As a group of the world’s richest countries agree to temporarily freeze debt repayments of Asian countries hit by last month’s tsunami, we speak with globalization expert Noreena Hertz, author of The Debt Threat: How Debt is Destroying the World. [includes rush transcript]
The Paris Club of rich creditor nations reached an agreement on Wednesday to temporarily freeze debt repayments of countries hit by last month’s tsunami to help them recover.
Club president Jean-Pierre Joyuet told a news conference that the suspension of debt would not be subjected to any of the conditions that usually accompany aid, such as an accord with the International Monetary Fund or private creditors.
According to the World Bank, the affected nations owe hundreds of billions in debt. Indonesia owes $132 billion. India owes just over $100 billion. Thailand owes $60 billion and Malaysia owes $50 billion.
So far only Indonesia, Sri Lanka and the Seychelles have signaled that they will take up the offer. Other tsunami-affected countries, such as India, Malaysia and Thailand have not requested a freeze on their debt payments.
British aid agency Oxfam was critical of the Paris Club offer. They said in a statement "Rather than agreeing to cancel significant proportions of debt, they seem set to go for the easy option of a temporary suspension of repayments, which will then be reapplied in a few months."
The Paris Club is made up of an informal group of the world’s richest creditor nations, including the UK, France, Germany, Japan, Russia and the U.S. It meets about 10 times a year to discuss debts owed to them.
- Noreena Hertz, associate director of the Centre for International Business at the University of Cambridge and a leading experts on economic globalization. She is author of the new book, "The Debt Threat: How Debt is Destroying the Developing World."
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: Joining us right now from Washington, DC, is Noreena Hertz, the Associate Director of the Center for International Business at the University of Cambridge, one of the leading experts on economic globalization. Her latest book is called The Debt Threat: How Debt is Destroying the Developing World and Threatening Us All. Noreena Hertz, welcome to Democracy Now!
NOREENA HERTZ: Thank you, Amy.
AMY GOODMAN: It’s very good to have you with us. Well, what is your response to the offer of the industrialized world?
NOREENA HERTZ: Yet again something is on the table that on face value seems good, but in practice what does it mean? It means that countries, you know, who have been terribly afflicted by the tsunami are now going to see debt service repayments halted, but only for a few months. They’re going to be charged interest in the interim, and in a few months’ time will have a big bill to pay. This isn’t really justice for countries terribly in need.
JUAN GONZALEZ: In terms of the impact of this debt on many of the countries that are affected by the tsunami, for instance, could you give us an idea of the proportion of their overall budgets that are now dedicated to paying off international debt as opposed to be able to deal with the problems of their own countries?
NOREENA HERTZ: Yes. I mean, if you take Indonesia, for example, Indonesia spent a quarter of its government revenues last year on debt service. But we — you know, we need to think bigger than just the Asian tsunami afflicted countries. Because of course, what is good for Sri Lanka must also be good for Sierra Leone, and African life must be valued as highly as an Asian life, and African countries are facing tragedies in terms of human lives on a daily basis, and they’re not getting their debts canceled.
AMY GOODMAN: Can you talk about what it means to pay the debt? Can you talk about how the whole process works?
NOREENA HERTZ: Well, what happens is that the world’s poorest countries, if you look at Sub-Saharan Africa, for example, it is paying out $30 million every single day on debt service. This is a region where 26 million people are HIV-AIDS infected. Where 40 million children will lose a parent to HIV-AIDS within the next ten years, yet this region is having to pay out four times what it can afford to spend on health care, on debt service. The rich countries of the world, the World Bank and the IMF are insisting that they are put before lives, before education, before basic human needs.
JUAN GONZALEZ: Well, of course, the creditor nations insist that if they were to cancel all of this debt, that there would be international financial problems. However, Argentina clearly canceled or at least put a moratorium on its debt several years ago and the sky has not fallen in. In fact, things have begun to improve in Argentina to some degree. Could you talk about the response of the creditor nations to the issue of the debt mitigation?
