Covid-19 on a debt assault

Eric Toussaint interviewed by Christophe Koessler of the daily newspaper Le Courrier, Geneva

17 April by Eric Toussaint , Christophe Koessler

The Committee for the Abolition of Illegitimate Debt (CADTM) is of the opinion that the limited resources of the countries of the South should be devoted to fight the pandemic rather than reimbursing international creditors.

The coronavirus crisis and its cascading economic consequences could well plunge many countries in the South into an unprecedented crisis, pushing millions of people into poverty. Anticipating the disaster, many NGOs and social movements are once again calling for the cancellation of the - very often unsustainable - external debts that most developing countries have contracted with rich states and international multilateral institutions.

From Pope Francis to the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). , from the French President to 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), several appeals and declarations have been made over the last fortnight. Would the coronavirus be the catalyst for poor countries to resolve the debt crisis? Eric Toussaint, an economist and a tireless activist of the Committee for the Abolition of Illegitimate Debt (CADTM) responds to the issues.

On Monday, the IMF announced the payment of “emergency aid” to 25 of the world’s poorest countries, what do you think?

Eric Toussaint: It’s a scam, once again. The IMF has announced a relief of 500 million dollars worth of debt payment. Checking it out, we realize that the IMF will indeed be reimbursed! The nineteen African countries concerned and the other six beneficiaries will have to draw on a fund set up by the IMF and funded by certain rich countries, such as the Netherlands. The IMF is therefore not waiving off the money.

These fundings will therefore not enable the poor countries to deal with the health situation - for example to buy medical equipments and hire staff, - but will be used to reimburse the IMF. This is a strategy that the financial institution has been using with African countries for a very long time : to continue being reimbursed on the back of the contributions by other countries in order to maintain the debtor-creditor relationship that the IMF imposes. This has allowed it to continue to dictate the same type of policies, to the countries concerned for forty years. This has led to an enormous degradation of the health sector and public services, and disarmed them in the face of the current epidemic.

The G20 on Wednesday 15 April 2020 endorsed a suspension of debt service Debt service The sum of the interests and the amortization of the capital borrowed. for the poorest countries. Is this a major step forward?

No, because it is not a cancellation, but a postponement of payment granted on a case-by-case basis. This only concerns bilateral debt and therefore excludes a large part of the debts of these countries: multilateral debts and those owed to the private sector. The G20 decision concerns no more than 76 very poor countries. Among them, those that are not in arrears with their payments to the IMF and 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.

, will be selected.

Most of the debts claimed from these countries are illegitimate since these have not served the people but have been used against their interests. These must be cancelled.

At the end of March, the United Nations Conference on Trade and Development UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

(UNCTAD) called for more to be done by cancelling the debts of developing countries to the tune of USD 1,000 billion. What is your take on this?

On this point, UNCTAD is right. The UN recognizes that the debts of many countries in the South must be written off. UNCTAD has also clarified that debtor countries can unilaterally declare themselves in suspension of payments without creditors being able to demand arrears in the future.

President Emmanuel Macron said on Monday that Africa’s debt will have to be cancelled. Is that a sign of change?

It was merely an announcement. The next day his finance minister said that this would not be possible because of a lack of agreement from other European countries.

Do you think that creditors will still have to give up some of their debts because of the current crisis? It is not in 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. for entire countries to go “bankrupt”?

Frankly, I wouldn’t bet on it. So many years have gone by without any real debt cancellation being granted despite all the valid arguments to the contrary. The cancellations that have taken place over the last 30 years have all been linked to geostrategic interests. In the early 1990s, the United States cancelled part of Egypt’s debt under Mubarak because its government had supported the military intervention in Kuwait against Iraq. Eighty percent of Iraq’s debts were erased in 2004 after the overthrow of Saddam Hussein because it suited the great power and its oil companies. There are other examples.

However, in 1996, an initiative was launched to reduce the burden on the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
(HIPC). Did it not succeed?

This World Bank/IMF initiative provided trickle-down relief, conditional on 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).

policies that weakened the public services and economies in question.

These countries had to go through an uphill task to meet a lot of conditions in exchange for a remission. It is clear that they very quickly returned to the same level of indebtedness and even exceeded it. So that was not a solution at all since the economic policies that were dictated to them have in fact maintained their fundamental dependence on debt.

What, in spite of everything, gives reason to hope for more substantial cancellations?

Today, I hope that this health crisis will push people to mobilize and put pressure on their governments. I am in contact, for example, with activists in South Africa because it is one of the countries most affected by the coronavirus and it is in an extremely serious debt crisis. It is possible that the pressure from the streets will increase.

Everything will depend on popular mobilization. CADTM, together with the peasant movement la Via Campesina, the World March of Women, Attac and others, are working to promote them.

Can the main creditors from the North waive off the repayment of these debts without putting themselves in danger?

Cancellation would not stretch them much. In fact, the main reason why they do not waive off their debts is in order to maintain the subordinate relationship between debtor and creditor countries. The debt of poor countries to all these creditors amounts to roughly $1 trillion. This is not a considerable sum for rich countries. As a matter of comparison, the stimulus package announced in the United States in the context of the current coronavirus crisis amounts to 2000 billion dollars, that of Germany to 1000 billion euros.

Argentina delay, Ecuador goes down

Argentina has just decided to postpone the payment of its debt until 2024-2025. Is it leading by example?

Eric Toussaint: This is completely an incomplete measure. The new anti-neoliberal president Alberto Fernández, who took office last December, had all the cards in hand to set up a citizen-controlled audit of Argentina’s debt. He has not done so. His predecessor Mauricio Macri’s new loans of $44 billion from the IMF had been strongly contested, including through legal proceedings, claiming that they violated the constitution.

Alberto Fernández himself had denounced them during his campaign. Once in place, it would have been perfectly legitimate for him to denounce the signed agreements. But he preferred to enter into negotiations with the IMF and thus, in effect, acknowledge the debt contracted by Mauricio Macri. Since then, Argentina’s situation has deteriorated and it has entered into a selective suspension of payments. It is not known whether it will go any further. Members of the presidential majority continue to call for an audit. Several of them have signed an appeal to this effect, including former Vice-President Christina Kirchner’s former Finance Minister.

Ecuador, for its part, decided at the end of March to pay on the dot $324 million. Why did Ecuador decide to pay $324 million?

The Ecuadorian National Assembly passed a resolution the day before asking the government to postpone this payment. However, President Lenin Moreno paid the money. He did not lack any arguments for postponing it since his country was directly affected by the virus. We are faced with a government that prefers to give priority to creditors over the vital needs of its people. A dramatic decision when we know that the health system is in a lamentable state, weakened by two years of anti-social policies imposed by the same IMF, with the active participation of Mr. Moreno.

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 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 (see here), 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.




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