 million (plus SF100 million from a previous credit), to which another SF300 million was added for global environmental protection projects. This fund involved four measures: purchase and remission of public debts; participation in those purchases, coordinated internationally, and in campaigns for remission of commercial debts; incentives aimed at financing arrears owed to the multilateral financial institutions; and support for a computerised debt management programme, which makes debt management more transparent. The philosophy behind the programme is that those responsible for the debt crisis ought to support the burden. Over-indebtedness has generated much profit for them. Debt reduction should benefit the broader strata of the population of developing countries which have suffered most from the crisis. For that purpose, the programme requires that government funds saved by bilateral debt remission be deposited in local currency as a counterpart fund. This fund is then used in projects aimed at the poorest sectors of the population. Since 1992, a public debt of SF1.1 billion in export credits owed by 19 countries was eradicated. Counterpart funds were created in 12 of these cases. Another requirement is that civil society in the debtor countries be partially involved in the process of debt reduction. The Swiss Coalition is an active part of the international Jubilee 2000 Campaign and has five aims: 1. A significant increase in the amounts of poorest countries’ debts to be cancelled, over and above what Western creditors have proposed. 2. The financial relief resulting from debt reduction should serve to improve the well-being of these countries’ populations, also requiring that local social organisations, local peasant and workers’ unions be enabled to control and influence debt reduction. 3. Stabilisation and structural adjustment programmes have not contributed to overcoming the debt crisis. On the contrary, they have made it

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worse. Debt relief initiatives relating to new loans or credits for SAPs are thus mistaken and lead to results very different from those expected. 4. An international insolvency mechanism is needed as a resort for poor countries that have been submerged by their debt. Interest and reimbursements should be paid only to the extent that paying them does not jeopardise meeting the population’s basic needs. The assumption is that creditors should assume part of the responsibility for the crisis, which they have refused to do so far. 5. The Swiss Coalition argues that countries like South Africa, Zaire and Ethiopia should not be made responsible for the debts accumulated by their defeated dictators. The Western states and the Eastern nations financed these corrupt leaders in full awareness that the loans would be used to modernise the army, the police and the torture apparatus or that it would disappear into foreign accounts. The actions of those dictators were well known and tolerated because they were ‘friendly dictators’, who offered the creditors privileges in exchange for their loans. Dictators who have passed away include ex-president Marcos of the Philippines, Idi Amin of Uganda, Mobutu of former Zaire, Medici of Brazil, and others. However, their people continue to pay enormous debts contracted by these autocrats. Many of these loans were used for personal enrichment or for repression against the people, or were transferred to foreign accounts. Total capital flight from African countries is estimated at 40 per cent of all goods produced on that continent (Swiss Coalition, 1999: 30). In South Africa, when the apartheid regime was finally defeated, the Mandela government inherited US$18 billion in debt. If they do not pay, the IMF threatens to isolate South Africa from the international economy. Who ultimately is responsible for these debts? All these are so-called ‘odious debts’. 13 This doctrine has now entered international law and the Jubilee 2000 Campaign demands that credits given to illegitimate regimes should be negotiated directly between the original partners. If this is not possible, then the debt must be categorically cancelled. Since the creditors are obliged to take the responsibility for the risk involved in granting loans to illegitimate regimes, payment of these loans is both economically inappropriate and ethically improper. France also plays a prominent role in debt relief and cancellation. In November 1998, the French government unilaterally cancelled the debts owed to it by Nicaragua and Honduras, which had been devastated by Hurricane Mitch. According to Mazerolle (1999a: 12), France is the most generous of the G7 countries. In 1997 it allocated nearly US$6 billion for ODA (or 0.45 per cent of the GDP) to the HIPC, placing it second after Japan

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in terms of value and first in terms of percentage of the GDP (the US being the last among the G7). In all, the country has cancelled about US$9 billion of its HIPC debt in recent years, which constitutes more than half of the total cancellations up to 1998. France favours an equitable sharing of the burden of debt cancellation, in terms of the GDP of each G7 country. This is mainly addressed to the US, which directs the largest amounts of its aid to Egypt and Israel. France also demands that the savings generated by debt relief and cancellation be used for projects directly benefiting the populations. It underlines the ‘determining role’ of civil society organisations in guaranteeing ‘good governance’. I had the privilege of participating in the Lenten Campaign led by the French Catholic Committee Against Hunger and for Development (CCFD) in March 1999. The theme was the debt Jubilee, under the banner ‘Forgive us our debts’. I was impressed to see the work of tens of thousands of voluntary campaigners throughout the country, educating and mobilising the French population around the ‘duty of solidarity’ with the poor of the debtor countries, demanding effective debt relief and cancellation from their government as well as from the Multilateral Agencies and the private creditors. The French campaign also addressed the issue of transparency and of democratic, public participation in the economy as one of the most effective ways of fighting poverty. Britain recently announced an important bilateral debt cancellation initiative. First, it should be acknowledged that the Labour government has shown willingness to discuss debt cancellation from the very beginning. Had it been the Tory government, this would have been unthinkable. Second, let us focus on the most recent proposal coming from Chancellor Gordon Brown, to cancel 100 per cent of bilateral debts owed to Britain by some of the poorest countries. In his announcement, Brown was supported by Clare Short, head of the Department of International Development. According to Nick Buxton (Buxton, 1999) of the UK Jubilee 2000 Coalition: The announcement came in response to a targeted campaign by the Jubilee 2000 Coalition, who immediately praised the Chancellor for his vision and leadership on the debt issue. The details of the 100% promise countries which will benefit from Brown’s announcement are those included in the HIPC – the international vehicle for debt rescheduling and cancellation, managed by the International Monetary Fund/World Bank. 41 of the world’s poorest countries qualify for HIPC as being in need of debt cancellation, but to actually get it, they have to prove their ability to meet stringent economic conditions.

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In addition, the Chancellor has spearheaded changes to the IMF’s traditional programmes to ensure that decisions about debt cancellation are more transparent and that benefiting countries give commitments that resources from debt relief are dedicated to poverty reduction. This means that it will take some time for countries to progress through the initiative. The Treasury estimates that at least 25 of the 41 will be far enough through to receive some multilateral cancellation by the end of 2000, and it is these 25 which will also get their debts to Britain cancelled. The first four of the 25 are those at the front of the HIPC process, Uganda, Mozambique, Mauritania and Bolivia. These countries have already met conditions laid down by the IMF and World Bank. It looks like they should now move through by the end of January when they will receive some multilateral debt relief; and at this point will now also get their debts to Britain cancelled. An additional 6 will qualify by the end of April. These will probably be out of Benin, Senegal, Burkina Faso, Tanzania, Mali, Côte d’Ivoire and Guyana. Brown says that debts will only be cancelled on the condition that the resources released will be spent on poverty alleviation measures, such as education, health and basic sanitation. Jubilee 2000 have consistently argued that this must be the case if debt cancellation is to benefit the poor, the people who need it most. Buxton goes on to estimate the cost of cancellation for Britain: US$2 billion, 96 per cent of which is owed to the Export Credits Guarantee Department. The cost will be spread over 20–23 years. The Treasury estimates that Britain has now pledged a £5 billion debt relief package overall. The Treasury says this is made up of: a) £2 billion just announced for bilateral debt b) £3 billion from: British contributions to the World Bank HIPC Trust Fund ($385 million); British contributions to the IMF for debt relief; various aid debts written off (from 1979 onwards). Buxton adds: What does the announcement mean? By itself, Brown’s promise does not actually deliver a great deal in terms of finance. The 41 HIPC countries owe Britain £2 billion out of their total debts of £132 billion. So the real significance of Brown’s promise is that it puts pressure

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on the other G7 creditors to also cancel 100% of their bilateral debts. If all the G7 creditors were to do this for HIPC countries, about 40% of the total debts owed would be written off. Now that Britain has joined the US and Canada, that leaves Germany, Italy, France and Japan to follow. These remaining countries are owed the bulk of the debt [see table below], so it is crucially important that the domino effect, given a boost by Brown, continues. Jubilee 2000 UK duly takes this as a campaign victory. But it notes that many countries are left out, considering that 52 countries are identified as being in urgent need of debt cancellation; that, of the 41, only 25 are likely to benefit before the end of 2000; that very poor ‘middle income’ countries, like Nigeria, Peru and Ecuador, ought to be included in the official HIPC debt relief process, thereby qualifying for the British initiative; that other European creditor governments should follow the UK, the US and Canada, and still many more would be needed (France, Italy, Germany and Japan are now being targeted by the Jubilee 2000 campaigners); that the choice of the HIPC initiative as the framework for the British cancellation is too restrictive; that tough conditions are necessary, but are not imposed from above, particularly on undemocratic governments. It is worth quoting Jubilee 2000 proposals in this regard: (a) that there is transparency about funds released by debt cancellation; in other words, that the public in those countries is made aware that their government is a beneficiary; (b) that any resources released should be prioritised for poverty reduction and economic recovery; (c) that this should be achieved through democratic participation of civil society in those countries. We have always been sceptical that traditional IMF economic conditions benefit the poor – on the contrary, we believe they harm the poor. See Table 4.7 for countries who could reach the decision point in the HIPC process and therefore qualify for 100 per cent UK debt relief in the next twelve months. Table 4.6: Owed by 41 HIPCs (US$ billion) France Japan Germany Italy

11.7 10.5 6.1 2.7

UK USA Canada

2.7 6.0 0.7

110 External Debt Table 4.7: UK Debt Relief (a) By January 2000 Country Uganda Mozambique Bolivia Mauritania Total

Debt to UK (£ million) 6 93 12 7 118

Debt service to UK (£ thousand) 0 0 0 322 322

(b) Probably by the end of April 2000 (IMF/World Bank Spring meetings) Country Benin (February) Senegal (February) Burkina Faso (March) Tanzania (March) Mali (April) Ivory Coast Guyana Total

Debt to UK (£ million) 3 2 1 117 4 34 74 235

Debt service to UK (£ thousand) 216 20 80 9731 263 3845 3498 17563

The IMF and World Bank have signalled that there is a risk that both Ivory Coast and Guyana are ‘off track’; i.e., not meeting the necessary conditions for HIPC debt relief. (c) Possibly by the end of 2000* Country Chad Ethiopia Ghana Guinea Guinea Bissau Honduras Laos Malawi Nicaragua Niger Togo Vietnam Yemen Zambia Total

Debt to UK (£ million) 0 13 12 5 0 2 0 4 1 11 14 10 3 229 304

Debt service to UK (£ thousand) 0 563 1518 154 0 0 0 842 39 103 161 850 3490 2010 9730

* NB. This list is less easy to predict, given the uncertainty of how fast these countries will move through the HIPC process.

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If these 25 countries do get far enough through the HIPC process by the end of 2000, the UK will have written off £656 million in bilateral debts. In the context of the Commonwealth, Mr Donald McKinnon, New Zealand’s foreign minister and, since November 1999, secretary-general of the Commonwealth, has pledged to work for debt relief and technical assistance transfers within the Commonwealth. Over-indebtedness affects a third of the organisation’s member states. Olusegun Obasanjo, president of Nigeria, called for debt relief for poor countries be included in an ‘economic charter’ that would be the economic counterpart to the landmark 1991 Harare Declaration on democracy and the rule of law (Financial Times, 13–14 November 1999: 4). However, Mr McKinnon’s is an impossible mission – to implement an agenda centred on the idea of ‘liberalisation with a human face’, which means seeking to reconcile the position of G7 countries (who push for further trade liberalisation and, inescapably, further indebtedness) with that of developing countries (who, on the basis of accumulated unfavourable experience with neo-liberal structural adjustment and increasing dependence on international markets and investment, fear its adverse effects). Meanwhile, the World Bank’s outgoing chief economist, Joseph Stiglitz, accuses the international financial community of excluding poor countries from the macroeconomic decision-making process. ‘The world’s poor countries’, he says, ‘are being denied a seat at the table where key international economic decisions are made, even if those decisions hurt them.’ Speaking at the 2000 Davos Forum, he expressed his disapproval of Russia’s privatisation programme, a system that, instead of providing incentives for wealth creation and distribution, encourages ‘asset stripping’ (International Herald Tribune, 27 January 2000: 1 and 17). He also said that ‘providing free capital mobility has been an open invitation for people to take billions – in fact, billions and billions – of dollars out of the country.’ He also criticised the way the IMF and other institutions handled the Asian financial crisis of 1997–98, saying that ‘decisions were made … that really adversely affected working people, small businesses’. As a result, many were thrown out of jobs. ‘Even though it was international financial markets that were at the root of the problem …, it was small businesses that faced interest rates that put them into bankruptcy, in some countries more than 50 per cent of the firms being put into bankruptcy.’ Mr Stiglitz made it clear that for him the essence of the problem is political, not ‘merely’ economic or financial – and this applies equally to the debt problem. He suggested that one of the challenges for the international financial community was ‘to establish a framework in which economic

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policies are made which affect everybody’, and to make sure that all those affected ‘can have a voice in those policies’. The North American Initiatives Unfortunately I do not have time or space to explore all initiatives in debt relief and cancellation. Canada too has been a leader in seeking, and pressing for, debt cancellation policies. And the various Canadian civil society coalitions have been extremely important in pressuring their government in this direction. I will briefly mention the Canadian government’s unilateral decision in December 1999 to cancel US$600,000 owed to it by Bangladesh, without imposing punitive economic restructuring measures. The decision was applauded by the Canadian Ecumenical Jubilee Initiative. The Jubilee Initiative is a church-led organisation which has been campaigning for complete and immediate cancellation of the debts of the world’s most impoverished countries and for G7-imposed Structural Adjustment Programmes (SAPs) to be replaced by sustainable social and economic development policies. In 1999 it collected the signatures of one in every fifty Canadians on a petition in favour of these measures. ‘We are glad to see that Canada is finally moving on the Debt Initiative it announced in March’, says John Mihevc, of the Canadian Jubilee 2000. ‘The task now is for Canada to fulfil the rest of its promises, and to expand them to other countries which cannot pay these unjust debts’ (CEJI, 1999a). There follows a brief critical evaluation of President Clinton’s recent debt relief proposal for the HIPCs. First, it should be noted that, as regards Southern foreign debt, the Clinton administration has combined passivity with opportunism. Despite the fact that the US is by far the wealthiest country in the world, with the highest gross investment in armaments, it has been very stingy about official development loans to the 41 poorest countries of the HIPC initiative. As shown in Table 4.3, it ranks fourth among the lender countries, after France, Japan and Germany. Second, there is a deep split between the Clinton administration’s imperial globalist approach to macroeconomic policy and the nationalist approach of the Republican majority in the US Congress. The Republicans have been strongly advocating cuts in, and even the abolition of, US support for IMF-led SAPs, and the closure of both the IMF and the World Bank. They argue that the resulting savings would allow the US government to cut taxes and increase domestic social investments. Clinton’s role has been to establish a sort of global empire of US political and military domination, and an overpowering US corporation and bank presence in the global economy. The hallmark of his administration has

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been adamant neo-liberal policy approaches to over-indebtedness, SAPrelated structural reforms, international trade and international finance. In March 1999 Clinton officially announced an extensive ‘debt forgiveness’ package for some of the poorest nations, if they enacted broad reforms. His package would have to be approved by Congress, other creditor nations and multilateral agencies. Sanger (1999) reported (before the announcement) that ‘pressure has grown to provide relief to countries that must commit huge portions of their budgets to pay back debts, which leaves very little for education, health care or basic services’. The plan would include countries that were not among the original 41 of the HIPC list, such as Ghana, Congo, Laos and Honduras, but, of course, ‘only if they met certain economic targets’. Note that Clinton made no reference to social targets or to re-shaping the extremely economistic IMF-led structural adjustment policy. At that point the US was willing to cancel more than US$3 billion, if other donors agreed to follow suit. ‘But the impact on the federal budget’, Sanger continues, ‘would be less than US$200 million’, because ‘most of the debts have already been written off as virtually uncollectable, so the added cost to the government of full forgiveness is considered relatively small’. This way Congressional resistance could be circumvented and the administration would convey an image of compassion. In September, Clinton submitted a US$970 million supplementary budget request for additional funding for debt relief between 2000 and 2003 to meet US commitments made in Cologne and for a debt-for-nature swap programme, Bryden reports (Bryden, 1999). For the year 2000, he continues, the administration requested US$210 million. Clinton’s moves are tightly limited by the Republican-dominated Congress. It has refused trade-related conditions proposed in the Senate and has maintained emphasis on participation and transparency and the focus on poverty reduction; also, that resources freed be applied only to debt relief and through a fund separate from the IMFmanaged Enhanced Structural Adjustment Facility (ESAF). By the end of 1999, Clinton made public a proposal for much less substantial US ODA debt relief. The proposal consists of a US$1 billion relief package to be implemented in four years. This means less than 0.1 per cent of the US military budget in the next four years. It represents only 0.0004 per cent of the total external debt of all developing countries and only onesixth of the total bilateral debt owed to the US. Toussaint (1999b) remarks that it is surprising, and even scandalous, that such a slight promise on the part of president Clinton should be so warmly received by the information media and even by civil society organisations. The right-wing economist Jeffrey Sachs is one who denounces the proposal as totally insufficient. ‘It

