For a united front against the payment of public and private illegitimate debts

4 November 2020 by CADTM International

Since the beginning of the year 2020, the Covid-19 pandemic has tragically worsened the living conditions of the majority of the world’s population. Never really recovering from the subprime crisis in 2007-2008, the economic system is disintegrating as it continues to distance itself from the real economy.

Already in 2018, the former 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.
Managing Director Christine Lagarde stated that “debt levels have reached new highs in advanced, emerging, and low-income countries ... global debt—both public and private—has reached an all-time high of $182 trillion—almost 60 percent higher than in 2007 ... Emerging and developing economies are already feeling the pinch.”

Two years later, under the impact of the brutal slowdown of the global economy, as sick as fragile, the situation has reached unprecedented levels. In the countries of the North, the overall level of public debt has exceeded 120% of GDP 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.
. In the South, more than one in five is in a situation of over-indebtedness and nearly 15% are in partial or total default. According to the ILO, nearly 300 million formal jobs have been destroyed in the space of a few months in these regions. According to 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.

, by the end of 2020, as a direct impact of Covid-19, extreme poverty will affect between 88 and 115 million additional people and will plunge nearly 270 million more people into a situation of acute food insecurity.

In spite of the urgency of the situation, the appeals for help from the populations, from some Heads of State and the coordinated mobilization of civil society organizations, the IFIs and the international institutions are not on the same page. The measures taken in the spring and fall by the IMF, the World Bank and 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). can once again be summarized as follows: “too little, too late”. “Too little” in terms of the number of countries concerned (barely 50% of DCs), without any debt cancellation and without any effort on the part of private creditors; and “too late”, for a majority of the countries concerned. The measures announced in April were not applied until August/September. As a result, Zambia appears to be only the first in a long list of countries to declare default in the coming weeks.

Nearly four decades since the begining of the last major Third World debt crisis, we are heading towards another humanitarian catastrophe. The IFIs and international institutions do not want to abandon the policies that led to this extremely serious situation. Worse, the IMF, as always, is conditioning its intervention on the application of 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).

plans, in accordance with its historical anti-social, pro-neoliberal action. Despite its harmful impact on the living conditions of 85% of the world’s population, the US$3 trillion external public debt of the countries of the South is a much smaller sum as compared to the US$5 trillion released in the United States and Europe alone, and compared to the total global debt. In short, with political will, the total cancellation of the debt of developing countries is possible.

Since official and private creditors are only willing to act in the general 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. , we call on the countries of the South to exercise their right and to suspend the payment of their debt by invoking three arguments that are so pertinent and legitimate at this point of time: the “fundamental change of circumstances” since the beginning of the global pandemic, the “state of necessity” due to the unavaoidable additional health and social spending in a context of economic crisis, and “force majeure” given the situation of over-indebtedness in which they find themselves. To protect themselves from the reprisals already taken by private creditors, we call on the countries of the South to form a united front against the payment and repudiation of these illegitimate debts.

Moreover, the pandemic is affecting an ever-increasing part of the population and the containment measures are aggravating unemployment, diminishing incomes, precariousness, rising prices of food and basic services. Massive layoffs of employees and the bankruptcy of small enterprises and other small subsistence activities are becoming widespread. The majority of working class households now have great difficulties to meet their basic needs while their health expenses increase due to Covid-19 in the context of a dismantled public health system due to decades of neo-liberal policies favouring private sector since 1980. Today, hundreds of millions of over-indebted working class people, many of whom are women, find themselves unable to repay their loans and suffer under very high 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.
imposed by microfinance (microcredit) institutions as well as consumer credit institutions and banks. This over-indebtedness also concerns peasants and farmers forced to carry out intensive and destructive farming by massive investment in machinery and fossil inputs; mainly women who are unable to repay micro-credits; tenants unable to pay high rents due to pure real estate speculation; students whose professional and personal future is sacrificed in order to repay loans contrary to human rights; or all those who are forced to resort to consumer credit to meet basic necessities under conditions of increasingly aggressive neoliberalization that benefits only the wealthiest.

The social tragedies of the broad social strata that result from their banking debt while a minority of speculators in the financial sector become richer, make these private debts illegitimate. They are also illegal because of contractual defects.

We call for a citizen and social mobilization (individuals, associations, organizations, autonomous movements, networks...) to probe the different forms of looting and abuses committed by microcredit institutions, consumer credit institutions and banks against their victims, and to scrutinize the illegitimate and illegal foundations that require the cancellation of the private debts of poor households.

This necessary mobilization for the cancellation of illegitimate private debts will be a component of a global movement for the cancellation of illegitimate public debts.

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