Unsustainable Debt

Many ordinary citizens today in developed countries such as Canada acknowledge the abject poverty affecting citizens of various African countries and other undeveloped nations. However, exactly why these countries are in this position appears to be a mystery, despite many cash grants, relief efforts, and aid are delivered to these countries by various Western organizations amidst great media attention. In addition, it also seems natural that such undeveloped countries should have a net flow of capital moving towards them from wealthy industrialized nations such as Canada.

On the contrary, a net flow of money has actually been directed towards the industrialized nations and various financial institutions from these impoverished countries1. This fact has failed to achieve much media coverage, if any. Figures on poverty levels of the early 1950's, following the Second World War, do not reflect those found today2. Undoubtedly poverty existed in the world. In fact, both the world's economy and the global GNP figure were far smaller in comparison to present day figures3.

However, the fact that poverty existed in many countries did not imply that the inhabitants of those countries lacked basic necessities such as food, water, adequate shelter, and basic health services. This present situation of utter poverty is a result of the debts and debt service payments; an enormous burdens on these countries. Far greater percentages of capital and resources are spent each year on interest payments resulting from these debts by the debtor nations than on vital services such as education, health care, and basic social infrastructures4.

Without the debts and debt service payments, such countries would be able to re-direct their resources towards more urgent needs. Hence, in order to alleviate the suffering of millions around the world and to benefit the international economy in general, it is necessary to cancel third world debt. The origins of the debt crisis lie in the beginning of the Cold War era. An era in which the two superpowers of the world sought to gain alliances with as many nations as possible.

One such method of attracting allegiance was to provide military aid and economic aid (termed defense support by the US)5 to countries such as Taiwan and South Korea that lay directly in the path of communist efforts. One such individual involved in defense support projects was Secretary of State John Foster Dulles, who quickly realized what a disadvantageous situation the American government had found themselves in by offering only military support. Dulles stated that he was being forced to defend the interests of the US with one arm tied behind his back; namely the nations economic strength.

US military power – the other arm – was not enough and was indeed largely unsuccessful6. The Development Loan Fund, founded, sponsored, and funded by the Central Intelligence Agency's Center For International Affairs at Massachusetts Institute of Technology, resulted primarily from the efforts and concerns expressed by Dulles7. Milikan Max, a former CIA officer and the director of the Center For International Affairs (CENIS), along with colleague Walt Whitman Rostow, a senior State Department official, held the belief that "…

to accomplish its basically political and psychological purpose, development assistance should be freed from purposes other than development. (Payer 54)" In essence, the meaning of their statement was that the US' attempts at political and psychological gains in Cold War allies through the lure of development assistance, would prove more effective if they offered development funds without regards for the purposes of development. Put in simple terms: offer free money.

In 1957 the two co-authored a book, A Proposal: Keys to An Effective Foreign Policy (New York: Harper, 1957), that deals mainly with the issues of the communist threat to developing countries. They argued that economic competition against the Soviet Bloc demanded that the US provide monetary aid devoted to some degree towards economic development. They argued that such measures would serve the needs of the rich countries: [The industrialized countries] need two things: expanding markets in which they can set those goods they can produce most cheaply, and expanding sources of food and raw materials.

Without a restoration of international trade there is little hope for finding a solution for the growth problems of the developed countries of Western Europe and Japan. In the short run the process of development itself generates requirements for capital goods and equipment which can provide an important outlet for European and Japanese manufacturers. Fears that as they develop they will become competitors of presently industrialized countries and thus reduce export opportunities should be quieted by the history of industrialization.

(Payer 54) The issue of divesting foreign owned assets – or repayment of the loans – was not taken into consideration by them when proposing their solutions to the over-development issues faced by North American, Western European, and Japanese markets. However, they did realize that after a given period of time, the countries would be in a position to independently sustain themselves without further net foreign borrowing.

A quote from another book by Max, published a few years later, shows how closely the Cold War goals were related to foreign aid programs: For capital assistance to have maximum leverage in persuading the under-developed countries to follow a course consistent with American and free world interests, the amounts offered must be large enough to persuade the recipients that the game is worth the effort. (Payer 55) Hence, the seeds of a worldwide dilemma of unsustainable debt were planted in the interests of US foreign policy.