Version 2.0: The North’s New Debt Trap for the South

Evolution of the external debt of developing countries between 2000 and 2019

Part 1

19 January 2021 by Eric Toussaint , Milan Rivié

An update of the three part series “A new trap of indebtedness of the South to the North” published in September-October 2020.

At the end of the 1990s and the early years of the new millennium, developing countries (DC) were emerging from an unprecedented debt crisis, the “lost decades of development”, which had started in 1982 with Mexico defaulting. Between 1980 and 1999 there had been at least 280 debt restructuring operations.

At the time, faced with the sheer size of the crisis and popular pressure, creditors launched emergency financing or debt relief initiatives. Since 1982, those measures have essentially guaranteed the debt would still be paid for creditors not to be affected by a general suspension of debt payment as had happened in the 1930s.

Moreover, new loans granted by multilateral institutions such as the IMF and the World Bank came with conditionalities that made the borrowing states more dependent on their external debt.

Such neoliberal policies also resulted in a deterioration of public services such as health care and this had very serious consequences on the capacity of governments to face the CoViD19 pandemics.

Moreover, the suppression of tariff barriers and of aid to small local producers deeply affected them. Not counting that between 2000 and 2018 developing countries’ total external debt quadrupled and that 19 countries have totally or partially suspended repayment. A new debt crisis is in the offing even though its extent and its scope are cushioned by the ongoing policy of very low interest rates in the North.

While the crisis may be slowed down it is only because this low rate policy implemented by central banks in the North combined with the massive injection of cash into financial circuits by the same central banks resulted on big capital in the North still buying debt securities in the South.

Big capital in the North (as well as capitalists in the South) still buys securities of the South because they provide much higher yield than securities of the public debt in the North. Capitalists in the North are convinced that if many countries of the South should suspend debt repayment as a consequence of the global crisis that leads to a sharp decrease in their revenues in hard currencies, the IMF and the World Bank would grant them new loans to prevent general defaulting. They are convinced that as private creditors, they will be paid back first because loans are granted by the IMF and other institutions on condition that the money is used first to pay private creditors. If they should face any loss all the same, capitalists in the North know that they can rely on the help and support of powerful States in the North in the shape of tax relief and other financial aids. The motto of capitalists is “Heads: I win, tails: you lose”. They win whatever the circumstances, or almost.

In the first part of this series devoted to the evolution of debt since the beginning of the 2000s, we shall examine the relationship between the stock of the debt and net transfers. The following parts will turn to the threats on the debt of developing countries in a global and regional perspectives.

  1. Structure of the external debt in developing countries

Let us first examine the structure of the external debt of developing countries from the point of view of creditors (we have rounded off the figures provided by 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.

concerning the indebtedness of developing countries in 2018):

and from the point of view of debtors:

 2. Evolution of the external debt of developing countries between 2000 and 2018

2.1 List of developing countries according to income

Population in the 135 developing countries in 2019: 6,438 million

  • In low income countries [1] in 2019: 668 million
  • In middle-income countries [2] in 2019: 5,769 million

List of 29 low income developing countries [3]: Afghanistan, Burkina Faso, Burundi, Centrafrique, North Korea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Uganda, Democratic Republic of the Congo, Rwanda, Sierra Leone, Somalia, Soudan, South Soudan, Syria, Tajikistan, Chad, Togo, Yemen.

List of the 50 lower middle income developing countries [4]: Algeria, Angola, Bangladesh, Benin, Bhutan, Bolivia, Cambodia, Cameroon, Cap Verde, Comoros, Congo, Côte d’Ivoire, Djibouti, Egypt, Eswatini, Ghana, Honduras, India, Kenya, Kiribati, Kyrgyz Rep., Laos, Lesotho, Morocco, Mauritania, Micronesia, Moldavia, Mongolia, Myanmar, Nepal, Nicaragua, Nigeria, Pakistan, Palestine, Papua-New Guinea, Philippines, Salvador, São Tomé et Principe, Senegal, Solomon (islands), Sri Lanka, Tanzania, East Timor, Tunisia, Ukraine, Uzbekistan, Vanuatu, Vietnam, Zambia, Zimbabwe.