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is sad’, says Toussaint, ‘that among those struggling on behalf of the abolition of the Third World debt there are colleagues who react positively to the Clinton Administrations media offensive.’ He continues: I just returned from a work trip to Mali and Senegal, two of the 41 countries eligible for the HIPC initiative. I can affirm that in the case of Mali, the measures taken in Washington at the end of September 99 by the World Bank and the IMF with the support of the Paris Club represented, at best, a reduction of 8 per cent of its foreign debt. Besides, it is probable that the price Mali will have to pay after its debt is reduced will be higher than what the country has paid these last years (which amounted to more than 20 per cent of State fiscal revenues). Nothing, therefore, to celebrate. Mali is a country with 10 million inhabitants, more than 80 per cent of them illiterate, more than 70 per cent of them below the absolute poverty level. When Clinton announced debt cancellation plans for 36 out of the 41 HIPC initiative countries, says Toussaint, he did not refer to the US unilateral decision in the 1970s to increase the interest rate from 4–6 per cent to more than 20 per cent in a few months, betraying the good faith of the contracts with Southern countries who were then forced to begin taking out new loans to pay the interest on the old ones. For Latin America, the most indebted continent in US dollars, this meant additional payments of US$106 billion. The Japanese Initiative Japan’s debt relief plan, presented in Cologne, would waive repayments on official development assistance loans from countries that are deep in debt, by extending grants-in-aid equivalent to the loan repayments. This would amount to US$3.3 billion in ODA, applicable to almost all the 41 HIPCs, explicitly excluding Myanmar, Vietnam, Kenya and Guinea. Japan is owed a total of US$10.5 billion by the 41 HIPCs and US$31.4 billion by the wider group of 52 Jubilee 2000 countries. This makes it the largest bilateral creditor to the Jubilee 2000 countries (France is second with US$19.8 billion and the US is third with US$12.5 billion). Japan supports the sale of part of the IMF’s gold reserves to finance debt relief (the daily Yomiuri Shimbum, 28–29 April 1999, Tokyo). The Jubilee 2000 Coalition of Japan expressed its dissatisfaction with the official debt relief programme, for two main reasons: one, that government will not cancel the poorest countries’ debt by year 2000; two, that Japan will provide a country the same sum in grant assistance only when

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it repays the debt it owes Japan, so that final debt relief will only be achieved by year 2040. The Coalition has pressured the Japanese government through dialogue with the Ministry of Finance on cancellation of the poorest countries’ debt after the Cologne summit. The Coalition has plans to bring together the group of Diet members concerned over the poorest countries’ debt and the three co-presidents of Jubilee 2000 Japan for discussions with Mr Keizo Obuchi, the Prime Minister, at the forthcoming session of the Diet where next year’s fiscal budget is to be debated. Nick Buxton (Buxton, 2000) reports that international campaigners are convinced it is vital to put pressure on the Japanese government, given its crucial role as Chair of the G8. The Japanese government was reluctant to put debt on the agenda for the G8 Summit and has even been threatening governments such as Ghana with cessation of aid if they apply for HIPC. However, like all governments, they are sensitive to international public opinion. If Japanese embassies around the world started reporting demonstrations calling for Japan to take a lead on debt, this, combined with the effective campaigning and lobbying work of the Japanese Jubilee 2000 Campaign, could force significant progress. The first key focus was the meeting of the G8 finance ministers in Japan on 22 January. Despite the meagre results of this meeting, Jubilee 2000 campaigners in Britain, Scotland, Ireland, the Netherlands, Norway, Sweden, Finland, Australia and Germany, among others, had been demonstrating in front of the Japanese embassy in their capitals, demanding that Prime Minister Obuchi cancel the debts and that the agenda for the G8 July 2000 meeting include that item. Can Japan afford to cancel the debts of the poorest countries? The answer given by Buxton is ‘yes’. Despite the damaging recession that Japan has suffered, it remains the second richest country in the world, after the United States. While the average person in Vietnam (one of Japan’s biggest debtors) lives on US$310 per year, the average in Japan is US$38,000 – more than one hundred and twenty times richer. Other debtors are similarly impoverished – average income in Ghana, for example, is US$390 per person. Yet Vietnam and Ghana pay money every year to Japan. Japan is estimated to receive about US$307 million each year in debt repayments from the 41 poorest countries – 0.006 per cent of its total income, or about US$2.50 (Yen 260) per person – less than the price of a cup of coffee in Tokyo. This is what the Japanese people would effectively be giving up each year if they wrote off those debts.

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Buxton remarks that the cost of cancelling the poorest countries’ debts is also small in comparison to the amount the Japanese government was able to find to bail out private banks last year, as the recent recession took hold. That bailout cost Japanese taxpayers a total of US$600 billion. Cancelling the debts of the poorest countries would cost less than onefiftieth of that amount, even taking the debts at their unrealistically high face value.

Alternatives, from Society’s Point of View The main achievement of the current phase of resistance and mobilisation for a solution to over-indebtedness has been that the principle of debt cancellation for the HIPCs has become generally accepted. This is an important step forward, a blow against the conservative ideology of ‘those who owe should pay’. Until now it had not been possible for indebted nations and peoples to ask ‘Who owes whom?’ as they recall the colonial or imperial plundering of which they were victims, ‘How many times and in how many different forms has the debt already been paid?’ or ‘How much is enough?’ as they see their national coffers drained, their wealth exported in bulk and their children hungry and dying. How cancellation will actually be implemented is still in dispute. Social organisations are still kept away from the official discussions about the means to implement cancellation. Governments in France, Switzerland and Canada have already established an ongoing dialogue with representatives from society about their debt relief and cancellation policies. To some extent the World Bank has also started that debate. But they are rare exceptions. The official targets for cancellation, as I pointed out when discussing the Cologne initiative, are only the so-called HIPCs, and therefore exclude the countries classified by the World Bank as ‘middle income’ despite the fact that they are also nearly, if not already, bankrupt, and that they account for the highest number of poor in the world.14 I call on the international Jubilee 2000 Campaign, and on the Northern creditors, to consider adopting a new acronym for a new category of countries to benefit from radical debt restructuring and cancellation: the HICHIP, or the Highly Indebted Countries with High Incidence of Poverty. An even bigger and more difficult task lies ahead for year 2000 and beyond, however: a debt-free millennium. This is encapsulated in the title of this chapter and is also the goal of the Jubilee South and the Brazilian campaigns. The challenge goes further than simply discussing financial over-indebtedness. It relates to a programme combining the strategy of

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poverty reduction with a strategy of poverty eradication (NGOWG, 1994).15 It has to do with effective ways and means to implement individual and collective political, socioeconomic and cultural rights, among them socioeconomic democratisation, or rendering individual property a right for each and every citizen, re-centring the economy (oikos=home, nomos= management) on the inhabitants of the home, their capacity to work, to know, and to create. A debt-free millennium also has to do with restoring harmony to relationships between individuals, between firms, between woman and man, between seller and buyer, between labour and capital, between debtor and creditor, between nation and nation, between mankind and nature. This can only be achieved in an environment that fosters empowerment for those who live from their work, co-operation, complementarity in diversity and consciously chosen solidarity. Such an enabling environment for local-to-global democracy can only come about if serious reforms are made effective in North–South relations, in the international and the multilateral institutions, in the international financial system and in the way transnational capital operates. It is a matter of political will. It is a question of compassion and love towards ourselves, towards others and towards Mother Nature. In this final part of the book I would like to draw your attention to some of the many alternative policy and reform proposals made by social activists, intellectuals and organisations in both hemispheres. They show that the Jubilee 2000 activist-thinkers are not only denouncing injustice, they are also proposing alternatives. These are the result of our deep commitment to our own plight as nations, as communities and as individuals, as well as to the oppressed and the excluded of the modern world. They also stem from painstaking analysis and intensive exchange with our grassroots, among ourselves and between campaigns in different countries, regions and hemispheres, in a very fertile process of building global movements, of globalizing resistance to neo-liberalism/capitalism and creating synergy with the power to offer the world a new, co-operative, compassionate and co-responsible form of globalization. Among the movements that are developing globally to educate, organise and pressure for an alternative globalization, one of the most outstanding is the Jubilee 2000 Campaign for a millennium with no debts. But there are others, among them ATTAC (Association for the taxation of financial transactions for citizens’ support) which originated in France but is now gathering citizens’ support in dozens of countries not only to tax and regulate financial transactions, but for far-reaching reform of the international financial system and the Bretton Woods institutions; the Citizens’ Collective against the WTO, in France; the Continental Social Alliance, directed

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against the North American proposal of a Free Trade Area of the Americas (FTAA) and for authentic peoples’ integration; and 50 years is enough, which originated in the US, to fight for thorough reform of the multilateral institutions. There is a growing sense among these movements and campaigns that they should work in direct collaboration with one another, in something like a network of networks. The Alliance for a Responsible and United World links citizens in more than 100 countries to work and struggle in collaboration towards far-reaching transformations in the way we live and organise ourselves in society and on Earth, and to formulate proposals and strengthen innovative practices whose content already embodies the vision of a twenty-first century and a third millennium shaped by a culture of co-responsibility, equity, ethics, social and environmental sustainability and solidarity.16 Below I refer to alternatives emerging from a range of different coalitions and campaigners, among them the collective proposals embodied in declarations issued by conferences and summits already mentioned above. I also focus on authors who have made significant contributions to the search for new avenues towards a debt-free millennium. Those not mentioned will forgive me. Omitting them does not demean their contribution. One worthwhile, creative author on financial and debt issues, Eric Toussaint, is a reference for this discussion, with his excellent book Your Money or Your Life (Toussaint, 1999a), in particular chapters 17 and 18. The final part of this chapter presents the proposals being discussed in the context of the Brazil Jubilee 2000 Campaign. The Jubilee South Summit in Johannesburg The Jubilee South Coalition links the social organisations and Jubilee 2000 Campaigns of Asia, Africa and Latin America. From 18–21 November 1999, in Midrand, Johannesburg, Jubilee 2000 South Africa hosted the Jubilee South international summit for a ‘Debt Free Millennium’. The goals of the Jubilee South Summit were to pursue a unified campaign for the cancellation of third world debt and a clear strategy for a debt-free millennium. The Summit also developed critiques of flawed current debt relief initiatives by the IMF and individual creditor nations. The Summit also identified demonstrations to be organised at international forums such as the WTO, held in Seattle in early December 1999. Jubilee South is a coalition of movements and activists from the South, which campaigns for the cancellation of third world debt. Campaigners from Latin America, the Caribbean, Asia and Africa attended the summit – the first of its kind ever held. Jubilee South argues that the debts owed by the poor South to the rich Northern countries and creditors are both illegitimate and unpayable.

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The combined debt of third world countries has risen from US$610 billion in 1980 to US$2.46 trillion in 1998 (estimate) in spite of large payments made by these countries each year. The Lusaka Declaration, Zambia Representatives of 13 black African countries met in Lusaka, Zambia, from 19–21 May 1999 to exchange experiences, values and outlooks for solving the debt crisis, ‘an affliction that has reversed human development and environmental progress over the past quarter-century’. This meeting was the starting point of ‘a Movement against the crippling impact of debt on billions of people across the world, and for a new, people-centred, genuine form of development’. Participants said they were working for ‘a new Africa Consensus on debt and sustainable development (to replace the bankrupt “Washington Consensus”)’. Case studies of Uganda and Mozambique were presented during the meeting. The document stresses that debt is a manifestation of the neo-liberal world order, the overpowering influence of international banks and unequal trade. It defines debt as ‘one of the most important instruments of domination of financiers over people, production and nature everywhere’. As part of the need for institutional transformation of the world order, the declaration mentions the need to demote ‘our own technocratic, political and commercial élite who are the tiny minority of Africans who continue to promote the Washington Consensus’. The meeting issued a powerful Declaration, whose main proposals and demands are: Total debt cancellation. Guarantee that the proceeds go to meet society’s basic human needs and to restore the environment. Refusal that G7 countries and creditors dictate the terms of cancellation and assertion that Africans themselves must determine their own development path. Refusal of the terms and conditions of the HIPC Initiative, of IMFled SAPs and ESAF, and of the current frameworks of negotiation totally dominated by the creditors. Reparations to compensate for the economic, social and environmental damage incurred by the people, to be directed into rebuilding society and the environment and into restoring human dignity. Loan audits using the existing jurisprudence to define the terms of the cancellation and reparation. Enhancing civil society capacity by means of mass education and mobilisation, in the perspective of pro-active participation and increasing self-management.

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Disengagement of African countries from the IMF and the World Bank, ‘whose interests are diametrically opposed to our own’. Collective repudiation of illegitimate foreign debt payment. ‘Commitment to linking our arms across the borders to establish not only pressure on our leaders to establish a Debtors’ Cartel, but also include civil society in any negotiations with Creditors.’ The Declaration closes with a Jubilee ultimatum: If we do not see progress towards the cancellation of Africa’s foreign debt by the end of December 2000, African civil society organisations will ratchet up pressure toward the debt repudiation and Debtor Cartel Options, and intensify our commitment to disengage from the international Financial Forces who continue to keep us in chains. The Tegucigalpa Declaration, Honduras Many of the proposals of this meeting coincide with those of the Jubilee South Summit. The document adds a few others: 1. Cancellation, by year 2000, of the immoral and illegitimate debt of Third World countries, under the following principles: • Transparency in the process and inclusion of all parts involved. For future negotiations, establish a limit for the foreign debt service of no more than 3 per cent of the yearly earnings of the debtor country, taking into account the precedents of Peru, 1946 and Germany, 1953. • Integration and coordination of all parts involved, taking into account the Right of Insolvency of countries like the USA that regulate the insolvency procedures of communal corporations. Right of appeal for all debtor countries. The creditors and the debtors will nominate the same number of judges for a Tribunal or Court of Arbitration. The participation of all sectors of society of debtor countries should be assured. • In particular cases, by discretion of the Court of Arbitration, a mechanism to consider possible partial debt cancellation, considering the various levels of indebtedness, the origin of the debt and the level of poverty of the population. 2. In the debt cancellation process, take into account the pressing need to secure the Southern countries’ right of development and the fulfilment of all human and peoples’ rights, including the end of impunity.

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3. Establish a comprehensive audit of the indebtedness process through local tribunals, with the participation of civil society organisations to guarantee the transparency of information to all citizens. Other proposals include using the resources saved by debt cancellation and relief measures in offsetting the social and ecological debts and in human development programmes; reforming the international economic and financial systems, making justice, equity and solidarity the founding values of the relations between nations and peoples; strengthening the political agencies of the United Nations; refusing and replacing the current draft of a Multilateral Agreement on Investments. Debt, Freedom from Debt and Global Solidarity, Peru In May 1999, the Peruvian Jubilee 2000 Campaign organised the International Seminar on Foreign Debt, Debt Reduction and Global Solidarity, focusing in particular on the ethical and juridical aspects of the debt crisis. In these regards, the participants made an important contribution, which I will summarise for you: Ethically: The creditors of the external debt have a moral and ethical responsibility for the problem of poverty and inequality in the region. The creditors raised interest rates unilaterally in the early 1980s. The consequence was a sharp increase in debt service, capital flight to the rich countries and increasing levels of poverty in the region. High debt payments have impeded settlement of the social debt and postponed fulfilment of the fundamental goals of justice and equity. Omission is another area of creditor responsibility. Instead of acting positively to combat poverty, they have imposed harsh conditions, via World Bank- and IMF-led stabilisation and adjustment programmes aimed at generating surpluses in the public budgets for their only priority: payment of the debt. The creditors have not fulfilled their obligation to survey the use of funds and demand positive results from investment projects in accordance with the contract. For this also they are morally and legally responsible. Juridically: The debt contracts can be denounced before national and international courts when the rights of individuals are violated, and when there is

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suspicion of corruption and fraud. It is important to make progress in the recognition of the Latin American ‘odious debts’. The LAC countries can request a statement from The Hague International Tribunal that the foreign debt has in fact been paid, because the current payments are largely related to enormous interest rate increases; and that the debt payment be dissociated from structural adjustment programmes. Efforts in various Latin American countries to demonstrate the illegitimacy of the foreign debt are important to substantiate the argument that creditors should not have the right to demand payment. The Buenos Aires Declaration, Argentina The meeting of Jubilee 2000 Latin America held in Mathau, Buenos Aires, produced a powerful statement. In The Buenos Aires Declaration the participants maintain their conviction that the foreign debt is immoral and illegitimate, for which reason their people should not be forced to repay it. ‘Not only have they not benefited from the debt’, the Declaration states, ‘but they did not participate in its accrual.’ The participants celebrate the social mobilisation that took place in Cologne, but do not accept the Cologne Debt Initiative announced by the G7 as a step toward solving the problem. Their key criticism has to do with the G7 insistence on maintaining conditions and structural adjustment as prerequisites for HIPC debt cancellation. They also reject the IMF’s increased meddling in the design and control of policies that affect their lives. They sustain the unity and complementary nature of the ethical, political, technical, economic, social and cultural aspects of the debt problem. Their main proposals and demands are: • Resolving the foreign debt problem entails seeking historic reparations that the countries of the North owe to the peoples of the South as a consequence of the looting and devastation that they have carried out over 500 years and currently continue through the implementation of Structural Adjustment Programmes, the conditioning of new investments, free-trade agreements, the reconversion of our national States, and other policies which increase the social and ecological debt that are due to our peoples and seriously affect their human rights and democratic freedoms. • Strengthening strategies based on the mobilisation and education of our people as a means of spreading awareness and building a culture of solidarity that will enable those sectors now excluded to exercise fully their own rights. • Denouncing and lobbying with a view to generating positive changes should be campaign strategies based on ethical and political considerations at the local, national, regional and international levels.

