AN ETHICAL APPROACH TO THE INTERNATIONAL DEBT QUESTION
Presentation
The phenomenon of international indebtedness has sharply increased in
the last few years, presenting new challenges to the international
community both because of its size and its implications.
The remote causes for this phenomenon go back to the time when widely
shared opinions about growth possibilities led developing countries to
look for capital and commercial banks to offer credits for financial
investments, sometimes at high risk. The prices for raw materials were
favourable and the majority of debtor nations remained solvent.
The first and second oil crises of 1974 and 1979, the fall in the
price of raw materials and the abundance of petrodollars in search of
profitable investments, as well as the effects of over-ambitious
development programmes, contributed to the massive indebtedness of many
developing countries. At the same time, industrialized countries were
taking protectionist measures, while worldwide interest rates were going
up. Debtor countries became increasingly incapable of meeting even the
interest on their debt.
In the last three or four years, the accumulation of payments due has
reached such a level that many countries are no longer in a position to
honour their agreements, and find themselves forced to seek further
loans, thus getting caught in a web, escape from which has become very
difficult to predict.
Debtor countries, in fact, find themselves caught in a vicious
circle. In order to pay back their debts, they arc obliged to transfer
ever greater amounts of money outside of the country. These are
resources which should have been available for internal purposes and
investment and therefore for their own development.
The phenomenon of indebtedness brings to the fore the growing
interdependence of economies whose mechanisms—capital flows and
commercial exchanges—have become subject to new constraints. Thus
external factors heavily condition the evolution of the debt of
developing countries. In particular, floating and unstable exchange
rates, the variations in interest rates and the temptation of
industrialized countries to maintain protectionist measures have created
an increasingly unfavourable environment for debtor countries that thus
become still more vulnerable.
When credit agencies consider the situation solely from the economic
and monetary angle, they often impose on the debtor countries terms, in
exchange for accrued credit, that can contribute, at least in the short
term, to unemployment, recession, and a drastic reduction in the
standard of living. This causes suffering, first of all for the poorest
as well as for certain sectors of the middle class. In. brief, it is a
situation that is intolerable and, in the medium term, disastrous for
the creditors themselves. Debt servicing cannot be met at the price of
the asphyxiation of a country's economy, and no government can morally
demand of its people privations incompatible with human dignity.
Faced with demands that are often contradictory, the countries in
question have not hesitated to react. Initiatives on both regional and
international levels have multiplied. Some have advocated radical
unilateral solutions. But the majority have taken into account the
globality of the problem and its profound implications, not only on the
economic and financial level, but also in its social and human
dimensions which place before the responsible parties ethical choices.
It is to this ethical aspect of the problem that Pope John Paul II
has frequently called the attention of international leaders,
particularly in his Message to the 40th General Assembly of the United
Nations, 14 October 1985 (n. 5). Conscious of her mission to shed the
light of the Gospel on situations involving the responsibilities of men
and women, the Church once again invites all the parties involved to
examine the ethical implications of the question of the external debt of
developing countries, in order to arrive at just solutions that respect
the dignity of those who would be most strongly affected by its
consequences.
For this reason, the Holy Father asked the Pontifical Commission
"Iustitia et Pax" to deepen the reflection on the problem and
to propose to the different parties involved—creditor and debtor
countries, financial agencies and commercial banks—some criteria for
weighing the situation, and a method of analysis for "an ethical
approach to the international debt question".
The Pontifical Commission "Iustitia et Pax" expresses its
fervent hope that this document may contribute to a clarification of the
choices to be made by those who exercise responsibility in this area,
one which today has become a privileged place for international
solidarity.
The Commission also nourishes the hope that these reflections will
give renewed confidence to those persons and nations most severely
tested, by once again strongly repeating that economic structures and
financial mechanisms are at the service of the human person and not vice
verse, and that relationships of exchange and the mechanisms of finance
which go with them can be reformed before shortsightedness and egoism—be
they private or collective—degenerate into irremediable conflicts.
27 December 1986
ROGER Card. ETCHEGARAY
President
Pontifical Commission
"Iustitia et Pax"
JORGE MEJÍA
Vice-President
Pontifical Commission
"Iustitia et Pax"
Introduction
Political officials and economists, social and religious leaders, as
well as public opinion throughout the world, recognize the fact that the
debt levels of the developing countries constitute a serious, urgent and
complex problem due to their social, economic and political
repercussions. The development of the debtor countries and, at times,
their very independence are endangered. The living conditions in the
poorest countries have become worse, and the international financial
system is going through a series of unsettling shocks.
Creditors and debtors have tried to come up with immediate—and at
times even more long-term—solutions on a case basis. Albeit
insufficient and limited, these efforts need to be pursued in a spirit
of dialogue and mutual comprehension, in order to see more clearly the
rights and responsibilities of each party.
At the same time that current economic conditions have affected the
situation of developing countries to the point that some of them,
especially in Latin America and Africa, are at the breaking point
because of their inability to meet their debt-servicing obligations, the
international financial and monetary structures are also being
challenged. How did this happen? What changes in behaviour patterns and
in institutions will make it possible to establish equitable relations
between creditors and debtors and keep the crisis from continuing and
becoming even more dangerous?