List of the 56 higher middle income developing countries: Albania, Argentina, Armenia, Azerbaijan, Belize, Belarus, Bosnia-Herzegovina, Botswana, Brazil, Bulgaria, China, Colombia, Costa Rica, Cuba, Dominica, Dominican republic, Ecuador, Fiji, Gabon, Georgia, Grenade, Guatemala, Equatorial Guinea, Guyana, Indonesia, Iraq, Iran, Jamaica, Jordan, Kazakhstan, Kosovo, Lebanon, Libya, North Macedonia, Malaysia, Maldives, Marshall (islands), Mexico, Montenegro, Namibia, Paraguay, Peru, Russia, Sainte-Lucie, Saint-Vincent et Grenadines, Samoa, American Samoa, Serbia, South Africa, Surinam, Thailand, Tonga, Turkey, Turkmenistan, Tuvalu, Venezuela.

Table 1: Evolution of the debt stock Debt stock The total amount of debt of the net transfer (total and public external debt) of developing countries between 2000 and 2019

in billions of USD Total DC
Total external debt [1] (long-term) public
external debt
(long-term) debt
owed to the WB
Total stock total Net transfer Total stock Net transfer Total stock Net transfer Taking commission
into account [4]
2000 2040.8 -102.94 1324.24 -40.77 190.42 0.14 0.04
2001 2045.77 -52.8 1314.99 -26.31 193.36 -0.05 -0.15
2002 2093.97 -80.27 1387.81 -45.8 202.93 -6.92 -7.02
2003 2286.99 -7 1454.58 -59.79 213.92 -7.83 -7.93
2004 2434.51 13.49 1483.83 -50.98 222.14 -2.32 -2.43
2005 2429.27 25.75 1309.2 -93.14 213.46 -1.74 -1.84
2006 2635.5 73.11 1246.13 -107.7 187.31 -5.3 -5.41
2007 3143.18 323.28 1353.02 8.13 197.43 -0.5 -0.61
2008 3367.57 57.2 1413.84 -8.66 204.19 2.1 1.99
2009 3618.48 41.99 1596.47 52.02 220.57 12.96 12.79
2010 4301.43 571 1733.83 114.42 238.5 19.65 19.46
2011 5061.19 551.9 1869.16 82.88 242.21 2.52 2.38
2012 5612.79 391.28 2069.05 138.95 252.04 8.72 8.59
2013 6380.93 616.61 2259.03 140.18 265.86 10.18 10.03
2014 6821.78 328.53 2404.04 124.24 270.11 11.77 11.61
2015 6340.39 -537.48 2414.66 13 278.09 13.78 13.6
2016 6623.4 6.25 2559.34 65.9 287.41 10.22 10.06
2017 7317.42 479.61 2882.44 174.98 310.58 7.8 7.64
2018 7718.98 245.83 3053.04 107.9 319.73 8.99 8.81
2019 8139.14 72.52 3270.76 102.09 337.74 12.35 12.15

Amount of the public external debt of low income countries:

  • in 2000: USD 83.7 billion
  • in 2019 : USD 127 billion

Amount of the public external debt of middle income countries:

  • in 2000: USD 1,239.5 billion
    - for lower middle income countries: USD 407.7 billion,
    - for higher middle income countries USD 831.7 billion
  • in 2019: USD 3,143.7 billion
    - for lower middle income countries: USD 988,5 billion,
    - for higher middle income countries USD 2,155.2 billion

2.2 Some explanations

Table 1 bears on the period 2000-2019 [5]. a stretch of time that includes debt relief measures implemented by public creditors (states of the North, the IMF 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.
, the WB, other multilateral regional banks) after the Third World debt crisis [6] that started in the 1980s.

Big capital in the North (as well as capitalists in the South) still buys securities of the South because they provide much higher yield than securities of the public debt in the North.

