Africa Debt Interest Poverty

Economic Injustice in the International Economic System

20 The Review of Religions – May 2005 Arenewed interest hasoccurred in the issue of debt relief in recent times. This renewed interest has been largely aided by two factors: firstly, a change in the Presidency of the G8 and (soon to follow) the EU, and secondly the Ts u n a m i disaster. Regardless of their personal ambitions, both the British Prime M i n i s t e r, Tony Blair, and his C h a n c e l l o r, Gordon Brown, share a conviction that Britain’s leadership this year of the G8 and the EU gives them a real chance to tackle poverty through an array of poverty-reduction strategies, including debt-relief. The British Chancellor began early enlisting support for debt relief. In December last year, in Washington, he called for a Marshall Plan for the world’s p o o r. This envisaged rich countries agreeing to a doubling of aid and the initiation of a major debt-forgiveness pro- gramme. The second factor that has led to a re-examination of the debt issue has been the recent Tsunami disaster. The giant tidal wave that hit coastal regions of the Indian Ocean on December 26 of last year killed at least 286,000 people and caused havoc to the fragile social, economic and ecological systems of these areas. With every affected country facing pressure for higher public spending to rebuild infrastructure, a mora- torium on debt payments could not have come at a better time. Indeed these two factors are linked; the disaster highlighted the increasing vulnerability of Economic Injustice in the International Economic System: By Maidah Ahmad – Canada The Case for Debt Relief 21The Review of Religions – May 2005 these countries and their inability to respond to such disasters. The solution to poverty in developing countries goes beyond debt-relief and other poverty-reduction strategies. This is evident from statistics which show that despite continuous poverty-reduction strategies made over the last decade of the twentieth century, the actual number of people living in poverty has actually increased by almost 100 million. This occurred at the same time that total world income increased by 2.5% annually.i Therefore, the problem and solution lies in the nature of the international economic system which cur- rently enriches the rich at the expense of the poor. It is only through the establishment of an international economy based upon the principles of absolute justice that the misery of developing countries’ impover- ishment can be alleviated. Origin of Debt in the Developing World The twentieth century saw many nations achieving political inde- pendence from the oppression of imperialism. However, this inde- pendence did not necessarily result in economic freedom. As a result of a series of factors, these newly-independent states have become economically dependent upon rich Western countries for loans. Countries incur interest- bearing loans not only for development projects, but also for day-to-day expenses as well as to pay interest accrued on their previous loans, thus keeping them locked in a vicious circle of indebtedness. The dependency on foreign loans has not only disrupted the economic well- being of these countries but has also adversely affected their self- determination and forced them, sometimes against their interests to submit to the demands of creditors. The origin of Developing Countries debt is largely attrib- utable to two main causes. Firstly, worldwide events in the 1970s and 1980s – particularly, the oil price shocks, high interest rates and recessions in industrial ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM 22 The Review of Religions – May 2005 countries and weak commodity prices – were major contributors to the build up of debt. Endogenous factors have also played a large role with weak economic policies and poor governance in many developing countries. These range from natural disasters, resources depleted by past invaders, political instability, tribalism, civil wars, corruption, to credit ratings by capitalist agencies, poor exchange management, or an administration that is open to bureaucracy at its best and bribery at its worst. As a result, developing country debt rose from $500 billion in 1980 to approximately $2 trillion in 2 0 0 0 .i i S e c o n d l y, the unfair free trade laws in operation, which work to protect Western industry at the expense of developing countries, also increase developing coun- tries’ debt. An example of this can be seen with reference to EU subsidies on its agricultural industries. In a visit to Mozambique in January of this y e a r, Gordon Brown was struck by the extent to which protec- tionism was shutting the country’s sugar producers out of world markets. British officials have pointed out that the total support for agriculture within OECD countries was $318 billion, roughly five times more than all the aid the world currently gives. It is estimated that in ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM 1. Nicaragua 800.6% 2. Congo 454.2% 3. Mozambique 450.4% 4. Guinea-Bissau 340.7% 5. Cote d’Ivoire 338.9% Source: ‘State of the World report’ New Internationalist, Issue 287, November 2001. COUNTRIES WITH THE BIGGEST DEBT-REPAYMENT BURDEN (debt as percentage of GNP, 1994) 23The Review of Religions – May 2005 shutting out EU markets alone, such subsidies cost developing countries $20 billion a year.i i i S i m i l a r l y, the United States has raised its farm subsidies, contributing to enriching a few l a rge corporate farmers in the US at the expense of the poorest of the poor internationally. For example, subsidies to 25,000 American cotton farmers exceed the value of what they produce and so depress cotton prices. C o n s e q u e n t l y, it is estimated that the millions of cotton