Debt Trap Peonage

Debt Trap Peonage Monthly Review, Nov, 1985 by Chinweizu For a country like Nigeria, which has already fallen into "debt trap peonage," the problem of escaping it breaks down into two tasks: escaping from it, and taking measures to avoid falling into it again. In order to find solutions to these two tasks, I am going to look at five questions: (1) What is Nigeria's debt situation today, and how was it brought about? (2) What makes it a case of debt trap peonage? (3) Why is it necessary to escape debt trap peonage? (4) How can that be done? (5) What stops Nigeria from taking the steps necessary for escaping it? Today, six years after we were lured into unnecessary borrowing by lenders eager to recycle petrodollars, Nigeria's foreign debt is officially said to be 11.08 billion pounds sterling (U.S. $16.6 billion). Debt service charges are expected to consume 3.272 pounds sterling billion $4.9 billion), some 38.47 percent of our 1984 export revenue of 8.5 billion pounds sterling ($12.75 billion); that is without including service charges on the $5.5 billion trade debt that we are anxious to convert into long-term debt. And as if all this mountain of debt was not burden enough, we are seeking an IMF loan of about $2 billion for "structural adjustments," so that we can get even more loans from international bankers. As our oil revenues decline, we seem to be turning into a loan addict. Our urge is to grab loans and ever more loans, like a drug addict who must have more and more heroin to keep going. And like the heroid addict, we are craving these laons, not for sound purposes, but simply to finance our spendthrift consumer habits and our ambitious maldevelopment programs. Inclassic peonage, workers, though nominally and legally free, are held in servitude by the terms of their indenture to their masters. Because their wages are set too low to buy the necessities, the master grants credit but restricts the worker to buying overpriced goods from the master's own store. As a result, each month the peon goes deeper and deeper into debt. For as long as the arrangement lasts, the peon cannot pay off the mounting debt and leave, and must keep on working for the master--which suits the master perfectly. For the master's aim is neither to starve the peons nor to see them free from the chain of debt, but rather to keep them working until they die. Peons cannot run away, either. The law recognizes their debt and will enforce the master's claims. Besides, no other employer will take them on so long as they owe the old master. So, peons who run off but do not get clean away are either captured and brought back, or starved in hiding. 366 | P a g e The third world countries that are today accumulating massive debts are in an analogous situation. They do not earn enough from the export of their mineral and agricultural products to pay for the overpriced manufacturers they import from the West. The West, through international banks and government iad, lends them the difference. Each year they need more loans to make up these deficits, and so their foreign debt mounts. Unable to pay off their debts and powerless to survive the dire consequences of repudiating them, these countries are obliged to continue in permanent underdevelopment, supplying low priced raw materials to their industrial creditors and unable to concentrate their attention and resources on developing their economies in their own interest. Such is precisely the situation into which Nigeria has put itself. And I must stress that Nigeria was not captured and forced into this situation, but volunteered itself into it. In 1978, when Nigeria agreed to contract the first billion of these debts, it had more income from oil than it could sensibly spend. Though it did not need the debt, it allowed itself to be persuaded to sample the pleasures of debtorship. In that, Nigeria is more like the person who was persuaded to take a first shot of heroin, got to like the thrill, and took more and more, soon becoming an addict. Indeed, Nigeria did enjoy the thrills of being a spend-thrift, and did soon become a loan addict. Nigeria has become, not just a debt trap peon, but a squander-addicted debt trap peon. Nigeria shares three crucial characteristics with a heroin-addicted debt trap peon. First, both debts are unsecured consumer debts, made up of subsistence and spending-spree expenses, and with future income as the only collateral. Second, both loans are pure peonage loans, that it, loans made not because of the potential of the project the loan is to be used for, but simply in order to secure legal control over the economic and political behavior of the debtor. Third, the only way made available for getting out of both debts is by getting into more debt. But what is wrong with this situation? Why it is necessary to escape it? Those of us who look forward to the day (which we may not ourselves live to see) when Nigeria will be an industrial world power, and those who wish to contribute to the early arrival of that day, cannot feel happy about our getting into a debt trap peonage that removes our economic sovereignty and hands the piloting of our economy over to our creditors. Today, that means turning Nigeria into a financial protectorate of the IMF. We can already see what that