Connecting Debt and Trade

on Tuesday, 07 December 2004. Posted in Issue 49 The Garda Síochána Bill 2004 (Somone will be watching you!), 2004

November 2004

Connecting Debt and Trade from a Development Perspective
Peter Henriot SJ*


How Do We Define ‘Development\'?


Before examining the connections between debt and trade, it is worthwhile to reflect on what we mean when we talk about a ‘development perspective\'. It is now widely accepted that economic models that are not people-centred have led us to the current global crisis of deepening poverty, degradation of rights, destruction of the environment and increased danger of conflict and terrorism.

Few, if any, ‘experts\' today cling to definitions of development that place primary emphasis on GNP growth figures. In recent years different voices have challenged what used to be called ‘orthodox\' development thinking. These voices object very strongly to the discussions, frameworks, parameters, and measurements that have characterised so much of the economic planning, decisions and outcomes of the international financial institutions which have such an influence on developing countries.

(i)The Human Development Reports of the United Nations Development Programme (UNDP) - These increasingly influential publications provide not a report on economic development, but human development.   Put plainly, the UNDP "Human Development Index" measures what is happening to people.  It provides a measurement based on three factors: life expectancy at birth (with obvious links to issues such as health, food, surroundings, etc.); adult literacy (since literacy is key to being knowledgeable, to entering into decision-making, to planning futures); access to resources needed for a decent standard of living (per capita income relating to purchasing power for essentials; e.g., something that the monthly Basic Needs Basket prepared by my colleagues at the JCTR clearly demonstrates).  This UNDP report offers a very different and more human-centred picture than that presented by, for example, the World Bank Economic Development Report or contained in the comparative trade charts of the World Trade Organisation.

(ii)Development as Freedom by Amartya Sen (winner of the Nobel Prize for Economics in 1998) - This offers an explanation of development measurement in terms of "human capabilities."  It focuses not on the primacy of income and wealth but on meaningful human life and substantive freedom, characterised by creative possibilities, consequences of exercise of freedoms, etc.  Sen speaks not of income poverty but of capability deprivation.  He has had great influence on the UNDP reports.

(iii)Globalisation and Its Discontents, by Joseph Stiglitz (winner of the Nobel Prize for Economics in 2001) - This is a very sharp critique of the "market fundamentalism" that has guided IMF policies of Structural Adjustment Programmes (SAP). These programmes have consistently ignored the human dimensions, the consequences for people, of what they propose. Social impact is of secondary analytical value and social enhancement is consequently of secondary programmatic emphasis.  Former a senior economic advisor to President Clinton and then Chief Economist and Senior Vice President with the World Bank, Stiglitz offers an analysis particularly applicable in Africa (and to Zambia as a case study?)

These studies come from eminent sources that are not church-based. Yet they say very clearly something that is a central message of what we call the church\'s social teaching about economics, namely, the economy is for the people, the people are not for the economy.

This is a development perspective that is ethical, that is value-laden, and one that appreciates the wisdom of a 1967 statement made by Pope Paul VI:  "Development is the movement from less human conditions to more human conditions."i When I view development issues in Zambia and other parts of Africa with which I am familiar, I begin with this people-centred focus and raise questions about what is happening to the poor, how are rights being respected (the full collection of rights of the two UN Covenantsii), what is happening to community and solidarity, what about the role of women, how is the environment faring, etc.  So the perspective of "sustainable, integral human development" is the context within which I view, evaluate and respond to issues of debt and trade.

Connecting Debt and Trade


{mosimage}  "Cancel the debts!"  Is that old Jubilee cry still relevant today?  Didn\'t the "Jubilee 2000" campaign or the World Bank\'s "Heavily Indebted Poor Country" (HIPC) Initiative settle that question once and for all?  

No, as a matter of fact, the huge debt problem of poor countries is more pressing today than ever before.  The little progress made by some limited cancellation of debts is in danger of being wiped out by growing challenges posed by unfair trade relationships, severe social problems such as HIV/AIDS and marginalisation in the geopolitics of the war on terrorism.

