Committee for the Abolition of Illegitimate Debt

 Supposition and pretence: when the North preaches to China, SAPping the myth Step by Step

While criticisms of Chinese loans to Africa and the terms and conditions of those loans are partly justified, it is intolerable that they should be couched in undertones of respectability and self-righteousness on the part of institutions and States that have historically committed much worse.

The Western media speak of a debt trap [6]in the China/Africa relationship, because Chinese loansare granted, not to be repaid, butin viewof eventually appropriating the infrastructure that they have enabled to be built. This type of loan, which ironically could be called a Strategic Appropriation Plan(SAP), is therefore alienating, with the borrowing country agreeing to delegate the exploitation of its raw materials and infrastructure to China as compensation should non-payment occur. One cannot help but notice the irony of such an appellation by the same who ardently defend the loans granted by 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 or the WB 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.

. In fact, failing to recover African infrastructures, the creditor countries of the North have themselves been organizing so-called ’debt traps’ for decades: in the event of non-repayment, intervention in the economy is skilfully organized and feeds a predatory North-South relationship to the benefit of the North. Indeed, the privatization and liberalization contained in neo-liberal structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ programmes (the original SAPs) have beenand still are a means of organizing the ’strategic monopolization’ of state-owned enterprises and the most lucrative markets, all to the benefit of Northern capitalism.

So let’s not fall into the all too common trap of systematically demonizing China’s presence in Africa [7].

Nor should we forget the iniquitous colonial period and the loans taken on by colonizing powersinthenameofthe colonized states and protectorates, and the colonial debt that followed (debts passed on at independence that still weigh heavily on the finances of independent states today). In fact, contrary to what the former colonial powers would have us believe, they still have avery strong presence in Africa, especially in the domains of finance and debt [8]. While criticisms of Chinese loans to Africa and the termsand conditions of those loans are to a great extent justified, it is intolerable that they should be couched in undertones of respectability and self-righteousness by institutions and States that have historically committed much worse.

The difference between loans from the Global North and those from China lies more in the nature of the loan, which to a point resembles mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. loans in the private sector. Here it is not houses or vehicles that serve as collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. , but cobalt, oil, ports and the like. We often speak of collateral backed loans (the collateral being the physical object ’pledged’ against a loan). This comparison has its limits, however, because it is not exactly the title of ownership that is being transferred to China, contrary to most mediaannouncements.

 The true nature of Chinese loans and investments, China’s strategy and figures

While China’s part in African countries’ debt has undoubtedly increased over the past years, weought to qualify some figures that are used to political ends. Several Western media relayed that China would hold40% to 60% of the African continent’s debt [10]. [9]A vague assertion, since itturns China and Africa into undifferentiated blocks; further this figure totals together old loans that have already been paid up along with currently outstanding loans, it does not indicate what the loans were used for, 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. applied or whether the lenders were private companiesor the Chinese State. The figure includes all African countries whereas some countries are more deeply indebted to Chinese creditors than others. This often quoted figure only applies to sub-Saharan Africa. It is the kind of information that has to be taken with a solid pinch of salt and analyzed with the kind of objectivity that is often lacking among political leaders or financial analysts whose views are guided by a definite political vision.

So the part of African debt owed to China was used to blame China for the crisis of the African debt during the Coronavirus pandemic. [10]Christine Lagarde (former president of the IMF and current president of the 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 ) said that although the loans (she was talking about 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. loans) granted by China to the African continent were a good thing overall, they were not a ’free lunch’. Such comments, even if true, are not without irony, given that the IMF does not serve free lunches either, since its loans not only generate profits, but are also subject to SAPs. Not to mention the confusion that the institution deliberately maintains in its vocabulary, for example by speaking of cancellation when restructuring debt, or the reluctance of the IMF to cancel unsustainable debts. We rightly recall the fiasco ofthe HIPC Heavily Indebted Poor Countries
HIPC In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia. initiative, which, apart from the great amount of publicity created around it, produced few results for few countries.

Figures are to be found in the 2018 Jubilee debt campaign report [11]that estimated 20% of Africa’s external public debt to be held by China, while China also receives 17% of Africa’s debt service Debt service The sum of the interests and the amortization of the capital borrowed. . More importantly, the same report found that 55% of the continent’s debt service is owed to non-Chinese private sector creditors. Here lies another problem: while we know that private loans rarely come with conditions likethose granted by China or the IMF, we do know that the interest rates charged are often exorbitant. We also know that it is generally the private sector that is the most reluctant to accept a moratorium, a restructuring or ’worse’ a cancellation of the debts in its possession. Let’s not forget either that the private debt sector is largely westernized and defended by western governments, which, when the argument of collusion between State and banks is used in China, is bound to raise eyebrows.