The Church shares these concerns, which are international, regional
and national in nature, and wishes to reiterate and specify the
principles of justice and solidarity which will help in seeking
solutions. The Church speaks first and foremost to the principal agents
in the financial and monetary worlds. In so doing, she hopes to
enlighten the moral conscience of the decision-makers whose choices
cannot disregard ethical principles, but she does so without proposing
action programmes which would be outside her field of competence.
The Church speaks to all peoples, especially those most in need, who
are the first to suffer the repercussions of these disorders and do so
with feelings of fatalism, defeat, latent injustice and sometimes
revolt. The Church wishes to rekindle within them hope and confidence in
the possibility of resolving the debt crisis with the participation of
all parties and in full respect for each party,
The best way to tackle these serious issues would seem to be in a
global perspective which would be at the same time an ethical approach.
For this reason, it would seem necessary to highlight the ethical
principles applicable to these complex situations before considering the
particular choices that those concerned may be led to make, either in
emergency situations or in the medium or long term.
The present text has made use of many studies on the international
debt that have already appeared. Ethical in nature, this global
perspective allows all the responsible parties, be they persons or
institutions, on both a national and international level, to carry out a
reflection, adapted to the situations that are within their competence.
To all those who will heed its words, the Church expresses, from the
very outset, its firm
conviction that cooperation, which goes beyond collective egoism and
vested interests can provide for an efficient management of the debt
crisis, and, more generally, can mark progress along the path of
international economic justice.
I. Ethical Principles
1. Create new forms of solidarity
The debt of the developing countries must be placed in a broader
context of economic, political and technological relations which point
to the increased interdependence between countries, as well as to the
need for international collaboration in pursuing the objectives of the
common good. In order to be just, this interdependence should give rise
to new and broader expressions of solidarity which respect the equal
dignity of all peoples, rather than lead to domination by the strongest,
to national egoism, to inequalities and injustices. (1) The monetary and
financial issue therefore commands attention today in an urgent and new
way. (2)
2. Accept co-responsibility
Solidarity implies an awareness and acceptance of co-responsibility
for the causes and the solutions relative to international debt. The
causes are both internal and external. While they are specific to each
country and to each political and economic system, these causes also
stem from evolutions in the international environment which depend to a
great extent on the actions and decisions of the developed countries.
Acknowledgement of the sharing of responsibility for the causes will
make possible a dialogue which will seek joint means of solution.
Co-responsibility concerns the future of countries and of entire
populations, but also the possibilities of international peace based on
justice.
3. Establish relations of trust
Co-responsibility will help to create or restore relations based on
trust between nations (creditors and debtors) and between the various
agents (political authorities, commercial banks, international
organizations) for cooperation in the search for solutions. Mutual trust
is an indispensable value which must be constantly renewed. It nourishes
belief in another person's good faith, even when difficulties prevent
that person from respecting his commitments, and makes it possible to
continue treating him as a partner. This trust must be based on concrete
attitudes which ground it.
4. Know how to share efforts and sacrifice
In order to emerge from the international debt crisis, the
various partners must agree on an equitable sharing of the adjustment
efforts and the necessary sacrifices, taking into account the priority
to be given to the needs of the most deprived peoples. It is the
responsibility of the countries that are better off to assume a larger
share.
5. Foster the participation of all
Financial and monetary officials have the prime responsibility for
finding solutions to the. debt crisis, but they share this
responsibility with political and economic leaders. All social
categories are called to acquire a better grasp of the complexity of the
situation and actively to cooperate in the choice and implementation of
the necessary policies. In these new ethical domains, the Church
is called upon to specify the requirements of social justice and
solidarity with respect to the situations of individual countries, seen
within an international context.
6. Identify emergency and long term measures
The urgent nature of the situation in some countries calls for
immediate solutions in the context of an ethics of survival. The main
effort will have to be brought to bear on economic and social
rehabilitation: recovery of growth rates, productive investments,
resource creation, equitable sharing... In order to avoid a return to
crisis situations with over-abrupt changes in the international
environment, a reform of the financial and monetary institutions also
needs to be studied and fostered. (3)
II. Action in Emergency Situations
In the case of some developing countries, the total amount of the
debts contracted, and especially the interest and principal payments due
each year, are so high in relation to available financial resources that
meeting these obligations would cause severe damage to their economies
and the standard of living of their populations, particularly the
poorest classes. In addition, this critical situation is worsened by
external circumstances which tend to lower their export revenues (drop
in the prices of raw materials, difficulties in access to protected
foreign markets) or make their debts all the more difficult to service
(high and unstable interest rates, excessive and unpredictable
fluctuations in exchange rates). Unable to meet their commitments to
their various creditors, some of these countries are on the very brink
of bankruptcy. International solidarity calls for emergency measures to
ensure the survival of these countries.
The first thing to do is to foster dialogue and cooperation on the
part of all for immediate help. It is also necessary to avoid payment
defaults which could destabilize the international financial system,
with the attendant risks of a generalized crisis. Therefore, an ethics
of survival should guide attitudes and decisions, avoid breaches between
creditors and debtors as well as any unilateral termination of prior
commitments, respect the insolvent debtor and do not burden him with
immediate and intolerable demands which he cannot meet. Even if such
demands are legal, they can become an abuse. With the Gospel as the
source of inspiration, other types of action could also be contemplated
such as granting extensions, partial or even total remission of debts,
or helping the debtor to regain solvency.
