Committee for the Abolition of Illegitimate Debt

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This speech was given at a special event of the General Assembly session of the United Nations in New York on 15 September 2010 [1].

 I. Despite the fact that the millennium goals are exceedingly modest, they will not even be achieved.

On a global level, the limited percentage decrease in the number of those living on less than $1.25 a day is the result of growth in China and India, [2] countries which did not subscribe to the Washington Consensus.

Humankind has the material capacity to guarantee a respect for every human being’s fundamental human rights that far exceeds the modest Millennium Goals. It is clear that the problem is not a lack of resources.

 II. The explanation given in the papers produced by institutions such as the 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, 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.

, 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.

http://imf.org and the 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.

http://www.oecd.org/about/membersandpartners/ is not convincing and serves to further consolidate the very policies which are at the root of the crisis, since they have weakened the countries that have accepted such policies.

The recommendations or impositions made by these institutions are based on several dogmas:

The first relates to the financing of development through debt. This leads the vast majority of developing countries to behave in an absurd manner. In fact, although developing countries - mainly exporters of raw materials and China - hold the vast majority of international reserves (mainly in dollars) identified around the world, they continue to further indebt themselves. What do they do? They buy Treasury bonds from the United States, thus they effectively lend money to the American government. They deposit these Treasury bonds in their central banks’ coffers and then issue public debt securities on Wall Street or on their own national domestic financial market Financial market The market for long-term capital. It comprises a primary market, where new issues are sold, and a secondary market, where existing securities are traded. Aside from the regulated markets, there are over-the-counter markets which are not required to meet minimum conditions. . This situation is absurd: the Treasury bonds give a very low return whilst the bonds which the developing countries issue, and which are in dollars, allow creditors to earn considerably more because the 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 much higher [3]. The leaders of these countries would do a lot better to not get into debt and use the reserves for productive investments and social spending so as to improve the living conditions of their people.

The second dogma is that of free trade and free movement of capital, goods and services. In most industrialized countries freedom of movement does not apply to workers and citizens in general, whereas it was Adam Smith, an arch reference for neo-liberals, who advocated free movement and free establishment for workers.

The third dogma, in complete opposition to reality, is the idea that giving the poor better access to the markets will put an end to poverty, whereas the eradication of poverty is the responsibility of the State, to be achieved through structural changes that will put an end to social injustice.

The harmful role of macro-economic policies, as incorporated in the Washington Consensus, has been highlighted on various occasions in the past twenty years.

An example: the 2007-2008 food crisis

In 2007-2008, the number of people suffering from hunger increased by 140 million. This increase was the result of a sharp increase in food prices [4]. In many developing countries, this increase in food prices reached 50%.
 
Why did such an increase occur?

On the one hand, the authorities in the countries of the North increased aid and subsidies for the production of agrofuels (misnamed biofuels as there is nothing biological or « ecological » about them). All of a sudden it became very profitable to replace crops meant for human consumption with silage and oilseed crops or to divert part of the grain crops (corn, wheat, etc.) towards agrofuel production. This led to a decrease in food supplies on the global markets and thereby caused a global rise in food prices.

On the other hand, after the bursting of the real estate bubble in 2007 in the United States and, by contagion, in the rest of the world, speculation by the major investors (pension funds Pension Fund
Pension Funds Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets. , investment banks, hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. , etc.) shifted towards markets where basic foodstuffs are traded, principally on 3 American stock exchanges specializing in grain futures Futures A futures contract is a standardized advance commitment, negotiated on an organized futures market, to deliver a specified quantity of a precisely defined underlying asset at a specified time – the ‘delivery date’ – and place. Futures contracts are the most widely traded financial instruments in the world. : Chicago, Kansas City and Minneapolis.

As a consequence of policies imposed by the IMF and the World Bank, developing countries, now deprived of all forms of basic protection, find themselves in a particularly vulnerable position. In fact, these policies have led to a reduction in land areas normally used for subsistence crops, to specialization in one or two export products, to the disappearance of price control mechanisms, to the abandonment of self-sufficient grain production and the reduction of their reserves, to the weakening of economies due to an extreme dependence on global markets, to a sharp reduction in social spending budgets, to the suppression of subsidies for basic foodstuffs, to the opening of markets which leads to unfair competition between local small producers and the multinationals… Masters in the art of pillaging, the institutions in question acknowledge certain mistakes in order to remain key players on the international stage. After they committed the crime of imposing an economic model which deliberately deprives poor populations of the most basic protection and leaves them at the mercy of the most aggressive speculators, their timid mea culpa in a semi confidential document is clearly insufficient.

According to the FAO, the situation improved in 2010 but it is clear that Objective 1 of the MDGs will not be met by 2015.

After this quick analysis of the causes of the food crisis in 2007-2008, it is appropriate to cite Fantu Cheru, an independent expert of the UN Human Rights Commission in Geneva who, already in 1999, wrote:
 
«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).

