Developing Countries and the International Debt Game!

ITG look into the International Debt Game and see why the Muslim countries "Developing Countries" that hold the worlds reasources are made poor by the west "Developed Countries".

'Developing Countries' and
the International Debt Game
Never in the history of humankind have so many countries owed so much money with so little prospect of ever getting out of debt. The total amount of international debt owed by the Third World nations amounted to just under 100 billion dollars in 1973. By 1997, it stood at a staggering sum of $2 trillion. This sum of money is certainly large by any standard. But ironically, more money flows from poor 'Developing Countries' into the richer 'Developed Countries', than is given back in aid and new loans. Since 1987 multilateral institutions like the IMF have received, from all 'Developing Countries', net transfers of over $13 billion. Between 1983 and 1993 the IMF in particular took $2.9 billion more from the less 'Developed Countries' than it gave in new loans. 'Third World' debt is ever growing, with devastating consequences on the people due to structural adjustment conditions attached.

The strings attached to loans Nations receiving loans are asked to, devalue their currency, lower their import barriers, remove their restrictions on foreign investments, remove their subsidies for local industry, lower their social welfare funding, pay lower wages, reduce government spending in general, and expand production and export of their timber, minerals, and agriculture. The results are almost universally the same, wages fall, poverty worsens, health care decreases, education decreases. Adding to all of these problems is the purpose of all the changes, the price of the export commodities are forced down. And then the real trouble cycle begins.

The international debt game is played according to an upside down logic, that one would think would be blatantly obvious to all. But it continues like an endless chess game with pawns continuously placed in strategic positions in order to be sacrificed to keep bishops and kings going. In his recent tour of Africa, President Clinton made a move to place Africa in a strategic position in the American plan. After admitting that "For centuries, other nations exploited Africa's gold, Africa's diamonds, Africa's minerals...". He coloured his speeches with phrases like "It is time for Americans to put new Africa on our map", "Now Africans are embracing economic reform", "Americans of both political parties want to increase trade and investment in Africa...". These amount to an agenda of loans and 'aid' to African countries in order to invest in further exploitation of raw materials and to boost consumption of US products. This has been happening in the same way for centuries, only this time more cleverly so. President Clinton only seeks to beat the European Union in the new scramble for Africa. Being the biggest competitor to the US, the European Union has announced its own "economic encounter with Africa" in the year 2000. Neither the US nor the EU will offer to increase trade and investment by removing their unfair trade barriers on secondary or tertiary products or by investing in real manufacturing and industrial development. This is because Capitalism is the rule of the game, and they make the rules, using instruments like GATT. Like the IMF, GATT is a crucial tool in the game, since loans and 'aids' on their own are not sufficient to maintain the continuous exploitation of 'Third World' countries. Through it, strategically selected barriers are raised and lowered in such a way as to steer the economic growth of 'Third World' nations. These conditions which complement the IMF loan conditions are not the same for the powerful. The US is the most indebted country in the world, with foreign debt amounting to about $1.5 trillion out of a total Federal debt of $5.5 trillion.
Yet it stands as the leading nation of the world due to its political and ideological will and its influence in setting the rules and playing the game. The existing 'Third World' regimes have abandoned their political will in order to pursue these structural adjustment policies and therefore have little prospect of ever getting out of the vicious cycle. In the following paragraphs, we analyze how the international debt game is played, its implications and consequences and the Islamic viewpoint on it.
The ends do not justify the means

The reason why 'Third World' countries borrow at the international level is to finance projects in the country. But the bulk of the projects are not addressing the fundamental requirements of these nations. They often involve the construction of infrastructure and production systems that benefit the creditor nations of the West far more than the debtor. These include large irrigation dams as in the case of Morocco or power plants supplying non-domestic electricity as in the case of Zaire and arms to keep ailing dictatorships in power. At face value, these projects may seem very beneficial to the borrowing 'Third World' country. But the actual consequence of the borrowing can be seen as follows:
The loan is provided on the basis of regular interest payments. These loans have to be paid back in Dollars or Pound Sterling, and to earn this currency, the borrowing country needs to export goods, or to purchase foreign currency on the international market. In order to achieve this, government expenditure on basic necessities such as food and other commodities is diverted to other products such as cash crops that can be sold on the international market for the desired currency. These crops are usually produced by many other debtor nations, resulting in low market prices. At the same time, due to the emphasis on cash crops and the like, the borrowing country has not invested in developing its own agricultural base for feeding its population. Consequently, it needs to purchase its food from the 'First World', thus living at their mercy; and to do that it needs to borrow. Then the cycle begins all over again. When the borrowing nation defaults or is in danger of doing so, the IMF is invoked. The IMF has one and the same solution to all such problems, - the imposition of austerity measures designed to increase foreign exports and reserves in order to make more payments. This means more suffering and poverty for the people.