NOREENA HERTZ: Well, you’re absolutely right Juan. Argentina said to the international community, you know what? We’re not going to put our people’s needs before your rich countries’ banks’ wants and wishes. We’re going to look after our people first, and so they suspended all repayments on $100 billion worth of debt, and have done fantastically well as a consequence. Over the past two years, growth rates have shot up, unemployment is being slashed, and they have a very, very strong position moving forward. And what we might see, I think, are more countries looking at the Argentinean example and saying, you know what, why are we putting needs of our people behind those of the World Bank and the IMF? Perhaps we should also strategically decide not to repay our debts.
AMY GOODMAN: We’re talking to Noreena Hertz. Her book is called, The Debt Threat: How Debt is Destroying the Developing World and Threatening Us All. She’s a professor at the University of Britain in Cambridge. In this offer that the Paris Club of rich nations has made to temporarily freeze debt repayments to tsunami-hit countries, only Indonesia, Sri Lanka and the Seychelles have said they’ll take up the offer. India, Malaysia, Thailand have not requested a freeze on their debt repayments, why? What’s the difference in this response?
NOREENA HERTZ: I think what is good is that what we don’t have is the traditional one-size-fits-all solution imposed upon developing countries. I think that’s good that countries are given a choice whether or not to have their debts canceled at this stage. For some countries, some of the more advanced developing countries, actually, it’s better for them to go and borrow money on the international capital markets, in order to get investment that they need. They’re worried, those countries, that if they accept this debt cancellation deal, they’re going to be penalized by lenders. That’s why they’re deciding not to do it. But to go back to your question, Juan, about whether if we cancel debts, we’re actually encouraging countries to run up kind of new bills in the future, I think we also forget how complicit we in the developed world are in the mess that the developing world finds itself in because of course, we lent monies to the world’s poorest countries, not so that they could develop and improve their circumstances, but really especially during the cold war, to serve our own geo-political interests. If you look at a country like the Democratic Republic of Congo, formally Zaire, the United States, for example, lent half of the loans it gave to Africa in the 1970’s to one of the most notoriously corrupt and tyrannical dictators in the world, President Mobutu who they knew was using the money to charge a Concorde for private shopping sprees and buy estates and castles all over Europe; and Indonesia, Suharto; Abache, Nigeria; Marcos in the Philippines; Saddam Hussein of course, of Iraq. We lent to terrible, tyrannical dictators what we knew weren’t going to use the money for those people and yet those people are being asked to repay the debts today.
AMY GOODMAN: We’re talking to Noreena Hertz, The Debt Threat: How Debt is Destroying the Developing World and Threatening Us All, is her book. She is speaking to us from Washington where there’s a Jubilee Conference going on.
AMY GOODMAN: Our guest is Noreena Hertz who joins us from Washington, D.C., studio where she’s come in from Britain to attend a jubilee conference. Her book is called, The Debt Threat. Juan?
JUAN GONZALEZ: I’d like to ask you, in your book, you talk about a particularly pernicious type of — of debt predator. You call them "debt vultures." Could you talk to our audience about who — what are debt vultures and give us some examples of it?
NOREENA HERTZ: Sure, Juan. Debt vultures are really the scum at the bottom of the pond. These are guys who buy up the debts of the world’s poorest countries on the secondary market. You can go buy debts of a country like Peru, for example, at a real discount. Why? Because people think that the debts won’t be repaid. So, you can buy Peruvian debt worth a dollar for ten cents, for example. What these guys do is, they buy out lots and lots of this debt at this big discount and then they go to the country in question and they say, ’We’re going to sue you, unless you repay your debts at face value.’ So, in the case of Peru, for example, there’s a firm of debt vultures called Elliot Associates, and they went and they bought up all this Peruvian debt for about $10 billion, and then they went to the government and they said, 'We want to get it back at face value,' which was about 56, or a million dollars. And so, in the process —
JUAN GONZALEZ: And this Elliot Associates — excuse me — this Elliot Associates is based in New York City?
NOREENA HERTZ: It sure is; but we’ve got awful debt vultures in my hometown, in London, too. So it’s not just a U.S. phenomenon. But what they do is then they — You know, for the people of Peru, this is school books and medicines that the children there are therefore unable to get. And I met some of these debt vultures recently, and it was just after the hurricane had taken place in Cuba, and they’d been buying up Cuban debt. And I said, "God, you know, the hurricane how awful it was for the people;" and all they said to me was, "The people, hey, we didn’t care about the people. We were just worried about what that would do for the price of debt. Capital," they said to me, "Noreena, has no soul."