The immediate needs of countries in such difficulties are a priority,
but not to be forgotten are the broader perspectives of the
international community and the precedent-setting nature of the
solutions adopted.
The leaders of a given country bear the responsibility for monitoring
their foreign debt level in order to avoid having to cope suddenly with
such an extreme situation through shortsightedness or careless
management.
One way to contribute to healthier international economic relations
and to foster agreement about emergency measures to be adopted would be
to foresee, prevent and attenuate such crises which are unfairly
advantageous to some, excessively injurious to others, and often lead to
unjust speculation. Coordinating structures need to be set up as quickly
as possible, and doing so ahead of time would enable them to become
operational as soon as needs arise, as is done in the case of standing
security and protection plans in other sectors that deal with possible
catastrophes and which have saved many human lives.
Because of their mandate, certain international organizations bear a
special responsibility. For example, the International Monetary Fund (IMF)
is responsible for helping member States to redress deficits in their
balance of payments and to resolve their monetary difficulties, To this
end, the IMF has at its disposal the necessary financial resources. Its
role, as well as its methods of intervention, have developed
considerably over the last few years. In numerous cases, however, the
IMF's decisions have been ill-received. by the leaders and the general
public of countries in difficulty; the decisions in question may seem to
have been imposed in an authoritarian and technocratic way without due
consideration for urgent social requirements and the specific features
of each situation. It would be advisable to bring out clearly that
dialogue and the service of all concerned are values which guide the
actions taken by the IMF.
The various creditors—States and banks—also bear very concrete
responsibility in the area of emergency measures. Co-ordination is
necessary if this responsibility is to be carried out justly and
efficaciously, with an equitable sharing of immediate duties both in
regard to the country in difficulty and to the IMF.
Co-responsibility comes into play in the search for causes as well as
decisions concerning immediate measures to be adopted. In this way,
special care needs to be taken to identify, among the various causes of
a country's debt situation, those that are attributable to global
mechanisms which seem beyond control; for example, the fluctuations of
currency used for international contracts, shifts in the prices of raw
materials which are often the object of speculation on the major stock
markets, or the sharp drop in oil prices.
Helping whoever is in dire need is indispensable but it is not
enough. That type of assistance would even be illusory if at the same
time the foundations were not laid for economic and financial recovery
in the future. Most often the crisis does not depend on a simple
accidental convergence of factors but rather on deeper causes which a
crisis brings to the surface. Emergency arrangements must be linked to
medium and long term adjustment measures,
III. Joint Assumption of Responsibility for the Future
Financial and monetary relations between countries are complex and in
constant evolution. According to the relative value of a country's
currency, its trade volume, available natural resources and the
technical capacity to exploit them, as well as the degree of confidence
it is able to generate abroad, each country occupies a position of
weakness or strength, power or dependence which, in turn, is also
subject to change.
An in depth analysis must therefore be made in order to determine the
specific responsibilities of each country in terms of both immediate and
future action. An initial overview of the situation shows that there is
a plurality of agents and organizations, each with specific functions
and more or less extensive freedom of action—and therefore of
initiative and responsibilities. These agents differ according to their
functions and their international positions and can be grouped as
follows: the industrialized and the developing countries, the creditor
and the debtor countries, the national and international commercial
banks, the large transnational corporations, and the multilateral
financial organizations (e.g. the World Bank, the International Monetary
Fund, regional. development banks). By reviewing each party's role,
resources and margin of freedom of action, it will be possible to bring
out more clearly respective responsibilities and propose ethical
principles which guide decision-making, alter behaviour patterns, and
transform the institutions in view of a better service of humanity. All
are called to participate in the building of a more just world, one of
whose fruits will be peace. "We see peace", said Pope John
Paul II, "as an indivisible fruit of just and honest relations on
every level—social, economic, cultural and ethical—of human life on
this earth... To you, business men, to you who are responsible for
financial and commercial organizations, I appeal, to examine anew your
responsibilities towards all your brothers and sisters". (4)
This fresh consideration of roles will make it possible to avoid the
temptation of fatalism or of powerlessness in face of the complexity of
the bonds of interdependence and also to create new spaces of freedom—and,
therefore responsibility—to be assumed and shared.
III. 1. Responsibilities of the Industrialized Countries
In a world of increased interdependence among nations, an ethic of
expanded solidarity will help to transform economic relations
(commercial, financial, and monetary) into relations of justice and
mutual service, while, at present, they are often relations based on
positions of strength and vested interests. (5)
Due to their greater economic power, the industrialized countries
bear a heavier responsibility which they must acknowledge and accept
even if the economic crisis has often challenged them with grave
problems of reconversion and employment. (6) The time is over when they
can act without regard for the effects of their own policies on other
countries. They have to evaluate the positive and negative repercussions
of these policies on the other members of the international community
and introduce changes if the consequences constitute too much of a
burden for other countries and especially the poorest ones. The
collective egocentricity of a nation is manifested when it disregards
the effects of interdependence or when it does not evaluate such effects
and keep them under control. The responsibility for forming public
opinion to international openness and to the duties of extended
solidarity falls upon social, economic, educational, and religious
leaders, and especially upon politicians, who are all too often prone to
assign exclusive priority to national interests instead of explaining to
their fellow citizens the positive effects of a more equitable
international sharing of resources. In his encyclical on "The
Development of Peoples" (n. 84) Pope Paul VI had already stated:
"Government officials, it is your concern to mobilize your peoples
to form a more effective world solidarity, and above all to make them
accept the necessary taxes on their luxuries and their wasteful
expenditures, in order to bring about development and to save the
peace". To speak of sharing, even to propose a certain austerity,
will only be heeded if one appeals to the values of brotherhood and
solidarity for peace and development.
