Eric Toussaint thinks that the moratorium is far from sufficient and will have negative effects.
For the president of the Committee for the Cancellation of the Third World Debt Eric Toussaint, the decision taken by Paris Club
This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.
http://clubdeparis.org creditor countries towards the economies affected by the tsunami is not sufficient. “The tsunami was a tragedy which led to a huge movement of sympathy and generosity among the public opinion in creditor countries. Paris Club (which includes 19 of the richest countries in the world) could not remain indifferent to this movement. Real generosity would have been a total cancellation of the debt but Paris Club did not go that far”, Eric Toussaint explains. And he adds :“Paris Club is afraid that the indebted countries declare themselves in a non-payment situation and unilaterally decide a moratorium. This was the case at the end of 2001 for Argentina which decided a moratorium on the 100 billion dollars public debt it had contracted to private creditors. Such a series of moratoria would be prejudicial to Paris Club which then would lose not only the control of the situation but also some of its credibility. This is why creditor countries chose to take the initiative by proposing a moratorium and defining themselves its conditions”.
According to Eric Toussaint, a moratorium on the debt - i.e. a temporary suspension of repayment - does not provide the economies affected by the tsunami - Indonesia, Sri Lanka and Seychelles - with structural solutions.
“At the end of the day, these countries will have to repay the whole debt and will not dispose of sufficient means to help their peoples. And while repayment is suspended, interests will still be accruing. Moreover, creditor countries accept such a moratorium only if certain political and social measures included in the Washington Consensus - under the control of the 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 - are implemented. The result is a neoliberal-inspired policy, based on an opening of economies to exports and investment from creditor countries, associated to austerity programs of public and social expenditure”, says Eric Toussaint, who goes into details about Indonesia: “The IMF programs in 1998 had very negative effects. 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. climbed to 20% and above, leading to the 18 main Indonesian banks going bankrupt and thousands of companies closing down. In a country which had put the IMF agreements to an end, accepting this moratorium is very significant of the seriousness of its situation”.
Eric Toussaint promotes debt cancellation in these countries. "For three reasons. Firstly: these countries should dispose of their tax revenues to cover their own needs instead of repaying the debt. Secondly: we have calculated that from 1982, the year when the Third World debt exploded, to 2003, the countries affected by the tsunami had repaid 11 times the amount due at that time, that is a total of 880 billion dollars. These countries have entered a permanent indebting cycle. Thirdly: in several countries, as Indonesia with Suharto regime from 1965 to 1998, most of the debt is under what we call the odious debt, that is a debt contracted by a despotic government without taking care of its people. It is in the name of this odious debt principle that Washington obtained from its Paris Club partners the cancellation of 80% of the debt contracted by Iraq under Saddam Hussein regime. Such a measure could also be implemented in Asian countries”.
Interviewed by VINCENT SLITS, of the Belgian newspaper La Libre Belgique (http://www.lalibre.be), 13 January 2005.
Translated by Sylvie Guillocheau (ATTAC France and Babels)