Born to Debt?
Reflections on the Debt Crisis
by David S. Lim, Ph.D.
Today, a majority of human beings are born, not only with original sin but also with original debt. The Third World now owes about $1.5 trillion to creditors, so every child in that world is indebted up to $1000 at the moment of birth. At the annual rate of interest of 10% compounded, these people at the age of 21 will each owe $7,000, and if they marry at that age, each couple will begin their married life with a joint burden of $14,000.
The debt crisis should be confronted not only as an economic problem but as a moral dilemma. To solve this economic burden requires competence in financial affairs in all its human and ethical dimensions.
Given this assumption, this article will show that the best biblical perspectives lead to the call for “debt service cap”, “ selective repayment”, and some major cancellation or selective non-payment of debts, based on at least five (5) reasons:
1. Curse of Indebtedness. The Scriptures discourage people and nations to go into debt. Indebtedness is a sign of being cursed, while lending to others is a sign of being blessed (Dt. 15:5,6; Prov. 22:7). The ideal is that there will be “no poor among you” (Dt. 15:4), that all will enjoy God’s abundant provisions.
Although there is no direct prohibition for commercial lendings, most lendings are considered usurious, and thus prohibited (Ex. 22:25; Lev. 25:35 ff; Dt. 23:19-20); they are exploitative of other’s misfortune. Though Jesus mentioned of investing to earn income (Mt. 25:27), he retained the OT prohibition against charging interests for loans (Lk. 6:31 ff: cf. New Bible Dictionary, “Debt”, p. 276).
Indebtedness is burdensome, hence it must be avoided. “Owe no one anything…” (Rom. 13:8). Including the government – all taxes and customs are obligations that must be paid (13:6-7).
Thus, debtor countries should minimize if not to eliminate the urge to get more loans. The Philippine government, for instance doesn’t need to borrow more money from abroad. There is a large inflow of funds from abroad (especially from exports and the so called $10 billion Philippine Aid Plan) as well as a local sources, like the Sweepstakes, PAGCOR, PCGG, and the Assets Privatization Thrust (APT).
Though it seems impossible to change the present Filipino dependent (if not mendicant) attitude, the pursuit of our national interest and the biblical ideals requires that we refrain from going into deeper indebtedness.
Corollary to this should be the call to a moratorium in international borrowing and lending. Creditor countries and banks need to overcome their need (and desire) to lend. They may lose opportunities to earn good payments, and to collect high consultancy fees for their personnel. Nevertheless, they, especially the International Monetary Fund (IMF) and World Bank (WB), have not shown real interest in the welfare of the debtor nations. They are more interested in collecting payments from loans and in pushing more loans, even if in the process, the debtor nations sink into the debt trap.
2. Justice for the Poor. Yet the Bible also recognizes the reality that in the fallen world, God’s laws will be disobeyed, and hence poverty (and borrowing) will always be a reality: “the poor you will always have with you” (Dt. 15:7,11; John 12:8). Yet God commands us not to neglect the poor nor mistreat them nor reject them, but to be generous and kind to them. (Dt. 15:7-11; Prov. 14:21, 31; 21:13; Rom. 12:13).
Every person should have a decent standard of living. This rule of social justice takes precedence over the right of others to reap large profits. In the Bible, if one becomes so poor that his last collateral is his outside garment (which serves as his “sleeping bag” in the night), the creditor should return it to him before sunset. (Dt. 24:10-13).
Unfortunately, the main concern in debt discussions has been the interest of the creditors and the international system and not the plight of the debtors. Most proposals are short-term, designed to protect the rich creditors and the financial system, rather than long-term, to assist the poor debtors. The increasingly miserable effect on the poor victims is obscured by a deluge of statistics and complex “proposed solutions.”
For instance, in the Philippines, it is estimated that more than one Filipino dies each hour as a result of our failure to limit debt payments. UNICEF in its 1989 Annual Report claims that “it is the children who are bearing the heaviest burden of debt and recession in the 1980’s…In most countries the real cost “is being paid disproportionately by the poor and their children.” The human face of the debt crisis is the face of a child who suffers and dies prematurely from malnutrition and diseases. (1).
