Committee for the Abolition of Illegitimate Debt

The rising levels of debt in so-called Third World countries, along with the consequent chain reactions, represent just one facet of a broader phenomenon: the credit boom, which acts as a driving force behind the economy of late capitalism. It is crucial to underscore this point to grasp that the current financial crisis is a natural outcome of global expansion following the post-war economic “boom” spanning from 1940–1948 to 1968–1973. [1].

The narrative that the current financial crisis stems from the incompetence of underdeveloped nations, their affluent classes, or their governments is misguided. Instead, it represents a specific manifestation of the crucial role that credit 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 consequently the accumulation of various forms of debt—has played in fostering growth (or, more accurately, postponing the crisis) in all capitalist countries and sectors following World War II.

After World War II, capitalism advanced towards “prosperity” on a vast sea of debt

In truth, if we have been living since 1940 under the regime of perpetual inflation in all these countries, then inflation and debt are largely synonymous. Inflation essentially represents an increase in scriptural money [2] and credit, which in turn leads to an increase in debt.

We have mentioned previously that after World War II, capitalism advanced towards “prosperity” on a vast ocean of debt. To grasp the significance of this situation, we must first clarify its magnitude. At present, US dollar-denominated debt within the United States, along with foreign debt in dollars and other currencies globally, surpasses a staggering total of $8 trillion, which can be roughly categorised as follows at the end of 1985:

We can observe that Third World debt, which elicits numerous disparaging remarks from banking circles, constitutes only a modest portion of the global debt burden in dollars and foreign currencies, amounting to barely more than 10% of the total. As this figure also encompasses China’s debt, it impacts two-thirds of the world’s population; thus, one-tenth of the debt affecting two-thirds of the population is not disproportionate. The banking community’s complaints echo the bourgeois saying, “You only lend to the rich,” or more directly, “We should have only lent to the rich.”

This debt figure is merely indicative and excludes the debt in the “national” currencies of all capitalist countries, with the exception of the United States. However, it holds significant operational value, as it helps us understand the vulnerabilities present in the US banking system and the international monetary system, which is predicated on the privileged status of the dollar.

Let us briefly recall the mechanisms by which credit inflation and debt expansion temporarily mitigate the acuteness of the main contradictions of contemporary capitalism.

Household debt temporarily reduces the gap between the growth in the production capacity of consumer goods manufacturers on the one hand and the much more modest increase in the purchasing power of the masses on the other. People purchase some durable consumer goods, particularly housing and automobiles, on credit.

Corporate debt temporarily narrows the difference between the rate of capital accumulation and 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. growth. It therefore mitigates the immediate effects of the tendency for the average rate of profit to fall. The rate of accumulation is maintained as long as part of the fresh investment (purchases of new machinery, additional quantities of raw materials, etc.) is financed by credit and not by realised profits.

The increase in public debt allows for a temporary alleviation of the state’s fiscal crisis; that is, it helps to narrow the gap between the rapid rise in public spending and the significantly slower growth in state revenues, which mainly come from taxes [5].

Debt can only serve to cushion some of the contradictions inherent in the capitalist mode of production for a limited duration and within specific constraints. The severity of these contradictions necessitates increased credit—and consequently more inflation—to achieve this effect. This process inevitably results in runaway inflation. However, once inflation spirals out of control and surpasses a certain threshold, it ceases to promote expansion and begins to stifle it.

It thus becomes one of the factors contributing to the reversal of the long wave of expansion from 1940–1948/1968 to the early 1970s, leading to the long wave of depression that continues to this day [6]. Consequently, there was a shift from the capitalist economic policy of Keynesianism—characterised by the stimulation of demand and moderate inflation—to monetarianism, which prioritised the restoration of monetary stability at any cost, even at the expense of economic stagnation and depression. The change in economic policy did not precipitate the shift in the economic situation; rather, it was the alteration in the priorities regarding the objectives to be achieved by the bourgeoisie that dictated the change in economic policy at a time when the economic downturn had already become evident.

