Why did the Developing Countries
Run into Debt?

The United Nations Secretary General Kofi Annan stated in his millennium report that poverty cannot be reduced without first resolving the debt problem of the developing countries. This rose to world prominence in the early 1980s when several Latin American countries refused to service their foreign debt.

However, already more than ten years before this the most vigilant investigators had warned of signs of an impending deadlock. In the 1970s the debt burden grew to unsustainable proportions because

• rapidly rising oil prices led to huge increases in costs for the non-oil-producing developing countries,
• the interest rates of the originally low interest loans of the developing countries rose steeply,
• the competitiveness of the developing countries was poor in the protected markets of the industrialised countries, and
• the world market prices of goods and commodities from the developing countries, such as minerals and agricultural products, clearly sank compared with the prices payable in the developing countries for high added-value products from the industrialised countries.

Once this imbalance began, the high debt repayments forced the developing countries into an increasingly desperate economic situation in the 1980s and 1990s. Representatives of the major creditors - the World Bank and the International Monetary Fund – IMF - imposed "structural adjustment programs" on the insolvent debtors, justified by the need to restore the economic balance.

However, the biggest changes in most countries proved to be the privatisation of State enterprises and the decline of public services such as education and health care. The social crisis deepened with no decisive upturn in the economy.

The debt problem has been continually exacerbated by changes in the terms of trade that are unfavourable to the developing countries. In 1980-1996 price changes alone led to a deterioration of nearly EUR 200 billion in the economy of the African countries. This sum is comparable to their total foreign debt.

Immense losses for dozens of developing countries have also been caused by the incompetence of local élites, the plundering of capital and its illegal export. This incompetence has suppressed entrepreneurship and other constructive initiatives and natural innovativity of ordinary people.

In the latter half of the 1990s the growing debt burden began to add urgency to calls for the cancellation of the debts of developing countries beset by desperate difficulties.

An Impressive Campaign

The most active campaign for the cancellation of third world debt was the Jubilee 2000 citizen's movement. In the late 1990s this encompassed a broad range of NGOs and other civil groups around the world. Both Pope John Paul II and the rock star Bono have called for cancellation of burden of debt that prevents global development. The role of the churches has been pivotal. As a jubilee year issue for Christians in 2000, the idea of forgiveness of debt is well suited.

In Finland the Jubilee 2000 Campaign was organised by Kepa, the Service Centre for Development Co-operation, representing more than 200 non-governmental organisations. The Trade Union for the Municipal Sector – KTV is affiliated to Kepa.

Thanks to the Jubilee 2000 Campaign, the governments of the United States and the world's other leading nations have relieved the most desperate debt burdens. However, as of September 2000, this relief was so modest that the debt problem of dozens of developing countries still remained unresolved.

Debt Cancellation by Finland

Who are the creditors of the poorest developing countries? One third of their EUR 200 billion debt is based on development credits granted by the World Bank, the International Monetary Fund – IMF and the regional development banks. Other important creditors are the United States, Japan, and the larger Member States of the European Union. Despite promises to the contrary, these quarters have been very tight-fisted in their approach to relieving the debts of the poorest developing countries.

Finland and the other Nordic countries were among the first to cancel the debts of the poorest countries in the most desperate situations. This solution combined humanity and a realistic grasp of what was in any case the impossible expectation of recovering these credits. By the beginning of the year 2000 Finland had cancelled development credits to the value of roughly EUR 165 million. This cancellation, however, did not apply to commercial export credits.

What Principles Govern Export Credits?

Much of the foreign debt of the developing countries consists of credits granted by the industrialised countries to promote their own exports. From the point of view of civil society such arrangements involve serious problems, because

• export credit data is not public, and
• export credits have played an important role in worsening the social and environmental crisis in the developing countries, as the credit criteria rudely ignore the principles of sustainable development.