In the face of the challenge of developing countries' increasing
debt, the responsibility of the industrialized countries applies in
particular to the following areas:
1. The debt situation of the developing countries has become even
more acute because of the effects of the world economic crisis (drop in.
the standard of living of the poorest classes, increased unemployment
... ) which weigh heavily on the people in those countries. An enduring
and sustained recovery in the industrialized countries will help the
world economy to pull out of the crisis and help the debtor countries to
honour their debts in the medium and long term without excessively
jeopardizing their own development. The industrialized countries are
trying to develop economic policies, which will relaunch economic growth
in their own best interests and those of their populations. However,
they must measure the effects of those policies on developing countries
and, if necessary, modify those current rules of international trade
which represent an obstacle to a more just distribution of the fruits of
that growth. Otherwise, this very growth will further marginalize the
poorest countries and increase the inequalities between nations. The
application of economic policies which will lead to growth for all,
while keeping a lid on inflation, another source of increased
inequality, is a difficult yet challenging task. On the part of
political, economic, and social leaders, it demands qualities of
expertise and impartiality, an openness to the needs of other countries,
and imagination in order to find, new courses of action.
2. The industrialized countries have to do away with the
protectionist measures which hinder exports from the developing
countries. This will increase the economic possibilities of those
countries, especially if technical know-how is shared as well. The
industrialized countries will need to plan a reconversion of their
economies with timely buffering of the social effects on their own
populations. The current technical and economic competition underway
between countries and, above all, between the industrialized ones
themselves, is without restraint and is assuming the shape of a ruthless
war in no way concerned about the harsh effects on the weaker countries.
Ever attentive to their appeals, the Church invites all persons of good
will, and especially political and economic leaders, to find the ways
and the means for improved international sharing of economic activities
and labour. (7)
3. The interest rates charged by industrialized countries are high
and make reimbursement very difficult for the debtor countries. A
coordination of the industrialized countries' financial and monetary
policies will make it possible to bring these rates down to a more
reasonable level and avoid erratic fluctuations in exchange rates. The
latter often prompt illicit profits on currency speculation and drains
in national capital reserves, a new and additional cause of
impoverishment for the developing countries.
4. International trade conditions (especially the instability of the
price of raw materials) would need to be carefully reanalysed in mutual
agreement with the countries concerned and with the specialized help of
the competent international institutions so that justice and
international solidarity would prevail where national interests are
excessively and exclusively dominant.
Adopting measures to relaunch growth, reducing protectionism,
lowering interest rates, and assigning a just value to raw materials all
seem to be the responsibility of industrialized countries in
contributing to a "development in solidarity of mankind". (8)
III. 2. Responsibilities of the Developing Countries
The acceptance of international co-responsibility on the part of the
developing countries implies an analysis of the domestic causes behind
the increase in their overall indebtedness. It also means planning for
the necessary adjustment policies to alleviate the weight of their debt,
as much as this depends on them, as well as promoting their own
development along the lines of the aforementioned encyclical of Pope
Paul VI: "World unity, ever more effective, should allow all
peoples to become the artisans of their destiny", with the wish
that: "may the day dawn when international relations will be marked
with the stamp of mutual respect and friendship, of interdependence in
collaboration, the betterment of all seen as the responsibility of each
individual". (9)
A detailed examination of the current debt situation will bring out
the specific nature of each developing country, both in terms of
internal and external causes, as well as the solutions and the outlook
for the future, The evident diversity of these situations is due to
numerous factors: e.g. more or less abundant and more or less well
managed natural resources (energy resources and mines, arable land,
climate, ease of communications), the development of human resources,
national policy orientations (economy, social affairs, finance, monetary
matters). A case by case study would provide for a more equitable
evaluation of the co-responsibilities and the solutions adopted, while
taking into consideration the bonds of solidarity between all the
developing countries which have every right to consult one another on a
regional and world level.
It would be highly recommendable for all the decision-makers in a
given country to take part in an analysis of the situation, especially
with respect to the present financial and monetary crisis. In their
concern for truth and participation, they will need the civic and moral
courage to brief their population on the responsibility which is proper
to each individual and each social category in the country. This will
serve to build a consensus on the economic adjustment measures to be
adopted, on a true distribution of the social efforts to be agreed upon,
and on the priorities in the targets to be selected. Especially for the
leaders of a country in economic and financial difficulty, it is often
tempting to shift full responsibility to other countries, in order to
avoid having to explain their own actions, errors, and even abuses, as
well as to avoid having to propose any changes which would affect them
directly. The denunciation of the injustices of others, be they either
committed or tolerated, will fall on deaf ears unless, at the same time,
one is willing to explain one's own actions. "It is too easy to
throw back on others responsibility for injustices, if at the same time
one does not realize how each one shares in it personally, and how
personal conversion is needed first". (10) This applies to the
Church as well. (11)
The line of demarcation between the rich and the poor does not only
cut through nations. It also divides social categories and regions in
each country. There are rich people in poor countries and poor people in
rich countries. Within the same country, there are poorer regions and
more prosperous ones. Pope John XXIII had underlined these new aspects
of justice back in 1961. "The evolution of historical situations
brings out into ever greater relief how the exigencies of justice and
equity not only have a bearing on the relations between dependent
workingmen and contractors or employers, but concern also the relations
between different economic sectors and between areas economically more
developed and those economically less developed within individual
political communities; and, on the world plane, the relations between
countries with a different degree of economico-social development".