Column 2 shows the evolution of the stock of the total external debt of all developing countries for which the WB provides data [7] Column 4 shows the evolution of the total stock of the long term external debt owed and/or guaranteed by the governments of DC. Column 6 shows the evolution of the stock of long term external debt of DC owed to the World Bank (IBRD and IDA).

Columns 3, 5, 7 and 8 show the net transfer on the debt for the three kinds of stocks mentioned above.

The net transfer on debt is the difference between what a country receives as loans and what it pays (capital and 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. included, also called debt servicing). If the amount is negative, it means that for that year the country paid more than it received. (See Box)

 Box: Debate inside the World Bank on calculating the net transfer on debt


In 1984, the debate over this issue caused a rumpus in the World Bank. A team of World Bank economists produced a report which questioned the Bank’s presentation of external debt flows. [9] Hitherto, the Bank had only considered net flows on debt, which it defined as the difference between the capital lent and the capital repaid, without counting the interest. This team of economists hold that interest payments should be added to the figures.

According to the World Bank policies, transfer was positive throughout the considered period (1980-1987). But, according to the accounting rules of the economists, the result is completely different. Positive up to 1982, net transfers become negative as from 1983. It is perfectly justifiable to calculate the net transfer on debt by deducting the amounts repaid in terms of both capital and interest, from the amounts lent. Moreover, the fact that the crisis was caused by a rise in 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.
can only be seen and understood when the interest payments are taken into account.

The report received a very cold reception when it reached the management level of the Bank. Ernest Stern, senior vice-president for Operations (1980-1987), there was no question of presenting the payment of interest as a burden since it was simply the remuneration for capital lent. [10] After a meeting with 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 :
, he stated in a memorandum addressed to the bank: “the issue of net transfers was raised and was greeted with a veritable firestorm of negative comments, from several governors and other participants. The World Bank was also attacked by several speakers for having endorsed this concept”. [11]

For the Bank’s managing committee, the debate had a direct bearing upon its interests as a creditor. The Bank (and also the IMF) wanted to maintain its status as a privileged creditor since this enabled it to claim a right to prior repayment over other creditors – private or bilateral. In an internal note made in preparing a speech that the president of the Bank was to give at the World Economic Forum in Davos in January 1984, Ernest Stern explained that the Bank should refrain from asking commercial banks to maintain positive net transfers (including interest paid) as this could have a backlash for the World Bank. For naturally, such a requirement could also be applied to the Bank. The issue should therefore be fudged by referring only to net loans, or net flows on debt, thus excluding interest payments from the calculation.

There follows an extract from this internal note: “If we hold the commercial bank responsible for maintaining net transfers… then we are saying that… the World Bank itself at some future point can be held responsible for not maintaining positive net transfers. We are arguing in other fora that one thing that distinguishes the World Bank from other banks, and justifies our separate treatment in rescheduling, is that we maintain net disbursements – not net transfers. If we accept the net transfer argument in a public speech by the President, our basis for rejecting attempts to draw us into rescheduling when our net transfer payments are no longer positive will be much weaker.” [12]

Two important points emerge from the end of this extract. Firstly, that the World Bank’s leader already foresaw that the net transfer between the Bank and its clients should also become negative; and secondly, that he was worried that as a result, the Bank would no longer be able to refuse the rescheduling of debts owed to it.

There is one more reason why the Bank refused to discuss negative transfers. In the 1980s, middle-income countries such as Mexico, Brazil, Argentina, Venezuela and Yugoslavia were the main countries affected by the debt crisis. They were also the World Bank’s main clients. These countries funded it through interest payments (added to the repayment of borrowed capital). Indeed, the World Bank owed its positive results to the interest paid by the middle-income countries that made use of its services. The rich countries did not finance the World Bank (the IBRD) since the latter borrowed on the financial markets. The World Bank used its IDA branch to lend to poor countries (to find out more about the IDA see appendix below). In other words, it was the indebted middle-income countries that enabled the Bank to lend to the poor countries at low interest rates without making a loss. The Bank had to conceal this fact since the middle-income countries, were they aware of it, could then have demanded the right to examine the Bank’s policies towards the poorest countries. But defining that policy is the prerogative of the rich countries that control the Bank.

