IOU: The Debt Threat and Why We Must Defuse It. Noreena Hertz

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      In 1960, for example, when South Asia and the Far East were perceived as the main ‘red threats’, 50 per cent of all US aid (loans and grants) was sent to key ‘domino’ countries like South Korea, Vietnam, Thailand, India, Pakistan and Iran. Between 1945 and 1952, when the Soviet penetration of Europe was perceived by the Americans as their greatest threat it was Europe that received $13.3 billion in US aid, (in that case mainly grants) while other regions had to make do with significantly less.

      The Bay of Pigs fiasco, in which the US attempted and failed to overthrow the Communist regime of Fidel Castro, moved Latin America onto America’s list of preferred borrowers. In a. speech soon after the invasion, John F. Kennedy spoke of ‘the struggle in many ways more difficult than war…a struggle…taking place every day, without fanfare, in thousands of villages and markets…and in classrooms all over the globe.’ A struggle which needed, Kennedy believed, foreign financial assistance to win. Why? Not for the sugar-coated reasons laid out in his inauguration speech only a few months before.

      ‘To those people in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required, not because the Communists may be doing it, not because we seek their votes, but because it is right.’

      But, rather, because if the Americans didn’t provide loans, ‘the reds’ would. As Kennedy proclaimed later, in an address at the Waldorf Astoria on a blustery winter night just weeks after the resolution of the Cuban Missile Crisis:

      ‘Less than a month ago this Nation reminded the world that it possessed both the will and the weapons to meet any threat to the security of free men. The gains we have made will not be given up, and the course that we have pursued will not be abandoned. But in the long run, that security will not be determined by military and diplomatic moves alone…Aid is a method by which the United States maintains a position of influence and control around the world and sustains a good many countries which would definitely collapse or pass into the Communist bloc…Really I put it right at the top of the essential programs in protecting the security of the free world.’

      And, indeed Latin America’s external debt increased from $12.6 billion (thousand million) to $28.9 billion between 1960 and 1970, a 230 per cent increase, the majority of which was provided by the American government and the World Bank, the institute set up after World War II to aid world economic stability, but which throughout the Cold War was blatantly used by the US as a conduit of its foreign policy. Among loans made by the Bank were those to Nicaragua’s US-friendly Somoza regime, and to Yugoslavia once it broke from the Soviet bloc and the US had recommended that the West offer the country ‘discreet and un-ostentatious support.’ Among loans withheld by the Bank were those to Poland in 1948, because the US didn’t want money going to a Communist country and to Allende’s Chile at a time when Nixon had given orders to ‘make the enemy [Chile] scream’. The lending to Chile resuming a few months after Allende was killed in a military coup.

      Everyone’s at it

      The rivalry during the Cold War was not just between America and the Communist ‘other’. Throughout, China and the Soviet Union also battled each other for who would prevail in the Communist World, often also using loans as a means to hold sway.

      In 1965, for example, during the Vietnam conflict while Moscow was bankrolling Hanoi’s purchases of arms and ammunition, Deng Xiaoping reportedly offered an enormous loan of 4 billion yuan ($1.6 billion) if Vietnam agreed to abandon economic ties with Moscow.

      Or take Soviet lending to decolonized Africa in the late 1950s and early 1960s. Initially this had almost nothing to do with the Cold War rivalry between Moscow and Washington. Nor was this an altruistic act. Instead it was a direct outcome of an intensifying competition with the Chinese for the leadership of the international Communist and national liberation movements: securing influence in Africa was seen as greatly important in that quest, and if it took hundreds of millions of dollars in loans to do it – as it did – so be it.

      In that case, however, the West soon also got involved. The patronage of Africa by the Chinese and the Soviets threatened it. As a British Foreign Office document of 1959 warned:

      ‘If Africa is to remain loyal to the Western cause, its economic interests must coincide with, and reinforce, its political sympathies; and one of the major problems of the relationship between the West and Africa will be to ensure an adequate flow of economic assistance, and particularly capital, through various channels to the newly emerging States. On any reckoning the amounts required will be considerable; and, if the Western Powers are unreasonably insensitive to the economic aspirations of independent Africa, the Governments of the new states may be compelled to turn to the Soviet Union for the assistance that they will certainly need.’

      With that threat looming Washington launched a dual strategy to provide ‘friendly’ African regimes with weapons and also to channel funds to them through their own development agency, US-AID, along with the World Bank and other international financial institutions. As one National Security Council memorandum recommended in 1965: ‘US-AID should be used as a political weapon with the major assistance going to African friends of the US.’

      Which of course meant that now that the Sino-Soviet love affair with Africa was officially a ménage à trois, the Soviets started to lend even more to key countries in the region to ensure that the parties they were backing didn’t switch camps. This led to the increasingly commonplace and clearly undesirable situation of rival groups within the same country being funded by either the East or the West. In Angola, for example, the Soviet Union provided loans for MPLA to purchase weapons. While FNLA and UNITA, MPLA’s enemies, purchased their weapons with American dollars.

      How ironic that loans made during the Cold War in the name of security and peace even at the time were clearly engendering conflict and instability. And how indicative of one of the major ironies of Cold War lending: that, in the pursuit of addressing immediate national security concerns, the world’s superpowers played significant roles in laying the foundations for future insecurity and instability.

      They did this in two ways. First, their profligate lending actively helped to jack up the debt mountain so that the Third World owed levels way above what many of its countries could realistically service, sowing the seeds of the crisis the developing world currently faces. And second, by the frequent bankrolling of tyrannical, corrupt, or self-seeking regimes, regimes which never considered the needs of the majority of their people in their investment decisions, whose legacies have been increasing levels of domestic poverty, conflict, unrest and civil strife.

      The corrupt regime of Mobutu Sese Seko in Zaire (now the Democratic Republic of Congo), for example, received half of all US aid to black Africa in the late 1970s. Zaire’s favoured borrowing status persisting even after a damning internal memo was made public in 1978 by Karin Lissakers (later to become US executive director of the IMF). The memo did not mince its words: ‘the corruptive system in Zaire with all its wicked manifestations is so serious that there is no (repeat no) prospect for Zaire’s creditors to get their money back.’ Mobutu’s spending sprees became quite legendary: Concorde chartered for private shopping trips to Paris; dozens of estates bought in Continental Europe; the building of the world’s largest supermarket, and of a steelworks that one banker СКАЧАТЬ