Since the early 80s, the public debt crisis has been used, both in the Third World and Eastern Europe and in the leading industrialised countries, to justify the systematic application of austerity policies in the name of structural adjustment.

On the pretext that their predecessors had been living beyond their means through excessive borrowing, most governments in office during the eighties gradually imposed stringent belt-tightening adjustment policies on public spending, especially on social programmes.

As far as the Third World and Eastern European countries are concerned, there was a tremendous increase in public debt at the end of the sixties which resulted in the debt crisis from 1982 onwards.

Those mainly responsible for this state of debt are to be found in the leading industrialised countries:

private banks, the World Bank and the Northern governments have literally handed out hundreds of billions of eurodollars and petrodollars in loans.

These various Northern agencies offered loans at very low interest rates, which would in fact serve as an investment of their capital and goods surpluses. Thus the public debt of Third World and Eastern European nations was multiplied by twelve between 1968 and 1980.

In the leading industrialised countries the public debt also increased sharply during the seventies, as governments responded to the end of the thirty-year boom by adopting Keynesian policies in an attempt to restart the economic engine.

A historic shift of emphasis was set in motion in the years 1979,1980,1981 when Thatcher and Reagan came to power and applied sweeping neo-liberal policies, in particular a huge rise in interest rates. This rise forced indebted public authorities to transfer colossal sums to private financial institutions. From then on, world-wide, the repayment of the public debt became a tremendous mechanism for turning part of the wealth created by wage-earners and small producers over to financial capital.

Policies dictated by the neo-liberals undoubtedly constitute a formidable attack by capital against labour. To balance their books, indebted public authorities agreed to reduce social spending and investment, and to fall back on further borrowing, as a means of dealing with the rising interest rates: this is the famous "snowball effect" as experienced in the four corners of the world during the eighties. The "snowball effect" is the automatic increase of debt caused by the combined effect of high interest rates and new loans needed to repay previous loans.

To repay the public debt, governments are particularly prone to drawing on tax revenues. The structure of these revenues has deteriorated during the years 1980-1990, in so far as the proportion raised by taxing capital income has diminished while the proportion raised by taxing salaries on the one hand, and mass consumption via generalised VAT and excise duties on the other, has increased.

In short, the State takes money from the wage-earners and the poor to give to the rich (= capitalist). This is the exact opposite of the policy of redistribution which should be the public authorities' prime concern.

The public debt crisis since the eighties has been inextricably bound to the process of deregulation and the formidable attack on labour by capital, the main determining factors of neo-liberal globalisation. Indeed, the colossal increase of public debt from the end of the sixties to the beginning of the eighties is linked to the eurodollar market which constituted one of first stages of deregulation of the international monetary system and the currency markets.

Structural Adjustment Policies began to be applied in the Periphery just after the debt crisis broke out in August 1982. They perpetuated in a new form a strategy which had begun about fifteen years earlier. What was that strategy? It was the response of the Northern governments and the multilateral financial institutions in their service, primarily the World Bank, to the challenge represented by the loss of control over an increasing part of the Periphery . From the 1940s until the 1960s Asian and African countries were gaining their independence, the Eastern European bloc was extended, revolution triumphed in China, Cuba and Algeria, populist and nationalist policies were developed by the capitalist regimes of the Periphery (from Argentine Peronism to Nehru's Indian Congress through Nasser's Egyptian and Arab nationalism). New movements and organisations were appearing pell-mell on the international scene, threatening to undermine the domination of the main capitalist powers.

Massive loans were made during the second half of the sixties to a growing number of Peripheral countries, from strategic allies (Mobutu's Congo, Suharto's Indonesia, Brazil with its military dictatorship ...) to countries like Yugoslavia and Mexico. These loans served as the lubricants of a powerful machine for regaining control. The idea was to use targeted loans to instigate a better connection between Peripheral economies and the world market dominated by the Centre. It also involved securing the supply of raw materials and fuel to the Central economies. By encouraging the countries of the Periphery to focus on export and to compete with each other, industrialised countries induced a drop in the prices of exported products, leading to a reduction in production costs in the North (and thus to increased profits). Finally, within the context of the rise of emancipation struggles and the Cold War with the Eastern bloc, another objective was to strengthen the zone of influence of the main capitalist countries.