These problems also apply to Finnish export credits. In 1999, the guarantees issued by Finnvera, an agency of the Ministry of Trade and Industry, totalled about EUR 3.6 billion. Asian countries received most of this publicly subsidised investment. The government can also directly influence another credit institution, the Leonia Enterprise Bank. Everything depends on the willingness of policymakers to influence Finland's policy towards the developing countries and make it more coherent.

Preparations for the reform of the 1963 Export Guarantee and Interest Subsidies Act were completed in spring 2000 when an expert group finalised its legislative proposal. This gives cause for optimism that Finland will rationalise its export credit criteria.

By the end of 2001, the Organisation for Economic Co-operation and Development – OECD will attempt to unify national export financing systems.

Debt Cancellation
and Core Labour Standards

In April 2000 the International Confederation of Free Trade Unions (ICFTU) took a position on cancellation of third world debt. The organisation proposes that relief efforts should focus on debtor nations that respect core labour standards.

The Case of Tanzania

When trying to amortise and pay off interest on their foreign debt poor countries are forced to cut their education and health care expenditure to a minimum. Dozens of countries share the plight of Tanzania, one of the world's poorest countries.

The Tobin Tax:
A Harness on Currency Speculation

In the 1970s Nobel Prize winner James Tobin proposed a small tax on international currency transfers with a view to stabilising the currency system. In the decades following this proposal the currency system has become increasingly vulnerable, benefiting only a handful of major speculators described by the major media of the world using the euphemism "market forces".

In the last few years experts and civil movements, concerned for the distress of the developing countries, have stressed that the revenue of the Tobin tax alone would suffice to secure basic social rights for all people.

The International Confederation of Free Trade Unions (ICFTU) supports the Tobin tax. In Finland the Service Centre for Development Co-operation – Kepa has campaigned for the Tobin tax in recent years. Some trade unions, such as the Trade Union for the Municipal Sector – KTV, the Metal Workers Union and the Union of Technical Employees, have also supported this objective.

In the 1990s Chile experimented with instruments resembling the Tobin tax by requiring part of foreign investments made in Chile to be deposited for at least a year. The results were mixed, as foreign investors sought out and found loopholes in the Chilean applications.

While the instability of the world currency system has increased the interest of leading industrialised countries in the Tobin tax, the difficulty of implement this in a watertight manner has undermined willingness to experiment in this area.

The Opponents

About half of the global financial market is based in Britain and the United States. These are among the sternest opponents of the Tobin tax.

Climate Change is
the Biggest Global Threat

Satu Hassi, Finland's Minister for the Environment and Development, nominates climate change as the biggest global environmental threat. For the poor of the South this phenomenon is especially problematic. "Most seriously, climate change affects food production, health and housing conditions in the developing countries, undermining people's living conditions", Hassi comments in the Kehitysuutiset publication in February 2000.

For the business world the greenhouse effect offers a mixed challenge. Tough competition discourages enterprises from spending money on decreasing their hazardous discharges. This policy, on the other hand, damages the public image of these enterprises in the eyes of vigilant citizens. The same also applies to the governments of the industrialised countries.

Consumer awareness of the relationship between the state of the environment and the future of the planet has increased. In their patters of purchasing and consumption a growing number of people now allow for the environmental point of view.

The Irresponsible North

Although policymakers in the industrialised countries became aware in the 1970s of the need to improve the effectiveness of environmental protection substantially, the threat of climate change - the worst of the global threats - has not receded. This threat is caused by the activities of human beings, which increase the amount of carbon dioxide and other greenhouse gases in the atmosphere.

The most serious impact is from the carbon dioxide emissions of industry, transport and electricity generating. These are caused by the production and combustion of coal, oil and natural gas. The per capita emissions of the industrialised countries are much larger than those of the developing countries, even though most scientists agree that the latter will suffer most from climate change.

In 1996 carbon dioxide emissions per capita were

• 12.5 tonnes in the industrialised countries,
• 2.1 tonnes in the developing countries, and
• 0.4 tonnes in the poorest developing countries.

In 1997 the United Nations Environmental Programme UNEP estimated that half of all greenhouse gas emissions are caused by multinational enterprises.