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• Including, and making visible, experiences of popular resistance, legal battles and the constituting of ethical tribunals against foreign debt, both nationally and internationally, so as to promote and strengthen our demands and proposals. • Integrating a vision which includes a gender/justice perspective that favours the building of new, more democratic, just and egalitarian social relations. • In the face of the mechanisms of domination established through the system of neo-liberal globalization, we subscribe to and propose the globalization of South/South and South/North solidarity, by joining together with other movements and social change agents nationally, continentally and globally. The Declaration ends with a ‘call on all movements, organisations and persons of good will to unite their efforts in this struggle to achieve a New Beginning of Life for all, by initiating the new millennium debt-free’. Harnessing the Potential of the Ecuadorian Moratorium A number of social organisations and coalitions have been active on the foreign debt in several towns in Ecuador. In February 2000, a Latin American Meeting on ‘Human Rights before Foreign Debt’ was held in Guayaquil, bringing together experts and campaigners from various countries of the world. The salient theme, especially for the foreigners who attended the meeting, was the potential of the Ecuadorian moratorium. The meeting was sponsored by the Jubilee 2000 Coalitions of Ecuador, Germany and Britain, together with the Foundation El Universo. Nobel laureate Adolfo Pérez Esquivel made the point that ‘society and government should get over the fear of the moratorium in order to move forward on behalf of the millions of victims of the eternal debt’ (Acosta, 2000). Alternatives to Over-indebtedness at the NGO Forum at UNCTAD, Bangkok, Thailand On the occasion of the tenth meeting of the UN Conference on Trade and Development, UNCTAD, in Bangkok, from 12–19 February 2000, the NGO Forum produced a declaration to be addressed to UNCTAD, in which the participants included the following proposal: A new deal for developing countries has to be premised upon fundamental resolution of the debt crisis. Existing proposals for debt ‘relief’ do not release poor countries from debt bondage, or address the fundamental causes and recurrences of the debt problem and further

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subject developing countries economies and people to the pressures and dictates of creditor countries. We reject the HIPC initiative and the re-packing and the perpetuation of the IMF and the World Bank Structural Adjustment Programmes under the guise of the growth and poverty reduction facility. We support the move to build an international alliance among government and civil society that would press for the cancellation of all debts deemed by civil society to be unpayable and all illegitimate debts of developing countries. We demand that control of the process of dealing with debt should be removed from the hands of the IMF, the WB and the Paris Club. We further demand that new, independent and transparent arrangements accountable to civil society must be put in place. The Brazilian Foreign Debt Tribunal Raising the question of foreign indebtedness as one of the key points of the national and international agenda, with the purpose of denouncing that the remission of the social and ecological debts are being postponed in exchange for the payment of the financial debts; of announcing that life is more important than debt, and should be the primary concern; and enunciating the paths available to overcome the crisis of a model that excludes and dehumanises. This is the opening of the letter prepared by Jubilee 2000 Brazil to accompany the more than 700,000 signatures sent to Cologne. Earlier in this chapter I mentioned the successful constitutional process of the Brazil Jubilee 2000 Coalition. The petition campaign was a stimulating experience, first of all because it was a careful educational exercise, spreading basic information and offering the opportunity for debate to groups and movements around the country, thanks to the work done with the grassroots ecclesiastical communities, associations and trade unions, who gradually became aware of the meaning and consequences of indebtedness. The culmination of the 1999 activities was the Foreign Debt Tribunal, in which the petition, along with the signatures, was symbolically handed to the representatives of the international Jubilee 2000 Coalition attending the Tribunal. By invitation of Christian Aid, a small delegation was nominated to participate directly in the London and Cologne events in mid-June. The social organisations and churches involved have broad constituencies of many thousands of people throughout the country. The Tribunal was one of the most important event in recent history, concerning the defence of Brazil’s sovereignty. It was the catalyst of the opposition around

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the struggle for an alternative to the neo-liberal model adopted by the Brazilian government. And it produced a substantial verdict, signed by the judges and members of the jury, and later circulated around the world in six different languages. The Verdict begins with a critical evaluation of the links between the foreign debt and the prevailing injustice and poverty of the majority of the population. Brazil, along with other Latin American and Caribbean countries, is considered an ‘emerging’ nation with a medium income level. Its income distribution profile, however, is among the worst in the world, with one quarter of its population – that is, 40 million people – below the poverty line. The Tribunal was thus called on to identify the relationship between Brazil’s foreign debt and this situation of injustice and misery. In addition to pinpointing the factors that lead to and constitute the foreign debt, and then cause it to grow out of all proportion, and to identifying those responsible for it. The purpose of the Tribunal was to define alternative policies and strategies of action for sustainable means to surmount the crisis of foreign indebtedness and its social and environmental consequences. On the basis of that diagnosis, supported by a number of statements by witnesses from Brazil and abroad, the members of the Tribunal declared unanimously that: Brazil’s foreign debt was constituted in breach of Brazilian and international law, and without consulting the Brazilian public. It has favoured the élites almost exclusively to the detriment of the majority of the population and is prejudicial to national sovereignty. It is therefore ethically, legally and politically unjust and unsustainable. In real terms it has already been paid and persists only as a mechanism for subjecting and enslaving society to the financial power of usurers and globalized capital, and for transferring wealth to the creditors. For these reasons, this Tribunal condemns the Brazilian debt process, which entails subordination to the interests of international financial capital and the wealthy countries, backed by the multilateral organisations, as grossly unjust and illegitimate. It holds the dominant élites responsible for the excessive borrowing and for having abdicated from any development plan of Brazil’s own. It holds responsible the governments and politicians who support and further plans to assign Brazil a subordinate position in the globalized economy. It holds responsible those economists, jurists, artists and intellectuals who provide them with technical and ideological underpinning. It holds responsible the

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dictatorship of the major media that endeavour to legitimise the debt and stifle debate over alternatives. It also hereby resolves to communicate this decision to Brazil’s legislative, executive and judiciary authorities at the federal, state and municipal levels, that they respect it for the legitimacy of this Tribunal’s structure and social function. The final part of the Verdict proposes the following commitments and strategies of action: 1. The union of all peoples in favour of a general and unrestricted cancelling of the foreign debts of the most heavily indebted poor countries, the return of the wealth pillaged from them, with no conditions attached other than that the resources so saved be applied to paying off the social debts under the oversight of society itself, and that the human rights of all citizens be respected in full. 2. An audit of the public foreign debt and of the whole process of Brazil’s indebtedness, with the active participation of civil society, so as to ascertain in accounting and legal terms whether there is still debt to be paid, from whom it should be collected and to establish democratic rules for overseeing borrowing. 3. A sovereign moratorium, denunciation of the agreement with the IMF and redefinition of the debts in line with the audit results and with strengthening national sovereignty. 4. A development policy centered on the rights of the person and society, built chiefly on Brazil’s own material and human resources and going beyond the current logic and practice of irresponsible borrowing. 5. Firm exchange controls, which equip the government to restrain speculation and re-encourage investment in production, including effective mechanisms to control and inspect all the illegal forms in which Brazilian and foreign currencies, and goods in general, enter and leave the country. 6. The re-nationalisation and democratisation of strategic enterprises. 7. The rescheduling of state and municipal debts, with the resources so saved tied to repayment of social and environmental debts, and the refounding of Brazil’s federative pact on a democratic, participatory basis. 8. Reinforcement of mobilisations and campaigns such as ATTAC, which demand that mechanisms be set up to regulate and tax the circulation of international speculative capital, with a view to creating a fund earmarked for restoring those most impoverished to a decent life. 9. The union of Latin America and the Caribbean peoples in support of common alternative policies and strategies for the continent, in order to confront together the vicious circle of indebtedness and the other

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factors of impoverishment and subordination that afflict the whole continent. 10. Participation of the Jubilee 2000 Campaign, the World Council of Churches and other Brazilian and international institutions, in a mobilisation that will lead democratic states to propose to the UN General Assembly that a joint suit be brought before the International Court of Justice at The Hague to judge both the processes that gave rise to and hypertrophied the foreign debt of the heavily indebted impoverished countries and those responsible. This Tribunal is a symbolic milestone on a long march. It therefore calls on all Brazilian men and women to join, in hope and without fear, in the initiatives that will grow out of this judgement and to continue to take their stand, in the streets and public places, until we manage to make Brazil truly a motherland for us all, one that offers to all the means to live a life of dignity and full citizenship. This is our decision. Let it be published and proclaimed. Subscription is hereby authorised to none but all men and women of good faith.

Brazil Jubilee 2000 Campaign – Proposals being Discussed I believe it important to share with the readers in some detail the proposals now being discussed in the Brazil Jubilee 2000 Campaign. They have to do with the posture of civil society organisations with regard to the cancellation of the debts of the poorest countries of the world, but also with respect to policies dealing with the over-indebtedness of ‘emerging’ countries like Brazil, Mexico, Venezuela, Argentina, Nigeria, South Korea and so on. The following set of proposals may also inspire social organisations and Jubilee campaigners everywhere to consider the need to include the ‘HICHIP’ (highly indebted countries with high incidence of poverty) in their campaign agenda. • On behalf of the Most Indebted Poor Countries: general and unrestricted cancellation of their external debts. We acknowledge the need for creditors to take the burden of the high risk loans they made (including those made to dictators who were by no means accountable to their people), leaving aside technical/financial arguments. It should be an ethical gesture, based on compassion, beyond any monetary or financial consideration. Precedents are becoming abundant: Mexico, Russia, Switzerland (with respect to the Nicaraguan debt), France (FF50 billion up to March 1999), the European Union (US$70 billion cancellation aimed at combating desertification), etc.

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• On conditions: Official and multilateral creditors should abandon current conditions related to neo-liberal reforms and quick, massive privatisation (such as those linked to the HIPC initiative) and adopt a single one: the use of resources saved with cancellation in human development programmes and the eradication of the factors of impoverishment (including the foreign and domestic debts, the unjust terms of trade, the inappropriate tax structure that saves the rich from paying taxes, incentives and subsidies to foreign investors and lack of democratic control of the country’s development process). It is crucial that governments become formally committed to involving organisations of Civil Society in the definition of programmatic priorities and in the implementation and supervision of the programmes and the use of resources. This enhances transparency and reduces the risk of corruption. • On limits to foreign debt servicing: All Southern countries in particular, but not only the poorest, should benefit from a ceiling on foreign debt payments. The precedent of post-war Germany is outstanding. Despite the genocide of six million Jews, the powerful nations of the Axis granted Germany a ceiling of less than 5 per cent of its yearly exports for the service of its war debts. A similar ceiling on annual payments by Southern countries would have two advantages: one, it would free national resources to be invested in overcoming the domestic disparities and in generating socioeconomic growth and development; the other, it would serve as an incentive for the North to abolish protections against Southern exports, knowing that the more the South exports, the more they are able to serve the debt. Brazil and Other ‘Middle Income’, Highly Indebted Countries, with High Incidence of Poverty and Inequality: Political and Economic Proposals Breaking with the IMF The FHC-IMF agreement has been harmful to the economy and hurts national and peoples sovereignty. Its priority is to pay the financial debts instead of solving Brazil’s most urgent problems. It imposes intolerable and impossible targets, that have to be constantly revised and that have little or no credibility. It imposes rigid cuts in socioeconomic investments. Under the Brazil-IMF agreement, the Federal budget has been shaped in such way that, between January and August 1999, 64 per cent of revenues have been used to pay or renegotiate the foreign and domestic debts. It imposes conditions that reinforce the

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neo-liberal model, such as the accelerated privatisation of strategic public services (sanitation, water, electric energy, telecommunications, etc.), including the Bank of Brazil, the Federal Economic Bank (CEF) and the state banks. It shakes the bases of national sovereignty with respect to macroeconomic government policy for national development. A sovereign moratorium on the national public debt This means a tactical retreat to make the debtor country strategically solvent. This proposal makes sense for Brazil. In the last five years Brazil has had a declining rate of economic growth and vegetative growth has been negative for the last three years. In 1999 official estimates show a trade deficit of more than US$1 billion. The foreign debt service in 1998 amounted to US$45.5 billion, plus an estimated US$67 billion in 1999. The unwisely abrupt devaluation of the real in January seriously shook Brazil’s international reserves and generated a sharp increase in debt stock and services. The current level of international reserves (around US$34 billion) is sustained mainly by the IMF-led bridging loan and not by the strength of government policies for national economic recovery. The estimated value of foreign payments in 1999 corresponds to more than seven times the budget for health. A moratorium that is declared to prevent a crisis should not wait until foreign reserves are totally depleted. It should be declared under conditions whereby creditors understand the need for a negotiation that allow for immediate re-launching of socioeconomic development. And this can only happen if a policy of income and wealth redistribution is immediately set to work and massive resources are directed towards re-kindling the national economy. The second purpose of the moratorium should be to allow for an audit of the foreign debt. Payments to the multilateral agencies, however, should be continued. Audit of the public foreign debt This audit is one of the Transitory Articles of the 1988 Brazilian Constitution. Congress, however, never fully accomplished this mandate, and Brazil has been subjected to a policy of indebtedness that is both irresponsible and inconsistent. Increasing reliance on foreign loans and portfolio investments is suicidal as a means to solve the country’s need for foreign currency, considering the country’s overall economic and financial vulnerability and the whirlpool of compound interests. The irrationality of the vicious circle of indebtedness makes the Brazilian nation pay billions each year while seeing the debt increase to unsustainable levels. The more we pay, the more we owe.

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A Congressional audit would aim at identifying the real foreign debt, the spurious part of the debt, how much has actually been paid, examining among others the following items: a. Interest already paid relating to usurious rates decreed unilaterally by the US in the late 1970s and early 1980s. This decision tripled the interest rate and was a crucial factor in the debt crisis of the 1980s and the lost development decade. ‘The pacts are to be kept, and in good faith’, says the law. Not only the form of the contract, but the justice and good faith of the parties, must be kept. The US betrayed the good faith of those contracts, which were based on the so-called ‘historic’ rates of between four and six per cent per year. As a consequence, Latin America alone paid excess interests that amounted to US$106 billion. b. The private external debt of large enterprises in Brazil with federal collateral. For at least two decades the nation has seen the federal government take responsibility for insolvent private loans. Recently 60 large private debtors gathered to ask the government for a securitisation of their debts at considerable cost to the public sector. Only public outcry was able to stall that attempt at statisation of the private debt. The Congressional audit will be able to quantify the public losses and establish the basis for legislation on the question of foreign private indebtedness. c. Creditors have also benefited from a risk tax, incorporated in the cost of the loans, to prevent possible losses in case of insolvency. In critical situations such as those Brazil is going through, and underwent in 1981–82, 1987 and again in 1998–99, it should be seen as legitimate to declare insolvency and cancel the unpayable part of the debt. d. Finally, the audit would also contemplate the connections between the foreign and domestic debts. The fact is that the Cardoso government, in five years of administration, has multiplied the internal debt by more than six. The monthly payments of interest to those who hold government bonds and other papers is suffocating the public economy with brutal consequences for the productive sector and the working majority. Firm control over the exchange rate This policy will enable the government to stop speculation and re-kindle productive investment oriented mainly towards internal demand, but also towards exports. Effective mechanisms of control and monitoring of all forms of illegal entry and exit of national and foreign currencies and goods in general, and the establishment of specific legislation including effective forms of sanction. A mechanism of selective taxation on foreign inflows of financial capital through measures similar to the tax on capital

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movements now operative in Brazil (CPMF), with a system of controls of revenue mediated by banks. In order to be fully effective in stimulating socioeconomic growth and development, this policy should be coupled with that of a progressive fiscal and tax reform, the active combating of tax evasion and institutional theft, and an investment policy aimed at production of goods and services mainly to meet effective current and potential domestic demand. Protecting strategic sectors of the economy The Cardoso government says that the sales of state firms up to December 1998 has generated revenue of R$68.7 billion, and the government rid itself of R$16.5 billion in debts owed by those firms. In all, the revenue would be R$85.2 billion. A recent study (Biondi, 1999) shows that up to December 1998 the government has concealed a number of facts to do with ‘hidden’ expenditures related to privatisation. He estimates that these amount to public losses of R$87.6 billion. The promise that the income generated by privatisations would be used to reduce the internal debt never materialised… because ultimately there has been a deficit, not a surplus in the privatisation account. Renationalisation is identical to denationalisation: both depend on the political will of the nation and its leaders. It is possible in cases in which obvious abuses were committed and the interests of the nation were jeopardised or actually harmed. Congress has the power to evaluate the outcomes of the privatisation and denationalisation policy and to decide what sectors and areas should remain within the public domain, and what sectors, for reasons of national interest, should actually be protected from private and foreign presence. In strategic sectors, control by the state of a majority share and the major responsibility is crucial, although joint ventures with private Brazilian and foreign firms would be tolerable under certain conditions. It is urgent to reintroduce controls on profit remittance, especially by firms with low capacity to generate foreign currency. A change in rules, statutes and operating guidelines is needed for state firms which are not to be privatised, in order to convert them truly into public firms under joint control by the state and civil society. Renegotiation of debts of states and municipalities The excessive indebtedness of Brazilian state and municipal governments largely mirrors the irresponsible financial management of the federation and the over-indebtedness promoted by the military governments since the end of the 1960s, and civilian governments since 1985. The situation

