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Some thoughts on Third World debt

by Andrew G. Clem (Excerpts from dissertation, Between Power and Poverty: A Study of Political-Economic Adaptation and the Autonomy of Emerging Nation-States, With Special Reference to Peru, University of Virginia, copyright 2002)

In recognition of the awful consequences of the debt trap, the Catholic Church commemorated the dawn of the Third Millennium by launching the Jubilee 2000 campaign to forgive the foreign debts of the poorest Third World countries. The platform of the "Jubilee 2000/USA" movement calls for "definitive debt cancellation that benefits ordinary people and facilitates their participation..." but which "is not conditioned on policy reforms that perpetuate or deepen poverty or environmental degradation."1 Though quite timely, this cause assumes that poor people would benefit directly if their governments' debt burdens were lifted. That might happen if political processes were made transparent, as they urge, but the question is whether incumbent governments would consent to such foreign intrusion. An even deeper flaw of Jubilee 2000 is in its misdirected appeal to charitable impulses, putting pressure on governments to appropriate public funds for debt relief. Unless governments of the wealthy countries come up with 100 percent of the needed funding, which is extremely unlikely, there will have to some allocation of debt relief. When governments are involved, such choices automatically become tainted by politics. From the bankers' point of view, countries such as Bolivia that have enacted more strenuous reforms deserve more credit than others. Jubilee 2000 explicitly rejects tying debt relief to such market-oriented reforms, however, avoiding the question of whether it is equitable to forgive "prudent" and "deadbeat" countries alike. Of course one would not expect religious or charitable organizations to worry about the "moral hazard" issue; that is not their nature. So who decides how much past sacrifices are worth, and how to strike the proper balance between justice and mercy?

Before answering, we should point out that the issue of debt relief is tied to the fundamental question of whether it is more appropriate to conceive of the international system as anarchic or hierarchic. In the former case, default is always an option, since the only incentives to pay back sovereign debt to creditors in other countries are the desire to remain creditworthy and to avoid being the target of "gunboat diplomacy." In a hierarchic system in which norms are routinely enforced by supranational power-wielding institutions, the penalties for defaulting are immediate and automatic. The real world is of course somewhere in between, with "dirty" sanctions befouled by threats, haggling, and compromises. Thus, depending on one's assumptions about the international system, the IMF might resemble either a legitimate bill collection agency or a shakedown racket working on behalf of loan sharks. Are we going to wage an all-or-nothing struggle to impose one viewpoint or another in the effort to resolve the international debt problem?

There is a fairly simple (though not "easy") solution to this quandary, and it comes from devolving the locus of moral decision-making from the global level to the local level. Rather than putting pressure on the U.S. government or international agencies to fund debt relief, why not ask people to put their money where their conscience is? A genuinely charitable campaign could be based on a matching fund system so that private banks and their depositors would share in the write-off losses. That way the concerned citizens of the privileged North could make a more direct, immediate impact as "global watchdogs" rather than waiting for their government to make up for other people's lack of charity. Such a grassroots, member-supported debt forgiveness campaign, inspired by the U.S. civic culture of good neighborliness, is thus our third "escape route" from the Third World poverty trap. As Thompson wrote, "Since we cannot do everything to help mankind, we do most when we understand what we do best at home and abroad."2

These proposals show that being true to American ideals and traditions does not mean foisting our way of life on other nations, but rather helping to raise the capacity of Third World governments to confront the challenges of globalization by means of their own choosing, whether that be by adopting the U.S. dollar as Ecuador has done, or by entering into some kind of supranational confederation with their neighbors as Portugal has done. A pluralistic conception of political order at the global level would at least make possible policy responses with some real measure of public participation. The alternative is a struggle to the death between elite "liberalizers" and mass-oriented "populists," neither of whom are truly faithful to their respective professed principles of freedom and equality. This brings us to Hans Morgenthau's insight that the fundamental purpose of American politics is "to maintain the achievement of equality in freedom within the United States," which arose in the unique, irreproducible circumstances of the open frontier. Yet this minimal purpose is "pregnant" with the even higher purposes of serving as an example for other nations to emulate, and "expanding the area of freedom in equality in order to maintain freedom in equality at home." Just as Morgenthau pointed to the tragic "impossibility of remaining faithful to the American purpose,"3 the great question is whether this expansion can proceed for long without degenerating into crass imperialism of the Old World variety. After all, nature abhors a vacuum, and much of the Third World these days is a virtual political vacuum. Thus, unless U.S. citizens regain a solid understanding of their history and exercise vigilance over foreign policy, there will be no organized political force to stop the United States from getting "sucked in."

The warnings against misguided U.S. government intervention outlined in this subsection should not be seen as an excuse for doing nothing, for the status quo in much of the Third World is sufficiently bleak to constitute a threat to us all. The United States should therefore stay attentive and reciprocate whenever Latin American countries take politically risky steps to open their economic systems. Nonpolitical functional cooperation in democracy and development should also be encouraged. On the other hand, we should be wary of continued U.S. government support for "structural adjustment programs" that attempt to replace the "natural" workings of the marketplace with coaxing by experts and financial "carrots." When one stops to consider that the main purpose of such programs often has less to do with resolving the intractable dilemmas of economic development (the World Bank's job) than simply propping up nonviable national entities in order to maintain international stability (the IMF's job), the awful truth emerges. It could well be seen as a cynical charade that keeps Third World workers forever pinned down in hopeless misery, while fostering the false impression that "capitalist exploitation" is the root cause of said evils. That would be a recipe for world revolution.


1 Information taken from the Jubilee 2000/USA web site,, Aug. 2, 2001.

2 Kenneth W. Thompson, Morality and Foreign Policy (Baton Rouge: Lousisiana State University Press, 1980), p. 127.

3 Hans J. Morgenthau, The Purpose of American Politics (Lanham, MD: University Press of America, 1982 [1960]), pp. 33-36, 39. (Emphasis added.)