Third World Debt

16 May 2016 by Damien Millet

Accounting for the Third World Debt

Third World indebtedness involves four categories of agents and a threefold external shock:

1. Banks in the North


without bothering at all about a significant proportions of these amounts being embezzled.

2. Governments in the North and their transnational corporations

Faced with an equipment crisis at the end of the 1960s, then with a general recession after the oil crisis in 1974, governments in the North urged corporations to invest in the South and backed those investments with public money. This meant that an investment in the Third World was bound to be a juicy operation and corporations went for it without any restraint, not minding embezzlement and corruption in the least.

3. The World Bank World Bank

It consists of several closely associated institutions, among which :





The former US Defence minister Mc Namara becoming president of the World Bank in 1968, that is, during the Vietnam war, coincided with a surge of the WB’s investments in the Third World: while from its creation in 1944 until 1968 it had only financed 708 projects for a total amount of $10.7 bn, it was to finance 760 projects for a total amount of $ 13.4 bn from 1968 to 1973 (among which quite a few ’white elephants’).

4. Governments in the South

Governments in the South welcomed investments that were quite disproportionate to local needs and embezzled huge amounts for their private use, while the banks were all the more willing to turn a blind eye that they could shuffle even more money. Today, however, the populations are squeezed dry to pay back debts contracted by former tyrants who accumulated huge private fortunes with complete impunity.

External shocks and the Debt Crisis in the 1980s

In the early 1980s, the Third World had to sustain a threefold external shock that led to the Debt Crisis in 1982 :

1. In 1979, the American government embarked on an anti-inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. policy and drastically raised its interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates. This meant that interests to be paid back by third world countries tripled practically overnight.

2. In the early 1980s, the price of export commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. went down, and has been going down ever since, which entails a fall in the income of governments in the South.

3. As they understood they might never see the borrowed money back, banks in the North stopped their loans to Third World countries.

These external shocks led to a state of bankruptcy in the Third World and to the Debt Crisis which started in Mexico in 1982.

First publication : 8 March 2007

Damien Millet


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