Some claim that debt cancellation leads to permanent exclusion from access to international capital. No serious study of the history of debt crises underlies this claim.

Between the end of the 18th century, when the United States of America cancelled their debt towards the British Crown, and the end of the 20th century, when part of Poland's debt was cancelled in 1991, numerous debt cancellation measures have been taken, with no adverse effects on the availability of external private finance.

On the contrary, the historical precedent for debt cancellation has shown its advantages. Take, for instance, the cancellation of 51% of Germany's war debt in 1953, which made a significant contribution to German economic recovery.

Furthermore, the threat means nothing to most Third-World countries, which have had hardly any access to that capital for years. The UNDP states that "only 25 developing countries have access to private markets for bonds, commercial bank loans and portfolio investments" (UNDP, 1999, p.31). Note that the UNDP includes the East European states in the 25 countries mentioned, and that the total number of developing countries, as they define them, is 180.

According to the United Nations, in 1999 the 48 least developed countries (LDC), with their nearly 600 million inhabitants, received only 0.5% of foreign direct investments (FDI) destined for developing countries (DC). Indeed, the DC's share of FDI has been in constant decline over the last three years - while the rich countries get 80% of these flows.

Furthermore, these acquisitions imply a loss of national control over the productive infrastructure. Not to mention the highly volatile and speculative nature of the other capital flows (which is one of the lessons of the financial crises of the 90s).

Restricting this type of flow would do no harm to the economies of these countries. These unproductive, even damaging, flows should be replaced by alternative sources of funding so as to significantly reduce dependence on financial markets and the Bretton Woods institutions.

Odious Debt
Debt cancellation is all the more legitimate in that it can be justified by several legal arguments, including the notions of "odious debt". State debts contracted against the interests of local populations are judged unlawful. According to Alexander Sack, who theorised this doctrine, "If a despotic power contracts a debt not in accordance with the needs and interests of the state, but to strengthen the despotic regime, to repress the population who are combating it, this debt is odious for the population of the whole state. This debt is not an obligation for the nation: it is a regime's debt, the personal debt of the authorities which contracted it; consequently, when the regime falls, the debt becomes null and void." (Sack, 1927).

Thus, debts contracted against the interests of the population of the indebted territory are "odious" and, in the case of a change of regime, the new authorities are not held to repay them.

The notion dates back to the end of the 19th century when the United States gained control of Cuba after a war with Spain. The latter demanded that the victor take on the Cuban debt towards the Spanish crown, in accordance with international law. The United States negotiating commission refused to do so on the grounds that the debt was "a burden imposed upon the Cuban people without their consent".

The commission argued that "the debt was incurred by the government of Spain for its own interests and by its own agents. Cuba had no say in the matter." The commission added that "the creditors accepted the risk of their investments".

Later, in the thirties, an international court of arbitration in which Judge Taft, president of the United States supreme court, took part, declared that loans made to President Tinoco of Costa Rica by a British bank established in Canada were null and void since they had not served the country's interests but the personal interest of a non-democratic government. On this occasion, Judge Taft declared that "The case of the Royal Bank rests not simply upon the form of the transaction, but upon the bank's good faith at the time of the loan for the effective use of the Costarican government under Tinoco's regime. The bank must prove that the money was lent to the government for legitimate purposes. It has not done so." (Judge Taft, quoted in Adams, 1991, p.168).

The legal regimes (recognised lawful governments) which followed the dictatorships of South America in the '80s (Argentina, Uruguay, Brazil, etc.) should have drawn upon international law to have their odious debts cancelled. A large portion of these countries' loans were directly embezzled by the local élites with the collusion of the Northern banks, who used their financial know-how to help them effect their fraudulent operations.

Force majeure
Another means provided by the law in support of debt cancellation and stopping repayments is to use the argument of "force majeure". This principle of international law acknowledges that a change in the conditions of a contract may render it invalid. This means that contracts requiring the fulfilment of a succession of future commitments are subject to the condition that the circumstances should remain unchanged. (In common law, there are several doctrines based on a similar principle, including "force majeure" (circumstances beyond one's control), "frustration", "impossibility" and "non-feasibility".) "Force majeure" quite clearly applies to the debt crisis of the '80s. Indeed, the fundamental causes of the debt crisis from 1982 were two exogenous factors: the dramatic rise in interest rates imposed world-wide by the United States government from the end of 1979, and the drop in export prices for the periphery countries from 1980 on. Both these factors were instigated by the creditor countries. They are cases of "force majeure" which fundamentally modify the situation and prevent the debtors from fulfilling their obligations.