means. IMF teams come to inspect our books; we take our economic programs to them for approval; and they dictate what kinds of social and economic restructuring we must pursue. It is just as if we were back in the old colonial days, when the Colonial Office had to approve our 367 | P a g e budget and economic programs, subject, of course, to these being serviceable to the larger imperial aims of our masters. If we had any sense of national honor, we ought to cringe in shame. Here we are, an allegedly sovereign nation, being treated, twenty-four years after independence, like some delinquent schoolboy or some bankrupt company incapable of managing its finances. But the need to escape debt trap peonage goes beyond the sentimental matter of national honor, and beyond the (perhaps to most people) abstract matter of economic and political sovereignty. Debt trap peonage is injurious to any country's development prospects; and the squander-addicted peonage that Nigeria is getting more deeply into is doubly injurious. Besides making us peons, it ruins our social fabric and disorients us. Let us see what injury has alreay been done, first to our finances, then to our social foundations and national psychology. For today's $16.6 billion debt (i.e., two years' export revenues), we must now pay some $5 billion a year in service charges. For us, that does not make sense. But you can see why the banks came after us to borrow, and still want us to borrow more, provided the IMF can guarantee policies that will enable them to keep pumping similar billions out of us each year. And what do you think their weapon for keeping us hooked on loans is? Our habit of profligacy, that's what! We are addicted to loans because we are addicted to profligacy. At first, to justify a relatively minor loan of $1 billion to be addeed to our huge oil revenues, we were encouraged to go on a spending spree. We were even helped to put together a lavish pruchasing catalogue that we mistook for a development plan. As our profligacy became a habit, the doubling of our oil income didn't matter: we still needed a bit more to pay for our even more rapidly enlarging desires, and so we still wanted loans. This habit of spending beyond our means is at the root of our condition. If we learned to feel fine with our expenses well below our income, we would psychologically be in good shape to start plotting our escape from debt trap peonage. But curbing profligacy, like getting off heron, is not easy, especially if it involves a drop in what we imagine our living standards to to be. Regarding our development prospects, debt trap peonage forces us to place our economy under IMF supervision. Given the fundamental antagonism between the interests of the peon and the master (in this case, between Nigeria and the West), we can fully expect that the IMF will insist on policies that will divert us from our national goal of developing into a powerful, prosperous, modern, industrial nation. Anyone who thinks that the IMF will 368 | P a g e approve programs or sponsor policies which will develop Nigeria in such a way as to threaten the economic hegemony of the Western powers needs to go and think again. The IMF's job, as overseer of the global economic arrangements of the West, is precisely the opposite. The other reason for getting out of debt trap peonage is that under it, policies will be imposed that will bring social chaos upon us. If we think that things are bad now, we should look down the road a few years and see what peonage will visit on us. For that, all we need do is look at countries that have allowed the IMF to tell them how to manage their economies. If you like, study the recent history of Brazil. (Those of you who read The Guardian [Lagos] regularly may have already understood the plight of Brazil. For, in our one year of existence, we have, in our "Economy and Business" pages, given as much coverage as possible to developments in Brazil. Our aim has been to sensitize Nigerians to what might soon be happening here, and why, if we remain, like Brazil, under IMF tutelage.) In brief, this is the Brazilian story. In the 1970s Brazil went on a borrowing spree. Today its debt is almost $100 billion; its debt trap agonies fill the headlines. Since its exports cannot pay the debt service charges, Brazil is on the treadmill of seeking the rescheduling of its debts. But before the banks agree to roll over its loans, Brazil has to agree to the austerity measures decreed by the IMF. These measures however, call for severe hardships to be imposed on the population. As a result, Brazil has been plunged into semipermanent social unrest. Strikes, riots, and factory closures have become the disorders of the day. Hunger roams the streets and countryside. In the middle of 1983, numerous supermarkets were looted by hungry city dwellers. Starving rural folk who had fled to the cities were reduced to near cannibalism. Indeed, where in the 1970s Brazil went aborrowing, in the 1980s it has gone assorowing. Caught in an endless round of debt rescheduling and endlessly screaming for fresh loans to pay off old debts, Brazil has been subjected to the insolence of powerful nations. When, last October, U.S. Treasury Secretary Donald Regan, while on a visit to Rio, voiced "fear" for the future of