Interview published by Le Monde

Latin America: 200 years of the infernal cycle of debt

23 November by Eric Toussaint , Marie Charrel

Eric Toussaint, of the CADTM (Committee for the Abolition of Illegitimate Debt), explains the difficulties encountered by States overly dependent on raw materials.

With a PhD in Political Science and speaking for CADTM international, Eric Toussaint has just published Le Systeme dette, histoire des dettes souveraines et de leur répudiation (Les Liens qui libèrent, 338 p., 19,50 €). (‘The Debt System: a History of Sovereign Debts and their Repudiation’.) He explains how countries that are over-dependent on raw materials fall into the debt trap.

Venezuela has partly defaulted. How did it come to this?

Venezuela is an emblematic case of the infernal cycle that Latin America has been struggling with over the last two centuries. It all began in 1810, when Simon Bolivar, a figurehead of the Spanish colonies in their fight for freedom, began borrowing from London in very unfavourable conditions to finance the wars of independence.

Since then, the same pattern has been reproduced over and over again in the region. Each time States become indebted by using their natural resources as warranty or by paying off their loans with part of the revenue from these resources.

While prices of raw materials are high, as they were between 2003 and 2014, the conditions imposed by the creditors are bearable. But once the prices crash, States find themselves in trouble, at the mercy of their creditors, which is what happened to Venezuela.

Might it not be the fault of the leaders who, in Venezuela and Argentina, did not make sufficient use of the prosperous years to diversify the economy?

It might indeed. The other constant in the scenario observed over the last two centuries is the signature of unfavourable free-trade agreements. Each time the local elites have an 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. in keeping their country under the creditors’ thumb, as they also invest in their country’s external debt and thus have no wish to see it repudiated.

When a country repudiates its debts, the slate is wiped clean, and the economy gets going

In Venezuela, some of the present elite have acquired, as happened in the 19th century, State-issued bonds denominated in dollars, but bought for bolivars. The bonds are then sold back to the United States which enables the bearers to obtain dollars in cash. Some then spend the dollars in Venezuela on the black-market, where the exchange rate is very unfavourable to the population.

You propose the repudiation of illegitimate debt as a solution. Would not a country that refused to honour its repayments risk being excluded from the finance markets?

That is what bankers like to argue. However history shows that it is not so. When a country repudiates its debts, the slate is wiped clean. The economy gets going, and usually new bankers come thronging to the door, eager to lend to the country where they see an opportunity to make money.

This was what happened in 1867, for Mexico or in 1917, for Russia. After the revolution, the Soviet authorities refused to honour debts contracted by the Tsar with several Western countries. France protested vigorously, all the more since 1.6 million French residents held Russian bonds. Negotiations broke down in 1922. Yet shortly afterwards, the United Kingdom, Italy, the Weimar Republic and finally France began once again to make commercial loans to the Soviets, to enable them to finance their imports. The competition is so intense among lenders that countries which have repudiated their debts are never deprived of finance for long.

But after defaulting in 2001, Argentina was unable to borrow on the world market for over ten years!

That was different: having suspended debt payments to banks and the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.
in 2001, Buenos Aires could afford to do without the money markets. The country had a period of strong growth, on the back of the raw materials boom. Mauricio Macri’s government which came into power in 2015 chose to go back to the markets. The country could well have managed without, if Latin America had succeeded in establishing a true Bank of the South which would have offered alternative financing to that of 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.
(International Monetary Fund) and international investors.

Your Committee fights against odious debt. Where, today, can debt matching that description be found?

The jurist Alexander Nahum Sack (1890-1955) –a Russian-American— gave a definition in 1927: a debt is odious if it has been contracted against the general interest of a country’s population and if the creditors were aware of this, or should have been.

The debt contracted by Greece from 2010 on towards Eurozone countries including France, the IMF 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.

meets these criteria.

A debt is odious if it has been contracted against the general interest of a country’s population and if the creditors were aware of this, or should have been

The loans were not contracted in the interests of the Hellenic people but in those of foreign banks exposed in Greece.

Moreover, they were conditioned upon the application of reforms which violated the Greeks’ fundamental economic and social rights as regards access to healthcare, housing and education.
Athens would do well to repudiate that debt.

But it also happens that the loans made by the Eurozone are the money of European taxpayers!

Take the case of France. In 2010, Paris granted Greece a bilateral loan, to be repaid as of 2022. So any repudiation would have no effect before that date. There is time to consult the people of France, after an audit, so that the public could be enlightened. This loan, presented at the time as indispensable to save the Eurozone, has also enabled Greece to repay its main private creditors, including French banks.

It would be a good thing to bring all this out into the open.

Interview by Marie Charrel - © Le Monde
Translation by Vicki Briault and Christine Pagnoulle, CADTM.


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 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. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.



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