External debt
The foreign debt is the sum of the debts a country owes to foreign entities. It is made up of public debt (that contracted by the State) and private debt (that contracted by companies and individuals).
The external debt with respect to other countries, commonly occurs through organizations such as the International Monetary Fund or the World Bank.
The origin
In 1973 the price of oil multiplied by four. Producing countries were making huge amounts of money, and private banks came to these countries with extremely low interest rates. 60% of the credits went to impoverished countries. In the case of Latin America, several countries in the region were under dictatorial regimes, which recklessly or deliberately contracted debt.
At the end of 2000, four detrimental events occurred for these countries:
- The interest rates rose (they multiplied by four from the end of 1970 to the beginning of the 1980s), which appreciated the debt crisis of 1982, which manifested itself strongly in Latin American countries. At that time, the acquisition of new loans to deal with the payment of unpaid debts was encouraged, resulting in the economic catastrophe of that decade and the multiplication of debt.[chuckles]required]
- The dollar was strongly appreciated.
- World trade fell and South exports that were not oil were despised.
- Structural adjustment plans were initiated.
Then a situation was reached, metaphorically explained by the analyst Ignacio Ramonet, in which Third World countries invested more money in repaying the interest on that debt than in their own development:
You buy a flat, ask for a credit of 20 million with an interest of 5 %, but within three months the bank raises interest to 8 % and one cannot complain. At 6 months, it is up to 20%, so the loan you requested could have paid it but with this you can no longer [...] This is what has happened to external debt. [...] Now [poor countries] are obliged to export with the objective of obtaining foreign currency to pay the interests of their foreign debt. In this way, the country is dumped into foreign trade and this prevents it from dealing with its domestic market.
Among other causes, capital flight deprived these countries of a source of internal savings essential for promoting their own development.
Serious indebtedness
Debt crisis
The economy is understood as a debt crisis, also known as a public debt crisis or sovereign debt crisis, that situation of tensions and difficulties that arise in the financing of the public finance of a country. Problems can be manifested in the impossibility of payment of the commitments made by the State, the difficulty of finding investors willing to make new loans or in raising the interest rate to be paid by States for the issuance of new debt.
The origin of these crises is due to a growing accumulation of public debt emitted to finance a country ' s cumulative budgetary deficits. The crisis is triggered when the total amount of the debt is of a level in which the State cannot afford to pay the interest or return the capitals provided, because they reach a considerable percentage of public resources. External debt crises are discussed in cases where the public Treasury has an excessive debt to the rest of the world and lacks currency to meet its interests and amortizations.Causes for indebtedness with foreign entities
Some typical causes for serious indebtedness with a foreign entity are:
- Natural catastrophies, epidemics and similar, which require loans to alleviate their effects.
- Investments in new research, industries, etc. that may fail because they have not taken into account the risk of market changes or other important reasons.
- The mismanagement of funds, which produce a sustained deficit that is increasingly external resources to compensate for it.
- Negligence (intentional or non-intentional) regarding the effects that excessive debts may have, or the absence of pre-requisites before granting it. Thus, authors like Marc Reffinot point out that a similar phenomenon already happened in the 1930s after the 29th cramp and, despite having that experience, it was allowed to re-indebted the nations.
- In Barcelona's Forum 2004, the so-called indignant debt was proposed, such as the one that contracted and allowed itself to contract despite knowing that it would cause serious problems to the economy and the development of the country that requested it. The so-called indignant debt is also a requirement that the lender agency or country will find it impossible not to know the effects that such credit will cause to the recipient.
Foreign debt forgiveness
The progressive appearance of more and more countries weighed down by their enormous debt caused at the end of the XX century a growing awareness in many social sectors of the need to cancel the foreign debt to third world countries unable to pay it. This idea has found strong resistance among the most conservative political sectors in developed countries, who are not resigned to losing the money they have borrowed.
Although it is not frequent, several countries have forgiven others their debt (totally or partially), generally because the country is rebuilding itself after a war, a catastrophe or after a study on its economy.
In Spain, according to the Citizen Network for the Abolition of Foreign Debt, the debt was 68 billion dollars in 1970. In a decade, the debt grew to 577 billion dollars, although it was still manageable if it was they would have kept the terms in which they were hired.
In the 1980s, remembered as the lost decade for development, the debt became unpayable and reached such proportions that it became one of the main obstacles to progress. In that decade, developing countries paid a bill of the order of one trillion three hundred billion dollars in debt service payments.
With the problem of foreign debt after the macro pressure campaign undertaken between 1998 and 2000, something similar to what happened with 0.7% has happened. The achievements, very partial and more aimed at whitewashing the image before public opinion than a major reform, have caused a mixture of skepticism and resignation among citizens.
On the other hand, after the September 11 attack on the Twin Towers in New York, the international situation in which the United States aspires to reinforce its hegemony has blurred the visibility of the foreign debt problem. There is also the opinion that debt forgiveness in the medium or even short term would be useless, as nations would go back into debt. As mentioned above, in the opinion of Marc Reffinot something similar already happened in the 1930s and, despite this, it was forgotten about forty years later.[citation required]
However, new approaches such as the analysis of the ecological debt of the North to the South have been incorporated as part of a broader argument that connects with environmental sustainability and the demand for changes in globalization, with social movements each less watertight and more interconnected.
In any case, different organizations survive that have become surveillance observatories and closely examine the state of the issue, which is far from having been resolved. In the Spanish case, at the end of January 2003, Cáritas, Oxfam Intermón and the Observatory of Debt in Globalization presented a report in Porto Alegre with proposals to move forward denouncing "the paralysis" of the Spanish executive on this matter.