Brazil, a Brazilian senator cried out that the remarks were "insolent, inadmissible, and intolerable." There were demands to have Brazil's honor defended. Yet is there no end in sight to Brazil's debts, social unrest, and international humiliation. But then, some might say, the IMF insists on inculcating financial discipline, and that can only be for the good of a financially undisciplined nation like Nigeria. My answer to that is: not necessarily, it all depends. Though the IMF 369 | P a g e has come to be used by third world governments as the bogeyman that forces them to impose the hardships of financial discipline on their countries, we must ask: Is it really necessary to use the IMF as a bogeyman? And is the kind of discipline it imposes the kind we need? Citizens have been known to make great sacrifices when they blieve in the cause for which the sacrifices are demanded. So, to use the IMF as bogeyman simply suggests that a government has not bothered to earn the confidence of its people in its ability to lead them on the hard and risky journey to development. As for the kind of discipline which the IMF likes to impose, it is the wrong kind for the wrong aims. What we need is the discipline of the farmer who plants his or her seeds, tends his or her fields, harvests his or her crops, and guards his or her granary from thieves and rodents alike. What we do not need is the pseudodiscipline of the robot who, once programmed, assists robbers in looting his or her own house. If, for the above reasons, debt trape peonage is not good for us, how do we get out of it and stay out of it? Let me begin by disposing of a solution that in fact is no solution at all, but is the very problem itself. The conventional unwisdom says that the solution to our mounting debt is to reschedule it. But seriously, isn't that just what peons are obliged to do by their masters? For so long as their earnings are not enough to meet their needs and pay off the growing debt, rolling it over is not a cure but a prolongation of the disease. For Nigeria, switching from short-term loans to medium-term loans, or from either to long-term loans, is like switching from heroin to methadone: it is merely the substitution of one addiction for another, when what is needed is an end to the addiction. Of course, addicted peons, if driven too hard, could commit suicide; but that would be cutting their throats to spite their enslaver's or dealer's pockets. The only remedy for the condition is to give up the craving for heroin, and then either repudiating the debt (by running far beyond the reach of the master's power of the law), or seeing to it that the terms of any rescheduling allow the debt to be worked off within a lifetime. For only then can peons walk out free, with the masters powerless to use the law to stop them. Let us consider these options. The peons chances of running away from their debts are pretty slim. But can a sovereign state do that? Well, that becomes a matter of power, doesn't it? It boils down to one question: does the debtor state have the power to defy the armed might of the nations to which its creditors belong? If you examine the history of the Caribbean, you will find that, earlier in this century, debts owed to European and U.S. interests served as occasions for the takeover of nations by the U.S. marines, and for the takeover of their finances for the 370 | P a g e purpose of collecting payments. One remarkable example was that of the Dominican Republic. In 1905 the United States took over its finances and used the proceeds from its customs to pay off its foreign debt. This exercise lasted until 1924, when the U.S. military finally left. You may say that the world has changed considerably since then. But has it? And in the appropriate respects? The Western countries may not be able to enforce their will by armed might wherever they wish, as the recent examples of Iran, Vietnam, and Lebanon show. But they have other means available to them. Perhaps their most fearsome weapon today is economic warfare. The United States was unable to get its hostages back from Iran through an Entebbe-style raid, but when it embarked upon economic war, seizing Iranian assets all over the world, Iran had to yield. If the Western powers waged economic war on Nigeria, if they cut off all trade, all credit, all food supplies, seized our assets around the world, and blockaded our ports and air space, wouldn't Nigeria collapse under the pressure? That is because Nigeria (or any third world country, for that matter) hasn't the consumption habits and production capacity to withstand concerted economic war from the West. Cuba has survived U.S. economic pressure for twenty-five years, but Europe did not go along with the U.S. blockade and the Soviet Union served as Cuba's umbilical cord and defender. Who would do the same for Nigeria if all our Western creditors ganged up on us? Such considerations probably explain why all that Latin American talk of forming a debtors' cartel remains just talk. The most they were able to propose at the Quito debtors' summit last January (where twenty-seven Latin American and Caribbean countries met to discuss how to get out from under their $350 billion debt burden) was to seek three things from their creditors: a drastic reduction in