From Colombo comes a political earthquake

During the following August, in Colombo, Sri Lanka, heads of state and senior cabinet offi cials of 85 nations, members of the so-called Group of Non-Aligned Nations, met under the host government of Prime Minister Sirimavo Bandaranaike. Among the leaders present were India’s Indira Gandhi and numerous heads of state or offi cials of African, Asian and Latin American governments, including Algeria and Iraq.

FROM COLOMBO COMES A POLITICAL EARTHQUAKE

The Colombo gathering began with little fanfare. It hardly seemed any different from one of the endless rounds of bickering and rhetoric among the numerous former colonial states. But Prime Minister Bandaranaike, a veteran of earlier struggles against British and American interests, having expropriated British and U.S. oil companies in the early 1960s, had decided to make the August summit an intervention into the deteriorating economic state of the developing countries in the aftermath of Kissinger’s oil crisis.6

The fi nal declaration of the Colombo meeting, dated August 20, 1976, was a document unlike any produced by developing-country heads of state in the postwar period. The central theme of the 85 non-aligned states had been publicly announced as ‘A fair and just economic development.’ The resolution declared that ‘economic problems have become the most diffi cult aspect of international relations … The developing countries have become the victim of this worldwide crisis,’ a crisis which was preventing the attempts of these countries to eliminate hunger, sickness and illiteracy.

In this context, noting the near doubling of the burden of foreign debt since the onset of the 1973 oil shock and the catastrophic worsening of terms of trade for raw materials export, the declaration proposed several concrete steps towards the creation of a new international economic order.

The existing order, it noted correctly, had collapsed, and this was leading to restrictive protectionist policies, recession, infl ation and unemployment. Therefore the declaration called for a ‘fundamental reorganization of the international trade system in order to improve terms of trade … a worldwide reorganization of industrial production which would incorporate improved access by the developing nations to industrial products and technology transfer.’ Addressing the chaos of the existing Bretton Woods system, with its ‘anarchy of fl oating

exchange rates,’ the declaration called for a radical overhaul of the international monetary system in order, among other things, to guarantee an adequate transfer of investment capital to developing nations. But the most alarming aspect of the Colombo declaration, from the standpoint of the New York and London financial establishment, was a call for a ‘satisfactory resolution of the problem of the public indebtedness, especially for the least developed and most severely affected countries.’ The explosive issue of foreign debt had been placed on the negotiating table for the fi rst time, not by a single government, but by 85 governments acting collectively.

Bandaranaike’s Sri Lanka (a former British colony) and India under the leadership of Prime Minister Indira Gandhi, had carefully prepared the agenda for debate among the 85 heads of state, in concert with the government of another former British colony on the northeast coast of South America, Guyana. The crucial negotiator for Guyana in Colombo was its minister of foreign affairs, Frederick Wills. Signifi cantly, the newly independent governments of three former British colonies led the Colombo initiative to create a powerful new alignment of forces, which would potentially redirect priorities towards industrialization and development.

The important next step for the non-aligned initiative was decided. The annual meeting of the United Nations General Assembly in New York the following month would be the forum at which to present their proposal to the world community of nations. At the end of September 1976, Wills was designated to present the position of the Colombo group. Carefully declaring their ‘non-alignment’ from either major superpower bloc of the postwar era, Wills then proceeded to present to the assembled delegates the results of the recently passed Colombo declaration.

Citing repeated attempts from developing countries over the past years to reach a satisfactory resolution of their economic future, which was also in the interests of the economic security of the industrial nations, Wills then dropped his political bombshell:

The International Monetary Fund and the monetary system of Bretton Woods must provide a place for alternative structures such as international development banks, which have as their goal, not the recovery and reconstruction of Europe or preferential agreements for development of a market economy, but rather, the just division of the gains from an unequal global economic system.

Wills concluded his remarks:

The burning problem of the debt and debt service has taken on a special importance. Developing countries are not able to manage their basic requirements, as noted in Colombo, without resort to some form of debt restructuring or moratoria. We must make every effort to oppose attempts to divide us through ‘case-by-case’ techniques. We cannot allow ourselves to mortgage future unborn generations to the burdensome debt repayment and destructive debt service. The time for a debt moratium has arrived.

The impact of the combined Colombo and UN declarations was immediate. On Wall Street, traders spoke of a ‘crisis of confi dence.’ Share prices for U.S. banks began to fall, especially those most involved in Eurodollar lending to the developing countries: Citicorp, Morgan Guaranty, Bankers Trust and Chase Manhattan. The Federal Reserve bank was forced to intervene to support the falling dollar. The implications of a concerted action by developing states on the dollar debt had sent shock waves through the fi nancial system.

But the Colombo resolution of the 85 non-aligned states which Wills presented at the United Nations that autumn was only one part of what was rapidly becoming a potential alliance of the key oilproducing states with certain European industrial nations and possibly Japan—a combination which would have decisively challenged the Anglo-American Bretton Woods order as never before.

In reviewing what had taken place in 1976, Wills some years later told this author:

In what became known as the Third World, approximately 80 per cent of mankind lived on the fl anks of superpower rivalry, supplying raw materials for the processing economies of the First and Second Worlds, and striving to become market extensions of the market economies of the First World.

Third world politicians at that time had a different view about their international role, however. They regarded political independence as merely one essential step in the path of growth and development. They sought generalized technological advance, which should be coterminous with diversifi cation of agriculture and the insertion of such infrastructure as would lead to the industrialization, and thereby closing of the huge gaps that separated the different worlds.

