Who borrowed the Third World's debts?

Noam Chomsky, the distinguished linguist and political commentator puts the facts and the legal case about Third World debts very clearly. Everyone should be clearly informed about this urgent world issue:

The simplest answer to the argument that countries who borrowed from the World Bank/International Monetary Fund have no right to ask for debt forgiveness is that the presupposition is false, so the argument is vacuous. For example, the "country" of Indonesia didn't borrow; its US-backed rulers did. The debt, which is huge, is held by about 200 people (probably less), the dictator's family and their cronies. So those people have no right to ask for debt forgiveness -- and in fact, don't have to. Their wealth (much of it in Western banks) probably suffices to cover the debt, and more.

Of course, this response assumes the capitalist principle. According to this principle, if I borrow money from you, use it to by a Mercedes and a mansion, and send most of the money to a bank in Zurich, and then you come and ask me to repay the loan, I'm not supposed to be able to say: "Sorry, I don't want to pay you back, take it from the folks in the downtown slums."

And you're not supposed to say: "I got the high yields from this risky investment, but now that the borrower doesn't want to pay it back, the risk should be transferred to other folks in my country through socialisation of the debt. That's the capitalist principle.

It would suffice to largely eliminate the debt. Of course, that principle is unacceptable to the rich and powerful, who prefer the operative "capitalist" principle of socialising risk and cost. So the risk is shifted to northern taxpayers (via the IMF) and the costs are transferred to poor peasants in Indonesia, who never borrowed the money.

The argument that "their country" borrowed the money so that they are responsible surpasses cynicism, and need not be considered. In fact, it doesn't even stand up under international law. When the US conquered Cuba in 1898 to prevent it from liberating itself from Spain (what is called "the liberation of Cuba from Spanish rule"), it cancelled Cuba's debt to Spain on the reasonable grounds that the debt had been forced on the people of Cuba without their consent. That doctrine, called "odious debt", was later upheld in international arbitration, with US initiative.

The current US executive-director at the IMF, international economist Karen Lissakers, pointed out in a book a few years ago that if this principle were applied to third world debt, it would mostly disappear. But that would mean that the capitalist principle would have to be observed: borrowers have the responsibility, lenders take the risk. And that plainly won't do, when the concentration of power makes it possible to socialise cost and risk.

On first-world responsibility for the debt crisis, it is huge -- and in this case, the responsibility extends to citizens, insofar as their countries make possible some degree of participation in policy formation, and they do. The current debt crisis can be traced back to policies of the IMF and World Bank encouraging lending/borrowing to recycle petrodollars in the 1970s.

Their very confident recommendations that this was just great for all concerned continued up to the moment of the Mexican default in 1982, when the system threatened to crash, and the same institutions stepped in to socialise cost and debt. Another factor was the sharp rise in interest rates in the US under the late-Carter/Reaganite policies of a form of "structural adjustment" here, undertaken with no concern, of course, for the fact that this would impose a crushing burden on third world debtors, as it did.

Another factor, of course, is Western support for the murderers, gangsters, and robbers who borrowed the money for themselves and, naturally, don't want to pay it back, when they can get the burden shifted to the poor by the same institutions that created the debt in the first place.

First world responsibility is enormous, so much so that if honesty were conceivable, those who supported folks like Suharto in Indonesia, drove the lending-borrowing craze (then bailing out the banks), and sharply increased interest rates as part of the further shift of power to the rich and privileged in the US (and that's not all), should be paying the debt themselves.

The culpability of third world governments -- say, Suharto in Indonesia -- is enormous, but remember that these governments are western clients, outposts virtually, whose task is to open their countries to foreign plunder, repress the population (by huge massacres if necessary), and enrich themselves if they feel like it (that's not a responsibility, just an incidental benefit accorded them). Suharto was "our kind of guy", as the Clinton administration put it, as long as he fulfilled this role. Much the same holds for other third world governments.

Those that try to follow another course typically get smashed. Eg, Nicaragua has one of the highest debts in the world. The Sandinistas were doubtless corrupt, though not by preferred US standards, but that's not the reason for the debt: rather, the fact that the US waged a brutal and murderous war to get them back into line.

Note again that culpability of our governments (and their institutions, like the IMF-WB) are also our culpability, to the extent that we have the capacity to influence policy, and don't.
-- Noam Chomsky
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