If it is true that imperialists study their colonial charges, it is equally true that the charges study their masters--with great care and cunning. Who shall say which understands the other more?
--Woodrow W. Borah
If rainforests are so important, why are we destroying them? What is the underlying cause?
To answer these questions we must look beyond the local level of small-scale farmers. These people clear rainforests just to survive.
We also must look beyond the national level of tropical governments. These governments encourage logging, ranching, and homesteading in rainforests largely because of financial pressures.
The answer is found on the international level. Specifically, wealth, in the form of both money and natural resources, is being transferred from underdeveloped tropical countries to developed nations outside the tropics.
This transfer of wealth is occurring because many tropical countries are severely indebted to the developed world.
Understanding how this indebtedness came about and how it is being repaid is the key to understanding the driving force behind rainforest destruction.
Origins of a Debt Crisis
How tropical countries became indebted to the developed world is a long and convoluted story. It began in the 1970s when the price of oil started to increase dramatically. Rising oil prices made the countries of OPEC (the Organization of Petroleum Exporting Countries) extremely wealthy.
For safety's sake, OPEC deposited its enormous wealth in the world's most established international banks, which were mostly American and European commercial banks. These banks, in turn, were obliged to invest (lend out) the money, to make a profit, and to pay OPEC interest on its deposits.
Investing the money was difficult, however. There were billions and billions of dollars in OPEC deposits, and the high cost of oil was causing a worldwide recession. This recession made loans to the banks' usual customers in western nations risky.
Several major banks decided that lending to underdeveloped countries was the solution. Many of these underdeveloped countries were in the tropics. Quickly, other, smaller banks followed suit.
The banks considered underdeveloped countries to be like small businesses. The idea was to modernize and industrialize their economies, thereby creating new industries, manufacturing, and products that could be sold worldwide.
Massive amounts of money then flowed to tropical governments and to their industries, most of which were state-owned. It was believed a sovereign nation could not go bankrupt.
Where Did the Money Go?
Overall, the many billions of dollars that underdeveloped countries (also called less-developed countries or LDCs) borrowed from the banks was misspent politically. In other words, politicians in these LDCs used the money to stabilize their governments and maintain political power--instead of investing in industries that could yield a profit.
These politicians subsidized food and fuel for their citizens, subsidized the industries of their political supporters, and made government services, such as welfare, education, and police, available to more people.
These underdeveloped countries also spent money buying their own currencies. They did this to strengthen and stabilize their currencies. It was hoped this would spur private investment in their economies and reduce the price of imports, such as machinery and factory equipment that their fledgling industries needed.
The LDCs also needed money to pay interest on their loans. This money was borrowed, as well.
Over time, more and more borrowed money was spent maintaining power, supporting currencies, and making interest payments, and less and less was invested in industry. In the long run, most of the loans meant to build strong economies were misspent through poor political decisions.
Bad Luck Hurt the LDCs
The LDCs did spend some of the money they borrowed to develop their industries, and these industries almost succeeded in strengthening their economies. But around 1980 three changes in the world economy occurred that propelled these emerging nations into a rapid decline--interest rates jumped, oil prices climbed dramatically higher, and prices for international commodities plummeted.
Within four years, from 1977 to 1981, U.S. and other world interest rates increased almost threefold. Because most of their loans were tied to these rates, the LDCs had to make much larger interest payments than they had anticipated.
During this same time, the price of oil skyrocketed to almost $38 per barrel. Consequently, the LDCs needed more money to pay for fuel and the many products whose price is affected by the cost of fuel.
High oil prices also worsened a worldwide economic recession. This, in turn, decreased world demand for commodities like lumber, metals, and farm products. These commodities were the main exports of many LDCs. As demand for these items decreased, the income of these countries also decreased.
All of these events caused the economies of less-developed countries to stumble and the value of their currencies to fall. In the end, high interest rates, high oil prices, less demand for commodities, and the poor spending priorities of the LDCs combined to create huge trade and budget deficits--and a need for more borrowing.
The Brink of Disaster
It quickly became evident that too much money had been lent to the LDCs, too little of which had found its way into economic investment.
Many of these underdeveloped countries were unable to make interest payments on their existing debts but desperately needed more financing to continue industrializing their economies. The banks, however, needed to be paid back and refused to make further loans. By 1982 LDC debt had reached a staggering $780 billion.
The Debt Crisis
At this point, one of the LDCs, Mexico, hinted that it might stop making payments on its foreign debt for a while. Although some small LDCs like Peru and Jamaica had previously made such threats, their debts were insignificant compared to Mexico's. Should a giant like Mexico renege on its financial agreements, other giants were sure to follow.
Soon, some of the smaller underdeveloped countries began discussing a simultaneous default on their loans. These countries believed the banks could not retaliate against whole blocks of bankrupt nations.
The situation rocked the entire international banking system. If a large percentage of less-developed countries were allowed to renege on their debts, banks around the world would be facing insolvency. Financial analysts feared another Great Depression.
Enter the IMF
In desperation, the banks appealed to the International Monetary Fund (IMF) to use its huge financial resources to forestall an international crisis.
