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Debt Crisis Still Cripples Growth

The 1980s saw the beginning of the Third World debt crisis. The World Bank called it the "lost decade." During this period real income in sub-Saharan Africa fell by 40 per cent and in Latin America and the Caribbean by 45 per cent. A decade on, reports Gemini News Service, not only much of the Third World remains heavily in debt, the industrialised world, too, is having to live with debt as a result of free-market policies.

by Frank Nowikowski Buenos Aires
11 is ten years since Mexico defaulted on its debt repayments and started the Third World debt crisis. Today the effects arc still felt, especially in developing countries. The total long-term debt of developing countries In 1991 stood at Si.000 billion. During the last decade people In sub-Saharan Africa have seen their real income fall 40 Uy per cent and in Latin America and the Caribbean by 45 per cent.
Latin American and Caribbean countries have seen a steep decline in their economic output while sub-Saharan Africa has been worst hit by the decline in commodity prices. Prices of two of Africa’s main foreign exchange earners, coffee and cocoa, arc currently at their lowest level in 17 years. This, says the 1992 Trade and Development Report, has resulted in a five per cent contraction in the value of exports.
The debt crisis affected not only the poorest countries : industrialised countries suffered a seven per cent fall in income measured as gross domestic product (GDP) and a four per cent drop in manufacturing.
Industrialised countries can make up this loss In a decade by putting more emphasis on the economic ideology of John Maynard Keynes and less on monetarists such as Milton Friedman. But It would, take a miracle for the Third World to make up for the lost decade within the next ten years. The GDP of Latin America and the Caribbean, for instance, would have to grow by an annual 10 per cent.
Except for middle-Income countries, the task will have to be spread over 30-40 years. The rate of export for low income countries fell from nearly six per cent a year from 1965-80 to 0.5 per cent from 1980-88. To regain lost ground within a decade they would need to Increase exports by more than 11 per cent yearly. Latin America has increased the volume of exports only to see their value
decreased by deteriorating terms of trade. The counterpart of these worsening terms of trade for poor countries Is Improved terms of trade for OECD countries which increased the growth rate of the volume of their export over the decade from 4.2 per cent to
diture on education from 20 per cent to nine per cent. In Latin America education spending has fallen from 15.4 to 11 per cent of government spending. There are similar declines in health spending. Apart from much of Asia which has made tremendous strides
debts than the Third World. •
Bankers have redefined debtors as "good customers”. Brazil. Mexico. Argentina and the Philippines which were, and are, notoriously bad repayers, have no end of bankers throwing money at them. On the other hand, no one is in-
Economists are not agreed on whether the "lost decade' was a necessary shake-up, eliminating poor practices and. through rc-structuring laying the foundations for future growth. In other words, arc they leaner and fitter or simply emaciated?
There is some «”pport fol the second view. Low-income countries have slashed expen-
Third World, especially Africa, Latin America and the Middle East, is worse off.
Ten years on from the start of the debt crisis, the world’s economy Is as bad or worse. What has changed is perceptions. World debt is greater than before, but It Is no longer a problem afflicting only the developing world. In fact rich ■ countries now have larger
Romania which fully paid off tti foreign debt under the communist regime of Nicolae Ceausescu.
Mexico has its eyes on the benefits of membership of the North American Free Trade Area, so it is prepared to act ai a reliable and "responsible" nation. In 1991 Mexico paid 816 billion to service Its debt — more than it earned through
exports.
Latin America Is projected to transfer $ 137-154 billion more than it receives to rich countries during the 1990s, according to a report by the Overseas Development Council — Debt Reduction and North-South Resource Transfers to the Year 2000.
Though Africa spends more In debt repayments than It spends on education and health, it can meet only one-third of its scheduled payments — increasing its debt burned for later. A 1991 United Nations Children's Fund (UNICEF) report described Africa's debt crisis as "one of the greatest international failings of the century".
Some debts for the poorest countries have simply had to be cancelled. Canada has forgiven its debtors in the Caribbean. United States legislators are talking about debt-reduction for Jamaica as they accept that a decade of free market policies have made the country leaner but not fitter.
Jamaica was one of the first countries in the world to undergo externally-imposed, economic adjustment programmes in the late 1970s. "Fourteen years later, Jamaica's economy is as weak as before, foreign debt greater, public services and infrastructure crumbling, social conditions are disastrous, and government reais on shaky foundations," says Oxfam In Its report Storm Signals: Structural Adjustments and Development Alternatives in the Caribbean.
Oxfam claims privatisation, trade deregulation and fiscal austerity, have translated into rising maternal mortality and child malnutrition rates, soaring food prices, rapidly decaying health care systems, destruction of rainforests and depletion of mineral resources.
Free market policies promoted by US President* Ronald Reagan and George Bu*h have "(idled to keep their promise* of .increased employment and sustainable economic growth." says the report. — Gemini New*