Wills went on to explain how all this was to be paid for:

Led by Britain and France, the economic theorists of the First World determined that the export receipts of the Third World should decide the pace and quality of development and, when these fell below expectations, resort should be had to the Bretton Woods system whose machinery had been set up in the late 1940s. Above all, this meant the requirement of the stamp-of-approval of the International Monetary Fund (IMF) and submission to the barbarous conditionalities which were the underpinning of IMF intervention.

This was the context within which the Summit of the NonAligned Nations was held at Colombo in Sri Lanka in 1976. There was a call for a new funding institution—an international resources bank—to replace the iniquitous neocolonialism of the IMF. There was also a call for diminution of the vertical and structural economic dependence of the Third World on Britain, France and the USA, and an increase in horizontal linkages between Third World countries. There were calls for regional Zollvereins or customs unions to protect Third World industries, and for technology transfers in order to remove the harshness of underdevelopment.

The United Nations was chosen as the arena where it was hoped that a new era of global cooperation would emerge. These hopes were never realized. One by one, the outstanding advocates of Third World development were removed from the seats of domestic power, and their solidarity was defeated in detail by the age-old principle of ‘divide and conquer.’ Export receipts and import prices were manipulated to create enormous gaps in balances of payments, and Third World countries were told that they must get the seal of approval of the IMF before any government or private institution would advance further loans. The IMF insisted on austere programs based on currency devaluations which increased misery in the Third World, was directly responsible for the spread of disease and was also successful in encouraging drug cultivation, as those unfortunate countries sought the chimera of a quick cash crop as a panacea for their fi scal diffi culties.

On the role of the petroleum-exporting countries of the Third World, Wills added:

The only Third World raw material that did well in the economic arena was oil, but the large oil reserves were centered in the Middle East, and manipulation of inter-Arab and Arab–Israeli confl icts, together with inculcation of a penchant for prestige projects, meant that Third World oil reserves could not be used as factors in Third World development. One by one Third World countries were gripped by infl ation and starvation, by low life-expectancy and high infant mortality. The old order of Canning and Castlereagh, Pitt and Disraeli remains.

The reference to the methods of British nineteenth-century foreign minister, Castlereagh, the master artisan of British balance-of-power diplomacy at the 1815 Congress of Vienna, was appropriate. The principal active opponent who deployed the full power and force of the U.S. government, intelligence services and economic clout to destroy the dynamic set off at Colombo in 1976 was the secretary of state, Henry Kissinger, a devout student of Castlereagh.

When the foreign ministers of the European Community met in December 1976 to discuss, among other issues, a possible cooperation with the call of the non-aligned nations, Kissinger sent a telegram to the delegates, warning:

The United States believes it would be dangerous for the industrial countries to strengthen the ties between the CIEC [Conference for International Economic Cooperation—the North–South Conference] and OPEC. A number of OPEC spokesmen have publicly sought to make clear that the fi nal decision about the oil price in a great degree will depend on concessions from the industrial nations toward the CIEC. This would create the opposite of our desired link [to OPEC countries] and strengthen instead the links between OPEC and other underdeveloped countries.

Kissinger’s veiled threat succeeded in disrupting any active support from the nations of Europe for the potential alliance of OPEC and the non-aligned group. Diplomats personally involved in these talks at the time report that the two governments most open and responsive to such a call for cooperation with the non-aligned were Italy and West Germany. On December 12, Italian papers reported a meeting of leading representatives of government, industry and trade unions, convened by the German and Italian governments on the subject of the creation of a European defense against the damaging impact

of the unstable oil-linked U.S. dollar. The government of Helmut Schmidt was reportedly told privately at this time by Washington, that Bonn risked a pull-out of U.S. troops if it dared to pursue the non-aligned offer in any serious way. Andreotti’s Italy was isolated and unable to act alone. The Kissinger tactic of ‘divide and conquer’ had again prevailed, at least for the moment.

As for the key strategists of the bold Colombo non-aligned declaration, within months each had been forced out of offi ce, ‘caseby-case,’ to use Kissinger’s phrase. In India, Prime Minister Indira Gandhi was forced into elections in February 1977 and in the midst of this, several key members of her Congress Party led by Jagjivan Ram, staged a public party defection to form an opposition coalition with the radical Janata. The key issue was the imposition of IMFdictated domestic austerity. Gandhi was out by that March, less than six months after the UN declaration of the non-aligned. In Sri Lanka, Mrs.Bandaranaike’s ruling Freedom Party and the entire country were paralyzed by a wave of strikes in early January led by a ‘Trotskyite’ party linked to the trade unions, which reportedly enjoyed intimate ties with Anglo-American intelligence. Bandaranaike at the time, in a futile effort to restore order, charged ‘foreign interference.’ By May 1977 she was out. And in Guyana, on Valentine’s Day, February 14, 1978, after repeated external pressures on the government of Prime Minister Forbes Burnham, Frederick Wills, the third key strategist of the non-aligned initiative on economic development, was forced to resign.

According to diplomatic sources familiar with the situation, the heavy hand of Henry Kissinger was present in each case. ‘But this was done in close coordination with the British,’ according to these observers. ‘The British, you know, were very clever. They were willing to let the Americans do the public dirty work and take the blame, while they worked very effectively on a more discreet level. It wasn’t people like Jim Callaghan [the British Labour prime minister] who did this. It was the people of [Royal Institute for International Affairs’] Chatham House, people such as Michael Howard, and families such as Lord Cecil’s, and the MI5 intelligence circles, who went into action against the Colombo initiative.’7

The Third World threat to the Anglo-American order and their regime of global taxation through petrodollars had apparently been beaten back. The leading Eurodollar banks of London and New York opened the fl oodgates, lending ever greater sums to select states of