When countries in the global South gained independence from colonial rule in the 1960s there was optimism for their futures. After years of European rulers neglecting social services and the peoples needs a different future was expected. However, the countries had been left with weak economies and they required financial assistance. The same colonial powers however, were the only source for these funds and again failed to consider the needs of the populations within the countries. Lending continued over the years and over the Cold War debts mounted rapidly as the US and the Soviet Union battled for dominance using ‘development’ loans to secure political allegiance from borrowers.
This lending continued until the global recession in the 1980s. Suddenly, the rich lenders found themselves in financial trouble and the focus shifted from loan extension to debt collection. During the recession, raw materials produced in the poor countries fell significantly in value resulting in a drop in their national incomes. This left them in a difficult situation where they were paying larger and larger amounts to pay off the high debts with decreasing national incomes.
As debts looked increasingly unpayable, International institutions including the International Monetary Fund (IMF) and the World Bank, decided to ‘restructure’ debts and continue lending funds to help countries repay private banks. However, the loans were saddled with strict conditions, shaping their economies to fit the neoliberal global structure, cutting public spending and lessening so-called ‘red tape’ to encourage investment, largely at the expense of public services and ultimately, the needs of their own populations.
With the pressure of campaigners around the world, creditors have cancelled the debts of some countries. The Heavily Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI) are the main schemes for such cancellation but have limitations including narrow eligibility criteria and requiring adherence to strict and often harmful conditions. Creditors continue to lend irresponsibly and have not had to account for the damage of such lending in the past. Debts incurred by corrupt regimes, knowingly extended to dictators and corrupt officials, continue to be shouldered by governments which have inherited them. In 2010, the worlds poorest countries paid out US$1.5 billion each day in debt repayments to rich nations and even the debts of country’s who have had cancellation are again building up.