 Example of mineral-for-infrastructure agreements: the case of the DRC [12]

Mineral-for-infrastructure agreements give access to Congolese cobalt and copper in exchange for the construction of infrastructures

Under the mineral-for-infrastructure agreements signed by Joseph Désiré Kabila’s government,China was to build roads, hospitals, etc., in exchange for access to Congolese minerals [13]. The Congo has one of the richest sub-soils in the world in terms of minerals and rare earth elements, which has historically made it the prey of the fiercest capitalist and colonialist appetites. [14] According to the CongoleseChambre des Mines, China currently exploits 70% of Congolese mines.

The Sicomines agreements, signed in 2007 by the Kabila government, represented at the time the largest Chinese investmentproject on the African continent. [15]These agreements provide access to Congolese cobalt and copper in exchange for the construction ofinfrastructure. [16]In a report published in 2017, [17]the African Natural Resources Observatory showed that significant pollution had been caused, in particular by the discharge of chemical substances into the nearby Luilu river. The same report also showed that the compensation offered to local residents for the pollution of the soil, river and food, and the many illnesses caused by this pollution, was totally inadequate and insufficient.

The special minerals for infrastructure agreements have become, over the last 20 years, one of China’s most frequently used international policy tools. [18]

There are two types of agreement, similar but different:

1. Resource-financedinfrastructure: the country providing the infrastructure repays itself out of the profits made from the export of raw materials, for example out of the profits from the sale of a given number of barrels of oil over a given period. This first strategy is double-edged, because it depends on the price of raw materials: as hydrocarbons and minerals are used as collateral, the amount to be recovered in the event of non-payment depends on the market price at the time of repayment, which, in the event of a fall inthe price of raw materials, automatically increases the borrowing country’s debt burden.
2. Resources-for-infrastructure agreement: this involves giving up mining resources in exchange for creating infrastructure. This is often done through the exploitationof amined resource. Under international law, the State is always the owner of its subsoil and therefore of its exploitation. However, it can lease this exploitation to private companies for a period of time, in other words grant a mining concession.

This kind of agreement is consistent with the usual mechanism of proposals made to poor countries that are rich in mineral resources but lacking in finance. Their resources are exploited in exchange for strong currencies or for infrastructure. The problem with this type of agreement is the deterioration in the exchange terms. One of the parties has the assurance that the value of what it is exchanging will not be depreciated, whereas the other does not. This is the case when raw materials, whose price is defined by their market value, are exchanged for services, hard currencies (whose price varies little and remains high) or infrastructure (whose price is known).

 The real reason for China’s presence in Africa and its loans

There is nothing special or atypical about China’s international strategy, the other powers, led by the United States, have long practised the same or similar forms of expansionism

China’s primary aim is to secure its diplomatic interests. Behind the official rhetoric of cooperation and fraternity often lies another reality. Historically, Beijing began investing in Africa in order to gain allies on the international stage. Indeed, in the 1960s, after the creation of the main international institutions (UN, IMF, WB), Mao’s China had few allies.This is the key to Chinese investment in Africa. While China is using North and East Africa for its New Silk Road project, this does little to explain its presence on the rest of the continent. Unless you remember that one of the conditions of Chinese loans is the disengagement of diplomatic relations with Taiwan. Since the 1960s, China has made it a point of honour to isolate Taipei diplomatically, and its strategy has been a success: Burkina Faso has recently severed diplomatic relations with Taiwan. The only state on the continent that still recognizes Taiwan is Eswatini (formerly Swaziland).

Apart from isolating Taiwan, China regularly uses its investments to provide outlets for its many companies that were beginning to feel cramped on Chinese territory. In order to maintain strong growth, China has turned its attention to the African market. Major Chinese telecommunication companies, such as Huawei, are now well established in Africa. Large Chinese construction companies are also winning contracts tobuild projects commissioned by African countries backed by Chinese loans. Once again, this is nothing new, it resembles the tied aid that European countries, and France in particular, have been granting African countries for a long time. It should be notedthat this system does not employ local labour and by-passes national construction companies that are not contracted on these projects.

China is also diversifying its sources of supply, whether oil and gas or minerals. So if a source dries up or a partnerdefaults or even tries to put on pressure, China can replace it almost immediately. In this way, it greatly increases its resilience to crises in materials and resources, for example.

The issue of soft power is also important. In 2021, there were 56Confucius Institutes in Africa (institutes for learning the Chinese language and promoting Chinese culture). Sino-African university exchanges are also on the increase, as is the creation of military institutes financed andsupervised by China. Through this presence, but also through the weight of its investments, China is seeking to win African votes in international institutions such as the UN, the WTO WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, the WB and the IMF. It is China’s path towards becoming a global ’discursive’ power, [19]to shape imaginations and narratives, as the USA and the USSR do and have done.

There is nothing special or atypical about China’s international strategy, the other powers, led by the United States, have long practised the same or similar forms of expansionism.

Translation : Mike Krolikowski and Christine Pagnoulle.