(12)
The various groups in authority in the developing countries must
accept having their actions and any responsibilities they may have in
their country's indebtedness scrutinized: e.g. negligence in the setting
up of suitable structures or abuses in the use of existent ones, tax
fraud, corruption, currency speculation, national capital reserve drain,
(13) kickbacks in international contracts... This duty of transparency
and truthfulness will make it easier to establish individual
responsibilities, to avoid unjustified suspicions, and to propose
suitable and necessary reforms for institutions as well as for personal
behaviour. "The structures established for people's good are of
themselves incapable of securing and guaranteeing that good. The
corruption which in certain countries affects the leaders and the State
bureaucracy, and which. destroys all honest social life, is a proof of
this. Moral integrity is a necessary condition for the health of
society. It is therefore necessary to work simultaneously for the
conversion of hearts and for the improvement of structures". (14)
The improvement of individual and collective behaviour with respect
to financial gains and the institutional reforms (15) will strengthen or
reestablish national confidence, as well as that of other countries, in
accepting the adjustment measures to be adopted and in co-operating in
their effective implementation. For political, economic, and social
leaders, it is a moral obligation to put themselves concretely at the
service of the common good of their respective countries without
pursuing personal gain. They must see their function as a service to the
community with a direct concern for an equitable sharing of
goods, services, and jobs among all, giving priority to the needs of the
poor, and carefully monitoring the repercussions on the poor of the
economic and financial measures they
deem necessary, in all conscience, to adopt. This quest for social
justice in political and economic decisions will be all the more
credible and effective to the extent leaders themselves adopt a life
style in keeping with the one their countrymen are compelled to accept
under the difficult conditions of the country. In this sense, Christian
leaders will allow themselves to be challenged by the demands of the
Gospel"'
In the face of increasing, indebtedness and considering the diversity
of respective situations, the specific responsibility of the developing
countries will apply particularly to the following areas:
1. It is advisable to mobilize all the available national resources,
material as well as human, to promote sustained economic growth and
assure the country's development.
Economic growth is not an end in itself. It is a necessary means of
meeting the basic needs of a population, taking into account demographic
growth and the legitimate aspirations for an improved standard of living
(e.g. public health, education, culture, consumer goods). The creation
of wealth is to be encouraged in order to ensure a broader and more just
distribution among all.
The factors inherent in economic growth are numerous, complex, and at
times difficult to control and coordinate. The duty of those in
positions of responsibility in both the private and the public sectors
is to take all of these factors into consideration in their decisions.
This implies expertise and a concern for the common good. These factors
include the choice of priority sectors, strict selection of capital
investments, reduction in public spending (especially expenditures for
reasons of prestige and for armaments), more rigorous management of
public enterprises, control of inflation, support of national currency,
reform of the tax system, sound agrarian reform, initiatives of private
enterprise, and the creation of jobs. All of these are areas in which
the Church, by recalling the human and ethical dimension, addresses a
particular call to Christians to work on concrete solutions.
Improved growth rates will make it possible to meet foreign debt
commitments (capital and interest) gradually and in a better way, and to
re-establish more balanced and confident relations with other countries.
The needs of future generations must also be taken into account. This is
a duty of solidarity and justice in their regard.
2. International solidarity, in the case of the developing countries,
implies an openness which, if just and balanced, is a good in itself.
Pope Paul VI mentioned nationalism among the obstacles to be overcome
for the united development of humanity: "Nationalism isolates
people from their true good. It would be especially harmful where the
weakness of national economies demands rather the pooling of efforts, of
knowledge and of funds, in order to implement programmes of development
and to increase commercial and cultural exchange". (16)
Rare indeed is it for a country to dispose of all the resources
necessary to pursue its development in isolation and satisfy the needs
of its people. A country usually receives capital, technology and
equipment from other countries. A careful selection of these imports
will avoid increasing indebtedness without hampering development.
Conversely, an immediate and total liberalization of international
trade would risk generating competition that would endanger the
economies of the developing countries and would oblige them to make
excessively rapid and destructive adjustments in certain sectors.
Equitable rules must be set up in order to eliminate these dangers and
to establish better equality of opportunities. "In order that
international trade be human and moral, social justice requires that it
restore to the participants a certain equality of opportunity. This
equality is a long term objective... Who is there who does not see that
such a common effort aimed at increased justice in business relations
between peoples would bestow on developing nations positive assistance,
the effects of which would be not only immediate but lasting?" (17)
International trade today includes technologies, capital and
currency. In each area, the same efforts are required: "Create true
equality in discussions and negotiations... establish general
norms". (18)
A particular case in point is evident in modern technologies which
promote economic growth if they are adapted to a country's culture and
level of development. The nations which invent these technologies have,
thanks to these, a capital and power to place at the service of all.
