Dictatorship of debt: Third World debt enriches the powerful at the expense of the world's poor majority. David Ransom calls for a new beginning

New Internationalist, May, 1999 by David Ransom

HAD someone in any way typical of the Uruguayan population ever actually asked for a loan from the international bank in Montevideo where I once worked, I'm quite certain they would never have got it. The mere look of them would have been enough. A part-time clerk wants an advance! A labourer with no collateral expects credit! A woman from the barrios seeks an unsecured loan! A gaucho (cow-boy) with just a horse to his name needs to borrow! From the bank? Contemptuous ridicule would have been unconfined - which is doubtless why I never saw such a person step through the door.

So quite how it happened that by 1990 every single man, woman and child in Uruguay had become liable for debts equivalent to their entire annual income - without even asking for them, let alone receiving any of the cash - is at first sight something of a mystery.

Take a closer look, however, and you'll find that the explanation is simple. In 1973 there was a military coup in Uruguay and it ushered in a very nasty little dictatorship that for a while imprisoned proportionally more people than anywhere else on earth. The Uruguayan economy had gone belly-up and powerful people who owed large sums of money to international banks were facing ruin. So the generals decreed that it was `in the national interest' to bail them out by borrowing from exactly the same banks, only this time in the name of the Uruguayan people.

The banks were desperate to lend. The Organization of Oil Producing and Exporting Countries (OPEC) had just agreed a sharp oil-price hike and as a result were collecting a vast extra income of dollars which they deposited with the banks. So large was the quantity of these `petrodollars' that the banks didn't know quite how to recycle them at their usual levels of profit. Dictatorships that could exact repayments from their cowering populations with relative ease must have seemed like a pretty good bet for a secure and handsome return.

This combination of dictatorship, foreign loans and the transfer of private liabilities on to public backs was not confined to Uruguay. For 20 years, between the mid-1960s and mid-1980s, despotism pervaded Latin America and employed an ingenious variety of scams wherever it went. Sometimes the money was borrowed for grandiose projects, sometimes it was simply filched, usually both - and always in the interests of political power that had quite openly been usurped.

Similar, too, was the experience across Africa and Asia. From Mobutu in Zaire to Suharto in Indonesia and Marcos in the Philippines, tawdry despots with powerful friends and large appetites for personal wealth were financed with enthusiasm by the international banking fraternity. Indeed, it seemed to work so well that the credit lines became almost limitless - particularly if the governments in question were fighting on the right side of the Cold War and buying large quantities of armaments from Northern suppliers. Third World debt rose from less than $100 billion in 1970 to some $600 billion in 1980.

Eventually, however, governments began to run into financial trouble themselves. The loans they had raised and squandered on daft projects or salted away in private bank accounts became so large that their subject countries ran out of foreign exchange and tax revenues with which to pay them back. There was a real danger of `default'.

When this was being considered by Mexico in 1982 the American Government stepped in to protect the interests of the US private banks that held most of the Mexican debt. The International Monetary Fund (IMF) and World Bank were instructed to step in alongside the US Government and bail out the private banks. The transfer of private debt into public liability was thereby complete - and the Third World debt crisis had begun.

Private banks were now free to move on to fresh pastures, like `booming' Southeast Asia and China. Where, of course, exactly the same thing would eventually happen all over again.

Ironic that this, the most colossal of all `nationalizations', should have passed by unremarked and at a time when `privatization' was an article of economic faith. Odd, too, that unlike earlier nationalizations intended - in theory at least - to increase public control over private interests, this one had precisely the opposite effect. It subjected the people of these countries to a dictatorship so complete that eventually dictators themselves became redundant.

All of this rested on a crude threat. Unless debtor governments agreed to certain conditions, then they would be cast into the outer financial darkness and new loans would be withheld. These conditions were originally cobbled together for the `Baker' and `Brady' plans in Mexico, named after the two US Treasury Secretaries who devised them. They were then touted around the world as the paradigm of financial probity and became known as `structural adjustment'. Their main purpose was to `liberalize' the country in question: devalue its currency, open it up to world markets, reduce government intervention and flog off as many of its assets as possible at bargain-basement prices.