The two faces of third world debt: a fragile financial environment and debt enslavement

Monthly Review, Jan, 1984

The point of view of the bankers was clearly stated by Willard Butcher, chairman of Chase Manhattan, when Mexico's inability to pay shook the markets:

Mexico owes $85 billion. Is Mexico worth $85 billion? Of course it is. It has oil exports of $15 to $20 billion. It has gold, silver, copper. Has all that disappeared over the past week? I expect to be repaid my Mexican debt. (Euromoney, October 1982, p. 19)

But how to make sure that the benefit of those resources will accrue to the bankers and not to the Mexicans and other third world peoples? That is where the international agencies come in. They are the ones who coordinate the programs, oversee the domestic policies, and keep the debtors in line to protect the interests of the bankers. The following from the New York Times (September 19, 1983) sums it up:

"The IMF is certainly running the sow for the sovereign debtors," said Penelope Hartland-Thunberg, senior fellow at the Georgetown Center for Strategic and International Studies.

C. Fred Bergsten, director of the Institute for International Economics, called the peripatetic teams of [World Bank] and [IMF] officials "the new proconsuls," alluding to the governors of the Roman Empire, saying that they represent the world's "increasingly centralized economic management."

The real question is, economic management for what purpose? It is obviously not to help third world countries restructure their societies to become more self-reliant, to raise their living standards, and to free themselves from debt slavery. On the contrary, the aim is to keep the imperialist system as now constituted going as long as possible. And that means, in turn, protecting the profits of the banks and the multinationals and maintaining an environment in which these profits can grow still further. To accomplish this the IMF has been imposing its standard prescription, except that the requirements have become more extreme in keeping with the severity of the of the crisis: devaluation of currencies, liberalization of trade, and reduction of public spending.

Devaluations, however, do not help promote the better utilization of resources needed to escape the debt trap. This is due to the inflexible and backward production structures of the underdeveloped countries. By raising the cost of imports, devaluations make it more difficult to overcome the bottlenecks and rigidities that constrain productive capacity. At the same time they add to inflationary pressures that worsen the unequal distribution of income and reduce internal markets. Trade liberalization weakens local industry and opens the gates wider for entry of the multinationals. Finally, the reduction in public spending means primarily drastic cuts in health, education, and welfare spending. Neither the international agencies nor the domestic ruling classes want government budgets to be reduced by limiting spending on the military and police, for these are more than ever needed to control the unemployed and hungry masses. The overail impat of the imposed discipline is seen in the results in Latin America: real income per capita has declined in each of the last three years. It can also be seen in the food riots which have recently been reported in the cities of Brazil.