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Pope Benedict XVI Insists: No Structural Adjustment Related to Forgiveness of the Foreign Debt. But What Is It?

The Holy Father recently drew the attention of national leaders when he said something dramatic and startling in his address to the Diplomatic Corps.

When he asked that the process of debt cancellation and reduction for the poorest countries be continued and accelerated, Pope Benedict XVI insisted that these processes must not be made conditional upon structural adjustments that are detrimental to the most vulnerable populations (see below).

Many of our readers will ask, however, what on earth are structural adjustments?

Some might even say, after all, we are propping up economies all around the globe. “We only help!”

A little history may make the situation more clear. More than 40 developing (e.g. “Third World”) countries owe billions of dollars to the United States, Europe and other foreign financiers on loans that they took out more than three decades ago. What’s worse, in order to reschedule their payments, the vast majority of these nations have been coerced into participating in Structural Adjustment Programs (SAP’s), negotiated through the World Bank and/or the International Monetary Fund (IMF).

In structural adjustment programs the focus in on debt reduction. Priority is given to exporting the products that bring in the most cash, even if it includes paying slave wages, using environmentally destruc-tive methods of production, or exporting the best and most nutritious food.

Bad Loans-Whose fault?

The underpinnings of the “Third World” debt crisis can be traced back to the end of the Second World War, when the United States found itself in a position of great surplus relative to the rest of the globe. Not wanting to sacrifice the high levels of output it had achieved during wartime, the U.S. (through commercial banks) began to administer loans to developing countries in Africa, Latin America, and Asia so that they could keep purchasing American goods.

This North-South pattern of capital flow continued to gather momentum through the 1970’s, when unprecedented increases in oil prices on the part of the nascent OPEC created massive profits for its members, who, in turn, inundated Northern banks with deposits. To properly recycle these “petrodollars”, many of these banks greatly augmented their loans to the developing world, resulting in a virtual “lending frenzy.” (David Simon, et al., eds.Structurally Adjusted Africa: Poverty Debt and Basic Needs. London: Pluto Press, 1995, p. 62).

Consequently, Third World debt burdens began to mount during the last half of the decade, and continued to do so into the early 80’s, in the face of rising interest rates and global recession. In many cases the lenders simply immorally raised and continued to raise the interest rates on existing debts to the point where countries had paid their debts many times over, but the IMF and World Bank declared they had only paid interest.

By 1982, many debtor countries were rapidly approaching the point of default, or that at which their accumulated debt service would overtake their annual income from foreign aid, portending financial ruin for the Northern banks.

In a desperate attempt to delay this burgeoning global debt crisis, the World Bank and the International Monetary Fund stepped in, offering to effectively bail out the commercial banks. Essentially, the World Bank and the IMF offered to provide debtor countries with the necessary loans to enable them to continue servicing their debt, provided that they “adjusted” their economies according to specific policy requirements. These requirements soon came to be embodied in country-specific Structural Adjustment Programs (SAP’s) and were reflective of a concomitant neoliberal revolu-tion in economic thought (called neoconservatism in the United States). Thus, in negotiating SAP’s, the IMF and/or the Bank typically dictated (and continue to dictate) a number of supply-side and trade liberalization measures, such as privatization, currency devaluation, price decontrol, export incentives, decreased government spending, and exchange rate flexibility.

Poverty, Not Relief

In most countries, the SAP’s have intrinsically favored the “comprador” class, comprised of professionals, businessmen, technocrats, and other Northern-educated elites. Corporations and private industries, who are given free reign of the land under the “invisible hand” ideology of adjustment, have crowded out the public sector and many small, locally-owned businesses.

In addition, neoliberal attempts to “flexibilize” labor– cracking down on trade unions and giving managers more con-trol over employees’ hours– in a number of debtor countries have seriously depressed earnings among lower-income groups.

Of even further detriment to the lower classes are the drastic cuts in social services that typically accompany adjustment. Many governments have been forced to decrease spending in areas such as health care and education in order to comply with SAP-imposed budgetary restraints.

In order to respond to their demands for increased exports, many Third World countries undergoing SAP’s have been forced, to divert resources away from small-scale, domestic food production into giant com-mercial farms, most of which are owned by US-based multinational corporations. Not only do these “agrobusinesses” (and the capital-intensive agricultural practices they promote) threaten food security, they do little, if anything, to promote economic diversifi-cation.