farmers in Africa lose more than $350 million each year.i v F o r several of Africa’s poorest countries, losses from this one crop exceed America’s foreign aid budget for each of these c o u n t r i e s . H o w e v e r, causes of the indebtedness of the majority of the world have far deeper roots that are embedded in the structure of the global capitalist financial system based upon interest. This is highlighted in the following quote from President Obasanjo of Nigeria, commenting on the debt Nigeria f a c e s : ‘All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.’v Although, an analysis of the harmful effects of interest is important, it goes beyond the scope of discussion of this article. Suffice to say that because of interest, despite ever- increasing payments total debt continues to rise. Consequently, the developing world now spends $13 on debt repayment for every $1 it receives in grants.vi Faced with these unfair laws of international economics, is it any wonder that these countries have been unable to lift themselves out of destitution? When Bob Geldof ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM 24 The Review of Religions – May 2005 was asked recently what had changed in the twenty years since Live Aid, he replied, a lot had, Africa had grown poorer by 25%.vii Solutions proposed to the problem of debt relief of the Developing World Very often the exacerbating poverty of some Developing countries is attributed to the forced policies imposed upon them by global financial institutions such as the International Monetary Fund (IMF) that prevent them from breaking free from the vicious circle of debt and poverty. Developing countries claim that there is a lack of choice when devising economic development growth strategies. However, examples from other countries show that alternatives are available. Poland, for example, employed alternative strategies to those advocated by Western financial institutions. Instead of following policies recommended by the IMF, it pursued those which it felt were needed for the development of its state such as strengthening of democratic reform, keeping unemployment low and providing benefits for those who were unemployed. The result – Poland is the most successful of the Eastern European countries. The same can be said to be true of Ghana in Africa It is evident that solutions to poverty do exist and are possible. What is certain, however, is that poverty-reduction strategies can- not be tailor-made and dictated from elsewhere. Solutions need to be home-grown and should take into account the specific characteristics of the country and needs of its people. In essence, there needs to be a democratisation of the inter- national financial system. Countries are rejecting and need to continue to reject the notion that a single set of policies dictated by the West or Western- controlled international insti- tutions are right as this is in contradiction to both the prin- ciples of economics, which emphasise the importance of trade-offs, and common sense. In ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM 25 ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM The Review of Religions – May 2005 Western countries there is often active debate of every aspect of economic policy. This needs to transcend to the international Public Expenditure on Primary Education (US$m) Public Expenditure on Health (US$m) 2001 Debt Service (US$m) Debt service is greater than Health & Education Spending Benin 56 50 46 Bolivia 298 223 185 Burkina Faso 55 54 30 Cameroon 95 64 226 yes The Gambia 1 1 16 yes Guinea 60 12 78 yes Guinea-Bissau 3 2 6 yes Guyana 14 11 48 yes Honduras 94 89 134 yes Madagascar 33 45 64 yes Malawi 82 82 59 Mali 34 25 64 yes Mauritania 22 20 80 yes Mozambique 119 73 48 Nicaragua 25 32 117 yes Niger 64 48 49 Rwanda 6 8 16 yes Sao Tome and Principe 3 4 2 Senegal 64 148 159 yes Tanzania 229 88 142 Uganda 37 16 51 yes Zambia 33 24 158 yes Source: ‘World Development Indicators 2000. DEBT SERVICE IN THE DEVELOPING WORLD 26 ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM The Review of Religions – May 2005 level as well. A broad range of economists and officials from developing countries need also to be involved in the debate. M o r e o v e r, participation should also extend to beyond experts and politicians so that there is genuine consultation with all interested stakeholders. Such an approach is endorsed in Islam and it has laid great stress on the democratic principle of discussion. The Holy Qur’ a n states, And whose affairs are decided by mutual con- sultation. (Ch.42: V.39) This makes clear that there should be an exchange of information and viewpoints and there should be an opportunity for new information to be considered. Thus, the economic principles of Western countries and inter- national institutions need to be open to new information and ideas that may expand or change current understanding. This will also enable developing countries to assume responsibility for their well-being themselves, encour- aging them towards more effec- tive governance, democratic a c c o u n t a b i l i t y, openness and transparency. M o r e o v e r, governments need to play a role in not only fostering economic growth, but also ensuring social justice to off s e t inequalities of wealth produced as a result of market forces. In countries experiencing socio- economic success, such as the Scandinavian countries, govern- ments have provided a high level of social infrastructure in the form of high-quality education to all and a generous welfare system. In short, governments have a role in making economies function eff i – c i e n t l y, as well as humanely. Development is not about enriching a few, nor about being able to buy Western consumer products. ‘Development is about transforming societies, improv- ing