interest rates on past and future loans; an extended repayment schedule; and the limiting of loan repayments to manageable percentages of national export earnings. The implication of the Quito summit is that if we lack the power to walk away from our debt, then the best we can hope for is to work it off. Thus we must take on no new loans, and we must pay off our existing debt. For Nigeria, this cure would require us to end our squandermania, drastically reduce our spending on imports, and devote most of our export earnings to paying off our debts. But, most importantly, we would have to avoid any new debt. Of course, there is room for variation in the severity of the curative program. Now, using current projections, $16.6 billion is roughly two years 371 | P a g e of export revenues for Nigeria. We could in the most extreme version of the regimen, cut off all imports for two years and use all our export earnings to retire our debt. This would probably be the best cure; but would a spoiled and pampered population stand for such a short sharp shock? You could hear them uttering: What? Go without my daily Chivas or Remy? Drive a dented Mercedes Benz? And for two years? The psychological wrench of this variant of the cure might be just too much. So we might have to plan for it to take four or five years to pay off a debt that could be inconveniently paid off in two. But how would such a total freeze on imports and new debt differ from the unacceptable IMF medicine? In at least two ways. First, the IMF medicine is futile. Inasmuch as it does not require us to stop acquiring new debt, it does not aim to cure. It is simply an alleged cure that puts us through the hardships of hospitalization and medication, but keeps giving us fresh infections of the debt disease it pretends to be curing. If the aim is to regain health and freedom, then, from the point of view of a victim economy, the IMF hardship is pointless hardship. In contrast, the self-administered cure is both appropriate to the disease, and drastic enough to kill it off in the shortest possible time and get us out of hospital to enjoy our freedom. Secondly, in development terms, the self-imposed cure has irreplaceable advantages. To get cured of the squandermania and import mania which make us into loan addicts, we need a therapeutic shock to our system. Like Chu Teh, the Chinese general who got rid of his opium addiction, we need to put ourselves in isolation on a boat without a scrap of our "heroin" (imports and debts) on board, and sail off for the years it will take to overcome our withdrawal pains and be cured. For that, we must collectively have the discipline and determination derived from a conviction that a difficult course of action is in our best interest. Such resolve, being voluntary, would mobilize our spirit of sacrifice for national salvation and organize us for the long hard march to development. The IMF program of hardship, on the other hand, being imposed by an outside overseer and being clearly contrary to our interest, cannot gain our free consent. To impose it would call for such repression as would pit government and people against each other, and tear Nigeria apart. If we really want to get out of debt trap peonage, we should have nothing to do with the IMF and its "cure." All this preoccupation with debt rescheduling, with scampering about for new loans, all this flitting about to Washington and London and Paris and Riyadh is a dramatic waste of time, a monumental misdirection of effort. Dr. Soleye would make better use of his time by staying here, working out the details of a regimen of total withdrawal, and 372 | P a g e writing to tell the international bankers and the IMF to expect a full repayment in two or three or four years' time. But if we shun such a cure, why might that be? This question goes to the psychological heart of the matter of escaping debt trap peonage. For what keeps us from the cure is not unrelated to what caused us to be lured into the trap in the first place, and might lure us back into it even if we get out this time. I am told that the ultimate basis of the banking business is confidence or trust, which is why many banks in the United States go by the name of "trust companies." Confidence and trust are matters not so much of numbers as of psychology. Alas, however, they can be abused. In fact, the confidence man (con man), with his confidence tricks (con plans), cannot operate without first obtaining the confidence of his intended victim. And getting people to fall into debt trap peonage is done by conning them. But why do some people fall for con tricks while others do not? After all, they say that it takes two to tango; and the con man can come with his con plan, but it is up to you to fall or not to fall for it. This is a crucial point to understand if we wish to avoid getting conned into debt trap peonage. So, let us probe that part of the conning process that we ourselves can control. When you analyze how people (who, after all, have not been captured in battle and dragged off to a slave farm) are lured into a debt trap and kept in peonage, you soon discover that the operation's success depends on the victims having a psychology that makes them susceptible to confidence tricks and crackpot ideas. Let me illustrate this