ABC of Debt System

6 March by Eric Toussaint

“dump the debt” by Friends of the Earth International is licensed under CC BY-NC-ND 2.0.

Abstract: This article argues that the indebted weaker countries are not the cause of sovereign debt crises and the outcomes of debt crises are directed by big banks and the governments that support them. It begins with a historical overview of debt, providing a number of examples of imperial debt burdens during the late 1800s (Tunisia to France, Egypt to Britain, etc.), before considering debt relations in the post-colonial period in more detail. It also argues that the imposition of debt has been a central means by which imperial powers regained controlling influence over their former colonies following independence movements. Traversing the 1980s debt crisis and onwards through the 1990s-2000s to the 2008 Global Financial Crisis and the Covid-19 pandemic, it describes the looming debt crisis within the Global South, which began in 2016-2017 and has accelerated since. It summarizes the debt profiles of Africa and Latin America and the Caribbean, to reveal some of the detrimental development effects of debt repayments.


Over the last ten years, Greece has been a prime example of how a country and a people can be deprived of their liberty through clearly illegitimate debt. Since the 19th century, from Latin America to China, Haiti, Greece, Tunisia, Egypt and the Ottoman Empire, public debt has been used as a coercive force to impose domination and pillage (Toussaint, 2019). The combination of debt and free trade constitute the fundamental factors subordinating whole economies as from the 19th century. Through these two inter-related processes, local elites ally themselves with big financial powers in order to subject their own countries and peoples to methods of power that transfer wealth towards local and foreign creditors.

Contrary to commonplace ideas, it is generally not the indebted weaker countries that are the cause of sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crises. These crises break out first in the biggest capitalist countries or are the result of their unilateral decisions that produce effects of great magnitude in indebted countries. It is not so-called ‘excessive’ public spending that builds up unsustainable debt levels, but rather the conditions imposed by local and foreign creditors. Real interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
are abusively high and so are bankers’ commissions. The indebted countries unable to keep up with repayments have to continually find new loans to repay old loans. In the past, when that became impossible, the great powers had license to resort to military action to ensure they were repaid. Today, debt crises and their outcomes are directed by the big banks and the governments that support them.

Over the last two centuries, several countries have successfully repudiated or unilaterally restructured debts by arguing that they were either illegitimate or odious. Portugal (1837), Mexico (1861, 1867, 1883, 1914, 1943), the USA (1837, 1865, 1898, 1933-1934), Russia (1917-1918), Costa Rica (1919), Brazil (1931, 1946), Cuba (1909, 1934, 1959), China (1949), Indonesia (1956), Iran (1979), Paraguay (2005), Ecuador (2007-2009), Iceland (2008-2009) have all done this affirming their sovereign right to refuse to pay illegitimate debts. Conflict involving debt non-payment has given birth to a judicial doctrine known as Odious Debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
which is to this day pertinent.

 Odious Debt

According to the Odious Debt doctrine theorized by Alexander Sack in 1927 a debt may be considered odious if it fulfils two conditions:

  1. the population does not enjoy the benefits: the debt was incurred not in the interests of the people or the State but against their interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and/or in the personal interest of the leaders or persons holding power; and
  2. lenders’ complicity: the lenders had foreknowledge, or could have had foreknowledge, that the funds concerned would not benefit the population.

The democratic or despotic nature of a regime does not influence this general rule. The father of the Odious Debt doctrine clearly states that “regular governments [may] incur debts that are incontestably odious.”

Sack defines a regular government as follows:
By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by ‘the grace of God’ or ‘the will of the people’; whether it express ‘the will of the people’ or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.” (Sack, 1927, emphasis added).

the burden of proof that the funds were used for the general or special needs of the state and were not of an odious character would be upon the creditors

Sack says that a debt may be considered odious if:

a) that the purpose which the former government wanted to cover by the debt in question was odious and clearly against the interests of the population of the whole or part of the territory, and b) that the creditors, at the moment of the issuance of the loan, were aware of its odious purpose.”

He continues:
Once these two points are established, the burden of proof that the funds were used for the general or special needs of the state and were not of an odious character would be upon the creditors.”

This doctrine has been invoked and applied several times in history (King 2016).

 Who was Alexander Nahum Sack and what did he want?

Alexandre Nahum Sack (Moscow 1890 – New York 1955), a Russian lawyer who taught in Saint Petersburg then in Paris, is considered to be one of the founders of the doctrine of odious debt. The doctrine, based on a series of precedents in jurisprudence, has come in for much debate. Often disparaged and widely avoided or ignored in university courses, the doctrine of odious debt has nevertheless been the topic of hundreds of articles and dozens of specialized books. The United Nations International Law Commission [1], the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
(IMF) [2], the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

 [3], the United Nation Conference on Trade and Development [4], the UN independent expert on the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, [5] Ecuador’s Commission for the full audit of public debt, set up in 2007 by President Rafael Correa [6], the Committee for the Abolition of Third World Debt, now known as the Committee for the Abolition of Illegitimate Debt (CADTM), [7] and the Greek Debt Truth Commission set up by the president of the Hellenic Parliament in 2015 [8] have published documents, taken a stand, and organized seminars on the topic, as debts whose legitimacy and validity may be questioned are constantly under discussion in the field of international relations. [9]

Very often neither detractors nor those who base their actions on the doctrine elaborated by Sack take sufficient stock of the international jurist’s analytical framework or his political leanings. Alexander Sack was not a humanist interested in protecting peoples or nations from the nefarious actions of heads of state or creditors prepared to plunge the community into debt using fraudulent or even criminal means. His main aim was not to bring ethics or morality to the world of international finance. His aim was to reinforce the international order in place, by ensuring the continuity of debt repayments so that creditors could recover the money they had lent. But he could not avoid acknowledging that there is an important exception to this sacrosanct rule: under certain circumstances, creditors must agree to the cancellation of their debt if it can be demonstrated that the debt is odious.

