ECONOMISTS often trace the current debt crisis back to the 1970’s when oil prices rose dramatically. OPEC countries deposited their new wealth in transnational banks and Third World countries borrowed the “petro-dollars” to finance modernisation programmes and to pay higher fuel costs.

Between 1973 and 1983, development assistance loans to Latin America increased ten-fold, from $35 billion to $350 billion. Funds were readily available, at easy terms, and discipline among both borrowers and lenders broke down. During this period, US interest rates began to soar because of the burgeoning federal deficit and tight monetary policies. Many of the loans to the Third World countries were based on variable interest rates, and in the early 1980’s those rates rose.

Instead of being spent for sound economic development programmes, however, much of the borrowed money was spent in other areas. For instance, it financed the purchase of costly military hardware to suppress the people. Beginning in the early 1970’s, military spending rose more than 10 percent a year in most Latin American countries. In Africa, military spending rose to an average of 18 percent a year. According to the Stockholm International Peace Research Institute, about 20 percent of Third World debt stems from the purchase of arms. Most Third World countries do not manufacture military hardware but import it from industrial countries, so its purchase does not create jobs or income in the Third World, instead, it only depletes already scarce cash reserves.

Many development loans have been used to finance large-scale projects that never achieved success. For example, a glass factory, a bicycle factory, the Hydro Project in Guyana financed by loans all failed. That cost the Guyanese people a lot.

Parts of some loans to the Third World have been returned to banks in industrial countries to earn interest for Third World elites. Parts also went for the purchase by Third World elites expensive goods from industrial countries, which do nothing to stimulate the developing economies-even though this practice is encouraged by many government policies that overvalue national currency.

Other loans essentially have been lost through mismanagement of utilities and other enterprises.. Guyana could not meet its loan payments and became dependent on additional financial help from outside institutions including the World Bank, the International Monetary Fund (IMF).Basically, IMF austerity policies are designed to force governments and countries to increase revenues and reduce expenditures, a desirable goal.
MOHAMED KHAN