Moreover, the present tax system has made the poor pay for most of the debt obligations, budgets for essential services to the poor (like education, health, etc.) are so small in contrast to the huge allocations for debt servicing. Conscientious repayment of debts violates the basic standards of social justice — for the needs of the poor are hardly addressed, and stay very low in priority. Why should the Filipino poor who did not participate in contradicting the debt, and how have received little or no benefit from it, bear the greater burden of its repayment?
Bowing to IMF-WB demands debtor countries have opened their economics to the flood of imported goods, yet they can hardly penetrate the highly protected markets of the rich countries. The IMF repeats the platitude that it wants to alleviate poverty, yet it has no set criteria for poverty alleviation. Focus is on ceiling on base money, floor on the net international reserves, limits on external nonconcessional borrowing, ceiling on short-term external debts, and degree of import liberalization. It has no mechanism to determine whether poverty alleviation will be achieved.
Part of most lending deals is the prerequisite of hiring consultants (often foreign) chosen by the donors, and paid according to international rates. Hence, American and Japanese consultants receive (as part of the aid or loan package) $5000- 5,500 and 700,000-850,000 yen basic monthly salaries, respectively. (2) The rich get richer at the expense of the poor.
3. Priority of Local Development. The country’s obligations to its citizens have precedence over its obligations to its foreign creditors. People cannot afford to cut down on their basic living, production and educational costs to repay debts incurred by irresponsible leaders. Like Israel’s kings in the Old Testament, governments of today’s nations should always seek primarily the welfare of their citizens (without becoming anti-foreign or oppressive and unjust at the expense of other nations). Lending with interest was prohibited to fellow Jews but was allowed with foreigners (Dt. 23:20; cf. 15:1-8). Like charity, justice begins at home.
This means that the country’s limited resources must first serve the local survival and development needs before they go to debt servicing. Cutting down on necessary expenses would jeopardize the country’s production and progress. This requires the setting of limits on debt service expenses.
The common practice, however, is to cut down on social services for the grassroots. Since debt servicing has not been reduced, programmed expenses for social development have been decreased instead. This impacts directly on the citizens, especially the poor who need the government’s basic services like health, education, housing and environmental protection. The government also has less resources to build progressive infrastructures, stimulate rural developments or create jobs for the poor. This is a sad reversal of the moral priorities of the government.
4. Self-Reliance of Nations. The Scriptures envision nations relating and trading with each other as equals, for God is no respector of people. The ideal king of Israel was one who did not depend on external help, but who led the people to national self-reliance and self-confidence (Dt. 17:15-16). Most significant is the story that when Israel led by Joshua crossed the Jordan river, God miraculously stopped supplying manna. Israel was to learn to live by God’s common grace, like other nations, to sow and reap what they sow by the sweat of their brows.
Hence, nations should stop hoping for economic miracles or that somebody else (like Uncle Sam) can and will set things right for them. By God’s grace and by trusting and obeying Him, they can get their act together.
Almost 50 per cent of “foreign aid” are given as loans, which, however concessional their terms may be, have to be repaid. While the intent of most aids is to “help people help themselves”, indebtedness has forced poor countries to use their resources, such as lands, to produce for export in order to earn foreign currency needed to repay their debts. As a result, fewer resources are available to meet domestic needs, and the local people go hungry! This calls for domestic as well as international economic reforms:
(a) Restructuring of Local Economy.
Available resources should be used to fund a well-defined decentralization program aimed at the mobilization of the rural areas in societies which have been centrally-controlled and urban-oriented. Success cases in development have all managed to increasingly depend on the mobilization of their human and local resources – using natural resources and external capital to help the get there. (3)
Indonesia was in the same predicament like the Philippines in the 1960’s. But they did not only get relief in debt repayment but also instituted economic reforms. They managed their exchange rate well – the absence of exchange rate overvaluations discouraged capital flight, maintained competitiveness, and kept the support of the rural sector. Most of their economic strategy led to resource transfers to the rural areas, which in turn encouraged the production of tradeable goods.
