After a decline in movements against illegitimate debt between 2016 and 2022, will there be a resurgence in 2023?

6 July 2022 by Eric Toussaint

The decline in “debt” movements between 2016 and 2022
The period 2016-2022 has been marked by a retreat in anti-illegitimate debt movements on a global scale with a few important exceptions: Argentina since 2020, Puerto Rico in 2017-2019, Lebanon 2019-2020, Sri Lanka 2022,...

The CADTM network has been concerned by this downturn, which has not yet ended. Other organizations working on illegitimate debt issues have also been concerned.

The cause of the decline of the movements against illegitimate debts can be summarized in three main developments that have had a varying effect in the different regions where the CADTM is active:

  1. The most significant decline in Europe is due to the Greek government’s capitulation to creditors in the summer of 2015, the moderate turn by Podemos in Spain and the effects of the massive liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. injection policy carried out by 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 :
    and the Bank of England in conjunction with a zero 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 policy.
  2. A second factor concerns almost the entire planet. The bulk of the countries of the South and the North were able to “easily” refinance their debts by taking advantage of the consequences of the very active policy of the major central banks of the North. The policy of the major central banks of the North since 2008 has consisted roughly in applying a zero interest rate, a massive injection of liquidity for the benefit of private banks and the financial markets, which have recycled it by buying public debt all over the world, and with the pandemic, a maximum relaxation of the “austerity” fiscal discipline. The availability of enormous liquidity to banks and other players in big business (investment funds Investment fund
    Investment funds
    Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
    , large corporations, 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. , vulture funds Vulture funds
    Vulture fund
    Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
    , etc.) has been used to buy public debt issued by states that previously had no access to financial markets. This created a kind of euphoria typical of periods in which private financial flows go from the North to the South until the situation changes (which has not yet happened, but which is on the horizon). Of course, there have been exceptions and a series of countries in the South have experienced difficulties in paying their debts (Zambia, Venezuela, Argentina, Lebanon,..).
  3. The situation of commodity exporting countries improved from 2020-2021 onwards as their earnings progressively increased which helped them to continue paying their debts.

2022: a pivotal year?
We are probably living in 2022 a pivotal year because changes are taking place in the North which dominates the planet and which is the consequence mainly of the new war which started in Europe at the end of February 2022 and the speculation provoking a very strong increase of the prices of cereals (and by speculative contagion of other foods). A large part of the countries of the South have become more and more dependent on their cereal imports as they have followed the recommendations of institutions like the World Bank World Bank
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.

and 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.
. They have abandoned supporting their local producers. Countries that imported relatively little grain 60 to 50 years ago have become increasingly dependent on imports of grain and other vital foods for their populations. As the price of grain and other foods rises sharply, their import bill also rises and they begin to run out of foreign exchange to both pay that bill and repay the foreign debt.

For countries like Sri Lanka that lost a large part of their tourism revenue during the 2020-2022 pandemic and have to import almost all their fuel and part of their food, the situation is simply untenable.

On the other hand, countries that export oil and gas can cope with the rising food import bill with relative ease because the price of oil has climbed to or exceeded $100 per barrel since Russia invaded Ukraine. The additional earnings generated by selling their oil, gas and other raw materials on the world market allows them to deal with the increasing food import bill.

The situation is uneven, but it is also combined

The situation is uneven, but it is also combined as the increase in global 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.
as a result of the shift in financial policy by the major central banks of the North will begin to have an effect. The Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
of the United States (Fed) has powerfully launched the upward movement, the Bank of England has followed and the European Central Bank 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.
is also preparing to start raising interest rates, the Bank of China has also raised rates,...

The Fed’s interest rate forecast calls for a policy rate of 3.4% at the end of 2022 and 3.8% in 2023, compared to the March 2022 forecast of 1.9% by the end of this year

The Fed had pledged to raise the rate by 0.25 percent per month to reach a rate of more than 1 percent by the end of 2022; with 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. at a high level, the Fed is raising the interest rate more swiftly than originally expected. The median forecast of the members of the Fed’s monetary policy committee (FOMC) now calls for a policy rate of 3.4 per cent at the end of 2022 and 3.8 per cent in 2023, compared with their March 2022 forecast of 1.9 per cent by the end of this year. The risk of a new crisis exists, because a higher interest rate would encourage a repatriation of capital to the United States - and to Europe if the European Central Bank moves in that direction - and would increase the risk premium Risk premium When loans are granted, the creditors take account of the economic situation of the debtor country in fixing the interest rate. If there seems to be a risk that the debtor country may not be able to honour its repayments then that will lead to an increase in the rates it will be charged. Thus the creditors receive more interest, which is supposed to compensate for the risk taken in granting the loan. This means that the cost to the borrower country is much higher, accentuating the financial pressure it has to bear. For example, in 2002, Argentina was faced with risk premiums of more than 4,000 points, meaning that for a hypothetical market interest rate of 5%, Argentina would have to borrow at a rate of 45%. This cuts it off de facto from access to credit, forcing it even deeper into crisis. For Brazil in August 2002, the risk premium was at 2,500 points. that indebted countries would have to pay. Thus, there is no generalized debt crisis today, but the conditions are right for one to occur.