After 1945, the primary objective was the social and political stabilisation of the main capitalist countries, namely, North America, Western Europe, and Japan. These circumstances led to a focus on achieving full employment and prioritising Keynesian techniques. However, following 1968, and particularly after 1973, the main priority shifted back to enhancing the rate of profit, even if the change resulted in significant unemployment and heightened social tensions.

 Role of banking practices in the increase of debt

What characterises bourgeois society is, in particular, the fact that even the general interests of the bourgeoisie—most often articulated by the bourgeois state—are defended by private agents, such as politicians, senior civil servants, and businessmen, who, 99 times out of 100, cannot disregard their own interests. After 1940 (specifically in 1948), the bourgeoisie’s general 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. coincided with the widespread expansion of credit. This expansion was undeniably stimulated by banks that did not primarily aim to serve the overarching interests of big capital. Instead, their primary goal was to increase their own profits, specifically those of the banks.

When the economy is favourable and the barometer is high, the bourgeoisie’s general interests align closely with the bank’s particular pursuit of profit. Banks function as centres for the “objective socialisation” of capital by collecting surpluses from firms and households. They then channel this capital to firms—and, since World War II, increasingly to households belonging to the upper and middle classes, as well as the upper strata of the petty bourgeoisie—that require it to expand their investments and purchases.

However, a systemic crisis disrupts this coincidental relationship. The primary objective of banks—to safeguard their income and profitability above all else—can come into conflict with the broader interests of capital, which aim to restore the overall profitability of the system, particularly for major trusts, monopolies, and financial groups. In their pursuit of additional profits, banks may engage in practices that ultimately undermine the stability of the entire system, particularly in the long term. State control over banks, which was expanded following the traumatic banking crisis of 1931-1933, proves ineffective in eradicating this inherent flaw, which arises from private property [7], competition, and the never-ending search for profit that drives the capitalist economy.

Bank profits primarily derive from the difference between 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. paid on deposits and those earned on loans. As bank deposits increase, banks have a greater incentive to seek customers to whom they can lend at above-average interest rates. Beginning with the oil crisis of 1973, oil revenues from several oil-exporting countries significantly boosted the deposits of numerous American and British banks, as well as, to a lesser extent, German, Swiss, Japanese, and other banks. These funds became known as petrodollars. However, identifying suitable borrowers for this influx of capital posed a challenge for banks.

It was the banks that extended these loans to the Third World, rather than the Third World seeking them out

The prolonged depression that had recently commenced in the imperialist nations concurrently diminished the demand for additional credit from firms and households, both of which were already heavily in debt. In search of new debtors, banks turned their attention elsewhere, primarily to third-world countries and, to a lesser extent, to bureaucratised workers’ states. It was the banks that extended these loans to the Third World, rather than the Third World seeking them out [8]. Three specific conditions, emerging in the mid-1970s, facilitated this process.

First, there was a desynchronisation between the economic downturn in the imperialist countries and the downturn in Latin America, Southeast Asia, and East Asia [9]. This created the illusion that the solvency of dependent semi-industrialised countries was improving, at least in those regions.

Countries were compelled to pay higher interest rates, a burden they could not avoid due to their chronic shortage of capital. Meanwhile, in the imperialist countries, the real interest rate—when adjusted for inflation—remained very low and at times even negative [10].

Furthermore, private banks filled a void left by the inadequacies of international capitalist organisations and the reluctance of imperialist governments, particularly the United States, to act in the collective interest of the international capitalist system during crises. The oil shock resulted in a redistribution of surplus value, along with its capitalisation as money capital on a global scale. The primary victims of this redistribution were the non-oil-exporting Third World countries, while the wealthy classes in oil-exporting nations emerged as the main beneficiaries. A balance of payments Balance of payments A country’s balance of current payments is the result of its commercial transactions (i.e. imported and exported goods and services) and its financial exchanges with foreign countries. The balance of payments is a measure of the financial position of a country vis-à-vis the rest of the world. A country with a surplus in its current payments is a lending country for the rest of the world. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. deficit threatened to undermine the import capacity of the former, impacting not only capital goods but also raw materials essential for their developing industries and even food supplies. Consequently, a challenge arose regarding the recycling of petrodollars, necessitating that the OPEC OPEC
Organization of Petroleum-Exporting Countries OPEP is a group of 11 DC which produce petroleum: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela. These 11 countries represent 41% of oil-production in the world and own more than 75% of known reserves. Founded in September 1960and based in Vienna (Austria), OPEC is in charge of co-ordinating and unifying the petroleum-related policies of its members, with the aim of guaranteeing them all stable revenues. To this end, production is organized on a quota system. Each country, represented by its Minister of Energy and Petroleum, takes a turn in running the organization. Since 1^st July 2002, the Venezuelan Alvaro Silva-Calderon is the Secretary General of OPEC.

