Protesters in Washington, D.C. urged the U.S. government to help "break the chains of debt" that keep poor nations in poverty. Such nations lack a fair and transparent arbitration process for appealing illegitimate or crushing debt.
Photo courtesy of TalkMediaNews
In 1994, South Africa made an incredible, peaceful transition to
democracy after decades of oppression through the Apartheid government.
President Nelson Mandela took on the daunting challenge of reconciling
the psychological trauma and physical poverty that Apartheid inflicted
on its citizens. Although South Africa's emergence from Apartheid is
generally seen as a success story, one overlooked challenge still
remains: the bill left over from the Apartheid system.
By the time Nelson Mandela walked out of prison and assumed the
Presidency of South Africa, the Apartheid government had incurred $18
billion in debt to foreign creditors. Most of these debts were owed to
commercial banks based in the United States and Europe—banks that
continued to lend money to the government of South Africa even after the
United Nations had condemned Apartheid as a crime against humanity.
According to former finance minister Trevor Manuel, an appalling 24
percent of all taxes went to pay interest on government debt at that
Today's democratic South Africa should not have
to pay decades-old debts that funded the oppression of its own people.
But there is no mechanism in the international economic architecture to
allow such countries to confront debts that they
cannot—and should not have to—pay.|
It seems obvious that today's democratic South Africa should not have
to pay decades-old debts that funded the oppression of its own people,
especially as it faces a huge HIV/AIDS epidemic. Unfortunately, there is
no mechanism in the international economic architecture that allows a
country such as South Africa to confront debts that it cannot—and should
not have to—pay. There is no bankruptcy court for countries, as there
is for individuals or corporations in the United States.
Countries with legacies of illegitimate debt are not the only ones facing debt problems without real solutions: in the past year, Iceland, Greece,
and most recently Ireland have all struggled with unsustainable debt
burdens that have crippled their national economies and threatened
global economic stability. Poor countries face an even harder situation:
With the global economic crisis forcing 100 million more people into
extreme poverty, governments have to choose between servicing foreign debts and meeting the basic needs of their people.
Furthermore, in our globalized economy, when a country cannot pay its
debts and defaults, there is a worldwide ricochet effect, destabilizing
the economies of other countries.
The international financial system needs a mechanism that fairly
deals with sovereign debt. Jubilee USA Network, together with many of
our global partners, is advocating for the creation of an international
bankruptcy court, which will bring stability to the global economy and
empower poor countries struggling to pay their debts. This mechanism,
called a Fair and Transparent Arbitration Process (FTAP), will end
current ad hoc, unpredictable, and often chaotic debt procedures that
create instability and dire humanitarian outcomes for the poorest every
time a country finds itself unable to pay its debts.
Currently, borrowing countries are at the mercy of the whims of their
rich creditors, who play witness, judge, and jury during a debt workout.|
FTAP would provide more than stability for the international
financial architecture. It would also serve as a mechanism to empower
poor countries in their work toward economic justice. Currently,
borrowing countries are at the mercy of the whims of their rich
creditors, who play witness, judge, and jury during a debt workout. FTAP
would instead create an objective and transparent way for creditors and
lenders to meet with equal rights, where debts are justly renegotiated
by an independent third party.
This mechanism has many possible homes. Advocates have suggested the
United Nations, the Permanent Court of Arbitration, or even the creation
of a completely new international body. Jubilee USA and the
Zimbabwe-based organization African Forum and Network on Debt and
Development (AFRODAD) discussed what this solution might look like with
policymakers in Washington, D.C. From the Senate to the International
Monetary Fund, everyone recognized the scale of the problem we are
facing—debt crises are no laughing matter. Several policymakers agreed
that there has never been a more perfect time to create a lasting
solution. The moral and practical arguments for FTAP, particularly in
the wake of global economic crisis, are so compelling that these
policymakers are ready to work with us to fill this current void in the
international financial architecture.
Whether poor countries face debts from loans made and wasted by former dictators or brought on by external shocks such as a natural disaster
or global financial crisis, they need somewhere to turn when their
debts are unpayable in the face of meeting their citizens' basic needs.
FTAP is a needed solution that all nations should and can support. Why
not create a system that promotes a just and stable international
economy? With energy, enthusiasm, and innovation emerging from all
sides, we can end the cycle of debt that puts us all, especially our
brothers and sisters in the Global South, at risk. And the time to end
debt crises is now.
About the Author|
Julia Dowling wrote this article for YES! Magazine,
a national, nonprofit media organization that fuses powerful ideas with
practical actions. Julia is communications and development coordinator
for the Jubilee USA Network,
an alliance of religious denominations and faith communities, human
rights, environmental, labor, and community groups working for
definitive debt cancellation for impoverished nations.