According to specialist Jesús Barcos:
Today debt remains one of the demonstrations that the existence of a Third World is not understood without the decisions of the First World.
Pope John Paul II also attacked the debt stating among other things:
Debt cancellation is, of course, only a part of the greatest task of fighting poverty and ensuring that the inhabitants of the poorest countries have a larger portion of the banquet of life. Debt cancellation programmes should be accompanied by the introduction of sound economic policies and good governance. But, as important as that (if not more) is that the benefits arising from cancellation reach the poorest people, through a framework of comprehensive and sustainable investment in human capacities, especially in education and health. The human person is the most valuable resource of any nation or economy.
(Pope's speech at the meeting with the Jubilee 2000 delegation, September 23, 1999).
HIPC Initiative
Highly indebted poor countries or HIPCs Heavily Indebted Poor Countries) form a group that benefits from the so-called HIPC initiative, created by the G8 for those countries with high public debt (mainly located in Africa, Asia and Latin America). Subsequent to the HIPC Initiative, the MDRI Initiative was launched, but operationally linked.
Those heavily indebted poor countries, according to the language used by multilateral institutions, corresponded to an original group of 41 developing countries, of which 32 have a per capita GNP expressed in 1993 values of $695 or less and a reason between the updated net value of debt and exports of more than 220%, or a reason between the updated net value of debt and GNP of more than 80 per cent.
The HIPC group should have submitted a poverty reduction strategy paper to the IMF Board of Directors to meet the requirements of the Heavily Indebted Poor Countries Initiative. It includes 9 countries that agreed on concessional rescheduling with the official Paris Club creditors.Hateful debt
There is also the concept of odious debt, applied for the first time in 1898 to establish the debt that the Philippines had with Spain as illegitimate, once Spain had been defeated and lost its colony to the United States. Joined.
The odious debt doctrine means that a people is not responsible for debt incurred by rulers imposed by force. This doctrine is present in the discussion of the foreign debt of some states where the foreign debt has been increased by dictatorships and non-representative governments, for the purposes of personal or corporate enrichment, or for social and political repression. Such is the case in the Argentine Republic.
In 1927, Alexander Sack, a professor of international law, defined the execrable debt in these terms:
If a despotic power incurs a debt not for the needs or interests of the State but to give greater force to its despotic regime, to repress the population facing it, etc., this debt is odious to the population of that country.
Economist Jeff King, after clarifying that it is not "his" definition but a summary of everything he read about the execrable or hateful debt, he defines it precisely:
Hate debts are those against the interests of the population of a country and with the full knowledge of the creditor.
Debt Abolition Movement
As of the 1990s, an important movement in favor of the abolition of foreign debt grew internationally, linked to the rise of the anti-globalization movement. One of its high points was during the G8 summit in Birmingham in 1998. Since then debt abolition has been present in the activities of the anti-globalization movement and in the World Social Forum. In 2008, ten years after the Birmingham summit, by way of taking stock of the trajectory of the movement, the author and anti-globalization activist Esther Vivas pointed out that: «the protests against the debt achieved some progress, especially in the field of the symbolic and in the perception that society had of this problem. In creditor countries, the causes and consequences of their payment and the links with poverty were disseminated. While in debtor countries, emphasis was placed on the responsibility of international institutions in the generation and maintenance of this debt. However, in the institutional field, beyond placing the debt issue on the political agenda, the changes achieved were very few."
Ecological debt
Green debt is a concept widely used in political ecology to address the unequal level of consumption of natural resources, the generation of greenhouse gas emissions and the generation of wastes between the countries of the Global North and the Global South. Although there is no precise definition of the concept, in general terms it refers to the fact that the Global South exports raw materials, natural resources and labour to the Global North, for which it does not receive a fair price, while receiving most of its wastes, from plastic waste to hazardous waste. In addition, the Global South suffers unequally from the impacts of global warming, even though it contributes with a lower amount of greenhouse gas emissions.
The concept of ecological debt was coined in 1992 by María Luisa Robleto and Wilfredo Marcelo of the Institute of Political Ecology of Chile. The term was used since 1997 by some environmental organizations, such as Ecological Action of Ecuador and Friends of the Earth, to launch an international campaign demanding environmental justice. The campaign formed the Alliance of Peoples of the South Acreedores de la Deuda Ecológica.
The concept of ecological debt is contrary to that of external debt. Most recent studies speak of "climate debt."Socio-environmental impact of foreign debt
Environmental impact
The environmental impact of external debt concerns both the pressure exerted on ecosystems as a result of the external debt obligations of creditor countries and the inability of countries to take the necessary measures for adaptation and mitigation of climate change due to their debt crises. The environmental impact of external debt is closely related to the concept of ecological debt.
The neoclassical economy points out that the balance-of-payments crises push the indebted countries to value foreign currencies above their official value. This leads the governments of those countries to promote export-related activities for foreign exchange, which increases environmental pressure, particularly in those economies where the main export products are primary goods.
While it is difficult to establish correlations between macroeconomic variables and natural resource exploitation policies, there are ways to establish such a relationship. Several studies have established the relationship between deforestation and external debt payment services. Governments are pressured to obtain foreign exchange by planting commercial crops (cash crops), which leads to the expansion of the agricultural border. Other studies find that there is no clear link between external debt and the growth of extractive activities, although they recognize that increased poverty due to debt expands cultivation in marginal lands.