Debt relief, or more grief: attempts to improve the living standards for the majority of people in the developing world seem doomed to fail as long as their nations carry the huge debt burdens they have built up.

Are we living through a period of change that is as fundamental as the upheaval of the Industrial Revolution? A lot of people think we are, among them Peter Drucker, a leading management consultant. He has called the process of globalization "the age of social transformation ... Every few hundred years in Western history, there occurs a sharp transformation. Within a few short decades, society rearranges itself--its worldview: its basic values: its social and political structure: its arts: its key institutions. Fifty years later, there is a new world."

The process of globalization has been picking up momentum since the early 1970s. However, the major turning point came in 1991 with the collapse of the Soviet Union. That left one way of organizing society supreme--the the Western concept of democracy operating within a capitalist economy. Unchallenged by any other ideology, this system now dominates globally linking the whole world as one market.

Globalization can be a very powerful force for good. It has the potential to spread prosperity to places that previously have only "known poverty.

Without getting too carried away, it's even possible to see globalization working as a force for world peace.

Its supporters portray globalization as a win-win proposition, but, in reality, it is more of a zero-sum game that produces winners and losers. So far, the winners have been the already wealthy industrialized nations of the North, such as Canada. The losers are all among the developing countries of the South.

A majority of nations sees the goal of international financial institutions to be the widening of the circle of winners and the support of those less able to compete internationally.

Richard C. Longworth is a senior writer for the Chicago Tribune and author of Global Squeeze: The Coming Crisis for First-World Nations (1998). He writes that globalization is a work in progress ... "If the global economy is not yet complete, it is becoming more intertwined and integrated every day. International trade is growing by eight percent per year, more than double the rate at which the world's total economic output is growing. Foreign investment (investing in the ownership of foreign businesses) has been growing by 12 percent per year and is now more valuable than trade: The annual economic output of foreign-owned businesses exceeds the value of all foreign trade combined."

This explosion in economic activity should have raised everybody's living standards, but it hasn't. As we've seen, the poor are still poor and growing in number. Meanwhile, the rich are getting richer. At the same time, the world's poorer nations are falling deeper into debt.

Developing countries now pay more in debt servicing than they get in new credit. Between 1982 and 1990, the South transferred a net $418 billion to the North. Between 1987 and 1995 the IMF received $4 billion more in debt repayments from the most indebted and impoverished countries than it had provided.

Jacques Chirac, President of France put it very simply in 2003: "Excessive debt hampers development." But, what is excessive? Is $2.5 trillion excessive? Most people would agree that it's a bit high. But, $2.5 trillion is what the world's low- and middle-income nations owe wealthy nations, creditors, and international financial institutions.

The states of Africa alone spend $15 billion a year paying back wealthy creditors. Of course, money spent on debt is money not invested. In fact, ten African governments pay more on servicing their debts than they do on health care and primary education combined.

Debt relief for the states in the worst economic shape will have to be part of any future global economic picture. There are programs already in place.

The Bretton Woods institutions have set up one such scheme. In the jargon of international organizations the countries at the bottom of the economic ladder are called Heavily Indebted Poor Countries, or HIPCs, for short.

The HIPC Debt Initiative places a series of requirements on nations. If, after three years of government spending cuts, a nation can show fiscal responsibility some debt relief will be granted. But, meeting the HIPC terms doesn't guarantee a stable financial future free from debt.

Uganda, which became the first "graduate" of the HIPC program in 1998, has already gone through it a second time. The African state was beginning to make progress when it was blindsided by a collapse in the price of its main export--coffee. It now qualifies a third time as having an unsustainable debt, and may go through the HIPC Initiative again, in the mid-1990s, Uganda spent $3 on health for every $17 it paid in debt service, most of which went to multilateral lending institutions.

Overall, HIPC relief has brought a 27 percent reduction in average annual debt payments to the 22 countries that have begun to benefit. Critics say this doesn't really help a lot.

Most of these countries are so far in the hole that they were likely to be unable to pay back what they owed anyway. These critics, such as the 50 years is Enough Network, say the HIPC Initiative is mainly aimed at squeezing the most out of impoverished nations. What they want to see is total debt forgiveness.

The people at the 50 Years is Enough Network get pretty riled up when they talk about developing country debt.

"Regardless of who has benefitted from years of reckless lending and spending, it is entire countries and their citizenries, not government officials or bankers, who are held accountable for the loans. Well-paid bankers in Washington prattle about the 'moral hazard' of setting the precedent of letting debtors off the hook, with no acknowledgment that the beneficiaries were contractors in the North (for infrastructure loans) and corrupt autocrats in the South. Those the institutions choose to see as the 'debtors' are the poor people of Africa, Asia, and Latin America who have had no share in any gains from the loans and had no part in the decision to take them in the first place."