Sack touches upon the issue of odious debts in a book he published in French in 1927. The title he chose is significant: Les effets des transformations des États sur leurs dettes publiques et autres obligations financières : traité juridique et financier (The Effects of the Transformation of States on their Public Debt and other Financial Obligations: a Legal and Financial Treatise). The question he started from can be summed up as follows: what happens with the debts incurred by a State after a change of régime?

Sack states clearly in the first paragraph of the preface that “[…] the Russian revolution of March 1917 incited me to examine the effects of the political transformation of a state on its public debt.” Indeed, two of the main events that affected him and led him to conduct an in-depth enquiry are the revolution of October 1917 (which he calls a “Bolshevik coup d’état”) and the repudiation of the tsarist debts by the Bolshevik government in early 1918. He then gradually widened the field of his research to examine various cases of state succession and how obligations which tied the new state or new regime to creditors were affected.

 Marx, public debt, international credit and the origins of industrial capitalism: from the fifteenth to the nineteenth centuries

Karl Marx spent considerable time studying the creation of an international credit system and the role of public debt in capitalist accumulation on a world level. In the first volume of Capital (Marx, 1867), he devotes several pages of spirited analysis to the subject.

In chapter 31 (Marx 1976 -Penguin edition-), he particularly focuses on colonial expropriation, public debt and the international credit system as the sources of primitive accumulation that made industrial capital prosper the world over.

the veiled slavery of the wage-labourers in Europe needed the unqualified slavery of the New World as its pedestal

On the role of colonial expropriation, it is worth quoting Capital. Thankfully, Marx’s analysis breaks with the Communist Manifesto’s presentation of capitalism as a civilising force in the Periphery:
The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the indigenous population of that continent, the beginnings of the conquest and plunder of India, and the conversion of Africa into a preserve for the commercial hunting of black-skins, are all things which characterize the dawn of the era of capitalist production” (Ch.31, p.915).

In the same chapter, Marx coins a phrase that makes a dialectic link between the oppressed in the Centre and those in the colonies:
In fact the veiled slavery of the wage-labourers in Europe needed the unqualified slavery of the New World as its pedestal” (Ch.31, p.925). He concludes the chapter: “[...] capital comes dripping from head to toe, from every pore, with blood and dirt” (Ch.31, p.926).

According to Marx:
The different methods of primitive accumulation of the capitalist era can be assigned in particular to Spain, Portugal, Holland, France and England, in more or less chronological order. These different moments are systematically combined together at the end of the seventeenth century in England; the combination embraces the colonies, the national debt, the modern tax system, and the system of protection” (Ch.31, p. 915).

He devotes several pages to colonial pillage and then examines the question of international credit:
The system of public credit, i.e. of national debts, the origins of which are to be found in Genoa and Venice as early as the Middle Ages, took possession of Europe as a whole during the period of manufacture. [...] The national debt, i.e. the alienation [Veräusserung = alienation by sale] of the state - whether that state is despotic, constitutional or republican - marked the capitalist era with its stamp. [...] The public debt becomes one of the most powerful levers of primitive accumulation. [...] Along with the national debt there arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. [...] A great deal of capital, which appears today in the United States without any birth-certificate, was yesterday, in England, the capitalised blood of children” (Ch.31, pp. 919-920).

Twentieth century Marxist scholars have expanded on this question of global primitive accumulation (Amin, 1974; Mandel, 1968a, 1968b). Ernest Mandel’s 1968 article “L’accumulation primitive et l’industrialisation du Tiers Monde” (Primitive accumulation and the industrialisation of the Third World) provides a particularly interesting summary. On the basis of calculations made by other researchers, he estimates that, between 1500 and 1750, some one billion English pounds (gold sovereigns) were transferred from the colonies to Western Europe. This is more than the total value of capital invested by 1800 in all European industrial companies (Mandel, 1968a, pp.150-151).

 Historical examples

Creditors, whether powerful states, multilateral organizations that serve them, or banks, have become very adroit at imposing their will on debtors.