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of most of them became financially untenable, especially since the January 1999 devaluation. The renegotiation of these debts is urgent, taking into account their specific socioeconomic development needs. In the case of cancellation or rescheduling in facilitated conditions, positive conditions are imperative, such as the obligation of state and municipal governments to use the saved resources in programmes to combat poverty and the factors of impoverishment, in collaboration with civil society organisations (CSOs). Political and Juridical Proposals Debts taken by the military dictatorship should be cancelled They fit the concept of ‘odious debts’ and are encompassed by jurisprudence. No creditor has the right to reduce the debtor to poverty or scarcity in order to pay the debt This principle of Roman Law should also regulate international relations. The country’s vulnerability, deepened by the financially and socially irresponsible Cardoso administration, is responsible for the waves of decapitalisation that so seriously hurt the nation’s capacity to develop and the economy’s ability to satisfy the needs of its population. Cuts in public expenditures, above all those related to social programmes and to economic programmes directed to the internal market, have seriously curtailed the public propensity to invest, generating a planned recession of the domestic economy and increasing the social burden on the working majority. They prove that the essence of the IMF agreement is that Brazil must pay the foreign and internal debts even if this reduces its population to poverty and scarcity. Over-indebtedness is the problem, not simply taking loans. When a country begins to take loans to pay loans, it is in serious trouble. Successive Brazilian administrations have been doing this for years, with the complicity of creditors and multilateral ‘consultants’. The result has been increased decapitalisation and impoverishment. The debt perpetuates dependence Sovereignty is a universally acknowledged right of peoples and nations. Globalization may have created a new economic and financial reality, but does not have the right to eliminate human rights of individuals, societies, nations and species. There is no internationally binding legislation that abolishes these rights. The debt has operated as a perpetuator of dependence, a sort of new colonial tribute. The vicious circle of indebtedness

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has hindered the government and society from deciding their own development path. Successive agreements with the IMF have been constraints on the national capacity to develop for the well-being of the whole nation. Ethical Proposals We should not pay again what we have already paid An audit of the financial debts is likely to show that while a portion of what the nation paid was not legally or legitimately owed, another portion is being paid again. A congressional audit must take these facts into account and not be restricted to purely technical and financial arguments related to indebtedness. Make the social and environmental debts a priority The IMF agreement and structural adjustment programmes have implied an effective moratorium on the social debt of which the working, poor and excluded majority are the creditors. By social debt we understand the deficits in jobs, food, land, health, education, housing, drinking water, quality of life, social services, etc. The same applies with respect to the environmental debt: the deficits relating to water, soil and air pollution, the destruction of forests and soils, of whole ecosystems, desertification. The creditors of the social and the ecological debts are the working women, children, youths and men in the cities and countryside, the Blacks, the Indigenous Peoples, and our rich and beautiful nature. The proposal is to invert priorities: redeem the social and environmental debts first, the financial debts second. Redeeming both would only be possible had the policy of indebtedness been responsible and democratically accountable. The reality of over-indebtedness opposes the financial debt to the social and ecological debts. We would like to call on the creditors of the financial debts to be in solidarity with the Jubilee 2000 Campaign and put life before and above debt.

Notes 1. Cardoso’s Brazil lacks a dynamic agro-industrial policy: Brazil still relies heavily on exports of commodities, such as soy beans for the north’s cattle and orange juice for Coca-Cola and other food giants, while having to import basic staples, such as black beans from Chile. 2. A reference to the UN Studies Center for Latin America and its prominent role in criticising dependence and promoting developmental self-determination and industrialisation by import substitution.

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3. I quote a preliminary version received by email. In the bibliography, I offer readers the author’s contact and website addresses. 4. ‘Panamanian independence, it is known, is related directly with the North American interest in controlling the interoceanic canal and, in this context, since 1904, it emerged as a country with a dollarized economy’ (Acosta’s footnote). 5. The Permanent People’s Tribunal, 26–29 September 1988, convened the Berlin Tribunal, at the request of the American Association of Jurists. 6. ‘Cry of the Excluded’: This is a massive march and celebration of millions of people around Brazil, taking place once a year since 1995, to protest social exclusion and to call for the unity of the people around economic and social rights, justice and peace. 7. Argentina, Bolivia, Brazil, Ecuador, Honduras, Jamaica, Nicaragua, Peru, Uruguay; American Association of Jurists; Latin American Council of Churches; Regional Forum of ESR/World Council of Churches; South American Human Rights, Democracy and Development Platform; Latin American Network of Women Transforming the Economy; Peace and Justice Service of Latin America. 8. In Letter No. 6, 28 January 2000, Kitazawa lists the members of the Japanese Jubilee 2000 Coalition. 9. For the text of the Cebu Declaration and other documents on Asian campaigns, write to Maitet Diokno <[email protected]> or Frances . 10. In North America, the Debt Crisis Network, the 50 Years is Enough Campaign, Rethinking Bretton Woods, the Structural Adjustment Programs International Network (SAPRIN), Oxfam International, more recently the Jubilee 2000 Coalitions, and a number of religious orders and congregations in both the US and Canada. In Europe, the European Forum on Debt and Development (Eurodad, a network of religious and lay organisations carring out intensive research and lobbying, especially of governments in Europe and the Bretton Woods institutions), the NonGovernmental Organisations’ Working Group on the World Bank (NGOWG, actually an international network uniting developmentoriented civil society groups of both hemispheres) and now the various European Jubilee 2000 Coalitions. London also hosts the office of the International Jubilee 2000 Coalition. In Japan, the Pacific Asia Resource Center (PARC), the Japan Bretton Woods Coalition and now the Japan Jubilee 2000 Coalition. 11. The work of the Brazil Network on Multilateral Financial Institutions has been effective in exposing the evidence in this regard. For details, please visit our website: www.brnet.com.br/pages/rbrasil. Also in Brazil,

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12.

13.

14.

15.

a recent constitutional amendment proposed by the Cardoso Administration, called Delinking Union Revenues (DRU) is going to transfer nearly US$7.5 billion (R$13.365 billion) of the allocation for social expenditures to be used for reducing the internal debt and to meeting the conditions of the IMF-Brazil agreement. The amendment liberates 20 per cent of the federal budget for indiscriminate use by the Executive. According to a Congressional study, the amendment will actually affect US$8.5 billion of the fiscal budget plus US$14.7 billion of the social security budget covering spending on public health, social assistance and retirement (Jornal do Brasil, 25 January 2000, Rio de Janeiro). The following development organisations constitute the Coalition: Swissaid, the Swiss Lenten Campaign, Bread for thy Neighbor, Helvetas and Caritas. A term used by Tsarist Russian minister Alexander Sack to refer to ethically irresponsible debts. He argued that credits relating to the repression of a people or the individual enrichment of a tyrant should not be endorsed by successive governments. His argument included the point that since creditors were aware that their loans might be used against the interests of the people, they should consider the debt extinct as the regime collapsed. In October 1993, the NGO Working Group on the World Bank (NGOWG) confronted the Bank with three case studies on SAPs at a special seminar with Bank directors and consultants. At the time I was the coordinator of the NGOWG and liaison officer of the NGO-World Bank Committee. During the debate we focused on the Mexican case, providing empirical evidence that the Bank’s and the IMF’s SAP strategy in that country was aggravating poverty and exclusion, and preparing the ground for a socioeconomic crisis. At the time, the Bank was presenting the Mexican SAP model as a successful paradigm to be reproduced elsewhere in the third world, in particular among highly indebted ‘emerging’ countries. The Bank rejected the NGOWG analysis and conclusions and said it was not prepared ‘to make concessions about Mexico’. Three months later Mexico collapsed into deep financial and sociopolitical crisis. When I questioned the Bank about its mistaken understanding of Mexico during the 1993 Conference, the Latin American Regional director answered that the Mexican crisis was the exclusive responsibility of the Mexican government, which had not properly implemented the guidelines provided by the Bank and the Fund… The NGOWG working document ‘The Challenge of Poverty Eradication’ substantiates why the Bank’s poverty reduction strategy is insufficient.

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Its basic argument is that reduction only deals with the fact of poverty, whereas the process of impoverishment, fed day-by-day by inappropriate policies led by greedy élites supported by the Bank and the IMF, remains ignored. The document outlines the domestic and international factors of impoverishment and proposes that the Bank should discuss and implement a poverty eradication strategy in collaboration with national and international civil society organisations. Unfortunately, the Bank never offered any comments on the NGOWG proposals. 16. For more information, visit the websites Alliances and Workshop on a Socioeconmy of Solidarity .

Appendix 1: Debt Glossary

Amortisation Payment of the debt principal, which is the real value of the debt excluding interest and service. In other words, when you amortise you decrease the size of what you owe. The same does not happen with interest. Arms Trade To give an idea of how the arms trade relates to the process of external indebtedness, here are some figures: 95 per cent of the poor countries owing money to Great Britain are in debt, more precisely, to the Export Credits Guarantee Department of the Department of Trade and Industry. Do you know why? As an incentive to British exports. An enormous part of these loans was allocated to arms exports. In the case of the Democratic Republic of Congo, which for many years was dominated by the dictator Mobutu, or of Nicaragua under the Somoza dictatorship, a large part of the external debt was contracted to boost arms purchases. The question is: who are the largest arms producers and exporters? The poor countries contract debts that are paid to the rich countries, which in their turn produce arms, heavy equipment, advanced technology, etc. Briefly, the poor countries enrich the already rich countries twice: by paying the debt and by acquiring goods and services produced by them. With these same arms, they also guarantee ‘submissive peace’ and violate human rights. Balance of Payments The ratio between all the payments made by a country and those received from the rest of the world. These can be divided by type into current transactions and capital operations. The balance of current transactions is subdivided into the balance of trade and the balance of services (transport, insurance, tourism, interest, loans, profits, royalties for the use of trademarks and patents). The balance of capital records the capital of foreign firms that comes into the country during the year, capital invested abroad, loans and amortisation contracted/paid in previous years.

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Balance of Trade The ratio between a country’s imports and exports. When the value of exports exceeds the value of imports, the country shows a surplus and becomes a creditor of other countries; when, on the contrary, imports exceed exports, the country is in debt to other countries and shows a balance of trade deficit. In 1998, Brazil’s deficit was US$6.4 billion. BNDES – National Economic and Social Development Bank A federal financial institution subordinated to the Ministry of Finance, set up in 1952 to foster the basic development of the Brazilian economy in the public and private spheres. It began as a technical body for implementing the economic restructuring programme prepared by the Joint Brazil–United States Commission and received aid from the World Bank and from Eximbank of the USA. The ‘S’ for ‘Social’ was added in 1982, after the Social Investment Fund (Finsocial) was created. Today it has become an agency for financing privatisations in Brazil. In addition, of the total of its funds for investment, more than 85 per cent go to financing large companies. Bradies Developing countries’ external debt papers, renegotiated according to the rules of the Brady Plan (Nicholas Brady, former secretary of the US Treasury during the Bush administration). This rescheduling was based on the issue of securities to substitute the external debt of those countries, among them Brazil. In the conversion, a discount was applied to the value of the loans. Bretton Woods (See International Organisations) Central Bank Government financial organisation. It is the banks’ bank. Its purpose is to stabilise the currency and to control credit. It is the only bank that may issue paper currency. It controls the other banks and the inflow and outflow of money and precious metals to and from the country. In many countries of the world, it is largely responsible for implementing the present economic policy. Witness the power of the president of the Central Bank of Brazil, now Armínio Fraga (former advisor to mega-investor George Soros). Club of Paris A group of rich creditor countries that meet when they consider the time is right to negotiate the debt to be paid, or guaranteed, on a bilateral basis

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by official debtors and creditors. The Ministry of Finance of France is Secretary of the Club of Paris. Colonisation Every process of indebtedness, whether external or internal, binds the poor countries in subordination to the rich countries. It is a new old form of colonisation, since we are entirely subjected and vulnerable to international capital. Commercial Exchange Rate This is the US$ rate used for imports and exports. This mechanism also records the inflow and outflow of foreign investments on the stock exchanges and in fixed income. Creditors Are those that lent money or gave credit. The creditors can be classified into three types: first, government agencies (bilateral debt); second, the multilateral agencies: IMF, World Bank and IDB (multilateral debt); and third, private commercial banks (commercial debt). Debt (Administration) Term applied to the economic policy applied by the authorities to control the composition and nature of both internal and external public debts. It refers to how the financial operations of public accounts are managed so as to keep the country solvent and maintain its credibility. When there is a financial crisis, internal factors are almost always more important than external ones, and the public debt can be said to have been mismanaged. Debt Service This refers to a debtor’s payment of debt instalments to a creditor. A debtor services the debt or ‘pays an instalment of the debt’. These portions consist of amortisation and interest. Derivatives Several forms of financial risk investments in futures or options markets, which make ‘hedge’ operations possible. They operate future prices of shares, stock exchange indexes, foreign exchange, gold, interest and commodities. A company that has debts in dollars and fears foreign exchange rate increases buys contracts on the futures market to protect itself against such fluctuations. If at the end of the period the dollar rises, it receives the amount required to buy the currency at the new price.

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Devaluation Official reduction in the value of a country’s currency in relation to foreign currencies. In most cases, this operation is designed to eliminate the accumulated balance of payments deficit. It is an exchange depreciation mechanism. The policy of exchange overvaluation, when adopted for a long time, seriously increases the risk of abrupt, disastrous devaluation. This was what the FHC government chose to do, and the crash came on 13 January 1999, at an extremely high cost to the nation and its people. Economic Development Economic growth accompanied by an improved standard of living for the population and by fundamental alterations in the structure of the country’s economy. The UN uses the following indicators to classify countries according to the degree of development: infant mortality rate, average life expectancy, degree of external economic dependence, level of industrialisation, scientific and technological potential, literacy and instruction rate and sanitary conditions. External Debt The sum total of a country’s debts resulting from loans and financing contracted with persons resident abroad and guaranteed by its government. The debits may originate with the government itself or with state enterprises or private firms – in the latter case, with the government’s avowal that the foreign exchange for service amortisation and interest payments will be supplied. Debt figures are taken from the World Bank’s Debt Reporting System and are complemented by World Bank estimates. Debt values are expressed in US$ converted at the various official exchange rates. External Liabilities External capital that penetrates an economy and must be restituted. They stem from foreign investment in production or in capitals markets, among other things. The external debt is also an external liability. But in referring to external debt and external liabilities, a distinction is drawn between debt resulting from foreign loans or lines of credit on the one hand, and direct investments and investment in the capitals market on the other. Debt requires that principal (amortisation) be paid, plus the ‘cost of money’ or the price of renting money for a given period of time (interest). Investments generate profits and dividends, which are reinvested or remitted to the capital’s country of origin. The net result for the country is that external liabilities entail decapitalisation. The decision on inflows of foreign capital

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into a country must therefore result from an evaluation of the costs and benefits to long-term national development, and not from expectations for immediate, opportunist advantages. Fiscal Adjustment A term that, generically, would correspond to measures by the federal government, jointly with the states and municipalities, to reduce the imbalance between public sector revenue and spending. In Brazil, this discussion has been dragging on for years and on the threshold of crises, it is presented as a solution to all the problems of balancing national accounts. It involves reforms in social security, in the administration and in taxes. In recent years, Brazil has expanded its tax collection base and increased the public deficit, but has achieved little in infrastructure, rather letting basic public services deteriorate. Floating Exchange Rate This market is the route by which transnational companies repatriate their profits, for some loan operations and for the trade in jewels and precious stones. Brazilians wanting to take dollars out of the country also use this mechanism. GDP – Gross Domestic Product The value of all the goods and services produced by the country during a year, regardless of the nationality of the owners of the production facilities. It does not include depreciation on assets (equipment) nor depletion or degradation of natural resources. In 1997, Brazil’s GDP exceeded US$800 billion. In 1998, it grew less than 1 per cent. Globalization A term that can mean a number of things. In its present form, it is a phenomenon that has been intrinsic to capitalism since its inception in the fifteenth century. The peculiarity of the present stage is that globalization has accelerated, driven by technological and organisational innovations, hand in hand with neo-liberal reforms and adjustments in both hemispheres. This has led to service outsourcing, precarious employment relations and structural unemployment. Globalization creates problems and opportunities at the same time, and offers prospects for liberating human labour and instituting a globalization grounded in co-operation and solidarity. It is symptomatic that ecological, womens’ and indigenous peoples’ movements have acquired this globalized dimension.