OPEC : http://www.opec.org/opec_web/en/ countries lend their surpluses to those facing the largest deficits. Essentially, this was the role that private banks undertook.

They acted hastily and recklessly, seeking substantial private benefits in return. This incident leads us to another issue: the gradual decline in the management of the international banking system.

Throughout the period commencing with the Second World War, there was a significant increase in credit operations, accompanied by a remarkable expansion of purely speculative activities within the banking system. This expansion became particularly pronounced when the dollar transitioned to a non-convertible status, around the late 1960s. Speculation focused on various assets, including raw materials, gold, currency exchange rates, land, and works of art. During the economic recovery between 1983 and 1985, this speculative behaviour extended to enormous public takeover bids—mergers orchestrated by intermediaries outside the companies themselves—amounting to billions of dollars [11].

Under these conditions, increasingly unconventional leaders—some might even describe them as outright illegal—emerged at the helm of major subsidiaries of large banks and, in some cases, at the forefront of these banks themselves [12]. Their focus was to maximise short-term profits, often disregarding associated risks. These circumstances led to a cycle of unexpected gains and losses that severely undermined the overall soundness of the banking system. Speculation, personal corruption, national solvency crises, and banking system solvency crises became more and more intertwined. A significant number of loans granted to Third World countries were, in a sense, diverted at the source, serving the private interests of the local bourgeoisie who sought to protect themselves against rampant inflation and the threat of revolutionary upheaval.

Foreign loans drive capital flight, exacerbate the balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of payments deficit, and initiate a new cycle of increased debt. This debt spiral expands, benefiting the wealthy classes while disadvantaging the masses. The extent of this capital flight by the bourgeoisie in the principal debtor countries of the Third World was recently evaluated by the journal Intereconomics, using statistics from the Organisation for Economic Co-operation and Development 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/ (OECD), 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), and 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.

as follows:

(*) excluding short-term debt [14].

This list is far from exhaustive, as it omits capital flight from countries such as Brazil, the Philippines, South Korea, and Thailand, which is often deemed non-existent, despite widespread awareness of clear examples of this practice by the “leading families” within these bourgeoisies. [15]. This statistical deficiency arises from the fact that the cited figures are aggregated and do not account for either short-term debt or fluctuations in foreign exchange reserves in the aforementioned cases. 

 The spiraling debt of the Third World

Imperialist financial circles, once again, lace their disparaging comments about capital flight in so-called Third World countries with a significant dose of hypocrisy. The affluent classes in these countries are undeniably corrupt. However, it is also true that for corruption to thrive, there must be both the corrupt and the corruptors. In this instance, the corruptors and their accomplices are the imperialist banks. Furthermore, there exists a broader context that fosters the unrestrained pursuit of private enrichment. This overarching context is referred to as the market economy, the monetary economy, or, most importantly, the generalised market economy—that is, bourgeois society and the capitalist mode of production.

The Third World’s debt crisis began at the time we mentioned, in the early 1970s. At that time, the debt of all semi-colonial and dependent countries amounted to $150 billion. Today, it exceeds $900 billion. This surge is not primarily the result of political phenomena, although their role is not negligible, nor of conspiracies and counter-conspiracies. It is precisely the result of the internal dialectic of the capitalist mode of production as a whole, both internationally and in the main countries concerned. Once triggered by the recycling of petrodollars, the spiralling of Third World debt results from a series of mechanisms that are more or less spontaneous and, in any case, are not controlled by anyone—neither the governments of the Third World, nor the propertied classes in those countries, nor the imperialist banks, nor the imperialist governments, nor the bourgeoisie of the metropolises as a whole.