Third World nations need to industrialize, even go to heavy industries like base metals, power and fuel, machine tools, machinery and chemicals which primarily use raw materials produced locally. It is heavy industries, funded by local pesos and not foreign currencies, which will insure the continued increase in the production of consumer goods.
Third World agricultural products have suffered tragically in international markets. Chilean grapes, our mangoes and coconut oil have been discredited by Western markets and media. Hardly anything is known about poisoned dairy products from Europe, and killer drugs, chemicals and medicines of foreign pharmaceutical and chemical companies. We need to transcend previous IMF imposition that has forced poor nations to develop agriculture as an export industry to pay their obligations.
Also, increasing domestic revenues would mean raising the prices of government services, like power rates, water rates and subsidized basic commodities like rice and oil. This may be softened by raising taxes, which would often impact heavily on the poor wage-earners. To follow our thesis, the government should prescribe tax measures which would impose burden sharing on the rich and propertied.
The Philippine BIR also needs to devise more effective ways of prosecuting violators of tax laws. Meanwhile, our tax policies have to be refined, especially on the biggest sources of government revenues — cigarettes, beer, liquor, and petroleum. Instead of ad valorem rates, we should go back to specific taxes, i.e., fixed amount per unit sold. Above all, we need a movement for the prompt and honest payment of taxes. (4)
(b) Call for New Order
National self-reliance has been frustrated also by an unjust international economic system which serves primarily the interests of the richer countries. Hence in recent international conferences, leaders of underdeveloped nations have been calling for a “new international economic order” (NEO), which would give poorer countries better terms of trade, more control over foreign investments and technology transfers, and greater access to international finance without unbearable debt burdens. However, the wealthier nations have yet to take this suggestion seriously.
International economic reforms, it accompanied by domestic reforms, will have a much greater impact on world development than all existing foreign aid programs combined. (5).
Actually, the agricultural policies of the industrialized countries are sinking Third World Nations further into debt, and widening the gap between the rich and the poor. Subsidies being extended to farmers in richer countries had not only caused surpluses that blocked food imports from the Third world but also led to overpriced exports. Richer countries should open up their markets to Third world goods, putting food security “on a solid basis of trade as opposed to false charity.” They can subsidize the production and trade of Third world goods (like fertilizers. Pesticides and technology) which the latter can procure through imports, and which would allow them to become more productive. But the richer countries have shifted their budgets to increase local food production at the expense of a half a billion of malnourished people worldwide.(6) So the richer countries should set policies which help the poorer ones attain self-reliance, rather than make them more dependent on foreign debts or aid.
5. Forgiveness of Debt. The richer countries should consider forgiving a major portion of the debts and/or postponing repayment up to a hundred years. The biblical concept of grace transcends the worldly thinking of measuring people by earthly standards which can cause those who have more in life (more in education, wealth, status, etc.) to become self-satisfied and arrogant. Grace recognizes lies in its capacity to transcend localized loyalties and interests. The prosperity of one’s nation is an act of God’s grace, which God wants to be shared with others.
In the Old Testament, God instituted the Sabbath years and Jubilee Year for His people to cancel debts incurred in other years (Dt. 15:1-2,9; 31:10).
Debt relief is essential to revitalizing the economy and making the country “credit worthy” again, especially when the government shows sincerity and determination to impose wise economic policies for self-reliance. It is to recognize both the need to help the poor countries recover from past mistakes, and the immorality of insisting that basic food and medicine be taken from the poor just to repay the obligations made by corrupt politicians.
