Debt and Trade

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Developing country debt arose from the oil crisis in the 1970s when oil producers increased the price of oil and deposited their increased profits in commercial banks in the west.

These banks lent this money at low interest rates to developing countries eager to promote their own development. In the 1970s and 1980s, however, prices for raw materials – such as sugar, coffee, tin, fruits and other products – fell dramatically, so borrowing countries income fell despite exporting more. Meanwhile, interest rates rose substantially and the vicious cycle of debt began.

In 1982, Mexico declared that it was unable to repay its debts and the IMF and WB stepped in and worked out a system whereby indebted countries could spread out or reschedule their debts rather than default. New loans were offered only if countries followed neoliberal policies. Encouraging exports was one of these policies as exports earned these countries the foreign currency needed to pay back the interest on the debt. Nonetheless, trade rules trapped many countries into exporting raw materials without allowing them to add value to them through processing and manufacturing. In Mozambique, for example, as a result of World Bank fostered liberalisation, the country has seen the closure of 12 of its 13 cashew nut processing factories, resulting in the loss of 11,000 jobs due to such policies.

Trade

The trade system is heavily weighted against developing countries, preventing them from increasing their income from exports and so financing social programmes. Some of these barriers are:

  • Dumping: Rich countries subsidise their agriculture by $1 billion a day while poor countries can’t afford to subsidise theirs, leading to higher prices for their produce and increased poverty for farmers.
  • Market Access: Rich countries charge high taxes on imported manufactured and processed goods, preventing them from earning more income and restricting them to exporting only raw materials.
  • Commodity prices: these are set in developed countries and usually at very low rates. For example, Coffee prices fell by 6.7 per cent between 1997 and 2002, costing poor countries $8 billion.

Much of so-called underdevelopment is in fact a direct result of exploitative policies by rich countries, such as the extraction of primary resources for low prices and unfair trading practices. It is estimated by aid agencies that if Africa, East Asia, South Asia and Latin America each increased their share of world exports by just one percent, they could lift 128 million people out of poverty. Furthermore, for every dollar given to poor countries in aid, they lose two dollars to rich countries because of unfair trade barriers against their exports. Debt and unfair trade place a double burden on developing countries which perpetuates their poverty and prevents their development.

Adapted from Debt and Development Coalition  and Oxfam.

So what does it all mean for a volunteer?

While many of these concepts may appear to be abstract and theoretical, the impact that they have on people’s everyday lives is very real. To bring a global development perspective to your work as a volunteer, it is vital to have some knowledge of these topics. They form the wider context within which your experience will take place. Having some knowledge of the bigger picture will help you to understand the forces that might shape events at the local level of your placement.

In such a complicated context, with so many powerful forces and interests shaping peoples’ lives in developing countries, it would be reasonable to wonder if being an international volunteer can make any difference at all! Certainly, examining the context closely could easily put you off going overseas. Volunteering can make a difference, however, if it’s done with the right spirit. The next section will look at the meaning of volunteering . It also examines in more detail three important themes that need to be considered while volunteering: power relationsgender, and racism.

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