The inflow of fresh capital into underdeveloped countries is only partially invested, which limits its ability to generate additional resources, including those necessary for paying interest on the debt and repaying the borrowed capital. This situation is a primary source of imbalance and arguably the main cause of the issue. A portion of this capital is allocated to cover the operating costs of both the economy and the state or to maintain a certain level of activity, such as financing the increased costs of oil or the importation of raw materials that are not offset by exports. Additionally, some of this capital is diverted towards parasitic speculation. Finally, another segment is directly appropriated by the propertied classes and remains outside the country.

Exports from Third World countries, which are expected to increase over the long term to the extent that they can service the debt and repay the principal, do not consistently grow at the desired rate across all regions. The law of value operates with unyielding force, redistributing demand and supply, as well as the allocation of means of production and the labour force on a global scale.

In the capitalist economy, everything is, by definition, temporary, except for private property in general and the ongoing struggle surrounding it.

The outcome is, indeed, a spontaneous readjustment—chaotic, unpredictable, and, above all, inconsistent from country to country, not to mention from continent to continent. This situation leads to significant imbalances, which cannot simply be labelled “temporary”. In the capitalist economy, everything is, by definition, temporary, except for private property in general and the ongoing struggle surrounding it. However, the specific distribution of this property among various capitalists, capitalist factions, and classes is perpetually temporary, constantly disrupted by new developments, namely the law of uneven and combined development.

Thus, while the economies of Argentina, Brazil, and India experienced violent upheaval, the affluent classes of Saudi Arabia, Kuwait, and Mexico found solace in the temporary surge in oil prices. Conversely, when there was a remarkable recovery in the balance of payments between South Korea and Brazil, Mexico and the OPEC nations faced the brunt of the decline in oil prices. Consequently, there was less overall expansion in the world market than was necessary for all indebted countries to develop their exports sufficiently for regular debt repayment.

This conclusion is particularly valid, considering that the entire decade of the 1970s and the subsequent 1980s were characterised by a prolonged depression in the economies of the imperialist nations. This situation hindered the growth of exports from Third World countries to metropolitan centres, often due to overt protectionist measures. A prominent illustration of such legislation is the Multifibre Agreement, which governs the export of textile products, including clothing, from Asia and Latin America. Similar restrictions also apply to various food crops Food crops Crops destined to feed local populations (millet, manioc, etc.), as opposed to cash crops, destined for export (coffee, cocoa, tea, groundnuts, sugar, etc.) , such as sugar and coffee.

The share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of Third World manufactured exports in global trade has increased dramatically over the last decade. The US trade balance Trade balance The trade balance of a country is the difference between merchandize sold (exports) and merchandize bought (imports). The resulting trade balance either shows a deficit or is in credit. for these products has become negative (this is not the case for capitalist Europe or Japan). The US now imports more manufactured goods from semi-industrially dependent countries than it exports. However, only a limited number of countries and manufactured goods have benefited from this boom, including Brazilian shoes and steel, South Korean electronics, Hong Kong assembly, and a few other examples. This amount is too little to help the entire Third World. This amount is not sufficient to defuse the debt time bomb.

Given that current production does not generate the necessary resources to cover the balance of payments deficit (specifically, their foreign exchange deficit), these countries are compelled to continue borrowing to service part of their debt and to repay a portion of the principal that has come due. According to United Nations statistics from 1985, debt interest payments for 88 so-called Third World countries amounted to $35 billion, $48 billion, and $44 billion in 1981, 1982, and 1983, respectively. These payments exceeded the private loans received during those three years and were even $5 billion greater than the total private and public loans received in 1983.