Throughout the 19th century, domination through external debt played a significant role in the imperialist policies of the major capitalist powers; it continues to plague the 21st century in new forms. In 1820–1830, as a fledgling nation, Greece capitulated to the dictates of creditor powers (especially Britain and France). Though Haiti was liberated from France during the French Revolution and proclaimed its independence in 1804, debt again enslaved it to France in 1825. [10] France invaded the indebted Tunisia in 1881 and turned it into a protectorate (Toussaint, 2016a). Great Britain led Egypt to the same fate in 1882 (Toussaint, 2016b). From 1881, the Ottoman Empire’s direct submission to its creditors (Great Britain, France, Germany, Italy and others) [11] hastened its disintegration. In the 19th century, creditors forced China to grant territorial concessions and to fully open up its market. The heavily indebted Tsarist Russia might also have become the prey of creditor powers had the October Revolution not led to unilateral debt repudiation in 1918.

heavily indebted Tsarist Russia might also have become the prey of creditor powers had the October Revolution not led to unilateral debt repudiation in 1918.

During the second half of the 19th century, certain Peripheral powers [12] – the Ottoman Empire, Egypt, the Russian Empire, China and Japan– had the potential to become imperialist capitalist powers. Only Japan succeeded. [13] In fact, Japan had almost no recourse to external debt for its noteworthy economic development on its way to becoming an international power in the second half of the 19th century and underwent significant autonomous capitalist development following the reforms of the Meiji period (beginning in 1868). It imported the most advanced Western production techniques prevailing at that time, prevented foreign interests from making financial inroads into its territory, rejected external loans and eliminated internal obstacles to the movement of indigenous capital. At the end of the 19th century, Japan transformed itself from its centuries-old self-sufficiency to the status of a robust imperialist power. The absence of external debt was not the only reason why Japan became a major imperialist power through vigorous capitalist development and aggressive foreign policy. However, the lack of external debt evidently played a fundamental role. [14]

By contrast, while China surged ahead with its impressive development until the 1830s to become a leading economic power, [15]

Newfoundland, which had become the first autonomous dominion of the British Empire in 1855, well before Canada and Australia, had to renounce its independence in 1933 because of a grave economic crisis and, in order to face up to its debts, it was eventually incorporated into Canada in 1949. Canada agreed to take charge of 90 percent of Newfoundland’s debt (Reinhardt and Rogoff, 2010).

 Debt during the 1960s and 1970s

Similar processes were again repeated after the Second World War, when Latin American countries sought capital to fund their development and Asian and African colonies gained independence. Debt became the principal instrument used to impose neocolonialist relations.

It became frowned upon to use force against a debtor country, and new means of coercion had to be found.
Debt became the principal instrument used to impose neocolonialist relations

The massive loans granted from the 1960s to an increasing number of peripheral countries (not least those in which the Western powers had a strategic interest such as Mobutu’s Congo, Suharto’s Indonesia, the military regimes in Brazil, Argentina and Philippines) oiled a powerful mechanism that took back the control of countries that had begun to adopt policies that were independent of former colonial powers and Washington.

Three big players have incited post-colonial countries into debt by promising relatively low interest rates:

  1. leading global (Western) banks seeking to put massive amounts of liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. to work;
  2. industrialized countries seeking to stimulate their economies after the 1973 oil crisis and the world recession of 1973–1974; and
  3. the World Bank seeking to increase US influence and to avoid being edged out by the increasing expansion of private banks.

The local elites in borrower countries also encouraged higher debt and made gains, contrary to the populations, who derived no benefit.

 Theoretical ideas promoting high levels of foreign debt

In neoclassical theory, savings should precede investment and are insufficient in developing countries. This means that shortages of savings are seen as a fundamental factor explaining why development is blocked. An influx of external funding is required. Paul Samuelson (1980), in Economics, took the history of US indebtedness in the 19th and 20th centuries as a basis for determining four different stages of borrowing that would supposedly lead other states to prosperity:

  1. young borrowing nation in debt (from the War of Independence in 1776 to the end of the Civil War in 1865);
  2. mature indebted nation (from 1873 to 1914);
  3. new lending nation (from the First to Second World Wars);
  4. mature lending nation (1960s).

Samuelson and his emulators slapped the model of U.S. economic development from the late 18th century until the Second World War onto one hundred or so countries which made up the Third World after 1945, as though it were possible for all those countries to quite simply imitate the experience of the US.

On the need to resort to foreign capital (in the form of loans and foreign investments) Paul Rosenstein-Rodan (1961, 107) identified the following formula:
Foreign capital will be a pure addition to domestic capital formation, i.e. it will all be invested; the investment will be productive or ‘businesslike’ and result in increased production. The main function of foreign capital inflow is to increase the rate of domestic capital formation up to a level which could then be maintained without any further aid.”

This statement contradicts the facts. It is not true that foreign capital enhances the formation of national capital and is all invested. Often, a large part of foreign capital rapidly leaves the country where it was temporarily directed, as capital flight and repatriation of profits.

Rosenstein-Rodan who was the assistant director of the Economics Department in the World Bank between 1946 and 1952, made another monumental error in predicting the dates when various countries would reach self-sustaining growth. He reckoned that Colombia would reach that stage by 1965, Yugoslavia by 1966, Argentina and Mexico between 1965 and 1975, India in the early 1970s, Pakistan three or four years after India, and the Philippines after 1975. What nonsense that has proved to be!