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GNP – Gross National Product The value of the GDP, plus income remitted to the country as a result of investments abroad, less income remitted abroad. Group of Seven (G7) Comprises the United States, Japan, France, Italy, Great Britain, Germany and Canada. A few years ago it also admitted Russia, due to its still significant geopolitical influence and nuclear capability, thus constituting the G8. It is an intergovernmental summit that meets frequently to formulate common economic policies and solve conflicts arising from political and economic disputes. Health and Education The sectors most affected during an economic crisis caused by external and internal indebtedness. A typical example is what we are experiencing now with the new fiscal package negotiated with the IMF. The federal, state and municipal budgets are being cut back, and it is in health and education where cuts are ‘easier’ to make. In 1999, the federal government committed 68 per cent of the federal budget to paying interest on the internal and external debts. Meanwhile, it spent 12.79 per cent of the total budget on health and 6.96 per cent on education. The package leaves the above 68 per cent untouched. Heavily Indebted Poor Countries According to the World Bank, these are 41 countries, 33 of them in Africa, with exorbitant, unpayable external debts. In 1996 they owed foreign creditors US$217 billion, the most part to the governments of wealthy countries and multilateral agencies. The HIPC (Heavily Indebted Poor Countries) initiative to reduce these countries’ external debts does not provide for significant reductions, will benefit only a few countries and even these will be subjected to intolerable conditionalities. Post-war Germany was granted a ceiling on its external debt service payments equal to 5 per cent of the value of its exports, while these countries are obliged to meet a ceiling of 20–25 per cent. In Europe, the International Jubilee 2000 Campaign is lobbying to bring this ceiling down to 10 per cent. Hedges Operations designed to protect investors who wish to reduce the risk of their applications. They are rather like insurance on financial investment risk. They serve as guarantees on speculative investments. There are clauses that permit guarantors to terminate a guarantee contract under certain conditions.

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Human Development A more recent expression that broadens the concept of development beyond the merely economic aspect. The aim of human development is to improve the quality of human life and to maximise mankind’s individual and collective potential. Although nations diverge with regard to the purposes of development, some of these are universal. The UNDP (United Nations Development Programme) adopted two indexes for measuring human development or the quality of human life: the Human Development Index (HDI), with three components – longevity, schooling and income, and the Human Freedom Index (HFI), an adaptation of the World Guide to Human Rights, which uses 40 indicators to ‘measure’ freedom. Brazil ranks 62nd in this classification (1997). Hunger State characterised by lack of food. Described, from the biochemical and medical points of view, as calorie deficiency and lack of proteins, vitamins and mineral salts. Sociologically, hunger results from the unequal distribution of socially produced wealth. In the human rights field, the right to food exists as a concept and in legislation, as in the International Covenant on Economic, Social and Cultural Rights, which Brazil has signed and ratified. Access to food is determined fundamentally – alongside natural catastrophes – by social structures within each country and at the global level, an issue directly related to the lack of democratic access to and control over productive assets, to the lack of social investment resulting from cost cutting under adjustment programmes, and to the degree of indebtedness. IDB – Inter-American Development Bank An institution set up in 1959 to speed up economic and social development in its Latin American and Caribbean member states. It has 46 member nations, among which are 29 countries of the region and 18 of Europe, Asia and the Middle East. The bank’s headquarters are in Washington. Its policy resembles that of the World Bank. Interest Rates – why do they fluctuate? In the case of internal debt, they fluctuate because Brazil has tied its whole domestic economy to external speculative capital. As our economic situation is very fragile, the federal government has set high rates of interest to convince this capital not to leave Brazil. It is as if it were a premium so that speculators will go on making money here without investing anything in Brazil, merely by earning ‘rent’ on their money. In the case of the external debt, there is an explanation in each context. In the 1980s, the US raised

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its domestic interest rates and, as our external debt is primarily in dollars and a large part of it with the USA, the interest rates on our external debt also rose. In the 1990s, international interest rates fell considerably. The problem, though, is that the debt has snowballed. Even low interest rates are payable on a principal that never ceases to grow. Interest Interest is the price of renting money. It is paid to borrow a certain amount of money for a time. Internal Debt The total debits incurred by the government with physical and legal persons resident in its country. Whenever government spending exceeds revenue, money is needed to cover the deficit. Here there are three courses open to the authorities: to print money, increase the tax burden and offer securities. Printing new money generally has an undesirable inflationary effect. Increasing the tax burden is politically unpopular and its impact may tend to produce recession by reducing the money in circulation. Public bond offerings are generally linked to interest rate hikes, which cause the internal debt itself to increase. The first FHC government caused the internal debt to increase more than five fold. IMF – International Monetary Fund Has everything to do with the external debt. It was set up following World War II as a fund to be formed with contributions from several nations which would then be able to withdraw loans proportional to their quotas. The function of this fund was to be to safeguard the currencies and economic ‘health’ of the signatory countries (the fund’s member countries). What it in fact does is what can be seen today: wherever it arrives with its loans and structural adjustment programmes (Mexico, Indonesia, South Korea, Russia and Brazil), it is as though a hurricane had swept through. All its loans are conditional on an ‘adjustment programme’ designed basically to adapt the country to ensure greater mobility for international capital and to impose far-reaching cuts in areas strategic to the country’s development (health, education, research, etc.). International Organisations The great majority of these were set up to meet needs stemming from the two world wars. The United Nations organisation and its agencies and the Bretton Woods organisations – IMF, World Bank and GATT (recently transformed into the World Trade Organisation) – are the most influential

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bodies. The UN operates in the field of economic, social and cultural development, while the Bretton Woods institutions are economic and financial in nature and therefore wield far greater real power. The major political difference between the UN and the financial agencies is in their decision-making procedures: in the UN, it is one nation, one vote, while in the financial agencies each country’s voting power is proportional to the quotas it holds. This is why the latter institutions are particularly under the control of the wealthy countries and serve their economic and political interests, constituting a kind of ‘private club’, where relations develop only among the G7 countries, captained by the United States (recall the United States bombing the Sudan and Afghanistan without even consulting the UN Security Council). A great many initiatives and campaigns have been undertaken around the world to make these organisations more democratic. International Reserves The sum of all the money the country holds in foreign currencies. These should be sufficient to settle all debts with the international market, including foreign exchange debts to Brazilian creditors. Long-Term Debt Comprises the public debt, debt guaranteed by the public sector and the non-guaranteed private external debt. Long-term debt is associated with loans with original or rescheduled payback periods of over one year. MAI: Multilateral Agreement on Investment This is being prepared within the Organisation for Economic Co-operation and Development, which brings together the 29 richest countries of the world. It is a kind of world constitution for capitalism, designed to promote equal treatment for the investments of national and transnational companies within each country. One of clauses says, for example, that external investors are entitled to invest in any area, sector or activity in any country, without any restriction and with the right to contest government policies or actions that represent any restriction on their profits, even if they infringe human rights, labour rights or harm the environment. It is, in fact, a neo-liberal proposal for global deregulation, a kind of definitive legitimisation of the ‘law of the strongest’. If this agreement is signed it will submit states totally to the private, exclusionary interests of the great transnational corporations, binding the States to the agreement for 20 years. The FHC government has been sending observers to the secret meetings of OECD that discuss the MAI and has not been even mildly critical of this agreement. (See Alerta à Nação Diante da Ameaça do AMI [‘Alert to the Nation on the Threat of the

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MAI’], a publication of the Brazilian Justice and Peace Commission, INESC and Agora, with support from the ABI, CNBB and OAB.) Market Can be understood to be where buyers and sellers of goods and services meet. It is expressed particularly in the way that exchanges are organised in a given context by individuals, businesses and governments. Theorists of neo-liberalism treat the market as the central value of capitalism and the only parameter for measuring economic policy. This draws appropriate criticism that the market is being deified. It was not capitalism that invented the market; it goes back to primitive societies when the process of the accumulation of goods and the division of labour began. Market forces are important, but cannot be raised to the status of the sole factor to distribute income and wealth. When this occurs, the result is inevitably disastrous: on the one hand, a monopoly of economic power in the hands of the strongest and wealthiest; and on the other, unemployment, subordination and exclusion. Moratorium The right of a debtor, when in difficulties, to extend the timeframe granted by the creditor to settle the debt. Not to be confused with ‘unilateral moratorium’, which is the unilateral cancelling of the debt by the debtor. Neo-Liberalism Name given to the present stage of capitalism. In economic policy terms, it follows a creed which preaches that objects, relationships and persons should all be transformed into merchandise with a value to be determined by the ‘market’; the State should reduce its role in the economy to a minimum (hence the crisis in health care, education and so on); national economies should open up to foreign capital, eliminating all mechanisms that impose controls, regulations or norms on such capital, along with all protection on national products or markets. The leading proponents of these prescriptions for the third world are the governments of the wealthiest countries (see Group of 7), either directly or by way of the multilateral agencies (World Bank, IDB, IMF and WTO), and the governments and élites of the third world. Net Present Value A sum of money, at the beginning of the payback period, that, with the accrued interest at a given market rate, is sufficient to meet all future debt payments on their due dates (see International Reserves).

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Poverty State of need which individuals or groups live in when unable, for lack of income or non-existence of consumer goods, to meet their basic needs in food, housing, clothing, hygiene, health, education and leisure. The line drawn by the World Bank to separate poverty from the state of extreme poverty is measured by an income of US$1 per day. In fact, in Brazil today, a person can be said to require seven monthly minimum wages to meet all those needs to a decent standard. (In May 1999, one minimum wage = R$136 = US$77.71.) Public Debt Security These are papers issued by the government (federal, state and municipal) and which can serve to finance a deficit in the public budget, anticipate revenue or ensure that the quantity of money in circulation holds steady. The federal government has issued a lot of securities in order to pay the high interest rates of the financial market. It has also issued securities pegged to the dollar, thus raising the level of federal external liabilities. Redemption of Debt The act of repaying debt. When debts are contracted and are to be paid in instalments, redemption is equivalent to paying off the last instalment. In the last four years, Brazil has already paid around U$115 billion in interest and amortisation on Brazil’s external debt, which, nonetheless, grew from a level of U$128 billion at the beginning of the FHC government to U$230 billion in September 1998. Right of Insolvency The right not to pay a debt. By way of example, under the London Accords reached in 1953, Germany’s debt inherited from the Nazi regime was totally pardoned. Many of our countries are in situations similar to the post-war period. Following Hurricane Mitch, should Nicaragua and Honduras not be entitled to the same kind of agreement? (See Moratorium.) SELIC Rate Brazilian interest rate that reflects the cost of money for bank loans, based on government bond yields. Short-Term Debt Loans that expire in one year or less.

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Stock Exchange Institution in which stocks and shares are traded. SEs are important in market economies because they allow savings to be channelled quickly for transformation into investments. This is a classic definition, but ever more frequently today capital has been used for speculation. These are volatile investments that look for easy short-term gains and have nothing to do with fostering the country’s production. The federal government refers to these different types of capital as if they were one single thing, confusing public opinion. Stock of Debt The total volume of debt. Structural Adjustment This is what the introduction of neo-liberal policies is called (see Neoliberalism). The word ‘adjustment’ is used to designate the measures that a country is forced to take to facilitate the entry of external capital, to minimise the States’ ability to define and introduce economic policies directed to national interests, in addition to opening up domestic markets to international capital. The word ‘structural’ means that these measures are so far-reaching as to affect all the institutions of a country, whether the State (Executive, Legislative and Judiciary), trades unions, political parties, etc. In other words, it is as if world capitalism were a huge engine working exclusively in favour of the élites of a few rich countries. The effect of the structural adjustments is that the workers of the rich countries and of the poor countries, and the governments of the third world countries, are given the function of oiling the engine so that it produces and accumulates more for its owners. Taxes In a crisis, the first thing a government does is to raise taxes. Increasing taxation increases the volume of funds available to the government. In the current situation, increased taxation will serve to pay debt interest and service (see Debt Service). Tobin Tax Designed to levy a 0.5 per cent tax on capital market transactions, thus generating an additional annual income of at least US$100 billion for use in activities directed to sustainable development. It would also be a way to discourage speculative financial activities. Today there is an international

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campaign under way for this rate, called ATTAC (Action for a Tax on financial Transactions to Aid Citizens), centred in Paris. In Brazil, ATTAC is being promoted by the Brazilian Justice and Peace Commission of the National Council of Bishops (CNBB). Transnational Corporations Companies based generally in wealthy countries, which spread around the world by setting up subsidiaries. These are business complexes typical of capitalism, designed to control markets and profits regardless of borders. They work in very close association with the State. They uphold the free market, but a market controlled by the central states, chiefly that of the United States, which force liberalisation on other countries’ economies so that their own businesses can establish there with all possible benefits. As soon as the political, social and/or economic situation in these countries deteriorates, these companies rapidly seek somewhere else to set up or invest, where comparative costs are more to their advantage. Underwriters’ Fee or Spread This is another ‘sharp practice’ accepted as being normal. The receiver of the loan pays an additional rate according to its liquidity, the payer’s guarantees, the amount of the loan and the pay-back period. All these technical aspects are extremely subjective, however. What really defines this commission is the country’s role in the international economic order. Brazil, for example, a colonised country, strategically important to the development of world capitalism, has already paid higher spreads than Bolivia, whose production capacity is much smaller than Brazil’s. Washington Consensus This expression arose at a meeting organised in Washington DC, USA, in November 1989, by the Institute for International Economics, and sponsored by the World Bank, IMF, IDB and US government, to discuss economic policies for Latin America. In the organisers’ view, ‘consensus’ meant the high degree of convergence among the participants at that meeting – US economists, those from Latin America and most of the politicians present – on aspects of world macroeconomics. The main points of that consensus are: control of fiscal deficits; cuts in public spending; tax reform; administration of interest and foreign exchange rates; market liberalisation and removal of restrictive barriers on imports; free inflow of foreign investments; privatisation of state enterprises; deregulation of the economy; reduction of labour rights; patent laws and guarantees on property rights. Some of Brazil’s monetary authorities participated actively in this process.

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World Bank Also known as the IBRD (International Bank for Reconstruction and Development). It is one of the organisations that emerged from the Bretton Woods Agreement (see International Organisations). Initially its purpose was to finance the reconstruction of countries damaged by the war. However, its declared aim throughout the decades that followed was to foster economic and social development in third world countries. The World Bank works as a commercial bank. However, during the 1980s, the bank and the IMF began to influence macroeconomic policies and the actual definition of how debtor countries were to develop. They did this when they promoted Structural Adjustment Programmes, by granting loans in exchange for the commitment from third world governments that they would put these markedly neo-liberal adjustment policies into practice – without however asking the populations of those countries what kind of development they wanted. Witness the case of the hydroelectric power plants, where thousands of people were displaced from land without being entitled to decent compensation. It is as well to remember that social costs did not enter into the calculations of those so-called development projects. It took a lot of struggle and organisation on the part of the workers (e.g., National Movement of Victims of Dams) for these huge projects to be given a minimum of rethinking.

Appendix 2: Alternative Debt Policies being Discussed by Jubilee 2000 – Japan What is Jubilee 2000 asking Japan to do? First, Japan must cancel all its ODA debt. This was first recommended by UNCTAD in 1979 and was an explicit commitment under the Cologne agreement. Other creditors have done this systematically over many years but Japan has failed to do so. It should cancel debt rather than continue its Grant Assistance for Debt Relief Scheme, which does not cancel debt stock, but instead provides a grant that must then be spent on goods – often Japanese goods. Second, Japan should match and go beyond the UK and US initiatives on bilateral export credit debt. It should cancel 100 per cent of this debt, and look to extend the countries eligible for this beyond the narrow HIPC list to include countries such as the Philippines, Nigeria and Peru. Third, Japan must use its role as chair of the G8 to push for delivery of existing commitments by the leading creditors in the year 2000 and further improvements to the HIPC Initiative, beyond what was agreed in 1999. The addition of further conditions to be met before countries are deemed eligible has stalled the process for debt cancellation. Furthermore the blatant contradictions between the IMFs macro-economic conditions and the new poverty reduction strategies has meant that highly eligible countries like Guyana and Mozambique have had debt cancellation delayed. IMF policies have been widely discredited, and even the Wall Street Journal acknowledges that these have caused ‘morally indefensible’ impoverishment. Japan, which has long challenged the ‘Washington Consensus’ must use her role as leader of the G8 to remove the obstacles placed by the IMF in the way of countries desperately in need of debt cancellation, and must bring an end to irresponsible IMF economic policies that have so impoverished millions of people. Above all Japan must ensure that the G8 offer more generous debt cancellation. Chancellor Schroeder said in a New Year message that the G8 should do more. President Clinton expressed similar sentiments in his speech to the IMF in September, as did Prime Minister Blair on his return from Cologne. With the support of Canada, there is almost a consensus in 151

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the G8 that more should be done. Japan should also lead the call for a fairer and more transparent process for lending and borrowing in the future, to ensure that another debt crisis does not arise. The US called in Cologne for 90 per cent of new aid money to be in the form of grants. Japan has resisted this. The portion of aid which is in the form of loans is 55 per cent for Japan, much higher than all the other G7 countries. The next highest is Germany with 15 per cent (1997 figures). Much of the US$30 billion Miyazawa Initiative to promote Asian recovery is in the form of loans. Japanese Coalition – Demand to the Government of Japan We, the Jubilee 2000 Japan, are part of the worldwide campaign to demand that governments of industrial countries cancel the unpayable debts of the poorest countries by the end of the year 2000. At Cologne last year, G7 agreed to US$70 billion of debt relief in their Cologne Debt Initiative. This figure is only one third of the debt of the poorest countries. However, after Cologne, the US and UK governments announced unilateral cancellation of 100 per cent of the debt. And we expect that Italy and Germany will follow the decision. Canada, before the Cologne summit, already announced 100 per cent cancellation. We urge you, as the head of the Japanese government to host the Okinawa G7 summit as well as to chair the meeting, to undertake as early as possible to call an Okinawa Initiative, similar to the one which was made by the Prime Minister of Germany last year before the Cologne summit. We demand that at the coming Okinawa meeting next July, the G7 heads of states and governments agree to cancel all the debt, including both bilateral and multilateral, of the 41 heavily indebted and poorest countries by the end of the year 2000. We request you as the chair of the Okinawa G7 summit, to take a bold and determined initiative so that the following results may be achieved: • Okinawa summit is the last one to be held within the 20th century. G7 heads of states and governments agree that they cancel US$205 billion of debt of the 41 heavily indebted and poorest countries by the end of the year 2000. • In the process of cancellation, Structural Adjustment Programmes of the IMF and World Bank are to be de-linked, and an independent Arbitration Committee, which is agreed by both creditors and debtors, is to undertake the job.