The poor borrow their own money
This is a well-known phenomenon to American bankers. They take funds that 'Third World' elites have appropriated from their countries and loan them back to countries for supposedly productive uses, earning a nice spread each way. These banks are adept at designing complex schemes to help their wealthy clients ferry money out of their country's offshore trusts, fake investment companies, parallel foreign exchange swaps that avoid national banks, and 'back to back' loans in which the bank 'loans' the client his own money. Their inventiveness is amazing! The big western banks in the game have whole departments dedicated to this, with agents world-wide. One dollar out of every three loaned to Latin America by banks between 1979 and 1983 made this round trip. It was estimated that a net of $418 billion of borrowed funds flowed right back between 1982 and 1990. This is more than double that was spent to rebuild Europe after World War II. This wealth that is skimmed off by the elite of Developing Countries and deposited in foreign banks, is a large factor in the developing world's debt burden.

Compulsory purchase
Another mechanism for ensuring Third World debt is that they are almost without exception tied to import from the donor country. These types of bondage deals are usually done discretely. To cite an example of one such deal that became public in 1988, George Younger, the British Defense Secretary, signed a deal with Malaysia linking $1 billion in arms sales with an aid package to build the Pergau Dam. More generally, it has now become a common practice for Western companies to persuade poor countries to buy their goods and services even if they don't have money to pay. They make it part of the deal that they will secure aid on their behalf from their country or a loan from the World Bank or any such bodies. Hence the money simply remains in the donor country. It is reported that over 80% of America's foreign aid returns immediately through exports tied to that aid.

Compound interest
In the Capitalist world, interest must be paid on debt. Now, unless a country is running a trade surplus, it must borrow the funds necessary to make interest payments. Thus the annual amount that must be borrowed gets larger and larger, even if the trade deficit itself does not expand. As debts grow, interest payments grow. As interest payments grow, debt grows. As time passes the rate of debt accumulation speeds up, even if the basic trade deficit remains constant. This magic of compound interest is that it ensures that almost all of the 'Third World' countries will alaways remain in debt. To illustrate with numbers, $1 trillion dollars compounded at 10% per year will become $117 trillion in fifty years and $13.78 quadrillion in one hundred years. This would correspond to about $3.5 million for every man, woman, and child in the 'Developing World'. But their debt is twice this and has been compounding at twice that rate - over 20% per year between 1973 and 1997, from under $100 billion to $2 trillion. Most of these debts are incurred without the recipient country receiving any lasting benefits. In fact, only about $400 billion of that $2 trillion debt was actual borrowed finance capital; the rest was runaway compound interest.

The Islamic Perspective
The taking of foreign aids/loans by the Islamic State could be haram or mubah depending on the strings attached. Firstly, if it comes with interest, it becomes haram as Allah (swt) has forbidden interest. But even if this could be circumvented somehow, it does not automatically become permitted by Islam. The reason is that it could bring harm to the state's authority, its economy and its security. This is based on the Shari'ah principle which states that if any particular action that is allowed (mubah) leads to harm then this individual action becomes haram.

The curse of foreign aid
The clear and present danger of foreign loans is that they constitute a sophisticated war tool that has been used historically and is still being used to control debtor states. Strange as it may sound, one of the goals of the leading mercantilist nations is to sell as many consumer products as possible to an enemy, while embargoing machinery and technology, so as to keep them dependent and weak. High priority is placed on selling to any society that is an ideological threat, as is the case between Islam and the West. The resulting inability of the dependent society to develop its own skilled labor, innovations, industry and wealth, is well understood. Modern aid is intended by 'Developed Countries' to perpetuate the above. Additionally, as the debt grows to unrepayable levels, the debtor country becomes permanently enslaved with the creditor country invoking all sorts of rights to intervene.

England colonized Egypt through debts. Under the pretext of recouping their loans, an English administrative officer was sent to supervise public revenues and a French one to supervise expenditure. This developed later to establishing a mixed cabinet, with the English in the ministry of Finance and the French in the ministry of works. Through this, Egypt was colonized. In a similar way, France also occupied Tunis through debts. But most telling was the establishment of the Ottoman Debt Council (1881-1944) through which the Western states extended their direct influence on the Khilafah in its last days.

What is most likely to happen today or in the future is that international bodies will be used to control the Khilafah if it falls into the debt trap. This was what happened to the lesser European states during the inter-war period, especially Austria, Hungary and Greece, when international financial control was established by the League of Nations over them. The modern equivalent of the 'League of Nations', the UN and its daughter organizations such as the IMF and the World Bank, are already doing the job. These are in fact tools in the hands of the rich Western nations. Notwithstanding this, if the Khilafah evaluates that none of the above dangers exist, taking a loan, without interest, would be permissible.

Conclusion
The Islamic State is and must be an ideological nation. Since it is clear that such interventionist actions as outlined above are motivated by political and ideological considerations, it must steer clear of this danger. As has been proven in many historical cases, these debts are not absolute necessities for advancement. On the one hand, there are countries especially in the Muslim World that are even richer than their Western masters, and yet they are so technically backward that they cannot even defend their borders. On the other hand, there have been many examples of countries which were boycotted and actually ended up better off in terms of developing their own resources while countless more that were tempted or coerced to keep borrowing ended up worse off. The lesson stands that the most important tool of advancement is the ideological and political will of a nation rather than anything else.