Development planning as envisaged by the World Bank and much Western academia amounts to pseudo-scientific deception based on mathematical equations. It is supposed to give legitimacy and credibility to the intention to make the developing countries dependent on obtaining external capital. There follows an example, advanced by Millikan and Rostow (1957, 158):
If the initial rate of domestic investment in a country is 5 per cent of national income, if foreign capital is supplied at a constant rate equal to one-third the initial level of domestic investment, if 25 per cent of all additions to income are saved and reinvested, if the capital-output ratio is 3 and if interest and dividend service on foreign loans and private investment are paid at the rate of 6 per cent per year, the country will be able to discontinue net foreign borrowing after fourteen years and sustain a 3 per cent rate of growth out of its own resources.”

This theoretical assumption has never been confirmed by a single practical example.

In fact, these authors who favoured the capitalist system, dominated by the US, refused to envisage the deep reforms that would have allowed for forms of development that were not dependent on external funding.

 The debt crisis of the 1980s

At the end of 1979, in what is generally called the Volker Shock, the US decided to increase its interest rates. This had a flow-on effect on the rates applied to indebted Southern countries whose borrowing rates were variable and had already been subject to sharp rises. Coupled with a downturn in export commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. prices (coffee, cacao, cotton, sugar, ores, etc.,) which caused reduced revenues for the countries, the trap was sprung.

In August 1982, Mexico, among other countries announced that they were unable to assure debt repayments. So, the International Monetary Fund (IMF) was asked, by the creditor banks, to lend the countries the necessary funds at high interest rates, on the double condition that they continue debt repayments and apply the policies decided by the IMF ‘experts.’ These included: abandoning subsidies on goods and services of primary necessity; reducing public spending; devaluing the currency; introducing high interest rates in order to attract foreign capital; directing agricultural production towards exportable products; freeing access to interior markets for foreign investors; liberalizing the economy, including suppressing capital controls; introducing a taxation system that aggravates inequalities, including increases in consumption taxes; and privatizing profitable publicly owned industries. This list is not exhaustive.
Structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

loans were aimed at the suppression of independent economic and financial policies in the peripheral countries and tying them to world markets

These structural adjustment loans were aimed at the suppression of independent economic and financial policies in the peripheral countries and tying them to world markets. Also, they ensured access by the industrialized economies to the raw materials and fossil fuels they needed. By gradually putting the developing countries into competition with each other and encouraging the adoption of an economic model based on exports and the extraction of raw materials for foreign markets, the goal was to reduce the price of those exported commodities, which in turn favoured the developed economies in that it reduces their production costs and increases the profits of their companies.

A new form of colonialism sprang up. It was no longer necessary to maintain an administration and an army to put the local population to heel; debt did the job of creaming off the wealth produced and directing it to the creditors. Of course, the colonialists continued to interfere in local politics and economic policies whenever they considered that it suited them.

 Developments in the 2000s

From 2003 to 2004, in a context of strong world demand, commodity prices started to increase. Exporting countries improved their foreign exchange incomes. Some developing countries increased their social spending but most preferred to buy US treasury bonds and thus put their increased means at the disposal of the principal economic powers. This increase in developing countries’ incomes whittled down the power of the World Bank and the IMF.

Chinese economic expansion became a major factor in this period. China had become the world’s principal sweatshop and was accumulating important financial reserves and using them to significantly increase funding to developing countries in competition with the offers of funding from the industrialized countries and the multilateral institutions. While some scholars underline the fact that this funding is provided with no structural adjustment programs attached, it must be noted that many of the loans provided by China seem to be collateralized by public assets such as infrastructure and national resources, allowing Chinese private or state-owned enterprises to take control of national assets of debtor countries unable to repay.

During the 2000s, the reduction of interest rates by the central banks in the industrialized countries in the North decreased the costs of debt in the South. Because of the 2007–8 financial crisis in North America and Western Europe, massive amounts of liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. were injected into the financial system to save the big banks and corporations that were themselves too heavily indebted. A decrease in the costs of financing the debts of the developing countries followed naturally and the governments of developing countries gained a false sense of security.

 A new debt crisis is looming in the Global South

 2023: a pivotal year?

We are probably living in a pivotal year because changes are taking place in the North, which dominates the planet and, which is the consequence mainly of the new war that started in Europe at the end of February 2022 and the speculation provoking a very strong increase in the prices of cereals (and by speculative contagion, other foods as well). A large part of the countries of the South have become more and more dependent on their cereal imports as they have followed the recommendations of institutions like the World Bank and the IMF. They have abandoned supporting their local producers. Countries that imported relatively little grain 60 to 50 years ago have become increasingly dependent on imports of grain and other vital foods for their populations. As the price of grain and other foods rises sharply, their import bill also rises, and they begin to run out of foreign exchange to both pay that bill and repay the foreign debt.

Countries of the South have become more and more dependent on their cereal imports as they have followed the recommendations of institutions like the World Bank and the IMF
For countries like Sri Lanka, which lost a large part of their tourism revenue during the 2020-2022 pandemic and have to import almost all their fuel and part of their food, the situation is simply untenable.

On the other hand, countries that export oil and gas can cope with the rising food import bill with relative ease because the price of oil has climbed to or exceeded $100 per barrel since Russia invaded Ukraine. The additional earnings generated by selling their oil, gas and other raw materials on the world market allow them to deal with the increasing food import bill.