AMY GOODMAN: We’re talking to Noreena Hertz. She’s author of The Debt Threat a professor at the University of Cambridge in Britain. And we’re talking about the debt and as it relates to the tsunami. You talked about countries giving money to dictators like Suharto, the old dictator of Indonesia, knowing that these leaders are going to take much of that money, and yet it’s the people who remain long beyond the reigns of these dictators that have to pay back. What do you think is the solution? You’re in Washington. You can tell us about the conference; but would you say that countries should simply refuse to pay back debt?
NOREENA HERTZ: I think in the case of Latin America and more developed countries that actually is an option. Countries could band together; and in Latin America now, we do have a whole group of left- leaning governments. There is consensus amongst Venezuela, Uruguay, Brazil. Argentina’s doing great. And there would be a case, I think, for a strategic default. In the case of Africa it’s more complicated. Because African countries are actually paying back for every dollar that they receive in aid, approximately the same amount in debt service. So, they’re much more kind-of linked, and they’re really, really dependent, though, on aid coming in; and were they to default, all aid from the World Bank and I.M.F. would freeze immediately. So they’ve got a more difficult challenge ahead of them. But I think we’ve got to be really clear on this: Countries that need monies so that they can provide health care and education and shelter to their people shouldn’t have to repay debts that we knowingly lent to bad regimes long since gone; and all illegitimate debts — debts lent to these terrible dictators like Saddam Hussein, like Suharto, like Marcos — must also be canceled. But I think — and we’re running an email campaign on www.debtthreat.com where people can send an e-letter to President Bush saying, ’We want debts to be canceled, and we also want you to make sure that the monies saved do go to health and education and infrastructure so that they do reach the poor and needy and vulnerable in the countries in question.
JUAN GONZALEZ: Do you think that some of these third world countries don’t realize the negotiating power that they do have? I remember a business man that was interviewed quite extensively about the issues told me, "Well, Juan, you know, if you borrow $1,000 from a bank and you can’t pay it back, you’re in trouble. But if you borrow $100 million from a bank and you can’t pay back, the bank’s in trouble;" and so that, you usually are in a better negotiating position when you owe a lot of money than when you owe a little bit of money.
NOREENA HERTZ: Yeah, and that’s why I think in the case of Latin America, we really may see a collective default, 'cause I think especially looking at the Argentinian success. In the case of Africa, I think there's less — less, perhaps, unanimity amongst governments, and I think there’s less chance that we’re going to see this kind of collective decision. But you’re absolutely right, Juan. I mean, when you owe a lot of money, you’ve got power; and the developing world really needs to exercise this power. But they did do it in the case of the trade talks in Cancun, of course, last year when, for the first time, we did see this kind of collective bargaining on the part of Brazil and China and India and a whole host of developing countries, turning around to the west and saying, 'We don't accept the rules that you are laying out. We are not going to sit at the table when you’re defining the rules. We would rather walk away.’ And this kind of collective action is — was pretty much unprecedented in recent times. So, perhaps, we’ll see more collective action around debt; but until that point, we, the creditors, we in the west, need to take responsibility for our part in this situation, and cancel the debt. And you know what? It wouldn’t actually cost that much. If we were to cancel all of the debt, of sub-Saharan Africa, that would amount to $170 billion, which sounds like a lot, but it’s actually the cost of U.S. military operations in Iraq so far. It’s not a matter of available resources. It’s a matter of what we choose to do with them.
AMY GOODMAN:Well, Noreena Hertz, we want to thank you very much for being with us, among the more remarkable quotes and figures in your book, The Debt Threat, again on the issue of sub-Saharan Africa, some 15,000 children die every day from poverty-related diseases. Yet still the governments are required to pay out some $30 million every day to the World Bank, I.M.F., and rich world creditor nations. Every $1 that’s given to that region in aid, $1.50 goes out to cover debt repayments. Noreena Hertz, thanks for joining us, author of The Debt Threat.