(19)
Regional cooperation, especially among developing countries, is an
expression of solidarity which is also to be promoted in financial and
monetary matters, in order to find just solutions to the debt problems.
III. 3. Responsibilities of Creditors with Respect to Debtors
In emergency situations in which debtor countries are unable to
service their foreign debts or even meet their annual interest payments,
the various creditors need to define their responsibilities within a
framework of solidarity for survival. Those provisions, however, do not
nullify the respective rights and responsibilities linking creditors and
debtors.
The examination of the internal and external causes behind the debt,
its increase, and the amounts to be reimbursed each year by each country
will make it possible, in a spirit of dialogue, to determine the
responsibilities of the debtor and his respective creditors (States,
commercial banks) with a view to finding equitable solutions.
Except when loans have been granted at usurious rates or used to
finance projects overpriced through fraudulent complicity—in which
case legal proceedings could be initiated to revise the contracts—creditors
have rights, acknowledged by the debtors, relative to interest rates,
the conditions and schedule of reimbursement. Respect for the contract
by both parties sustains the essential trust factor. However, creditors
cannot demand contract fulfilment by any and all means, especially if
the debtor is in a situation of extreme need.
1. The creditor States have to find reimbursement conditions which
are compatible with each debtor State's ability to meet its basic needs.
Each country has to be left adequate financial leeway for its own
growth, which at the same time will help further reimbursement of its
debt.
A decrease in interest rates, the capitalization of payments above a
minimum interest rate, a rescheduling of the debt on a longer term
basis, national currency payment facilities... these are all concrete
measures to be negotiated with the debtor countries in order to lighten
the debt service burden and assist in growth recovery. Creditors and
debtors need to reach agreement on the new conditions and terms of
payment in a spirit of solidarity, sharing the necessary efforts. In the
case of disagreements on the precise ways and means, conciliation or
arbitration procedures could be requested and acknowledged by both
parties. An international code of conduct, with norms of ethical value,
would be useful as a guideline for negotiations.
The creditor States will need to pay special attention to the poorest
countries. In certain cases, they could convert the loans into grants.
This debt remission, however, must not undermine the financial,
economic, and political credibility of the "less advanced"
countries or put a stop to new flows of capital from banks.
The amount of public capital transferred from the industrialized
countries (public development aid) must return to the level of
commitments, agreed upon bilaterally or multilaterally. Creditor States
should encourage commercial banks to continue lending to developing
countries by adopting fiscal and financial provisions and guarantees
against possible risks. Coordinated policies in monetary, financial, and
commercial affairs on the part of the creditor States will help to keep
the developing countries' balances of payments on an even keel and
thereby favour debt repayment.
2. The commercial banks are direct creditors of developing countries
(States and enterprises). Their duties towards their depositors are
essential and must be fulfilled if confidence is to be maintained. These
duties, however, are not their only ones and must be compatible with
respect for their debtors whose needs are often more urgent.
Commercial banks have an active role to play in the efforts
undertaken by creditor States and international organizations in solving
the debt problem: rescheduling of debts, revision of interest rates,
relaunching investments in developing countries, financing of projects
on the basis of their impact on growth in preference to
"safer" projects with more immediate investment returns and
those of questionable usefulness (e.g. prestige investments, armaments).
This approach undoubtedly goes beyond the traditional function of
commercial banks in so far as it invites them to undertake a type of
discernment which transcends the ordinary criteria of profitability and
security for capital invested in the form of loans. Nonetheless, why
would they not assume in that way part of the responsibility in the face
of this major challenge of our times: promoting the united development
of all peoples and thereby contributing to international peace? All
persons of good will are called to this task, according to their own
expertise, professional commitment, and sense of solidarity.
3. Multinational companies are involved in international flows of
capital under the form of production-oriented investments and the
repatriation of capital (profits and defrayments). Their economic and
financial policies therefore have a negative or positive influence on
the balance of payments of developing countries (new investments and
local reinvestment of profits or repatriation of profits and sale of
assets).
While orienting the activities of these corporations in order to
involve them in development plans (national investment code), the public
authorities in developing countries could also draw up conventions with
them which define mutual obligations, especially in the areas of capital
flows and taxation.
Multinational companies have extensive economic, financial and
technological power, Their business plans go beyond and cut across
national boundaries. They must be party to the solutions for alleviating
the debt of the developing countries. As economic and financial actors
on the international stage, they are called to this co-responsibility
and solidarity which is above and beyond their own, vested
interests.