 The situation is uneven, but it is also combined

The situation is uneven, but it is also combined with the increase in global interest rates as a result of the shift in financial policy by the major central banks of the North, which will begin to have an effect. The Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
of the United States (Fed) has powerfully launched the upward movement, the Bank of England has followed, and the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

is also preparing to start raising interest rates. The Bank of China has also raised rates...

The rate-setting Federal Open Market Committee boosted the federal funds rate by 0.25 in February 2023, the eighth interest rate increase in a year, to a target range of 4.5%-4.75%, the highest since October 2007.

There is no widespread debt crisis today, but the conditions are right for one in the future

The risk of a new crisis exists, because a higher interest rate would encourage a repatriation of capital to the United States - and to Europe because the European Central Bank ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
has moved in the same direction and would increase the risk premium Risk premium When loans are granted, the creditors take account of the economic situation of the debtor country in fixing the interest rate. If there seems to be a risk that the debtor country may not be able to honour its repayments then that will lead to an increase in the rates it will be charged. Thus the creditors receive more interest, which is supposed to compensate for the risk taken in granting the loan. This means that the cost to the borrower country is much higher, accentuating the financial pressure it has to bear. For example, in 2002, Argentina was faced with risk premiums of more than 4,000 points, meaning that for a hypothetical market interest rate of 5%, Argentina would have to borrow at a rate of 45%. This cuts it off de facto from access to credit, forcing it even deeper into crisis. For Brazil in August 2002, the risk premium was at 2,500 points. that indebted countries would have to pay.

There is no widespread debt crisis today, but the conditions are right for one in the future. So we are probably living through a pivotal year that may lead to a sharp increase in debt repayment distress for a whole series of countries worldwide, but especially in the global South, in 2023-2024. The above is a forecast, and like any prediction it must be taken with caution.

 Debt in the South

These last years have seen a significant increase in the constant value of foreign debt; between 2000 and 2019, it has more than tripled (Rivié, 2021). The greater part is in the private sector.

Table 1. Foreign debt by region (USD billions). Source: World Bank (2020a; 2020b).

Region 1980 1990 2000 2010 2012 2019
Latin America & Caribbean 227 413 723 1064 1360 1927
Sub-Saharan Africa 60 175 215 296 374 625
Middle East & North Africa 64 137 144 191 200 340
South Asia 37 124 163 410 528 789
East Asia & Pacific 54 218 456 1,192 1,738 2,993
Europe & Central Asia 42 138 339 1,148 1,412 1,465
Total 42 138 339 1,148 1,412 1,465

Foreign public debt has also increased, although less abruptly than in the private sector.

Table 2. Foreign public debt by region (USD billions). Source: World Bank (2020a; 2020b).

Region 1980 1990 2000 2010 2012 2019
Latin America & Caribbean 124 310 395 479 583 919
Sub-Saharan Africa 42 143 162 159 202 392
Middle East & North Africa 54 114 113 114 122 215
South Asia 31 105 135 189 219 354
East Asia & Pacific 33 161 253 318 400 727
Europe & Central Asia 24 109 188 339 415 493
Total 308 942 1,246 1,599 1,941 3,099

Whatever the World Bank and the IMF may cheerfully repeat, the debt of developing countries is still a major obstacle to meeting basic needs and safeguarding human rights. Inequalities have sharply increased and, progress in terms of human development has been very limited.


In sub-Saharan Africa, the outgoing flow of capital via debt service Debt service The sum of the interests and the amortization of the capital borrowed. and corporations garnering their profits is significant. In 2012, the profits repatriated from the poorest area on earth amounted to 5 per cent of its Gross Domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP) versus 1 per cent in public aid to development (Toussaint et al., 2015). In this context, it is legitimate to raise the question, who is helping whom? If we take into account the plundering of Africa’s natural resources by private corporations, the brain drain of African intellectuals, the embezzlement of goods by the African ruling class, the manipulation of transfer prices by private corporations, and other misappropriations, we cannot help but be aware that Africa has been drained dry.

European Union (EU) relations with Africa illustrate the continuation of neocolonial policies. These have developed beyond the framework of the African, Caribbean, and Pacific (ACP)-EU Partnership Agreements (2000), generally known as the Cotonou Agreements, which covered over 100 countries. Nowadays, the EU has enforced other frameworks that are more significant in its relationship with Africa, such as an EU partnership framework for migration (the Valletta Action Plan with the Khartoum and Rabat processes), to which we should add the bilateral frameworks and agreements that European countries have with African countries or regions. Not forgetting the two CFA franc currencies used in 15 African countries, which have been guaranteed by the French treasury. Though, in order to regain monetary and fiscal independence from France, the eight states of the West African CFA are aiming to introduce the Eco.

Many European citizens have no idea of the extent to which the conditions and clauses imposed under such agreements are setting the groundwork for a new debt crisis in the developing countries. Some basic facts that are not known by most people are that, whereas the total volume of aid received annually by Africa from Europe stands at around $21 billion, African migrants in Europe remit around $30 billion to their families in their home countries, almost 50 per cent more than the amount of the European aid. The funds currently available from the European Investment Fund Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
(the small and medium enterprise lending arm of the European multilateral development bank, the European Investment Bank) for the whole African continent stand at just $3.3 billion, which is equivalent to the cost of one mid-sized infrastructure project like a port. Furthermore, the EU’s proposed budget for 2021–2027 plans to allocate more than $34.9 billion to various mechanisms of migration control (Valero, 2018). It will end up costing Europe more to patrol its borders than what is allocated to Africa as development aid or what Africa suffers from trade losses with Europe. Indeed, it seems that the new trade deals have worsened things in this regard. From 2003 to 2014, Africa always had a trade surplus with Europe, whereas since 2015, the trend has reversed, amounting to close to a $30 billion deficit.