The outflow of profits, dividends, and similar financial transfers repatriated by the Third World to the metropolises fluctuates around $12 billion per year. During the three years under consideration, this outflow of funds surpassed the net inflow of investment capital. According to the Economic Commission for Latin America and the Caribbean (ECLAC), there was a net transfer of resources amounting to $30 billion from Latin America to the rest of the world in 1985 when current account and capital movements are taken into account. The president of this institution, Ortiz Mena, estimates that this haemorrhage totalled $100 billion over four years, from 1982 to 1985. Consequently, the debt spiral appears to be inevitable. Increasingly, loans are being taken out not for production purposes, but rather to repay existing loans and the interest accrued on them. Overall, debt grew nearly twice as quickly as national income for non-OPEC Third World countries between 1973 and 1982.

This vicious circle is particularly damaging because the terms of trade – the ratio between export prices and import prices – typically disadvantage Third World countries. Aside from the brief and remarkable speculative surge between 1971 and 1973 and the two oil shocks, the prices of raw materials and semi-finished products tend to rise more slowly, if at all, compared to the prices of manufactured goods. The negative trend in these terms of trade, from which only a few semi-industrialised countries, such as South Korea, have managed to escape, and even then only for a limited time, places a heavy burden on the poorest countries. Their debt, although lower in absolute terms than that of semi-industrialised countries, has become an unbearable weight.

The price of all raw materials fell from an average index of 100 during 1979–81 to 72 by September 1985. The prices of food products, including cereals, sugar, bananas, and soybean meal, dropped to an index of 56, while the price of oilseeds fell to an index of 65. The loss of export revenues experienced by the Third World exceeded the cost of servicing its debt!

Finally, for reasons intrinsic to the economies of the imperialist countries, much of the period under review was characterised by a dramatic rise in interest rates, particularly in the US. However, this increase was not detrimental for the capitalists of these countries, given the prevailing level of inflation; the same cannot be said for the Third World. As their debt is denominated in dollars, each one-point increase in the US interest rate raised the annual debt service Debt service The sum of the interests and the amortization of the capital borrowed. by $4, $5, or $6 billion during the late 1970s and early 1980s.

Once again, additional borrowing was required to cover these increased costs. Furthermore, as the currencies of third-world countries experienced inflation rates significantly higher than those of imperialist nations, the rise in interest rates exacerbated the trend towards the “dollarization” of these economies. Consequently, an entire sector of activity and an increasing proportion of savings became detached from the control of national governments and the process of national capital accumulation [16]. 

Thus, at the end of the ever-widening spiral of debt, we find ourselves confronted with today’s $900 billion Third World debt and the de facto insolvency of most heavily indebted countries. Of this $900 billion, considerably less than half has been effectively invested. Between a third and a quarter has been syphoned off abroad by the wealthy, akin to a usury economy, while another quarter has been retained or claimed by the lenders themselves.

 The financial and economic dynamics of Third World debt

The escalating debt of the Third World initiates a troubling fourfold dynamic throughout the global capitalist economy:

• The de facto insolvency of third-world countries poses a significant threat to the stability of major banks in imperialist nations and, concurrently, jeopardises the entire credit system and, consequently, the monetary system of the global capitalist economy. Currently, private banks hold over half of the Third World debt, amounting to approximately $480 billion. [17]. 
• Third World countries can only manage their debt—much less repay the principal—by achieving significant surpluses in their balance of payments. [18]
• This indicates significant net outflows of foreign exchange, money capital, and, consequently, capital itself. However, it is precisely the relatively poorer countries in terms of capital that require additional resources to industrialise and modernise. A gradual deceleration in growth and development is inevitable due to the ongoing net outflow of capital. As Raul Prebisch aptly remarked, the IMF’s “therapy” resembles the act of bleeding a patient suffering from anaemia! 
• The significant net outflow of capital from the Third World due to debt servicing necessitates a drastic reduction in imports alongside a corresponding increase in exports. However, many semi-colonial and semi-industrialised dependent countries struggle to achieve this expansion—consider Mexico, for example, which is heavily reliant on fluctuating oil prices. This situation leads to a substantial contraction of the world market accessible to imperialist nations, particularly for the least competitive among them, starting with the United States. Consequently, these nations experience losses on both fronts: they export less to the Third World while importing greater quantities of manufactured goods. 
• The profit and loss arising from the senseless evolution of the international capitalist economy do not necessarily affect the same sectors of the bourgeoisie. The debt repayment mechanisms established by the IMF predominantly favour the banking and rentier sectors in imperialist countries while disadvantaging the industrial and export sectors. This situation accentuates the parasitic and usurious nature of the imperialist system as a whole, particularly in the United States and Great Britain. [19]. The imperialist bourgeoisie, which is more inclined towards exporting goods and thus more reliant on the expansion of the world market—particularly in West Germany and Japan—tends to favour a more flexible policy regarding debt service for the Third World. This reflects the essence of the Willy Brandt doctrine of the German Social Democratic Party (SPD). Paradoxically, Brandt now serves as the true spokesperson for European imperialists, alongside Franz-Josef Strauss, leader of the CDU-CSU (German Christian Democrats), in the context of American imperialism.

