“Stop Repaying Illegitimate Debt”

Interview with Éric Toussaint published in the Daily Mirror

4 May by Eric Toussaint , Amra Ismail


While in Colombo, Sri Lanka, for the 7th CADTM South Asia workshop in April, Éric Toussaint was interviewed by the Daily Mirror, a major Sri Lankan daily newspaper. He answered questions on illegitimate debts, China’s Belt and Road Initiative, cancellation or non-repayment of public and private illegitimate debts, and other issues about the global debt system.

Éric Toussaint is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII (France) and Liège (Belgium). He is the spokesperson of the CADTM International (Committee for the Abolition of Illegitimate Debts – www.cadtm.org )


What are illegitimate debts?

An illegitimate debt is a debt contracted in favour of a privileged minority. When a government obtains a loan, for instance to bail out private bankers, it is an illegitimate debt because it doesn’t benefit the majority of the population. So legitimate debt is a debt contracted to satisfy the necessity or to benefit the majority of the people. It is illegitimate if it doesn’t respect this principle.


What do you think of China’s Belt and Road Initiative?

The condition in which China is providing loans is not a positive alternative to loans provided by the USA, Europe or the World BankI think China is a new imperialist country trying to get its own space and surpass the powers of the US, Europe and other economic and military powers. China is aggressive with its lending policies and foreign direct investments. China is not imposing political conditionality, but at the economic level this capitalist country is looking for its own interests. In some loans and investment schemes, Chinese workers are brought to foreign countries to work. So the condition in which China is providing loans is not a positive alternative to loans provided by the USA, Europe or 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.

. I am not saying it is worse, but this is not an alternative. It generates problems for the borrowing countries.


Do you see Sri Lanka as a victim of this initiative because Sri Lanka had to handover the Hambanthota port to China on a 99-year lease?

Yes, accepting such conditions is a very dangerous concession.


Are these Chinese loans illegitimate loans?

These loans are increasing the level of dependency of the Sri Lankan economyI think we should audit the exact use of the money received. I am concerned and have reasonable doubt about the legitimacy of these loans. It is increasing the level of dependency of the Sri Lankan economy. It develops an export model of development which does not improve the local economy. I don’t advocate for autarchy. I advocate in favour of the integration of the people of the South Asian Region (which includes India, Pakistan, Sri Lanka, Bangladesh, Nepal) to connect, communicate and help each other to meet the needs of its more than 1.8 billion inhabitants, who represent one quarter of the world’s population.


How should a debt audit be carried out?

The audit should be used to identify the legitimate part and the illegitimate part of the debtAn audit should be done with the active participation of the citizens and carried out in a scientific manner. The exact level of the debt, the purpose to which the money received is used, conditions under which the loan was obtained - 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. rate etc., the impact of the project on the humans and the environment and the legality of the contract should be analyzed. The audit should be used to identify the legitimate part and the illegitimate part of the debt. It’s not an intellectual exercise. It is about citizens exercising democracy to reach practical consequences. If a debt is proved illegitimate, authorities should stop the repayment. If it’s clearly illegitimate, you should repudiate this debt.


Sri Lanka has fallen into a debt tap. Where do you think Sri Lanka went wrong?

If the government doesn’t ask the rich to pay taxes proportionally to their income and assets, there is a lack of government revenueThe problem with debt is also about the level of government revenues. If the Government decides to make gifts to the richer part of the society, for instance if the government doesn’t ask the rich to pay taxes proportionally to their income and assets, there is a lack of government revenue. To compensate for this reduction, the government tends to increase the public debt. The solution is to increase government revenue by respecting social justice. This is to say that the richer should pay more taxes and provide more revenue to the State, and the State should utilize the revenue in favour of the majority of the population - to improve the economic situation, to increase the number of qualified people in order to support local industry, to support small-scale farmers, to improve the quality of public services.
The problem of debt is also about the type of development model the government is implementing. I think in the case of Sri Lanka, the Government wrongly supported the export-led model of development. In the export-led model, local producers are told that they should export and the Government imports what is consumed in the country. In reality, the country should try to produce what it consumes. The Government should help the local producers to satisfy the local needs.
In countries which have fallen into a debt trap, the citizens should be urged to question the policy of the government in relation to public debt.


One of the reasons as to why these loans were obtained was to facilitate infrastructure projects. What solution would you give to develop and support these infrastructure development projects, and at the same time not fall into a debt trap?

You can ask for some external loans but a government should reduce its dependency on external loansThis is related to the revenue of the government - the taxes raised by the government. VAT on the first necessity products such as food should be eliminated and VAT on luxury products should be increased. Direct taxes on the revenue of the rich should be increased in order to increase the revenue of the government so that the government will be able to invest in infrastructure. You can ask for some external loans, but a government should reduce its dependency on external loans.