It cannot be stated with certainty that the private banks, the World Bank and the Northern governments were involved in a conspiracy. However, analysis of the policies adopted by the World Bank and the governments of the leading industrialised countries with regard to loans to the Periphery reveals strong evidence of strategic ambitions.

The crisis that broke out in 1982 was the result of the combined effect of the reduction in price of export products from the Peripheral countries towards the global market and the explosion of interest rates. Overnight, countries found themselves having to repay more with diminishing revenues. They were in a stranglehold. Indebted countries announced that they were facing difficulties in finding the money to pay. The private banks of the Centre immediately refused to grant further loans and demanded that the former ones be repaid. The IMF and the leading industrialised capitalist countries put up new loans to enable the private banks to recover their initial outlay and to avoid a series of bankruptcies.1

From that time on, the IMF, supported by the World Bank, has imposed structural adjustment policies. An indebted country which refuses to implement structural adjustment is under threat of being refused loans by the IMF and the Northern governments. There is no doubt at all that those who suggested to the Peripheral countries after 1982 that they should stop repaying their debts and constitute a front of debtor countries were right. Had the Southern countries constituted such a front, they would have been in a position to dictate their conditions to the creditors at their doors.

By choosing to repay, under the pressure and humiliating terms imposed by the IMF, the indebted countries have transferred the equivalent of several Marshall Plans to the coffers of the North. The adjustment policies have implied the steady loss of key elements of national sovereignty, leading to increased dependency of the countries concerned on the leading industrialised countries and their multinational companies. Not one of the countries applying structural adjustment has been able to sustain a high rate of growth. Everywhere, social inequalities have increased: no "adjusted" country has escaped this rule.

The new loans granted by the IMF since 1982 have three objectives: 1) to facilitate the structural reforms imposed by adjustment; 2) to ensure the repayment of the debt contracted; 3) gradually to enable indebted countries to accede to private borrowing via the financial markets.

What is structural adjustment?

Structural adjustment includes two main kinds of measures. The first to be implemented are shock tactics (usually devaluation of the currency and raised interest rates within the country concerned). The second are structural reforms (privatisation, tax reform ...).

Devaluation imposed by the IMF regularly reaches rates of 40-50%. The aim is to make the country's exports more competitive in order to increase stocks of hard currency required for debt repayments. A not inconsiderable advantage from the point of view of the IMF and the industrialised countries is the drop in prices of export products from Southern countries. The drawback is that the prices of products imported by the country concerned rocket, which can only depress domestic productivity since production costs rise in agriculture, industry and crafts (which incorporate numerous imported items as a result of abandoned "self-sufficiency" policies), while consumers' purchasing power stagnates (the IMF prohibits index-linking of salaries). Devaluation triggers a rise in unequal distribution of revenue as capitalists with liquid assets take care to buy foreign currency before devaluation takes place. In the case of a 50% devaluation, their assets double in value.

Furthermore, a policy of high interest rates can only increase domestic recession (the peasant farmer or craftsman who has to borrow to buy articles required for his production hesitates to do so or reduces his production through lack of funds) while invested capital thrives. The IMF justifies these high interest rates by claiming that they attract much-needed foreign investment. In reality, capital attracted by high interest rates is volatile and flies to new horizons at the slightest hint of trouble or when a more profitable opportunity arises.

Other adjustment measures specific to countries of the Periphery are: the abolition of subsidies on certain basic goods and services and agrarian counter-reform. In most Third World countries the staple food (bread, tortilla, rice ...) is subsidised to prevent sharp price-increases. This is often the case too for public transport, water and electricity. The IMF and the World Bank systematically insist on the abolition of these subsidies, leading to increased hardship for the poorest people and sometimes hunger riots.