Appendix 2: Alternative Debt Policies 153

We also request you, as Prime Minister of the Japanese government, to make a decision so that the following actions will be taken: • The so-called Grant Assistance for Debt Relief Scheme of the Japanese government will take 40 long years to finish, and its fund is to be drawn from the Official Development Assistance (ODA) annually. As a result, Japan’s ODA for the poorest countries will be reduced considerably. Therefore, we ask that: • Japan writes off unilaterally its bilateral credits of the 41 heavily indebted and poorest countries within the year 2000, by stipulating a special decree. • Domestically, the government make a special contract with credit holders such as the Japan Bank for International Co-operation, and pay them back a certain sum annually from the General Account of the Budget for long years to come. Signed by Co-chairs: Cardinal Seiichi Shirayanagi of Tokyo Diocese of Catholic Church; Mr Etsuya Washio, President of the Japan Federation of Trade Unions (RENGO); Ms Yoko Kitazawa of Japan Bretton Woods Coalition.

Appendix 3: The Jubilee South Summit in Johannesburg The following are some of the proposals and action strategies agreed upon by the summit participants.

Challenging and Changing Debt and Economic Policies of Southern Governments; Struggling for National Social Transformation Government Transparency and Accountability: Southern Governments must be held fully accountable for debt and related economic policies. A minimum requirement of accountability is transparency and information disclosure. To this end, the following are important demands to promote: • full disclosure of information and transparency on processes and policies regarding borrowing, debt servicing and allocation and spending of public funds; • complete disclosure of information on agreements and transactions with international financial institutions, banks, northern government creditors and related institutions; • institutionalisation of public information disclosure policy and mechanisms for the enforcement of this policy. Furthermore, there must be clear mechanisms for holding past and present governments and individual officials responsible for their complicity in the debt trap and related decisions, policies and actions that perpetuated exploitation and impoverishment. Thus it is also vital to demand that: • cases of odious, onerous, behest, criminal and fraudulent debts are investigated; government officials and private sector individuals and corporations who were co-parties to odious, onerous, behest, criminal and fraudulent debts are identified and prosecuted; investigation of these include the role of international creditors and financial institutions; and it must be ensured that these entities return stolen wealth and public funds;

154

Appendix 3: The Jubilee South Summit in Johannesburg 155

• government practices and institutional, legal and structural mechanisms and flaws that have legitimised and paved the way for immoral debt and ‘indebtedness’ of the South are examined and publicly disclosed. Debt Servicing: As part of demanding government accountability, laying the basis for immediate and medium-term policies regarding debt service, raising public awareness and building social mobilisations for debt repudiation and total and unconditional [cancellation, in all efforts to] address the debt problem, it is important to call for: • immediate and thorough public information disclosure, investigation, examination and classification of existing debts; public exposure of odious, onerous, fraudulent, criminal and illegitimate debts, and behest loans …; • imposition of ceilings or caps on debt service based on percentage of budget, percentage of internal revenues, or percentage of exports …; or • repudiation or non-payment of odious, onerous, fraudulent, behest, criminal and illegitimate debts (this is an economic as well as political act based on the recognition of illegitimacy of debt). The need for collective action among the South must be emphasised and asserted. Thus, it is important to call on Southern governments to pursue linking up with other Southern countries for the formation of a Debtors’ Alliance. Allocation of Funds Released from Debt Servicing and Budget Reprioritisation: It is vital to accompany demands for debt service ceiling, moratorium or repudiation with demands for the proper allocation of funds freed from debt service, to ensure that the peoples of the South will be the ones to benefit from moratorium/repudiation and cancellation, and not the corrupt officials and the agenda of the élite: • rechannelling of public funds from debt service to basic services such as health, education, housing; as well as for economic programmes that promote equity and sustainable development (ex: Land reform and rural development etc.). Loans and Borrowing: Government policy on borrowing must be addressed as an important aspect of the vicious cycle of indebtedness. Various demands on borrowing include:

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• Imposition of regulations and ceilings on borrowing (ceilings on borrowing are relevant to situations of wanton, indiscriminate and irresponsible accessing of available credit, and heavy reliance on loans and credit to fund government expenditures). • Ensuring that terms of repayment and Agreements on interest rates are not detrimental to marginalised sectors, classes, communities and women, and to the goals of equitable and sustainable development. • Rejection of loans with structural adjustment and similar conditions, including those in the guise of poverty reduction and alleviation; rejection of debt relief packages that are accompanied by similar conditions. • End all forms of public or government guarantees on private sector loans; guarantees issued earlier should be revoked or rescinded. • Strict regulations on issue of bonds and domestic borrowing to prevent accumulation of huge public domestic debt and preventing government bonds from inducing high interest rates. Democratic participation and Democratic Governance: We forward the immediate demand for full and meaningful peoples’ participation and intervention in economic policy-making. There must be clear laws and mechanisms to ensure this. Over all, we stand for democratic governance and shall link with other groups, forces and movements in struggling to establish truly democratic governments in the South. International Financial Institutions and Conditions: As an immediate or minimum demand to raise public awareness and further expose the negative effects of structural adjustment programmes and similar policies imposed by international financial institutions and enforced by governments of the South, these institutions and governments must be challenged to: • Conduct a national participatory audit/investigation of the impact of structural adjustment programmes and neo-liberal policies. At the same time, the following call/demand should be advanced: • Stop the implementation of WB/IMF Programmes and similar programmes and policies of regional IFIs (international financial institutions). Restitution and Reparations: The demand for restitution and reparations must be popularised, promoted and asserted: • Restitution and Reparations for victims of the Debt and SAPs, especially workers, urban and rural poor, farmers, indigenous peoples’ communities and women from these sectors and groups.

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Developing an International Platform and Regional Platforms Supporting National Campaigns and Platforms; Challenging and Engaging Northern Creditors, International Financial Institutions and Other International Multilateral Organizations. The global community of Jubilee South shall support and promote national platforms, agendas and campaign initiatives of national movements and campaigns on the debt. At the same time Jubilee South unites on the following immediate, medium and long term demands to be carried in the various global and regional arenas and challenging and engaging various global and regional institutions: To Northern Governments and Creditors: • Cancel all bilateral debts of all South Countries. • Stop loans and ODA support for authoritarian, dictatorial, oppressive and military regimes. • Stop efforts to strengthen the role and extend the mandate of the World Bank and IMF (MAI, etc.). To the World Bank, IMF and their regional partner IFIs: • Cancel multilateral debt of all South countries. • Complete information disclosure and transparency on transactions and agreements with Southern governments. • Stop imposition of structural adjustment programmes and similar policies as conditions to grants and loans; stop the imposition of stabilisation programmes on countries in the wake of economic and financial crises. • The new Poverty Reduction and Growth Facility of the IMF to be withdrawn and IMF to cease pretensions to poverty reduction goals. • Abandon moves to amend the IMF’s Article of Agreement to require member countries to liberalise their capital accounts. To the United Nations: • Formation of a global commission with more than 50 per cent representing civil society (and others from governments and the United Nations) be immediately convened to review the work of the IMF and other IFIs, determine whether they should continue to exist and, if so, re-define what role they should play; if not, examine ways and means to de-commission or dismantle the IMF. • Passage of an International Covenant regarding stolen wealth.

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• International investigation and inquiry into Governments and International Financial Institutions (IFIs) responsible for illegitimate, odious, onerous, fraudulent and criminal loans and other similar economic issues. • Setting up of international instruments to monitor and regulate the flow of international speculative capital. To Countries of the South: Linking up and formation of ‘debtors’’ alliance to unite on common policies and actions on: • Debt repudiation; • Restitution and Reparations; • Rejection of SAPs and other conditions; Resistance to neo-liberal global economic policies: • Dismantling of International Financial Institutions; • Regulation of International Speculative Capital Flows; • and others. The Summit was preceded by another Summit of the Southern African countries, also organised by Jubilee 2000 South Africa in Gauteng/Johannesburg, in March 1999. Participants from ten Black African countries and representatives of Jubilee 2000 Latin America and the Philippines issued the Gauteng Declaration, with a survey of the dramatic debt situation of Southern African countries and proposals for the end of internationally designed conditions and the replacement of the HIPC initiative with a programme of total, unconditional debt cancellation.

Bibliography and Further Reading Acosta, Alberto, 1999, ‘Editorial’, in Diario HOY, Quito, Ecuador, 8 December —, 2000, ‘La Trampa de la Dolarización – Mitos y Realidades para la Reflexión’, mimeo (preliminary), Quito, Ecuador, 14 January Alberto Acosta Adams, Patricia, 1991, Odious Debts – Loose Lending, Corruption and the Third World’s Environmental Legacy, Probe International/Earthscan, London/Toronto. Arruda, Marcos, 1988, Prometeu Acorrentado: Os Grandes Grupos Econômicos, o Endividamento Externo e o Empobrecimento do Brasil, Working Document, PACS, Rio de Janeiro. —, 1991, O Governo Collor e a Dívida Externa, PACS/FASE, Rio de Janeiro. —, 1994, ‘A creative approach to structural adjustment’, in Cavanagh, John, Wysham, Daphne, and Arruda, Marcos, Beyond Bretton Woods: Alternatives to the Global Economic Order (TNI/Pluto Press, London). —, 1995a, NGOs and the World Bank: Is it possible to collaborate critically? Booklet, PACS, Rio de Janeiro. —, 1995b, ‘Globalização e Ajuste Neoliberal: Riscos e Oportunidades’, in Tempo & Presença, Koinonia, Rio de Janeiro, December. —, 1997, Globalization and Civil Society: Rethinking Cooperativism in the Context of Active Citizenship, PACS, Rio de Janeiro. —, 1998, Cancelar é Possível... Mas Muito Mais é Necessário – Jubileu 2000 e Dívida Brasileira, PACS, Rio de Janeiro. —, 2000, On Behalf of an International Insolvency Law for Debtor Nations, PACS, Rio de Janeiro. Barnet, Richard L. and Cavanagh, John, 1994, Global Dreams: The New World of the Great Corporations (IPS/Simon & Schuster, Washington, DC). Barratt-Brown, Michael and Tiffen, Pauline, 1992, Short Changed: Africa and World Trade (TNI/Pluto Press). BCB – Banco Central do Brasil, ‘Informações Econômicas’, Brasília, DF, December. Internet site <www.bcb.gov.br/htms/notecon1.htm> Bello, Walden, 1999, Dark Victory – The United States and Global Poverty (TNI/Food First/Pluto Press, London). Biondi, Aloisio, 1999, O Brasil Privatizado, Editora Fundação Perseu Abramo, São Paulo. Bono, 2000, article published in The Times, London, and distributed by Nick Buxton/International Jubilee 2000, Broad, Robin, 1983, Behind Philippine Policy Making: The Role of the World Bank and International Monetary Fund (Woodrow Wilson School of Public and International Affairs, Princeton University). Bryden, David, 1999, ‘Briefing and discussion on latest developments in US Congress’, electronic report, Jubilee 2000 USA, 19 November, David Bryden, Bunding, Madeleine, 1999, ‘Donde la desigualdad ahoga a Jesús y Ericsson’, in the Guardian, London, 31 December (translation by Liana Cisneros). 159

160 External Debt Buxton, Nick, 1999, ‘Gordon Brown’s Promise to Cancel 100% of Bilateral Debts Owed to Britain by Some of the Poorest Countries: Behind the Headlines’, Electronic Briefing Note, 21 December. —, 2000, ‘Japanese Embassy Actions’, Jubilee 2000 Coalition, London, 14 January, or Calcagno, Eric, 1986, La Perversa Deuda Argentina, Editorial Legasa, Buenos Aires. Câmara dos Deputados, 1998, Audiência Pública: Os Financiamentos das Instituições Financeiras Multilaterais e o Orçamento da União, and O Papel do Congresso Nacional na Fiscalização e Controle de Acordos Internacionais e de Financiamentos Externos, Comissão de Fiscalização Financeira e Controle, Brasília, DF. Campodonico, Humberto, in Pretextos nos 3–4, December, Desco, Lima. Cedergren, Jan, et al., 1991, The Way Out of the Debt Trap: Proposals to Relieve the Debt of the Poorest and Most Indebted Countries (SIDA, Stockholm). CEDI (Centro Ecumênico de Documentação e Informação), 1989, Dívida Externa e Igrejas, Rio de Janeiro. CEJI (Canadian Ecumenical Jubilee Initiative), 1999a, ‘Church Activists Welcome Cancellation of Bangladesh’s Debt’, Electronic Press Release, Toronto, 10 December, Sara Stratton <[email protected]>, website <www.web.net/~jubilee> —, 1999b, ‘Debt Cancellation and Conditionality’, Canadian Ecumenical Jubilee Initiative Policy Forum, Toronto, 8 September. Center of Concern, 1993, ‘Development: From exclusion to inclusion: The 1993 Human Development Report’, Jo Marie Griesgraber, Center Focus, no. 113, September, Washington, DC. —, 1991, ‘Structural adjustment, US style’, Center Focus no. l04, December, Washington, DC. Central Bank of Brazil, Bulletins and Statistics. CEPAL, 1995, ‘Notas sobre la Economia y el Desarrollo’, Diciembre, Santiago, Chile. Christian Aid, Banking on the Poor: The Ethics of Third World Debt, London, 1989. CIDSE/Caritas Internacionalis, 1998, La Vida Antes que la Deuda (Brussels). CNBB, 1998, ‘Dívida Externa, Dimensão Ética e Teológica e Iniciativas Internacionais’, of the series 3a. Semana Social, 1997–99 – Resgatando Dívidas, No. 2, Brasília, March. CNBB, CONIC, CESE, 1998, ‘A Dependência Externa do Brasil’, Documentos do Simpósio sobre Dívida Externa, Brasília, 21–23 July. Dandavate, Madhu, 1993, Distorted Economic Liberalisation – SAPs in India, monograph. Debt Crisis Network, 1986, From Debt to Development – Alternatives to the International Debt Crisis, Institute for Policy Studies, Washington, DC. Demery, Lionel and Addison, Tony, 1987, The Alleviation of Poverty under Structural Adjustment (The World Bank, Washington, DC). DESCO, 1992, ‘Elementos para el Analisis del Programa de Ajuste Estructural en el Peru’. Dietrich, Gabrielle, 1997, ‘Effects of IMF and World Bank Policies on Women in India’, in Globalisation and SAPs – Trends & Impact, an Overview, ed. Ajit Muricken, Vikas Adhyayan Kendra, Mumbai (India). Dillon, John, 1998, ‘The Global Financial Crisis, the IMF & Strategies Towards Resolving the Crisis’, in Vikas Adhyayan Kendra, Quarterly, Vol. VI, No. 4, Mumbai, India.