Even today, the World Bank still hides the commission it receives on every loan it grants. This commission varies in the majority of cases between 0.75% and 1% of the total amount lent, which is considerable. Following the Covid-19 pandemic and the various emergency financing measures put in place by the IFIs, the World Bank (and the IMF) has once again asserted its status as a preferred creditor. On the one hand, by requiring indebted countries to pay up arrears to the WB to become eligible for the ISSD (Debt Service Debt service The sum of the interests and the amortization of the capital borrowed. Suspension Initiative). On the other hand, by excluding any cancellation of WB debts, even partial, in order, according to the World Bank, to maintain a country’s good rating on the financial markets.
All DC (in millions of USD)
1980 1981 1982 1983 1984 1985 1986 1987
external debt
541 629 716 782 826 929 1,020 1,166
Net transfer
without paid interests
95 97 83 45 42 38 36 48
Net transfer
incl. paid interests
51 41 20 -14 -22 -28 -25 -13
Source: World Bank, Global Development Finance 2005
All DC (in millions of USD)
2000 2001 2002 2003 2004 2005 2006 2007
Total public debt
owed to
the WB
190.42 193.36 202.93 213.92 222.14 213.46 187.31 197.43
Net transfer
without paid interests
7.79 7.43 -0.31 -2.34 2.36 2.96 0.05 5.43
Net transfer
incl. paid interests
0.11 -0.08 -6.94 -7.85 -2.35 -1,76 -5.33 -0.53
Source : World Bank, International Debt Statistics 2020
Source of the box: Éric Toussaint, The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus. Pluto press (2008).

2.3 Interpreting the table

We can distinguish between two periods, the first from 2000 to 2007-2008, and the second up to 2019.

First period: From 2000 to 2007-2008, the total external debt stagnated then slowly increased from 2003 onward. From $2,040.8 billion in 2000 it rose to $ 3,143 bn in 2007. The public external debt remained fairly stable throughout, moving from $1,324 in 2000 to $1,353 billion in 2007.

Simultaneously the net transfer (of the total public external debt) is largely negative, which means that DCs pay back more than they borrow.

Several elements must be taken into consideration. Most DCs had just experienced a major debt crisis and were still limited in what they could do. Although the main central banks’ interest rates decreased between 2000 and 2008, they were still high enough to attract investors towards Western countries and detract DCs from any intention to borrow. In this context, 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 be invested yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. higher profits in countries of the North while capital flows out of countries of the South. Badly impacted by the 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 demanded by their creditors, several DCs made anticipated repayments to get out of the conditionalities enforced by (bilateral and multilateral) official creditors. This was the case of Brazil, Argentina, Uruguay, Philippines, Indonesia, Thailand, Nigeria, Algeria and Russia, countries that benefited from a rebound in the prices of commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. from 2005 onward and used foreign currencies to repay their external debt.
Within 7 years, DCs repaid $424.5 billion, twice the amount of the Marshall plan Marshall Plan A programme of economic reconstruction proposed in 1947 by the US State Secretary, George C. Marshall. With a budget of 12.5 billion dollars (more than 80 billion dollars in current terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (notably France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War. . However their (total and public) external debt did not decrease.

 Box : The Marshall Plan [13]

