THE TRANSFER OF WEALTH FROM THE SOUTH TO THE NORTH/95
mechanism for draining off a portion of the earnings of workers
and their families in favour of holders of public debt paper - insti
tutional investors (banks, pension and mutual funds, insurance
companies) owned and controlled by capitalists.
This drain occurs thanks to the growing share of government
tax revenue used to pay off the public debt. This government tax
revenue, in turn, is earned primarily from taxes on workers' wages
and indirect sales and excise taxes, which proportionally hit low
and mid-range earners hardest.
Frangois Chesnais has made the same point:
Part of the increase in the size of the financial sphere is a result
of the following chain of events. First, wealth takes the form of
wages and fees or of farmers' and small-business earnings.
Second, this wealth is siphoned off by the state as taxes. Third,
the state transfers this wealth into the financial sphere as interest
and principal payments on the public debt. (Chesnais, 1996)
The Difference in Interest Rates from North to South
In the 1980s, bankers from the North made debtors in the South pay
risk premiums for the money they borrowed. These premiums were
tacked on to loans that enabled countries of the South to continue
servicing their debts. As for loans in the 19 70s, they were contracted
at a variable rate indexed to changes in the London LIBOR rate or the
New York Prime Rate. According to the United Nations Development
Programme (UNDP), this created major differences between rates in
the North in the 1980s and those applied to loans to the South:
'During the 1980s, while interest rates were 4 per cent in the indus
trialised countries, the effective interest rate paid by developing
countries was 17 per cent. On total debt worth more than SI,000
billion, this meant a special interest premium of SI20 billion
annually. This merely aggravated a situation in which net transfers
to pay the debt totalled S 5 0 billion in 19 8 9' (UNDP ,1992).
The 199 7-9 8 Southeast Asian crisis provoked a sharp increase in
the risk premiums the region's countries must pay to borrow the
money needed to pay off short-term debt. In June 1997, Thailand was
paying 7 per cent to its lenders; by December 1997 it was paying 11
per cent. By late 1997, Brazil and Russia, two countries at opposite