Hearts & Minds - Information for ChangeSM Third World Debt And how we can invest in a more just, sustainable world

Money makes the world go round. But what happens when some of the world's people don't have enough? What happens when many nations pay more for debt service than health care and education?

Debts made decades ago by corrupt leaders continue to mortgage the future for millions of people.

How it started
Developing countries loaned billions of dollars, with interest, to nations with developing economies. Much of this money was not properly supervised. Dictators often used it for wasteful, corrupt projects.

The situation worsened in the 1970's. Oil-exporting countries invested growing oil profits in European and U.S. banks. The banks loaned this money to developing nations for a profit. Interest rates soared in the 1980s, outpacing developing countries' ability to pay.

A growing concern
By 1997, developing nations' total debt to developed nations, the World Bank and the International Monetary Fund was $2.2 trillion, up from $1.4 trillion in 1990. Developing countries were paying rich nations $717 million in debt service every day.

Sub-Saharan Africa today ranks as the world's poorest region. More than 40% of Africans live on less than $1 a day, while 200 million are threatened by serious food shortages. AIDS also kills more than 2 million Africans a year.

Solutions for a better future
Although something is being done, action is needed. In March 1989, the Brady Plan, named after the U.S. Treasury Secretary at the time, began allowing countries to negotiate substantial reductions in interest payments and the underlying debt. The plan encouraged many emerging market countries to adopt ambitious economic reform while regaining access to international capital markets.

There's more to do
On July 8 2005, the Group of Eight industrial countries, led by British Prime Minister Tony Blair, agreed to more than double annual aid to Africa -- after earlier writing off the debt of 14 African states. The Group of Eight will double total development aid to $50 billion per year, for the next three to five years.

There is also a drive on to open up Western markets to African goods, particularly in agriculture. Farmers in France and other European Union countries are expected to fight any reduction in generous state subsidies that allow them to protect markets from African exports. But at least the issue is getting attention.

Rising military spending
In terms of aid, analysts warn of a primary challenge: to effectively channel the money  to countries that lack both government know-how and physical infrastructure to distribute this aid, or where corruption is rife.

Some critics also complain that the measures come at a time when rich nations are still exporting record amounts of guns, warplanes and other military equipment to the developing world. More than $1 trillion was spent globally on munitions in 2004 -- the first time since the height of the Cold War. At the same time, the amount spent on aid was $78.6 billion, according to United Nations data. Critics see this imbalance as undermining attempts to improve the lot of the poor.

As seen before, no amount of aid money will address problems in countries torn by war.

Solution
The solution lies in more trade and aid. But aid must be spent accountably. The move by the Group of Eight is a positive development, but we can do more.

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