Between 1948 and 1951 the United States devoted more than 13 billion US dollars (11 of which were freely given) to restore the economy of 17 European countries in the context of the Organisation for European Economic Cooperation (OEEC, today OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.
). The total of US aid amounted to approximately 140 billion of today’s US dollars. The United States demanded a number of commitments in exchange for their aid: first, European countries had to coordinate reconstruction expenses within the OEEC. The United States thus contributed to European cooperation, a prelude to the construction of Europe in order to reinforce the Western bloc against the Soviet bloc. Then they demanded that the money received be used to buy US made goods.
Economic aid from 3 April 1948 to 30 June 1952
(in millions of dollars of the time)
Countries Total (m. $) Grants (m. $) Loans (m. $)
Austria 677.8 677.8
Belgium-Luxembourg 559.3 491.3 68.0a
Denmark 273.0 239.7 33.3
France 2,713.6 2,488.0 225.6
Germany (FRG) 1,390.6 1,173.7 216.9b
Greece 706.7 706.7
Island 29.3 24.0 5.3
Ireland 147.5 19.3 128.2
Italy (incl. Trieste) 1,508.8 1,413.2 95.6
Netherlands (*Indonesia)c 1,083.5 916.8 166.7
Norway 255.3 216.1 39.2
Portugal 51.2 15.1 36.1
Sweden 107.3 86.9 20.4
Turkey 225.1 140.1 85.0
United Kingdom 3,189.8 2,805.0 384.8
Regional 407.0d 407.0d
Total for all countries 13,325.8 11,820.7 1,505.1
a. The total of the loan includes $65 million for Belgium and $3 million for Luxembourg: it is impossible to define the respective grants among the two countries.
b. This includes a first loan of $16.9 millions, to which were added $200 million representing a proportionally divided portion of grants converted into loans according to an agreement signed on 27 February 1953.
c. Aid of the Marshall plan to the Dutch East Indies (Indonesia) extended to the Netherlands before the transfer of sovereignty on 30 December 1949. Total aids for the Dutch East Indies amounted to $101.4 million ($84.2 million in grants, $17.2 million in loans).
d. This includes the US contribution to the funds of the European Payments Union, $361.4 million; general freight account $33.5 million; European authorisations for technical assistance (multi-countries or regional) $12.1 million.
To those grants within the Marshall Plan we must add the partial cancellation of France’s debt to the US in 1946 (2 bn USD were written off). Similarly Belgium benefited from a reduction of its debt to the US as compensation for the uranium provided to make the first two atomic bombs which were dropped on the Japanese cities of Hiroshima and Nagasaki and which resulted in the first nuclear holocaust. The uranium had been extracted in the mines of Shinkolobwé (near Likasi, then Jadotville) located in the province of Katanga in the Belgian Congo.

The reasoning that led to the Marshall Plan: Give rather than lend money

The US government’s major concern at the end of the Second World War was to maintain the full employment that had been achieved thanks to the tremendous war effort. It also wanted to guarantee that there would be a trade surplus in relations between the US and the rest of the world. [14] But the major industrialised countries that could import US commodities were literally penniless. For European countries to be able to buy US goods, they had to be provided with dollars: lots of them.

But how? Through grants or through loans?

To put it simply, the US reasoning line went as follows: if we lend European countries on our side the money they need to rebuild their economy, how are they going to pay us back? They will no longer have the dollars we lent them since they used them to buy from us. So there are only three possibilities. First possibility: they pay us back in kind. Second possibility: they pay us back with dollars. Third possibility: we give them the money so that they can recover.

In the first hypothesis, if they pay us back in kind, their goods will compete with ours on our home market, full employment will be jeopardised, profits will fall. This is not a good solution.

In the second hypothesis, they cannot use the dollars they received on loan to pay us back since they have used them to buy our goods. Consequently, if they are to pay us back, we have to lend them the same amount (which they owe us) again, with interest added. The risk of being caught in an infernal cycle of indebtedness (which puts a stop or slows down the smooth running of business) is added to the risk attached to the first possibility. If Europeans try not to accumulate debts towards us they will try and sell their goods in our home market. They will thus get some of the dollars they need to pay us back. But this will not be enough to rid them of their debts. And it will lower the rate of employment in the US. [15]

We are left with the third possibility: rather than lend money to Europeans (via the World Bank or not) it seems appropriate to give them the amount of dollars they need to build up their economy within a fairly short time. Europeans will use the donated dollars to buy goods and services from the US. This will guarantee an outlet for US exports, hence full employment. Once economic reconstruction is achieved Europeans will not be riddled with debts and will be able to pay for what they buy from us.

The US authorities thus concluded that they had better proceed by grants, and therefore launched the Marshall Plan.

Source: The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus. Pluto press, (2008).