Fear

Most governments in the developing countries oppose the conditioning of international trade by environmental standards. This is because the leaders of the developing countries are afraid that the industrialised countries will use jointly agreed environmental standards to protect their own markets against competition from the developing countries.

Corruption Kills

Corruption is a matter of life and death. Corruption kills. Corruption is an important element in the national economic equation that puts food, drinking water, vaccinations, medicines and social security beyond the reach of the poor. Widespread bribery corrupts both public administration and the business community.

The worst cases are those of the former presidents of Zaire and the Philippines – Mobutu Sese Seko and Ferdinand Marcos, together with several present third world dictators and their cronies. These corrupt administrations have plundered billions from their people to stash away in foreign bank accounts. In many countries the sum of black money sent abroad is comparable to the entire foreign debt of the State concerned.

Transparency International

Transparency International (TI) was established in 1993 to provide a focus for the global struggle against corruption. Before this few people even spoke seriously about the prospects for working against corruption. Many people preferred to remain silent on the entire phenomenon, regarding it as too troublesome. It is largely thanks to the work of TI that this situation has changed rapidly. The World Bank has now been motivated under its Director General James Wolfensohn to take action against corruption.

Low Salaries

According to TI studies, low salaries in the public sector are the main reason for the increase in corruption. Other reasons of almost equal significance are the inexperience of public authorities, lack of openness in public administration and imprecise rules governing public procurement. Privatisation, growth in foreign investment and trade, lack of press freedom and the liberalisation of capital transfers also provide opportunities for corruption.

Multinationals and Black Cash

"When reporting on Transparency International's corruption index the press focuses its attention on the developing countries . . . but I ask people to understand that a large part of the corruption is due to the multinational enterprises headquartered in the industrialised countries." - Peter Eigen, Chairman of the Board of Directors of Transparency International, quoted in the TI Newsletter in September 1997

Women less Culpable

Studies by the World Bank and the University of Maryland demonstrate that the more prominent the role of women is in the administrative machinery, the less corruption occurs. The researchers assume that women have higher ethical standards than men and that women are more predisposed than men to pursue the common good.

Governments Passive
in Industrialised Countries

Peter Eigen, Chairman of the Board of Directors of Transparency International observes: "The international enterprises engage in large-scale bribery in the developing countries. Most of the governments of leading industrialised countries play a modest role in uprooting international corruption. As a result poverty is increasing in the developing countries, their democratic institutions are breaking down and international trade is distorted."

The Principal Reform

"Preparing a code of conduct may be the most important of our reform projects in recent years," (the code of conduct forbids the taking or offering of bribes by enterprise employees) notes Mr. Tata, leader of India's leading industrial enterprise Tata in the TI Newsletter of June 1999

Internationalisation is
an Opportunity for Criminals

Liberalisation of cross-border movements of capital, goods and people are well suited to organised crime. "Globalisation creates exciting new opportunities and the world's criminals are among the most innovative in benefiting from the new circumstances," notes the 1999 Human Development Report of the United Nations Development Programme – UNDP.

Lowering international borders facilitates

• money laundering,
• smuggling of narcotics and other goods, and
• international trafficking in human beings.

Criminals were among the earliest to utilise the global electronic data network. On the other hand, modern information technology provides an effective tool to counter criminality.

Increasing social inequality and the new emphasis on money in the values of the ruling culture expands the growth prospects for criminal behaviour.

The Grey Economy

Experts in Finland estimate that the grey economy and economic crime cause an annual loss of revenue exceeding EUR 3 billion in the form of unpaid taxes and social security contributions. The direct victims of the growth in illegal business are the employees whose employers evade social security contributions, while all taxpayers are indirectly affected because tax evasion increases the taxation of those who behave legally.

In an article in the standard-bearer of the Confederation of Finnish Trade Unions, Palkkatyöläinen no. 1-2000, Markku Hirvonen – a leading experts on grey money – commented that grey business in Finland exists especially in the construction industry, restaurants and the shipbuilding industry of the Helsinki Metropolitan Area.

Trafficking in Women