The concurrent rapid develop-ment of the maquiladora or outsourcing system for cheap labor in poor countries with no provision for payment of local taxes and strict enforcement against labor organizing has created miserable working conditions and under subsistence pay for poor workers—who often were forced to migrate.

It is our hope that the Compendium of the Social Teaching of the Church will be amended to include the Holy Father’s teaching regarding debt repayment and forgiveness.


Pope Speaks to Diplomats

by Pope Benedict XVI

At the start of the year, we are invited to turn our attention to the international situation, so as to focus upon the challenges that we are called to address together.

Among the key issues, how can we not think of the millions of people, especially women and children, who lack water, food, or shelter? The worsening scandal of hunger is unacceptable in a world which has the resources, the knowledge, and the means available to bring it to an end.  It impels us to change our way of life, it reminds us of the urgent need to eliminate the structural causes of global economic dysfunction and to correct models of growth that seem incapable of guaranteeing respect for the environment and for integral human development, both now and in the future. Once again I invite the leaders of the wealthiest nations to take the necessary steps to ensure that poor countries, which often have a wealth of natural resources, are able to benefit from the fruits of goods that are rightfully theirs. From this point of view, the delay in implementing the commitments undertaken by the international community during the last few years is another cause of concern.  So it is to be hoped that the trade negotiations of the “Doha Development Round” of the World Trade Organization will be resumed, and that the process of debt cancellation and reduction for the poorest countries will be continued and accelerated.  At the same time, these processes must not be made conditional upon structural adjustments that are detrimental to the most vulnerable populations.

Equally, in the area of disarmament, symptoms of a developing crisis are multiplying, linked to difficulties in negotiations over conventional weapons and weapons of mass destruction and also to the rise in global military expenditure. Security issues – aggravated by terrorism, which is to be utterly condemned – must be approached from a global and far-sighted perspective.

As far as humanitarian crises are concerned, we should note that the organizations dealing with them need greater support, so that they can be equipped to provide protection and assistance to the victims. Another concern which looms ever larger is that of the movement of persons: millions of men and women are forced to leave their homes or their native lands because of violence or in order to seek more dignified living conditions. It is an illusion to think that migration can be blocked or checked simply by force.  Migration and the problems to which it gives rise must be addressed humanely, with justice and compassion.

How can we not be alarmed, moreover, by the continuous attacks on life, from conception to natural death? Such attacks do not even spare regions with a traditional culture of respecting life, such as Africa, where there is an attempt to trivialize abortion surreptitiously, both through the Maputo Protocol and through the Plan of Action adopted by the Health Ministers of the African Union – shortly to be submitted to the Summit of Heads of State and Heads of Government.  Equally, there are mounting threats to the natural composition of the family based on the marriage of a man and a woman, and attempts to relativize it by giving it the same status as other radically different forms of union. All this offends and helps to destabilize the family by concealing its specific nature and its unique social role. Other forms of attack on life are sometimes committed in the name of scientific research. There is a growing conviction that research is subject only to the laws that it chooses for itself and that it is limited only by its own possibilities. This is the case, for example, in attempts to legitimize human cloning for supposedly therapeutic ends.

This overview of matters of concern must not distract our attention from the positive elements characteristic of the modern age. I should like to mention first of all the growing awareness of the importance of dialogue between cultures and between religions. This is a vital necessity, particularly in view of the challenges we all face regarding the family and society. I want to draw attention, moreover, to numerous initiatives in this area aimed at building common foundations for harmonious co-existence.

It is also timely to note the growing awareness shown by the international community of the enormous challenges of our time, and the efforts made to transform this awareness into concrete action. Within the United Nations Organization, the Council for Human Rights was established last year, and it is to be hoped that this will focus its activity on defence and promotion of the fundamental rights of the person, especially the right to life and the right to religious freedom.

Within the framework of development, various initiatives have been undertaken to which the Holy See has not failed to pledge its support, at the same time reiterating that these projects must not supplant the commitment of developed countries to devote 0.7% of their gross domestic product to international aid. Another important element in the collective struggle to eliminate poverty, in addition to aid – which one can only hope will expand – is a greater awareness of the need to combat corruption and to promote good governance. We must also encourage and continue the efforts that have been made to guarantee human rights to individuals and peoples, for the sake of more effective protection of civilian populations.

From the Address of His Holiness Pope Benedict XVI
to the Diplomatic Corps Accredited to the Holy See.
Monday, 8 January 2007


Houston Catholic Worker, Vol. XXVI, No. 1, Jan.-Feb.. 2007.