When a borrower and lender enter into an agreement to finance a business project, both parties know the risks involved. If the project turns sour, the borrower bears the loss, and what he cannot repay must be borne by the lender, too. So, why the Third world assume all the responsibilities for the economic mistakes borne by the 1970’s, a decade which saw the breakdown of exchange rate stability, two violent oil shocks, and the imprudent shift from long term official to short-term financing of development? The debtors were given too many loans, but neither they nor anybody saw the subsequent dramatic rise in interest rates or the almost unprecedented fall in commodity prices. It has been suggested that the contracts should be rewritten to reflect these realities. (7)
The lending banks have to accept some responsibility for issuing loans to unproductive and oftentimes corrupt, projects for local elites and huge military build-up. They have also been involved in the massive financial drain from the debtor countries through capital flight.
So debt relief has been advocated by many church leaders, including Pope John Paul II, and important economists like Henry Kaufman of Salomon Brothers, Jeffrey Sachs of Harvard University, and William Seldman of the USA’s Federal Deposit Insurance Corporation. (8)
Conclusion
Would having a debt-service cap increase the trouble in the Philippine economy, because of possible retaliation? Not necessarily. Creditors will surely threaten all kinds of retaliation. But when their bluff is called, the creditors “become more reasonable”, as has happened in at least 19 countries who have gone into arrears in repayment in order to prioritize national development objectives and stability. (9)
Sun Yet Sun refused to pay the debts of the deposed Manchu dynasty of China. Cuba did not pay the debts of the dictator Fulgencio Batista. U.S.A. refused to pay the old debts of Mississippi, Louisiana, Maryland, and Pennsylvania. Egypt (1883), Turkey (1867), Iran (1890), Argentian (1828, 1890, 1989) defaulted on their loans. In recent years, those who did well are Bolivia (1985), Costa Rica (1986), Venezuela (1989), and Poland (1989). Those that failed are Peru and Brazil, not because they mishandled their debt, but they had faulty economic policies, and failed to reform their internal structure while they had a chance. (10)
Debt service cap does not mean refusal to pay. It promises to pay according to the country’s ability to pay without undue stress on its development program. A good portion of its export earnings will be used to pay foreign creditors.
Following the IMF-WB programs with their austerity measures (like import liberalization and huge cuts in government spending) have aggravated the debtor nations’ economic difficulties and social tensions. Higher food and transport prices brought about by these policies have caused people to riot and loot in the streets, as what happened in Venezuela in early March, 1989. (11)
Claro Recto called Filipinos “… a sacrificial race with a mysterious urge to suicide, free men who their liberties on the auction block.. (with) strange illusions for which their race had fought and perished.” Wisdom dictates that with godly caution, we can turn from our suicidal ways to more scriptural ways in dealing with our debts. Perhaps debt service cap is the best way forward!
Endnotes
(1) Roberto Yap, “Debt Crisis with a Human Face,” Manila Chronicle, January 29, 1990, p.5.
(2) Lynda Valencia, “Hiring of Foreign Consultants Stays,” Manila Bulletin, Sept. 25, 1989, p.28.
(3) Gustav Ranis, “The Philippines, the Brady Plan and the PAP: Prognosis and Alternative,” Manila Chronicle, June 30, 1989, p.15.
(4) Bernardo Villegas, “RP Economy Rates Higher in Stability,” Manila Bulletin, Nov. 30, 1988, p.31.
(5) Cf. M. Schomer, “Can Food Aid and Development Aid Promote Self-Reliance?” Bread of Life, Background Paper #2, Sept., 1978.
(6) U.N. Food and Agriculture Organization (FAO) Director-General Edouard Saouma quoted in “IMF Worsens World Hunger,” Philippine Daily Inquirer, March 19, 1989, pp. 1,8.
(7) M. Prowse, “When Forgiveness Could Pay Off,” Business Review, August 15-21, 1987, p.4.
(8) Ibid, also in J. Sachs, “What is to Done,” The Economist, January 13, 1990.
(9) Solita Monsod, “Mang Kiko and the Debt Service Cap,” Philippine Star, March 9, 1990, p. 13.
(10) Ibid.
(11) See endnote 6.