III. 4. Responsibilities of Multilateral Financial Organizations
At the end of the violence and havoc of World War II, the nations of
the world joined together to promote peace and international
cooperation, to foster the development of peoples, to satisfy mankind's
basic, requirements (health, food, education, culture) through
specialized agencies, and to conduct trade (commerce and industry) on
equitable terms. The Church has always encouraged these efforts to
construct a more just and more united world. (20)
Today, international organizations are faced with new and urgent
responsibilities: to help solve the debt crisis of the developing
countries; to avoid a generalized collapse of the international
financial system; to help all peoples, especially those in greatest
need, to bring about their own development; to combat the spread of
poverty under all its various forms and thereby promote peace by
eliminating the threats of conflicts. Among these threats, let us
remember, "there is an unpredictable and fluctuating financial
situation which has a direct impact on the highly indebted countries
struggling to achieve effective development". (21)
The multilateral financial organizations will fulfil their role if
their decisions and actions are taken in a spirit of justice and
solidarity at the service of all. Certainly, it is not up to the Church
to judge the economic and financial theories behind their analyses and
the remedies proposed. In these complex domains, certitudes are
relative. As her contribution, the Church recalls the need for mutual
understanding as a way to shed more light on realities. She also
restates the priority to be granted to people and their needs, above and
beyond the constraints and financial mechanisms often advanced as the
only imperatives.
Inter-state organizations must take care to respect the dignity and
sovereignty of each nation, above all the poorest ones, while
remembering that the interdependence of national economies is a fact
which can and must become an acknowledged bond of solidarity. Isolation
is neither desirable nor possible. "The peoples themselves have the
prime responsibility to work for their own development. But they
will not bring this about in isolation". (22)
In order to handle these new tasks, some reorganization is most
assuredly necessary: the. adaptation and expansion of their
interventions, increased means for action, effective participation of
all members in decision-making, contribution to development targets, and
priority for the needs or the poorest populations. As early as 1967,
Pope Paul VI had expressed hope for this reorganization with a view to
"the development of peoples". (23)
These reorganization endeavours will bolster the confidence to which
the inter-state organizations have a right but which they must always
justify and, at times, regain. The populations more directly affected by
the consequences of the debt crisis need visible signs in order to
recognize the equity and effectiveness of the solutions adopted.
Confidence, which is a necessary element in generating a national
consensus in accepting a fair distribution of sacrifices, and thereby
assuring the successful outcome of adjustment measures, is not the
result of economic measures alone. It is only granted if impartiality
and the service of others emerge as the motives behind decisions, as
opposed to the interests of one nation or social category. In this
latter case, suspicion creeps in, and, at times without sufficient
warning, triggers rejection, denunciation, and even violence.
It is up to the member States, especially the ones with preponderant
influence in the decision-making process because of their economic power
and level of contributions, to support these organizations in an active
way, to specify their tasks, to expand their endeavours, and to turn
these sites of power into centres of dialogue and cooperation for the
international common good.
Each of the multilateral financial organizations—International
Monetary Fund (IMF), the World Bank, regional banks—has specific
functions, and hence responsibilities in its own right. In order to
highlight their inherent character of solidarity and concordance, these
bodies will have to acknowledge the need to increase the representation
of developing countries and their participation in the major
international economic decisions that affect them. It will be the
concern of these agencies to coordinate their efforts and policies to
respond in a specific and coherent way to the most urgent debt needs
with an eye to the future. They will also have to consult the other
international financial agents in order to determine, in dialogue, with
the debtor countries, the measures to be adopted and the distribution of
responsibilities, according to each party's functions and possibilities.
Without going into those details which fall within "the vocation
of lay people acting on their own initiative with their fellow
countrymen", (24) the Church draws the attention of multilateral
financial organizations and those who work in them to a few points for
consideration:
—to examine the loan "conditions" set by the IMF openly
in a way which is adapted to each developing country; to integrate the
human factor in the "increased surveillance" over the
implementation of adjustment measures and the results achieved;
—to encourage new capital, public and private, to finance priority
projects for developing countries;
—to foster dialogue between, creditors and debtors for a
rescheduling of debts and a reduction of the sums due in one or even
more years if possible;
—to foresee special provisions to cover financial difficulties due
to natural catastrophes, excessive variations in the prices of
indispensable raw materials (commodities, energy products, mineral
resources), and abrupt fluctuations in exchange rates. Because of their
unexpectedness, their extent, and financial repercussions, these
uncontrolled phenomena disrupt the economic programmes of the developing
countries in particular and lead to a state of dangerous and costly
international insecurity;
—to prompt a better coordination of the economic and monetary
policies of the industrialized countries, encouraging those with the
most favourable impact on the developing countries;
—to look into the new problems, current and future, in order to
envisage solutions now which can take into account the widely
diversified evolution potential of national economies and the future
prospects of each country. Such forecasting, difficult and necessary, is
a common responsibility in face of future generations and will make it
possible to prevent a build-up of serious conflict situations. In a
world of rapid and profound changes, "if man lets himself rush
ahead without foreseeing in good time the emergence of new social
problems, they will become too grave for a peaceful solution to be hoped
for"; (25)
—to pay close attention to the selection and training of all those
who work in multilateral organizations and who take part in situation
analysis, and in decisions relative thereto, and their subsequent
implementation. Collectively and individually, these people bear a great
responsibility. There is always the danger of remaining on the level of
theoretical, technical, or bureaucratic solutions, while at stake are
human lives, the development of peoples, and solidarity among nations.
Economic expertise is indispensable, as is sensitivity to other cultures
and direct and concrete experience with people and their needs. To give
a firm base to these human qualities, a keen sense of the need to
promote solidarity and international justice is also important.