The IMF is a financial institution created by the United Nations Monetary and Financial Conference in 1944. It was established to coordinate international payments between countries, promote agreements on currency stabilization, and facilitate international trade.
The IMF gets its money from its 179 member countries. All of these countries, as a condition of membership, must contributed to a pool of money held by the IMF. In return, any one member can borrow from the pool. Large loans, however, require the approval of the other member countries, and strings are often attached.
To ease the situation, the IMF basically offered to lend the LDCs enough money to continue making interest payments to the banks, but only if the LDCs met certain conditions. These conditions included what are called, "structural adjustment programs."
Often controversial, structural adjustment programs require a borrowing country to make changes in its economy, and often these changes benefit the larger members of the IMF while helping the indebted country little.
IMF Advice
The structural adjustment programs of the IMF required the LDCs to alter their economies in two ways: 1) increase exports of natural resources, such as woods, metals, and agricultural products, and 2) cut government spending. In effect, the IMF was telling the LDCs to postpone industrial development and sell off their natural resources.
Many underdeveloped countries were reluctant to make these changes. Prior to IMF involvement, these countries had hoped to repay their debts through increased industrial productivity. But the IMF position was clear: countries that aggressively followed its advice would have their past-due payments refinanced, receive favorable repayment schedules, and be given more loans in the future.
Not wanting their countries to be isolated from the global economic system and needing more money to stay in power, most LDC officials accepted the new loans and followed the IMF advice.
The Debt Crisis Begins to Fuel Deforestation
Exporting Rainforests
The first part of the IMF plan--to increase exports of natural resources--was accomplished in several ways. One way was to require the LDCs to expand their industries that produced commodities for export. Consequently, local companies involved in industries like timber, agriculture, cattle, and mining received government subsidies.
The IMF also insisted that the LDCs lower trade barriers, such as taxes, tariffs, and restrictions on foreign firms. With low trade barriers, international companies could help the LDCs export natural resources. With modern equipment and direct access to foreign markets, these large, international businesses began extracting resources on a massive scale. (In some cases, these companies were financially larger than the countries within which they operated.)
Finally, the IMF required the LDCs to stop expending money to buy their own currencies. As a result, the value of these currencies plummeted, and the price of everything--labor, materials, land--became less expensive to foreign firms. Consequently, the exporting of natural resources by foreign firms became extremely profitable.
All of these policies were endorsed by the developed world in the name of "free trade." In the underdeveloped countries of the tropics, however, the very industries that benefited from IMF policies are the industries that, today, destroy rainforests.
Creating Poverty
The second part of the IMF repayment plan--to cut government spending--also was endorsed by the developed world. However, these cuts in spending increased poverty in these already poor countries, and this eventually caused more deforestation.
The IMF believed that spending cuts would reform LDC governments, end wasteful spending, and save money to repay debt. But to the people of less-developed countries, these spending cuts had tremendous social consequences and were called "austerity policies."
For LDC citizens, austerity policies meant higher prices for food and fuel, fewer educational opportunities, wage and job cuts by the government and by state-owned industries, cutbacks in welfare and social security programs, and the elimination of many basic city services--in other words, recession.
Also contributing to poverty in these countries was insistence by the IMF that less money be spent supporting currencies. As the value of currencies fell, everything these small countries imported became drastically more expensive.
Austerity Backfires
Suddenly, LDC residents were experiencing widespread poverty. Food was in short supply and jobs could not be found. Citizens were upset that their governments had acquiesced to the policies of foreign nations and they organized strikes, riots, and demonstrations against their governments, the IMF, and the largest shareholder of the IMF, the United States.
Between 1976 and 1989 these "austerity protests" were reported in 26 different debtor countries.
One of the most violent protests occurred in Venezuela in March 1989. There, outraged Venezuelans burned cars, looted stores, and fought police, resulting in the deaths of 300 people, injuries to 2,000, and strong reprisals from the Venezuelan government.
The Economist reported on the response of then-Venezuelan President Carlos Andres Perez: "Mr. Perez responded to the riots by ordering a curfew, suspending the right of assembly and of free speech, and permitting detention without trial. He also strongly defended the austerity measures against which the rioters were protesting, and upon whose implementation the International Monetary Fund has insisted as the condition for the first of what may be a long line of fresh credits to Venezuela."
In another country, the Philippines, austerity protests eventually toppled the U.S.-backed Marcos regime.
The LDC Response
Government officials in these underdeveloped countries were in an awkward position. They needed to quiet political unrest, and they genuinely wanted to provide for their people, many of whom were struggling to survive. Their response, however, dramatically increased deforestation by creating millions of small-scale farmers.
To LDC government officials, the best way to deal with impoverished and discontent citizens was to offer free or nearly free land in the countryside where these people could start their own farms and grow their own food.
In tropical countries, however, good agricultural lands were needed to raise export crops--to repay foreign creditors. The only land for the poor was in the rainforest frontier.
Rainforest Colonization
To encourage their citizens to move into rainforests, the LDCs of the tropics did a number of things: they built highways into remote jungle areas, made land grants to citizens who would settle there, and made loans and subsidies available to those settlers who wished to start a farm or ranch in these areas.