Bibliography and Further Reading 161 Edwards, S., 1999, ‘Latin America at the end of the Century: More of the Same?’, in Revista Gestión, No. 66, UCLA, December. Elliott, Larry, 1999, ‘Third World Debt Relief Gets Worlds Attention’, in the Guardian, London, 30 April. Espinosa, Roque, 1999, ‘La Crisis Económica Financiera Ecuatoriana de Finales de Siglo y la Dolarización’, mimeo, Universidad Andina Simón Bolívar and PUCEcuador. L’Express, 1992, ‘L’Afrique Martyre’, 8 October, Paris. FACS, 1993, ‘Ajuste Estructural y Fondos de Inversion Social en Nicaragua’, monograph, April, Managua. Furtado, Celso, 1987, ‘Transformação e Crise na Economia Nacional’, Paz e Terra, Rio de Janeiro (especially chapters IV to VIII). Garrett, John, 2000, Briefing: Japan and the Debts of the Poorest Countries, Jubilee 2000 Coalition, London, <[email protected]> George, Susan, 1988, A Fate Worse Than Debt (Pelican, London). —, 1992, The Debt Boomerang – How Third World Debt Harms Us All (TNI/Pluto Press, London). Gonçalves, Reinaldo, 1997, Latin America: External Debt, Poverty And Vulnerability, PACS, Rio de Janeiro. —, 1998, A Dívida Externa do Brasil e da América Latina, PACS, Rio de Janeiro. Heller, Peter S., Povenberg, A. Lans, Catsambas, Thanos, Chu, Ke-Young and Shome, Parthasarathi, 1988, The Implications of Fund-supported Adjustment Programs for Poverty: Experiences in Selected Countries, IMF, Washington, DC, May. ICCAF, 1993, ‘Structural adjustment and health in Africa: World Bank’s Development Report offers no cure’, Economic Justice Update, No. 7, August, Ottawa. Institute of Latin American Studies, 1986, ‘The Debt Crisis in Latin America’, Monographs No. 13, Stockholm. Interamerican Development Bank, 1985, ‘Economic and Social Progress in Latin America: External Debt: Crisis and Adjustment’, report, Washington, DC. Jubilee 2000 Afrika, ‘The Gauteng Declaration’, 21 March 1999, South Africa. —, ‘The Lusaka Declaration’, 19–21 May 1999, Zambia. Jubilee 2000 Brazil, ‘Verdict of the Tribunal on the Foreign Debt’, 26–28 April 1999, Rio de Janeiro. Jubilee 2000 Latin America, ‘The Tegucigalpa Declaration’, 27 January 1999, Honduras. Kennedy, Margrit, 1995, Interest and Inflation Free Money – Creating an Exchange Medium that Works for Everybody and Protects the Earth (New Society Publishers, Philadelphia). Kitazawa, Yoko, 2000, ‘Letter’ No. 4, of 27 January, Jubilee 2000 Coalition Japan, Tokyo, Yoko Kitazawa, Kraychete, Gabriel, 1997, Desenvolvimento Institucional (EAP-CESE, Salvador). Kucinski, Bernardo and Branford, Sue, 1987, A Ditadura da Dívida: Causas e Conseqüências da Dívida Latino-Americana (Editora Brasiliense, São Paulo). LWF (Lutheran World Federation), 1999, ‘Editorial – Life After...Debt? Jubilee 2000’, Development Education Forum, No. 8, Geneva, December. Marin, Gustavo, 1988, An Approach to an Alternative Policy to Deal with the Debt Crisis (Pries/Cono Sur, Santiago). —, 1989, Impactos de la Deuda Externa en el Tercer Mundo (Pries/Cono Sur, Santiago).

162 External Debt Martin, Brendan, 1993, In the Public Interest: Privatisation and Public Sector Reform (Zed/PSI, London). Mazerolle, Jean-Michel, 1999a, ‘Dette et Etats’, in Solidaires pour l’évangélisation des peuples, No. 411, Paris. —, 1999b, ‘Tout est question d’amour’, in Solidaires pour l’évangélisation des peuples, No. 411, Paris. Medellin, Rodrigo, 1993, Que Pasa en Mexico a Finales de Sexenio? Un Ensayo – Ilustrado – de Entender el Liberalismo Salinista (Mexico, DF). NGOWG (NGO Working Group on the World Bank), 1994a, ‘Structural adjustment in Sri Lanka: A grassroots perspective’, Executive Summary, Geneva. —, 1994b, ‘The Challenge of Poverty Eradication’, Working Document, Geneva. ‘O Esquema Tático de FHC’, 1998, Revista Caros Amigos/Oficina de Informações (São Paulo). OECD, 1991, Financing and External Debt of Developing Countries, Paris. Olmos, Alejandro, 1995, Todo lo que usted quiso saber sobre La Deuda Externa y siempre lo ocultaron – quienes y como la contrajeron, Editorial Los Argentinos, Buenos Aires. PACS (Institute of Alternative Politicies for the Southern Cone), 1999, ‘G7, Aquém da Necessidade dos Povos’, in Informe PACS J2000, No. 7, June, Rio de Janeiro. Pereira, Luiz Bresser (org.), 1989, Dívida Externa – Crise e Soluções, Editora Brasiliense, São Paulo. Philippine-Asia Jubilee Campaign Against the Debt, 1999, ‘The Cebu Declaration’, 18 May, Philippines. Phillips, Michael M., 1999, ‘IMF, World Bank Face Mounting Attacks – House Presents Bills to Alter Debt Plan to Poor Nations’, in Wall Street Journal, New York, 26 October. Pinaud, João Luiz Duboc, 1998, Princípios de Bretton Woods Versus Endividamento Externo, PACS, Rio de Janeiro. —, 1992, Dívida Contra o Direito, CEDI, Rio de Janeiro. Public Services International, 1992, ‘The Impact of Adjustment Programmes on the Public Sector in Central America and the Caribbean’, Trevor Evans, CRIES, Managua-Ferney/France. —, 1993, ‘Structural Adjustment Programmes (SAPs): The Effects on Labour and the Public Sector in Africa’, Ekei U. Etim, Ferney/France. Raffer, Kunibert, 1993. ‘What’s Good for the United States must be Good for the World: Advocating an International insolvency’, Chapter 9 in Bruno Kreisky forum for International Dialogue (ed.), From Cancún to Vienna: International Development in a New World (Vienna), pp. 64–74. Reynolds, Norman, 1999, ‘Turning International Debt Relief into The Right To Work – A Citizen to Citizen Contract’, November, <[email protected]> Roddick, Jackie, 1988, The Dance of Millions: Latin America and the Debt Crisis (Latin America Bureau, London). Sandroni, Paulo (coordinator), 1985, ‘Dicionário de Economia’, Abril Cultural, São Paulo. Sanger, David, 1999, ‘Clinton is to Offer Some Nations a Chance to Avoid Paying Debt’, in the New York Times, 16 March. Schilling, Paulo, 1989, Dívida Externa: Quem São os Devedores? em Dívida Externa e Igrejas: Uma Visão Ecumênica, CEDI, Rio de Janeiro.

Bibliography and Further Reading 163 Schuldt, Jürgen, 1999, Dolarización oficial de la economía: un debate en once actos (Universidad del Pacífico, Lima). SONED – Southern Network for Development – Africa Region, 1990, ‘The Root Causes of Debt Crisis in Africa’, SONED, Development Education Series, Nairobi. Swiss Coalition of Development Agencies, 1999, Le désendettement doit explorer de nouvelles pistes (Bern). Timossi, Gerardo, 1989, ‘Centroamérica, Deuda Externa y Ajuste Estructural’, DEI/ CRIES, San José, Costa Rica. Toussaint, Eric, 1999a, Your Money or Your Life! The Tyranny of Global Finance (Pluto Press, London/Mkuki na Nyota, Dar es Salaam). —, 1999b, in La Jornada, 2 October, Mexico DF, p. 14. —, 1999c, ‘L’Annulation de la Dette’, in L’Autre Davos: Mondialisation des résistances et des luttes, ed. Houtart François and Polet François (L’Harmattan, Paris, Montreal). —, 2000, Interview in El Comercio, Quito, Ecuador, 7 February, and Transnational Institute, Philippine Center for Policy Studies and Freedom from Debt Coalition, 1992, Of Bonds & Bondage – A Reader on Philippine Debt, ed. de Dios Emmanuel S. and Rocamora Joel (Amsterdam/Manila). TWN (Third World Network), 1993, ‘Economic adjustment can also violate human rights’, Third World Economics, no. 68, Penang/Malaysia, 15 July. —, 1996, ‘Clash of views on effects of investment liberalisation’, Third World Economics, no. 138, 1–15 June. UNCTAD, 1992, ‘Latin American Adjustment and Economic Reforms: Issues and Recent Experience’, by Patricio Meller, Discussion Papers no. 53, December, Geneva. UNDP, 1993, ‘With a soul and a vision: A new approach to development and a new UNDP’, address by James Gustave Speth, Administrator to the UNDP Staff, New York. —, various years, Human Development Report, New York. UNRISD, 1995, Estados de Desorden: Los Efectos Sociales de la Globalización (Geneva). Weissman, Robert, 2000, ‘Stand Up and Be Counted! We need you to come to Washington and join the Jubilee 2000 National Mobilization’, Electronic Report, 4 February, <www.j2000usa.org> World Bank, 1988, Adjustment lending: An Evaluation of Ten Years of Experience, (Washington, DC). —, 1990a, ‘How Adjustment Programs can Help the Poor – The World Bank’s Experience, Discussion Paper’, no. 71 Washington, DC. —, 1990b, ‘Structural Adjustment and Poverty: A Conceptual, Empirical and Policy Framework’, Washington, DC. —, 1992a, ‘Operational Directive 8.60: Adjustment Lending Policy’, The World Bank Operational Manual, Memorandum of 21 December. —, 1992b, ‘World Bank Adjustment Lending and Economic Performance in Sub-Saharan Africa in the 1980s: A Comparison with Other Low-income Countries’, Ibrahim A. Elbadawi et al., Policy Research Working Papers, Washington, DC. —, 1992/3, and 1995/6, World Debt Tables, Washington, DC. —, 1993, Implementing the World Bank’s Strategy to Reduce Poverty: Progress and Challenges, Washington, DC. World Bank, 1998 and 1999, Global Development Finance – Analysis and Summary Tables, Washington, DC.

Index Acosta, Alberto 87–8 adjustment 61–7, 74n and cycle of indebtedness 63 exports 62–3 and globalisation 64–5 new approach 64–5 price stabilisation 62 social costs of 51–4, 63, 66–7, 80–1, 82–3, 86, 132 spending cuts 62 ‘structural’ adjustment 64–5 see also IMF (International Monetary Fund); SAPs Africa 79, 100, 106, 120 see also Jubilee South Alliance for a Responsible and United World 118 Amerindians 10 amortisation 6, 15, 17, 28, 40, 41, 46, 49 see also debt service; interest AMRO 8 Andean Central America 100 Angola 103 Aranha, Oswaldo 11 arbitration tribunal 27, 120 Argentina 9, 12, 13, 65 dependence on Brazil 15 moratorium law 88–9 unpayable debt 2, 38, 57 Asian crisis 21, 36–7, 42, 44, 55, 111 Asian Tigers (Asian Dragons) 21, 29n, 36 ‘asset stripping’ 111 Assoziazzione Beati i Costruttori di Pace 97 ATTAC (Association for the taxation of financial transactions for citizen’s support) 117, 126 Azeredo, Governor Eduardo 52 ‘bailing in’ 86–7 Banca Etica 97

Banco do Brazil 51 Bangladesh 82–3, 104, 112 Bangkok 123–4 banks, rescue of 42–3, 55 Basque country 97 Basualdo, Eduardo 91 Benin 108 Berlin Tribunal 89, 134n Blair, Tony 151 BNDES 37 Bolivia 23, 108 Brady bonuses 86 Brady Plan 87 Brazil 5, 104 audit of foreign debt 129–30 corruption 18 cost of living 9 and debt service 47, 49, 84–5 decapitalisation of 48, 52, 84 and democracy 18–19 deregulation 33, 49 devaluation 15, 35–9, 44–5, 50, 53, 129 elections 19, 32, 65 environmental debt 1–2, 5, 133 and exchange rate controls 50, 126, 130 exports and imports 7, 9, 11, 53, 83–4, 133n and external debt 1, 6, 7, 11, 16– 17, 46–7, 83–5 External Debt Symposium proposals 28–9 external investment 7–8, 20–1, 30, 33, 46, 130–1 FHC-IMF adjustment programme 1, 20–2 financial crisis 2, 21, 30, 32, 37, 38, 45, 48, 55 fiscal adjustment 51–4, 56 fiscal deficit 46–9 and IMF 20–2, 38–43, 49–50, 52, 55, 128

164

Index 165 importance of rescuing 48–9, 55 inflation 35, 36 insolvency 1, 39, 40–1, 47–8, 54 interest payment 6, 16–17, 21, 38, 40, 46–7, 62, 84 and interest rates 16–17, 20–2, 33– 6, 40–1, 52, 54 internal public debt 1, 16, 17, 35, 47 and international speculation 16, 19, 30, 37, 41, 53, 130 Jubilee 2000 Campaign 92, 124, 127–33 land reform 54, 58 Letter of Intentions 40, 49 liberalisation 32, 33, 45, 46 and loan conditions 50–1, 128–9 and military dictatorship 11, 12, 131–2 monetarism 33–6 moratorium 11, 39–40, 47–8, 55– 7, 92, 126, 129 over-indebtedness 84, 92, 104, 131, 132 overvaluation of Real 36–8, 44, 45, 53 pension system 53–4 political debt 1, 5 and privatisation 19, 22, 33, 37, 48, 52, 131 and IMF conditions 45, 129 of public assets 9, 29, 44, 49, 51, 129 protest demonstrations 39 public deficit 38 renegotiation of debt 6, 39–40, 56, 57, 131–2 social conditions 9 social crisis 51–4 social debt 1, 5, 38, 133 social needs 22, 56 and social spending cuts 17, 22, 38, 45, 49, 54 taxation 45, 47, 54, 56, 58 trade balance 85 trade liberalisation 36, 45, 56 Trojan Horse policy 30, 41 unemployment 9, 46, 52, 60n unpayable debt 2, 11, 21, 22, 38, 40

unsustainable debt 125, 129 vulnerability to world financial imbalances 33–8 see also Foreign Debt Tribunal Brazil Network on Multilateral Institutions 56, 134n Brazilian Central Bank 34, 35, 41, 47, 52 Bretton Woods institutions 72, 117 Britain and debt cancellation 107–11 Jubilee 2000 External Debt Campaign 107, 109, 123 Brown, Gordon 107–8 Bryden, David 113 Buenos Aires Declaration 122–3 Bunding, Madeleine 93, 94 Burkina Faso 23, 108 Burundi 23 Buxton, Nick 107–9, 115–16 Cafod 23 Caixa Econômica Federal 51 Calcagno, Alberto Eric 88, 91 Camdessus, Michel 41, 45 Cameroon 23, 82 Canada 8, 112, 151, 152 Canadian Ecumenical Jubilee Initiative 112 capital flight 1, 13, 34, 38, 48, 106, 121 capitalism 2, 31–2, 37, 42 Cardoso, Fernando Henrique 19, 32, 38, 44, 65 dependence on foreign capital 9, 30, 41 and external debt 16, 17, 19–20, 34, 84 as Finance Minister 40 and fiscal deficit 46 and IMF adjustment programme 1, 20–2 impeachment 39 and internal debt 36 irresponsibility 47, 48, 51, 54, 132 social spending 54 Caribbean 66, 79 Castro, Fidel 91 Catholic Church 94, 101

166 External Debt CCFD (Catholic Committee Against Hunger and for Development) France 107 CEBU Declaration 97 Centrais Elétricas de Minas Gerais 37 Central Bank of the United States 15 Centri Missionari Diocesani del NordEst 97 Cepaline 87 Chagas, Carlos 51 Chile 12, 13, 15 China 8, 55 Christian Aid 23, 90, 124 Christianity, and usury 7 churches and external debt 29, 57, 89–90, 91, 93 and Jubilee 2000 Campaign 101 CIDSE (International Co-operation for Development and Solidarity) proposals 23, 27 Citibank 8 Citizen’s Collective against the WTO 117 civil society influence of 3, 18, 51, 107 and mass education 119 organisations (CSOs) 99, 113, 120, 121, 127–8, 132 participation in debt cancellation 27–8, 65, 105, 109, 120–1, 126, 157 protest movements 51, 58, 81, 112 Clinton, President Bill 41, 112–14, 151 Club of Paris 27, 114, 124 co-operation 32, 67, 72, 74n, 117 Cologne, Jubilee 2000 Campaign 94, 96–7 Cologne Debt Initiative 101–5, 116 achievements of 102–3, 152 insufficiencies of 103–5, 122 Colombia 13, 15 Columbus, Christopher 10 Commonwealth, and overindebtedness 111 communications, democratisation of 71 compensation, for war crimes 10

complementarity 32, 67, 72, 74n, 117 compound interest 81, 129 Conable, Barber 73n Conceição Tavares, Maria da 91 Congo 23, 103, 113 Continental Social Alliance 117–18 Coordinamento Caritas Diocesane del Nord-Est 97 Correio Braziliense 51 corruption 18 Costa Rica 89 Côte d’Ivoire (Ivory Coast) 23, 108 CPMF (Provisional Tax on Bank Transactions) 35, 54, 131 Crédit Agricole 8 creditors 1, 2, 5, 8, 42, 130 encouraged by IMF rescue packages 44 pressure to cancel debt 109, 151 private 100, 104 responsibility for debt 12, 27, 56, 106, 121 Cruzado Plan 39 ‘Cry of the Excluded’ 92, 99, 134n Cuba 8 Davos International Economic Forum, Switzerland 111 debt cancellation 48, 77, 90, 93, 95 conditions for 103, 108, 122, 128 ‘Debt Free Millennium’ 4, 77, 94, 116–18, 123 ethical 127, 133 European initiatives 105–12 and human development programmes 23, 56–8, 102–3, 107–8, 119, 126, 128, 132 Japan 151–3 mass mobilisations for 98–9 North American initiatives 112–14 principle accepted 116 social movements 117–27 success of movements 99–103 transparent decision-making 22, 27, 108, 109, 120, 157 unconditional 155, 158 see also Cologne Debt Initiative; Foreign Debt Tribunal; Jubilee 2000 Campaign