Concerning land ownership, the IMF and the World Bank have launched a long-term strategy aimed at eliminating all forms of communal ownership. Thus did they succeed in having the article of the Mexican constitution protecting communal property (known as ejido) modified. A major project which the two institutions are working on is the privatisation of communal and state-owned land in Sub-Saharan Africa.

Adjustment measures common to North and South

The reduction of the role of the public sector in the economy, the reduction of social spending, privatisation, tax reforms in favour of capital, the deregulation of the labour market, the relinquishment of essential aspects of State sovereignty, the abolition of exchange control, the incitement to create capitalised pension-funds, the deregulation of trading, the encouragement of Stock Exchange transactions ... all these measures are applied world-wide, in varying degrees according to social pressures. It is striking that from Mali to the United Kingdom, from Canada to Brazil, from France to Thailand, from the United States to Russia, there is a deep similitude and complementarity between what are known as "structural adjustment" policies in the Periphery and "stabilisation", "austerity" or "convergence" policies in the Centre.

Everywhere, the public debt crisis has served as a pretext to instigate these policies. Everywhere, the repayment of the public debt represents an infernal machine for transferring wealth to the capitalists.2

The Structural Adjustment Policies and other austerity measures constitute a war-machine bent on destroying all the mechanisms of collective solidarity (which go from communal ownership to shared pension schemes) and on subjecting every sphere of human existence to the logic of profit-making. The ultimate goal of the Structural Adjustment Policies is the systematic elimination of all social and historic obstacles to the free deployment of capital so that it can follow its logic of immediate profit, regardless of the cost to humanity or the environment.

We have to break away from this logic, abandon the Structural Adjustment Policies wherever they are implemented, and construct a new set of capital control mechanisms that will give priority to the human race. Hence the importance of founding, in a collective spirit of North/South, East/West solidarity, new networks to relay the struggles of social movements and lead to a new project of emancipation.

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1 For a more detailed analysis, read "Your Money or Your Life", ch. 9 & 10, by Eric Toussaint, English language edition Pluto Press, London (1999), Mkuki na Nyota Publishers, Dar es Salaam (1999).
2 "The public debt securities markets (government bond markets), set up by the countries who are the main beneficiaries of financial globalisation, then imposed on other countries (usually without much difficulty), are in the IMF's own words, the "cornerstone" of financial globalisation. In plain language, this is precisely the most solid mechanism established in the name of financial liberalisation for the transfer of wealth from certain classes and social strata and from certain countries to others. Any attempt to get at the foundations of financial power entails the dismantling of these mechanisms, and therefore the cancellation of the public debt, not only for the poorest countries, but for any country whose vital social forces refuse to watch their government continue to impose austerity budgets on its citizens for the sake of interest payments on the public debt." » in François Chesnais, "Tobin or not Tobin", Paris, 1998, Published by L'Esprit frappeur.

(*) Eric Toussaint is president of the Brussels-based Committee for Cancellation of the Third World Debt (COCAD, CADTM in French) and author of "Your Money or Your Life: The Tyranny of Global Finance"
Three different editions in English
1) by Pluto Press, 1999, London - UK (ISBN 0 74531414 0 pbk) and Mkuki na Nyota Publishers, Dar es Salaam - Tanzania (ISBN 9976 973 54 3 pbk) 322pp
2) by VAK Vikas Adhyayan Kendra, 1999, Bombay - India, 302pp
3) by Labour Party Pakistan Publications, 2000; Lahore — Pakistan, 346pp

First published in French: La Finance contre les Peuples, Edit Luc Pire-Bruxelles / CADTM-Brussels / Syllepse-Paris / CETIM-Geneve, 1998, 396pp. Second edition published in Sept. 99.

There is also a Latinamerican edition (Nueva Sociedad — Caracas, 1998), a Turkish one (Yazhin Istambul, 1999), a Dutch one (VUB Press Brussels, 1998) and a German one (Neue ISP Verlag - Cologne, 2000)

More info on the COCAD website: http://users.skynet.be/cadtm