• End structural adjustment policies: Structural adjustment programmes (SAP) result in the weakening of states by making them more dependent on external fluctuations (world market movements, speculative attacks, etc.) and by subjecting them to conditionalities imposed by the IMF/World Bank duo, backed up by the governments of the creditor countries grouped within the Club de Paris.

SAPs deliver up the economies of the Third World to the appetites of the great multinational firms. Far from solving the problem of indebtedness (the Third-World debt has quadrupled since the first SAPs were set up, even though it has been repaid six times over the same period), they entail massive redundancies and drastic cuts in social budgets. They prevent any real human development.

An information meeting in a cooperative Ivory Coast.
Ivory Coast © J. Maillard / ILO

The UN secretary general, for his part, writes that "The UN Special Investigator on Structural Adjustment clearly shows that structural adjustment programmes, recommended by the international financial institutions, have a patently negative influence (directly and indirectly) on the fulfilment of economic, social and cultural rights and are incompatible with the fulfilment of those rights." (UN, secretary general, 1995, p.66, quoted by Chris Jochnick, 2000, p.136).

Furthermore, according to the UN, certain conditions fixed by the creditors and the funding agencies constitute a violation of the right to self-determination of the populations concerned: "Every country has a sovereign right to dispose freely of its natural resources for its economic development and the welfare of its people; any measures or external economic or political pressures which are brought to bear against the exercise of this right is a patent violation of the principles of self-determination of peoples and of non-intervention as stated in the UN Charter (...) Those measures include economic pressure aimed at influencing another country's policies or at controlling the main sectors of its national economy. Economic and technical assistance, loans and the increase of foreign investments must be provided without the imposition of conditions which go against the interests of the receiving country." (secretary general 1995: 165, 171, 173).The human consequences of structural adjustment programmes are incontestably negative. They must therefore be stopped.

• Adopt partly self-based development models: such models entail constructing sufficiently solid internal economic foundations to allow the country to open up to international trading.

This type of development involves creating politically and economically integrated zones, bringing to bear endogenous development models, strengthening internal markets, creating local savings funds for local financing, developing education and health, setting up progressive taxation and other mechanisms to ensure the redistribution of wealth, diversifying exports, introducing agrarian reform to guarantee universal access to land for small farmers and urban reform to guarantee universal access to housing, etc.

Today's global architecture, structured on the idea of a "periphery" which is forced to provide raw materials and cheap labour to a "centre" that has all the technology and capital, must be replaced by regional economic groupings. Only such self-based development would allow South-South relations to emerge, which is the condition sine qua non for the economic development of the Third World (and therefore, by extension, the world). These integrated zones could establish regional authorities with powers of economic and social regulation.

• Act upon trading practice: the existence of unfair exchange between the most industrialised countries and those of the Third World is one of the fundamental causes of the latter's indebtedness. Unequal exchange creates a structural deficit in the balance of payments: imports grow faster than exports, leading to indebtedness.

The historical tendency to downgrade the terms of exchange must be brought to an end. To do this, mechanisms guaranteeing a better price for the basket of products exported on the world market by developing countries must be introduced. (These might include stabilising the prices of raw materials, building up regulatory stocks – which means doing away with zero stocks, etc.)

As long as no such concerted mechanisms are in place, the developing countries' efforts to establish cartels of producer countries must be actively encouraged. The creation of such cartels could simultaneously result in a reduction of the quantities exported and an increase in export revenues that the beneficiary countries can reinvest in development. The countries of the periphery must have access to protection measures for their local production.

Concerning agriculture, La Via Campesina (2) is right in demanding that the right of each country (or group of countries) to nutritional autonomy and self-sufficiency in staples be recognised. This implies protection measures for imports, in total opposition to the minimal agricultural export quota of 5% imposed by the WTO on member countries.