 Latin America and the Caribbean

Latin America has one of the highest negative external debt balances among developing continents for the period 1985–2019. As Table 3 demonstrates, this debt stock Debt stock The total amount of debt grew significantly over the 2010s, and the repayment burden is large.

Table 3. Debt and resources devoted to repayment: Latin America and the Caribbean. Source: World Bank (2020a, 2020b). DataBank using indicators for total external debt (DT.TDS.DECT.CD) and public external debt and guarantee (DT.TDS.DPPG.CD).

Debt and repayments External debt USD (billion) Public external debt USD (billion)
Debt stock in 1970 30 14
Debt stock in 2010 1,064 479
Debt stock in 2012 1,360 583
Debt stock in 2017 1,789 878
Debt stock in 2019 1,927 919
Repayments 1970 - 2010 2,969 1,612
Repayments 1970 - 2012 3,332 1,833
Repayments 1970 - 2017 4,493 2,222
Repayments 1970 - 2019 5,059 2,484

Note: repayments cover the total of depreciation and debt interests.

Table 4 on net transfers on external debt indicates that Latin American and Caribbean countries paid back much more in debt service between 1985 and 2019 than they received in loans during the same period. The net transfer on debt is the difference between what a country or region receives as loans and what it pays (capital and interest included, also called debt servicing). If the amount is negative, it means that for that year the country or region paid more than it received.

Table 4. Net transfers on external debt 1985–2017: Latin America and the Caribbean. Sources: World Bank (2020a, 2020b), DataBank, indicator public external debt and guarantee.

Net transfers on external debt 1985-2017(USD billion) 1985-2019(USD billion)
External debt 205 244
Public external debt -90 -123

Table 5 shows that public debt servicing consumes a greater percentage of both GDP and the budget than does public expenditure on education and health care in three of the four Latin American countries listed. Only in Ecuador, in the case of health care but not education,does public expenditure exceed debt payments.

Table 5. Distribution of expenditure in national budgets (as % of GDP and as % of the budget) in Select Latin American States in 2013. Sources: Argentina Ministry of Economy and Public Finance; Brazil (Fattorelli, 2014); Columbia Ministerio de Hacienda y Crédito Público (2013); and Government of the Republic of Ecuador (2012).

% of GDP % of the Budget
Public debt servicing Public expenditure for education Public expenditure for health care Public debt servicing Public expenditure for education Public expenditure for health care
Argentina 9.6 1.8 1.0 38.4 7.3 4.0
Brazil 22.7 1.8 2.1 42.2 3.9 3.4
Columbia 6.3 3.5 1.6 24.3 13.4 6.2
Ecuador 3.7 7.1 3.1 8.3 15.9 6.8

Debt servicing’s impact on government expenditure

If we examine the evolution in public expenditure of some 50 low-income countries from 2015 to 2017, we notice an increase in expenditure related to debt repayment, a decrease in health-related expenditure, and a stagnation in terms of education.

 Conclusion: It is possible not to repay an illegitimate debt

It is quite possible to resist creditors, as evidenced by Mexico under Benito Juárez, who in 1867 refused to repay loans contracted by Emperor Maximilian from the Société Générale de Paris two years earlier in order to finance the occupation of Mexico by the French army (Toussaint, 2017b). In 1914, at the height of the revolution, when Emiliano Zapata and Pancho Villa were victorious, Mexico completely suspended payment of its external debt, which was considered illegitimate; the Mexican government only repaid symbolic amounts from 1914 to 1942, just to pacify creditors. From 1934 to 1940, President Lázaro Cárdenas nationalised the railway and the oil industry without any compensation; he also expropriated over 18 million hectares of landed estates to give them over to indigenous communities. His tenacity paid off: in 1942, creditors renounced about 90 per cent of the debt value and said they were satisfied with limited compensations for the companies they had been evicted from. Mexico was able to undergo major social and economic development from the 1930s to the 1960s. Other countries, such as Brazil, Bolivia and Ecuador, successfully suspended debt repayment in 1931. In the case of Brazil, selective suspension of repayment lasted until 1943, when an agreement made it possible to reduce debt by 30 per cent.

More recently, in July 2007, in Ecuador, then President Rafael Correa set up a committee to audit public debt. After 14 months of work, its findings gave evidence that a large part of the country’s public debt was illegitimate and illegal. In November 2008, the government decided to unilaterally suspend repayment of debt securities sold on international financial markets, which would mature in 2012 and 2030. Eventually, the government of this small country won its case against North American bankers who held those securities. It bought for US $900 million in securities that had been worth $3.2 billion. Through this operation, Ecuador’s Treasury saved about $7 billion on the borrowed capital and the remaining interest. It freed resources to finance new social spending (as shown in Table 5). Ecuador has not been targeted by international reprisals (Toussaint, 2021).

