Committee for the Abolition of Illegitimate Debt

Let’s start with a brief historical perspective. Since 1980, the external debt of so-called develop-ing countries has doubled every ten years. It has multiplied by 19 between 1980 and 2023. 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 ’s goal of reducing Southern countries’ indebtedness by forcing them to cut spending—apparently the goal of austerity policies—has failed.

Table 1: Trends in external debt of Southern countries by region, in billions of US dollars

Since 1970, external debt servicing, i.e., the amounts paid each year by governments, compa-nies, and individuals in so called developing countries to repay their debts and pay 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. to foreign creditors, has been on the rise (Graph 2). Governments and private players in the Global South (excluding China) paid over 971 billion dollars to foreign creditors in 2023. In many cases, public debt servicing exceeds the size of education or health budgets. For example, in 2023, Kenya’s public debt service Debt service The sum of the interests and the amortization of the capital borrowed. was 5 times higher than its health budget . In Tunisia, debt pay-ments are 4 times greater than the health budget .

Figure 2: Debt servicing trends for Southern countries excluding China (in billions of US dollars))

Like total external debt, the external public debt (owed to foreign creditors by governments or public administrations) of Southern countries has been rising steadily in all regions since the 1970s-1980s.

Graph 3: Public external debt by region (in billions of US dollars

For the global South as a whole, it currently stands at about $3,833 billion, excluding China [1]. With regard to repayments and conditionalities imposed by global financial institutions, this is massive and has terrible ramifications.

However, the combined external public debt of the Global South’s nations only amounts to 10% of the US public debt. Stated differently, the external public debt of 130 nations is only a tenth of the public debt of the United States. Additionally, it is equivalent to the national debt of France. Therefore, it is completely untrue to argue that the world economy would collapse if the debt of the South was cancelled.

 Who are the public debt’s creditors in developing nations?

Graph 4: Creditors of the external public debt of developing countries, excluding China

As creditors of the foreign public debt of nations in the Global South, private creditors—such as banks, 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. , insurance firms, and 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. —have risen to prominence over the time. They own almost half of this debt. The multilateral sector, which often replaces the private sector when countries have repayment difficulties, holds 37% of the external public debt of Southern countries. Loans granted by other governments account for only 15% of this debt.

The trend towards a greater role for private creditors has its consequences: the latter generally refuse to participate in debt reduction or restructuring operations in the South. In the case of Zambia, which defaulted on its external debt in 2020, it took four years to reach a restructuring agreement with private creditors. The agreement was a cut-price one, as the private creditors negotiated to be reimbursed more than the public creditors [2] (other governments and multilateral institutions such as the IMF).

 The private sector is no exception

The private sector in developing countries—and companies, in particular—is heavily indebted to external creditors. The private sector accounts for a very large 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 the overall external debt of so-called developing countries.

Figure 5: Private and public share of external debt servicing (Southern countries, exclud-ing China), 2023, in billions of US dollars

When Northern 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 low, lenders seeking higher returns lend to both private com-panies and Southern nations. These funds return to the North, lend to businesses and govern-ments there, and lessen their presence in the global South when interest rates in the North in-crease or when creditors worry for their money (during a pandemic, for instance, when con-fronted with an uncertain economic scenario).

In short, there has been a rapid and steady rise in private and public indebtedness in the Global South since the 1980s. This increase makes these countries and their companies vulnerable to the ever-volatile capital flows and conditionalities demanded by public lenders in times of crisis. The latter, often imposed by the International Monetary Fund, have been back in force since 2020.

Translation made by Sushovan Dhar

The author would like to thank Pablo Laixhay and Éric Toussaint for their proofreading.