Second period: From 2008 onward, the situation was practically reversed. Within 11 years, their external debt doubled and more: from $3,367 to 8,139.14 billion for their total external debt, and from $1,413.84 to 3,270.76 billion for their public external debt.

The curve of net transfers was reversed, it became positive. Developing countries borrowed more than they repaid.

Several elements have to be taken into consideration. The main one is the impact of the subprime crisis. In 2007 the bubble of subprime loans burst in the United States. The crisis soon spread to all major Western banks, which are all interconnected. The world of finance was faced with a collapse of the whole system. The governments of Northern countries bailed out those banks, thus contracting a huge public debt thanks to quantitative easing policies that were urgently launched by the main central banks such as the Federal Reserve in the US 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.

. Central bank key interest rates reached historically low levels: from 4.75% and 4.25% in 2007, the Fed’s and the ECB 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.
’s rates fell to 0.25% and 1% in 2009, then 0.5% and 0.05 % in 2015. Investors were relieved and then tried to invest their cash resources in the most profitable sectors. The debt of DCs provided an interesting perspective. On the creditors’ side, profits to be drawn from DCs are higher than what can be expected in a Western economy that is still in crisis. Borrowers benefit from lower interest rates than had been the case. Simultaneously, from 2008 to 2013, we experienced a “super cycle for commodities”, with prices reaching unprecedented heights. As a consequence DCs increased their foreign exchange reserves thanks to their rising export revenues. With a favorable economic climate, eagerly courted by investors and pushed by international financial institutions to resort to private financing to develop their infrastructure, developing countries were encouraged to take on massive debt, mainly through issuing bonds on the financial markets. For countries of the South this is a period of capital inflow.

The following chapters will examine the global and regional threats on the debt of developing countries.

 Appendix: The creation of the IFC and IDA

From the beginning of World Bank operations, the governments of developing countries, starting with Latin America and followed by India, criticized the fact that their countries enjoyed no aid facilities similar to those of the Marshall Plan, which was restricted to Europe.

World Bank loans were granted at current market interest rates, while Marshall Plan aid was mainly given in the form of grants. A small proportion of Marshall Plan aid was in the form of interest-free loans or loans with interest rates lower than those of the market. Not having a Marshall Plan, the developing countries proposed that a new UN agency be created on a “one country one vote” basis to ease loans to their industries: the SUNFED.

The SUNFED (Special United Nations Fund for Economic Development) was thus created at the end of the 1950s.

From 1950 to 1960, several Third World countries, as well as the USSR and Yugoslavia, waged a systematic campaign within the UN to consolidate and reinforce SUNFED. For the US government and the governments of the other major industrial powers, the idea of a special fund controlled by the UN and distinct from the World Bank was unacceptable. Among the reasons behind the developing countries’ demand for a specialized UN agency to finance their development was the question of voting rights. They wanted a UN specialized agency in order to ensure that the “one country, one vote” rule was applied, as opposed to the census-type rule applied within the Bank. The same reason – but in reverse – was behind US and other major powers’ opposition to the proposal: the small number of rich countries was afraid of becoming minority voters.

In 1958, this special United Nations fund was authorized to finance pre-investments in developing countries.

Unfortunately, the Third World camp quickly became divided. India, which had originally supported SUNFED, switched allegiance and declared itself favourable to the second US counter-proposal. This proposal involved the creation of an International Development Association (IDA), linked to the World Bank, as an alternative to SUNFED. [16] The pro-Washington Indian lobby Lobby
A lobby is an entity organized to represent and defend the interests of a specific group by exerting pressure or influence on persons or institutions that hold power. Lobbying consists in conducting actions aimed at influencing, directly or indirectly, the drafting, application or interpretation of legislative measures, standards, regulations and more generally any intervention or decision by the Public Authorities.
was convinced that India would benefit from IDA since the major powers predominating in the Bretton Woods institutions would understand the necessity of giving India special treatment in view of its strategic position. And India was right: in the first year of IDA activity, it received 50 per cent of IDA loans.

