Global Policy Forum

By David Shanks

In Porto Alegre, forum participants debate mounting debts, poverty and economic collapse.

"A significant victory" was how organizers described the World Social Forum (WSF), held Jan. 23-28 in the southern Brazilian city of Porto Alegre. The event, a counter-summit to the corporate elite's World Economic Forum (WEF) in Davos, Switzerland, attracted 100,000 participants from 156 countries. "We are creating a new social and political climate around the world," declared Brazilian economist Cí¢ndido Grzybowsk. "Our process is growing and becoming a gigantic movement."

About 43 percent of Latin America's 520 million people now live in poverty, including 92.8 million, or 18.6 percent, who live in indigence, according to the Economic Commission for Latin America and the Caribbean (ECLAC). The outlook remains grim, say observers, with several countries increasingly cash-strapped.

Brazil's new president, Luiz Inácio Lula da Silva (LP, Nov. 4, 2002), one of the founders of the WSF, addressed the forum. Although he took a place the next day at what many of his supporters would regard as the "enemy" table in Switzerland, da Silva remains hugely popular with the Latin American social movement. A crowd of 100,000 chanted his name during his speech, in which he pledged to tell the business leaders in Davos that "an economic order in which a few eat five meals a day while many go five days without eating is unacceptable."

Da Silva was also warmly received at the WEF, especially by bankers who welcomed his government's commitment to repay Brazil's US$226 billion foreign debt, even though nearly one-third of the population lives in poverty.

Latin America has a total external debt of $728 billion. The region's most indebted country is Nicaragua, with a debt equal to 261.3 percent of its gross domestic product (GDP). Argentina, Bolivia, Ecuador, Haiti, Honduras, Jamaica, Panama and Peru have debt-to-GDP ratios above 50 percent, the point at which experts say that foreign debt becomes unsustainable.

One fundamental problem, according to Peruvian economist Oscar Ugarteche, is how debt repayment is calculated. Ugarteche, who participated in the WSF, is a member of an independent international tribunal dedicated to finding fair solutions to the foreign debt crippling many developing countries.

"Under no circumstances should any country have to repay in a year more than a quarter of its annual export profits or 3.5 percent of its GDP," he said. "If payments are higher, the economy will suffer. A long-term restructuring is needed, and it should be left in place until the debt has been repaid. There should be a contingency clause, though, so that if a country's income increases, it pays off the debt more quickly."

WSF participants highlighted the need for shared responsibility in loan payment. Every creditor, Ugarteche said, should have an interest in improving its debtors' income. "We need mechanisms that lead to an increase in trade while reducing the debt," he said. "The creditor should commit itself to buying the debtor's products."

WSF participants also questioned "illegitimate" loans, which they defined as credit "granted on the basis of the political and economic interests of the lenders, with the complicity of corrupt minorities in the countries of the South, rather than for [the population's] economic and social development." A series of ethical tribunals last year highlighted links between corruption and the Andean region's external debt (LP, Jan. 14, 2002).

Ugarteche said that illegitimate loans could be canceled under existing international anti-corruption laws. "They should be declared null and void," he said. To prevent such deals in the future, he proposes a UN-monitored international financial code similar to the existing international code for businesses.

The tribunal aims to lobby politicians from around the region and start an awareness-raising campaign in both debtor and creditor countries. "Jubilee 2000 paved the way for us in Europe," Ugarteche said, "but many people in the United States are still unaware of what external debt really means." The worldwide Jubilee campaign in 1999 focused attention on the debt burden in developing countries (LP, Dec. 20, 1999).

There is also an increasing prevalence of high internal debt in the region, which could cause more extreme financial imbalances and liquidity crises in the near future. In Brazil, both the internal and external debt are equivalent to about 37 percent of GDP, "which causes problems because of high debt-service payments, to the detriment of social investment," said Humberto Ortiz, an economist at the Peruvian Bishops Conference's Social Action Commission.

Ortiz said that current debt repayment measures do not offer "a definitive solution other than reducing a country's debt so that the repayments also decrease. Proposals such as the cancellation of illegitimate loans and the establishment of an independent debt arbitrator would be do more to contribute to the development of our countries," he said.

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