Third World death on the rise

The crisis for the bankers is over. But the misery for the poor is only just beginning, says Paul Vallely

They called it Third World Debt and 10 years ago there seemed a distinct possibility that it might send the entire world banking system into spasm. It was designated a crisis when it became clear that a succession of major banks had all lent too much money to what were then called developing countries who could not pay it back.

Today the crisis is over, at least for the bankers. They have gradually spread their activities into other areas to lessen the risk. But for almost a decade another massive debt has remained untreated and largely out of public sight. This hidden debt is owed by poor countries to international financial institutions like the World Bank and the International Monetary Fund. These debts are now 400 per cent higher than they were in 1980: today around half of all the interest payments made by poor nations go to these multilateral creditors.

After years of insisting that multilateral debt was not a serious problem, the directors of the IMF met yesterday to discuss what can be done. It has taken them a long time to own up to the fact that there is a problem.

The burden of repaying falls on the shoulders of some of the weakest people in the world. Third World governments have been coerced for a decade by the international monetary authorities to repay the debt by implementing packages of economic adjustment which, inter alia, axe food subsidies to the poor and cut health and education budgets.

Around pounds 400m was transferred from the poor to the rich in interest and capital repayments every day between 1982 and 1990 - as much as the entire Third World spent on health and education combined, and considerably more than we sent them in aid.

Over the past decade in visiting Africa I have come across example after example of how poor people suffer under structural adjustment packages which are draconian, inflexible and crammed into hopelessly unrealistic timetables.

There was the copper miner I met in Zambia who lost his job under an IMF-inspired redundancy scheme and then found that a cut in food subsidies doubled the price of maize; his children ate only a small bowl of porridge once a day. There was the baby dying of measles in Uganda where the government spends just $3 a head on health compared with $17 per capita repaying multilateral debt. In Mozambique I visited a school which had three pencils per class of 50 children and no books - in a country which pays in debt service every year 10 times what it would cost to provide free books for every schoolchild.

A report by Oxfam out this week is more comprehensive. It shows that between 1990 and 1993 Zambia spent 35 times more paying the interest on debt than it did on primary education, where fees have been introduced. School drop-out rates are rising, especially among girls. Fees at clinics have resulted in substantial drops in attendance and a 20 per cent rise in child mortality in the past 10 years. The picture in other countries is depressingly similar. The old mass literacy campaigns have disappeared and diseases that once seemed eradicated are returning. After years of improvement in the post-colonial era, Africa is in decline. Many developing countries are no longer developing.

Debt is not the whole problem. Third World leaders still spend too much on defence, on grandiose prestige projects and on subsidies to inefficient and often corrupt nationalised industries. Economic adjustment is necessary, though not at the speed and under the conditions imposed by the IMF.

But debt is now the single biggest obstacle to development. High debt stocks deter foreign private investors. Repayments gobble up a quarter of all aid. Some 10,000 separate debt rescheduling negotiations over the past 15 years have diverted the Third World's most able people from real development tasks. And the debt still grows as unpaid interest is capitalised.

So what is the solution? There were a number of highly technical options on the table at the meetings in Washington yesterday and the final recommendation will not be clear until the meeting of the world's finance ministers in April. But the moral imperative on our politicians to do something radical could not now be clearer.