Large portions of poor countries’ debt is historical, incurred by corrupt elites. Over $500 billion – nearly 20% – of all developing country debt is the result of loans to dictators, such as Zaire’s Mobuto, the Philippines’ Marcos, and Indonesia’s Suharto. Successor governments and their citizens are required to repay these debts, despite their illegitimate and “odious” nature. In effect, the victims of oppression and corruption are expected to pay for their own past suffering while creditors avoid the risk for such irresponsible – and at times immoral – lending.
The burden of high debt levels is also exacerbated at times by the intensity and intrusiveness of conditions attached to loans, especially by the primary creditors to low-income countries – multilateral financial institutions such as the World Bank and International Monetary Fund (IMF). With the onset of “structural adjustment” programs in the 1980s, the World Bank and IMF tied large volumes of lending to the adoption of a set of policy prescriptions. Known as the “Washington Consensus,” these conditions often involved trade liberalization, privatization, currency devaluation, deregulation, and reductions in social expenditures. Many critics and borrowers have charged that these policy conditions often led to negative environmental, social and economic consequences – disproportionately harming people living in poverty – and provided few tangible benefits in exchange for large increases in debt. Nations of the Global South accumulated debt at a brisk pace in the 1970s–90s in an effort to finance development. While the pace has slowed in recent years, the total amount of outstanding foreign debt owed by all developing nations remains a staggering figure: $2.6 trillion (in 2004).
In terms of sheer volume, Brazil, Argentina, Russia, and Mexico are the leading debtor nations among middle and lower-income countries. However, total debt volume does not by itself provide an accurate gauge of a country’s debt burden. In terms of per capita debt, Barbados outflanks all other developing nations, with levels almost five times that of the next contender (the Seychelles). If debt is measured as a percentage of the annual goods and services a country produces (GDP), Liberia’s debt is staggering at more than six times its GDP, making it number one on this scale. In terms of debt service absorbing precious foreign exchange from exports (debt service as a percentage of exports), Lithuania tops the list, taking more than two-thirds of export revenues; Burundi and Lebanon follow closely at 66%. On average, about a third of the total debt of both severely-indebted and moderately-indebted countries is owed to multilateral institutions, with wide variations. Angola, for example, owes less than 5% of its debt to multilateral banks, while more than three-fourths of the total debt of Burundi, Chad, Malawi, and Rwanda originated with the multilaterals. Over $500 billion ---- nearly 20% ---- of all developing country debt is the result of loans to dictators, such as Zaire’s Mobuto, the Philippines’ Marcos, and Indonesia’s Suharto.