A worldwide financial scandal
Ian on Sunday
By Ian McDonald
Stabroek News
January 18, 2004
I do not fully understand Guyana's debt situation after the relief obtained through satisfying the requirements under the enhanced HIPC initiative.
It clearly must be a very good thing indeed that Guyana's annual external debt service cost has been lowered substantially and that the money spent previously on debt servicing will now be spent on education, health, housing and poverty reduction in general. This, surely, is a huge achievement which should be wholeheartedly welcomed.
But, to complete the picture, I would like to know the answers to two questions:
i) How much external debt has actually been forgiven and thus removed as a burden on future generations? I ask this because I have read the following in a recent letter in Stabroek News by Claude Chang, whose knowledge and views I greatly respect: "Not disclosed is that the debt per se does not disappear, but is rather reclassified and amortised over an extended period of time..."
ii) How much has domestic, as opposed to external, debt grown in recent years and will this sort of national debt be just as burdensome on future generations as external debt?
I look forward to Mr Claude Chang or Dr Clive Thomas or Minister Kowlessar explaining the position to a slightly bewildered layman like myself.
Though I do not fully understand the special circumstances of Guyana I hope I am right in thinking that we have been treated more leniently and with greater human discretion than most developing countries are treated. I say this because, as I understand the general situation in the world, the treatment of poor country debt is harsh and cynical in the extreme.
International financial institutions are far more ready to write off people than they are to write off debt. Their programmes for poor countries relentlessly demand restructuring, rationalization and "right sizing," which are code names for laying people off jobs and drastically reducing employment costs at the lower end of the scale. They claim that such rationalization and restructuring will produce more profitable enterprises and increase competitiveness which, needless, to say, is all that maters in their eyes.
The poor countries owe countless billions, and every day the sum increases as interest on the debt accumulates. In 1983 for the first time poor countries paid principal and interest amounting to more than they received in new money. That is when we got to the stage when the beggar with six starving children stops the rich man on the pave and gives him his last remaining coins. If this actually happened in front your eyes in the street would you not say the world had gone mad? But since 1983 it has actually been happening. And it is getting worse. The poor countries with shattered economies and starving populations are every year paying over billions to the rich countries. And no one seems to feel the slightest shame or say with much conviction that the world has gone clean crazy.
International bankers, it seems to me, play a game of crazier and crazier make-believe. They behave as if this accumulating debt will actually be paid one day when everyone knows it will not. A particularly crazy part of this game of make-believe is called rescheduling. This is the sophisticated banker's term for charging fat front-end fees for helping us to dig a bigger hole to fill the smaller hole they helped us dig before.
It is significant that what is happening in international banking does not happen in ordinary banking. In normal banking, loans which have gone sour are declared as bad debts. It happens every day. The banker takes a risk because he stands to gain. If he makes a faulty judgement, or hasn't insisted on enough collateral, or just has bad luck like an economic decline putting his customers out of business, he has to accept that and write off the debt.
Such is life for the banker - except for the multinational banking institutions which lend to poor countries. Then there is no such thing as a bad debt. Debts are rolled over, they are re-scheduled, they are re-negotiated, but they are never written off - and all this rolling over and re-scheduling, I hope you will note, is accompanied by the charging of high fees and unrelieved interest rates for the privilege.
This is nonsense because in effect the banker is saying heads I win, tails you lose, it doesn't matter what bad lending decisions were made in the past the bank can't be expected to suffer in the slightest. And that isn't real banking - it is more like the nasty sort of rapacious money-lending that goes on when the mob in a Hollywood picture lends money and later breaks a few arms to get it back.
Naturally, poor countries which have borrowed lavishly and invested stupidly are partly to blame. They will certainly have to put their houses in better order by investing more cautiously and tightening up on spending. But no one can tell me that poor countries are all, or even mostly, to blame for their devastated situation. The debt situation is fundamentally a banker's crisis brought on because these particular bankers do not have to face the consequences of wrong decisions made in the past. They are relying on it being impossible for a sovereign borrower to default. They are depending, in the end, on the ordinary taxpayer either in their own countries or, preferably, in the poor countries baling them out. They, therefore, will not do what real bankers should do - this is write down the value of their assets in line with the questionable value of the debts which they have made in the past through folly, misjudgment, or pure greed.
The HIPC approach is not enough. There should be a complete change of heart in respect of all poor country debt. Poor countries are having to pay the consequences every day for their bad borrowing in the past. And the multilateral financial institutions need to pay the consequences of their bad lending in the past. Governments from rich and poor countries alike will have to get together and decide that these banks should bear their share of burden, and not leave the whole burden on ordinary people growing more desperate every day.