Third-world debt stalls development as rich nations get richer

THE poor cannot be squeezed any more. It's impossible to sustain this level of outflow.'' This is the view of Susan George, author of ``A Fate Worse than Debt - The World Financial Crisis and the Poor'' (Grove Press, New York). The ``outflow'' she described in a recent interview is the flood of debt-service payments that has been flowing from poor nations to rich ones for the last six years.

In her book, Dr. George assesses the human toll this draining of resources has taken. She is an outspoken critic of conventional third-world ``development'' policies. Her earlier book is ``How the Other Half Dies: The Real Reasons for World Hunger.''

In a telephone interview from her home in France, she explained that it's not the debtor governments that bear the burden of roughly $1 trillion in third-world debt. Nor is it the banks: This debt represents only 6.5 percent of their combined portfolio. It's the people in ``developing'' nations who suffer when jobs disappear, public spending is slashed, and ``adjustment'' measures such as higher food prices are imposed.

How did all this debt pile up in the first place?

``When OPEC nations placed extra capital with banks in the '70s,'' George says, ``the obvious place to invest it was the third world.'' What they invested in, however, is what she calls the ``mal-development model.''

``The mal-development model is outward-looking, much more concerned with world markets than with the needs of local people,'' George says. ``It doesn't rely on local resources, so it's very expensive. It's based on grandiose projects and industrialization, rather than on a strong agricultural base. ``You get huge white-elephant projects that are often ecologically unsound. Countries were encouraged to adopt this kind of `development,' and debt is a feature of it.''

Another feature of ``mal-development,'' says George, is capital flight. Much of the money lent to third-world governments simply made a U-turn back to the private accounts of government officials, often in the same banks whence it came.

Then there is military spending - what is known in bank parlance as ``shooting papers,'' says George. Purchases of military hardware account for 20 percent of all third-world debt.

``There isn't any more development,'' George says. She explains that every year since 1982, total debt-service payments have exceeded total investments, development aid, grants, and export credits to third-world nations. This total net outflow from poor countries to rich amounts to $249 billion, according to a report from the Organization for Economic Cooperation and Development, based in Paris.

George's assessment of the current development situation leads her to conclude, ``Countries are de-industrializing. You can't get spare parts, you can't get fertilizer, so you get lower yields. You start selling off large parts of your viable economy in debt equity swaps. You don't educate your children. People engage in more criminal activity because they don't have a choice. This is a mockery of development.''

George advocates the payment of debt owed by African nations in local currencies, to be used for grass-roots development projects, with an emphasis on agricultural production for local consumption.

``Trade should be part of a policy - not an end in itself,'' she says. ``If you're making the most of your major resource, which is your people, you're trying to educate them, you're giving very small loans to small farmers and to women. You're allowing people to develop their own economic activities.''

As the International Monetary Fund and the World Bank define requirements for debtor countries, George suggests that they adopt ``democratic conditionality.'' Countries would be allowed to convert their debt into local-currency investments only if they set up development structures that are truly democratic.

``By democracy I mean people having some power over the circumstances of their daily lives,'' says George. ``The point is that various groups - women, small farmers, or ethnic minorities - have to be represented in the management of money roughly in proportion to their numbers in any given country. There are advantages for everybody - including governments, which would have more resources.''

``At the beginning some class interests would be harmed,'' George concedes. ``But it's the only way to create prosperity in the whole society, which will benefit everyone.''

Utopian? George admits it. But her book reminds readers that people are dying from third-world debt, and that not very long ago ridding the world of slavery and the divine right of kings was considered Utopian, too.