The spiralling debt of the Third World indeed poses significant threats to the international capitalist economy. However, their significance does not necessarily imply that a widespread banking crash is inevitable. [20]. 

During the significant banking crisis of 1931-1933, a saying circulated in international financial circles: “If the debt is $100,000, the debtor suffers from insomnia, but if the debt is $10 million, it is the creditor who can no longer sleep.” If we adjust these figures by a factor of 10 or 100 to account for the inflation experienced over the past half century, as well as the resultant inflation expansion, this saying becomes even more pertinent than it was previously.

American imperialism cannot afford the collapse of Chase Manhattan, Citicorp, or Morgan Guarantee Trust, just as British imperialism cannot afford the collapse of Lloyds, Barclays, or National Westminster. This is because American imperialism is embodied in institutions like Chase Manhattan, Citicorp, and Morgan Guarantee Trust, while British imperialism is represented by Lloyds, Barclays, and National Westminster.

The most likely scenario is a substantial bailout of large debtors, which, in reality, involves the private creditors of these debtors, orchestrated by the international banking system and imperialist governments. This will result in a dual “nationalisation” of the debt, meaning a dual nationalisation of the losses: partially at the expense of the working masses in the imperialist countries and partially at the expense of the popular masses in the Third World. The ongoing negotiations primarily focus on distributing the burdens. The bourgeoisie of the Third World are chiefly concerned with the technical details of the situation, such as deadlines and fees for debt rescheduling Debt rescheduling Modification of the terms of a debt, for example by modifying the due-dates or by postponing repayments of the principal and/or the interest. The aim is usually to give a little breathing space to a country in difficulty by extending the period of repayment and reducing the amount of each instalment or by granting a period of grace during which no repayments will be made. . Ensuring that their own populations avoid sacrifices is not a priority for them.

The success of the rescue operation—of which the Baker Plan [21] is but a partial manifestation—remains uncertain, primarily because the international capitalist economy is not subject to any overarching control. It is characterised by sudden and largely unforeseen changes, driven by competition and, in the long run, only guided blindly by the law of value. Consequently, the significant decline in oil prices has recently called into serious question Mexico’s financial recovery plan, which international bankers painstakingly established in 1982 and prematurely celebrated [22]. While any economist familiar with the workings of the capitalist market could have anticipated a fall in oil prices, the scale of the decline and the exact timing of its occurrence—February 1986—were unpredictable. 

The situation arose in part from Mrs Thatcher’s determination to secure the foreign currency necessary for defending the pound sterling through the unrestrained extraction of oil from the North Sea. This policy led to increased overproduction, which subsequently caused a decline in oil prices. Additionally, Saudi Arabia’s unwillingness to allow its share of the oil market to diminish played a significant role. As a result, there was a breakup of OPEC, a collapse in oil prices, and further increased overproduction, among other consequences. Consequently, Mexico’s debt must now be renegotiated for a second time, as was done in 1982, under conditions that have worsened in terms of the global oil market and the domestic social situation in Mexico.

