Chapter 6: The New Debt Crisis, by Eric Toussaint

The Other Davos: Globalization of Resistances and Struggles
by Francois Houtart and Francois Polet

Chapter 6: The New Debt Crisis, by Eric Toussaint

As we will see below, the all-powerful multilateral institutions are not concerned about the satisfaction of human and social needs. Keeping poor countries in extreme poverty and using the debt of the poor countries as a means of exerting blackmail is an out-an-out contravention of human rights. The text of CADTM permits us to see the situation in indebted countries more clearly. It was edited by Eric Toussaint.


The Committee for the Cancellation of Third World Debt, created in 1990, is an international network based in Brussels working for radical alternatives to the different forms of oppression wherever they take place in the world. CADTMs main focus is Third World debt and the structural adjustment which it is resulting in today. The system of debt constitutes one of the fundamental mechanisms through which the dictates of G7, the multinationals, of the World Bank/IMF/WTO trio are implemented. CADTM calls for the cancellation of Third World debt and the abandonment of the structural adjustment policies imposed on peripheral countries. The realisation of these demands constitutes an insufficient but necessary condition for breaking the chain of oppression on these countries. Other priority demands supported by CADTM are: the expropriation of the wealth kept in the North by the rich of the South in order that it be given back to the people of the Third World; wealth tax; tax on financial transactions; rejection of the MAI and its clones; the right of peripheral countries to protectionism.

In addition to these concrete demands are general demands, of which the most important are: emancipation of women; radical agricultural reform; general reduction in working hours; disarmament; the rejection of all forms or racism; the creation of a planned transfer of wealth from the countries of the North to the countries of the South to compensate for the pillage which these peoples have been and still are subjected to.

CADTM is active in Europe, Africa and Latin America. Recently, collaborative relationships have been established with new popular movements in Asia. CADTM is a network for planning, sensitising and mobilisation. Its members are individuals and movements. For CADTM, lobbying action is incidental. CADTM actively participates in the development of ATTAC.


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Since 1997/1998, Third World countries, which account for 80% of the world’s population, have, outside of a few exceptions, been confronted with a new debt crisis. The immediate causes of this are as follows:

1. an increase in interest rates (whilst interest rates are falling in the North, they have increased for peripheral countries);

2. a reduction in the flow of fresh capital;

3. a sharp fall in their export income (caused by the fall in price of most of the products exported by the countries of the South).

The incidence of debt in the South

The growth in the debt burden has been very rapid in Asia and in Latin America. The amounts to be reimbursed over the short term have increased whilst new loans have been rare and export revenues are falling. Africa is, relatively speaking, less harshly affected by this changing situation: loans and investment by private financial institutions from the North have been almost insignificant since 1980. They can hardly decrease further (except for the Republic of South Africa and Nigeria who receive almost 70% of investment). Africa continues to go through a crisis whose dramatic aspects on a human level are even more accentuated than in Asia and in Latin America.

New loans accorded to Third World countries by private financiers have been rare since the crisis which began in South-East Asia in 1997 rebounded on Eastern Europe and Latin America in 1998. The Third World countries which still had access to international financial markets and which could issue public bonds in London or New York, had to increase the yield payments they guaranteed to purchasers of their bonds. The loan raised by Argentina in October 1998 in the financial centres of the North, guaranteed an interest rate of 15%, or two and a half times that offered at the time by public bodies in the North for their new loans. Nevertheless private lenders in the North and South prefer to buy public bonds of Northern states rather than those of the South (or East).

To sum up, as at the beginning of the 1980s, during the preceding debt crisis, credit became scarce and more expensive for the Third World. Direct foreign investment, aimed at South-East Asia (including China) and towards the principal economies of Latin America (at the cost of a significant privatisation program) rose between 1993 and 1997. After 1998, they experienced a tailing off which risked continuing into 1999 (direct foreign investment in South-East Asia fell by over 30% in 1998 compared to 1997 and loans fell by 14% in the first semester of 1998).

IMF Action

The measures imposed by the IMF on the economies and populations of the peripheral countries have resulted in recession, a loss of the fundamental elements of national sovereignty, and a dramatic fall in the standard of living. In certain countries, they have aggravated a situation which was already unbearable for a large section of the population. The contrast between the growth of returns to the national owners of capital and the drastic fall in the income of popular households has reached historic proportions for the 20th century. In September-October 1998, the holders of Brazilian domestic debt were rewarded with an almost 50% interest rate whilst the rate of inflation did not exceed 3%. Brazilian capitalists and multinational firms, particularly those based in Brazil could borrow dollars at 6% on Wall Street and lend them within Brazil at rates varying between 20% and 49.75%. At the same time, they hedged a large proportion of their capital from changes in Brazil’s economic situation by taking it out of the country en masse.

Some figures

Total Third World debt (excluding the countries of the East) stood at around 1950 billion dollars in 1997. The Third World reimburses each year more than 200 billion dollars. Total public development aid (including loans repayable at below market rates) has not exceeded 45 billion dollars in recent years. Sub-Saharan Africa spends four times more in reimbursing this debt than it does on its total expenditure on health and education. Other figures from 1998 show that the debt of households in the United States stood at 5,500 billion dollars (UNDP 1998). The public debt of the Unites States exceeded 5,500 billion dollars. The public debt of the 15 members of the European Union exceeded 5,500 billion U.S. dollars. Every year, military expenditure in the world amounts to 780 billion dollars (UNDP 1998, 41) that of advertising stood at 1,000 billion dollars (UNDP, 1998, 70). Each day, more than 2,000 billion dollars are traded on the currency exchange markets and more than 90% of this amount is traded in speculative operations.