IMF : http://www.worldbank.org/ goes beyond the simple imposition of a set of macroeconomic policies at the domestic level. It represents a political project, a conscious strategy of social transformation at the global level, primarily to make the world safe for transnational companies. In short, structural adjustment programmes (SAPs) serve as “a transmission belt” to facilitate the process of globalization, through liberalization, deregulation, and by reducing the role of the State in national development.» [5]

  III. We should not be misled into believing that these policies have been abandoned. Even if the World Bank and the IMF state that they have replaced the Washington Consensus formulas with other policies, the facts contradict these assertions. These institutions, as well as the OECD, continue to make the same recommendations which are often impositions. Such was the case in Haiti [6] or in Pakistan [7] in 2010, two countries whose citizens were seriously affected by natural disasters. The IMF also continues to support dictatorships: in September 2010, it decided to issue a loan of 192 million dollars to the dictatorial regime of Honduras.

 IV. Is the 2007 international economic and financial crisis behind us?

Three elements contribute to lighten the weight of the crisis in developing countries, though they are highly volatile, namely,
1. The high prices of commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. (which means a high level of international reserves);
2. Low 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 and low country risk premiums;
3. Capital flow towards emergent stock markets.

When the central banks of the main industrialized countries (US Federal serve, 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.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx , Bank of England, Bank of Japan) decide to raise interest rates, this will lead to a steep increase in the cost of refinancing of developing countries’ external debts and the price of commodities could plummet since it largely depends on the vast amount of money that is available on the international level and on speculation. Moreover, if the Chinese economy should go through a crisis, this could also result in commodity prices plummeting.

 V. We must go back to the recommendations included in the Declaration on the Right to Development that was adopted by the General Assembly in its 41/128 resolution on 4 December 1986. [8]

We must act both on the level of the international Community and within each sovereign State (each of which can take unilateral measures based on international law).
Article 1 of the UN Declaration on the Right to Development reads as follows:

1.2. The human right to development also implies the full realization of the right of peoples to self-determination, which includes, subject to the relevant provisions of both International Covenants on Human Rights, the exercise of their inalienable right to full sovereignty over all their natural wealth and resources.

Article 8 specifies: Appropriate economic and social reforms should be carried out with a view to eradicating all social injustices.

 VI. Concrete alternatives or recommendations that can be implemented either by the international community or by sovereign States.

Global taxes such as a kind of Tobin tax Tobin Tax A tax on exchange transactions (all transactions involving conversion of currency), originally proposed in 1972 by the US economist, James Tobin, as a means of stabilizing the international financial system. The idea was taken up by the association[ATTAC and other movements for an alternative globalization, including the CADTM. Their aim is to reduce financial speculation (which was of the order of 1,500 billion dollars a day in 2002) and redistribute the money raised by this tax to those who need it most. International speculators who spend their time changing dollars for yens, then for euros, then dollars again, etc., as they calculate which currency will appreciate and which depreciate, will have to pay a small tax, somewhere between 0.1% and 1%, on each transaction. According to ATTAC, this could raise 100 billion dollars on a global scale. Considered unrealistic by the ruling classes to justify their refusal to adopt it, the meticulous analyses of globalized finance carried out by ATTAC and others has, on the contrary, demonstrated how simple and appropriate such a tax would be.

ATTAC : https://www.attac.org/ (on financial transactions).

Increased development aid to reach 0.7% of the 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. of industrialized countries (in 2010 OECD countries devoted at most only 0.35% i.e. half of their commitment); its conversion into reparation funds for damages resulting from the despoiling of peoples of the South by powers of the North over the past five hundred years.

A new financial discipline that would prevent any transactions with tax havens.

A redistributive tax reform in all countries.

The restitution to peoples of the South of goods that had been unlawfully acquired by ruling elites who placed them in countries of the North or tax havens.

A drastic reduction of military expenditure with saved amounts invested in social policies.
Auditing public debts to determine their illegitimate parts and then to cancel or repudiate them. In 2006 Norway unilaterally cancelled the debt of five countries of the South (Ecuador, Peru, Jamaica, Egypt, and Sierra Leone). Norway considered that the loans that had been granted had not been used to develop these countries; it actually acknowledged that they had in fact been used to help Norwegian shipbuilding and exportation. In 2007 Ecuador set up a committee for an integral audit of internal and external public debt (of which I was a member) that worked from July 2007 to September 2008 [9]. On the basis of the conclusions of this audit, Ecuador decided to unilaterally suspend the payment of a $ 3.2 billion debt [in the forms of bonds] and could thus save over $ 2 billion.

Setting up new institutions at the regional level such as the Bank of the South.

Replacing institutions such as the World Bank and the IMF with genuinely democratic institutions that adhere to the UN Charter and all international pacts and treaties related to human rights.

Regaining control of natural resources.

A land reform, distributing land to those who till it and thus ensuring food sovereignty.

The current climate crisis is affecting and will affect everybody, but people in the south will suffer more. We must be inspired by the conclusions of the summit of peoples on climate change that was held in Cochabamba in April 2010 on an initiative of the Bolivian government.

Yes, we can eradicate poverty and injustice but within a new international order and following an alternative development model that would respect nature.

New York, 15 September 2010

Translated into English by Francesca Denley and Christine Pagnoulle in collaboration with Judith Harris.