Tag Archives: World Bank

By George P. Brockway, originally published January 8, 1990

1990-1-9 100 Million Children Can Be Wronged Title

ONE HUNDRED MILLION children are expected to die unnecessarily in the brave new decade that lies before us. The estimate is, I fear, reliable, because children are dying–unnecessarily–at that rate now: 10 million a year, 27,000 a day, 1,200 an hour, 20-30 in the time it has taken you to read this far. They are dying that fast; and while many dedicated people are desperately doing what they can about it, we as a civilized and sophisticated nation are doing nothing substantial to help, nor are we likely to. In fact, we are more likely to hinder than to help.

Forgive me for emphasizing that these deaths will be unnecessary. There will be other deaths–perhaps more than 100 million–from accidents or incurable diseases or congenital disorders. But the 100 million I’m talking about will die from common diseases like measles that we have vaccines against, from infections that would yield to an inexpensive antibiotic, from all the intestinal illnesses that can be caused by bad water. Most of the deaths will occur in the Third World, especially Africa. (The United States of America will have a shameful percentage–the highest among the industrialized nations–but that’s another story.)

This is one problem that, in the cynical phrase, could be solved by throwing money at it. The medical supplies and medical knowledge are available. Money is lacking. All sorts of dramatic comparisons are possible. Only a few dollars a head would save most of the children. The total cost would be only a little more than the Third World is now paying for arms, and less than the First and Second World military squander in a week. The millions that were spent to rescue and televise three whales trapped in the arctic ice could have saved tens of thousands of children. The millions that are spent in Right of Life political campaigns and demonstrations could save millions of children who have the right but no possibility of maintaining it. And so on. All that misses the point

You and I assuredly could spend our money more wisely and more responsibly, but we are not directly to blame for these unnecessary deaths. Nor will our attending occasional charity rock concerts or across the continent do much to end the plague. No. Those 100 million children are doomed because our bankers “want to succeed, not just survive, and because we are too timid or too lazy or too ill-informed to call the bankers to account.

Thirty years ago the outstanding indebtedness of the Third World was $7.6 billion. It is now approaching (if it has not already passed as I write) 200 times that, or $1.5 trillion. It would certainly appear that the First World (including the World Bank, the International Monetary Fund, and private and government banks) has been pretty generous. No doubt there is some generosity lurking in this huge amount of money, but most of the sum comes from the great recycling bankers like to boast about.

The whole thing started with OPEC, which made the oil-producing countries very cash-rich very quickly. The banks saved them from the worry of spending this money in the nations where the sold the oil. They all–foreign banks as well as American–rushed in and offered the Arabs and their associates high interest rates for their deposits. Having attracted a share of OPEC’s money, the banks now had to complete the cycle and find someone to lend it to. The Third World was ideal for the purpose. The countries were many and small; the needs were great; the governments were weak; and many of the rulers were rapacious, almost as rapacious as the bankers.

In their fierce competition with each other the bank’s loan officers became salesmen. Often with the advice of experts from the World Bank, useless projects were financed–like the longest power transmission line in the world, with nothing to speak of at either end, or a billion-dollar state-of-the-art steel mill that was too sophisticated to handle the low-grade ore it was supposedly built to process. Skyscrapers were put up next to mud huts. Stately mansions were built for dictators. And a great many dollars went straight into numbered accounts in Switzerland. The bankers didn’t care, because the interest rates were high, and former Citicorp CEO Walter Wriston had convinced them that countries don’t go bankrupt.

The entire gaudy tale is told in Richard W. Lombardi’s Debt Trap: Rethinking the Logic of Development. When Lombardi’s book appeared in 1985, the Third World debt had not quite reached a trillion dollars. Since it is now a trillion and a half, it would seem that the First World has been sending the Third $100 billion a year for the past five years. Well, not exactly. In fact, hardly at all. For most of the $500 billion never went to the Third World. It never left the First World, because it never really existed. The bulk of that lovely nonexistent money is usurious interest that the Third World couldn’t pay, and that the banks, after profound consideration and solemn negotiation, have simply added to the principal. So things get steadily worse.

There is no lack of suggested solutions. When James A. Baker III was Secretary of the Treasury, he had the Baker Plan, which the press pronounced brilliant–and precisely nothing came of it. Nicholas Brady, his successor, brought forth the Brady Plan about a year ago, and the papers were filled with praise of it for a while, especially after Mexico and the banks accepted it, or said they did. The actual results haven’t been so newsworthy, but Teotihuacan wasn’t built in a day.

IN THE MEANTIME the International Monetary Fund and the World Bank haven’t been idle. They publish their ideas in Finance & Development, a quarterly magazine written in the sort of mush that might be produced by crossing a banker’s banquet speech with a TV talk-show on economics. The message is that the debtor countries have to reform. This is probably true, yet the required reforms are curious. They seem to have been cribbed from the Republican campaign platform, with perhaps a thought or two from Margaret Thatcher.

Thus in a recent issue we read, “A more active policy to reduce rigidities in the labor market and in wage determination will assume an increasingly important role in sub-Saharan Africa in order to promote both employment and economic expansion, particularly as the size of the skilled labor force increases and as the trend toward public sector employment is reversed.” Do I need to translate? (Wages are too high, and so are taxes. Can it be because of high wages that Africa’s per capita income is less than $425 a year?)

A few paragraphs further we learn that the banking system suffers from “insufficient supervision, and excessive administrative interference.” This would seem a dilemma unless you understand that the IMF should supervise, while the locals mind their manners. A little later we are told that “a more flexible, market-oriented interest rate policy will contribute to enhancing financial intermediation, improving resource mobilization, and increasing the efficiency of credit allocation.” Ex-Federal Reserve Chairman Paul A. Volcker couldn’t have put it better as he transformed us from the world’s largest creditor to the world’s largest debtor.

As a final example, consider this: “The objective will be to select revenue measures that enhance the elasticity of the tax system. The former will help improve incentives [and so on and on].” Since the gap between the rich and the poor is even greater in sub-Saharan Africa than in the United States, and the African rich are notoriously casual about paying their taxes anyhow, I leave it to you to imagine how “incentives” can be improved. The IMF insists on other “reforms”: currency devaluation to bring local money closer to overvalued dollars; privatization of the few existing public services; schemes to encourage foreign speculators by making it easy for them to pull out if the going gets rough; abolition of import quotas and most tariffs. (The United States is threatening sanctions against Nigeria for trying to conserve foreign exchange by banning the importation of wheat.) The IMF demands practically guarantee that the debts cannot be paid, but it is gravely averred that their purpose is to improve the prospects of payment.

I have left for last the most bitter irony of the situation. The Bush Administration has just done a good deed, reversing a niggardly Reagan policy. It has been quiet in the act, releasing the news in Nairobi, perhaps because it is bashful about being generous, or perhaps because the money involved is too little for White House Press Secretary Marlin Fitzwater to have noticed. At any rate, it has agreed to cancel $735 million in government debts owed us by 12 African nations. (Belgium, Canada, France, West Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom have already canceled the debts owed them.)

Will not this forgiveness save at least the children of the 12 nations? Sadly, there is no reason to expect it to, for there are strings attached to our generosity. Our cancellations will take place over the next two years, and only if the lucky 12 are good little nations and do what the IMF says. True to its primary mission of helping countries correct balance of payment deficits, the IMF will see to it that the First World banks (who have not canceled their loans) have first call on the foreign exchange that becomes available, and children will die for lack of medicine.

As Calvin Coolidge remarked about World War I debts, They hired the money, didn’t they?

 The New Leader

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