the lives of the poor, enabling everyone to have a chance at 27 ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM The Review of Religions – May 2005 success and access to healthcare and education’.viii For this is the true meaning of development – sustainable, equi- table and democratic growth. This concept of equity is inherent in Islam. Islam seeks to establish a politico-economic system based on morality and absolute justice. At the centre of the Islamic system is a belief in God. The Islamic economic system commences with the premise that all that is in the heavens and the earth has been created by and belongs to Allahix, Who in turn has entrusted man with these earthly provisions. Hence, man’s responsibility is to discharge this trust honestly and equitably: Verily, Allah commands you to make over the trusts to those entitled to them, and that, when you judge between men, you judge with justice. And surely excellent is that with which Allah admonishes you! Allah is All-Hearing, All-Seeing. (Ch.4: V.59) The words ‘entitled to them’ in the above quote highlights the fact that these provisions in actual fact belong not to any one group of people or nations, And in their wealth is a share belonging to the beggar and the destitute. (Ch.51: V.20) And those in whose wealth there is a recognised right. For one [the beggar] who asks for help and for one [the destitute] who does not. (Ch.70: Vs.25-26) These verses also remind the rich that part of their wealth in actual fact also belongs to the poor, (as it is a ‘recognised right’) to whom it must be given to help them live a decent and hon- ourable life. In fact the Holy Qur’an has laid down the foundations for economic justice: It is provided for thee that thou wilt not hunger therein, nor wilt thou be naked. And 28 ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM The Review of Religions – May 2005 thou wilt not thirst therein, nor wilt thou be exposed to the sun. (Ch.20: Vs.119-120) In the economic sphere these four fundamental rights have been granted to man – the right to be fed, the right to be adequately clothed, the right to a clean supply of water and the right to s h e l t e r. This ‘first charter of fundamental human rights’x h a s been mentioned in the Holy Q u r’an with reference to the Law of Prophet Adam( a s ). Ye t despite the progress of civilisation and the great leaps in scientific and material progress, the basic principles of economic justice set out thousands of years ago are still not met today. So what happens when the basic needs of some are not met? According to Islam, it is not just the sufferings of one man for which the society of that country is responsible but it is the s u fferings of any human being in any society, that is to say, humanity has no geographical boundaries, nor colour, creed or political demarcations. Humanity at large is responsible and human beings as such are answerable to God. Whenever natural or man- made disasters strike any c o m m u n i t y, it must be treated as a human problem and all societies and states of the world must help alleviate the s u ff e r i n g s .x i It is only in Islam that the level of consciousness and sensitivity to the suff e r i n g of fellow human beings is raised to such a degree whereby members of society as a whole are concerned more about what they owe to society than what society owes to them.x i i This is in stark contrast to the current rationality of the international financial system. Wealthy countries devise macro- economic policies to assure the continued strengthening of their economies at the expense of weaker nations. Furthermore, they have used global financial institutions to further their nationalistic agendas. Whether it is giving out loans, grants or aid to developing countries, 29 ECONOMIC INJUSTICE IN THE INTERNATIONAL ECONOMIC SYSTEM The Review of Religions – May 2005 setting up and promoting trade and financial co-operation between nation-states, rich countries pursue policies that further the interests of them- selves at the expense of poorer n a t i o n s . In short, morality needs to return to international relations. This can only be achieved by estab- lishing a set of universal values based upon absolute justice; where the world’s poor are treated as being of equal worth, of having the same rights of life and liberty. Hadhrat Khalifatul Masih IV(ru) writes that the root cause of problems, whether social, political, economic or moral, is the violations of the principle of justice.x i i i Wi t h o u t global justice, peace cannot prevail in the inter- n a t i o n a l system. References i Joseph, E. Stiglitz, Globalisation and its Discontents (2003: London) p5. ii IMF, ‘The Logic of Debt Relief’, IMF Working Papers, September 2000. iii Patrick Wi n t o u r, ‘Mandela backs B r o w n ’s plea for Africa’, G u a rd i a n, January 17 2005. iv Joseph E. Stiglitz, Globalisation and its Discontents (2003: London) p254. v Quoted in Jubilee 2000 news update, August 2000. vi Anup Shah, see following website: w w w. g l o b a l i s s u e s . o rg / Tr a d e R e l a t e d / D e b t / S c a l e . a s p. vii Bob Geldof, Why Africa? Delivered at the Bar Human Rights Commission bi- annual lecture at St Paul’s Cathedral, 20 April 2004. viii Joseph E. Stiglitz, Globalisation and its Discontents (2003: London), p252. ix The Holy Qur’an, Chapter 3: Al-Imran, Verse 190. Edited by Malik Ghulam Farid, Published 2002. x Hadhrat Mirza Tahir Ahmad, Absolute Justice, Kindness and Kinship: The Three C reative Principles, (1996: Islam International Publications), p117. xi Hadhrat Mirza Tahir Ahmad, I s l a m ’s Response to Contemporary Issues, (1992: London) p212. xii ibid, xiii Hadhrat Mirza Tahir Ahmad, Absolute Justice, Kindness and Kinship: The Three Creative Principles, (1996: London), p99.