Price fluctuations. In recent years there have been dramatic price fluctuations in oil, metals, and other basic commodities. The sudden hike in oil prices in the 1970’s caused widespread inflation and sparked a world economic recession. Third World countries not producing oil were particularly hard hit.

In the 1980’s there has been a slump in the price of most commodities. This has severely hampered the economies of poorer countries whose exports consist mainly of such products. Countries such as Mexico and Nigeria, who rely heavily on oil exports, have also experienced a sharp decline in living standards due to falling oil prices. Such price fluctuations can sink the soundest economic planning.

Shortsighted Government Spending

Military spending. The total global military spending for 1987 is estimated at about a trillion dollars. This is equivalent to about $1.8 million a minute! Not only rich countries squander money on armaments; some of the poorest countries of the world have planned a 10 percent yearly increase in defense spending.

Economist John K. Galbraith, explaining the social and economic effect of Third World military spending, said: “Those who pay for these armaments are the poorest of the poor. They are bought at the expense of non-military investment destined to improve the cost of living, at the expense of bread itself.”

“White-elephant” projects. It is said that a king of Siam used to give a white elephant to courtiers whom he disliked. Since the animal was considered holy, it could not be made to work. Thus its upkeep would bring financial ruin to the unfortunate recipient of the gift. In recent years Western nations have inadvertently played the role of the king of Siam. Their aid programs have financed grandiose technological projects that recipient nations have been unable to keep in repair.

These expensive, impractical “white elephants” litter the economic landscape of poorer countries: luxurious airports from which planes only rarely depart, a state-of-the-art bakery that can’t produce bread for lack of flour, a gigantic cement factory that constantly breaks down for lack of maintenance.

Sometimes governments of the Third World have saddled themselves with enormous debts due to lavish spending on extravagant projects such as hydroelectric schemes, nuclear power plants, or even new capital cities.

Population Growth

In many countries of the world, the rapid population growth contributes to a lower standard of living. Housing, jobs, schools, and even food production just can’t keep pace with the ever-increasing demand. Mexico, for example, because of its burgeoning population, needs to create one million jobs a year just to keep its unemployment rate from rising. In many African countries the rapidly growing population​—made worse by a migration to the cities—​has led to a tripling of food imports and has contributed to the decline in living standards during the last decade. Some despairing fathers, unable to find jobs and provide for their large families, have just deserted them or have even committed suicide.

[Box on page 8]

The Debt Problem

National Debt

In many lands government expenditure greatly exceeds income. The extensive borrowing that this policy requires leads over the years to the accumulation of an enormous budget deficit, sometimes called the national debt. Repayment of this debt, together with interest, forces the government to keep on borrowing, which pushes up interest rates and fuels inflation. Furthermore, as Time magazine explained, governments are loath to reduce spending because “voters, being human, want more benefits and fewer taxes, and politicians, being politicians, respond to the [voters’ wishes].” Thus, the day of reckoning is postponed, and meanwhile the cost of living goes up.

International Debt

For a variety of reasons, some countries import more goods and services than they export, resulting in a balance of trade deficit. The shortfall has to be paid for in currency that is acceptable to other nations, usually in dollars or other strong currencies. This money must be either drawn from the reserves or borrowed from other countries. If the country’s reserves fall dangerously low and loans are not forthcoming, import restrictions may have to be introduced or the currency devalued. Both these measures cause a sharp rise in the price of imported goods, many of which may well be necessities for industry and consumer alike.

Third World countries particularly have balance of trade problems because, in almost every case, the value of the goods they export has dropped dramatically. For example, in 1960 a ton of coffee could buy 37 tons of fertilizer, whereas in 1982 it could buy only 16 tons. Similar figures could be given for cocoa, tea, cotton, copper, tin, and other primary products that are the main exports of less developed countries. Largely as a result of these adverse terms of trade, over which they have little control, by 1987 developing countries owed a staggering $1,000 billion. This millstone round their necks gravely hinders economic recovery and even threatens the stability of some governments.

The New York Times recently commented: “The single issue that unites Latin America is debt . . . This problem is held responsible by governments for their crumbling popularity and is seen as the key political variable affecting their immediate future.”

[Map on page 7]

(For fully formatted text, see publication)

World Inflation Rates 1980-85

(Based on El Mundo en Cifras, published by The Economist)

■ 0 to 15%

■ 15 to 30%

■ 30 to 100%

■ over 100%

■ figures not available