Debt-for-Education Swaps: Part II

World's first debt museum?! This past week I finally made the trip to Argentina's Foreign Debt Museum at the University of Buenos Aires' School of Economics.

The blue light box displays the faces of the Ministers of Economy who presided over the debt explosion during the dictatorship (1976-83). The wall is covered in press clippings reporting political developments.

A corner of the museum is dedicated to ex-President Carlos Menem's golden age of indebtedness, privatizations, pegging the peso to the dollar, and his surgically enhanced smile.

Never again. We are convinced that this tragedy cannot be allowed to repeat itself. We have to generate a collective consciousness so that we can be aware of the economic decisions taken by our leaders. Indebtedness has not only resulted in sending great quantities of resources overseas (resources which could have been used for health, education, help for the poorest etc.), but it has also been the main weapon used by concentrated capital to carry out neoliberal reforms which have destroyed the country’s productive structure.

Brochure from the External Debt Museum, Buenos Aires (inaugurated April, 2005).

‘Never again’ (Nunca más) is an internationally used slogan to condemn genocide and crimes against humanity. In Argentina, the term nunca más is synonymous with the forceful response to the 1976-83 military government which systematically killed and disappeared 10,000-to-30,000 ‘subversive’ Argentines.

By invoking nunca más, the creators of the External Debt Museum want to make a powerful, often overlooked link: “The military dictatorship did only dedicate itself to the disappearance, the torture, and the murder of thousands of persons, but it coordinated these crimes with policies which forever modified Argentina’s productive and social structures in the interests of the dominating sectors.”

Indeed, the debt incurred by the military regime is a criminal act on its own. When the dictatorship took power in 1976, the country’s debt stood at $8,3 billion. When the regime fell in 1983, they had indebted the country to a whopping $45,7 billion. Not surprisingly, most documents and records of the debt had been destroyed.

The museum uses World Bank data to show where these loans ended up: 44% of the funds were used to finance capital flight, 33% went to paying interest to foreign banks, and 23% were used to import arms and non-identified goods. It is also estimated that the military nationalized $15 billion private sector debt; that is, bailouts for businesses friendly to the dictatorship.

There is a growing international consensus that debts incurred by illegitimate governments, like Argentina’s military junta, are odious and shouldn’t be recognized.

However, given Argentina’s weak justice system, there is an ongoing 20-plus years judicial process to determine how much of Argentina’s debt is odious, and who exactly should be held responsible. Similarly, more than two decades after the gross human rights violations, many with blood on their hands continue to enjoy immortal impunity.

The central point I am trying to make is this: economic policies are not carried out in a vacuum by Finance Ministers or World Bank economists. It is essential to understand that the major social, economic and political changes initiated in Argentina, Chile, Paraguay, Bolivia, Brazil, and Uruguay around three decades ago grew from the barrel of a gun.

The explosion of Latin American debt is a case in point. The debt crisis is much more than a problem of irresponsible lending and borrowing. Debt initially skyrocketed under the auspices of anti-democratic, corrupt, and criminal practices. Not surprisingly, the crisis has been accompanied by several policies which have failed to create sustainable growth, employment, greater equality or reduce poverty for almost three decades.

In 2004, Latin America’s debt stood at $780 billion, making it the most indebted region in the world. The region is caught in a development trap since it must choose between paying its debt or increasing social spending.

As I mentioned in my previous post, debt servicing exceeds education spending in over half of the region’s countries. This trend must be reversed.

Yet I am not sure if blanket debt forgiveness is part of the solution.

While I view the recent G8 deal to forgive the debt of 18 of the world’s most poorest countries as a promising step forward, there are reasons to be cautious. Oddly enough, Africa’s richest man makes some reasonable arguments on the hazards of simple debt cancellation and increasing aid.

In my next post, I will expand upon the problems with blanket debt-forgiveness, and how debt-for-education swaps offer an alternative.