International situation and Illegitimate debt

12 December 2022 by Eric Toussaint

Eric Toussaint at the 9th CADTM South Asia workshop held in Colombo on 2 and 3 December 2022

We are publishing a summary of the presentation made by Eric Toussaint at the 9th CADTM South Asia workshop held in Colombo on 2 and 3 December 2022.

Very strong economic slowdown without reducing greenhouse gas emissions and other environmental damage; very strong increase in public and private debts; high inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. and loss of purchasing power of the working classes; increasing precarious work and unemployment; explosion of inequalities with colossal increase in wealth and income of the richest 1%; fall in the human development index in many countries, particularly in life expectancy, including in the North; dramatic effects of the ecological crisis, particularly in its climatic dimension; a world food crisis that is accelerating and worsening; wars in Europe, in the Arabian Peninsula, in the east of the DRC, etc. the rise of authoritarian forms of government; attacks on fundamental human rights such as the right to abortion; electoral successes of the extreme right; increased trade wars; increasingly restrictive migration policies; a strong resurgence of the coronavirus pandemic or new pandemics are possible. The only economic sector with a very strong increase in production is the military sector.

This is a major crisis of the globalized capitalist system, the biggest crisis since that of the period 1914-1945.

Read Also : 2022: Let us end the food crisis

The peak of the crisis has not yet been reached, the end of the tunnel is not in sight. There is more to come: speculative bubbles can burst at any time, causing a sudden worsening of the economic situation; even more serious warlike incidents than today can occur; climate and environmental disasters are likely to worsen; health crises are far from being overcome; governments and central banks are not taking any relevant measures for a pro-human exit from the crisis; the concentration of strategic production tools and finance in the hands of an ever smaller number of large private shareholders continues in the energy sector, in the extractive industries, in the trade in food and other raw materials, in the pharmaceutical sector, etc.

The causes

Despite the enormous accumulation of wealth by the richest 1%, despite the colossal gains of a series of large companies, particularly in the fields of energy, food, big pharma, shipping, the arms industry, etc., the rate of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. is not increasing sufficiently for big capital to relaunch a great wave of productive investment. This is what the British economist Michael Roberts shows.

We must never lose sight of the fact that capital is in search of maximizing the rate of profit. When it fails to do so, it focuses on speculation. This is part of the contractions inherent in the current phase of capitalism.

Ellon Musk and Zuckerberg may be increasing their wealth in an absurd way, but the rate of profit does not satisfy them and they are laying off massive numbers of staff. And apart from the very large companies that are making extraordinary profits by taking advantage of crises such as pandemics, energy, wars, etc., the mass of companies is faced with a fall in the rate of profit, a fall in productivity, despite the worsening conditions of exploitation and casualisation of labour power.

Read also : Colombo Declaration

The policies of governments and central banks to inject massive amounts of liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. and to rapidly increase debts have provoked and or maintained the emergence of new financial bubbles. This is very clearly the case in stock market capitalisation, in the debt securities market, in the real estate sector of many countries, in the commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. market, in crypto-currencies.

The productive forces are growing very slowly and a full-blown recession is fast approaching.

The decision of governments and central banks to raise 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.
, in particular to combat inflation, will accelerate and amplify the recession without necessarily succeeding in reducing inflation.

This will cause very serious difficulties in repaying and refinancing debts. Sri Lanka is in suspension of payments as is Zambia.

Many countries are calling for emergency aid from 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.
: Argentina, Ghana, Pakistan, Tunisia, Bangladesh, Egypt, etc.

It is time to strengthen the fight against illegitimate and/or odious debts in order to have them cancelled or repudiated.

See the arguments for the cancellation of odious debts in the slideshow.

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.

Other articles in English by Eric Toussaint (621)

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