The way off the debt treadmill for many of the poorest nations, say these critics, is complete cancellation of their debts and a fresh start.

Canada has begun to write off the debts of some countries. In 2000, Ottawa announced it will apply a moratorium on debt repayments from 11 of the poorest countries in Africa and Latin America. Also, Canada has been the first of the G7 countries to pledge cancellation of all the debts of the 41 HIPC countries once they have finished the HIPC Debt Initiative. Without wiping the slate clean, the most indebted nations will probably never begin to deal with their extreme poverty. Their future will be very much like their past--and that's not a happy prospect for anyone.

Websites

50 Years is Enough http://www.50years. org/index.html

HIPC Initiative--http: //www. worldbank.org/hipc/

Jubilee Research http://www. jubilee2000uk.org/

Paris Club--http:// www.clubdeparis. org/en/index.php

RELATED ARTICLE: Going broke.

When Air Canada got into such a financial mess that it couldn't pay its employees or its creditors, the courts, in April 2003, allowed it to file for what's called bankcruptcy protection. This tactic gives companies a bit of breathing space. While in bankruptcy protection they can operate as usual, but creditors can't close them down for unpaid debts. They can also re-open contracts and try to get workers to accept lower wages and financial institutions to agree to slower repayment of debt. It's a drastic move because it signals to company stakeholders that it is in very serious trouble and if they don't settle for less they might end up with nothing at all. Companies usually emerge from bankruptcy protection in better shape to face the future, although the people they do business with are often nursing throbbing headaches.

So, if it works for corporations why not countries? Just that idea has been floating around think tanks, universities, and financial institutions for several years. It's even received the nod of approval from Anne Krueger, one of the top people at the International Monetary Fund. The Sovereign Debt Restructuring Mechanism (SDRM) was devised by the G7 and adopted by the IMF. Under this approach, nations that believe they are falling into a pit of debt from which they can't escape can call up the IMF and activate the SDRM. This allows them to stop making payments to their external creditors while negotiations proceed to restructure what they owe.

If a company goes through bankruptcy protection and is still a turkey then it's likely to be closed down. Anything the company owns is sold off and the proceeds distributed among the creditors. But, you can't close down a country and sell off its assets. In contrast to the well-developed and explicit legal framework that has existed for decades for firms and individuals, there is no agreed, well-defined legal framework for managing bankrupt countries.

RELATED ARTICLE: The club of 41.

There, are 41 nations in a club nobody wants to join: the most Heavily Indebted Poor Countries (HIPCs):

Angola

Benin

Bolivia

Burkina Faso 

Burundi

Cameroon

Central African Republic 

Chad

Congo

Congo, Dem Rep.

Ethiopia

The Gambia

Ghana

Guinea

Guinea-Bissau

Guyana

Honduras

Ivory Coast 

Kenya

Laos

Liberia

Madagascar

Malawi

Malt

Mauritania

Mozambique

Myanmar

Nicaragua

Niger

Rwanda

Sierra Leone 

Sao Tome Principe

Senegal

Somalia

Sudan

Tanzania

Togo

Uganda

Vietnam

Yemen

Zambia

RELATED ARTICLE: The global corporation.

There are an estimated 50,000 companies that now have operations that are mostly global in scope. Some of these businesses are so huge they dwarf dozens of smaller nations, and even challenge in size some of the bigger ones.

Typically, these global corporations have a small headquarters staff. Manufacturing, research and development, accounting, and many other functions are located where the people the best and the costs lowest.

Richard C. Longworth, author of the 1998 book Global Squeeze: The Coming Crisis for First-World Nations (1998), writes that these companies no longer have national allegiances. Siemens AG is no longer a "German" company: BP Amoco is not "British" anymore: and the Ford Motor Company can't still be called "American."

When they were still fundamentally national organizations these companies "struck a social compact with their employees and communities," writes Mr. Longworth, "through a web of labour agreements, environmental and tax laws, charitable giving, and other obligations, voluntary, or imposed. The global corporation is now mobile enough to escape these obligations and break the social compact. Companies that once competed domestically with other companies sharing the same social obligations now compete with firms halfway around the globe, where environmental laws may not exist and pay scales are a fraction of Western wages."

To see this trend in action we don't have to go far. Since the North American Free Trade Agreement came into effect in 1994, Canadians have watched as thousands of well-paying jobs have moved south to Mexico. But, those jobs haven't done much for Mexicans. According to the United Nations, the number of Mexicans living in poverty climbed from 32 million to 43 million between 1990 and 1998. At the same time, the Canadians whose jobs moved south and now do other work find their new employment gives only about three quarters of the wages and benefits they had before.

It seems likely that, in the future, global corporations are going to be pressed to reinstate at least some of the social obligations they have shed over the past couple of decades.