The Debt Threat : How Debt Is Destroying the Developing World

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Summary: Third world debt is a noose and a time bomb
Review: Large amounts of government debt are a combination of a noose around the neck of many developing countries as well as a potential time bomb that could explode and threaten the developed countries as well. When I was growing up, I was repeatedly told how much the United States was giving to the poor countries of the world in foreign aid: money, equipment and food. I also heard many times about the anti-American stance that people in those countries had and how their lack of gratitude was disgraceful. Once I entered graduate school, I encountered people from other countries and we talked very frankly about how they perceived the United States. Those from Chile talked about how they watched the Chilean military round up their friends and take them to the soccer field, and how they later heard gunshots and never saw the people again. They also described how the same thing was happening in Argentina. At the time, those regimes were strongly backed by the U. S. as fellow anticommunist governments and received substantial amounts of American aid.
Students from other countries considered U. S. allies also talked about how the aid sent by the United States and other western countries was used to buy arms and equipment for the government forces and very little was ever distributed to the people. A large amount of the aid that the United States sent to third world countries before the collapse of the Soviet Union was used to buy weaponry or to bribe the leaders. The only two conditions imposed on them were that the weapons had to be purchased from the west and the country had to maintain a firm stance against communism. If the leaders receiving the money followed these guidelines, then they were free to skim whatever they felt they needed with no threat of the funds being cut off. Therefore, those nations are now overloaded with vast amounts of debt that they can never repay. One of the main themes of the book is that most of the debt of the third world countries should be forgiven. Since it was the price that the west paid to defeat communism, that is one strong argument in favor of the debt cancellation.
There is also the ugly history of the origin of much of the debt, namely greedy bankers who literally pushed the debt onto governments, giving out massive loans, knowing that the U. S. government would step in to avoid defaults in the worst cases. The International Monetary Fund (IMF) and the World Bank have forced debtor governments to institute policies that have made bad situations worse. In Rwanda, after the horror of the genocide was over, and there was not even so much as a stapler in the government buildings, the new government pleaded with the IMF to give them an emergency loan. The response was that they first needed to pay the three million in interest that they currently owed.
This theme of western rapaciousness in the face of increasing problems is the saddest aspect of the situation. In western societies, if a person goes bankrupt, the law allows them to keep some of their assets and at least tries to let them keep enough so that they can work, seek medical care and avoid starvation. That has not been the case with the IMF, which has forced nations to chose between making their interest payments and providing medical care and education for their citizens. In many nations, schools and hospitals have closed, as there is no longer any money to keep them open. The IMF had dictated that in order to get additional assistance, they must make their onerous payments. Such policies will only make the situation worse in the long term and is breeding a great deal of resentment. As Hertz points out, many of those nations are Muslim and this is the source of a great deal of anti-western hostility.
The worst two aspects of this situation are how rich some western people and institutions are getting from this. She describes how much money many of the lending institutions have made from these bad loans; few of them have truly lost significant money, even when a nation has defaulted. In my mind, the worst is what Hertz refers to as the debt vultures. These are people who spend their time in the legal system acquiring what few assets the debtor nations have in the west, stripping them of one of the few things they have of value. This is done in an attempt to pay off some of their debt. When she interviews one and asks about any feelings of remorse he may have because he is literally forcing thousands of people to an early death from starvation and disease, the vulture shows none. Such actions are considered criminal in the United States, but are routinely committed against the poor of the third world.
Hertz was in the former Soviet Union as it was collapsing, working with the international banking agencies and implementing their policies. Her opinion is that those policies were so destructive and shortsighted that they helped accelerate the collapse of the Russian economy. By trying to impose a western style capitalist economy, the functional parts of the old Soviet economy collapsed and this led to the rise of the underground and criminal economy.
This is a book that all people who study the relationships between the wealthy and poor nations should read. I will never forget my discussions with my classmates from Chile. While we all got along and they enjoyed being in the United States, there was bitterness in their voices when they talked about the events in their country. I realize that they will never forget that the United States encouraged and bankrolled the Chilean military and will always assign some blame to the United States. I also understand that they are only a few of the billions of people around the world who have similar reasons to hate the United States. It is time that western banking and political institutions recognize that it is in their best interests to implement a policy that will allow the debtor nations to recover from their indebtedness and begin to expand their infrastructure, educate their people, treat their sick and protect their natural resources.

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Summary: Important and accessible history (and solutions)
Review: A highly readable and accessible book on an important subject that most people believe is too difficult to understand. Hertz's history of third world debt, which takes us from the Bretton Woods agreements to the present day, is interspersed with stories from the author's work and observations, such as Bono's Jubilee activism and the author's own foray to Russia as a consultant for the World Bank and International Monetoary Fund. Every American should read this book -- particularly every American who finds the subject off-putting, doesn't think it really matters, or has wondered why all those people are protesting globalization.

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Summary: Blueprint for change, endorsed by rock stars
Review: Few exhortations to action manage to blend a detailed objective analysis of the facts; a practical, well thought-out agenda for change; and the true passion that comes of moral certainty. Dr Hertz's book somehow pulls it off.

Her central case is that developing country debt is the legacy of bad decisions - bad on the parts of the lenders, and of the borrowers. The consequences are awful at the human level, on a massive scale, just as Bono eloquently described at the Labour Party conference. IOU goes some way down the same path, successfully mixing the pure statistics of poverty with anecdotes of uneducated children, needlessly untreated HIV/AIDS sufferers, and women forced into prostitution. One of this book's strengths, however, is that it brings to the fore something far less obvious: namely, that the consequences of debt are malicious for the lenders in the rich world too. The debt quagmire entrenches much of the world's unrealised economic potential in a spiral of corruption, dampening demand for western goods and limiting investment, breeding ill-feeling towards lender nations, and ultimately contributing to the existence of failed states in which terrorists can thrive.

She goes on to explain exactly how to break the spiral, and anticipates and overcomes the practical objections. In a nutshell, she proposes applying strict criteria to debt relief, and an ingenious series of controls to ensure that money freed up benefits people rather than corrupt politicians.

Dr Hertz's breathless writing style conveys her passion for the subject rather well. Colloquialisms, run-on sentences, and a strange eye for the physical characteristics of her protagonists all give the sense of being on the receiving end of an intense face-to-face monologue rather than reading a dry book about development economics. Male characters "probably used to be good looking"; women are "hose clad". But the facts and figures to buttress the case are never far behind. If there is perhaps one area in which she stretches the case a little too far, it is in the impact of debt on the environment. The reader gets the sense that because both debt and climate change are important, there must somehow be a causal link. But this section does little do dilute the impact of the whole.

All in all, an engaging and important piece of work that deserves the plaudits. As Bob Geldof says: "everyone should read this book".