MARCH 1991 - VOLUME 12 - NUMBER 3
E C O N O M I C S
The War's Toll on the Third World
by Samantha Sparks
Most of the Third World is paying a heavy price for the conflict in the Gulf, economically and politically. The net effect, many analysts believe, will be an increase in human misery, in countries where suffering was already high.
The economic costs of the crisis are the easiest to measure. They began with Saddam Hussein's invasion of Kuwait, and increased first with the United Nations embargo of Iraq and then with the U.S. led war. For most of the Third World, the main costs were higher oil prices and the loss of remittances from workers in Kuwait and Iraq. Many countries "are very badly affected," one World Bank official says. Among the hardest hit, according to the Bank, were Jordan, Morocco, Pakistan, the Sudan, Bangladesh, India, the Philippines and Sri Lanka. One country which would have suffered economically from the crisis because of its large number of workers in Kuwait--Egypt--had its costs mostly offset by the United States, which forgave $7 billion of the country's debt in return for support in the war.
The impact of the Gulf conflict was particularly hard to manage in countries already struggling to stay afloat. As Yilmaz Akyuz, a senior analyst at the United Nations, told Inter Press Service, "Developing countries are already in a critical situation, and anything that adds to that will make things worse." Most Third World countries were in a painful economic crunch before the crisis broke. They are trying to cut government spending, open their borders to imports and reduce public payrolls, all while servicing heavy foreign debt. This delicate balancing act is even more difficult now. According to the World Bank, "the shock [of the crisis] will have to be absorbed by further domestic adjustment"--in other words, greater austerity. For most countries, using foreign loans to cushion the costs is out of the question since they are already indebted beyond their means.
As one senior Asian official in Washington puts it, "The war gave new momentum to the socio-economic crisis" many countries have been suffering for over a decade.
For most Third World countries, higher oil prices were the biggest blow--although the hike in fuel bills could have been a lot higher. Oil could have risen to $60 a barrel--the "worst case" scenario envisioned by the World Bank in September. As it turned out, prices peaked at $41 a barrel, and by late February, were down to about $20. Even so, the six months of higher prices took a heavy toll.
Poor African countries were among the worst affected. According to the IMF, each $1 rise in the price of a barrel of oil added $100 million to their annual fuel bills. By the end of 1990, African oil imports were up about $2.7 billion. Fuel prices soared in countries like Ghana and Zambia, where economic hardship has sparked riots several times in the past. In Namibia, where the impoverished government is picking up the pieces after years of South African occupation, a special fund to subsidize fuel price hikes was totally depleted.
The crisis also hurt many of South America's struggling debtors. Brazil, the Third World's biggest debtor, for example, paid $1.2 billion more for oil in 1990 than the year before. Overall, the Canadian Council for International Cooperation calculates, the Third World spent an extra $30 billion for oil, about half what developing countries receive annually in foreign aid. Oil- exporting countries of course benefitted from the increase in the price of oil. But only 20 of the 150 developing nations, most of them Gulf states, are oil exporters.
Moreover, in countries such as Mexico and Venezuela, some economists fear that the increase in inflation associated with higher fuel prices may take away some of the gains.
Higher oil prices hurt the Third World in less obvious ways as well. One UN relief official, Peter Simkin, told Reuters that the cost of airlifting food--to starving people in Mozambique, Ethiopia and the Sudan--had risen by $400 to $500 a ton. "It is now costing well over $1,000 to air lift a ton of corn which is only worth about $140," Simkin said in mid-February.
The exodus of perhaps 3 million Third World workers from Kuwait and Iraq added further strains to developing countries' economies. When those workers fled their jobs, they stopped sending home valuable foreign exchange. Returning home, the vast majority joined the ranks of the unemployed--further draining their countries' scarce resources. Some of the poorest countries--those where few jobs are available--had the most workers in the Gulf. The Philippines, for example, had about 100,000 workers in Kuwait and Iraq. India had about 190,000, and Sri Lanka about 150,000. In Sri Lanka, the drop in expatriate workers' earnings cost the country about $2.5 million a month, the head of the foreign employment bureau said. The same countries received a further blow from the loss of trade with Kuwait and Iraq.
The political effect of the Gulf crisis in the developing countries is less tangible. Clearly, the new economic strains brought by the crisis threaten already shaky governments, including struggling democracies such as the Philippines. Added to that, anti-U.S. sentiment from Asia to Africa was fuelled by the brutal war on Iraq. In Malaysia, for example, many people interviewed by Multinational Monitor expressed indignation that Washington would "intrude" in what they perceived as an Arab-Arab dispute. Anti-U.S. demonstrations were staged throughout the Third World; perhaps the surest sign of discontent were the results of the BBC's annual "Man of the Year" poll. Saddam Hussein was overwhelmingly voted in by the BBC's worldwide listenership. The widespread popular opposition to the war clashed in many countries with official support for the U.S, position, since few leaders seemed willing to risk Washington's retaliation.
One country that did, Yemen, paid a heavy price. When this Middle Eastern country, where the average person earns $590 a year, voted against the UN resolution authorizing force to push Iraqi troops out of Kuwait, the U.S. response was swift and harsh. Washington slashed its aid to Yemen from $41 million in fiscal year 1990 to just $2.9 million in fiscal year 1991. In a now infamous remark, a senior U.S. diplomat, at the instruction of Secretary of State James Baker, told Yemen's UN delegate just moments after the vote: "That was the most expensive 'no' vote you ever cast."
Beneath the popular outrage was a sense, felt with particular acuity in predominantly Islamic nations, that the U.S.-led war against Iraq marks a return to imperialism, a new willingness by the United States to use force to dominate the developing world. With the Soviet Union no longer able to balance the United States in the global arena, one Asian official says, Third World countries fear "the United States will be much harder to deal with now than before." To be sure, developing countries never had much leverage with Washington. Now, however, this official fears, the United States will feel free to impose its own interests on the rest of the world as never before.