One major obstacle in the economic development of poor nations is the foreign debt they incurred from multilateral institutions such as the World Bank (WB), International Monetary Fund (IMF) and other regional banks. “In many cases, these countries are forced to cut down spending on the necessities of life, such as food, health, housing, and education, in order to service their debts to international monetary agencies and banks. This means that people are trapped in living conditions which are an affront to human dignity” (Ecclesia in Asia, n. 40). “The gravity of the situation is all the more evident when we consider that even repayment of interest alone represents a burden for the economy of poor nations, which deprives the authorities of the money necessary for social development, education, health and the establishment of a fund to create jobs” (Ecclesia in America, n.22). Much of the developing countries’ debt is from accrued interest on the original loans or on refinanced versions of them.
Today, the foreign debt of developing countries is around $3 trillion and it threatens to engulf the world economy to prolonged recession, as poor countries continue to experience major difficulties in making loan repayments. They are forced to accept unbearable conditions, known as structural adjustments (SAPs), imposed by multilateral institutions like the World Bank and IMF in order to secure loans. The IMF conditionality, for instance, “has resulted in deep cuts in government spending for health care and education, layoffs of government employees, depletion of state assets, and devaluation of national currencies.”
For the Church, it would be unjust for the majority of people, especially the poor, to suffer the negative impact of foreign debt to their lives caused by irresponsible decisions of powerful and corrupt people in government and private sector. The ballooning of external debt is not only caused by high interest rates, speculative financial policies, and other complex matters, but also by irresponsibility of people in government and rich individuals who profited from foreign loans obtained from multilateral institutions.
In the 1960s and 1970s, third-world debt was largely incurred by corrupt, unaccountable regimes. Many loans were officially targeted toward large, wasteful infrastructure projects, but often the money went into the pockets of the top 100 or 200 people surrounding the regime leaders and ended up in private Swiss bank accounts back in the first world (Rick Rowden 2001).
The Church has acknowledged that foreign debt is often the result of corruption and poor administration in less developed countries (Ecclesia in America, n.22). In the Philippines, a glaring example of wasteful infrastructure ridden with corruption is the Bataan Nuclear Power Plant. The plant was constructed during the President Marcos regime through billions of dollars worth of foreign loan from the World Bank. Owing to its safety problems, this nuclear plant has been completed but was never been used; nonetheless, the government continues to pay for its principal loan and interest.
The Church is aware of the complexity of the problem surrounding foreign debt of poor nations. Nonpayment of foreign debt by developing countries has repercussions to their local economy and credit standing in international lending institutions. Thus, top government leaders must be empirical and protective of the common when deciding on how they would pay their country’s foreign debt. The Catholic Social Teaching (CST) does not hesitate to recommend that this external debt be lightened, deferred or even cancelled altogether if sacrifices of poor people become unbearable, consistent with their right to subsistence and progress:
“The principle that debts must be paid is certainly just. However, it is not right to demand or expect payment when the effect would be the imposition of political choices leading to hunger and despair for entire peoples. It cannot be expected that the debts which have been contracted should be paid at the price of unbearable sacrifices. In such cases it is necessary to find—as in fact is partly happening—ways to lighten, defer or even cancel the debt, compatible with the fundamental right of peoples to subsistence and progress” (Centesimus Annus, n.35).
In 1996, the IMF and World began considering of writing off the debt of some developing countries. “In 2000, the World Bank and IMF granted $220 billion in debt relief to 22 of the world’s poorest countries, less then 50% of those countries’ debts. However, some of the terms in that relief package—requiring countries to maintain high levels of exports for many years into the future—were onerous and highly unrealistic. The plan did not amount to debt relief, but longer terms for the repayment of loans” (Brandth Proposals).
There were also proposals from representatives of Group Seven nations—Japan, Italy, Germany, France, Britain, Canada and the US to reduce $127 billion of the debt of the 33 poorest nations, mostly in Africa by selling 10 million ounces of IMF gold reserve. However, this was rejected by gold-mining countries and the US Congress. Likewise, President Clinton’s proposal to cancel 100% of the debt owed to the US by the world’s poorest nations did not also make it to Congress (Ibid). One must understand that people who run multilateral lending institutions such as bankers, corporate lawyers, or economists, are mostly socialized and trained in strictly capitalist and neoliberalist perspectives which often disregard the Church’s moral principles on the common good and preferential option for the poor.
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