From poverty to power - Oxfam-Québec

FROM POVERTY TO POWERcrisis consists mostly of unmanageable debts owed by the nationalgovernment to creditor governments and to the IFIs (although someof these have come from loans to pay off private creditors). In middleincome‘emerging markets’, where private lenders have lent to privateborrowers,a mass default can threaten the whole economy,as occurred inseveral East Asian countries in the late 1990s. And finally, in middleincomecountries crises can be due to government borrowing from a mixof private and public creditors, as in Argentina in 2002. The first case is achronic problem,built up over years and popularly known as a ‘debt crisis’,while the others are sudden-onset disasters related to capital markets andare known more commonly as ‘financial crises’. The former will bediscussed here, and the latter addressed later in this section.Until the mid 1990s, rich countries adopted a standard approachto debt crises in both poor and middle-income countries, based onthree principles: first, multilateral debt (i.e. that owed to the IFIs)must always be serviced, while other debts could be rescheduled;second, negotiations must be undertaken on a ‘case by case’ approach,in which creditors negotiate jointly as a group but borrower countrieshave to face their creditors alone; and third, structural adjustmentconditions are to be part of every rescheduling deal. The core aim ofthis approach was to keep countries from defaulting. In practice thismeant drastic cuts to public spending, which was repeatedly slashed inthe middle of economic crises to keep repayments flowing to Westernbanks and credit institutions.Debt crises thus produced a perverse flow of resources from poorto rich – a society-wide squeeze familiar to anyone who has ever takenout a bank loan. During the ‘lost decade’ of the 1980s, Latin Americasent the rich world over $500 for every man, woman, and child on thecontinent, even as growth slumped and poverty grew. 26In the face of public protest, and as structural adjustment failed totrigger sufficient growth even to stave off default, creditor governmentsand the IFIs embarked on a series of debt relief initiatives that grew incoverage as each in turn failed to solve the problem. The internationalcommunity introduced the Heavily Indebted Poor Countries DebtReduction Initiative (HIPC for short) in 1996, its Enhanced version(often known as HIPC II) in 1999, and the Multilateral Debt ReliefInitiative (MDRI) in 2005; each was more comprehensive than the last.306