15 March by Jubilee Debt Campaign
Government external debt payments reach highest level in the last decade following commodity price falls and rising value of the US dollar.
Figures released before US Federal Reserve
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 : http://www.federalreserve.gov/ meeting where 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 expected to be increased again, which will push debt payments higher.
Figures released today by the Jubilee Debt Campaign, based on 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.
http://imf.org and World Bank World Bank
WB 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, 180 members in 1997), 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.
http://worldbank.org databases, show that developing country debt payments increased by 45% between 2014 and 2016 |1| They are now at the highest level since 2007.
The rapid increase comes after falls in commodity prices in mid-2014 and the rising value of the US dollar. These changes have reduced the income of many governments which are reliant on commodity exports for earnings. They have also caused exchange rates to fall against the US dollar, which increases the relative size of debt payments as external debts tend to be owed in dollars.
Low 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. in Western countries have also driven a large increase in lending to developing countries in recent years. External loans to low and lower middle income countries have more than quadrupled between 2008 and 2016, from $56 billion to $262 billion.
The new figures from Jubilee Debt Campaign show that average government external debt payments across the 122 developing countries for which data is available have increased from 6.7% of government revenue in 2014 to 9.7% of government revenue in 2016, an increase of 45%. This is the highest level since 2007, when such payments were also 9.7% of government revenue (see graph below).
Developing country government average (mean unweighted) external debt payments, as a proportion of government revenue, 2000 – 2016
Tim Jones, economist at the Jubilee Debt Campaign, said:
“The rapid increase in debt payments in many countries comes after a boom in lending, a fall in commodity prices, the rising value of the US dollar and now increasing dollar 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. rates. This is putting pressure on government budgets, just when more spending is needed to meet the Sustainable Development Goals.
“In countries where debt crises have arisen, the danger is that IMF and other loans will bail out reckless lenders, increasing debt burdens, and leading to years of economic stagnation, just as in Greece. Instead, reckless lenders should be made to shoulder some of the costs of recent economic shocks by accepting lower payments.”
Countries with the highest debt payments in 2016 include:
• Commodity producers which have been hit by price falls, including Ghana, Mozambique, Angola, Laos and Chad
• Countries on the frontline of refugee flows from Syria – Lebanon and Jordan
• Small states which were previously considered ‘too rich’ to benefit from significant debt relief initiatives, including Grenada, Jamaica and the Dominican Republic.
Mozambique started defaulting on its debt in January 2017. In April 2016, the IMF suspended its loans bailing out Mozambique’s previous lenders, after it was revealed that two London banks, Credit Suisse and VTB Capital, had lent $1.1 billion to two companies in Mozambique, with government guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). , without the loans being made public, agreed by the Mozambique parliament or disclosed to the IMF.
Developing country external debt payments fell between 2000 and 2010 because of rising prices of commodity exports and the Heavily Indebted Poor Countries Initiative, which cancelled almost $130 billion of debts owed to governments and multilateral institutions for 36 low and lower middle income countries.
The twenty countries with the highest debt payments in 2016 were:
|Country||External debt payments as proportion of government revenue||Distinguishing features||Recipient of HIPC
Heavily Indebted Poor Countries|
HIPC 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. debt relief
|Lebanon||42%||Hosting large refugee population||No|
|Ghana||36.8%||Oil and gold producer||Yes|
|Bhutan||27.1%||Small state, large debts linked to hydropower||No|
|Montenegro||26.8%||Recession after 2008 financial crisis||No|
|Sri Lanka||23.7%||High debt for many years but no meaningful cancellation||No|
|Grenada||23.5%||Small state, high debt since hurricanes in 2004 and 2005||No|
|Jamaica||23.1%||Small state, high debt for many years but no meaningful cancellation||No|
|Gambia||21.9%||Debt from past dictator||Yes|
|Belize||20.9%||Small state, high debt for many years but no meaningful cancellation||No|
|Mozambique||20.2%||Metals and fossil fuels producer||Yes|
|Malawi||18.3%||Flood and droughts||Yes|
|Lao PDR||18.2%||Metals producer||No|
|Jordan||17.5%||Hosting large refugee population||No|
|Tunisia||16.6%||Debt from past dictator||No|
|Dominican Rep||16.3%||Small state, high debt for many years but no meaningful cancellation||No|
|Marshall Islands||15.1%||Small state||No|
1. For more detailed information see our briefing: ‘The new debt crisis in the global South‘ which includes full data tables for all 122 countries
2. The IMF’s commodity price index fell from 185 in June 2014 to a low of 83 in January 2016. It has since increased to 117 as of January 2017, but this is still 37% below levels in mid-2014.
3. Bloomberg’s dollar spot index has risen from 80 in June 2014 to 102 as of 8 March 2017, an increase of 27.5%.
4. For example, since mid-2014, there have been the following falls in currency against the US dollar:
Mozambique metical: down 56%
Malawian kwacha: down 45%
Angolan kwanza: down 41%
Ghanaian cedi: down 36%
Tunisian dinar: down 27%
|1| The figure is a mean unweighted average. The median unweighted average has increased by 49% between 2014 and 2016, from 4.9% of government revenue to 7.3%, indicating that this is a general trend rather than due to particular outliers.
Where they are available, the figures for government external debt payments as a proportion of revenue come from IMF and World Bank Debt Sustainability Assessments conducted for individual countries since the start of 2016. In total these cover 44 countries. For the other 78 countries figures for government external debt payments are from the World Bank’s International Debt Statistics 2017 and figures for government revenue are calculated from the IMF’s World Economic Outlook Database, October 2016
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