Final Proposal
In order to deal with the serious challenge of the indebtedness of
the developing countries, the Church calls upon all people of good will
to broaden their conscience to include these new, urgent and complex
international responsibilities, and to mobilize the full range of their
possibilities for action in order to identify and implement solutions of
solidarity.
In particular, has the time not come for the industrialized countries
to draw up a broad plan of cooperation and assistance for the good of
the developing countries?
Without drawing a parallel with what was done after World War II to
accelerate the reconstruction and economic recovery of countries
seriously damaged during that conflict, is it not imperative to start
working on a new system of aid from the industrialized countries to the
less prosperous ones, in the interests of all and especially because it
would mean restoring hope to suffering populations? Such a contribution,
which would constitute a commitment of several years, would seem
indispensable in order to enable the developing countries to launch and
conclude successfully, in cooperation with the industrialized countries
and the international organizations, the long-term programmes they need
to undertake as soon as possible. May our appeal be heeded before it is
too late!
Notes
1) Cf. Paul VI, Encyclical Populorum Progressio, 26 March
1967, nn. 64, 65, 80.
2) Cf. Congregation for the Doctrine of the Faith, Instruction on
Christian Freedom and Liberation, 22 March 1986, n. 89:
"Solidarity is a direct requirement of human and supernatural
brotherhood. The serious socio-economic problems which occur today
cannot be solved unless new fronts of solidarity are created: solidarity
of the poor among themselves, solidarity with the poor to which the rich
are called, solidarity among the workers and with the workers.
Institutions and social organizations at different levels, as well as
the State, must share in a general movement of solidarity. When the
Church appeals for such solidarity, she is aware that she herself is
concerned in a quite special way".
3) Ibid., n. 91: "International solidarity is a necessity of the
moral order. It is essential not only in cases of extreme urgency but
also for aiding true development. This is a shared task, which requires
a concerted and constant effort to find concrete technical solutions and
also to create a new mentality among our contemporaries. World peace
depends on this to a great extent".
4) John Paul II, Message for the 1986 World Day of Peace, nn.
4, 7.
5) Congregation for the Doctrine of the, Faith, Instruction on
Christian Freedom and Liberation, n. 16: "New relationships of
inequality and oppression have been established between the nations
endowed with power and those without it. The pursuit of one's own
interest seems to be the rule for international relations, without the
common good of humanity being taken into consideration".
6) Cf. ibid., n. 90: "The principle that goods are meant for
all, together with the principle of human and supernatural brotherhood,
express the responsibilities of the richer countries towards the poorer
ones. These responsibilities include solidarity in aiding the developing
countries, social justice through a revision in correct terms of
commercial relationships between North and South, the promotion of a
more human world for all",
7) Cf. John Paul II, Encyclical Laborem Exercens.
14 September 1981, n. 18,
8) Cf. Paul VI, Encyclical Populorum Progressio, nn.
56-66.
9) Ibid., n. 65.
10) Paul VI, Letter Octogesima Adveniens to Cardinal Maurice
Roy, 14 May 1971, n. 48.
11) Cf. Synod of Bishops, Justice in the World, 1971.
nn. 42-51.
12) John XXIII, Encyclical Mater et Magistra, 15 May 1961, n.
122. Cf. Congregation for the Doctrine of the Faith, Instruction on
Christian Freedom and Liberation: "New relationships of
inequality and oppression have been established between the nations
endowed with power and those without it" (n. 6). "Whoever
possesses technology has power over the earth and men. As a result of
this, hitherto unknown forms of inequality have arisen between those who
possess technology and those who are simple users of technology"
(n. 12).
13) The "drain" of national capital reserves towards other
countries does not concern the developing countries alone. However, it
does entail more serious consequences for the developing countries in
debt, especially when the capital drain involves substantial amounts. A
moral judgement in these new areas must begin with an in-depth analysis
before proposing solutions.
14) Congregation for the Doctrine of the Faith, Instruction on
Christian Freedom and Liberation, n. 75,
15) Objective analysis, improved behaviour and institutional reforms
relate not only to the authorities in developing countries, but also and
in equal degree to those in the industrialized countries in their own
domestic activities and in international relations.
16) Paul VI, Encyclical Populorum Progressio, n. 62
17) Ibid., n. 61,
18) Ibid.
19) Cf. John Paul II, Encyclical Laborem Exercens, nn. 5, 12;
Congregation for the Doctrine of the Faith, Instruction on Christian
Freedom and Liberation, n. 12,
20) Cf. John Paul II, Message to the 40th UN General Assembly,
18 October 1985, nn. 2-3.
21) John Paul II, Message for the 1986 World Day of Peace, n.
2: Among the suggestions to reduce North-South tensions: "I am
thinking of the debt borne by the poor nations and a better and more
responsible use of credits in the 'developing countries'".
22) Paul VI, Encyclical Populorum Progressio, n. 77.
23) Ibid., n. 64: "We hope that multilateral and international
bodies, by means of the reorganization which is required, will
discover the ways that will allow peoples still underdeveloped to
break through the barriers which seem to enclose them".
24) Cf. Congregation for the Doctrine of the Faith, Instruction on
Christian Freedom and Liberation, n. 80,
25) Paul VI, Letter Octogesima Adveniens to Cardinal Maurice
Roy, 4 May 1971, n. 19.
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