The case of Zambia illustrates why the debt cancellation campaign is still very relevant.  Zambia is burdened with an external debt of over 6.5 billion US dollars - in a nation of 10 million people, that is 650 US dollars for every woman, man and child, or twice the per capita GNP.  Zambia is a country rich in natural resources and at peace, but it is a country of great poverty; approximately 80% of the people live below the poverty line (defined by the World Bank as one dollar a day). In the 2004 UNDP Human Development Report, Zambia ranks164th out of 177 on the "Human Development Index". The Report estimates that the average life expectancy in Zambia is 32.7 years!  

The World Bank and the International Monetary Fund have in the past few years offered debt relief under the HIPC Initiative.  But for Zambia, as for so many other HIPC countries in Africa, this approach to relief may be necessary but is certainly not sufficient.  It offers only partial relief and under a formula that does not adequately take into account the social conditions of the people.  The crux of the problem is that ‘debt sustainability\' - the measurement used to indicate how much debt servicing a country can endure - is based on estimated export earnings available to service the debt and not on estimated needs of the people for sustainable development.

Put simply, this means that the Millennium Development Goals (MDGs) agreed to in 2000 by the United Nations - such as halving the number of people living in poverty by the year 2015 and providing basic education for all children - are simply unattainable under present conditions.  During the 1990s, Zambia paid over 20% of its nominal GDP to debt servicing but only 2% to 3% on health and education services.  Even with the so-called ‘relief\' proposed by HIPC, Zambia will still pay 120 to 150 million US dollars each year for debt servicing, more than it provides for social services.  Meeting the MDGs requires more resources but meeting the demands of debt servicing is a severe drain on scarce resources.

Zambia went deep into debt for a variety of reasons, most of them outside the control of the country\'s leaders.  The 1970s saw a collapse of copper prices (Zambia\'s major export earner) and a boom in petrol prices.   A moral decision to break relations with the apartheid regime in South Africa, and to support the freedom movements, cost heavily in terms of transport arrangements, repair of bombed infrastructure and hosting of refugees.  Unable to service its debts in the 1980s, Zambia borrowed to keep in the good books of its creditors.  From a debt stock of under 100 million US dollars in the early 1970s, Zambia entered the 1990s with a debt stock of over 7 billion US dollars!

Couldn\'t Zambia meet its economic development challenge by generating more trade with Europe and North America?  Better trade relationships are certainly essential for growth, but we must face the fact that there are barriers to Zambia\'s effective participation in international trade relationships.  Take sugar export, for instance.  Sugar is a very viable cash crop in Zambia.  But subsidies offered to sugar producers in European Union countries, and quotas imposed on imports, mean that Zambian sugar has little hope of penetrating the European market.  

This is an example of why the issues of debt relief and trade relationships must be examined together.  Sustainable development for poor countries such as Zambia is a complex challenge requiring both generous external aid and responsible policy negotiations.  

What Can Ireland Do?


Promoting that sustainable development also needs committed friends outside of Zambia.  Ireland has been one such friend.  Grants to Zambia amount to €16.5 million in 2004, assisting a wide range of programmes in water and sanitation, HIV/AIDS responses, governance, and health and education.  Over the years, the Irish government has been a strong contributor - and the fact that this contribution has come in the form of grants, not loans, has been extremely important to an already debt-burdened country.

Further help has come through the leadership role the Irish Government has played in calling for total cancellation of the debt of HIPC countries.  In a 2002 statement entitled "Developing Country Debt Relief Strategy", Ireland Aid and the Department of Finance acknowledged that the high levels of external debt "continue to be a crushing burden on some of the poorest countries in the world." Their position is consistent with the Jubilee Zambia campaign in advocating "strong monitoring and accountability mechanisms" to ensure that the additional resources freed up through debt cancellation are directed towards social expenditure for the benefit of the poor.

From a Zambian perspective (and Zambia is a fairly typical case of African HIPC countries), two things are very necessary at this moment: continued advocacy for total cancellation of debt, and continued pressure for trade reforms that would give Zambia a fairer deal in the global market.  Ireland should play a constructive role in both efforts.


* Dr Peter Henriot, a Jesuit priest and political scientist, is Director of the Jesuit Centre for Theological Reflection, Zambia. A version of this paper was presented to a conference, "Debt and Trade: Time to Make the Connections", organized by the Jesuit Centre for Faith and Justice on behalf of the International Jesuit Network for Development (IJND), and held in Dublin on 9 September 2004.