The rules of global trading must be subordinate to strict environmental, social and cultural criteria. Health, education, water and culture can have no place in the field of world commerce. Public services in the general interest are a guarantee of fundamental rights and as such must be excluded from the General Agreement on Trade and Services (GATS).

Furthermore, the Trade-Related Intellectual Property Rights (TRIPs) agreement should be abolished, aspects of which allow the North to appropriate the rich natural resources of the South and prevent the Southern countries from freely producing goods (such as medicines) to satisfy the needs of their populations.

New rules of good financial practice
The repeated financial crises of the '90s proved by their absurdity that there can be no sustainable development without strict controls of capital movements and tax evasion. Several strategies are therefore required to subordinate the money markets to the fulfilment of basic human needs.

• Re-regulate the financial markets: the deregulation of the money markets has led to the inordinate development of financial speculation. It is time to re-regulate the money markets, beginning by establishing a means of tracing all financial operations (to determine who does what and for what purpose), then regulating accordingly.

• Control capital movements to avoid the devastating effects of the remorseless ebb and flow of international capital.

Article VI of the IMF statutes explicitly recognises the merits of a government adopting measures to control capital movements. The article permits a member country of the IMF "to exercise strict supervision of international movements of capital in order to regulate them".

An appropriate measure would be to establish a temporary obligatory deposit, whereby every capital entry would be conditional upon an accompanying deposit for one year of 30% of the sum invested. After a year, the deposit would be returned to the investor (encouraged to invest only in the long term). The deposit would not earn any interest.

Numerous other control measures exist, for example the obligation to hold shares and bonds for a minimum of one year before selling them on, the limitation of currency exchange to commercial transactions (excluding financial operations), heavy taxation in the case of excessive fluctuation (as proposed by the economist Bernd Spahn), etc.

• Eliminate tax havens which contribute to inflating the financial bubble and weakening the legitimate economies (between 500 and 1500 billion dollars are laundered each year). To effect, this, states must use the clearing houses to identify transactions originating from tax havens and tax them heavily, to counteract any advantage to be got from such dishonest fiscal policies. At the same time, bankers' rule of secrecy should be removed to combat tax evasion, embezzlement of public funds and corruption more efficiently.

• Adopt rules to ensure the protection of countries which have recourse to external loans: external indebtedness may be justified if decided democratically by the countries concerned. However the use the borrowed money will be put to must be organised according to principles radically different from those that have hitherto prevailed.

Two new principles must be adhered to. First, a "reverse" conditionality: the obligation to repay and pay interest on these loans, made at low rates of interest and below market conditions, will only be valid if the debt is proven to have enabled sufficient creation of wealth in the countries concerned.

Second, the lender countries should organise strong and efficient protection for the developing countries on an international scale, to enable the latter to defend themselves against all forms of abuse and despoilment by banks, private international investors or the international financial institutions.

Eric Toussaint is president of the Committee for the Cancellation of the Third World Debt (COCAD / CADTM)

More info on the COCAD website: http://users.skynet.be/cadtm

Considering that the equivalent of 1 dollar in 1948 would be 6.28 dollars in 2001, the cost of the Marshall Plan in 2001 would be 78.5 billion dollars. If all debt repayments made by the Third World in 1999 are taken into account, i.e. 300 billion dollars (Source : World Bank, GDF, 2000), they would have paid their industrialised country creditors the equivalent of about 4 Marshall Plans that year alone. By the same token, since 1980, 43 Marshall Plans (more than 3.450 billion dollars) have been sent to the creditors of the centre by the peoples of the Third World.

2. La Via Campesina is an international movement, born in 1992, which coordinates peasant organisations of small and middle-scale producers, agricultural workers, rural women, and indigenous communities from Asia, Africa, America, and Europe. It is an autonomous, pluralistic movement, independent from all political, economic, or other denomination. The principal objective of Via Campesina is to develop solidarity and unity in the diversity among small farmer organisations, in order to promote economic relations of equality and social justice; the preservation of land; food sovereignty; sustainable agricultural production; and an equality based on small and medium-scale producers. Their website address is: http://ns.rds.org.hn/via/