The 1990s have seen the end of the Latin American debt and the start of the Asian one. In both cases current account balance of payment settlements have been strangled due to the expiry of refinancing for original long-term loan schedules added to short term loans. The magic solution for Latin America was the radical macro-economic shift from interventionist to market-led policies. Final agreements with private banks following the Brady Plan allowed debt balances to be reduced, commercial paper and FRNs to be used to effect privatisations and arrears to be converted into bonds payable in 25 years.

Debts to OECD governments have been re-programmed: final agreements made with the Paris Club, payable in 25 years with three years' grace, have integrally modified debt repayment plans. Neither the Brady Plan nor the Paris Club agreements concentrate on one part of the debt. Instead, they restructure the entire debt in the long-term, in return for debtors effectively applying the macro-economic policies, which would stabilise the economic system of their countries.

These final agreements were reached under the basic assumption that the stability of the international system was guaranteed and that the conditions set for the debtors would prevent any upset in the international order. The possibility of a collective cessation of debt repayment in the 1980s almost caused the international financial system to crash. The performance of the IMF and the US Treasury prevented a Debtors' Club, and stopped the earlier mechanisms which would have led to a collective cessation of debt repayments. The international financial system suffered a big shake up but did not collapse. Banks merged, some slipped while others climbed in the world rankings, yet the system kept a balance despite major traumas.

With the arrival of the Asian crisis in mid 1997, the international situation changed dramatically. The international economic system is again stirred by shaky stock exchanges, commodity markets crashes and devalued exchange rates everywhere except in the US. International indices are weakened and current accounts deficits throughout the world, including the US, start to suffer. This does not mean that Europe will start a world war nor will the US suffer another Great Depression, but it does mean that global GDP growth rates will slow down for 2 or 3 years. Both developed and developing countries will suffer financial crises, the current account balance of African and Latin American countries will become increasingly vulnerable, and the main actors in the global economy will change. The restructuring process involves setting and supervising the rules of the game at a global level and the policies of debt control.

The objective of lending funds is to recuperate with profit, whomever the creditor. Recognising institutional weakness, OECD member governments

have concluded that the best way to dispose of funds in developing countries is through multilateral bodies. The 1990s have seen a very low growth in debt owed to Paris Club members and a high level of growth in debt to multilaterals. In theory loans from multilateral bodies cannot be reprogrammed or re-financed, although this does happen in practice. Structural adjustment loans are often exactly this: loans to re-programme

overdue debts. One has only to look at Peru and Nicaragua in the 90s and Bolivia in the 80s.

Latin America's situation in mid 1998 is simple: old debts have been re-programmed through the Brady Plan and the Paris Club. New debts are directed towards the private sector and those is directed to the public sector are channelled towards multilateral banking. Apart from those with Eurobonds (Mexico, Brazil, Argentina and Venezuela), Latin American countries are wallowing in costly multilateral loans. Plagued by conditions where the debtor assumes the risk of the dollar rate exchange and the risk of interest rates, multilateral loans are today yet another burden as debt-servicing grows while exports do not, leading to the system crisis. It is therefore necessary to change the rules of the game in order to allow Latin American and African governments to comply with at least part of their debt servicing in the view of the renewed possibility of repeating the default in payments of the 1980s.

This was caused by the price of raw materials, the withdrawal of short and long-term capital from the emerging markets, and the growth of current account deficits in all Latin American and African countries in the third quarter of 1997 and the first quarter of 1998. It is evident that the so-called Asian crisis affects the whole world and that a slowing of the growth of the global economy slows the export growth which should be the motor for growth, according to current economic theory. The flaws of this model are not in question here, but the consequences are. Global cooling will take all countries embarked on export growth policies (i.e. all countries with a heavy export sector in relation to GIDP), to cooler levels.

The distribution of wealth deteriorated between 1985 and 1994, and has probably worsened even more between 1995 and the present day. Despite initiatives taken in Naples by the Paris Club and the World Bank to re-buying the debts of commercial banks in low-income countries whose economies have contracted rather than grown (e.g. Nicaragua, Honduras and Bolivia), the burden of debt on the impoverished countries has not improved. Despite debt relief efforts, the indices are still extremely high. These cases highlight the need for a global solution for global problems, which are not problems of debt, but rather income. They also demonstrate the impossibility of increasing income despite an export-led economy, due to both the weight of remaining debt and internal problems.

By looking at the impact the Asian Crisis has had on exports and debt servicing capacity, we can appreciate the deterioration of the sustainability of debt servicing. Taking Peru as a case study, at the time of the so-called Asian Crisis, debt servicing represented 25.4% of exports of goods and services. By June, this figure had risen to 31.5%. Something similar has happened to fiscal weight - with an estimated exchange rate of 2.80 soles per dollar, in 1998 it represented 22% of the country's general budget. With the induced recession and an average devaluation of three soles, this represents 35% of Peru's general budget. This demonstrates that the effect of the global crisis on the Peruvian case is beyond doubt.

What measures can be used to resolve this impasse without reaching international conflict? Canada's Ecumenical Coalition for Economic Justice is aimed at G8 leaders and more developed countries. It proposes that overdue debts owed by low-income countries be pardoned. As the entire debt of poor countries is low (under $750 per capita per annum), the demands by highly indebted countries owing less than $2,000 per capita has increased. The

criteria are three of the following:

1. The present value of the total debt is more than 50% of GNP

2. Present value is more than 200% of exports of goods (after

deducting oil and food in imports)

3. Public debt or that guaranteed by the State is higher than 200%

of treasury income.

There are 10 countries which will not qualify for debt relief because they lack these indicators: Bangladesh, Gambia, Haiti, Jamaica, Malawi, Morocco, Peru, Philippines, Senegal and Zimbabwe. The Jubilee 2000 campaign responds to poverty, malnutrition and the absence of basic services which arise from the perverse transfer of resources from poor countries to rich ones. Estimating net transfers of resources in the 90s developing countries as a whole have transferred more than $700,000 million to their creditors. This represents less than 50% of credits received. We would be following the Ponzi scheme whereby these countries further get into debt in order to pay the original debt, with no substantial improvement in the population's income. These figures hide the fact that the new agents who take on the loans are private and the agents who pay the debts are public, due to the previous debt. In other words, the State services the old reprogrammed debt, while those who take out new loans are private agents which will make "more rational use" of the loan. Resources are transferred between economies and the public sector subsidises the private sector.

There are various paths which can be taken:

6. Debts acquired by governments in the six months prior to general elections should be pardoned because it no longer corresponds to the elected government and anticipated decisions are being taken on the next government's behalf. These loans express more the will of the creditors than the will of elected governments.
1. Part of this debt could be converted into social funds for the development of civil society and for direct economic development to be carried out by NGOs throughout the world. This could finance improvements in education and health which today depend on international loans and conditions of doubtful success.

The perfect agenda might well include all the above proposals, from the multilateralisation of aid for development following the modification in the definitive agreements of the Paris Club to a debt reduction and longer terms of repayment, to the modification of Brady Bonds to 50 years and the formation of national funds to exchange debts for social spending, thus preventing loans being taken to cover health and education. Without a doubt, national officials with salaries comparable to officials in international bodies would be protected against corruption in the administration of such funds.