It is obvious that refusing to repay illegitimate debt is a necessary measure, but it is not enough to generate development. A consistent development programme must be implemented. Financial resources have to be generated by increasing the state’s resources through taxes that respect social and environmental justice (Millet and Toussaint, 2018).

Key sources:
1. Toussaint, É. (2019). The debt system: a history of sovereign debts and their repudiation. Chicago: Haymarket. Detailed history of debt since the late 1700s and its relationship with the long cycles of growth and crisis in capitalism. Explains the concept of odious debt in detail.
2. CADTM (2020). Committee for the Abolition of Illegitimate Debt. Available on: A regularly updated site on debt with publications, news and analysis on key debt topics from around the world.
3. Reinhardt, C. & Rogoff, K. (2009). This Time Is Different: Eight Centuries of Financial Folly. Princeton (N.J.): Princeton University Press. An influential mainstream economic history of financial crises which generated much controversy thanks to its claim the debt above 90 per cent of GDP dramatically harms economic growth. The claim was used to support austerity programs but it was found to be methodologically flawed.


ACP-EU Partnership Agreement (2000). Cotonou Agreement 23 June. Available:
Adda, J. (1996). La mondialisation de l’économie, Paris: La Découverte.
Amin, S. Accumulation on a World Scale: A Critique of the Theory of Underdevelopment. New York: Monthly Review
Anderson, P. (1996). Lineages of the absolutist state. London: Verso.
Argentina Ministry of Economy and Public Finance (2013). Presupuesto 2013, Buenos Aires.
Arruzza, C., Bhattacharya, T. & Fraser, N. (2019). Feminism for the 99% a manifesto. Available on:
Bazant, J. (1995). Historia de la deuda exterior de Mexico, Mexico DF, El Colegio de México, Centro de Estudios Históricos
Bonilla, S. (2011). Odious debt: law-and-economics perspectives, Wiesbaden: Gabler.
CADTM (2008). Topicality of the odious debt. Available on:
Colombia Ministerio de Hacienda y Crédito Público (2013). Presupesto general de la Nación, República de Colombia.
Fattorelli, M. (2014). Dívida consumirá mais de um trilhão de reais em 2014, Auditoria Cidadã da Dívida.
Frank, A. G. (1966). The development of underdevelopment. New York: Monthly Review, Vol. 18, No. 4: September.
Gago, V. & Cavallero, L. (2021). Debt is a war against women’s autonomy. 21 April. Available:
George, S. (1988). A Fate worse than debt, London: Penguin Books.
– (1992). The debt boomerang: how Third World debt harms us all. London: Pluto Press.
Government of the Republic of Ecuador (2012). Presupuesto General del Estado, Ministerio de Hacienda.
Howse, R. (2007). The concept of odious debt in public international law, Geneva: UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

