This summary is the fruit of the meetings of the SEDOS World Debt Working Group. Briefly, it presents the background of the debt crisis, an assessment of it from the stand point of Christian social ethics and the Jubilee 2000 Petition.

I. THE BACKGROUND OF THE DEBT CRISIS

The problem of world debt was already beginning in 1960, but grew relatively slowly through the 1960’s. In the 1970's however it mushroomed and reached crisis proportions by 1980. The following are some of the more decisive circumstances and ongoing structural imbalances that converged in the 1970's to aggravate the crisis.

• Oil price hikes in the 1970's provoked both inflation and recession. Petrodollars constituted an excess of money in respect to possibilities for investment in the developed world. Developing countries provided a venue for investment and lending institutions sought opportunities to make such loans.
  
  
• In poorer countries, industrialization, without supporting industries within the country, was dependent on imports for supporting technology. The people who made money from industrialization favored imported consumer goods; this did not promote the circulation of money within the country. Loans made to these countries to promote industrialization did not generate funds to repay the loans. Protectionist policies in the developed countries made it all the more difficult to generate sufficient income.
  
  
• In the late seventies a combination of recession in the developed world and increased output of agricultural goods led to a collapse in commodity prices. In fact, the volatility of commodity prices must be seen as one of the structural factors which have given rise to the debt.
  
  
• Floating exchange rates were introduced in the 1970s. With a floating exchange rate, the demand for a country’s products and the prices they command largely determine the value of its currency. Since the prices of agricultural products are highly vulnerable, primary producing countries will tend to have weakened currencies. Such currency declines have meant an automatic and proportional increase in the debt and in the cost or servicing it. most often done in American dollars.
  
  
• The loans did not have fixed interest rates. Interest rates fluctuated according to the prevailing rates. In fact, increases went from 7% to l9.5%.
  
  
• Government corruption in many countries prevented the generation of income for repayment of the loans, because a majority of the development loans have been diverted to private pockets, military spending or wasteful prestige projects.

II. AN ETHICAL ASSESSMENT OF THE DEBT CRISIS

Impoverishment

The debt Crisis is a major cause of poverty and malnutrition because the financial resources needed to provide for the well-being of people are being siphoned off to service the debt. This is an injustice which denies people their essential rights and deprives them of the goods of the earth destined for all.

Loss of autonomy

The external debt of poorer countries places them in subjection to creditors. For an individual or local community to become subject to distant and anonymous powers that administer without involvement and participation at the local level is a denial of human dignity. The creditors and the International Monetary Fund (IMF) through structural adjustment policies (SAP) act precisely as this kind of distant and anonymous power.

The question of accountability

Of the factors that have given rise to the debt crisis, at least three raise the question of accountability:

1. In the case of loans taken out by corrupt or inept governments, subsequent governments and their people, who have no responsibility for these loans, are being held accountable for them.
   
   
2. When development projects, carried out under the guidance of economists and advisers from the developed world, fail, people who had no part in the projects are made accountable.
   
   
3. Lending agencies are not being held accountable for irresponsible loans. If a bank makes a loan to a business which subsequently goes bankrupt, the bank must bear the consequences. This should be the case when a bank makes a loan to a known corrupt government, or to one that is at obvious risk of collapsing, or to a country that can only repay the loan by impoverishing the people. This loan should be seen as a bad loan, and the loss should be borne by the bank.

Variable interest rates

It is not a characteristic of a just contract that one party be able to change the obligations of the other party without consultation. The application of variable interest rates is illegal in most countries and is clearly unjust.

III. JUBILEE 2000 PETITION - A RESOLUTION OF THE DEBT CRISIS?

The petition seeks a one-off cancellation by the year 2000 of the backlog of unpayble debt owed by the world’s poorest countries under an independent, transparent procedure. The phrasing is important.

• a one-off cancellation - The stipulation from the beginning should be that the cancellation will be once and only once, in order to avoid discouraging loans by credit agencies and encouraging complacency in the governments of poor countries.
  
  
• by the year 2000 - to start the new millenium with a clean slate.
  
  
• of the backlog of unpayable debt - It does not advocate a blanket cancellation of the debt. It has worked out in detail with highly trained economists the specific portion of the debt that is "unpayable".
  
  
• under an independent transparent procedure - The overseeing of the process should not be left to the IMF and the World Bank who are the main creditors. It should be overseen by an independent agency.

Cancelling certain portions of the debt is necessary; but if this cancellation is not accompanied by structural change, it will remanin a very short term palliative. The Jubilee 2000 Campaign is broader than the petition. It promotes the recognition of the responsibility of both creditors and debtors and searches for ways to prevent the accumulation of such high levels of debt again.

Rome, March 1998