There is no widespread debt crisis today, but the conditions are right for one in the future. Like any forecast, it must be taken with caution

So we are probably living through a pivotal year that may lead to a sharp increase in debt repayment distress for a whole series of countries worldwide, but especially in the global South, at the end of 2022 or in 2023. The above is a forecast and like any forecast it must be taken with caution.

It is also important to understand where we are coming from. A look in the rear-view mirror is necessary

It is worth remembering that a public debt crisis affected the world economy in the 1980s. It was mainly due to the US Federal Reserve’s decision to increase interest rates unilaterally, aggressively and in enormous proportions starting in October 1979. The negative effects of this decision combined with the fall in oil prices from 1981 and the world recession of 1982-1983 were devastating. All this was also part of the great neoliberal turn taken by Margaret Thatcher’s Great Britain and Ronald Reagan’s United States in 1979-1980. From 1985 onwards, thanks especially to leaders such as Fidel Castro and Thomas Sankara, initiatives were taken to condemn the payment of debts claimed from the Third World, now called the Global South. Cuba suspended the payment of its foreign debt to the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

from 1986 (until 2014). Powerful mobilizations took place in both the South and the North of the planet. This impressive movement managed to rally tens of thousands or even hundreds of thousands of demonstrators each time during the annual meetings of the World Bank, the IMF and the G7. A great campaign for the cancellation of the debts of poor countries culminated in 1999 with a massive demonstration in Cologne (Germany) during a meeting of the G7 with the handing over of a petition endorsed by 17 million people. It was during the 1990s that various international networks fighting against illegitimate debts were born, the CADTM in 1990, then Eurodad-Afrodad and Latindadd, the Jubilee 2000 campaign in 1998-1999, Jubilee South in 1999, etc. Convergences were produced with other campaigns on other themes and the World Social Forum was born in 2001. Numerous organizations against illegitimate debts were born in many countries around the world.

Since 2001, Argentina, under popular pressure, has suspended payment of a large part of its foreign debt. From 1999-2000, the demand for a citizen’s audit of the debt to encourage repudiation and non-payment of the debt gained ground, with the flagship movements in Spain (the Citizen’s Network for the Abolition of Foreign Debt RCADE) and Brazil with the plebiscite for the audit of the debt in 2000 (in which 6 million people participated) and the birth of the citizen’s audit of the debt in Brazil. The proposal for a citizen’s audit of the debt gained more and more ground, and in 2007 Ecuador set an example with the creation by the government of a commission for an integral audit of the debt (the CAIC). On the basis of the audit, Ecuador then suspended debt payments and won a major victory against its creditors in 2009. The Ecuadorian example has had international repercussions in limited but very active circles.

The global financial crisis of 2008, followed by a global economic crisis in 2009 and a debt crisis in Europe from 2010 onwards, led to a huge growth of anti illegitimate debt movements in the global North. This was amplified in 2011 by the Arab Spring on the one hand, and on the other hand by the indignant movement in Spain, the Occupy Plaza movement in Greece, Occupy Wall Street in the United States and similar movements in other Northern countries.

Between 2011 and 2015 in many European countries, important collectives for the citizen audit of debts and the denunciation of illegitimate debt payments developed.

2015 with the victory of Syriza in Greece and the election in Spain of a hundred mayors for change was the culmination of a powerful wave of debt movements in Europe.

2015 was also the beginning of the decline of anti-debt movements.

The capitulation of the Greek government led by Alexis Tsipras to the creditors in the summer of 2015 initiated the beginning of the decline. It was followed by the moderate turn of Podemos in Spain and the inability of left-wing municipal governments in Spain to form a real strategy against the central government, especially on the issue of debt. In Tunisia, the retreat also began with the inability of the Popular Front deputies to put forward a coherent and offensive strategy on the debt and other issues of primary importance.

The retreat did not happen everywhere at the same time. For example, in Italy it began two or three years later, around 2018.

The downturn was not universal as there was a big popular uprising in Lebanon in 2019-2020 in which the debt issue became a significant issue. There were also large anti-debt demonstrations in Puerto Rico between 2016 and 2019. And then there were the huge rallies in Argentina from 2019-2020 until now.

It is certain that the movements against illegitimate debts and among them the CADTM international must be prepared to understand the new situation and to act

In 2022, the huge mobilizations in Argentina and Sri Lanka directly related to debt perhaps foreshadow what could happen in the coming years in different parts of the planet. The refusal of the neoliberal policies imposed to pay off the debt will not be the only reason for the mobilizations because the different aspects of the global crisis of the capitalist system are interconnected: food crisis, health crisis, ecological crisis, migratory crisis, energy crisis, political crisis, economic crisis,...

In conclusion, it is possible that on an international scale, movements questioning the debt system will gain momentum from 2023. We must prepare for this and contribute to it.

In the United States the student debt has reached 1,700 billion US dollars. In the measures taken to deal with the coronavirus pandemic, a moratorium was put in place by Trump in 2020, a measure extended by Joe Biden on several occasions. The Fed warns of a risk of default when repayments resume.

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 Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), 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, 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. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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