Equity
What
is Equity
Equity
Within Nations
Equity
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Debt crisis
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The
Debt Crisis
Escalating debt is a major cause of poverty in low-income countries because of the huge interest payments they have to make on foreign loans. In the 1970s and early 1980s, western banks made hundreds of loans to low-income countries with little concern about their repayment abilities. Much of the money had come from money banked by the oil-rich Arab states. When interest rates unexpectedly and dramatically increased and commodity prices dropped, low-income countries found themselves in a debt trap. Today, many of these countries owe more in debt repayments and interest than they earn in exports each year, and they have had to borrow even more money to be able to repay their existing debts.
The foreign debt of low-income countries is over $US1300 billion, requiring $US200 billion in interest payments each year. About two-thirds of this debt was lent by 550 private banks from North America, Japan and Europe between the late 1960s and early 1980s. These repayments mean that the amount of money flowing from low-income to high-income countries actually exceeds the amount flowing in the opposite direction as aid and investment. In fact, aid has remained at about the same level since 1980.
In Latin America, for example, the debt is over $US400 billion. Even though Brazil paid back $US70 billion between 1982 and 1987, it was still $US20 billion deeper in debt and will not be able to pay off its debt in the forseeable future. The Philippines pays $US6 million every day in interest on its foreign debt; Kunda Dixit (1992, p. 14) argues that one Filipino child dies every hour because the money to take care of it has been diverted into debt repayments. In reference to the massive flow of money from poor to affluent countries, Susan George says that high-income nations receive 'a kind of colonial tribute in debt service, whilst getting [their] raw materials at rock bottom prices' (1988, pp. 18&endash;19).
The United Nations organisation UNICEF attributes the death of half a million children per year to the debt burden of third-world countries. Carol Sherman, an Australian environmental lobbyist, argues that these countries should not be made to repay these debts:
"Every child born south of the Rio Grande enters the world owing US banks over a thousand dollars. It has been estimated that a ten hour moratorium on interest payments could save 100,000 malnourished Mexican children." (1984, p. 34)
Sherman and others argue that low-income countries have long since paid back the amounts owed in resources, labour and cash.
Debt results in a decreasing per capita income. It also means more pressures on the environment because of the pressure on nations to exploit their natural resources, such as forests and minerals, to earn money to pay the interest on their loans as well as meet their other needs. Some argue that poverty itself causes environmental degradation. For example, Ponciano Intal says:
"as a result of pervasive poverty and tight government finances, forests have been destroyed and soil eroded because of the marginal farming practices of the very poor, the needed environmental and sanitation infrastructure are barely provided and maintained, and pollution control facilities are woefully inadequate." (1991, p. 10)
Another consequence of debt and economic instability in poor nations is that potential investors are put off&emdash;not only investors from affluent countries but those from within the low-income countries. The well-off local people have been scared into moving their money into foreign banks. This is referred to as 'capital flight'. Capital flight can also occur due to corruption of third-world leaders and upper classes. For example, Ferdinand Marcos, when president of the Philippines, increased the national debt from $2.7 billion to more than $28 billion; it is claimed about $15 billion of it went his own pocket (Shaw 1988, p. 5). It is estimated by New Internationalist magazine that, between 1976 and 1985, billions of dollars left many low-income countries as the personal fortunes of local people deposited in western banks.
Source: Sharon Beder, The Nature of Sustainable Development, 2nd edition, Scribe, Newham, Vic.,1996.