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The Debt Threat: How Debt Is Destroying the Developing World

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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".

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.

The relief of debt for poorer countries is an issue which many support but few really understand. Noreena Hertz is someone who knows what she is talking about. She formerly worked at the World Bank and in now Professor of Economics at Cambridge. She is also a tireless campaigner for debt relief.

What I most appreciated was her ability to explain the economics in a way that was both understandable and convincing. She tells us how the debts came about - often during the cold war in an attempt by the West to gain and maintain areas of influence in the developing world. She also reminds us that many of these loans went to corrupt leaders of countries whose citizens now have to pay the price. As a result basic human needs - food, housing, and healthcare are sacrificed to service the debt payments.

We are left in no doubt that we carry a significant responsibility for this situation. This is why we should lobby our leaders to write of these debts. It is easy to say that fault lies on both sides. That may be so but if poor children have to pay then we who are in a position to do something should do all that we can.

She writes all of this in a very readable style. This book did far more than big events such as Live 8 to convince me of the need to do something. I would urge all readers to get hold of a copy and read it!

Although this is a well written book, there is just a bit too much fantasy to be taken seriously. Obviously the author is quite liberal, which is fine, but this book was written six plus years ago and there still and always will be a problem with politicians. She makes several jabs at George Bush and his spending problems (I'm curious what she thinks about Obama now) and how insensitive the "rich" nations are about the poor nations. Well, even with our current administration, politics is politics and this problem is simply not on most people's radars. Funny thing, I found myself agreeing more with her premise but than reality slaps you in the face. There is simply no way to make debt forgiveness a major issue for politicians to hand out our borrowed money. Then she basically says we should all get along as a world, hand this money over to UNICEF and the UN for them to enforce it.. Well how long until corruption enters the ring?? I hate to sound so negative but these countries are in such a deep hole, Lord only knows how they can ever recover and join the 21st century.

Back in the good old days of Western imperialism, Western powers used the same tried and true approach over and over again to extract wealth from and subdue non-Western peoples: invasion and/or colonization, and/or enslavement. This method was effective for a few hundred years, until subjugated populations after living in close quarters with their masters and learning their weaknesses, mounted various successful forms of resistance against them, e.g., the Algerians' violent resistance of the French, or Gandhi's non-violent resistance of the British. After the First World War, the Western powers (although with much backsliding, evident now in Iraq), began to withdraw their armies and close up their colonial shops. After the great bloodbath of WWI the old cover stories -- "The White Man's Burden" - were so threadbare that the average Westerner could at last see imperialism for the nasty racket it was.

But wait. It turns out that was just the opening chapter of imperialism. There's a new chapter, or in business-speak a "new paradigm." Through the relatively abstract miracle of debt, rich countries since WWII have been able to reclaim their hegemony. The beauty part for the West has been that invasion through debt does not require much in the way of armies and colonists. In fact, what is really sweet about the new way of doing business is that invaders get to dictate terms to poor countries and don't usually have to back up their threats with armies. Instead there's the threat that global traders will lower poor nations' bond ratings, squeeze their economies, and, by extension, their people, until they see the light. Kind of like loan sharking when you think about it.

Loan sharks, contrary to the stories told in movies and books, generally like to keep their customers alive, because after all, they want to get their money back. In this new form of colonialism that's pretty much true, too. But still, people do get killed like they did during the traditional imperialist paradigm. Hertz shows in chilling detail, for instance, how a cholera epidemic swept through Peru because Alberto Fujimori, following the dictates of the IMF and World Bank, sent every nickel he could get his hands on to pay the interest on Peru's national debt so Peru would get back into the good graces of the financial markets. Healthcare services, welfare and other human services were curtailed or cut to pay the debt. When Peru and opened up its economy to the international market as per the IMF just as commodity prices dropped, unemployment and poverty rates went through the roof. Rural dwellers moved to the city seeking work. Work was not available; unsanitary conditions were. So desperate was their poverty that these Peruvians couldn't afford soap to wash their hands or kerosene to boil their water. And so cholera killed nearly 4,000 in less than a year.

Ms. Hertz provides much needed insight into the history of the debt threat. It began in the Cold War - the era of the "chessboard and the checkbook" in Thomas Friedman's phrase - when the U.S. and the Soviets were buying allies. Few restrictions applied to these loans. Dictators and oligarchs could spend it any way they wanted as long as they remained friends. Then in the 70s came the commercial U.S. banks, awash in petrodollars, making loans and betting that Uncle Sam would reach into the pockets of the U.S. taxpayer to bail them out if necessary. After the Soviet collapse ended the era of checkbook diplomacy, a newly invigorated IMF and World Bank began its recent career as a lender of last resort. Their one size fits all free market approach placed the same onerous restrictions on every nation they did business with. Debt enslaved nations meekly agreed to more enslavement lest these agencies tighten the screws further.