Index 167 debt service 15, 16, 17, 47, 82–6, 103 ceiling on 28, 57, 128, 142, 155 policies regarding 155 postponing 52–3 ‘debtors’’ alliance 158 Debtors’ Cartel 120 default/insolvency, international system of 27, 28, 39, 45, 48, 58, 88, 106, 130 democratisation 117, 126, 156 denationalisation 131 see also Brazil, privatisation; privatisation deregulation 28, 30, 33, 49, 64, 75n, 80 Deutsche Bank 8 dictators see military dictators dollar abandoned gold standard 3, 43 dollarization 86, 87–8 as international currency 43–4 Dominican Republic 9 Duboc Pinaud, João Luis 91 ‘Dwarfs on the Budget’ 18, 29n

and cycle of indebtedness 63, 78, 80, 81–2 definition of 5–6 effect on people’s lives 8–9, 80–1 evolution of 78–80 government backing for private debt 130 and human rights 121–2 illegitimate 28, 91, 118, 120, 122, 125, 154, 155, 158 and illegitimate regimes 12–13, 106, 132 “odious debts’’ 106, 122, 132, 154, 155, 158 permanence of 6 reasons for borrowing 81 repayment 7–9 responsibility for 106, 125–6, 154–5 risk tax 130 and social development 91, 93 vicious circle 6, 7, 17, 39, 63, 129, 132–3 External Debt Symposium (1998), proposals 28–9

East Asia 15–16 ECLAC (UN) 13 economic development, and foreign investment 61–2 economic liberalism 68 Ecuador 86–8, 92, 109, 123 moratorium 86, 87, 123 education 23, 82–3, 102, 108, 122 Egypt 107 El Agustino 93, 94 El Universo 123 empowerment 69, 117 England 8 Enhanced Structural Adjustment Facility (ESAF) 113 Ethiopia 23, 106 European Union, debt cancellation 127 external debt cancellation 2, 5, 22–9 compared to war 5 creating dependence 6, 16, 91–2, 119, 132–3

FFTA (Free Trade Area of the Americas) 118 50 years is enough 118 Financial Stability Forum 43 ‘fiscal effort’ 21 Folha de São Paulo 54 foreign aid 152, 153 Foreign Debt Tribunal, Rio da Janeiro (1999) 29, 57, 60n, 92, 104, 124–7 Fraga, Armínio 35, 54 France 8, 19, 106–7, 127 Franco, Gustavo 40 Franco, Itamar 40, 52 free market economics 63, 68 Fujimori, Alberto 94 Funaro, Dilson 39 Furnas 22, 29n, 51 Futenma US Marine Helicopter Base 96 G7 81, 94, 100, 101, 109, 152 G8 95, 115, 151 Gates, Bill 104

168 External Debt Gauteng Declaration 158 Geisel, Ernesto, General and Dictator (1974-1978) 11 Germany 8, 19, 123, 152 compensation to Israel 10 debt service ceiling 128 Nazi debt 23, 27, 57 Ghana 113, 115 global capitalism 68 global economic crisis 30–1, 44, 55 Global North/Global South division 99 globalization 2, 3, 35, 64 alternative 61 challenges of 68–73 co-responsible form of 117 and codes of conduct 72 ‘competitive’ 64–5, 68, 74n and democratisation 69–70, 72–3 and diversity 69 of finance 70 and flexible labour force 69–70 and global power 71–2 and income concentration 66 and Latin Americanisation of North 99 and local development 68–9 myths of 19 and telecommunications 71 and trade liberalisation 67 and worker exploitation 69 Gonçalves, Reinaldo 91 Gorostiaga, Xabier 91 government policies and accountability 154, 155 on borrowing 155–6 on debt servicing 155 Grant Assistance for Debt Relief Scheme (Japan) 151, 153 Guardian 101–2 Guayaquil 123 Guinea 114 Guinea Bissau 23 Guyana 23, 83, 108, 151 The Hague 127 Hatoyama, Yukio 96 health 23, 82–3, 86, 93, 102, 108

HICHIP (highly indebted countries with high incidence of poverty) 116, 127 Hinkelammert, Franz 91 HIPC debt reduction 23, 82, 106–7, 122 financial aid to 102 most impoverished 24–6 unsustainable debt 77, 83 HIPC initiative 90, 100–3, 109, 114, 124, 151, 158 HIV/AIDS 103 Hobbes, Thomas (1588-1679) 31 Holland 8 Honduras 2, 56, 106, 113 human rights 10, 96, 122, 126, 132, 137 Hurricane Mitch 2, 56, 106 IFIs (International Financial Institutions) 158 IMF (International Monetary Fund) 1, 2, 8, 43–5, 72 and adjustment policies 62–3, 86–7 and Asian crisis 111 and debt cancellation 27 demands to 157 disastrous effect of 42, 63, 128, 135n, 151 discredited 55–6, 151 exchange policy 37 failure of 43, 44, 50, 87, 104 and human rights 89 and loan conditions 2, 9, 12, 35, 62–3, 80–1 opposition to 122, 124 packages 16, 20–2, 37, 42, 44, 49, 52 Poverty Reduction and Growth Facility 157 pressing for higher taxes 47–8 protests against 9, 39, 63, 74n selling gold reserves 102, 114 and structural reforms 13, 15, 43 see also Brazil, and IMF; SAPs; World Bank ‘IMF survival crimes’ 44 India 104

Index 169 Indonesia 9, 44, 104 infant mortality 82–3, 86 inflation 35, 62, 66 global 44 infrastructure 80 Inter-American Development Bank (IDB) 1, 8, 40, 45 interest 6–8, 39, 78–80 compound 81, 129 Ecuador 86 and fairness 7 and insolvency 39, 84, 106, 114 nature of 81 Peru 93, 94 see also Brazil, interest payment; debt service interest rates 75n, 156 flexible 50, 62 high 16, 33–6, 44, 46–7, 47, 49, 52 increasing 11, 12, 62, 81, 89, 104, 121–2, 130 and insolvency 111, 114 restoration 57 see also Brazil, interest rates International Court of Justice, The Hague 127 International Speculative Capital Flows 158 Israel 107 Itaipu 22, 29n, 51 Italy 19, 97, 152 Jamaica 9 Japan 8, 19, 42–3, 55 and debt cancellation 114–16, 151–3 Jubilee 2000 External Debt Campaign 95–6, 114–15, 152–3 and public opinion 115 Japan Bank for International Cooperation 153 Johannesburg, Jubilee South Summit 154–8 John Paul II, Pope 2, 97 Jubilee 2000 External Debt Campaign 2, 5, 22–3, 38, 56–7, 77–8, 89–99 achievements 101–2 extent of 94–5, 96–7

human chain 95, 96, 97, 98 Japan 95–6, 114–15 in Latin America 90–5 and loan conditions 108, 109 petitions 94, 96, 97, 98, 101, 112, 124 some objectives 98 see also Cologne Debt Initiative Jubilee South Coalition 116, 118–19 changing government policies 154–8 developing international platform 157–8 Kadena Military Airbase 96 Kasumigaseki, Tokyo 96 Kenya 82, 114 Kitazawa, Yoko 134n, 153 La Oroya Valley 94 Landless Rural Workers Movement 47 Laos 113 Latin America and Caribbean 66, 122, 126–7 de-capitalisation 12 debt owed by colonisers 10 exploitation 5, 91 external debt 5–6, 13–15, 79, 91–2 financial crisis 12, 13 income concentration 14 interest on debt 7, 15 Jubilee 2000 Campaign 90–5 and military dictatorships 12–13, 62 poverty 14 structural reforms 13, 15, 66 unemployment 67 unpayable debts 12 Latin American and Caribbean Coalition of the Global Jubilee 2000 Initiative 94 Latin Americanisation of North 99 Lenten Campaign 107 Leviticus, Book of 23, 94 Liberia 103 LTCM (Long-Term Capital Management) 42 Lusaka Declaration 119–20

170 External Debt McKinnon, Donald 111 Madagascar 23 Mahuad, Jorge 86 MAI (Multilateral Agreement on Investments) 28, 49–50, 58n, 67, 98, 121 Malan, Pedro 22, 36, 37, 40, 41, 49 Mali 108, 114 Marcos, Ferdinand 106 Márin, Gustavo 91 market liberalisation 64, 67, 75n Mathau, Argentina 122 Mauritania 108 Mazerolle, Jean-Michel 106 Medici, Emilio Garrastazú, General and Dictator (1969-1973) 106 Mello, President Fernando Collor de, (1990-1992) 65 Menem, Carlos, President of Argentina 65 Mercosul 38 Mexico 10, 13, 50, 65 and debt cancellation 104, 127 dependence on United States 15 financial crisis 15, 21, 42 interest on debt 7 unpayable debt 2, 38, 57 Mihevc, John 112 military dictatorships 11, 12, 81, 132, 157 loans for arms 106 Millennium Fund 102 Minaram 23 Minas Gerais 52 Miyazawa Initiative 152 Mobutu, Sese Seko 106 monetarism 33–6, 62 moratorium 155 Argentina 88–9 Brazil 11, 39–40, 47–8, 55–7, 92, 126, 129 Costa Rica 89 Ecuador 86, 87, 123 Russia 20, 44 moratorium law 88–9 Mozambique 23, 82, 103, 108, 119, 151 Mujica, Javier 91

multilateral institutions 72, 88, 93, 100 political intervention 65 pressure on 97, 99 reform of 118 Myanmar 114 Naha City 95 nature, destruction of 2 neo-liberalism 15, 30, 61, 64, 99–100, 158 Neves, Tancredo 46 New Zealand 111 Nicaragua 1–6, 2, 13, 23, 56, 127 Niger 23 Nigeria 109, 151 Nixon, President Richard 43 Nogueira Batista Jr, Paulo 91 O Globo 45, 54, 101 Obasanjo, Olusegun 111 Obuchi, Keizo 95, 115 ODA (Official Development Assistance) 100, 104, 106, 113, 114, 151, 157 “odious debts’’ 106, 122, 132, 154, 155, 158 Okinawa 95, 96, 152 Olmos, Alejandro 91 Operazione Bilanci di Giustizia 37 over-indebtedness 49, 77–8, 80, 92, 105, 111, 113, 133 alternatives to 3–4, 91, 123–4, 125 Brazil 84, 92, 104, 131, 132 of ‘emerging’ countries 127 ethical problem 89 see also unpayable debt; unsustainable debt Oxfam International 103 PACS (Alternative Policies for the Southern Cone of Latin America) 97 Pakistan 87, 104 Panama 87, 134n Paraguay 13 PEMEX 50–1 Pérez Esquivel, Adolfo 123 Peru 13, 92, 109, 120, 151

Index 171 environmental controls 67 Jubilee 2000 External Debt Campaign 92–4, 121–2 Petrobras 51 PFL (Liberal Front Party) 19 Philippine Freedom from Debt Campaign 97 Philippine-Asia Jubilee Campaign against Debt (PAJCAD) 97 Philippine-Thai Focus on Global South 97 Philippines 151 ‘Pink File’ 18, 29n PMDB (Brazilian Democratic Movement Party) 19 poverty 2, 63, 64–5, 67 alleviation 108, 109 and classification of countries 88, 93, 116 eradication of 75n, 77, 104, 117, 135–6n PPB (Brazilian Progressive Party) 19 PRI (Institutional Revolutionary Party) 65 privatisation 64, 80, 111 see also Brazil, privatisation PROER programme 41, 42, 59n protectionism 67 PSDB (Brazilian Social-Democratic Party) 19 Raffer, Kunibert 88 Real collapse of 55 devaluation 15, 35–9, 44–5, 50, 53, 129 overvaluation of 36–8, 44, 45, 53 Real Plan 16, 29n, 46 redistribution 45, 98 renationalisation 126, 131 reparations 119, 122, 156–7 Right of Insolvency 120 Rio de Janeiro 91 Rio Grande do Sul 52 RIO-92 conference 45, 59n Rodriguez, Monsignor 97 Romania 87 Rosas, Patricio 91 Rueff, Jacques 41

Russia 15–16, 87 devaluation 20 financial crisis 21, 34, 38, 42, 44 and IMF package 20 privatisation 111 Rwanda 23 Sachs, Jeffrey 113 Sack, Alexander 135n St Thomas and Principe 23 Salinas, President Carlos, Mexico 65 Sanchez, Alberto 91 Sanger, David 113 sanitation 80, 82–3, 108 ‘sappers and jackals’ 41–2 SAPs (structural adjustment programmes) 64, 65, 66, 119, 124 aggravating problems 15, 101, 103, 104, 105–6, 122, 135n creating dependence 92 and cycle of indebtedness 82 and political power 100 replacement of 112, 157 Sarney, José 11, 39 Schilling, Paulo 10, 91 Schroeder, Chancellor 151 Sdebitarsi 97 Selic rate 34 Senegal 108, 114 severely indebted countries 79–80 Shirayanagi, Cardinal Seiichi 153 Short, Clare 107 Sierra Leone 103 Siguas, César 94 Simonsen, Mário Henrique 11 Sindipetro oil workers’ union 51 SIPRI 73n slave trade 10 slavery 1, 18, 91 social exclusion 2, 6, 57, 134 social movements 117–27 solidarity 32, 99–100, 117, 123 Somoza Debayle, Anastasio 13 Soros, George 31 South Africa 106 South Korea 9, 44 sovereignty 6, 28, 67, 88, 89, 132 Brazil 20, 30, 50, 92, 124–6, 128–9

172 External Debt Spanish Citizen’s Network for Cancellation of Foreign Debt 97 species consciousness 71, 75–6n Speth, Gus 75n ‘stagflation’ 35 Stasi, Bernard 89 Stiglitz, Joseph 111–12 Stroessner, General and Dictator Alfredo, Paraguay 13 structural adjustment 64–5 and social concern 104 see also adjustment; SAPs Sudan 23, 103 Summers, Larry 86 sustainable development 68, 98 Swiss Coalition of Development Organisations 105–6 Switzerland 8, 105–6, 127 Tanzania 23, 82, 108 Tanzi, Vito 45 Tavola della Pace 97 Tban (bank assistance rate) 34 Tegucigalpa, Declaration of 91, 120–1 Thailand 44 Thatcher, Margaret 19, 31, 59n Third World and capitalism 6 export-oriented growth 66 and globalization 65, 66 income redistribution 45 Timossi, Gerardo 91 TNCs (transnational corporations) 55, 61, 64, 67, 68, 70, 71–2, 76n, 98 Tobin, James 75n Tobin Tax 27, 75n Toffler, Alvin 44 Toussaint, Eric 86, 100, 113, 114, 118 trade liberalisation 33, 67, 111 Treviso 97 trickle-down ideology 61 Uganda 23, 82, 108, 119 Ugarteche, Oscar 91 UN Charter of Human Rights 89 UNCTAD (UN Conference on Trade and Development) NGO Forum 123–4

UNDP (UN Development Programme) 66, 75n unemployment 6, 9, 12, 15, 86 UNICEF 63 Union of Swiss Banks 8 UNIRISD (UN Research Institute for Social Development) 74n, 76n United Nations, demands to 157–8 United States creditor 8 currency 12 debt cancellation 107, 112–14 interest rates rise 12 Jubilee 2000 Campaign 95 and loans to Latin America 15 and public deficit 21 structural adjustment policy 113 unpayable debt 6, 11, 61, 78–89, 91, 118 cancellation of 5, 22–3, 38, 93, 124, 130, 152, 165 ethically unpayable 39, 57 unsustainable debt 77, 78, 81, 83, 125, 129 US Federal Reserve Bank 62 usury 7 Vale do Rio Doce 37 Venezuela 2, 13, 15, 38, 56 Vietnam 114, 115 Virgin Islands 87 Washington Consensus 87, 119, 151 Washio, Etsuya 153 water 80, 82, 86 wealth stolen 157 transfer from South to North 104 Weissman, Robert 95 Wionczek, Miguel 91 Wolfensohn, James 65 workers’ unions 18 World Bank 1, 8, 40, 42, 45, 61, 72, 87 and debt cancellation 27 demands to 157 and human rights 89 and loan conditions 12, 80–1 and poverty alleviation 64–5

Index 173 structural reforms 15, 124 World Council of Churches 101 World Trade Organisation (WTO) 67, 117, 118

Year of Grace Zaire 106 Zambia 23

5, 23