with the example of how Nigeria was lured, back in 1978, onto the path that led to the debt trap, and of how Nigeria is now allowing itself to be conned into getting even deeper into debt. When we see the crackpot ideas we have been accepting from those who want to con us, we can more easily appreciate why we fall for them. One of the key arguments used on us in 1978 was that if we borrowed money we did not need, the experienced lenders would be in a position to supervise and guide our development efforts, since they would then have a financial stake in our development. It was a foolish argument, and some of us said so at the time. It is still a foolish argument, and all that our falling for it did was to enable the international loan sharks to get their teeth into the succulent belly of our future earnings. But why did we fall for it? As is usual with confidence tricks, the con man presented to us only a part of the picture, and relied on our own stupid expectations to make us go along 373 | P a g e with him. And we did. We fell in with his plans by thinking that, if he took such a deep interest in furthering our development, we might get the development we wanted without any strenuous effort or risk on our part. We would let him take the wheel and do the driving and instructing while we would half listen, and nod or giggle occasionally, while cosily taking in the lovely view as we got driven to our destination. So we eagerly let him get into the driver's seat, and we have been taken for a ride. But the gasoline consumed has been ours, and the wear and tear has been on our car, while the destination has not been the one we thought we were being driven to (the paradise at the end of the road of development), but the peonage farm the driver had intended all along to take us to. The basic illusion underlying our behavior is the notion that development is some sort of turnkey on a wall which we can buy without going through the rigors and dangers of a hunt. But development is not like that. You cannot buy it and fly it in and install it. True, the foreign financiers may have all the expertise in the world on development. But the point about our development is not the supervisory transfer to us of their expertise, but our development of our own. And the way to develop Nigerian expertise is by giving ourselves the opportunity to try, fail, learn, and succeed. Development, like a child's learning to walk, involves shaky steps, falls, bruises, pain, and cries, as well as steady stands and, finally, firm footsteps. And just as nobody else can learn to walk (or drive, or eat, or talk) for another, even so nobody else can do our developing for us. We must do it ourselves, taking the responsibility and the risk, and being quite prepared for failures, since some are inevitable. In contrast to what we did, or rather allowed others to do to us while we thought they were doing it for us, development requires us to take full control of our economy, and to tackle the problems of building it up ourselves. That is how every developed country did it. That is the secret of how the Soviet Union and Japan and the United States did it. That is how Britain and France did it. That is how China has been doing it. None of them did it by handing over the directing and problem-solving involved to another nation or group of nations. Even the Chinese had to kick out their "big brother" Russians in 1959 and take complete charge of their own development. When, back in 1978, Western con men sold us the crackpot notion of the value of creditor supervision, they did so by playing on our lazy greed for the fruits of development without any stomach for the process itself. Now, in 1984, in order to hold us in peonage, we are being sold two notions by con men, including, alas, some of our own high officials who seem to be parroting their foreign mentors. 374 | P a g e One of these notions concerns the alleged need to create confidence in Nigeria among the international banking community. According to a report in the Broad Street Journal of December 1983, the permanent secretary in the ministry of finance, Abubakar Alhaji, tried late last year to gain the support of the Nigerian Labor Congress for the government's efforts to get an IMF loan. He explained to them that the most crucial benefit Nigeria needed from the IMF loan was the restoring of international confidence in Nigeria, a confidence that would enable Nigeria to secure additional loans from the international capital market. Now let us appreciate what all that means. Mr. Alhaji was, in effect, telling us that the loan from the IMF would give Nigeria access to more of the very loans that would get us deeper into debt trap peonage. And he thought that that was a good thing for Nigeria! Well, as far as I can see the only thing that would restore confidence in a man who is determined to hang you is not evidence of your stupid docility, of your resignation to his power, of your unwillingness to holler or even make a fuss, let alone trying to escape or hang him instead. So, instead of worrying about restoring that kind of injurious confidence abroad, we should concentrate on creating confidence among Nigerians in the development potential of our economy, and in our own ability to realize that potential through our