You have advocated for the cancellation or non-repayment of illegitimate debts. In which projects in Sri Lanka do you think debt should be cancelled?

In projects which are very costly and which don’t really benefit the majority of the population. We need to make an audit of the debt. But the general principle is that when you develop mega projects which cost a lot of money, and you don’t really see how the population will benefit from it, you can say that this is an illegitimate debt.


For instance, Sri Lanka built the Mattala Airport in Hambanthota where few flights fly to. But we must repay China around 23.8 million a year for the next few years…

I would say this is typically an illegitimate debt.


Don’t you think the unilateral cancellation of debts will affect international relations between countries?

Yes, it will affect them. But I know several cases where countries confronted creditors victoriously. I participated in the audit of the debt owed by the Ecuadorian Government in Latin America in 2007-2008. Ecuador succeeded in unilaterally suspending payment of its public debt and thus won a victory over its private creditors.


How can the Constitution provide safeguards against the country falling into a debt trap?

You can introduce some conditions in the Constitution to prevent a country from accumulating illegitimate debtIn the Ecuadorian Constitution of 2008, for instance, it is stated that an illegitimate debt should not be paid, and the Constitution promotes a permanent auditing process with citizen participation. The Constitution also says that private debt cannot be transferred to the public debt. It further states that the revenues of the project facilitated by the loan should allow the country to pay back the lenders. So you can introduce some conditions in the Constitution to prevent a country from accumulating illegitimate debt.


You were the Scientific Coordinator of the Greek Truth Commission on Public Debt. What is the role of such a truth commission?

It was very clear that the Greek debt was illegitimate because the lenders gave loans to Greece so that it benefitted big private German, French, Belgium, Dutch bankersThis commission was created at the beginning of 2015 to analyze the debt owed by Greece to the Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

IMF : https://www.ecb.europa.eu/home/html/index.en.html
. The Troika is a consortium of three entities - the International Monetary Fund 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
(IMF), 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.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
(ECB ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html
) and the European Commission. I coordinated the scientific work of this commission at the request of the President of the Greek Parliament. There were thirty “experts”, most of them from Greek or foreign social movements, analyzing the debt owed by Greece. Our work sessions were public. Greek citizens watched the sessions on television and thus knew what we were doing. We presented the findings of four months of investigations, and it was very clear that the Greek debt was illegitimate because the lenders gave loans to Greece so that it benefitted big private German, French, Belgium, Dutch bankers.


Was the debt cancelled?

No! Because in the end, the Greek government did not have the courage to confront the creditors. This coward behavior of the government provoked a great disillusion in the population.


In Argentina a suit was filed in court for illegal and odious indebtedness. Do you think this is a possible legal intervention in Sri Lanka?

We cannot accept that politicians increase the debt of the country against the interests of the populationYes, in each country we must support an audit process. In some cases, you can have a tribunal in the country to question the legality of the debt and also to ask those responsible for the illegitimate contract of debt to be brought before justice. We cannot accept that politicians increase the debt of the country against the interests of the population.


It is said that politicians get commissions and kickbacks out of obtaining loans. How can we ensure that this does not happen?

If politicians know that the law in the country will penalize them severely if evidence about them receiving bribes shows up, they will think twice. So we must struggle against the impunity of corrupt politicians.


By the end of 2016 the per capita debt in Sri Lanka was nearly €2100 (Rs. 417 913) and now nearly all of the government revenue is spent on debt servicing. What does this mean for the citizens of Sri Lanka?

It means that a huge amount of fiscal revenue, tax revenue of the government is diverted to the repayment of debt. The consequence is that there is less money for public health, education, and for the creation of jobs. For the majority of the citizens, perhaps, it is abstract because you don’t individually pay the debt of the government. But in reality, they are paying individually, because a part of VAT and other taxes is diverted to the repayment of this debt.


How is public debt and private debt connected?

We cannot accept the behavior of micro-credit agencies who give loans to women without earnings, who will be incapable of repaying the debt without making huge sacrificesSri Lankans are increasingly using microcredit and are confronted with very aggressive policies of micro-credit agencies. We cannot accept the behavior of micro-credit agencies who give loans to women who don’t have earnings, who will be incapable of repaying the debt without making huge sacrifices. So these women are dispossessed of what they own, and their lives, the lives of their families will be affected in the years to come as well. It is totally illegitimate to ask people to pay an interest rate of 26% or more. It is totally abusive. You cannot accept that.

When a government is incapable of developing necessary infrastructure, citizens try to find alternative solutions. They go to usurious money-lenders. Their necessities include fulfilling basic needs because they don’t receive the help of the government that they should be receiving, as the government is spending its revenue on servicing the debt. So there is a connection between public and private debt.



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: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
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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