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Internationalist Communist Forum
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#92 - How capitalism under-develops the world
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Feb 2012
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The "Third World debt" explodes
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With the return of the world crisis, in the first half of the 1970s, world production slumped and the demand for raw materials
of all kinds collapsed. So did prices on the world market. The poor countries found themselves suddenly deprived of their main
source of income.
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At the same time, the absence of new investment by companies and governments was pushing interest rates down in the rich
countries. Bankers were looking for new customers who would agree to pay higher interest rates. This was the signal for a rush
by the big western banks to lend to the states of the poor countries, at extortionate rates, of course - after all, as they
said, wasn't that legitimate payment for the huge "risks" they were taking? The bankers' tune never changes!
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The politicians of the poor countries did not prove too difficult to convince. They represented, and were usually themselves
part of, the tiny local bourgeoisie. This meant that the ruling spheres of the state machinery were in the hands of a few rich
families which considered the state and the country to be their personal property. And they were certainly keen to grab hold of
the funds which were offered to them so graciously. Needless to say, hardly any of that money ever translated into investment
of benefit to the poor populations. Indeed, they were to be subjected to an even worse level poverty than before, in order to
pay back these loans and the high interest attached to them.
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Once it was initiated, the mechanism of indebtedness became a deadly spiral. In order to pay interest on loans which had been
used up already, the poor countries contracted new loans and the outstanding amount just carried on increasing. So much so,
that over the decade up to 1982, the total outstanding debt of the poor countries increased ten fold! In 1982, however,
lightning struck in the bankers' heaven: the Mexican government declared that it would not meet the interest payments on its
debt. To avoid a banking panic, the IMF was given $3 billion by the central banks of the imperialist countries to pay back the
smaller banks affected. For the bigger banks it proceeded to negotiate a rescheduling of the debts owed by the poor countries
in return for an even higher interest rate. For the banking giants this was a very profitable operation. It was estimated that
they earned an additional $450m in profit out of the so-called "rescue" of Mexico alone!
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Up to 1982, it was the World Bank which had sole responsibility for helping with the development of the poor countries, using a
very limited budget. Its brief, however, was anything but philanthropic. As the Bank's head, Robert McNamara pointed out:
"Too little, too late, is history's most fitting epitaph for regimes that have fallen in the face of the cries of the
landless, unemployed, marginalised and oppressed, pushed to despair. As such, there must be policies designed specifically to
reduce the poverty of the poorest 40% of the population in developing countries. This is not just the principled thing to do,
it is also the prudent thing to do". The fear of social explosion was certainly an important driver of policy.
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But being also driven by western business interests, these policies had the exact opposite effect to their supposed aim of
poverty reduction. For instance, one of these policies advocated the industrialisation of agriculture in the poor countries in
order to increase productivity. This was the so-called "Green Revolution". In India, for instance, it resulted in millions of
sharecroppers becoming landless, as landowners rushed to reclaim the lands they worked on, in order to benefit from World Bank
subsidies. In some areas, there was a drastic reduction in subsistence agriculture and the re-emergence of famine. However,
those for whom the "Green Revolution" had been really tailor-made - the large pesticide and fertiliser manufacturers - made a
killing out of this policy. As a Belgian manufacturer explained in 1986, for every dollar paid by the imperialist countries to
the World Bank, western companies got $7 worth of orders in equipment and services from the poor countries, in 1980, and over
$10 four years later. Those who paid the difference were, of course, the populations of the poor countries!
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