own efforts. Another crackpot notion that Western con men have been trying to sell us is that of our being "underborrowed." Even the minister of finance in the last administration, Adamu Ciroma, tries to parrot that crackpot idea and get us to accept it. Well, it seems to me utterly foolish to accept that we are "underborrowed" even as we have to use nearly 40 percent of our export earnings to pay charges on a mountain of spendthrift debt. As far as I am concerned, Nigeria became overborrowed on that day in 1978 when we allowed ourselves to borrow one kobo that we did not absolutely need. By that I mean one kobo we did not have the absorptive capacity to invest prudently. And what did we use our $16.6 billion loan for? Most, if not all, of it was squandered. If you consider that, according to Oladele Olashore of the International Bank for West Africa, Nigeria did not get more than 25 percent value for all our imports, you can see that no less than $12 billion of that mountain of debt was wasted. In other words, our injudicious imports merely helped the Western countries to recycle into their pockets most of the money they were loaning us or paying us for our oil. What disposes Nigerians to accept such crackpot notions? What keeps them from taking the cure for their condition? What are they trying to evade by replying on foreign debt to finance their development? Without foreign financing (through oil and loans), Nigeria would have to undergo internal capital accumulation, and enduring the rigors of internal capital 375 | P a g e accumulation and mobilization is not an easy process. They are accompanied by great hardships and risks. And basically Nigerians do not want the rigors and risks of development. All they want are its fruits. So they think they can beg (aid), borrow (loans), and sell (oil) their way to development. Obviously, Nigeria falls for these con tricks and crackpot notions because, deep down, Nigerians (or at least the elite from which all our leaders come) have the psychology of the sucker. Suckers are greedy but lazy and want the easiest way to their overblown ambitions. Suckers believe that there is such a thing as a free lunch, and that they are smart enough to snatch it from a hungry lion's table. Suckers want to go to paradise but do not want to die. Suckers believe in perpetual motion machines. Their lazy greed blinds them to the elementary fact that, in the real world--as opposed to that of lazy fantasy--what you get is what you pay for, no more, and quite often less! You are, of course, free to want an easy way to the paradise of development. But is there one? Economic history shows that development happens to be one of those journeys (much like climbing Mt. Everest) for which there are no easy paths, only more or less difficult ones. So, if you think you have found a broad and easy road, you can be sure (if Christ is to be believed) that it doesn't lead to paradise. If Nigerians are at all serious about development, and therefore serious about escaping their debt trap peonage, they need to abandon their sucker psychology and fantasies. They need to alter their expectations to conform to the truth that the price of development must be paid, not in money alone but in effort, and not by others but by ourselves. In that regard, let me tell you what a lawyer friend of mine, a Nigerian, once told me. He said that any man who goes to the police and complains that he has been swindled by a money doubler should himself be locked up. I think that is a position we, as a nation, should adopt. So, instead of self- righteously complaining about the wickedness of those who conned us into the debt trap (usually meaning the West), or against those who refuse to give us all the aid we crave (usually meaning the Eastern bloc countries), we should speedily end our foolish spending spree, retire our debts, and free ourselves from the strangling strings of foreign aid and loans. Then we can use our resources to develop ourselves. Should we ever need to get into some international lending and borrowing after that, our watchword ought to be: never lend more than you can afford to write off, and never borrow more than you can invest and repay without strain. 376 | P a g e In conclusion, let me say this: ultimately, there is no magic formula for averting debt trap peonage. Like corporate or military strategy, the task calls for intelligent analysis of concrete situations, clear formulation of goals and objectives, meticulous application of principles derived from experience, some practical inventiveness, and a dogged watchfulness against con men and crackpot ideas. In the light of our current experience, we should above all rein in our sucker's psychology, beware of Greeks bearing gifts, and practice that eternal vigilance which is the price, not only of political, but also of economic liberty. In short, we should get into the habit of using our heads in our national interest. But unfortunately, as a Lagos taxi driver once told me, "Nigerians think the head is a spare part." May I suggest that we attach it at once, and put it to work immediately? COPYRIGHT 1985 Monthly Review Foundation, Inc. COPYRIGHT 2008 Gale, Cengage Learning Chinweizu "Debt trap peonage". Monthly Review. 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