The Role of the World Bank
Much of the financing for these rainforest development projects came from international agencies, such as the World Bank.
The World Bank is the sister organization of the IMF. Like the IMF, it is an intergovernmental organization created by the United Nations Monetary and Financial Conference of 1944. Its primary function is to make loans available to low-income countries for specific development projects, such as dams and highways. The World Bank also provides economic advice and technical assistance to underdeveloped countries.
Resettlement Programs Financed by the World Bank
Between 1986 and 1993 the World bank approved 146 projects that involved the resettlement of people--15 percent of the World Bank's budget. Many of these resettlement programs involved moving people from crowded urban centers into sparsely populated rainforests
In Indonesia, for example, over $500 million in World Bank financing helped colonize that country's perimeter islands. The gist of this program was to relocate people from the overpopulated island of Java to remote islands, which were covered in rainforests.
Indonesia's colonization effort continues today and is the largest government-sponsored program encouraging people to move into rainforests. It is estimated that 10 million people have been resettled under this program.
The World Bank also provided Brazil's Polonoroeste Regional Development Program with more than $400 million. Polonoroeste expanded Brazil's highway 364 into the rainforests of Rondonia, Brazil, subdivided land, and gave land titles to settlers.
The result of Polonoroeste was a land-rush and a wholesale leveling of rainforests. During most of the 1980s, over 100,000 people per year moved into the rainforests of Rondonia, most because of Polonoroeste. In 1984 alone, nearly 140,000 new settlers migrated into this rural area.
Land titles, however, were unavailable for so many people. With no other way to survive and nowhere else to go, most of these settlers have become squatters--clearing and farming rainforests they do not own. From 1980 to 1990 forest cover in Rondonia dropped over 20 percent.
Today, an estimated 300 to 500 million small-scale farmers in similar predicaments are clearing rainforests worldwide.
What is the Situation Now?
The IMF and other intergovernmental institutions still have policies that cause deforestation. These policies also increase the debts of less-developed countries; the commercial banks, however, have been rescued.
The Banks Escape
Since the IMF intercession, most commercial banks threatened by the debt crisis are no longer facing insolvency.
The IMF bought the time these banks needed to reorganize themselves. Some of these banks built up cash reserves in anticipation of future losses. Others got rid of their troubled loans, selling them at discounts to other banks. Still others negotiated guarantees for their loans from institutions like the World Bank.
In addition, many banks are being paid back--largely from the sale of natural resources. By the late 1980s, nearly 30 percent of all the money that less-developed countries earned from exports went to pay debt; in Latin America it was nearly 40 percent.
As a consequence, the 1980s saw a net flow of money from underdeveloped countries to foreign creditors. In other words, the LDCs paid more to their foreign creditors in the 1980s than they received in additional loans and foreign investments. By 1989 $50 billion per year was flowing out of less-developed countries.
For poor countries, the loss of this money is devastating. It means fewer dollars for economic investment, social programs, and environmental protection. In other words, more poverty and more deforestation.
The Plight of the LDCs
Despite the flow of money from less-developed countries to foreign creditors, LDC debt has increased. In fact, it has doubled. Much of this debt is refinanced interest, however. The debts of less-developed countries now total $1.4 trillion--about twice what it was in 1982 when the IMF interceded.
As a result, many LDCs are trapped in a vicious cycle. Their debts are increasing as interest accumulates, and their supply of natural resources, which they sell to repay these debts, is shrinking. If current trends continue, many LDCs soon will be stripped of natural resources but still saddled with massive debts.
Colonialism?
To people sympathetic to the plight of underdeveloped countries, the present situation is a modern-day version of colonialism. The IMF and other financial institutions are promoting policies that benefit the developed world at the expense of less-developed countries.
In its 1994 annual report, for example, the IMF stated that "improved prospects for these (underdeveloped) countries would require strong adjustment programs," including a reduction of protectionist policies and a reduction of exchange rates. These policies, however, will make exporting natural resources from less-developed countries more profitable for international companies. As a result, more rainforests will be destroyed.
Of course, underdeveloped countries do not have to follow IMF advice; they can decline to restructure their economies around the export of natural resources. But doing so is not politically feasible.
This is because most of the land in these countries is owned by a small group of politically powerful people. In tropical Latin America, for example, 90 percent of the arable land is owned by just seven percent of the population.
These politically powerful land owners profit from the sale of their countries' natural resources. They have little incentive to change existing policies.
To the poor and politically powerless in less-developed countries, the current situation is colonialism. Their countries are used by international corporations with the consent of a wealthy political elite to produce goods for foreign markets. Foreign firms reap the profits from these products, and tax revenues that could otherwise be used to develop diversified economies are used instead to pay foreign debts.
Colonialism or not, one thing is clear--the poor resolution of the debt crisis is the driving force behind rainforest destruction. The developed world's financial centers are pressuring tropical nations to sell natural resources and ignore long-term social and environmental consequences.
This pressure is what drives the non-sustainable use of resources in the tropics. As long as it remains, rainforests will be destroyed.
