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When the Din of Self-Congratulation Fades

Christopher Scanlon

It’s taken a tsunami and hundreds of thousands of dead or displaced, but minds now seem firmly trained on the questions of aid and Third World debt. In the days following the shock of the disaster, the Australian Government’s response set the standard for the rest of the world. Even critics of other areas of government policy, such as Tim Costello, praised the aid package as a model for wealthy governments.

And on face value, it is a generous contribution. As Oxfam policy director James Ensor noted, it’s new money, and the aid is spread over five years, lessening the likelihood of ‘big-bang’ spending that does little over the longer term.
Before getting carried away with self-congratulation, however, some sense of proportion is needed.

When it comes to aid, the Australian government’s overall performance has been far from exemplary. Using the latest OECD donor tables, the Australian Council for Overseas Development notes that Australia is placed 15th out of 22 developed countries. At 0.25 per cent of gross national income, this is well below the target of 0.7 per cent set by the United Nations.

Furthermore, much of the government’s official aid program could be mistaken for an elaborate industry assistance scheme. A 2004 report released by AID/WATCH, for example, noted that much of the aid given to Papua New Guinea — historically the largest beneficiary of Australia’s bilateral aid program — was in the form of tied aid: funds given on condition that the recipient purchases goods and services from Australian companies. While better than nothing, tied aid deprives local communities of the opportunities to develop the skills and resources necessary for sustainable development. (Admittedly, though, this situation does appear to be changing. In late 2004 Alexander Downer announced that future tenders would be open to other businesses with operations in recipient countries. But as AID/WATCH notes, it remains to be seen whether this will benefit local economies. It may simply institute an open-slather approach to tendering, which places local firms in competition not only with Australian companies but overseas firms.)

The other side of the aid question is debt and the broader operation of the global market. Overseas aid is pointless if the recipients are so heavily crippled by debt that the aid immediately flows back to creditors countries in the form of interest repayments.

Of particular concern are ‘odious debts’, an idea developed by Alexander Sacks in the 1920s that has provided much of the impetus behind current efforts to cancel Third World debt. Debts are deemed odious when they are incurred by regimes that are unrepresentative of a people and not used in their interests — frequently in full knowledge of the creditor states and institutions. In Sack’s words:

If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime … this debt is odious … This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power.

Sacks held, reasonably enough, that a people that had no say in incurring a debt and did not derive any benefits from it should not be held responsible for it. The people of Iraq are the most obvious example of a people subject to odious debt, but there are many more.

The Howard government is deaf to such arguments. For Howard, freeing countries from crippling debt puts some states, temporarily at least, outside the reach of the global market and therefore cannot be countenanced. At the recent World Economic Forum in Davos, Switzerland, John Howard made it clear that he regarded debt cancellation as a fashionable aside. The real issue, he says, is Third World access to protected markets — particularly EU markets — and poor governance, mainly corruption in debtor states.

There is a point here — but one that further underlines the need for deeper structural reforms of the global market to achieve poverty alleviation. In particular, Howard’s arguments overlook the fact that the roots of the present debt crisis lie in freely flowing capital. Specifically, they are traceable to the lending practices of developed states since the first oil shocks. Flush with petrodollars from oil price hikes, banks in developed countries poured money into the Third World with little concern for the long-term prospects of borrower countries to manage debt. When commodity prices went through the floor, debtor states found themselves unable to service the massive debts they had incurred.

Over the same period, particularly over the 90s, developed states have become increasingly dependent, both directly and indirectly, on the steady flow of revenue from foreign lending to finance pension funds. Stricter governance regimes on Third World lending and restrictions on capital flows more generally would potentially dent the ability of developed states to pay their citizens’ entitlements and would therefore create difficulties for any government to implement.

This is to say nothing of the ways in which increased capital mobility can radically destabilise whole societies, unraveling years of development efforts, as seen in the Asian financial collapse in 1997, or free markets can dampen commodity prices through rich countries offloading excess production on Third World markets.

This broader backdrop puts the generous aid pledges to the victims of the Tsunami in a different light. In some ways, they can be regarded as an implicit acknowledgement of the developed world’s own ‘odious debt’: the debt that the developed world owes the Third World, given that our own societies and the standard of living that we have are structurally dependent on the immiseration of entire societies.

That’s not to say that every death could have been avoided — to suggest so would be plainly ridiculous. The death toll from the tsunami was always going to be high. But at the same time, the strident insistence that nothing more could have been done, that this was a natural disaster in whose path we were powerless to act, rings hollow. On the contrary, it is probable that many deaths could have been avoided if adequate infrastructure, particularly communications infrastructure, had been in place, infrastructure which is not there partly because of mal- and under-development.

Information in this editorial drew on the Odious Debts website