By proposing the creation of IDA, the US government had a dual objective: on the one hand to prevent the United Nations from continuing to reinforce SUNFED and thereby satisfying the needs of developing countries; on the other hand to find a way of using the currency reserves of developing countries that the US Treasury had been piling up since 1954 through the sale of its agricultural surpluses under Public Law 480. [17] Several authors agree that it was Senator Mike Monroney of Oklahoma who first floated the idea. He put a resolution before the Senate for the establishment of an IDA in cooperation with the World Bank and proposing that non-convertible currency reserves should be paid into this agency in order to grant long-term, low interest loans that would be paid back in local currency. Basically it meant that loans would be made to poor countries so that they could buy North-American agricultural surpluses. [18] Eugene Black, president of the World Bank, would later say: “IDA was really an idea to offset the urge for SUNFED.” [19] It is worth quoting Mason and Asher here: “As an international organization affiliated with the World Bank, IDA is an elaborate fiction. Called an ‘association’ and possessed of Articles of Agreement, officers, governmental members galore, and all the trappings of other international agencies, it is as yet simply a fund administered by the World Bank.” [20]

The United States provided 42 per cent of IDA’s initial funding, thus ensuring US predominance within the agency.

At the same time that IDA was founded, the DAC (Development Assistance Committee of the OECD) was being set up in Paris. This was a structure designed to “coordinate” bilateral development aid from the most highly industrialized countries. This spelt the final demise of SUNFED, the United States having imposed institutions where US control could be guaranteed.

Source: The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus. Pluto press, (2008).

Translated by Snake Arbusto, Vicki Briault, Mike Krolikowski and Christine Pagnoulle (CADTM)


[1The figures include total short term and long term foreign debt

[2The figures count long term foreign public debt, including IMF claims.

[3The figures include sums claimed by IBRD and ADI.

[4The World Bank charges borrowing countries a commission that varies between 0.25 per cent and 1 per cent on each IBRD loan and 0.75 per cent on IDA loans. We have made a low estimate and have taken these commission charges into account because in fact countries receive less than the World Bank would have us believe from the statistics it publishes.

[5At the time this chapter was written, figures available on the WB website went up to 31 December 2019.

[6We are referring here to the highly indebted poor countries initiative (HIPCI) and to the Multilateral Debt Relief Initiative (MDRI), launched respectively in 1996 and 2005 and concerning 39 countries.

[7Unless otherwise specified data in this chapter are from the World Bank’s International Debt Statistics. They include 122 developing countries. The world Bank provides no data for the following countries Cuba, Iraq, Libya, North Korea. For more details

[8See chapter 15 of The World Bank, Its First Half Century, Volume 1: History

[9IBRD, Operations Policy Staff, « Debt and Adjustment in Selected Developing Countries », SecM84-698, 1984 in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1: History, p. 615.

[10Fax message, Ernest Stern to Luis de Azcarate, director, CPDDR, May 15, 1984 in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1: History, p. 616

[11Memorandum, Ernest Stern to members of the Managing Committee, “Conference at the Federal Reserve Bank of New York,” May 11, 1984, p. 1 in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1: History, p. 616

[12Memorandum, Ernest Stern to Munir Benjenk, “Draft Speech For Davos”, January 16, 1984, p. 2, in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1: History, p. 616

[14That is in fact what happened: The US trade balance was positive until 1970. That means the USA exported more than it imported during that whole period after WW2.

[15This has always been the shoot-down for repayments in kind. See: Randolph E. Paul. 1947. Taxation for Prosperity, Bobbs-Merrill, Indianapolis, quoted by PAYER, Cheryl. 1991. Idem., p.20.

[16KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1127

[17VAN DE LAAR, Aart. 1980. p.57; GWIN, Catherine, in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. p. 206; MASON Edward S. and ASHER, Robert E. 1973. p.386-387.

[18KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1128

[19MASON and ASHER, p.386.

[20MASON and ASHER, p.380-381.

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.

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Milan Rivié

CADTM Belgium
milan.rivie @
Twitter: @RivieMilan

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