The Role of the World Bank in Global Economic Reform
The role of the World Bank was further enhanced with
the debt crisis, which unraveled when Mexico declared in August 1982
that it was not able to service its crippling debt. This precipitated a
financial crisis and jittery bankers were concerned that this could
encourage the other debtor nations to default. The World Bank stepped
into the breach and implemented Structural Adjustment Policies (SAPs).
Through this mechanism, the World Bank played a crucial role in rescuing
the private banks by pressuring the Third World to continue debt
servicing and thus saving the system (Mihevc 1995:65)
The debt crisis benefited the banks and private
creditors of the North enormously. Debts to banks continue to be
serviced although no new money has been lent out. Throughout the 1980s,
debt service payments grew. Between 1982-89, the total amount paid to
banks was $615 billion in interest and amortisation: at the same time,
the amount owed to commercial banks soared from $493 billion in 1982 to
$629 billion in 1989. New lending from the WB-IMF has been used to pay
debt servicing to banks under the guise of structural adjustment
lending. From 1983-89, $32.7 billion in loans from multilateral sources
went to service commercial bank debt, representing 17 percent of total
debt service over the period (Ibid:67).
By the mid 1980s, Third World nations had become net
exporters of money (capital) in favour of the rich North. This meant
that the flow of actual debt servicing was more than the new inflows of
capital (i.e. in the form of loans, foreign investments and foreign aid)
(Chossudovsky 1997:51).
In the case of Africa, debt soared from US$204
billion to $272 billion between 1986-90. In 1990, the continent owed 46
percent of their export earnings on debt servicing alone, while
financial flows to Africa fell from US$13 billion in 1986 to $8.7
billion in 1989 (Mihevc 1995:129-30). Africa’s debt grew faster than
that of any other region in the Third World. In 1970, it was US$6
billion, in 1993 it had grown to $300 billion. In 1997 the total Third
World debt reached a staggering $2.2 trillion. Hardest hit have been the
41 heavily indebted poor countries (HIPC), 33 of them in Africa. Since
1980, the debt of HIPCs has more than tripled (UNDP 1999).
The debt burden has undermined growth, health and
education. Debt service payments exceed annual expenditure on health and
education in nine HIPCs, and they exceed health spending in 29,
including 23 in Sub-Saharan Africa (SSA). Tanzania’s debt service
payments are nine times what it spends on primary health care and four
times what it spends on primary education (Ibid).
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