Hudson, M. (1992). The lost tradition of Biblical debt cancellations. March. Available:
International Law Commission (1977 & 1979). Yearbook. Geneva: United Nations.
International Monetary Fund (2019). List of LIC DSAs for PRGT-Eligible Countries. Available on:
Kaiser, J. (2019). Global Sovereign Debt Monitor, Erlassjahr and Misereor.
King, J. (2016). The doctrine of odious debt in international law: a restatement, London: Cambridge University Press.
Kremer, M. & Jayachandran, S. (2002). Odious Debt. IMF conference on macroeconomic policies and poverty reduction, April, Washington DC.
Lienau, O. (2014). Rethinking sovereign debt: politics, reputation, and legitimacy in modern finance. Cambridge (Ma.): Harvard University Press.
Luxemburg, R. (1951). The accumulation of capital. London: Routledge and Kegan Paul.
Mandel, E. (1968a) L’Accumulation primitive et l’industrialisation du tiers monde. In Victor Fay, ed., En partant du Capital. Paris:Anthropos
Mandel, E. (1968b), Marxist Economic Theory. London: Merlin Press.
Marichal, C. (1989) A Century of Debt Crises in Latin America: From Independence to the Great Depression, 1820-1930. Princeton: Princeton University Press.
Marx, K. (1976). Capital, vol. 1. Middlesex : Penguin.
Millet, D. & Toussaint, E. (2018). Once upon a time there was a popular government that wanted to do away with the export-oriented extractivist model. Available:
Millikan, M. and Rostow, W. (1957). A Proposal: Keys to An Effective Foreign Policy. Harper: New York.
Nehru, V. & Thomas, M. (2008). Odious debt: some considerations. World Bank document. 14 April, Washington DC: World Bank.
New York Times (The) (2022). The root of Haiti’s misery: reparations to enslavers, 2022/05/20.
Payer, C. (1974). The debt trap: the International Monetary Fund and the Third World. Monthly Review Press, New York.
– (1991). Lent and lost: foreign credit and Third World Development, London: Zed Books, London.
Pénet, P. & Florès Zendejas, J. (2021) Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony. Oxford: Oxford University Press.
Perchellet, S. (2010). Haïti : entre colonisation, dette et domination, Liège / Paris: Editions CADTM / PAPDA.
Pomeranz, K. (2000). The great divergence. Princeton: Princeton University Press.
Primo Braga, C. & Dömeland, D. (eds) (2009). Debt relief and beyond: lessons learned and challenges ahead. Washington DC: World Bank.
Rivié, M. (2019). New Debt Crisis in the South. Available on:
Rivié, M. and E. Toussaint (2021). Evolution of the external debt of developing countries between 2000 and 2019.
Rosenstein-Rodan, P. (1961). International Aid for Underdeveloped Countries. Review of Economics and Statistics, 43(2): 107–138.
Sack, A. N. (1927). Les Effets des Transformations des États sur leurs Dettes Publiques et Autres Obligations financières. Paris: Sirey.
Samuelson, P. 1980. Economics. New York: McGraw Hill.
Stiglitz, J. (2003). Globalization and Its discontents. New York: Norton.
Toussaint, É. (2022). Another look at the debt of Tunisia and Egypt in the 19th century and the colonization of those countries by France and Britain. Available on:
(2021), Ecuador: Resistance against the policies imposed by the World Bank, the IMF and other creditors between 2007 and 2011, 15 April, Available on:
• (2019). The Debt System. A History of Sovereign Debts and Their Repudiation. Chicago: Haymarket Books.
– (2017). Mexico proved that debt can be repudiated, 22 July, Available on:
– (2016a). Debt: how France appropriated Tunisia, 13 June. Available on:
– (2016b). Debt as an instrument of the colonial conquest of Egypt, 6 June. Available on:
– (2016c). Newly Independent Greece had an Odious Debt round her Neck,, 26 April, Available on:
– (2010). Debt, the IMF, and the World Bank: sixty questions, sixty answers. New York: Monthly Review Press.
– (2008). The World Bank: a critical primer. London / Cape Town / Liège: Pluto Press / David Philips / CADTM.
– (2005). Your money or your life: the tyranny of the global finance. Chicago: HaymarketBooks.
Toussaint, É., Munevar, D., Gottiniaux, P. & A. Sanabria (2015). World Debt Figures 2015, Debt in the South, CADTM.
Truth Committee on Greek Debt (date). Preliminary Report. Available on:
– (2015). Illegitimacy, Illegality, Odiousness and Unsustainability of the August 2015 MoU and Loan Agreements. Available on:
United Nations (UN) (2019). Financing for Sustainable Development Report 2019.
– (2009). On the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights. Report of the independent expert (Cephas Lumina). Geneva: United Nations.
Valero, J. (2018). EU will spend more on border and migration control than on Africa. Euractiv, August.
World Bank (2020a). International Debt Statistics. Available on:
– (2020b). DataBank. Available on:
Waibel, M. (2013). Sovereign defaults before international courts and tribunals, Cambridge (U.K.): University of Cambridge.


[1International Law Commission (1977, 1979).

[2Kremer and Jayachandran (2002).

[3Nehru and Thomas (2008), The World Bank (2009), Primo Braga and Dömeland (2009).

[4Howse (2007).

[5United Nations (2009).

[6See the final report of this committee in which I took part as spokesperson for the CADTM.

[7See CADTM – Topicality of the odious debt,

[8See the final report of this committee in which I took part as scientific coordinator and spokesperson for the CADTM Truth Committee on Greek Debt (2015), chap. 8 and 9, and August 2015.

[9We can also mention the recent publication if academic books on the topic: Bonilla (2011), Waibel (2013), Lienau (2014), King (2016).

[10See: Perchellet (2010). According to the Ordinance of the French Emperor, 1825, Article 2: “The current inhabitants of the French part of Saint Domingue will pay the sum of 150 million francs to the Caisse des Dépôts et Consignations (Deposits and Consignments Fund) of France in five equal annual instalments, the first of which will be due on December 1, 1825. This is intended to compensate the former settlers who demand compensation.” This amount was reduced to 90 million francs a few years later. See also: New York Times, 2022/05/20.

[11Toussaint (2022).

[12Peripheral as compared to the major European capitalist powers (Great Britain, France, Germany, Netherlands, Italy, Belgium) and the US.

[13Adda (1996), p. 57-58.

[14To learn more about the factors besides the rejection of external debt, read Anderson (1996) on Japan’s transition from feudalism to capitalism.

[15K. Pomeranz, who has been keen on highlighting the factors thwarting China’s race to become one of the major capitalist powers, does not give importance to external debt. In fact, his study focuses on the pre-1830 to 1840 era. However, his analysis is very rich and inspiring. See: Pomeranz (2000).] its recourse to external debt allowed the European powers and the US to gradually marginalize and control it. Again, other factors were involved, such as wars launched by Britain and France to impose free trade in China and force the country to import opium. However, external debt and its damaging consequences still played a major role. In fact, China had to grant land and port concessions to foreign powers so that it could repay its external commitments. Rosa Luxemburg writes that one of the methods used by the Western capitalist powers to dominate China was “Heavy war contributions” which “necessitated a public debt, China taking up European loans, resulting in European control over her finances and occupation of her fortifications; the opening of free ports was enforced, railway concessions to European capitalists extorted.”[[Luxemburg (1951).

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Other articles in English by Eric Toussaint (626)

0 | 10 | 20 | 30 | 40 | 50 | 60 | 70 | 80 | ... | 620



8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80