 The social and political dynamics of Third World debt

The obvious interdependence of the economies of the imperialist countries and the Third World countries within the framework of the international capitalist economy gives some Third World bourgeoisies considerable leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. over the imperialist banks. They tell them, “If you squeeze the lemon too tightly, we would rather sink, and we will take you down with us.” This is why Fidel Castro’s plan for a collective cancellation of debt by all Third World countries is not purely propaganda. This proposal is a positive contribution to the anti-imperialist struggle on a global scale. It deserves the support of all anti-imperialist militants, all revolutionaries, and the entire international workers’ movement. It should be a call for the massive mobilisation of the popular masses of Third World countries, supported by the international proletariat, to demand debt cancellation from their respective governments.

We must also stigmatize all those who yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. to this pressure, who transmit it, who bow to diktats, not only out of political cowardice and fear, but also out of class interest.

The initiative would also encourage direct class struggle by the proletariat and its allies, both against the bourgeoisie of the Third World and against imperialism. This bourgeoisie continues to pay exorbitant tribute to international capital while attempting to shift the majority of the burden onto the masses, who are experiencing a catastrophic decline in their standard of living. The IMF exerts relentless pressure for budgetary balance and reductions in public spending, primarily targeting social expenditure and subsidies for basic necessities, as well as the public sector wage bill and employment. The reactionary and inhumane nature of this pressure, which produces unspeakable misery and hunger in a literal sense, is unmistakable.

It is insufficient merely to denounce this pressure. We must also condemn those who yield to it, who perpetuate it, and who submit to its dictates, not solely out of political cowardice and fear but also due to class interests.

The worker’s movement should connect the demand for debt cancellation with a call for worker control over banking operations. This control should ideally be exercised by bank employees themselves. Their role would be to expose, denounce, and actively work to prevent the concrete manifestations of embezzlement, hoarding, private appropriation, and foreign currency flight perpetrated by the bourgeoisie—activities that significantly contribute to the escalation of debt.

Will the Latin American bourgeoisie, and indeed the bourgeoisie of the Third World as a whole, truly unite to support the debt cancellation that Fidel Castro has called for? This seems improbable. The example of OPEC illustrates that crisis conditions intensify competition among capitalists, whether in imperialist nations, between imperialist powers, or between those powers and dependent countries, as well as within the Third World itself. The Latin American bourgeoisie – similar to the Indian bourgeoisie – will likely seek to exploit the pressures it faces from the masses, alongside Fidel Castro’s proposals, to leverage a form of blackmail against imperialism: “Reschedule the debt, provide us with new loans, or we will adopt Cuba’s approach!” This scenario forms part of a significant power struggle, the outcome of which remains uncertain.

A growing number of commitments are likely to remain unfulfilled. An increasing number of debts that have become due will simply be extended. Extending these debts indefinitely is not significantly different from cancelling them. Therefore, let us reiterate that the true contention lies in interest and debt service, rather than in the principal amount.

The interdependence between the bourgeoisie of semi-colonial and dependent countries, on one hand, and the imperialist bourgeoisie, on the other, extends beyond mere economic and financial ties. It encompasses political and military dimensions as well. In light of the rising tide of revolution in numerous Third World nations, imperialism acts as the paramount protector and final bastion for the indigenous ruling classes. This assertion holds true not only in Central America, the Arab states, South Africa, the Indian subcontinent, the Philippines, and South Korea, but in all countries.

Conversely, imperialism no longer has sufficient resources to govern the Third World directly. It depends on the relative consolidation of regional and local bourgeois relays. If the international banking system collapses, it would not only be a fatal blow to the metropolises but an equally fatal blow to the propertied classes of the Third World. If the revolution extends to Central America and penetrates Mexico, it will directly impact the United States.

Hence, both sides are engaged in desperate efforts to navigate their path forward, moving from one compromise to another, renegotiating terms and rescheduling agreements, as they strive to rescue one threatened bank after another. The stakes are high, as the fate of the entire international bourgeoisie hangs in the balance.

The bourgeoisie must navigate its path forward, as it does not exert control over the entire mechanism. Interdependence is governed by the iron law of the bourgeois world: crises tend to weaken the vulnerable more than the strong; they highlight disparities in wealth and power, perpetuating rather than diminishing relationships of domination and dependence. Moreover, the bourgeoisie is increasingly unable to manage the actions and reactions of the masses.

Ernest Mandel, March 1, 1986.