Ms. Hertz takes us through this history at a brisk pace and shows through examples that though the approach may have changed, the result is the same: poor countries in thrall to rich countries. She shows with gripping examples not only how the racket works but, more importantly, how these practices put the West in danger by promoting dangerous conditions around the world. For instance, disease can now board an airplane and land in any Western nation in a matter of hours. Poor people grown even poorer because of their nations cannot afford basic health services and so grow weaker, more susceptible. Their afflictions mutate and metastasize, and soon the entire body of humanity is at risk. Then, of course, there is the wholesale destruction of the environment as poor countries rip up their forests and sell their oil to the West so it may be burned or turned into toxins. And, of course, there are terrorists who find an ever expanding pool of ready recruits among the poor, a whole new class of young men who are boiling with resentment and rage. Tragically, in the narrow Western ethos of profit and loss, payment of debt must override all other concerns, because profit-making is the only goal, and capitalism the best of all possible alternatives.

With THE DEBT THREAT, Ms. Hertz's continues to demonstrate how the forces of global hypercapitalism that she explored in her first book ("The Silent Takeover") put the lives of everyone in physical, and at the very least, moral jeopardy. As in that book, her personal story gives one hope: an economist trained at Wharton (she was there to help "jump start" the Soviet economy in the early 90s and was witness first hand to the anti-human ethos of the free-market fabulists), she has switched her allegiance to the other side of the barricades. On a positive note, global protests and activism has managed to arrest some of the worst abuses of the World Bank and IMF, the commercial banks and ECAs. One can only hope that this cogently argued work will awaken more and more people to this latest, and perhaps even more deadly strain of imperialism.

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.

The Debt Threat: How Debt Is Destroying the Developing World...and Threatening Us All clearly explains why Third World debt should be forgiven. I always felt that, hey, if you incur a debt, you should pay it. Reading this book changed my opinion.

A lot of debt in developing countries was incurred at a time when commercial banks needed to make loans. Sound familiar? Some of the borrowers were ruled at the time by despots who used the funds for their personal use.

Those who are now left with the debt find they cannot make the interest payments. They spend more on paying off the debt than getting clean water and education for their children. This book helped me see why many third world countries can't get ahead economically.

Of course, since the book was written, many Latin American countries such as Brazil and Argentina paid off their debt. But for the others, a fresh start would help not only them, but the rest of the world as well - including Americans.

Insightful, interesting and accessable. I read this book as part of my disseration research for a critical assessment of World Bank/IMF policy with regards to third world development. Prof. Hertzs' arguements are persuasive and compelling. They demand the attention of the policy-makers, finanical workers and the international community at large. Debt hangs from the neck of the developing world preventing it from standing upright. Prof. Hertz explains that this need not be the case.

Debt cancellation for developing countries is a subject that has attracted much attention and little real action, despite in 2005 G8 countries and few others have taken some clear-cut commitment. This readable book provides:

a) a quick and simple description as to how developing countries got trapped into unsustainable debt levels. But among developing countries it fails to distinguish between middle-income emerging market economies and low-income economies. Therefore, the author jumps to the conclusion that Argentina (or Turkey) and Somalia (or Botswana) should be treated the same.

b) a simple theory, which suggests that developed countries often offered loans to corrupt governments (or full-fledged dictatorship) of developing countries and therefore, the peoples of those countries cannot bear the burden of servicing that debt, for which they did not benefit at all. Thus understood the problem, the full debt cancellation is a moral (and maybe legal) obligation. The author does not develop further that theory, but in practice she says that those countries that have violated human rights, or more specifically, at the time of borrowing were violating civil and political liberties, and/or economic, social and cultural rights should be provided full debt cancellation. Who and how the violation would be assessed is not clear, but this idea merits to be developed further and into operational detail.

I would recommend it for the general reader and those interested in development issues without prior knowledge.

Noreena Hertz's basic principle is that the rights of creditors do not stand above fundamental human rights.
Debt repayments should not be imposed on governments when they could put in danger a minimum level of food, health care, clothing, water, education and housing for the entire population.

But as US president Calvin Coolidge said to the English delegation after WWI: 'We lent you money. Didn't we?'
The fact is that a lot of money was lent to corrupt and despotic regimes (Suharto, Marcos, Abacha, Ceaucescu, Mengistu, the South-African apartheid regime ...). More, after the end of the cold war, the US asked immediate debt repayment from States which were no longer strategically important.

Democratic governments should not be responsible for irresponsible lending by States or International Organizations.
She remarks that 60-70 % of all World bank projects under Mc Namara were failures and that only 10 % were ecologically and socially sound investments.

For her, debt should be forgiven if it was lent to undemocratic regimes, if the investments were against the interests of the majority of the population and when those who gave the money knew for what it was disbursed.
Ultimately, debt forgiveness will ot only favour the poor but also the rich countries, for it should not force nations to implement unsound policies and should improve security in the world.

By the way, she rightly lambastes massive arms investments (4 stealth bombers represent 1 schoolyear for 155 million children) and agricultural subsidies in the US and Europe (every cow receives 2,20 $ per day, or more that 1 billion human beings on our planet).

This book is a must read about a crucial problem for a massive part of the world population.