CADTM present in the International University of Peace

22 July 2010 by Daniel Munevar

During these past few days the XXV edition of the International University of Peace took place in Sant Cugat del Valle, on the outskirts of Barcelona. This project came about in 1984 with the aim of creating the conditions and providing the tools necessary to foster debate, reflection and exchange of experiences on conflict and peace building. The University was created by the initiative of Frederic Roda Pérez and Nobel Peace Prize laureate, Adolfo Pérez Esquivel.

Amid discussions on the importance of democratic international institutions and social justice for peace, CADTM was invited to discuss how the system of debt has become an obstacle for social justice in developing countries.

The presentation of CADTM, conducted by Daniel Munevar, analyzed the relationship between debt and social justice from three points of view. In the first place, the prevailing scheme of financing for development entails a high opportunity cost for the countries, which receive this type of funding. Thus, far from constituting a mechanism to transfer resources from North to South, the system induces debt net transfers from developing countries to their creditors. As noted by Eric Toussaint, between 1970 and 2008, developing countries have repaid 102 times the original debt, while at the same time the debt has been multiplied by a factor of 48. In total, developing countries have transferred to its creditors the equivalent of 8 Marshall Plans; the opportunity cost of this scheme is made clear in the case of Latin America. On average over the last decade, the governments of the region allocate on average 40% of their budgets for debt servicing. Furthermore, debt service Debt service The sum of the interests and the amortization of the capital borrowed. represents on average twice the resources allocated for health and education in the region. It can be said then, that the debt system significantly limits the ability of governments in the South to guarantee human rights and satisfy the basic needs of their populations.

Second, the debt system induces a pattern of productive specialization based on raw materials and agricultural products which increases tensions over the control of those resources; the so called “resource curse.” The pressure from creditors forces the debtor countries to give priority to the promotion of exports that generate foreign exchange earnings in the short run. Such exports are usually concentrated in sectors with low value added and scant capacity to absorb labor. This type of productive specialization, associated with the system of debt, becomes a significant barrier to the development of countries in the South in 3 ways. First, the dependence on commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. limits the ability of the economy to generate jobs and thus resolve the problems of underemployment and informality in labor markets. Second, it increases the vulnerability of Third World countries to the volatility of international prices of raw materials. And third, by increasing dependence on export earnings from commodities, the system of debt increases the so-called “resource curse.” In the absence of other activities that generate income and employment, social and political tensions associated with the control of raw materials increases and with it the likelihood of internal armed conflicts.

Finally, the system of debt has become a key determinant of the overall evolution of inequality within and between countries. In this regard, as global capital cycles are determined by liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. conditions in advanced economies, countries of the south have hardly any tools to control capital flows directed towards them by investors located in the advanced economies. At first these capital flows accelerate economic growth, but given the large amounts of capital that tend to concentrate on a small number of countries, these capital flows result in serious distortions that eventually cause the collapse of entire countries and regions. As it has been demonstrated by the University of Texas Inequality Project, these cycles of debt have become the key element to understand the evolution of global inequality. In the initial phase of the cycle, associated with capital inflows and rapid economic growth, levels of inequality tend to decrease slowly. However, once the uncontrolled growth of the debt causes a financial crisis, levels of inequality increase significantly in a short period of time, thus removing the progress achieved during years of economic growth. Hence, the system of debt is related to the massive increases in inequality that occurred in Latin America during the debt crisis in the eighties, and more recently in Southeast Asia after the 1997 crisis. This is supremely significant given the direct relationship between inequality and political instability in the South.

Following the presentation there was a vibrant debate with the audience at the University of Peace about the implications that the system of debt has had on the South and the lessons to be learned for the current situation in Europe. As in other occasions, the CADTM vindicated the importance of adopting sovereign unilateral measures such as an immediate moratorium of debt and the realization of debt audits. Emphasis was made on the recent experiences of Argentina and Ecuador. The discussion ended with the intervention of the Nobel Peace Prize, Adolfo Perez Esquivel, who pointed out the inherent illegitimacy of a system that gives priority to creditors over the satisfaction of the human rights of the people of the South.

Note: Attached is the presentation

Translation from spanish by Laura Hernandez

Daniel Munevar

is a post-Keynesian economist from Bogotá, Colombia. From March to July 2015, he worked as an assistant to former Greek Finance Minister Yanis Varoufakis, advising him on fiscal policy and debt sustainability.
Previously, he was an advisor to the Colombian Ministry of Finance. He has also worked at UNCTAD.
He is one of the leading figures in the study of public debt at the international level. He is a researcher at Eurodad.




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