Blog Action Day: Poverty and Finance

Today has been proclaimed Blog Action Day – when thousands of bloggers from every corner of the world write something to draw attention towards global poverty. At Jubilee Debt Campaign blogging against poverty isn’t unusual, but I’m going to use this year’s Action Day to make some connections between poverty and what’s foremost in the news – the credit crunch.

We have another name for the credit crunch – a debt crisis. The credit crunch has been explained as a lack of liquidity, or credit, available to banks on the international markets. Inject these markets with enough liquidity, restore lenders’ confidence enough to start lending again, and everything will come right. Hence the gigantic bail-out packages.

But actually the problem is less one of available credit, and more a massive over-accumulation of debt – much lent in a reckless way, like sub-prime mortgage debt, and packaged up in such a complex manner that no-one is quite sure how much or how bad the debt they hold amounts to – how ‘exposed’ they are to ‘toxic’ debt. Hence the loss of confidence.

Some commentators, like former head of Jubilee 2000 Ann Pettifor, have been predicting a ‘First World Debt Crisis’ for some time. These warnings went unheeded by a financial sector which has got used to having everything it’s own way.

This bears a strong resemblance to the debt crisis that the debt movement has been campaigning to end for 10 years. As today, banks in the 1960s and 70s lent huge amounts of money, in ever more complex and inventive ways, to developing countries. When interest rates soared and commodity prices fell, developing countries could no longer repay. The debt crisis was born – and 20 years later the world has still failed to learn the lesson.

Today developing countries’ debt stocks stand at a staggering $2.9 trillion and every day the poorest countries pay the rich world almost $100 million in debt repayments. Many countries in the world have been going through a financial crisis for more than 20 years.

Then, as now, many banks were effectively bailed out as the World Bank and other ‘multilateral banks’ gave new loans to pay off their old loans. But as the banks took the money, the poorest people in the world were still indebted – still couldn’t access health care, education or social security because their governments had to allocate such enormous sums to repaying old debts. Many countries remain in that state today.

We need to make sure that this time the financial sector is made to learn the lessons; that this time it is not the poor – in the developed or developing world – who pay the price for the recklessness of a few.

The answer isn’t ever greater freedom for the financial sector but greater regulation to make sure the financial sector is at the command of society rather than the other way round.